IN THE SUPREME COURT OF APPEAL
OF SOUTH AFRICA
Reportable
Case No:  337/98
In the case between:
COMMISSIONER FOR SOUTH AFRICAN REVENUE
SERVICES
Appellant
AND
HULETT ALUMINIUM (PTY) LIMITED
Respondent
Coram:
Hefer ADCJ, Nienaber, Howie, Olivier JJA
and Farlam AJA
Date of hearing:
21 August 2000
Date of delivery:
1 September 2000
Income Tax  - Third Proviso to s 79(1) of Act 58 of 1962  -  whether
general prevailing practice established.
J U D G M E N T
HEFER ADCJ

HEFER ADCJ :
[1] An objection by a taxpayer who has been assessed to income tax
strictly in accordance with his own return is an aberration.   Yet, as will
presently appear, it may be fruitful.   The taxpayer is a company (“the
company”) which manufactures aluminium products. In each return for the
1983 to 1988 years of  assessment it deducted expenditure incurred for the
purpose of scientific research from its income.   The Receiver of Revenue
allowed the deductions and assessed the company to tax accordingly.
Long after the tax had been  paid the company’s public officer  wrote to
the Receiver in the following terms:
“We would be pleased if you would note our objection to the assessments
raised on Hulett Aluminium Limited for the tax years ended March 1983
to March 1988.

In the tax returns in the years in question, scientific research expenditure
has been included in normal operating costs, and was accordingly claimed
under section 11(a) of the Act.   It has recently come to our attention that
scientific research expenditure is specifically deductible in terms of
section 11(p)(i) of the Income Tax Act [Act 58 of 1962, as amended].   In
the absence of any express exclusion (such as was inserted into section
11(p) in 1988) it follows that the company was entitled to deduct these
expenses under both sections 11(a) and section 11(p)(i) of the Act.
When compiling the company’s income tax returns we were, however, not
aware of this double deduction and consequently we have claimed the
scientific research expenditure only once, namely under section 11(a) as
ordinary expenditure incurred in the production of income ...”

By letter dated 6 December 1991 the Receiver “conceded” the
objection in respect of the years 1984 to 1988.   On the same date he
issued reduced assessments in respect of these years stating expressly in
each assessment that “section 11(p) allowance ... has been allowed”.
The overpayment was  subsequently refunded to the company.
[2] There, however, the matter did not rest.   From 1988 to 1993 there

were several amendments to the Act which affected the deduction of
scientific research expenditure.   In its original form s 11(p)(i) provided
simply for the deduction of expenditure of a non-capital nature incurred
during the year of assessment by any taxpayer for the purpose of scientific
research undertaken by him for the development of his business.   An
amendment brought about by s 8(1)(g) of Act 90 of 1988 (which excluded
expenditure “in respect of which any deduction or allowance has been or
will be granted by any other provision of this Act”)  is not presently
relevant because it only came into operation as from the years of
assessment ending on or after l January 1989.   But    s 25(1) of Act 129
of 1991 introduced a new s 23B(1) to the effect that -
“[w]here, but for the provisions of this section, an amount qualifies or has

qualified for a deduction or allowance under more than one provision of
this Act, a deduction or allowance in respect of such amount, or any
portion thereof, shall not be allowed more than once in the determination
of the taxable income of any person.”
Sec 57 of Act 113 of 1993 rendered this provision retrospective to all
years of assessment commencing on or after 1 July 1962.
[3] After the passing of the 1993 Act (and professedly on account
thereof) the Receiver of Revenue issued additional assessments to the
company.   Each assessment stated that “the section 11(p) allowance has
now been disallowed.”   This led to a fresh but this time unsuccessful
objection by the company and eventually to an appeal to the Natal Income
Tax Special Court.   The appeal succeeded and the Special Court set
aside the additional assessments.   Its President later granted the

Commissioner leave to appeal directly to this Court.
[4] The ultimate question for decision  is whether  s  79(1) of the Act
could rightly be invoked.  This section enjoins the Commissioner to issue
an additional assessment whenever he is satisfied that any amount which
was subject  to tax and should have been assessed  to tax has not been
assessed, or that any amount of tax which was chargeable and should have
been assessed has not been assessed.   The Commissioner seeks to justify
the present additional assessments by arguing that,  on a correct view of
the law  as it stood both before and after the amendments referred to
earlier, double deductions were not permissible when the assessments
allowing them were issued, with the result that the company was not

assessed on the full amount of its taxable income.    Mr Wallis for the
company submits on the other hand  that such deductions were indeed
permissible before the amendment and that the company’s position
remained unaffected - despite the retroactivity of s 23B(1) - since its tax
liability for the relevant years had been finally considered and assessed
on 6 December 1991 (cf Bellairs v Hodnett and Another 1978 (1) SA
1109 (AD) at 1148F; National Iranian Tanker CO v mv “Pericles GC”
1995 (1) SA 475 (AD) at 483I). On the view that I take of an alternative
argument raised by Mr Wallis I find it unnecessary to decide this issue.
[5] Mr Wallis’s alternative submission is to the effect that  the third
proviso to  s 79(1) precluded the Commissioner from issuing the

additional assessments.   Under this proviso an additional assessment may
not be raised
“if the amount which should have been assessed to tax ... was, in
accordance with the practice generally prevailing at the date of the
assessment, not assessed to tax, or the full amount of tax which should
have been assessed ... was, in accordance with such practice, not
assessed ...”
According to the judgment of this Court in Commissioner for Inland
Revenue v SA Mutual Unit Trust Management Co Ltd 1990(4) SA 529
(A) at 536F-538E a practice generally prevailing is one which is applied
generally in the different offices of the Department;  and the onus to prove
the existence of such a practice rests on the taxpayer.
[6] In order to follow Mr Wallis’s argument a brief historical survey

is required.   It derives from the evidence of Mr  Coetzee, a director in the
Law Interpretation Section in the Commissioner’s office, who testified for
the Commissioner in the Special Court.
Coetzee’s evidence is to the effect  that the Commissioner considers
every Special Court judgment in collaboration with a committee
consisting of high-ranking officials and then decides upon a course of
action.    He may decide to appeal; or he may decide to accept the
judgment with or without a recommendation to the Minister that the Act
be amended to avoid the result of the judgment.
On 23 November 1987 the Cape Income Tax Special Court decided
in case No 8412 that scientific research expenditure of a non- capital

nature could be deducted twice from a qualifying taxpayer’s income  -
first under the general provisions of s 11(a) (provided that the expenses
were incurred in the production of income) and again under the special
provisions of s 11(p) (provided that they were also incurred for the
development of the taxpayer’s business).
When this judgment came up for consideration the committee
was of the view that it was probably correct on the reading of the Act as
it stood at the time.   But because it was never the intention to allow the
deduction of scientific research expenditure more than once it was
decided to press for an amendment.   This decision led, first to the 1988
amendment, and later to the 1991 and 1993 Acts.   In the meantime (on 30

June 1988 to be exact)  a  circular was despatched to every Receiver of
Revenue, all the heads of sections at head office and all inspectors of
Inland Revenue informing them inter alia that:
”3. In view of the fact that it never was the intention that such
expenditure should de deductible twice, the Income Tax Act will be
appropriately amended.   Late objections against assessments with due
dates before 23 November 1987, in terms whereof the double deductions
were not allowed, must not be condoned as those assessments were
issued in accordance with the practice generally prevailing at that date.”
Mr Coetzee’s claim that the purpose of the circular was to forestall
double deductions in assessments with due date both before and after 23
November 1987 is plainly incorrect or at least not in accordance with the
terms of the circular.   He was the author of the circular and, if his
intention had been what he says it was, he certainly did not express it.  He

was at a loss to explain in cross-examination why the circular only speaks
of assessments with due date before the date in question; nor could he
explain the wording of paragraph 3 even in relation to the assessments to
which it expressly refers.   Be this as it may, the inevitable result of the
acceptance at the highest level of the judgment in case No. 8412 and the
terms of the circular must have been that double deductions would,
pending the amendment of the Act, be allowed as a matter of general
practice in assessments with due date after the date of the judgment.  This
is plainly what the circular conveyed to its recipients and it is perfectly
understandable because it was anticipated that a suitable amendment
would be procured with effect from January 1988.   Had this happened

the loss to the fiscus would have been negligible.   What went wrong, as
Mr Coetzee conceded, was that “what we had in mind did not really
materialize”.  (Eventually the effective amendment only came in 1993
when Act 113 of 1993 was passed.)  Bearing in mind further that double
deductions were in fact allowed after the circular had been sent (to which
the present case and Mr Coetzee’s evidence bear witness), the
probabilities favour the conclusion that the circular marked the inception
of a generally prevailing  practice  of allowing double deductionsw
pending amendment of the Act.
[7] Accordingly, even if we were to assume by virtue of the
retroactivity of s 23B(1) that the double deductions were wrongly

allowed, it was done in accordance with a generally prevailing practice
and s 79(1) could not be invoked.
The appeal is dismissed with costs.
________________________
JJF HEFER
Acting Deputy Chief Justice
CONCURRED:
Nienaber JA
Howie JA
Olivier JA
Farlam AJA