Commissioner for the South African Revenue Service v Big G Restaurants (Pty) Ltd

Big G Restaurants (Pty) Ltd operated Spur and Panarottis restaurants as a franchisee under written franchise agreements with Spur Group (Pty) Ltd. Under these agreements, Big G paid monthly franchise fees calculated as a percentage of gross sales and was obliged to refurbish and upgrade its restaurants at intervals determined by the franchisor. For the 2011 to 2014 years of assessment, Big G claimed allowances under s 24C of the Income Tax Act 58 of 1962, contending that its income from operating the franchise was received in terms of the franchise agreements and would be used to finance future refurbishment expenditure required by those agreements. SARS disallowed the claims and raised additional assessments. The Tax Court found in favour of the taxpayer, and SARS appealed to the Supreme Court of Appeal.

The appeal by the Commissioner for the South African Revenue Service was upheld with costs. The order of the Tax Court was set aside and replaced with an order dismissing the taxpayer’s appeal, thereby confirming the additional assessments raised by SARS.

The case authoritatively clarifies the scope of s 24C of the Income Tax Act and confirms that the allowance is available only where the income and the obligation to incur future expenditure arise from the same contract. It restricts attempts to extend s 24C to business structures, such as franchises, where income is earned from third-party transactions rather than directly under the contract imposing future obligations. The judgment is a key authority on the interpretation of s 24C and on the narrow construction of statutory tax concessions.