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The Republic of South Africa
THE SUPREME COURT OF
APPEAL
reportable
case no: 472/98
In the matter
between:
COMSHIPCO SHIFFAHRTSAGENTUR GmbH Appellant
and
THE COMMISSIONER FOR SOUTH AFRICAN
REVENUE
SERVICE Respondent
Coram: Vivier, Olivier,
Streicher, Zulman, JJ A and Mpati, A J A
Heard: 29 November
2000
Delivered: 19 March 2001
Summary
Address commission paid by a disponent owner of a ship to the charterer
is not expenditure for the purposes of section 11 bis (4) (f) of the
income Tax Act 58 of 1962 as amended.
J U D G M E N T
STREICHER JA:
[1] I agree with Olivier JA that the
so-called address commissions to which the charterers were entitled in terms of
the relevant charterparties
did not constitute marketing expenditure which
entitled the appellant to a marketing allowance in terms of s 11bis of
the Income Tax Act 58 of 1962.
[2] In terms of s 11bis(2)
an exporter who has during the year of assessment incurred marketing expenditure
(determined as provided in s 11bis(4)) is allowed to deduct from his
income a marketing allowance determined as provided in s 11bis(3). S
11bis(4)(f) provides as follows:
“(4) For the purposes of subsection (3) the marketing expenditure on which the marketing allowance is to be calculated shall be so much of the expenditure incurred by the exporter during the year of assessment and allowed to be deducted from his income under sections 11 and 17 as is proved to the satisfaction of the Commissioner to have been incurred directly-
. . .
in respect of commission or other remuneration for orders for goods exported
to any export country. . .and, in the case of an exporter
who carries on any
trade defined or recognized under subsection (4B) as an export service industry,
any commission or other remuneration
for orders for services or goods obtained
in the course of such trade from persons based in an export
country;”
[3] It is common cause between the parties that
the appellant does business in Durban and that it is an “exporter”
carrying
on a trade, namely that of a charterer of ships, “recognized as
an export service industry” within the meaning of those
words in the
section. It follows that in order for the address commissions to qualify as
marketing expenditure on which a marketing
allowance could be calculated they
had to be expenditures which had been incurred “directly” in
respect of “any
commission or other remuneration for orders for services
or goods obtained in the course of” the trade of the appellant, within
the
meaning of those words in s 11bis(4)(f). Whether that was the case is the issue
to be decided in this appeal.
[4] At all material times the
appellant’s mode of carrying on business was to charter ships in and to
charter ships out. Both
charters in and charters out by the appellant were
either time or voyage charters. In the case of a time as well as a voyage
charter
the services of the vessel were made available to the charterer, but
possession of the vessel and employment of the master and the
crew remained with
the owner of the vessel.
[5] In terms of the relevant charterparties
between the appellant and the charterers an address commission was payable by
the appellant
to the charterers. The appellant tendered evidence as to what an
address commission was. According to this evidence, historically,
vessels were
addressed to the master of the vessel or an agent at the port of loading or
discharging and an amount of money was provided
by the owner to the master or to
the agent for whatever services were required in respect of the ship in a port,
for example services
required for getting the ship in and out of the port and
for the loading and the discharging of the cargo. That is the origin of
the
expression “address commission”. At present, according to the
evidence, when a ship is chartered, it is the charterer
who has to render the
service of providing the cargo for the vessel and who has to ensure that the
vessel gets into the port, loads
and gets out quickly. In most cases the
charterer requires an address commission to be paid by the person from whom he
charters
the ship in respect of the provision of such services. In short an
address commission is, according to the evidence tendered by
the appellant, a
commission payable for the provision of services in respect of a ship. However,
the address commission is not actually
paid to the charterer, it is deducted
from the hire at the time the hire is paid.
[6] The standard form of
charterparty approved by the New York Produce Exchange is the form most commonly
used by the appellant. In
terms of clause 2 of one such charterparty referred
to in the evidence the charterer is obliged to pay for all “Port Charges,
Compulsory Pilotages, Canal Dues, Agencies, Commission, Consular Charges (except
those pertaining to the Crew), and all other usual
expenses except those before
stated . . . ”.In terms of clause 8 thereof the charterers “are to
load, stow, trim, secure
and discharge the cargo at their expense under the
supervision and responsibility of the Captain, . . .” .Clause 28 thereof
provides as follows: “An address commission of 2½ per cent payable to
Charterers on the hire earned and paid under this
Charter.”
[7] On behalf of the appellant it was submitted
that the payment of an address commission was required by the relevant
charterers and
that it was therefore a commission paid for an order for services
(being the agreement to charter a ship) as required by s 11bis
(4)(f). It was
suggested to counsel for the appellant that if the address commissions were not
commissions they could nevertheless
qualify as remuneration. However, counsel
persisted in his argument that they were commissions.
[8] In my
view it cannot be said that the address commissions were commissions or
remuneration for the orders received from the charterers.
In Commissioner for
Inland Revenue v Wandrag Asbestos (Pty) Ltd 1995 (2) SA 197 (A) this court
had to decide whether what was called a “selling commission”,
payable by Wandrag Asbestos
(Pty) Ltd (‘Wandrag’) to Griqualand
Exploration and Finance Co Ltd (‘Gefco’), in clause 4(a) of an
agreement
which spoke of a sale of asbestos by Wandrag to Gefco, was a
commission within the meaning of that word in s 11 bis(4)(f). Corbett CJ
said at 214B-D:
“Turning to para (f) of s 11bis(4), I would point out that the word ‘commission’ is not a term of legal art. The relevant meaning in the Oxford English Dictionary reads:
‘A remuneration for services or work done as agent, in the form of a percentage on the amount involved in the transactions; a pro rata remuneration to an agent or factor.’
In Drielsma v Manifold [1894] 3 Ch 100, at 107, Davey LJ said:
‘Commission is prima facie the payment made to an agent for agency work, usually according to a scale - it may be an ad valorem scale, but not necessarily an ad valorem scale, It is in my opinion the most general word that can be used to describe the remuneration paid to an agent for an agency work other than a salary. . .’ ”
Although Corbett CJ found it unnecessary
to decide exactly how much wider the net was spread by the words ‘other
remuneration’
he did say at 214E:
“The words ‘commissions or other remuneration for orders for goods exported to any export country’ are cryptic, but I think that their meaning is reasonably clear. What the Legislature had in mind, in my view, was expenditure incurred in the payment of, or an obligation to pay, commission or other remuneration to a person for services rendered in obtaining orders for goods which in terms of the order are exported to any export country.” (My emphasis.)
[9] The address commissions were not
payable to the charterers as agents and it was not submitted on behalf of the
appellant that they
were. What was submitted was that Corbett CJ’s
judgment was a minority judgment and that the majority held that an amount paid
by Wandrag as seller to Gefco as purchaser qualified as a commission within the
meaning of that word in s 11bis(4)(f). Corbett CJ’s judgment was a
minority judgment but there is no indication in the majority judgment that the
majority
disagreed with him in respect of the meaning of the word
‘commission’ or in respect of the meaning of the words
“commissions
or other remuneration for orders for goods” in s
11bis(4)(f). On the contrary, they would seem to have agreed. It is
probably for this reason that Kumbleben JA found it necessary to hold,
firstly
at 206E, that if one had regard to substance rather than form, the agreement
between Wandrag and Gefco could not be said
to be one of sale, and secondly, at
208H:
“It is true that the agreement as a whole cannot be classified as one of agency. But, on the assumption that the selling commission in clause 4(a) was the quid pro quo for marketing Wandrag’s asbestos and for nothing else, one may validly regard this term of the agreement as one of agency in the sense of a mandate given by Wandrag (the mandator) to Gefco (the mandatory) in terms of which the latter undertook to perform the task of procuring orders for export for the former”
[10] To me it is likewise
reasonably clear that the words ‘commission or other remuneration for
orders for services or goods obtained
in the course of . . . trade from persons
based in an export country’ in the second part of s 11bis(4)(f) are
to be interpreted to mean expenditure incurred in the payment of, or an
obligation to pay, commission or other remuneration
to a person for services
rendered in obtaining orders for services or goods in the course of a trade
recognized as an export service industry, from persons based in an export
country.
[11] The question to be decided is therefore whether the
address commissions constituted payments to persons for services rendered in
obtaining the orders that is to say for services rendered in obtaining the
charterers’ agreement to charter the ships. In my
view they did not. The
charterer of a ship does not by simply placing the order to charter the ship
render a service to the owner
or the disponent owner (himself a charterer) of
the ship. If an address commission is paid simply because of the order being
placed
or as an inducement to place the order and not for services
to be
rendered in respect of the ship it is in the nature of a discount and not for
services rendered in obtaining the order.
[12] In any event, the
evidence establishes that the address commissions were not agreed to simply
because of the order being placed or
as an inducement for the placing of the
order but were agreed to as remuneration to the charterers for services to be
rendered by
them in respect of the ships chartered. However, those services were
services that were to be rendered after conclusion of the relevant
charterparties, as a result of the conclusion of the charterparties and were
thus not rendered in obtaining the charterers’
agreement to charter the
ships. The fact that the charterers required to be paid an address commission
and that the charters would
probably have been lost had appellant refused to pay
address commissions does not change the nature of the services in respect of
which the address commissions were to be paid, they were still not payable for
services rendered in obtaining the charters.
[13] For these
reasons I agree that the appeal should be dismissed with costs including the
costs of two counsel.
__________________
P E
STREICHER JA
Vivier, JA)
Zulman, JA)
Mpati, JA)
concur
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