Commissioner for the South African Revenue Service v SA Silicone Products (Pty) Ltd

DB Silicones CC carried on a business marketing silicone products under a licence to use Dow Corning trade marks. SA Silicone Products (Pty) Ltd purchased DBS’s business as a going concern in February 1995. The purchase price included R14.5 million allocated to ‘trade mark rights’ and a separate amount for goodwill. The trade mark licence was non-exclusive, non-assignable, and expressly reserved ownership and goodwill in the trade marks to Dow Corning. After the purchase, the respondent claimed an allowance under s 11(gA)(iii) of the Income Tax Act 58 of 1962 in respect of the R14.5 million, contending that it had acquired property similar in nature to a trade mark (the licence and associated customer connection). SARS disallowed the deduction. The Income Tax Special Court upheld the taxpayer’s appeal, and SARS appealed to the Supreme Court of Appeal.

The appeal was upheld with costs. The judgment of the Income Tax Special Court was set aside and the Commissioner’s disallowance of the deduction was restored.

The case authoritatively clarifies the scope of s 11(gA) of the Income Tax Act by distinguishing between ownership of intellectual property and mere rights of use. It confirms that tax allowances under s 11(gA) are confined to the acquisition of proprietary intellectual property interests and do not extend to licences or contractual rights of use, even if commercially valuable. The decision is important for tax planning involving intellectual property transactions.