THE SUPREME COURT OF APPEAL OF SOUTH AFRICA
JUDGMENT

Reportable

Case no: 1147/2019
In the matter between:

CITY POWER (SOC) LIMITED
APPELLANT

and

THE COMMISSIONER FOR THE SOUTH AFRICAN
REVENUE SERVICE
RESPONDENT

Neutral citation: City Power (SOC) Limited v CSARS (1147/2019) [2020]
ZASCA 150 (20 November 2020)

Bench:
PONNAN, SALDULKER and MAKGOKA JJA and MATOJANE and
SUTHERLAND AJJA

Heard:
6 November 2020

Delivered: This judgment was handed down electronically by circulation to the
parties' representatives via email, publication on the Supreme Court of Appeal
website and release to SAFLII. The date and time for hand-down is deemed to be
10:00 am on 20 November 2020.

Summary: Income Tax Act 58 of 1962 – appellant not a municipality or local
sphere of government – appellant’s accruals and receipts not exempt from normal
tax under s 10(1)(a) and (b).

__________________________________________________________________

ORDER
__________________________________________________________________

On appeal from: Tax Court of South Africa, Gauteng (Victor J): judgment reported
sub nom ABC Limited v Commissioner for the South African Revenue Service [2019]
ZATC 11.

The appeal is dismissed with costs, including those of two counsel.
__________________________________________________________________

JUDGMENT
__________________________________________________________________
Ponnan JA (Saldulker and Makgoka JJA and Matojane and Sutherland AJJA
concurring)

[1] The issue for determination in this appeal, against a judgment of the Tax Court
(Victor J, sitting in Gauteng), is whether the appellant’s accruals and receipts are
exempt from normal tax under s 10(1)(a) and (b) of the Income Tax Act 58 of 1962
(ITA).

[2] The appellant, City Power (SOC) Limited (City Power), is a state-owned
company, registered as such in terms of the Companies Act 71 of 2008.1 On 2 June

1 A ‘state-owned company’ is defined in s 1 of the Companies Act 71 of 2008 as:
‘[a]n enterprise that is registered in terms of this Act as a company, and either—

2014 the respondent, the Commissioner for the South African Revenue Service
(SARS), issued income tax assessments in respect of the 2010-2012 years of
assessment and disallowed doubtful debt allowances claimed by City Power.

[3] City Power had contended that, because it is a municipal entity2 and performs
the functions that would otherwise have been performed by the City of Johannesburg
(the City), it qualified for an exemption under:
(a)
section 10(1)(a) of the ITA, with effect from 1 January 2011; and
(b)
section 10(1)(b), prior to that date.
It accordingly objected to the assessment and, upon the objection being disallowed,
appealed to the Tax Court. By agreement between the parties, this issue was
determined in limine, and separately from the merits, by the Tax Court.

(a)
is listed as a public entity in Schedule 2 or 3 of the Public Finance Management Act, 1999 (Act 1 of 1999); or
(b)
is owned by a municipality, as contemplated in the Local Government: Municipal Systems Act, 2000 (Act 32
of 2000), and is otherwise similar to an enterprise referred to in paragraph (a)…’
2 The definitions section of the Local Government: Municipal Systems Act 32 of 2000 (the Systems Act) provides
that a ‘municipal entity’ is:
(a)
a private company referred to in s 86B(1)(a);
(b)
a service utility; or
(c)
a multi-jurisdictional service utility…’

A ‘municipal service’ is in turn defined to mean ‘a service that a municipality in terms of its powers and functions
provides or may provide to or for the benefit of the local community irrespective of whether—
(a)
such a service is provided, or to be provided, by the municipality through an internal mechanism
contemplated in section 76 or by engaging an external mechanism contemplated in section 76; and
(b)
fees, charges or tariffs are levied in respect of such a service or not…’

Finally, in terms of s 76:
‘A municipality may provide a municipal service in its area or a part of its area through—
(a)
an internal mechanism, which may be—
(i)
a department or other administrative unit within its administration;
(ii)
any business unit devised by the municipality, provided it operates within the municipality's
administration and under the control of the council in accordance with operational and performance
criteria determined by the council; or
(iii)
any other component of its administration; or
(b)
an external mechanism by entering into a service delivery agreement with—
(i)
a municipal entity;
(ii)
another municipality;
(iii)
an organ of state…’

[4] Section 5 of the ITA provides that income tax (normal tax) shall be payable
in respect of the taxable income received by or accrued to or in favour of any person
during the year of assessment or any company during every financial year of such
company.3 Section 10 of the ITA is an exemption provision. It provides that certain
specified receipts and accruals are exempt from normal tax. The list is a closed one,
with the result that, unless specifically mentioned in s 10, the receipts and accruals
are taxable in terms of s 5 of the ITA.

[5] Prior to 7 February 2007, ss 10(1)(a) and (b) of the ITA provided as follows:
‘There shall be exempt from normal tax:
(a)
the receipts and accruals of the Government, any provincial administration or of any other
state;
(b)
the receipts and accruals of local authorities…’
Those provisions were amended by the Revenue Laws Amendment Act 20 of 2006.
The words ‘of any other state’ in subsection (a) were deleted and the expression
‘local authorities’ in subsection (b) was replaced by the word ‘municipalities’. The
subsections accordingly came to read:
‘(a) the receipts and accruals of the Government or any provincial administration;
(b)
the receipts and accruals of municipalities.’

[6] Following the amendment, the s 10(1)(b) exemption came to apply to ‘the
receipts and accruals of municipalities’. The reasons for the amendment appear in
an Explanatory Memorandum on the Revenue Laws Amendment Bill, 2006,4 issued
by National Treasury. In this Memorandum, Treasury explains that ‘the Income Tax

3 See s 5(1)(c) and (d) of the Income Tax Act 58 of 1962 (ITA).
4 National Treasury Explanatory Memorandum on the Revenue Laws Amendment Bill, 2006 WP2 – 06.

Act contains various forms of exemption for different spheres of Government.
National and provincial governments are fully exempt under s 10(1)(a)’.5 It added:
‘Certain institutions, boards and bodies subject to the Public Finance Management Act, 1999 (Act
1 of 1999) (PFMA) are exempt from income tax under s 10(1)(cA), along with their wholly owned
subsidiaries. Municipalities receive exemption as a “local authority” under s 10(1)(b), but
municipal entities that are subject to the Municipal Finance Management Act, 2000 (Act 32 of
2000) (MFMA) are fully taxable.’

[7] The reason advanced for the change was that: ‘[t]he Income Tax system fails
to provide a coherent regime for Government entities’. According to Treasury:
‘The various references to local councils, boards and committees are outdated. The definition of
local authority will accordingly be scrapped in line with the new system for local government as
prescribed by the Local Government: Municipal Structures Act, 1998 (Act 117 of 1998).
Henceforth, only “municipalities” (Categories A, B and C) will be exempt as opposed to “local
authorities”. Collateral changes in this regard have already been made in the Value-Added Tax
Act along with corresponding changes to the Transfer Duty Act.’6

[8] Section 10(1) of the ITA was amended once again, on 2 November 2010, by
the Taxation Laws Amendment Act 7 of 2010. Subsection (1)(b) was deleted, while
subsection (1)(a) was substituted by the following:
‘There shall be exempt from normal tax—
(a)
the receipts and accruals of the government of the Republic in the national, provincial or
local sphere…’
Thus, after 1 January 2011, City Power had to qualify as ‘the government of the
Republic in the ... local sphere’ for it to be exempt from normal tax.

5 Ibid at 40.
6 Ibid.

[9] In terms of s 40(1) of the Constitution of the Republic of South Africa, 1996
(the Constitution), the Government of the Republic of South Africa is constituted as
national, provincial and local spheres of government, which are distinctive,
interdependent and interrelated.7 Chapter 7 of the Constitution provides, among
other things, for the establishment of municipalities for the whole of the territory of
the Republic. In terms of s 155(6) of the Constitution, each provincial government
must establish municipalities in its province in a manner consistent with the
legislation enacted in terms of s 155(2) and (3).8 Municipalities established
throughout the territory of the Republic constitute the local sphere of government.9
The local sphere of government is structured as ‘(a) self-standing municipalities, (b)
municipalities that form part of a comprehensive coordinating structure, and (c)
municipalities that perform coordinating functions.’10

[10] As the Explanatory Memorandum to the Tax Law Amendment Bill, 201011
makes plain, ‘[t]he proposed amendment seeks to update the wording of the Income
Tax Act in line with the current concept of the three spheres of government in the
Constitution’.12

[11] ‘Municipality’ is defined in s 1 of the ITA as meaning:

7 Democratic Alliance and Another v Masondo NO and Another 2003 (2) SA 413 (CC) para 7.
8 Section 155(6) of the Constitution. Section 1 of the Local Government: Municipal Demarcation Act 27 of 1998
defines a municipality as ‘a municipality mentioned in s 155(6) of the Constitution and includes a municipality which
existed when this Act took effect…’
9 Section 151(1) of the Constitution.
10 Ex Parte Chairperson of the Constitutional Assembly: In re Certification of the Amended Text of the Constitution
of the Republic of South Africa, 1996 1997 (2) SA 97 (CC) para 77.
11 National Treasury Explanatory Memorandum on the Taxation Laws Amendment Bill, 2010 WP – 10.
12 Ibid at 104.

‘[a] municipality which is within a category listed in s 155(1) of the Constitution13 … and which
is an organ of state within the local sphere of government exercising legislative and executive
authority within an area determined in terms of the Local Government: Municipal Demarcation
Act, 1998 (Act 27 of 1998).14
City Power plainly did not qualify as a municipality as defined. That ought to be the
end of the enquiry insofar as the s 10(1)(b) exemption is concerned. However, it was
contended that the exemption found application because, in discharging the
constitutional functions that the City was obliged to perform, City Power acted qua
City. Accordingly, so the argument went, its receipts and accruals fell to be treated
on the same footing as those of a municipality. What this contention boils down to
is that City Power must, for all intents and purposes, be deemed to be a municipality,
with the result that the s 10(1)(b) exemption applies. Although by no means
persuaded, I shall assume in City Power’s favour that it is permissible to approach
the enquiry in this fashion. For, it seems to me that even on this footing City Power
fails to bring itself within the exemption.

[12] In this regard, Income Tax Case No 32715 is instructive. The Court had to there
consider whether an individual who was employed by a Board that was established
by and on behalf of Government is a ‘government employee’ for the purposes of
qualifying for an exemption. It reasoned:

13 Section 155(1) of the Constitution provides:
‘There are the following categories of municipality:
(a)
Category A: A municipality that has exclusive municipal executive and legislative authority in its area.
(b)
Category B: A municipality that shares municipal executive and legislative authority in its area with a category
C municipality within whose area it falls.
(c)
Category C: A municipality that has municipal executive and legislative authority in an area that includes more
than one municipality.’
14 The definition of ‘municipality’ was inserted by Act 20 of 2006 and accords with s 2(a) of the Local Government:
Municipal Systems Act 32 of 2000.
15 Income Tax Case No 327 (1935) 8 SATC 254 (U) at 256-8.

‘Now, the letter of the Governor of the Colony does not appear to bear out the appellant's
contention that he is a Government servant. The letter states that the Board is a body established
by Statute; that its purpose is to foster the demand for the products of the Colony in the markets of
the world; and that the Board has appointed appellant to act as Commissioner for the Union of
South Africa. When we have regard to the terms of the Ordinance it appears to us that this is a
body similar to bodies which have been created in recent times for the purpose of furthering the
trade of a country in other countries. But the terms of the Ordinance do not indicate that the body
in question is under the direct control of a Government department. It is free to act at its discretion,
and the only question which raises any difficulty is regarding the levy and destination of the
money. Its moneys are derived from the levy of a special export duty. That duty when recovered
is paid direct to the Board monthly by the Principal Collector of Customs, and no part is credited
to the general revenue of the Colony. That is a departure from the recognised and accepted way of
dealing with Government revenue. The Board has a very general discretion, and what seems to be
of great importance is the language which is used in the Ordinance with regard to the appointment
of officers. … In terms of the subsection the Board appoints, employs, etc, its own officers, and it
decides the administration of its own affairs. Now, those words “its own” indicate in both cases
that this is something entirely separate from the Government or any other authority in the Colony.
In other words, although created by Statute like a great many non-government bodies are, and
although it derives its funds under the subsection mentioned from the Collector of Customs by
means of the levy mentioned, it is quite independent. It appoints its own employees and
remunerates and controls its own officers. Now, the fact that it controls its own officers indicates
that the officers are not subject to the ordinary control which is exercised over government officers
of the Public or Civil Service in the ordinary sense of the term. It is an entirely independent control.
It is true, as argued by the appellant, that if the Government is dissatisfied with the work of the
Board, or in an extreme case, with the work of an individual officer, it may withhold the funds of
the Board, and thus virtually terminate its existence, but those same powers would appear to belong
to any body to which government funds are contributed, whether hospital or charitable institutions,
or even private institutions. A government is under no obligation to continue to provide funds to
an object whose proceedings it does not approve of. That, however, is not the test whether an

individual is in the employment of the Government. Here the appellant is appointed, employed,
remunerated and controlled by the Board itself, and the Board is a totally independent body.’

[13] Those factors are present here. The City simply enjoys the ordinary powers of
a shareholder over City Power. City Power has an independent Board of Directors
(the Board), which is autonomous, exercises its powers independently and is
enjoined to act in the interests of City Power. Its powers, as appear in City Power’s
memorandum of incorporation, are wide and substantial; and are, crucially, in the
nature of those ordinarily associated with private companies. The Board has the
power, inter alia, to: purchase or acquire shares, debentures and every other kind or
description of movables and immovables; apply for, purchase or by any other means
acquire, transfer, protect, prolong or renew patents, patent rights, licences,
trade-marks, concessions or any other rights and to deal with and alienate them;
borrow money in accordance with policies and within the ambit of the authorisation
of the Board of Directors; secure the payment of moneys borrowed in any manner,
including the mortgaging and pledging of property and without detracting from the
generality thereof, in particular by the issue of any kind of debenture stock, with or
without security; lend money to any person or company; invest money in accordance
with the investment policies approved by the directors; and to open and operate
banking accounts.

[14] City Power may also form and have an interest in any company or companies,
amalgamate with other companies and take part in the management, supervision and
control of the business or operations of any similar company or business. It may also
enter into partnerships. In terms of the Service Delivery Agreement concluded
between City Power and the City on 1 September 2006, the services to be provided

by the former are electricity distribution services, which constitutes its core business.
It may however undertake any business other than its core business, albeit with the
City’s consent, which consent shall not be unreasonably withheld.

[15] Moreover, Parts 5 and 6 of Chapter 8A of the Local Government: Municipal
Systems Act 32 of 2000 (the Systems Act) contain a range of measures that are
designed to ensure the independence of the Board. Section 93A(b) provides that the
parent municipality of a municipal entity ‘must allow the board of directors and chief
executive officer of the municipal entity to fulfil their responsibilities’. Section 93E
regulates the appointment of Directors of the Board and provides that the board of
directors of a municipal entity must have the requisite range of expertise to
effectively manage and guide the activities of the municipal entity. At least a third
of the directors must be non-executive directors. In addition, the Chairperson of the
Board must also be a non-executive director.16 Once appointed, it is then the duty of
the Board to inter alia ‘provide effective, transparent, accountable and coherent
corporate governance and conduct effective oversight of the affairs of the municipal
entity’.17 The Board must appoint a Chief Executive Officer (CEO) of the entity,
who then reports to the Board.18

[16] The Local Government: Municipal Finance Management Act 56 of 2003
(MFMA) is also of relevance. Section 85(1) and (2) of the MFMA provides that:
‘(1) A municipal entity must open and maintain at least one bank account in the name of the entity.
(2) All money received by a municipal entity must be paid into its bank account or accounts, and
this must be done promptly and in accordance with any requirements that may be prescribed.’

16 Section 93E(1)(a)-(c) of the Local Government: Municipal Systems Act 32 of 2000 (the Systems Act).
17 Section 93H(1)(a) of the Systems Act.
18 Section 93J of the Systems Act.

The bank account must be administered by the accounting officer (the CEO), who is
accountable to the Board for the entity’s bank accounts.19 As such, the fact that City
Power might have agreed, through a service level agreement, to grant the City access
to its accounts, does not change the fact that any decision over that bank account is
exercised solely by the Accounting Officer and the Board.

[17] City Power’s formation is explained in a letter to SARS dated 24 February
2014. It stated that the City housed municipal entities in separately registered
companies from 2001 for various reasons, some of which include the attraction of
quality top management to create efficiency in the City and its municipal entities,
for business and commercial reasons and to create better ownership. The business
was to be run along commercial lines, its object being to generate profit in the course
of distributing electricity. There appears to be no restriction on City Power
generating a profit. The effect of creating a private company for purposes of
performing the functions of electricity distribution is that the receipts and accruals
are those of the company, whereas in instances where the City itself directly
distributes electricity (ie after purchasing in bulk from Eskom for downstream on-
selling to consumers within its geographical jurisdiction), the receipts and accruals
in relation to the supply of electricity would fall into the general funds of the
municipality.

[18] It is not in dispute that the income from the supply of electricity by City Power
is the income of City Power, notwithstanding that the City may have access to such
monies. Such income is reflected in City Power’s financial statement. The funds thus

19 Section 85(5) of the Systems Act.

accrued to City Power.20 What it decides to do with such funds at a later stage does
not change its character.21

[19] I turn to consider whether City Power falls within the concept of the ‘local
sphere of government’. In Independent Electoral Commission v Langeberg
Municipality,22 the Constitutional Court explained that a ‘sphere of government’ is
a clearly defined concept and does not necessarily include an organ of state which
performs a function that would ordinarily have been performed by the government.
It held:
‘In this broad sense, the Commission does perform a governmental function. More specifically, it
implements national legislation concerning the conduct of elections. … That does not mean,
however, that the Commission falls within the national sphere of government as contemplated by
chapter 3 of the Constitution.’23

[20]  In that matter, the Constitutional Court concluded:
‘The Commission has tried to make some point of the fact that the conduct of the election falls
within the national legislative authority of Parliament, contending that this is a factor which points
to the Commission being part of the national sphere of government. This is an oversimplification.
… The Commission is clearly a State structure. The fact that a State structure has to perform its
functions in accordance with national legislation does not mean that it falls within the national
sphere of government.’24

[21] In a similar vein, in Minister of Home Affairs and Another v Public Protector,
this court held that the Office of the Public Protector is ‘not a department of state or

20 Commissioner for Inland Revenue v Cactus Investments (Pty) Ltd 60 SATC 141 at 152.
21 Commissioner for Inland Revenue v Witwatersrand Association of Racing Clubs 1960 (3) SA 291 (A) at 180.
22 Independent Electoral Commission v Langeberg Municipality [ZACC 23] 2001 (3) SA 925 (CC) (Langeberg
Municipality) paras 22, 27 and 29-31.
23 Ibid para 24. (Footnotes omitted.)
24 Ibid para 30.

administration and neither can it be said to be part of the national, provincial or local
spheres of government’.25 With reference to s 239 of the Constitution,26 Plasket AJA
stated:
‘It is therefore not an organ of state as contemplated by subsection (a) of the definition. It is,
however, an institution that exercises both constitutional powers and public powers in terms of
legislation. It is, consequently, an organ of state as contemplated by subsection (b) of the
definition.’27

[22] These considerations apply equally to City Power. It is not part of the local
sphere of government and is thus not located within such sphere. The mere fact that
it performs constitutional functions, which would ordinarily have been performed
by the City, does not mean that it is part of or located within the local sphere of
government.

[23] The appellant relies on Grinpal28 and Joseph29 and contends that in those
judgments, the Constitutional Court ‘characterised City Power through its
functions’. The appellant’s reliance on these judgments is, however, misplaced.
Those judgments merely reiterated a trite principle, namely that City Power performs

25 Minister of Home Affairs and Another v Public Protector [2018] ZASCA 15; 2018 (3) SA 380 (SCA) para 34.
(Footnotes omitted.)
26 Section 239 of the Constitution defines ‘organ of state’ to mean:
‘(a)
any department of state or administration in the national, provincial or local sphere of government; or
(b)
any other functionary or institution—
(i)
exercising a power or performing a function in terms of the Constitution or a provincial constitution; or
(ii)
exercising a public power or performing a public function in terms of any legislation, but does not
include a court or a judicial officer.’
27 Minister of Home Affairs (above fn 25) para 34.
28 City Power (Pty) Ltd v Grinpal Energy Management Services (Pty) Ltd and Others [2015] ZACC 8; 2015 (6) BCLR
660 (CC).
29 Joseph and Others v City of Johannesburg and Others [2009] ZACC 30; 2010 (4) SA 55 (CC).

a public function.30 That much is not in dispute. Grinpal and Joseph do not state that
simply because City Power performs a public function it falls within the local sphere
of government. Nor does Allpay.31

[24]  The ratio in Grinpal appears at para 23, whereafter the court stated that,
‘[h]aving found that City Power is a municipal entity governed by [the Systems Act]
and that Grinpal is an organ of state, the next question is whether s 197 of the
[Labour Relations Act 66 of 1995] is applicable to both entities’.32 It then proceeded
to find that s 197 applies to City Power.33 That, however, is a far cry from finding
that City Power is located within the local sphere of government. Significantly, the
Constitutional Court observed that City Power performs public functions ‘akin to
those of a municipality’.34

[25] The same can be said of Joseph and Allpay 2. In Joseph the Constitutional
Court was concerned with the question of whether City Power was performing a
public or a private function when providing electricity to the residents of Ennerdale
Mansions. It found that it was performing a public function and that public-law
duties, such as the duty of procedural fairness, thus applied to City Power.35
Similarly, in Allpay 2 the Constitutional Court was dealing with the question whether
Cash Paymaster was performing a public function and was thus bound by the
Constitution. Importantly, it held that ‘[i]n our constitutional structure, [the entity]

30 This principle had already been confirmed by the Constitutional Court in AAA Investments (Pty) Ltd v Micro Finance
Regulatory Council and Another [2006] ZACC 9; 2007 (1) SA 343 (CC) at paras 40-43 (Yacoob J) and
119 (O’Regan J).
31 Allpay Consolidated Investment Holdings (Pty) Ltd and Others v Chief Executive Officer of the South African Social
Security Agency and Others (No 2) [2014] ZACC 12; 2014 (4) SA 179 (CC) (Allpay 2).
32 Grinpal (above fn 28) para 24.
33 Ibid para 34.
34 Ibid para 23.
35 Joseph (above fn 29) para 46.

… does not have to be part of government or the government itself to be bound by
the Constitution as a whole’.36

[26] There is accordingly no merit in the suggestion that City Power falls within
the local sphere of government. As the receipts and accruals of City Power are not
those of ‘the government of the Republic’ in any of the spheres (ie the national,
provincial or local spheres), and were at no stage the ‘receipts and accruals of
municipalities’, the s 10(1)(a) and 10(1)(b) exemptions do not apply in respect of
the income in issue.

[27] It follows that the appeal must fail. In the result:
The appeal is dismissed with costs, including those of two counsel.

_________________
V M Ponnan
Judge of Appeal

36 Allpay 2 (above fn 31) para 53, referring to the dictum of Yacoob J in AAA Investments (above fn 30) para 41.

APPEARANCES

For Appellant:

P J J Marais SC (with him P A Swanepoel SC)

Instructed by:

Edward Nathan Sonnenbergs Inc, Johannesburg

McIntyre van der Post, Bloemfontein

For Respondent:

A Subel SC (with him L Kutumela)

Instructed by:

The State Attorney, Pretoria

The State Attorney, Bloemfontein
THE SUPREME COURT OF APPEAL OF SOUTH AFRICA
MEDIA SUMMARY OF JUDGMENT DELIVERED
City Power (SOC) Limited v The Commissioner for the South African Revenue Service
(Case no 1147/2019) [2020] ZASCA 150
From:
The Registrar, Supreme Court of Appeal
Date:
20 November 2020
Status:
Immediate
The following summary is for the benefit of the media in the reporting of these cases and does not
form part of the judgments of the Supreme Court of Appeal

Today the Supreme Court of Appeal (SCA) handed down judgment in an appeal against a
decision of the Tax Court of South Africa, Gauteng (Victor J), concerning exemptions under
the Income Tax Act 58 of 1962. The appeal was dismissed with costs.

The appellant, City Power Soc Limited (City Power), is a state-owned company that is wholly
owned by the City of Johannesburg (the City). In 2014 it was issued with income tax
assessments in respect of the 2010-2012 years of assessment by the respondent, the
Commissioner for the South African Revenue Service (the Commissioner). City Power took
the view that, as a municipal entity, performing functions that would otherwise have been
performed by the City of Johannesburg, its receipts and accruals stood to be exempted from
normal tax under the Income Tax Act. It accordingly objected to the assessment and, upon the
objection being disallowed, appealed to the Tax Court. This appeal was dismissed.

In a further appeal to the SCA, the issue for determination was thus whether City Power’s
receipts and accruals are exempt from normal tax under the Income Tax Act.

The SCA held that City Power did not qualify as a ‘municipality’ as defined in the Income Tax
Act. Nevertheless, City Power argued that by discharging constitutional functions which the
City was obliged to perform, its receipts and accruals fell to be treated on the same footing as
those of a municipality. The SCA rejected this line of reasoning on the basis that City Power
was a private company, to be run along commercial lines, with the object of generating profit
through the distribution of electricity. The receipts and accruals were thus those of City Power.

The SCA further held that City Power does not fall within ‘local sphere of government’. The
fact that City Power performed a public function did not mean that it fell within the local sphere
of government.  The receipts and accruals of City Power were thus not those of ‘the government
of the Republic’ in any of the spheres (ie the national, provincial or local spheres), nor at any
stage the ‘receipts and accruals of municipalities’. The SCA accordingly held that the
exemptions do not apply.

In the result, the appeal was dismissed with costs, including the costs of two counsel.

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