Comshipco Shiffahrtsagentur GmbH v The Commissioner for South African Revenue Service

The appellant, Comshipco Shiffahrtsagentur GmbH, is a domestic company conducting business in Durban as a ship charterer. It charters ships in and then charters them out, operating as a disponent owner. Both time and voyage charters were used. The appellant was registered as an exporter and carried on a trade recognized as an "export service industry" under section 11 bis of the Income Tax Act 58 of 1962. In terms of the relevant charterparties (mainly using the New York Produce Exchange form), the appellant paid "address commission" to charterers, typically at 1.25% of the hire earned and paid. Historically, address commissions originated from money provided to ship masters or agents at ports for services required in respect of the ship. In modern practice, address commission is paid by the disponent owner to the charterer for the charterer undertaking port services (port charges, loading/discharging, pilotage, etc.) for which the owner would otherwise be responsible. The commission is not reimbursive but is a percentage of hire, covering both disbursements and services rendered. For the tax years 1 October 1988 to 30 September 1992, the appellant sought to deduct these address commissions as marketing expenditure qualifying for a marketing allowance under section 11 bis(4)(f) of the Income Tax Act. The Commissioner disallowed the deduction. The Natal Income Tax Special Court dismissed the appellant's appeal, and the appellant then appealed to the Supreme Court of Appeal.

• Whether address commission paid by a disponent owner to charterers constitutes 'commission or other remuneration for orders for services or goods obtained in the course of trade from persons based in an export country' within the meaning of section 11 bis(4)(f) of the Income Tax Act 58 of 1962
• Whether address commission qualifies as marketing expenditure for the purposes of claiming a marketing allowance under section 11 bis of the Income Tax Act
• The proper interpretation of 'commission or other remuneration' in the context of section 11 bis(4)(f)
• Whether the charterers can be regarded as agents or intermediaries procuring orders for the services of the disponent owner

The appeal was dismissed with costs, including the costs of two counsel. The appellant was not entitled to deduct address commissions as marketing expenditure qualifying for a marketing allowance under section 11 bis(4)(f) of the Income Tax Act 58 of 1962.

Address commission paid by a disponent owner of a ship to a charterer does not constitute 'commission or other remuneration for orders for services' within the meaning of section 11 bis(4)(f) of the Income Tax Act 58 of 1962, and therefore does not qualify as marketing expenditure for the purposes of claiming a marketing allowance. For a payment to qualify as 'commission or other remuneration for orders' under section 11 bis(4)(f), it must be paid to an agent, broker or intermediary for services rendered in obtaining or procuring orders for the exporter's services from persons based in an export country. Address commission is paid to the charterer as remuneration for port services rendered after the charterparty has been concluded, not for procuring the order itself. The charterer is the customer who places the order, not an intermediary who procures orders from third parties. Therefore, address commission is expenditure for the procurement of port services rendered to the taxpayer, not marketing expenditure incurred for the procurement of orders for the taxpayer's services.

Olivier JA observed that the word 'commission' is not a term of legal art and cited with approval the definition from the Oxford English Dictionary: 'A remuneration for services or work done as an agent, in the form of a percentage on the amount involved in the transactions; a pro rata remuneration to an agent or factor.' The Court noted that the phrase 'or other remuneration' in section 11 bis(4)(f) extends the concept of commission to cover situations where an intermediary who procures orders is not technically an agent earning commission, but may be a broker or intermediary working for another form of remuneration such as a salary. Streicher JA observed that if an address commission is paid simply because of an order being placed or as an inducement to place the order, and not for services to be rendered in respect of the ship, it would be in the nature of a discount rather than remuneration for services rendered in obtaining the order. The Court noted that the fact that charterers required payment of address commission and that charters would probably have been lost had the appellant refused to pay address commissions does not change the nature of the services in respect of which the commissions were paid.

This case provides important guidance on the interpretation of section 11 bis(4)(f) of the Income Tax Act 58 of 1962, particularly in the context of the export service industry. It clarifies the meaning of 'commission or other remuneration for orders' and establishes that such commission must be paid for services rendered in obtaining or procuring orders, not for services rendered in fulfilling the contract after the order has been placed. The judgment is significant for the shipping industry and other export service industries, as it establishes that payments made to customers (such as charterers) for services they render in connection with the contract do not qualify as marketing expenditure, even if such payments are described as 'commission' and even if they are necessary to secure the business. The case also demonstrates the application of the purposive approach to interpreting tax legislation, with the Court emphasizing that section 11 bis was intended to encourage exports and the inflow of foreign currency by providing tax benefits for genuine marketing expenditure incurred in procuring orders from foreign customers.