First National Bank of Southern Africa Ltd v Commissioner for Inland Revenue

First National Bank of Southern Africa Ltd (the appellant), a South African commercial bank, earned interest income during the 1987 and 1988 tax years from foreign currency loans advanced to its South African clients. The foreign currency used for these loans was borrowed by the appellant from foreign banks and contractually made available, and repayable, in New York through accounts at Chase Manhattan Bank. Clients were debited in South Africa in rand for the capital and interest, including the appellant’s profit margin. The Commissioner for Inland Revenue included the interest amounts in the appellant’s gross income, contending that they were from a source within South Africa. The appellant objected, arguing that the source of the interest was outside the Republic because the funds were made available in New York.

The appeal was dismissed with costs, including the costs of two counsel, and the assessments including the interest in the appellant’s gross income were upheld.

The case is significant for clarifying South African tax law on the determination of the source of interest income. It reaffirms that source is not determined by a single formal factor such as the place of payment or availability of funds, but by a holistic, factual enquiry into the dominant cause of the income, strengthening the practical approach established in earlier jurisprudence.