Commissioner for the South African Revenue Service v Labat Africa Limited

Labat Africa Ltd (formerly Acrem Holdings Ltd) acquired the entire business operations of Labat-Anderson (South Africa) (Pty) Ltd, including the trade mark 'Labat-Anderson', in terms of a written agreement effective 1 June 1999. The consideration for the acquisition was the issue of 133 333 333 shares by Labat Africa to Labat-Anderson, valued in total at R120 million. The purchase price was apportioned between tangible assets, the trade mark (valued at R44 462 000), and goodwill. Labat Africa claimed an income tax deduction under s 11(gA)(iii) of the Income Tax Act 58 of 1962, seeking to amortise the cost of acquiring the trade mark. The Commissioner for SARS disallowed the deduction on the basis that no ‘expenditure’ had been incurred. The taxpayer succeeded in the Income Tax Special Court and in the North Gauteng High Court, after which the Commissioner appealed to the Supreme Court of Appeal.

The appeal by the Commissioner was upheld with costs. The orders of the North Gauteng High Court and the Income Tax Special Court were set aside and replaced with an order dismissing the taxpayer’s appeal.

This case is a leading authority on the interpretation of 'expenditure' in South African income tax law. It establishes that the issue of shares as consideration for the acquisition of assets does not constitute expenditure for purposes of deductible allowances, thereby clarifying the limits of allowable deductions where acquisitions are funded through share issues rather than the outlay of money or assets.