Commissioner for South African Revenue Services v Hulett Aluminium (Pty) Limited

Hulett Aluminium manufactured aluminium products and for the 1983-1988 tax years deducted scientific research expenditure under section 11(a) of the Income Tax Act 58 of 1962. The Receiver of Revenue allowed these deductions and assessed the company accordingly. After tax was paid, the company objected, claiming it was entitled to deduct the same expenditure twice - under both section 11(a) and section 11(p)(i). The Receiver conceded the objection for the 1984-1988 years in December 1991, issued reduced assessments allowing the section 11(p) deduction, and refunded the overpayment. Following amendments to the Act (particularly section 23B(1) introduced by Act 129 of 1991 and made retrospective by Act 113 of 1993), the Commissioner issued additional assessments disallowing the double deductions. The company's objection to the additional assessments failed, but it successfully appealed to the Natal Income Tax Special Court. The Commissioner then appealed to the Supreme Court of Appeal.

• Whether double deductions for scientific research expenditure were permissible under sections 11(a) and 11(p)(i) of the Income Tax Act before the amendments
• Whether the retrospective application of section 23B(1) affected assessments that had been finalized before the amendment
• Whether the third proviso to section 79(1) precluded the Commissioner from issuing additional assessments based on a generally prevailing practice

The appeal was dismissed with costs. The additional assessments issued by the Commissioner were set aside.

The third proviso to section 79(1) of the Income Tax Act 58 of 1962 precludes the Commissioner from issuing additional assessments where the original assessment was made in accordance with a practice generally prevailing at the date of assessment, even if that assessment is later considered to be incorrect due to retrospective legislative amendments. A generally prevailing practice can be established through internal circulars and the actual conduct of the Revenue authority in applying a particular interpretation across its offices. Where the Revenue authority accepts a Special Court judgment and communicates that acceptance to its officials through circulars, this can give rise to a generally prevailing practice of applying that judgment's interpretation, which will protect taxpayers who are assessed in accordance with that practice.

The Court expressly stated that it found it unnecessary to decide two important issues: (1) whether double deductions for scientific research expenditure were indeed permissible under the Act as it stood before the amendments; and (2) whether the company's tax liability for the relevant years had been finally determined on 6 December 1991 such that it remained unaffected by the retrospective application of section 23B(1), despite the retroactivity of that provision (citing the principles from Bellairs v Hodnett and Another 1978 (1) SA 1109 (AD) and National Iranian Tanker CO v mv 'Pericles GC' 1995 (1) SA 475 (AD)). The Court also noted, but did not need to resolve, the discrepancy between Mr Coetzee's testimony about the intended purpose of the 30 June 1988 circular and its actual wording.

This case establishes important principles regarding the third proviso to section 79(1) of the Income Tax Act and the concept of 'generally prevailing practice'. It demonstrates that even if an assessment is technically incorrect (particularly due to retrospective legislation), the Commissioner cannot issue additional assessments if the original assessment was made in accordance with a practice generally prevailing at the time. The case illustrates the importance of administrative consistency and protects taxpayers from retrospective changes where the Revenue authority had itself adopted and communicated a particular interpretation or practice. It also shows the limits of retrospective tax legislation in circumstances where assessments have been finalized in accordance with the Revenue's own established practices.