THE SUPREME COURT OF APPEAL
REPUBLIC OF SOUTH AFRICA

JUDGMENT

Case No:731/07

ROBIN FRANK MAGUIRE

Appellant

and

COMMISSIONER FOR THE SOUTH
AFRICAN REVENUE SERVICE

Respondent

Neutral citation:
Maguire v The Commissioner For the South African
Revenue Service (731/07) [2008] ZASCA 156 (27
November 2008)

Coram:
FARLAM,
MTHIYANE,
HEHER
JJA,
LEACH
et
MHLANTLA AJJA

Heard:
4 NOVEMBER 2008

Delivered:
27 NOVEMBER 2008

Summary:
Income Tax – Capital or revenue – Payments in terms of successive
agreements in Restraint of Trade made before Act 30 of 2000 operated – whether
taxpayer had given up resource in exchange for payments – whether accruals part of
taxpayer's gross income.

______________________________________________________________

ORDER

On appeal from:
the Tax Court of South Africa, Johannesburg (Satchwell J
sitting as President of the Tax Court).

1.
The appeal is upheld with costs, including those occasioned by the
employment of two counsel.

2.
The order of the court a quo is set aside and replaced with an order in
the following terms:
'(a)
The appeal is upheld.

(b)
The 1998 assessment and the portions of the 1996 assessment
relating to the amounts of R350 000 and R1 250 000 are set aside and
referred back to the Commissioner for reassessment on the basis that the
amount of R350 000 which accrued to the taxpayer under the 1992
agreement, the amount of R1 250 000 which accrued to the taxpayer under
the 1996 agreement and the amount of R3 000 000 which accrued to the
taxpayer under the 1998 agreement did not fall within the taxpayer's gross
income.'

JUDGMENT

FARLAM JA (Mthiyane, Heher JJA, Leach et Mhlantla AJJA concurring)

[1] This is an appeal against a decision of the Tax Court for the Transvaal
in which appeals brought in respect of an amount of R1 250 000 (which was
included in the appellant's income for the 1996 year of assessment) and an

amount of R3 000 000 (which was included in his income for the 1998 year of
assessment) were disallowed. The judgment of the Tax Court has been
reported: see ITC 1813, 68 SATC 255.

[2] The amounts in question were paid to the appellant pursuant to two
agreements which subjected him to what were described therein as restraints
of trade. These agreements, which were concluded in 1996 and 1998
between the appellant and International Latex Products (Pty) Ltd, were
preceded by an earlier agreement in virtually the same terms concluded in
1992 between the appellant and another company, Macmed Health Care
Limited, when he entered that company's employment, in terms of which an
amount of R350 000 was paid to the appellant as consideration for a restraint
of trade. The Commissioner for the South African Revenue Services raised a
revised additional assessment for the 1996 year against the appellant on the
basis that the sums of R350 000 paid to him pursuant to the 1992 agreement
and R1 250 000 paid to him pursuant to the 1996 agreement were of an
income nature and accordingly subject to income tax. A further revised
additional assessment was raised against the appellant for the 1998 year on
the basis that the sum of R3 000 000 paid pursuant to the 1998 agreement
was also of an income nature. The Commissioner's contention was that the
1992, 1996 and 1998 agreements were not genuine restraint of trade
agreements and that in reality the payments made pursuant thereto
constituted remuneration for the appellant's services.

[3] After hearing the evidence of the appellant, who was the only witness
to give evidence before it, the Tax Court found that the 1992 agreement
contained a valid restraint covenant and that the consideration of R350 000
paid to the appellant was a capital receipt in his hands and therefore not
taxable. It accordingly allowed his appeal in respect of that portion of the 1996
assessment which related to the amount of R350 000 paid under the 1992
agreement. The appellant's appeals in respect of the payment of R1 250 000
received under the 1996 agreement and the payment of R3 000 000 received
under the 1998 agreement were disallowed and the portion of the additional
assessment for 1996, in so far as it related to the payment received by the

appellant under the 1996 agreement and the additional assessment for 1998,
were confirmed.

[4] As I have said the only witness to testify in the Tax Court was the
appellant. Not only was no evidence led to contradict his version but no
document was put to him in cross-examination which contradicted his
evidence. The court made no adverse credibility findings against the appellant
and did not question his evidence that he considered the 1992, 1996 and
1998 agreements to contain genuine restraint of trade covenants and that the
consideration he received for each did not represent disguised remuneration
for services rendered or to be rendered. Its reasons for holding that the
payment of R1 250 000 made under the 1996 agreement and the payment of
R3 000 000 under the 1998 agreement were not payments in restraint of trade
and therefore not of a capital nature and accordingly fell within his gross
income appear in paras 54 to 80 (at 267B to 272B) of its reported judgment. I
shall discuss them after I have summarised the material portions of the
appellant's evidence.

[5] The appellant testified that he entered the employ of Macmed Health
Care Limited (which I shall call in what follows 'Macmed') in 1992. On joining
Macmed he was required to sign a restraint of trade agreement (what I shall
call in what follows 'the 1992 agreement'). Among other things, the appellant
was restrained while employed in any capacity within what was described as
'the Macmed group' and for a period of two years as from the date of
termination of such employment from competing with any business conducted
by the Macmed group in the Republic, Botswana, Lesotho, Namibia,
Swaziland and Zimbabwe. The expression 'the Macmed group' was defined,
inter alia, as meaning 'the Company and all its subsidiaries and associated
companies from time to time during the material times contemplated by [the]
Agreement'.

[6] The appellant testified that he regarded the provisions of the 1992
agreement as fair and reasonable. He stated that if he had taken up a position
or employment with a competitor of the Macmed group and used the

information which he acquired while employed in the group, it would have had
a severe effect on the group's business. He testified further that the
consideration of R350 000 was paid pursuant to a genuine restraint of trade in
order to prohibit him from inflicting damage to the group if he left. He pointed
out that he was receiving substantial rewards and remuneration for the
services he rendered to the group. He also stated that the payment
constituted compensation for what was described in clause 4.2 of the
agreement as 'the sterilisation of his income earning ability resulting from the
undertaking of such restraints of trade'.

[7] He also referred in his evidence to clauses 4.3 and 4.4 of the
agreement which read as follows:
'4.3
The Employee expressly acknowledges, and it is agreed between the parties,
that in the event of the breach by the Employee of any of the terms of this
Agreement, the Employee shall, within 7 (seven) days of receipt of written
notice from the Company, repay to the Company the entire amount of the
consideration paid to him in terms of clause 4.1 above, which repayment shall
be without prejudice to any other remedies which the Company may have in
common law.

4.4
Notwithstanding the terms and conditions hereof, it is agreed that, provided
the Managing Director of the Company at the time be a person who is not on
the Board of Directors of the Company as at the date of signature hereof,
then and in such event should the Employee cease to be employed at such
time by the Macmed group for any reason whatsoever, the Employee shall be
entitled to refund to the Company the sum of R350 000-00 (Three Hundred
and Fifty Thousand Rands) paid in terms of Clause 4.1 in which event he
shall be entitled to be released from the provisions of Clause 3.'

[8] The appellant also testified that early in 1996 the Macmed group
entered into a joint venture with Kendall International (an international
corporation and a member of Tyco International), described in a document
before the court as 'the Kendall Company of South Africa'. The appellant was
given the responsibility of setting up this company and became its managing
director in April 1996. He acquired knowledge as to Kendall International's

manufacturing processes, sourcing and pricing and had complete access to
its costs throughout the world.

[9] The key personnel of Macmed and the Kendall Company of South
Africa were required to sign restraint agreements pursuant to the creation of
the joint venture. This was at the insistence of Mr Len Flynn, who was the
international representative for Kendall on the Tyco Corporation. The
appellant stated that Mr Flynn was aware that he had already signed the 1992
agreement and was accordingly bound by the restraint contained therein, but
that he was uncomfortable with the fact that in terms of clause 4.4 of that
agreement the appellant could buy himself out of the restraint for R350 000.
As a result of Mr Flynn's concern and the fact that the turnover of the Macmed
group of companies had increased substantially the appellant was required to
enter into a second restraint of trade agreement, viz the 1996 agreement, the
wording of which was almost identical to that of the 1992 agreement. The
main differences were (1) that the employer with whom the appellant
contracted was International Latex Products (Pty) Ltd, which the appellant
described as 'the lead company within the Macmed Consumables Group' and
of which he was a director; (2) that the period of restraint, in so far as it was to
operate after the termination of the appellant's employment within the
Macmed group, was to be six months; and (3) the consideration for the
restraint was R1 250 000, which was also the amount for which in terms of
clause 4.4 of the agreement (which was otherwise identical to clause 4.4 of
the 1992 agreement) the appellant was entitled to purchase his release from
the restraint. The appellant stated that the period of six months was regarded
as adequate in the circumstances and that the amount of R1 250 000 was
tendered to prevent him from inflicting damage on the company (by which I
take it he meant the group).

[10] After the 1996 agreement was concluded the appellant introduced a
large number of products into the South African market, acquired valuable
information that would have been of great value to a competitor of the
Macmed group and negotiated a number of acquisitions and joint ventures
between the Macmed group and other key players in the South African

medical industry. The turnover of the Macmed group rose substantially during
the period from 1992 (when it was about R22 million) to 1996 (when it was
about R90 million) and again to 1998 (by which time it was about R456
million). During 1998 the appellant received an offer of alternative
employment from the Tyco Corporation, which offered to pay the Macmed
group the sums of R350 000 and R1 250 000 to enable the appellant to be
released from the restraints imposed by the 1992 and 1996 agreements. The
appellant also received another offer to run a syringe plant in the Western
Cape. He declined both of these offers. By this time the Standard Corporate
and Merchant Bank had, according to the appellant, become heavily involved
in the business of the Macmed group and the Standard Bank, through its
pension funds and associated companies, had become a major shareholder
in the Macmed group. The Standard Corporate and Merchant Bank
representative, Mr Bruce Hempel was concerned that, because of the
Standard Bank's financial involvement with the group, the directors (including
the appellant) should be, as the appellant put it, 'adequately restrained'. The
upshot was that the appellant was offered a further restraint of trade so as to
provide the Macmed group with sufficient protection against the appellant's
going into competition with it. As a result of this the 1998 agreement was
concluded. It also was an agreement between the appellant and International
Latex Products (Pty) Ltd. Its terms were virtually identical with those of the
1996 agreement. The main differences were that the period of the restraint
after termination of the appellant's employment with the group was two years
(as was the case with the 1992 agreement) and the consideration paid for the
restraint (which was also the 'buy-out' amount in clause 4.4) was R3 000 000.

[11] The combined effect of the 1992, 1996 and 1998 agreements was that
the appellant (if the proviso set forth in clause 4.4 of each of the agreements
applied) could obtain his release from the restraints contained in clause 3 of
each of the agreements by paying a total of R4 600 000 back to the two
companies in the group which had provided the initial consideration for the
restraints.

[12] I now return to the reasons given in the judgment of the court a quo for

its decision that the amounts received by the appellant under the 1996 and
1998 agreements 'were not made pursuant to a Restraint of Trade'.

[13] The court stated (in para 55 at 267D) that in giving careful
consideration to the 1996 and 1998 agreements it had to follow the 'principle
that the court must not merely look at the form of the relevant transaction but
also at its real nature' (this being a quotation from the judgment of the
Transvaal Special Court in ITC 1338, 43 SATC 171 at 175).

[14] The court went on to say (in paras 61 to 65 at 268I-269F):
'61.
One looks in vain to the 1996 and 1998 agreements to see what further right
or asset the taxpayer undertook to exchange or surrender or sterilise to earn
any further consideration which could be characterised capital in nature. The
test indicated by Watermeyer CJ in CIR v Lever Bros and Another AD 441 at
450 that one should look to the originating cause of receipts or ask what was
the "quid pro quo which he gives in return for which he receives them" is, with
respect, apposite in this case. This test was repeated and applied by Corbett
JA (as he then was) in Tuck [1988 (3) SA 819 (A)] at 833D: ". . .what was the
quid pro quo which he gave for the receipt?"

62.
The restraints set out in clause 3 of the 1996 agreement and the 1998
agreement are exactly the same as those set out in the 1992 agreement,
save as regards the duration of the restraint upon termination of employment.
The taxpayer committed himself in 1992 to the surrender of those attributes of
his economic persona as set out in clause 3 of that agreement. To repeat the
same clause in 1996 and 1998 does not constitute a further surrender on his
part. These capacities have already been given up. One cannot repeatedly
exchange the same asset to the same person but for a different price each
time.

63.
The taxpayer has given up no additional resource in exchange for the further
payments in 1996 and 1998. He has undertaken no supplementary
restrictions on his income producing capacity.

64.
This view is fortified when noting that the restraints in the 1992 agreement
endured during employment and for a period of two years thereafter.

However, in the 1996 agreement, the restraint period was reduced to that of
six months. There was certainly no sacrifice on the part of the taxpayer. This
document, on the basis of which he received the payment of R1,25 million,
purported to impose a less onerous restraint period. The 1998 document did
no more than confirm the restraint period of two years as set out in the still
operative 1992 agreement.

65.
It was never contended that the time periods of the restraint, post
employment, were cumulative. Neither of the two subsequent time periods
were expressed to run from expiry of the time period in the earliest or the next
agreement. The trigger to commencement of these time periods was, in each
case, termination of the taxpayer's employment. Such trigger never
eventuated.'

[15] Later (in paras 68 to 69 at 280A-C) the court said:
'68.
. . . the taxpayer relinquished nothing in exchange for these payments. He
surrendered nothing at all. There is no capital loss to him as a result of which
he received these payments. Absent any exchange there can be no capital
receipt to him.

69.
If the 1996 and 1998 payments did not constitute consideration for any asset
of the taxpayer, then they are quite clearly attempts to "top up" the 1992
consideration paid for the restraints which the taxpayer had given at that time
and which still continued. Such augmentation cannot be a capital payment in
exchange for restraint undertakings. Not only had such undertakings already
been given four years previously but capital payments cannot be made with
retrospective effect. It is a principle of tax law that expenditure must be
incurred during the year of assessment. Macmed could not therefore in 1996
and thereafter in 1998 make payments for those freedoms which had already
been surrendered in the 1992 year of assessment.'

[16] In para 73 at 270G-H the court said:
'73.
It is difficult not to conclude that these documents are no more than off-the-
shelf precedents recycled when further sums of money were to be paid to the
taxpayer. The terms and conditions of these documents have been shown to
be without force of effect. Some of the terms are empty. The documents

appear to be meaningless save to provide a vehicle which apparently justified
payment of the two sums of money.'

[17] In a portion of his judgment headed 'The Status of these further
payments' the court speculated without making a finding as to the nature of
the relevant payments. It said (para 78 at 271E-F) that it was 'conceivable that
the payments made were to induce the taxpayer to remain in the employ of
the Macmed group'; in which case they 'would be retainers'. It was also
conceivable, the court said (in para 79 at 271H), 'that these payments might
have been considered in the nature of bonuses paid to recognise services
already rendered in the course of employment and the contribution which the
taxpayer had made in the past to the growth and apparent profitability of the
Macmed group.'

[18] The court concluded this part of its judgment by saying (in para 80 at
272A-B) that '[w]ether these payments were to secure future services or
rewards in recognition of past services, all of which would fall within the
definition of "gross income", this court is not called upon to decide.'

[19] As appears from the extracts of the judgment quoted above, the basis
of the court's finding, as was argued by Mr Marais, who appeared for the
respondent in this court, was that as the appellant had already disposed of his
right to trade freely, to the extent specified in the 1992 agreement, no further
right was disposed of under the 1996 and 1998 agreements and that the
receipts or accruals of R1.25 million and R3 million were therefore not of a
capital nature.

[20] In my view it is important, as the court a quo said, not merely to look at
the form of the transactions but to their real nature. What was the real nature
of the transactions? Is it correct that the appellant gave up 'no additional
resource in exchange for' the 1996 and 1998 payments?

[21] Before endeavouring to find an answer to these questions it will be
appropriate to say something about the way in which payments received as

consideration for submitting to a restraint of trade were dealt with in our tax
law before para (cA) was inserted into the definition of 'gross income' in s 1 of
the Income Tax Act 58 of 1962 by s 13(1)(f) of the Taxation Laws Amendment
Act 30 of 2000.

[22] Payments made to an employee in exchange for an undertaking not to
compete with his employer, ie payments for agreeing to a restraint of
trade,have been held in a series of cases to be of a capital nature. In adopting
this approach our courts have been influenced by decisions in the United
Kingdom.

[23] The first to which I wish to refer, The Glenboig Union Fireclay Co Ltd v
the Commissioners of Inland Revenue 1922 SC (HL) 112, 12 TC 427 (HL),
has often been referred to by our courts. The taxpayer, who was a
manufacturer of fireclay goods and a merchant of raw fireclay, was the lessee
of certain fireclay fields over part of which ran the lines of the Caledonian
Railway. In 1911 the railway company exercised its statutory powers to
require part of the fireclay to be left unworked (so as not to undermine the
railway) on payment of compensation. The House of Lords, dismissing an
appeal from the Court of Session in Scotland, held that the compensation
received by the taxpayer was a capital receipt, not subject to income tax. Lord
Buckmaster said (at 114-5 of the SC report, and at 463 of the TC report):
'In truth the sum was paid to prevent the Fireclay Company obtaining the full benefit
of the capital value of that part of the mines which they were prevented from working
by the railway company. It appears to me to make no difference whether it be
regarded as a sale of the asset out-and-out, or whether it be treated merely as a
means of preventing the acquisition of profit that would otherwise be gained. In either
case the capital asset of the Company to that extent has been sterilised and
destroyed . . .'

[24] Lord Wrenbury in his speech also (at 116 of the SC report, and at 465
of the TC report) regarded the compensation as 'the price paid for sterilising
the asset from which otherwise profit might have been obtained' and
accordingly not subject to income tax. Lords Atkinson, Sumner and Carson

concurred.

[25] In another decision of the House of Lords, Beak v Robson 1943 AC
352 (HL), 25 TC 33 (HL), to which Mr Marais referred us, an amount paid to a
director of a company as consideration for agreeing not to compete with the
company for a period after the period of five years from the termination of his
employment with the company was held to be not subject to income tax.

[26] In 1952 the English Court of Appeal, in Higgs v Olivier [1952] 1 Ch 311
(CA), 33 TC 136, held that an amount of £15 000 paid by a film company to
Sir Laurence Olivier for agreeing not to act in, direct or produce any film for
anybody other than the company was not a taxable receipt. The agreement
had been concluded in connection with the film Henry V, which Sir Laurence
produced and directed and in which he starred as the principal actor. Among
the cases cited by Sir Raymond Evershed MR in his judgment were the
Glenboig case and Beak v Robson. He said (at 317-8 of the Ch report, and at
146 of the TC report):
'I think that there is a true analogy between such an arrangement as that [ie the
agreement in the Glenboig case not to work the fireclay in exchange for
compensation] or between a sale of one of a trader's capital assets and a restrictive
covenant of a substantial character entered into by a trader relating to trading.'

[27] Later in his judgment (at 319 of the Ch report, and at 147 of the TC
report) he said:
'I think that case [Beak v Robson] is useful as an illustration of the kind of approach
which should be made in considering the application of the taxing provision to
covenants of this character.'

[28] The Glenboig case was held to be not capable of being distinguished
and was accordingly directly applied in CIR v Illovo Sugar Estates Ltd 1951
(1) SA 306 (N). In this case certain portions of the taxpayer's canefields were
requisitioned by the military and naval authorities, who agreed to pay
compensation for the destruction of cane, the use of the canefields and the
cancellation of a lease. Hathorn JP (with whom Carlisle and Selke JJ

concurred) held (at 310D) that the canefield was 'an essential part of the
equipment of the cane-grower's income-producing machine and, therefore,
part of his capital'. The compensation paid was accordingly held (at 310E-F)
to have been paid to the taxpayer 'for the loss of its income-producing
machine and consequently, it was a receipt of a capital nature.'

[29] The Glenboig and Illovo Sugar cases were referred to and described
as 'well-known cases' in Taeuber and Corssen (Pty) Ltd v SIR 1975 (3) SA
649 (A). In this case an agency contract provided that upon termination the
principal would be entitled to require that for a period of two years after the
termination the agent would not sell, or assist in the sale of, any products in
competition with the products of the principal, in return for which the principal
was to pay the agent in monthly instalments 60 per cent of the commission
which the principal had paid the agent in respect of agency contracts
executed during the last twelve months of the agreement.

[30] This court held that the amount paid under this provision was of a
capital nature. Rumpff CJ said (at 662A-B) that there was no doubt that at the
time of the cancellation of the agreement the taxpayer 'had established an
income-producing structure. [This] structure . . . consisted not only of
premises, personnel and the right to trade but also of certain specific
contractual rights and duties, inter alia, those that flowed from the contract
with [the principal].'

[31] Later (at 663H-664A) he said:
'What the parties intended . . . was a payment of a sum of money to restrain the
[taxpayer], for a period of two years, from earning income by the sale of all products
competing with those of [the principal]. In the result, in my view, that part of [the
taxpayer's] income-producing structure which had sold only [the principal's] products
was not only permanently prevented from selling [the principal's] products by the
termination of the agreement, but also effectively closed for two years to the extent
that it was prevented, for that period, from selling all such products as would compete
with [the principal's] products, and the amount payable in terms of [the relevant
clause] was intended to be, and must be construed as, compensation for this

closure.'

[32] The last decision to which I wish to refer in this regard is ITC 1338, 43
SATC 171, a judgment delivered by McEwan J in the Transvaal Special
Court. In this case the taxpayer agreed with the company by which he was
employed, in return for the payment of R30 000, to be bound by certain
restraints, the most important of which prevented him for a period of two years
after the termination of his employment form being employed by or concerned
in any rival undertaking in the trade in which he had worked his whole working
life. Clause 4 of the agreement provided, in effect, that in the event of a
change in control of the company he could, upon repayment of the R30 000,
obtain his release from the restraint. (I pause here to remark that the person
or persons who drafted the 1992, 1996 and 1998 agreements apparently
based clause 4.4 of the agreements signed by the appellant on clause 4 of
the contract considered in ITC 1338.)

[33] At 174 after referring to the principles laid down, inter alia, in Taeuber &
Corssen, supra, McEwan J said that there could 'be no doubt that the same
principles apply in the case of an individual'. He continued:

'An employee who by means of a covenant in restraint of trade surrenders a portion
of his income-earning capacity in return for a payment of money, is parting with a
capital asset and the payment is of a capital nature.'

[34] He then referred with approval, inter alia, to Beak v Robson and Higgs
v Olivier.

[35] In my opinion the decision of the court a quo, based as it was on the
fact that the restraint to which the appellant agreed in the 1996 and 1998
agreements was identically worded to the restraint in the 1992 agreement,
(which led the court to hold that the appellant had 'given up no additional
resource in exchange for the further payments in 1996 and 1998') overlooks
the fact that there was a further asset which the appellant gave up in
exchange for the payments. That was his right in 1996 to obtain his release

from the 1992 restraint on payment of R350 000 and his right in 1998 to
obtain his release from the 1992 and 1996 restraints on payment of R1 600
000. In both cases on the undisputed evidence his worth as an individual
unfettered by a restraint was substantially in excess of the release
consideration. This is what, from a commercial point of view, induced his
employer to pay him the further amounts.

[36] I cannot agree with the court's finding (in para 73 at 270G-H) that '(t)he
terms and conditions of [the 1996 and 1998 agreements] have been shown to
be without force or effect' and that they 'appear to be meaningless save to
provide a vehicle which apparently justified payment of the two sums of
money.'

[37] I have no doubt that if the appellant had left his employment in the
Macmed group while the companies in it were still trading and had wanted to
work for a competitor his erstwhile employers would have been able to obtain
an interdict against him unless the proviso in clauses 4.4 of the three
agreements applied and he paid them R4 600 000. It would not have availed
him (if the proviso applied) to tender R350 000 and to say that the other two
agreements were meaningless.

[38] When this point was put to Mr Marais, he attempted to meet it by
saying that to uphold this point would offend against the parol evidence rule. I
do not think there is anything in that point. It is quite clear, when all the
agreements are looked at against the background of the admissible evidence
on the point, what the parties intended. Mr Marais also submitted that this was
not the basis on which the appellant approached the court a quo. Apart from
the fact that the notice of objection was wide enough to cover the point, it
must be remembered that the case was fought in the court below on the basis
that the appellant was seeking to show that the receiver's reason for seeking
to tax the amounts was his assertion that they were amounts of remuneration
disguised as payments for agreeing to a restraint of trade. Finally Mr Marais
contended that the point was not covered by the notice of appeal. This is also
not correct as the point in my view is covered by paragraph 4 of the notice of

intention to appeal.

[39] In my view the appeal should succeed.

[40] the following order is made:

The appeal is upheld with costs, including those occasioned by the
employment of two counsel.

The order of the court a quo is set aside and replaced with an order in the
following terms:
'(a)
The appeal is upheld

(b)
The 1998 assessment and the portions of the 1996 assessment
relating to the amounts of R350 000 and R1 250 000 are set aside and
referred back to the Commissioner for reassessment on the basis that the
amount of R350 000 which accrued to the taxpayer under the 1992
agreement, the amount of R1 250 000 which accrued to the taxpayer under
the 1996 agreement and the amount of R3 000 000 which accrued to the
taxpayer under the 1998 agreement did not fall within the taxpayer's gross
income.'
………………
IG FARLAM
JUDGE OF APPEAL

APPEARANCES:

FOR APPELLANT:
P A SOLOMON SC

G D GOLDMAN

Instructed by

Cyril Ziman & Associates Inc

Johannesburg

E G Cooper & Sons Inc

Bloemfontein

FOR RESPONDENT:
P J J MARAIS SC

Instructed by

The State Attorney

Johannesburg

The State Attorney

Bloemfontein

THE SUPREME COURT OF APPEAL
REPUBLIC OF SOUTH AFRICA

MEDIA SUMMARY – JUDGMENT DELIVERED IN THE SUPREME COURT
OF APPEAL

FROM:
The Registrar, Supreme Court of Appeal

DATE:
27 NOVEMBER 2008

STATUS:
Immediate

Please note that the media summary is intended for the benefit of the
media and does not form part of the judgment of the Supreme Court of
Appeal

R F Maguire v Commissioner for the South African Revenue Service

The Supreme Court of Appeal today allowed an appeal by Mr Robin Frank Maguire
against a finding by the Tax Court for the Transvaal that payments he received under
two restraint of trade agreements from his former employers Macmed Group were
part of his gross income and accordingly taxable.

The Tax Court had found that because before the payments were made he had already
received a payment under a previous restraint of trade agreement for agreeing not to
compete with companies in the group after leaving its employ he had not given up on
additional resource in exchange for the later payments and that the payments were
accordingly part of his gross income.

The Supreme Court of Appeal disagreed with this finding. It pointed to the fact that
Mr Maguire was able to buy his release from the restraints imposed upon him by the
earlier agreements for the amounts he had received and that his value as an individual
free of the restraints was substantially in excess of the release consideration payable
in each case. By agreeing to further restraints at higher amounts he had in fact
exchanged what amounted to capital assets for the payments he received.

The judgment of the Tax Court was accordingly set aside.