The Commissioner for South African Revenue Services v Foodcorp Limited

Foodcorp Limited (respondent) owned portions 1 and 2 of the farm Klipfontein in Middelburg. In 1982, the respondent, BP Southern Africa (Pty) Limited, and Douglas Colliery Limited (Douglas) formed a joint venture for coal mining operations at Middelburg Mine. The respondent contributed its half share of coal rights on portions 1 and 2 of Klipfontein to the joint venture, receiving a 6.497% share. On 12 July 1989, the respondent entered into two agreements with Douglas: (1) a coal rights sale agreement selling coal rights for R15 million, and (2) a sale and assignment agreement selling its interests in the joint venture for R5 million, totaling R20 million. The Commissioner for SARS assessed the respondent for the 1989 tax year, including R12,498,078 in gross income, claiming section 37 of the Income Tax Act 58 of 1962 applied as there had been a change of ownership of a mining property including development assets. The respondent objected and appealed to the Special Income Tax Court.

• Whether the provisions of section 37 of the Income Tax Act 58 of 1962 applied to the R20 million received by the respondent
• What constitutes 'a mining property' for purposes of section 37 of the Income Tax Act
• Whether the two separate agreements should be treated as one transaction
• Whether there was a change of ownership of a mining property as contemplated in section 37
• Whether paragraph (j) of the definition of 'gross income' in section 1 applied to recoupment of capital expenditure on disposal of development assets

1. The appeal is dismissed with costs; 2. The orders of the court a quo are set aside; 3. There is no order as to the costs of the cross-appeal; 4. The Commissioner's assessment is referred back for investigation and re-assessment in respect of the receipt of R20 million by the respondent, such re-assessment to be made without the application of the provisions of section 37 of the Income Tax Act.

For purposes of section 37 of the Income Tax Act 58 of 1962, 'a mining property' means land (immovable property) on which mining is carried on. A change of ownership of a mining property under section 37 requires a transfer of the land itself, not merely a transfer of mineral rights or the right to conduct mining operations. Where land on which mining occurs remains registered in the original owner's name and no transfer of the land takes place, section 37 does not apply even if all other mining assets and rights are transferred. The Commissioner must determine amounts received in respect of disposal of assets according to paragraph (j) of the definition of gross income without regard to section 37 where there has been no change of ownership of the land itself.

The Court noted that it is conceivable that in an appropriate context, the word 'property' might include property of every description, including rights, and that 'ownership' might apply to all rights, both personal and real, and to physical property. However, the phrase 'a property' cannot apply to anything other than immovable property. The Court also observed that one of the objects of section 37 is to enable the Commissioner to apply a value to development assets where parties to an agreement do not do so, but this does not justify extending the meaning of words in the section beyond their proper meaning. The Court commented on the lack of clear explanation for why the parties entered into two separate contracts when the subject matter was similar or identical, suggesting this structure was artificial.

This case provides authoritative interpretation of what constitutes 'a mining property' under section 37 of the Income Tax Act 58 of 1962. It establishes that the phrase refers specifically to land on which mining is carried on, not merely mineral rights or the right to conduct mining operations. The judgment clarifies the distinction between transfer of land and transfer of mining rights for tax purposes, and confirms that section 37's deeming provisions regarding effective value of development assets only apply where there is an actual change of ownership of the land itself. The case also demonstrates the court's willingness to look at the substance of transactions (treating two separate agreements as one transaction) while still applying statutory provisions according to their proper meaning.