Eveready (Pty) Limited v The Commissioner for the South African Revenue Service

Gillette Group South Africa (Pty) Ltd sold its Eveready battery business as a going concern to Eveready (Pty) Ltd with effect from 1 March 2003. Eveready acquired, among other assets, trading stock (inventory). In its 2004 income tax return Eveready claimed a deduction of R103 532 179, being the alleged market value of the trading stock at acquisition, contending that the stock was acquired 'for no consideration' under s 22(4) of the Income Tax Act 58 of 1962. SARS disallowed this claim, later allowing only R21 562 918 as the cost price, and levied interest under s 89quat(2). Eveready objected unsuccessfully to the disallowance but successfully to the interest in the Tax Court. Eveready appealed against the disallowance of the deduction, and SARS cross-appealed against the waiver of interest.

The appeal against the disallowance of the deduction was dismissed with costs. The cross-appeal against the waiver of interest was also dismissed with costs, including the costs of two counsel.

The case provides authoritative guidance on the interpretation of 'acquired for no consideration' in s 22(4) of the Income Tax Act and confirms that trading stock acquired as part of a business sale will ordinarily be regarded as acquired for consideration where the purchase price or working capital adjustments account for inventory. It underscores a contextual, purposive approach to interpreting commercial agreements in tax disputes.