The Premier, The Member Of Cabinet, and The Commissioner: An Evaluation Of Income Tax Case No 1837
In Tax Case No 1837 (71 SATC 177 (2009)), Van Reenen J delivered a judgment in the Cape Tax Court in an appeal by a taxpayer against an assessment by the Commissioner of the South African Revenue Service. This assessment disallowed a claimed deduction from income of legal costs incurred by the taxpayer in resisting a civil claim of defamation.
The focus of the appeal was on the deduction of legal costs incurred by the taxpayer in terms of subs 11(c) of the Income Tax Act 58 of 1962, as amended (the ‘Act’). In deciding the main issue, the Court also, to satisfy the requirements of subs 11(c)(ii) of the Act, had to decide whether the damages awarded in the civil judgment ranked as a deduction in terms of subs11(a) of the Act. Subsection 11(c) limits the deductibility of legal costs incurred by a taxpayer in resisting a claim for damages or compensation under subs 11(c) to the extent that the amount of such damages is deductible from the income derived by the taxpayer in terms of the provisions of subs 11(a). Subsections11(a) and 23(g) of the Act – together referred to as the general deductions formula – must be read together in determining the deductibility of expenses or losses. The Court further held that legal costs are deductible in terms of subs 11(c) even where they are incurred as a result of negligence or unlawfulness on the part of the taxpayer.This note aims to consider the issues relating to the deductibility of legal costs both in the context of this judgmentand in general.
Source: By Arthur Van Coller (Nelson R Mandela School of Law,University of Fort Hare)SA Merc LJ
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