THE SUPREME COURT OF APPEAL OF SOUTH AFRICA
JUDGMENT
REPORTABLE
Case No: 903/2012

In the matter between:

GB MINING AND EXPLORATION SA (PTY) LTD
APPELLANT

and

THE COMMISSIONER FOR THE SOUTH AFRICAN
REVENUE SERVICE
RESPONDENT

Neutral citation:
GB Mining v Commissioner: SARS (903/2012) [2014]
ZASCA 29 (28 March 2014)

Coram:
Navsa, Shongwe, Theron and Wallis JJA and Swain AJA

Heard:
6 March 2014

Delivered:
28 March 2014

Summary:
Revised tax assessments issued by respondent –
appellant lodging objection – objection disallowed – appeal to Pretoria Tax
Court dismissed – on appeal held:

– Payments as part of an attempted financial rescue offer not deductible.
– Disposal of rights to a mineral tailings dump by appellant resulted in a capital
gain.
– Travel expenditure partially deductible.
– Disposal of an asset to a joint venture resulted in a capital gain.
– Disposal of an interest in a joint venture resulted in a capital gain.
– Partial remission of additional tax granted.

Assessments based on tax returns and financial statements by appellant –
appellant failing to prove incorrect – effect thereof – assessments upheld.

ORDER

On appeal from the Tax Court, Pretoria, (Mokgoatlheng P sitting as court of
first instance):

1 The appeal is dismissed save in the respects set out in paragraphs 2 and 3
below.
2  The penalties raised by the respondent in respect of the OTR amount and
the travelling expenses are remitted in their entirety.
3 The order directing the appellant to pay the respondent‟s costs in the court a
quo is set aside.
4 The respondent is ordered to pay 10 per cent of the appellant‟s costs in the
appeal.

JUDGMENT
_______________________________________________________________
Swain AJA (Navsa, Shongwe, Theron and Wallis JJA concurring):
[1] The appellant GB Mining and Exploration SA (Pty) Ltd (GB Mining) was
the subject of revised assessments for the tax years 2003 – 2006 issued by the
respondent, the Commissioner for the South African Revenue Service (the
Commissioner).
[2] GB Mining objected to the assessments. The Commissioner disallowed
the objection in respect of the 2003 tax year and partially disallowed the
objection in respect of the remaining tax years. GB Mining appealed to the
Pretoria Tax Court which dismissed the appeal save in respect of the issue of

management fees, which does not form part of the appeal to this court. The
present appeal is with the leave of the President of the tax court.1
[3] In order to place the contested assessments of the Commissioner in
context, it is necessary to set out the background concerning the history and
activities of GB Mining.
[4] Mr Ken Barnard, a geologist, developed what he considered to be a
unique process for the extraction of platinum from chrome mining tailings.
Together with Mr Ricky Gardner he decided to exploit his concept, but in order
to do so a source of chrome tailings, as well as finance to construct a plant to
process the tailings had to be found.
[5] The project was designated as „RK1‟ and a shelf company was
acquired by Mr Gardner and Mr Barnard and renamed GB Mining. This is the
taxpayer in the appeal.
[6] Having formed the vehicle to develop the project a source of chrome
tailings was identified on the farm Kroondal 34 (the Kroondal dump). As regards
finance, capital was to be raised from the public via OTR Mining Ltd (OTR) a
company which was listed on the Johannesburg Stock Exchange (JSE), of
which Gardner had previously been the managing director. The intention was
that GB Mining would transfer its business to and become the principal
shareholder in OTR and thereby secure for itself the advantages of access to
the JSE.
[7] OTR was in dire financial straits and in order to prevent its demise and
its delisting GB Mining mounted a rescue operation. In terms of a formal rescue
offer, subject to approval by the JSE and Securities Regulation Panel (SRP),
GB Mining would provide loan capital for payment of creditors and employees in

1 Section 86(A)(2)(b)(i) of the Income Tax Act 58 of 1962. (This section has been repealed.
Section 133(2)(b)(i) of the Tax Administration Act 28 of 2011 is now the applicable provision).

return for shares in proportion to the amount of the loan. The listing of OTR‟s
options shares on the JSE was terminated on 22 August 2003 which effectively
brought an end to the rescue operation. In the interim GB Mining had expended
funds in the amount of R2 638 070 on the payment of salaries for staff and
office expenses. GB Mining contended that these employees were employed by
it and that this expenditure was incurred in the production of income and
qualified as a deduction in terms of s 11(a) read with s 23(g) of the Income Tax
Act 58 of 1962 (the Act). The Commissioner, however, determined that the
amount had been advanced by GB Mining to OTR as a loan and its deduction
was disallowed as being capital in nature. This determination was upheld by the
court a quo and is challenged by GB Mining in this appeal.
[8] In order to secure the chrome tailings in the Kroondal dump, GB Mining
concluded a notarial prospecting contract on 7 March 2001 with the farmers
who owned the mineral rights to the Kroondal dump. GB Mining was granted
the right to prospect for minerals in the tailings, with the option to purchase the
mineral rights, within a period of six months. This option was duly exercised
within the specified period and the mineral rights to the dump were purchased.
The purchase price was the sum of R2 400 000, together with 1 250 000 OTR
shares and 625 000 OTR options. At this stage the final rescue offer in respect
of OTR had not yet failed and it was still envisaged that the mineral rights to the
Kroondal dump would be transferred to OTR in terms of the rescue offer.
[9] Soon however, it became clear that the Kroondal dump did not contain
sufficient material for the project and additional chrome tailings would have to
be obtained from chrome mining companies operating in the area of the
Kroondal dump, namely Xstrata SA (Pty) Ltd (Xstrata) and Bayer (Pty) Ltd
(Bayer).
[10] GB Mining required further capital while the OTR rescue offer was
being considered and approached Aquarius Platinum (South Africa) (Pty) Ltd
(Aquarius) as a source of capital and to be a suitable partner in exploiting the
RK1 concept. According to Mr Gardner‟s evidence, which in this case as in
others was not reconcilable with the documents, it was agreed that GB Mining
and Aquarius would jointly exploit the Kroondal dump on a 50:50 basis and

would use the plant of Kroondal Platinum Mines Ltd, a wholly owned subsidiary
of Aquarius, to process the material. He said Aquarius was to contribute R14
million for its 50 per cent share, GB Mining would receive a 25 per cent share in
the consortium and „another 25 per cent for cash at the cost of the plant‟ and
GB Mining would be paid R3,5 million. That amount was paid and it is this
payment of R3,5 million which gives rise to the next area of dispute between GB
Mining and the Commissioner. The Commissioner contends that in return for
payment of this amount Aquarius acquired 50 per cent of the mineral rights in
the Kroondal dump. GB Mining, however, contends that it did not dispose of
these rights to Aquarius, as they remained ceded to GB Mining, which in turn
made them available to the joint venture as its capital contribution. The
Commissioner, however, determined that GB Mining disposed of an asset
comprising a Kroondal right/interest to Aquarius for R3,5 million. This
determination was upheld by the court a quo and is also challenged by GB
Mining in this appeal.
[11] GB Mining successfully raised further capital from foreign investors and
as a result, Gardner and Barnard (UK) Limited (GBUK) was registered as a
company in the United Kingdom, and then became GB Mining‟s holding
company. Investors, Mr Samuel Sher and others were allotted 32 per cent of
the shares with Mr Gardner and Mr Barnard holding the remaining 68 per cent.
Shortly thereafter Mr Gardner and Mr Barnard resigned from GB Mining to
become shareholders of GBUK.
[12] In order to secure the additional source of chrome tailings, GB Mining
concluded agreements with Xstrata and Bayer in terms of which GB Mining
acquired the right „to remove and beneficiate the feedstock‟ being the material
and by-products supplied by Xstrata and Bayer, including chrome tailings. Both
of these agreements provided that GB Mining would „cede and assign all its
rights and obligations in terms of this agreement to RK1‟. The reference to RK1
is a reference to the RK1 joint venture referred to below.
[13] During this period of intense activity Mr Gardner and other
representatives of GB Mining travelled overseas on behalf of GB Mining and
expenses were incurred. GB Mining claimed these expenses as deductions in

terms of s 11(a) of the Act on the ground they were incurred in the production of
income. The Commissioner disallowed 50 per cent of the expenses holding that
GB Mining incurred the travel expenditure partly for the purpose of creating or
acquiring an income producing structure, or a source of profit, and 50 per cent
of the travel expenditure was attributable to that purpose. The Commissioner
contends that 50 per cent of the travel expenditure in an amount of R412 339
was of a „capital nature‟ in terms of s 11(a) of the Act and was not deductible.
The court a quo upheld the Commissioner‟s determination which is the subject
of a further challenge by GB Mining in this appeal.
[14] On 20 October 2003 GB Mining, Aquarius and Victoria Global Holdings
Ltd (Victoria) concluded a Notarial Consortium Agreement in terms of which
they would jointly produce platinum group metal concentrate at a consortium
plant to be erected in the Xstrata mining area. The concentrate would be sold to
Impala Refining Services Ltd and Rustenburg Platinum Mines Ltd. The
„participating interests‟ of the parties would be Aquarius 50 per cent and GB
Mining and Victoria 25 per cent each. The joint venture was styled RK1JV.
[15] Profits from the joint venture would be shared in the same ratio as the
respective shareholding. The contribution to be made by the parties was that
Aquarius and Victoria would make capital cost contributions of R16 million and
the Rand equivalent of £615 000 respectively. GB Mining would contribute the
difference between the Rand equivalent of the Victoria contribution and
R8 million. In the event that the Victoria contribution was less than R6 765 000
the difference between the Victoria contribution and R6 765 000 would be
contributed by Victoria and GB Mining in equal shares. It was recorded that GB
Mining had „contributed to the consortium certain mineral rights and intellectual
property‟. The Commissioner determined that GB Mining had thereby disposed
of an asset to RK1JV, the proceeds of which were R8 million. The base cost
was nil and the disposal consequently resulted in a „capital gain‟ of R8 million
for GB Mining. GB Mining contends there was no disposal of an asset as GB
Mining acquired the Xstrata and Bayer minerals for and on behalf of the RK1JV.
The court a quo upheld the Commissioner‟s determination which is challenged
by GB Mining in this appeal.

[16] Mr Barnard died during October 2003 which resulted in a change in the
shareholding in GBUK with Mr Gardner acquiring effective control over GBUK
through the shareholders‟ agreement. Mr Gardner accordingly held 62 per cent
of the shares and Mr Sher and others held the remaining 38 per cent. As at 28
February 2004 GBUK had acquired another subsidiary in South Africa, RK
Mining SA (RKMSA) and a company RKR Mining UK Ltd (RKUK). Both groups
held shares in the same ratio in RKUK which held all the shares in RKMSA
which was involved in the RK2 project. This was similar to the RK1 project but
related to the processing of feedstock obtained from a different area. Early in
2005 it was then decided to terminate their joint shareholding in GBUK and
RKUK so that each of these companies would become wholly owned by one of
these two groups of shareholders. Their entitlement to their previous profit
share in the RK1 and RK2 projects needed however to remain unchanged. In
February 2005, Mr Gardner accordingly acquired the majority interest in GBUK,
in exchange for his majority interest in RKUK. After some inconclusive efforts to
transfer between the two groups a proportionate stake in each joint venture, it
was agreed in November 2005 that GB Mining, which held the interest in the
RK1 project, would hold 38 per cent of that stake on behalf of RKMSA and
would pay over that proportion of net income to RKMSA. There was a reciprocal
undertaking by RKMSA in respect of a 62 per cent stake in the RK2 project.
[17] The Commissioner determined that the 38 per cent interest which GB
Mining held in terms of this arrangement on behalf of RKMSA, was an asset
which it disposed of during the 2005 tax year. The proceeds from the disposal
were determined as being R23 277 530 and the base cost of the asset was
determined as being R8 284 506. The figure for the base cost comprised an
amount of R3 629 000 (being 38 per cent of R9 550 000 being the contribution
made by GB Mining to the consortium) and an amount of R4 655 506 (being
donations tax on the amount of R23 277 530). The court a quo, however,
decided that donations tax was not payable and this finding is not the subject of
the present appeal. The Commissioner accordingly contends on appeal that the
capital gain of GB Mining should be increased from R14 993 024 to
R19 648 530 to account for the reduction in the base cost.

[18] GB Mining contends that the transaction was in the form of a multiparty
agreement between two groups of shareholders and their companies, which
entailed the exchange of assets of equal value and therefore did not result in
any capital gain. Having held that no donations tax was payable, the court a quo
then held that GB Mining had disposed of the 38 per cent joint venture interest
in RK1 for a consideration, being the right to 62 per cent of the interest held by
RKMSA in the joint venture interest RK2 and that the value of the rights given
up by each party was similar to the rights received. The Commissioner submits
that these findings are not in issue in this appeal, as the effect of these findings
is that the proceeds from the disposal by GBSA of the 38 per cent interest in
RK1, is an amount equal to the relevant value being R23 277 530. The
determination by the Commissioner is challenged by GB Mining in this appeal.
[19] The Commissioner assessed GB Mining for additional tax in terms of
s 76(1) of the Act in respect of the tax assessed under each of the disputed
items. The Commissioner submits that the penalties assessed were
appropriate. GB Mining contends that the grounds for imposing penalties were
not present and no penalties should have been imposed. The court a quo
upheld the Commissioner‟s determination of the penalties which is challenged
by GB Mining in this appeal.
[20] The objections raised by GB Mining to the determinations made by the
Commissioner concerning the OTR payments, the disposal of the Kroondal
dump and the disposal of an asset to the RK1 joint venture, were based upon
what GB Mining contended was incorrect information supplied to the
Commissioner in GB Mining‟s tax returns. Was it permissible for it to do this by
way of objection and appeal rather than by asking for a reduction in the
assessments?
[21] Section 79A of the Act deals with the reduction of an assessment by the
Commissioner:

„Reduced assessments
(1)
The Commissioner may, notwithstanding the fact that no objection has been
lodged or appeal noted in terms of the provisions of Part III of Chapter III of this Act,
reduce an assessment -
(a)
. . .
(b)
where it is proved to the satisfaction of the Commissioner that in issuing that
assessment any amount which –

(i)
was taken into account by the Commissioner in determining the
taxpayer‟s liability for tax, should not have been taken into account; or

(ii)
should have been taken into account in determining the taxpayer‟s
liability for tax, was not taken into account by the Commissioner:

Provided that such assessment, wherein the amount was so taken into account or not
taken into account, as contemplated in subparagraph (i) or (ii), as the case may be,
was issued by the Commissioner based on information provided in the taxpayer‟s
return for the current or any previous year of assessment.‟
[22] A taxpayer may seek a reduction in the Commissioner‟s assessment in
terms of s 79A without objecting to the assessment in terms of s 81.2 The
Commissioner‟s power to reduce the assessment exists „notwithstanding the
fact that no objection has been lodged or appeal noted‟. In addition, the power
of the Commissioner is not restricted to its mero motu exercise, because the
error in the assessment has to be „proved to the satisfaction of the
Commissioner‟. To discharge this burden of proof the taxpayer must place
information before the Commissioner to substantiate the error relied upon. In
doing so it may rely upon an error that it made in its return.

2 Section 81 of the Act provides that:
„(1) Objections to any assessment made under this Act shall be made in the manner and under
the terms and within the period prescribed by this Act and the rules promulgated in terms of
section 107A by any taxpayer who is aggrieved by any assessment in which that taxpayer has
an interest.‟

[23] The Commissioner may therefore act in terms of s 79A to reduce an
assessment in the absence of an objection in terms of s 81 of the Act and may
do so even where it flows from incorrect information provided in the taxpayer‟s
return. Can the taxpayer who has been the cause of the incorrect assessment
by the Commissioner instead claim to be „aggrieved‟ thereby and object to an
assessment in terms of s 81?
[24] The statement that the powers of the Commissioner under s 79A can
be exercised „notwithstanding the fact that no objection has been made‟,
suggests that an alternative route for the taxpayer to follow is by way of
objection and, if necessary, appeal. That was the conclusion of Hurt J in ITC
1785 67 SATC 98, where he said;
„ . . . the fundamental object of tax legislation is to exact from each citizen his due.
What is “due” is, in each case (questions of penalty aside), strictly prescribed by statute
and the amount of the taxpayer‟s taxable income must, in the process of assessment,
be accurately determined preparatory to the calculation of the amount which he (or
she) is required to hand over to the fiscus. In that light, it is clear that a taxpayer whose
taxable income has been determined on an erroneous basis, is always “aggrieved”
even if the source of error is entirely attributable to him.‟
[25] I agree with Hurt J, notwithstanding the oddity of a taxpayer being
aggrieved by an assessment based on the erroneous information it provided in
its return. Accordingly it was permissible for GB Mining to follow the course that
it did.3
[26] In the Tax Court‟s judgment reliance was placed on the provisions of
s 82 of the Act which provided that the burden of proof rested upon any person
claiming an exception, non-liability, deduction, abatement, or set-off in terms of
the Act. Before us, GB Mining contended in its heads of argument a point not

3 Section 93(1)(d) of the Tax Administration Act 28 of 2011 now provides that SARS may make
a reduced assessment if satisfied there is an error in the assessment as a result of an
undisputed error by SARS or by the taxpayer in a return.

taken in the court below, that the provisions of s 82 of the Act were
unconstitutional and invalid.
[27] It is clearly undesirable for courts to make orders declaring statutory
provisions invalid without providing the relevant organs of state with the
opportunity to intervene in the proceedings.4 Rule 10A of the Uniform Rules of
Court provides:
„10A. If any proceedings before the court, the validity of a law is challenged, whether in
whole or in part and whether on constitutional grounds or otherwise, the party
challenging the validity of the law shall join the provincial or national executive
authorities responsible for the administration of the law in the proceedings and shall in
the case of a challenge to a rule made in terms of the Rules Board for Courts of Law
Act, 1985 (Act No. 107 of 1985), cause a notice to be served on the Rules Board for
Courts of Law, informing the Rules Board for Courts of Law thereof.‟
The Minister of Finance had not been joined in these proceedings and had a
direct interest in the challenge raised by GB Mining. Counsel for GB Mining
when faced with this obstacle abandoned the point.
[28] The
taxpayer
accordingly
bears
the
onus
of
satisfying
the
Commissioner that the information furnished is incorrect and that a reduction in
the assessment is justified.  In order to do this, additional evidence would have
to be placed before the Commissioner. The nature of this evidence will depend
upon the facts of each case and particularly the nature of the erroneous
information supplied to the Commissioner. So for example, the fiscus might
rightly ask how it can be expected to alter or reduce an assessment when
information supplied by a taxpayer is not withdrawn or substituted so as to
enable the reduction or alteration contended for. This problem arises in the
present case as shown below.

4 See Jooste v Score Supermarket Trading (Pty) Ltd (Minister of Labour intervening) 1999 (2)
SA 1 (CC) and Parbhoo and others v Getz NO and another 1997 (4) SA 1095 (CC).

[29] In terms of regulation A2 of the Regulations issued under s 107 of the
Act (Government Notice R105 – in Government Gazette Extraordinary No 1011
of 22 January 1965) any return must „be accompanied by all such balance
sheets, trading accounts, profit and loss accounts and other accounts of
whatever nature, as are necessary to support the information contained in the
return‟. The evidence to „support‟ the information in the return must accordingly
„corroborate‟ it (Concise Oxford English Dictionary, 12 ed). Balance sheets and
accounts perform a vital and formal role in corroborating the information in the
return. The Commissioner must be able to rely upon the veracity and accuracy
of this evidence which forms the basis for the assessment. The Commissioner
is entirely dependent upon the taxpayer to furnish this evidence. In the event of
incorrect information being included in the balance sheets or accounts,
evidence would have to be furnished to explain the precise nature and extent of
the incorrect information and how it was included. All relevant supporting
documentation to verify the correct information would have to be submitted. An
amended balance sheet or account may have to be submitted to the
Commissioner, together with a full explanatory note to clarify the amendment.
[30] Each of the contested determinations made by the Commissioner must
be approached on the basis that GB Mining bears the onus of proving that the
Commissioner was wrong. In addition, where GB Mining contends that the
determination was based upon incorrect information supplied to the
Commissioner by GB Mining, whether in the form of balance sheets and
accounts or otherwise, GB Mining must show that it has provided credible and
reliable evidence to explain the error and substantiate what it maintains is the
true position. In any event, even if the Commissioner had borne the onus of
establishing the correctness of the determinations made, as will become
apparent, the outcome of this appeal would have been the same. I shall in
successive paragraphs deal in turn with each of the six issues in this appeal.
The OTR payments
[31] The amount claimed was described in GB Mining‟s financial statements
for the year ending 29 February 2004 as „OTR loan‟. The financial statements
were signed by GB Mining‟s director Mr Van Zanten, as well as its auditors

KPMG Inc and accompanied GB Mining‟s tax return for that year. Mr Van
Zanten was GB Mining‟s sole director and public officer at the relevant time.
When giving evidence before the court a quo he was asked „at that stage did
you know that the loan actually consisted of the expenditure incurred in respect
of salaries and other office expenditure of GB itself?‟ to which he replied „Yes‟.
However, he later stated „the mechanism was such that the expenditure that
was incurred by GB on behalf of OTR would be repaid in terms of the shares‟.
In addition, in a letter dated 12 June 2009 written by Mr Van Zanten on behalf of
GB Mining to the Commissioner it is stated that „the rescue operation,
envisaged for OTR at the time, was to inject loan capital and to transfer
business assets to the company . . .‟. In a memorandum dated 7 March 2002
written by Mr Gardner on behalf of GB Mining addressed to representatives of
OTR and GB Mining the following appears:
„1. . . In the meantime GB is operating under a clause that has been recommended by
OTR‟s legal advisors which amounts to “curatorship management” and therefore GB
can only make management decisions on behalf of OTR and cannot offer full time
employment until GB is granted full management control by the JSE / shareholders. In
the interim GB will do its utmost to protect the current staff of OTR. The knock back for
current OTR staff means in simple terms that the delay in GB being able to offer
immediate employment means that the bonus system that GB offers will only kick in
later. As stated, these delays were totally unforeseen and in no ways can it reflect on
any members of the OTR board.
2. In the meantime any costs incurred will be borne by the relevant companies.‟ [My
emphasis.]
[32] A press release by OTR dated 17 January 2003 announcing the
agreement with GB Mining, referred to „the conversion of R2 466 000 of debt
owing by OTR to GB Mining to be converted to equity‟. When giving evidence
Mr Gardner was referred to this passage in the announcement and he
explained „that is the salaries and the offices etcetera etcetera that we had been
paying for. Because we were not allowed by the auditors, KPMG to claim the
money we had spent on the nomads, because they had nothing to do,
apparently they had nothing to do with running GB Mining at the time‟. Counsel
for GB Mining submitted that Mr Gardner was referring here to „nomads‟ and not

employees generally, but there is no explanation as to which employees would
qualify as „nomads‟ and how such a large sum of money could be spent on
them.
[33] Consequently, GB Mining did not provide credible and reliable evidence
to explain the alleged error in describing the amount in question as an „OTR
loan‟ in its financial statements and why its auditors KPMG had done so.
Indeed, all the information at hand points emphatically in the opposite direction.
The Commissioner‟s view, endorsed by the Tax Court, that this was a loan that
was written off when the OTR rescue failed, is plainly correct.
[34] Thus the amount of R2 638 070 did not qualify as a deduction in terms
of s 11(a) of the Act. The appeal against this determination by the
Commissioner must accordingly fail.
The disposal of the Kroondal dump
[35] The schedule to GB Mining‟s tax return for the 2003 tax year stated
„calculation of capital gain / (loss) GB Dump – sold to Aquarius‟. The note to this
entry stated „sold 50 per cent to Aquarius at R1 300 000‟. Mr Van Zanten signed
the tax return as the director of GB Mining and declared that the particulars
contained therein were „true and correct in every respect‟. He confirmed when
giving evidence that this related to a sale of the dump for R1,3 million.
[36] Mr Van Zanten, in response to a query by the Commissioner stated in a
letter dated 10 June 2008, that Aquarius was to acquire 50 per cent of the dump
and mineral rights and the amount of R1,3 million paid by Aquarius to GB
Mining „was their portion of the purchase price‟. He reiterated this in a letter
dated 23 June 2008 stating „In February 2002 GB Mining sold 50 per cent of the
dump to Aquarius for R3,5 million. The deal was done on the basis that
Aquarius would pay the farmers the R2,2 million owed to them by GBSA and
pay the balance of R1,3 million directly to GB Mining‟.
[37] Mr Van Zanten said that his initial idea that there was a sale of 50 per
cent „was the original plan as . . . explained to me by Mr Gardner‟, but added

that when SARS became involved Mr Gardner clarified „that it had actually not
been sold‟. However, in a letter dated 21 February 2002 written by Mr Gardner
to Mr Murray of Aquarius he states „As agreed with your good self your 50/50
upfront cost for the procurement of the GB dump is R3 500 000‟. Mr Gardner
stated that at the time he wrote the letter he was under the impression there
would be a sale of 50 per cent of the dump to Aquarius.
[38] Mr Gardner said that GB Mining had originally tried to sell the Kroondal
dump to OTR, but not to Aquarius. He reiterated „I was under the impression
that Aquarius Platinum were going to buy this dump in fact all the way up [to] 3
June 2003‟. Mr Gardner confirmed there was a draft sale agreement in terms of
which the dump was sold to Aquarius, but sought to explain its terms on the
basis that there was a misunderstanding on his part of what Aquarius was
prepared to do. An agreement was reached with Aquarius dated 3 June 2003.
Clause 14.2 of the agreement provides as follows:
„It is recorded that prior to the signature date, the parties contributed an aggregate
amount of R7 000 000 to facilitate the implementation of the tailings project and the
RK1 project, which start-up contribution was
14.2.1 in the instance of GB Mining contributed by way of time expenditure and
services rendered in establishing the RK1 project and the tailings project, to a value of
R3 500 000.‟
Mr Gardner said that this clause was agreed upon as early as August 2001. Mr
Murray of Aquarius asked how much he should invest, what it would cost and
they agreed on a figure of R7 million. According to Mr Gardner, because it was
a 50/50 share Aquarius was to pay R3,5 million for the project to continue, plus
the past expenses GB Mining had incurred, and the technology GB Mining
possessed to extract platinum from the chrome tailings.
[39] Counsel for GB Mining submitted that this clause clearly sets out the
reason for the payment of R3,5 million to GB Mining. Counsel for the
Commissioner, however, pointed out that if this description is correct, contrary
to the determination of the Commissioner, the R3,5 million would fall within GB
Mining‟s „gross income‟ and would give rise to an income tax liability for GB

Mining, greater than the capital gains tax liability contended for by the
Commissioner. This amount was not included by GB Mining in its gross income
in its tax returns, which indicated that GB Mining did not believe the amount to
be consideration for „time expenditure and services rendered‟ by it.
[40] If the provisions of clause 14.2 had been agreed upon between Mr
Gardner and Mr Murray as long ago as August 2001, it is inexplicable why he
would have written to Mr Murray on 21 February 2002 recording their
agreement that the „50/50 upfront cost for the procurement of the GB dump is
R3 500 000‟. It is also inexplicable why he would believe up until 3 June 2003
that Aquarius was going to buy the dump. There is no evidence tendered by GB
Mining to explain how an amount of R3,5 million which Mr Gardner believed
was the amount Aquarius was to pay to purchase the dump, was then
transformed into payment for „time expenditure and services rendered in
establishing the RK1 project and the tailings project‟ to the same value.
[41] It is significant that it was contended by GB Mining for the first time
before the court a quo, by amendment to its grounds of appeal dated 12 June
2009, that „there was no sales transaction or disposal of the dump concerned,
which could trigger application of the CGT provisions of the Eighth Schedule‟.
[42] An „asset‟ as defined in para 1 of the Eighth Schedule to the Act
includes property (corporeal and incorporeal) and „a right or interest of whatever
nature to or in such property‟. To have disposed of an „asset‟, GB Mining need
not have disposed of the Kroondal dump. If GB Mining disposed of any
Kroondal right or interest, it disposed of an asset.
[43] No credible and reliable evidence was tendered by GB Mining to
explain the alleged error in its tax return describing the transactions as a sale of
the dump to Aquarius. The contradictions and inconsistencies in the evidence of
Mr Gardner considered together with the conflict between his evidence and the
financial statements, the tax return and other documents, point ineluctably to
the conclusion that the amount in question should not be excluded in terms of
the Eighth Schedule to the Act.

[44] The Commissioner correctly determined that GB Mining disposed of an
asset comprising a Kroondal right or interest to Aquarius for „proceeds‟ of R3,5
million. The base cost of the asset, being the amount paid by GB Mining in
acquiring the asset from the farmers was R1 780 771. The capital gain for GB
Mining in its 2003 tax year was therefore R1 719 229. The appeal against this
determination by the Commissioner accordingly fails.
The travel expenditure claim
[45] GB Mining in a schedule annexed to its tax return set out details of
overseas travel and the costs associated therewith, undertaken by its
representatives, which it claimed as a deduction in terms of s 11(a) of the Act.
[46] A deduction was claimed by GB Mining on the basis that the expenses
were incurred in the production of income and were consequently not capital in
nature.
[47] In New State Areas Ltd v Commissioner for Inland Revenue 1946 AD
610 at 620-1 Watermeyer CJ stated:
„The problem which arises when deductions are claimed is, therefore usually whether
the expenditure in question should properly be regarded as part of the cost of
performing the income earning operations or as part of the cost of establishing or
improving or adding to the income earning plant or machinery.‟
[48] As to the formulation of a test to assist in the determination of whether
expenditure is of a capital or revenue nature, Streicher JA had the following to
say in Commissioner SARS v BP South Africa (Pty) Ltd 2006 (5) SA 559 (SCA)
at para 23:
„A test that has been adopted to assist in the determination whether expenditure is of a
capital or revenue nature is to ask whether the expenditure is more akin to the income-
producing operations of the taxpayer or whether it is more akin to the income-earning
structure of the taxpayer, or to ask, “Is it expenditure required to carry on a business or
is it required to establish a business?” Money spent in creating an income-producing
concern is capital expenditure; it is invested to yield future profit‟.

[49] If the purpose of the overseas travel was partially to produce income for
GB Mining and partially to improve the income-earning structure of GB Mining,
an apportionment of the expenses incurred can be made on the basis of „what
would be fair and reasonable in all the circumstances of the case‟. See CIR v
Nemojim (Pty) Ltd 1983 (4) SA 935 (A) at 951 C-E.
[50] The Commissioner contends that the expenditure in question was used
partially for the purpose of improving the income-earning structure of GB Mining
and was therefore of a capital nature and not deductible in terms of s 11(a) of
the Act. Because of the lack of clear evidence of GB Mining as to the purpose of
each of the trips the Commissioner apportioned the expenditure on a 50:50
basis. As a consequence 50 per cent of the amount claimed was determined
not to be deductible. It should be noted that GB Mining and the Commissioner
had originally reached a settlement in terms of which 50 per cent of the
expenses would be disallowed. However, when the Commissioner imposed
additional tax on the claims that were disallowed, GB Mining adopted the view
that it was no longer bound by the settlement and claimed all of the expenditure
incurred.
[51] One would have expected Mr Gardner to explain the purpose of each
trip. Although he conceded that the expenses of certain trips were not
deductible, when asked by his counsel whether the remaining trips were
undertaken „mainly in order to raise capital, working capital for GBSA‟ he replied
„that is correct‟ and added „everything . . . is about raising money‟. His answer
does not address the issue of whether the money was raised to enhance the
income-producing operations, or the income-earning structure of GB Mining. His
concession was justified as the purpose of some of the trips was to explore a
stock exchange listing in either the UK or Spain and others were directed at
exploring potential new business opportunities. It is clear from the Schedule
provided by GB Mining that the 50:50 apportionment was justified.
[52] The apportionment by the Commissioner of the expenses claimed for
overseas travel on a 50:50 basis, so that 50 per cent was deemed to be of a
capital nature and not deductible in terms of s 11(a) of the Act in the amount of
R412 339, was fair and reasonable in all the circumstances.

[53] The appeal against this determination by the Commissioner must
accordingly fail.
The disposal of an asset to the RK1 joint venture
[54] The accounts of the RK1 consortium in the form of the trial balance for
the period 1 July 2004 – 30 June 2005 record a capital contribution by GB
Mining of R8 million. This accords with the consortium agreement which, as
pointed out above, records that GB Mining has contributed to the consortium
„certain mineral rights and intellectual property‟.
[55] Mr Gardner confirmed that Aquarius had contributed R16 million and
Victoria had contributed R8 million to the joint venture. He said that GB Mining
was not obliged to make any cash contribution and that its contribution was „in
kind‟ and added „I do not think you can put a price to that, I mean it is a huge
amount of money we spent developing RK1, but I saw a value on the
consortium balance sheet. But the consortium balance sheets have nothing to
do with us, it is not anything, to do with us‟. When he was asked whether he
could explain why GB Mining‟s capital contribution was shown in the consortium
accounts as R8 million, he replied „I have no idea. I just think it is to match up
the other 25 per cent shareholders‟ funds, they put in R8 million and that is the
best conclusion that I can come to. I do not know why it‟s put in there, no. It has
got nothing to do with us as such. We are not responsible for their bookkeeping
or the way they present accounts, GB Mining is not, sorry‟.
[56] The entry in the accounts of the joint venture that GB Mining had
contributed an amount of R8 million required an explanation other than Mr
Gardner simply saying it was wrong and he had no idea why it was reflected in
this manner. This contradiction required evidence to explain the error, if there
was one, which may have been clarified by a representative of Aquarius. There
is again a contradiction between documentary evidence and the evidence of Mr
Gardner.
[57] This is particularly relevant in the context of the provision in the
consortium agreement that GB Mining has contributed „certain mineral rights

and intellectual property to the consortium‟. In terms of the agreements
concluded by GB Mining with Xstrata and Bayer it was recorded that „GB will as
soon as practically possible after the effective date cede and assign all its rights
and obligations in terms of this agreement to RK1. . .‟.
[58] Despite these provisions, counsel for GB Mining submitted in his heads
of argument that „appellant did not acquire any mineral rights from Bayer /
Xstrata but merely their consent for the construction of the relevant pipeline and
for the “off-take” of their chromite waste material, against payment of royalties‟.
[59] It was also submitted that the crux of GB Mining‟s case was that these
rights were acquired on behalf of the consortium as part of GB Mining‟s initial
cash contribution and not for GB Mining‟s own account.
[60] GB Mining‟s ipse dixit in the form of the trial balance which was never
withdrawn and never properly explained is fatal to its case. I agree with the
submission made by counsel for the Commissioner, that the probabilities are
that GB Mining disposed of an asset, being the Xstrata and Bayer rights to the
other members of the consortium for a consideration of R8 million. The appeal
against the Commissioner‟s determination must accordingly fail.
The disposal of a 38 per cent joint venture interest
[61] As pointed out above, the Commissioner determined that the 38 per
cent interest in 25 per cent of the RK1 joint venture which GB Mining held on
behalf of RKMSA was an asset which it disposed of, attracting capital gains tax.
GB Mining contends that there was an exchange of assets of equal value,
which did not result in any capital gain.
[62] GB Mining and RKMSA agreed on 28 October 2005 that GB Mining
would pay to RKMSA 38 per cent of the net income received by GB Mining from
Aquarius in terms of the consortium agreement. In terms of clause 3.1 it was
provided that RKMSA „will be deemed to have acquired a 38 per cent share in
the “participation share”‟ which was defined as the 25 per cent participation
share which GB Mining held in RK1. Clause 3.2 of this agreement provided that

„in as much as the consortium agreement provides for a pre-emptive right in
favour of the consortium participants and the consortium participants were not
prepared to waive their pre-emptive rights, GBMSA acknowledges that for all
purposes of the relationship between them, RKM will be regarded by GBMSA
as a 38 per cent owner of the participation share‟. Mr Gardner said this was
caused by Aquarius not allowing RKMSA into the consortium.
[63] In terms of clause 4.1 of the agreement it was provided that RKMSA
would be entitled to 38 per cent of the net income derived by GB Mining from
the participation share (25 per cent) in the consortium. The effective date of the
agreement was 1 February 2005.
[64] On 30 June 2006 Ivanhoe Nickel and Platinum Ltd (Ivanhoe) purchased
all the shares of RKUK. The only asset of RKUK was 100 per cent of the issued
shares in RKMSA. In clause 7.2.10.1 of this agreement it is recorded „RKSA
owns as its sole asset, its 38 per cent interest in the 25 per cent interest held by
GBSA in the RK1 consortium‟. The purchase price as provided for in clause 5.2
was the Sterling equivalent of R26 847 000. At the same time Ivanhoe
purchased all the shares in GBSA thereby effectively acquiring the remaining 62
per cent of the entire 25 per cent stake in the RK1 joint venture. A reading of the
agreements shows that the price was a global price in respect of both
transactions divided between them in the proportion of their respective effective
interests in the joint venture.
[65] As regards GB Mining‟s contention that there was an exchange of
assets of equal value, namely that GB Mining gave up its 38 per cent interest in
the joint venture and in turn RKMSA gave up its 62 per cent interest in the joint
venture to the group of companies in which Mr Gardner held the majority
shares, the court a quo held that GB Mining had disposed of the 38 per cent JV
interest for a consideration being the right to 62 per cent of the interest held by
RKMSA in the joint venture RK2. The court a quo then concluded „the inference
of the interlinking of the transactions between the parties was that the value of
the rights given up by each party was similar to the value of the rights received,
although no evidence was led on this point‟. Counsel for the Commissioner
stated that this finding of the court a quo is not in dispute in this appeal.

[66] In terms of the agreement concluded between GB Mining and RKMSA,
RKMSA would be regarded as a 38 per cent owner of the participation share.
GB Mining accordingly ceded these rights to RKMSA. In terms of paragraph 11
of Part III of the Eighth Schedule a „disposal‟ includes the cession of an „asset‟
and the definition of an „asset‟ in Part I „includes a right or interest of whatever
nature to or in such property‟.
[67] In terms of paragraph 38 of the Eighth Schedule, where a person
disposes of an asset for a consideration not measurable in money, the person
must be treated as having disposed of that asset for proceeds equal to the
market value of the asset, as at the date of disposal. The finding of the court a
quo that the value of the rights that were exchanged were similar, or according
to GB Mining of equal value, does not alter the fact that the 38 per cent share
ceded by GB Mining to RKMSA, was disposed of for „a consideration not
measurable in money‟.
[68] The Commissioner determined that the value of the 38 per cent JV
interest thus disposed of was the amount of R26 847 000 paid by Ivanhoe on
the basis that this was an arm‟s length transaction. The present value of this
amount as at 1 February 2005, being the effective date when GB Mining sold
the 38 per cent JV interest to RKMSA calculated at the SARS rate at the time of
10.5 per cent, produced an amount of R23 277 530 which constituted the
„proceeds‟ of the disposal. The base cost of the asset in terms of paragraph
20(1)(a) of the Eighth Schedule to the Act is the expenditure actually incurred in
respect of the cost of acquisition of the asset. This is 38 per cent of R9 550 000
(being the contribution made to the consortium) which produces an amount of
R3 629 000. As will be recalled, the Commissioner originally determined that
the base cost of the asset included donations tax of 20 per cent on the amount
of R23 277 530, producing an amount of R4 655 506. The court a quo,
however, decided that there was no donations tax payable and there is no
appeal against this finding. The base cost accordingly falls to be reduced from
R8 284 506 to R3 629 000 with a consequent increase in the capital gain from
R14 993 024 to R19 648 530 (the latter being the difference between the
proceeds of R23 277 530 and the amended base cost of R3 629 000) for GB

Mining in its 2005 tax year. The assessment was accordingly raised on a lower
amount than could be justified by the Commissioner. That cannot be a cause for
complaint by the taxpayer.
[69] The appeal against the Commissioner‟s determination must accordingly
fail.
The assessment of additional tax in terms of s 76 of the Act
[70] The Commissioner submits that in relation to each of the contested
assessments there was an omission in terms of s 76(1)(b) of the Act, or an
„incorrect statement‟ in terms of s 76(1)(c), in respect of the relevant tax return.
These sections provide that the additional tax payable is an amount equal to
twice the amount of the tax chargeable. The Commissioner, however, has a
discretion in terms of s 76(2)(a) to remit the additional tax „or any part thereof as
he may deem fit‟. Should the Commissioner decide not to remit the whole of the
tax imposed, this decision is subject to objection and appeal.
[71] The Commissioner exercised his discretion to remit the penalties
imposed as follows:
(a)
Travel expenditure – originally 180 per cent reduced to 20 per cent
penalties assessed.
(b)
OTR amount – originally 160 per cent reduced to 40 per cent penalties
assessed.
(c)
Disposal of asset to Aquarius with the resultant capital gain – originally
more than 150 per cent reduced to less than 50 per cent penalties assessed.
(d)
Disposal of an asset to RK1JV with the resultant capital gain – originally
assessed at 160 per cent reduced to 40 per cent penalties assessed.
(e)
Disposal of 38 per cent JV interest with the resultant capital gain –
originally assessed at 180 per cent reduced to 20 per cent penalties assessed.
[72] The Commissioner submitted that relevant facts in the assessment of
the additional tax payable were:

(a)
The circumstances giving rise to the assessments did not come to the
attention of the Commissioner as a result of any voluntary disclosure by GB
Mining.
(b)
There were inconsistencies in the information furnished to the
Commissioner which made it difficult to establish the true facts.
(c)
The views of GB Mining could not reasonably have been held.
[73] Although there is some substance to these submissions, in my view the
Commissioner erred in imposing the additional tax that he did in respect of the
travel expenditure and the OTR amount.
[74] There was no omission or incorrect statement in respect of the travel
expenditure. The details of the trips were disclosed and GB Mining then entered
into negotiations with the Commissioner. As pointed out GB Mining abandoned
the expenses claimed in respect of certain of the trips and a settlement was
reached in terms of which 50 per cent of the expenses would be disallowed.
When the Commissioner imposed additional tax on the claims that were
disallowed, GB Mining adopted the view that it was no longer bound by the
settlement and claimed all of the expenditure incurred. Counsel for the
Commissioner submitted that GB Mining had furnished insufficient information
and on this basis the additional tax was justified. In my view, this does not
amount to an omission or furnishing incorrect information and the imposition of
the additional tax was not justified.
[75] In the case of the OTR amount GB Mining originally declared that the
amount in question was a loan to OTR. It was only at a later stage that it sought
to retract this and submit that the amount involved was expenditure incurred by
GB Mining in the production of income. No omission or incorrect statement was
made in the tax return. When this proposition was put to counsel for the
Commissioner, he fairly conceded that the additional tax should not have been
raised.
[76] As regards the remaining instances where additional tax was imposed, I
am satisfied that it was correctly imposed at an appropriate rate. In each

instance it is clear that there was an omission or incorrect statement concerning
the relevant facts.
[77] The appeal against the additional tax raised in respect of the travelling
expenses and OTR amount accordingly succeeds, but fails in respect of the
additional tax raised in respect of the remaining categories.
[78] The court a quo ordered GB Mining to pay the Commissioner‟s costs. It
was only entitled to make this order if the Commissioner applied for it in terms
of s 83(17) of the Act. Counsel for the Commissioner conceded that no
application had been made by the Commissioner and the costs order should be
set aside. He did, however, ask for the costs of the appeal including the costs of
two counsel. However, when regard is had to the fact that the appellant has in
this appeal succeeded in having the additional tax in respect of the OTR
amount and the travelling expenses entirely remitted, which constitutes a total
saving of R352 911.44, a suitable order, having regard to the significance of this
in the context of the case as a whole, is that the Commissioner should be
ordered to pay 10 per cent of GB Mining‟s costs in this appeal.
[79] The following order is made:
1 The appeal is dismissed save in the respects set out in paragraphs 2 and 3
below.
2  The penalties raised by the respondent in respect of the OTR amount and
the travelling expenses are remitted in their entirety.
3 The order directing the appellant to pay the respondent‟s costs in the court a
quo is set aside.
4 The respondent is ordered to pay 10 per cent of the appellant‟s costs in the
appeal.

K G B SWAIN

ACTING JUDGE OF APPEAL

Appearances:
For the Appellant:
E M Du Toit SC

Instructed by:
Manong Badenhorst  Abbot Van Tonder,
Johannesburg

Phatsoane Henney Attorneys, Bloemfontein

For the Respondent:
A Subel SC (with him J Boltar)

Instructed by:

The Commissioner for the South African
Revenue Service, Pretoria

State Attorney, Bloemfontein
THE SUPREME COURT OF APPEAL OF SOUTH AFRICA

MEDIA SUMMARY OF JUDGMENT DELIVERED IN THE SUPREME COURT OF APPEAL

FROM

The Registrar, Supreme Court of Appeal

DATE

28 March 2014

STATUS

Immediate

Please note that the media summary is for the benefit of the media and does not form
part of the judgment.

GB Mining v Commissioner: SARS (903/2012) [2014] ZASCA 29 (28 March
2014)

Media Statement

The SCA dismissed an appeal in which GB Mining (appellant) sought to challenge
revised assessments for the payment of tax as determined by the Commissioner:
SARS (respondent). One of the main grounds relied upon was that certain of the
assessments were based upon incorrect facts supplied by GB Mining to the
Commissioner: SARS. It was held that GB Mining bore the onus of proving by
credible and reliable evidence, what it alleged were the correct facts, which it failed to
do.

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