THE SUPREME COURT OF APPEAL OF SOUTH AFRICA
JUDGMENT

Reportable
Case no: 1159/2017

In the matter between:
THE MILNERTON ESTATES LIMITED
APPELLANT
and
THE COMMISSIONER FOR THE SOUTH
AFRICAN REVENUE SERVICE
RESPONDENT

Neutral citation: Milnerton Estates Ltd v CSARS (1159/2017) [2018]
ZASCA 155 (20 November 2018)
Coram:
NAVSA ADP, WALLIS and MATHOPO JJA and
MATOJANE and NICHOLLS AJJA
Heard:
6 November 2018
Delivered: 20 November 2018
Summary: Income Tax – purchase price of erven in a township sold by
developer – sales occurring in one tax year and all suspensive conditions
fulfilled in that year – transfer registered and purchase price received in
following year – whether purchase price deemed to have accrued in year
that sale agreements concluded – s 24(1) of Income Tax Act 58 of 1962 –
stare decisis

ORDER

On appeal from: Tax Court, Cape Town (Binns-Ward J and assessors)
The appeal is dismissed with costs, such costs to include the costs
consequent upon the employment of two counsel.

JUDGMENT

Wallis JA (Navsa ADP, Mathopo JA and Matojane and Nicholls
AJJA concurring)

[1] The appellant, the Milnerton Estates Limited, is a property
developer. The proceeds of sales of stands in its developments constitute
income in its hands, forming part of its gross income and ultimately
attracting a liability to pay income tax. Sometimes an agreement of sale
in respect of a stand is concluded in one tax year, while transfer of the
property to the purchaser and payment of the purchase price occurs in the
following tax year. In such cases a question may arise whether the
purchase price is to be brought to account in the earlier year, rather than
the later year when it is received. The reason is that the definition of gross
income in s 1 of the Income Tax Act 58 of 1962 (the Act) provides that
gross income includes ‘the total amount, in cash or otherwise, received by
or accrued to or in favour of’ the taxpayer in relation to that tax year. This
Court has held that ‘accrued to’ means that the taxpayer has become
entitled to the amount in question, even though its right thereto may not

be immediately enforceable.1 Those circumstances arose in the present
case. The respondent, the Commissioner for the South African Revenue
Service (SARS or the Commissioner as the case may be) contended that
the purchase price of certain stands was to be included in the earlier tax
year, when the agreements of purchase and sale were concluded, while
Milnerton Estates contended that it should only be included after it was
received in the following year. Was SARS or Milnerton Estates correct?

[2] The facts are pleasantly uncomplicated and common cause
between the parties. In 2013 Milnerton Estates concluded twenty-five sale
agreements of erven in the Parklands Residential Estate. The purchasers
were required to pay a nominal deposit of R5 000 and the balance of the
purchase price was payable against transfer. In sixteen instances, where
the purchaser had to raise finance and furnish a guarantee, the contracts
contained a suspensive condition providing for the eventuality of the
finance not being obtained. In all of them the suspensive condition was
fulfilled before the end of the 2013 tax year. In the other nine sales the
purchaser either deposited the purchase price in cash with the
conveyancers or provided a guarantee from a financial institution for the
payment of the price. The net result was that in all twenty-five cases the
purchase price was fully secured before the end of the 2013 tax year.

[3] Before Milnerton Estates could give possession of an erf to the
purchaser it had to obtain the approval of the local authority, the City of
Cape Town Municipality, by way of what was referred to as a s 31
certificate, to permit the passage of vehicular traffic on the completed
roads in the development. In all but five instances that certificate had

1 Commissioner for Inland Revenue v People’s Stores (Walvis Bay) (Pty) Ltd 1990 (2) SA 353 (A).

been obtained before conclusion of the sale agreement and in the
remaining instances it was obtained shortly afterwards. In respect of each
erf the s 31 certificate was obtained before the end of the 2013 tax year
and Milnerton Estates was, therefore, able to give possession to the
purchaser (and in some instances had done so) before the end of that tax
year.

[4] Milnerton Estates was obliged to give possession of the erven to
each purchaser, either once the purchase price had been secured and the
s 31 certificate obtained, or within sixty days of the date of signature of
the sale agreement, whichever was the later. Once possession was given
Milnerton Estates was obliged, within thirty days, to register transfer of
the stands into the names of the purchasers, provided the latter had
complied with all their obligations in terms of the agreements. By the end
of the 2013 tax year purchasers had in eighteen instances been given
possession of their stands. In several cases rates certificates had been
obtained and conveyancing documents had either been prepared or were
in the course of preparation. The costs of effecting transfer had either
been paid or secured.

[5] No doubt on the principle that ‘there’s many a slip, twixt cup and
lip’, the appellant contended that at the end of the 2013 tax year its
entitlement to the purchase price remained conditional on its performance
of the remaining tasks necessary to effect transfer of the stands into the
names of the purchasers. It accordingly omitted the purchase prices of
these twenty-five stands from its gross income for that year. SARS
disagreed. It contended that the purchase price in each instance had
accrued to Milnerton Estates in the 2013 tax year, or alternatively that it
was deemed to have done so by virtue of the provisions of s 24(1) of the

Act. It accordingly issued an assessment in which it included amounts
totalling nearly R6.8 million in Milnerton Estates’ taxable income,
attracting a liability for income tax of slightly less than R1.9 million.
Milnerton Estates’ appeal to the Income Tax Court, Cape Town (Binns-
Ward J and assessors) was dismissed on the second ground relied on by
SARS and, but for that, would have failed in part on the first ground.
Binns-Ward J gave leave to appeal directly to this court.

[6] The appeal raised two issues. They were:
(a)
Whether the appellant’s right to receive the purchase price under
these sale agreements accrued to it during the 2013 tax year?
(b)
In any event, whether the deeming provision in s 24(1) of the Act
deemed those amounts to have been received by the appellant during the
2013 tax year.
There was no need for the Commissioner to rely on the deeming
provision in s 24(1) if in fact the purchase price of these stands accrued to
the appellant during the 2013 tax year. In that sense, the question whether
there was an actual accrual was anterior to the application of the deeming
provision. However, in the light of my conclusion that the previous
judgment of this Court in Silverglen Investments2 on the effect of s 24(1)
is binding authority on the point, it is unnecessary to canvas the
potentially complicated question of whether there was an accrual in
accordance with ordinary principles.

[7] Section 24(1) reads as follows:
‘Credit agreements and debtors allowance

2 Secretary for Inland Revenue v Silverglen Investments (Pty) Limited 1969 (1) SA 365 (A) (Silverglen
Investments).

Subject to the provisions of section 24J, if any taxpayer has entered into any
agreement with any other person in respect of any property the effect of which is that,
in the case of movable property, the ownership shall pass or, in the case of immovable
property, transfer shall be passed from the taxpayer to that other person, upon or after
the receipt by the taxpayer of the whole or a certain portion of the amount payable to
the taxpayer under the agreement, the whole of that amount shall for the purposes of
this Act be deemed to have accrued to the taxpayer on the day on which the
agreement was entered into.’

[8] The Commissioner contended that the requirements of the section
were met in that:
(a) the taxpayer (Milnerton Estates);
(b) had entered into agreements with other persons (the purchasers of
erven);
(c) in respect of immovable property (the erven);
(d) the effect of which agreements was that transfer would be passed from
Milnerton Estates to the purchasers;
(e) upon or after the receipt by Milnerton Estates of the whole of the
amount payable to it under the agreements.
On that basis the Commissioner contended that the whole amount was
deemed to have accrued to Milnerton Estates on the date on which the
agreements were entered into.

[9] Save in respect of item (e) Milnerton Estates did not challenge this
analysis. I will revert to that item in dealing with the judgment in
Silverglen Investments, but first it is necessary to address the other
elements of Milnerton Estates’ primary argument. It argued that the
section is not concerned with cash sale agreements of this type, but only
with agreements for the sale of immovable property on credit. It drew a
distinction between cash sales and sales of immovable property, where

the purchase price was to be paid in instalments over time, with transfer
only being given once the full purchase price had been paid. While not
confined to such sales, broadly speaking the distinction for which counsel
contended was that between cash sales of immovable property and
alienations of land in terms of a contract as defined in s 1 of the
Alienation of Land Act 68 of 1981, where the price would be paid in two
or more instalments over time.

[10]  In support of this argument counsel drew attention to the opening
words ‘subject to the provisions of s 24J’. That section deals with
contracts under which interest may accrue to the creditor as part of the
transaction and provides for the method by which the accrual of interest
in any accrual period is to be determined.  It is true that this is not a
provision applicable to the sales in issue here, but I do not think that
suffices to remove them from the ambit of s 24(1). The effect of the
insertion of the reference to s 24J in s 24(1) was to bring the latter section
fully into line with the former, so that, in the case of agreements falling
under both, the determination of the accrual in respect of interest would
take place under s 24J.

[11] Reliance was also placed on s 24(2) which empowers the
Commissioner, where at least twenty-five percent of the amount payable
under an agreement falling within s 24(1) only becomes due and payable
on or after the expiry of a period of not less than 12 months after the date
of the said agreement, to make an allowance over and above the
allowance under s 11(j) for potential bad debts. I accept that the
predominantly this provision will find application with conventional
finance agreements in respect of movables. However, it was contended
that s 11(j) had no application to a cash sale of the type in this case. I

accept that it is difficult, and may be impossible, to envisage a situation in
which it could find application to a cash sale. Even if that is correct,
however, it does not necessarily follow that the effect of s 24(2) is to
remove from the ambit of s 24(1) agreements that otherwise fall within its
terms. Nonetheless, it is a factor that together with other factors might
point in favour of a more restrictive construction of s 24(1) in relation to
the range of agreements covered by it.

[12] The argument then focussed on the heading to the section and its
express reference to both credit agreements and debtors allowance.3 The
point was stressed that these agreements were not credit agreements, but
cash sales. A debtor’s allowance, or provision for doubtful debts, has
little application in relation to such agreements. This was reinforced by its
obvious reference to the provisions of s 24(2) and the reference therein to
s 11(j) of the Act, which provides for the deduction from income of an
allowance in respect of doubtful debts in the course of determining the
taxpayer’s taxable income. There is undoubtedly some force in this and it
is reinforced by the fact that in the original version of the Act in 1962 the
heading was ‘Hire-purchase or other agreements providing for
postponement of passing of property concerned’. That was amended to
read ‘Credit agreements and debtors allowances’ in 1986, no doubt in the
light of the repeal of the Hire-Purchase Act 36 of 1942 and its
replacement by the Credit Agreements Act 75 of 1980. However, that
force is mitigated by the fact that the amendment was effected after the

3 As to the permissibility of referring to the heading see President, Republic of South Africa and
Another v Hugo [1997] ZACC 4 1997 (4) SA 1 (CC) para 12, fns 13-15. A reference to the section’s
amendment by s 16(1) of the Income Tax Act 65 of 1986 makes it clear that this is a heading and
resolves the doubts expressed in S v Liberty Shipping & Forwarding (Pty) Ltd and Others 1982 (4) SA
281 (D).

judgment in Silverglen, without any corresponding amendment to exclude
cases of the present type from the ambit of the section.

[13]   Lastly, counsel urged upon us cases that hold that in undertaking
statutory interpretation the court should adopt a practical approach and
that provisions in a statute should be construed having regard to their
situation in the statute, so that, chameleon-like, they take colour from
their surroundings. The latter is hardly a strong argument when the
surrounding provisions of the Act do not demonstrate any significant
pattern. If one goes back to the Act as it stood in 1962 the three preceding
sections bore respectively the following headings: ‘Deduction of alimony,
allowance or maintenance’; ‘Amounts to be taken into account in respect
of values of trading stocks’; and ‘Deductions not allowed in
determination of taxable income’. The two that followed were ‘Income of
beneficiaries and estates of deceased persons’, since amended to read
‘Taxation of deceased estates’, and ‘Determination of taxable income
from farming’. I am unable to discern any pattern from these, much less
from the multitudinous intervening sections that have over the years been
inserted into the Act between these original provisions.

[14] I am unconvinced that these arguments, even taken collectively,
would suffice to permit a restrictive interpretation of the language of
s 24(1) to confine its application to credit agreements properly so called,
as opposed to all sale agreements, where ownership passes from seller to
purchaser ‘upon or after receipt by the taxpayer of the whole or a certain
portion of the purchase price’. Saying that ownership passes on or after
receipt of the whole purchase price is an apt description of cash sales,
while saying that ownership passes upon or after receipt of a certain
portion of the purchase price encompasses sales on credit.

[15] This takes me back to the Commissioner’s point (e) in the analysis
in para 8 above. Counsel for Milnerton Estates seized upon the
requirement that ownership should only pass ‘on or after’ receipt of the
purchase price. He pointed out that, for ownership to pass in respect of
immovable property, it is necessary for the transfer of the property from
seller to buyer to be registered in the Deeds Registry. In the ordinary
course, and certainly as applied in these twenty-five cases, that would
occur before the seller received the purchase price. The common and
almost inevitable practice, as happened here, is that a guarantee is
provided for payment that is only payable on proof of registration into the
name of the purchaser. There may be cases where a stakeholder, such as
the conveyancer or possibly an estate agent, holds the purchase price in
trust until registration and then pays the seller, but the occasions on which
a seller receives the purchase price prior to transfer will be rare. Payment
simultaneously with transfer is physically impossible.4 Counsel relied on
this, both to buttress his argument that s 24(1) is only concerned with
credit agreements, and also as a separate argument that the particular
transactions in this case did not fall within the section.

[16] Whatever appeal this argument might otherwise have had, it is
incompatible with the decision of this Court in Silverglen Investments.
The background to that decision was the following. The taxpayer
concluded a contract for the sale of property to one Ebrahim. In terms of
the provisions of the Group Areas Development Act 69 of 1955, as
amended, this triggered a pre-emptive right to acquire the property in
favour of the Group Areas Development Board. The Board exercised that

4 For the reasons explained in Breytenbach v Van Wijk 1923 AD 541 at 546-547.

right by way of a letter dated 10 December 1962 and the terms of its
acquisition had been agreed by 30 May 1963. The 1963 tax year ended on
30 June 1963. Transfer was effected and the purchase price paid in
August 1963. The taxpayer was obliged to account for this as part of its
taxable income. If it could do that in the 1963 year it would benefit from
certain allowances, but if it had to do so in the 1964 year those
allowances would have been removed.

[17] On those facts the taxpayer contended that s 24(1) applied and that
the whole of the purchase price should, for the purposes of the Act, be
deemed to have accrued to it when its contract with the Board was
concluded, either in December 1962 or by no later than 30 May 1963.
The Secretary contended that the deeming provision had no application.
The first ground for this contention was said to be that the arrangements
under which the Board acquired the property did not constitute an
agreement within the meaning of that expression in s 24(1) of the Act.
The Court rejected that contention and it need not detain us.

[18] The second contention was that the purchase price had to be
payable before or simultaneously with transfer, whereas under the
arrangements in that case, no amount was payable until transfer had been
effected. The Court rejected this contention saying:5
‘Counsel for the appellant made the further point that sec. 24 of the Income Tax Act
deals, in relation to immovable property, with an agreement under which transfer is to
be passed upon or after receipt by the owner of the whole or a certain portion of the
amount payable to him under the agreement, i.e. according to counsel, an agreement
under which the passing of ownership is suspended notwithstanding that the purchaser
is given time to pay, and the consideration is payable before transfer, whereas in this

5 At p 74A-F.

case no amount is payable until the transfer has been effected. There is no substance
in this. The meaning of “amount payable . . . under the agreement” is not limited to an
amount payable before transfer, and in the case of an immovable it is inappropriate to
speak, as in the case of movable property delivered under a hire-purchase agreement,
of the suspension of the passing of ownership, as ownership could in any case not
pass under an agreement before transfer.
In my opinion the Board acquired these affected properties by an agreement such as is
described in sec. 24, and the consideration payable under the agreement must be
deemed to have accrued on or before 30 May 1963, i.e. during the tax year ended 30
June 1963.’

[19] It is a well-known expedient of our law to treat the provision of a
guarantee for payment against transfer, or the lodging of the purchase
price with a suitable stakeholder, as discharging the purchaser’s
obligation to pay the purchase price pari passu with transfer.6 It is I think
clear that, in saying that in regard to immovable property it was
inappropriate to speak of the suspension of the passing of ownership, as
ownership could not pass before transfer, the Court had in mind that
expedient. In law the guarantees provided by the purchasers of erven
from Milnerton Estates constituted payment of the purchase price, such
payment being concurrent with transfer of ownership by registration in
the Deeds Registry. The agreements accordingly provided for Milnerton
Estates to pass ownership to the purchasers upon or after receipt of the
whole of the purchase price in terms of s 24(1). The purchase price was
therefore deemed to be received in its entirety in the 2013 tax year, not
the 2014 year, when payment was in fact made. That is what was decided
in Silverglen Investments and it applies equally to the present case.

6 Breytenbach v Van Wijk supra, 546-547 endorsing Trichardt v Muller 1915 TPD 175 at 178. See also
Hammer v Klein and Another 1951 (2) SA 101 (A) at 105E-G.

[20] As a last resort counsel sought to contend that Silverglen
Investments was wrongly decided. The fact that this argument was not
contained in the heads of argument perhaps explains the failure to address
the limited circumstances in which this Court departs from its previous
decisions.7 Be that as it may, I am not only unpersuaded that this is a
proper case to do so, but am of the view that Silverglen Investments was
correctly decided. Counsel’s strongest point, in favour of the contention
that the Court fell into error, was that the consequence of upholding the
interpretation in Silverglen Investments would be to bring all sales of
immovable property subject to suspensive conditions within the ambit of
s 24(1). The consequence, so he submitted, was that sellers of immovable
property might be liable to pay income tax on amounts the recovery of
which was uncertain and in circumstances where, if the worst happened
and the transaction failed for any reason, they might not be able to
recover the tax they had paid. He also instanced the potential for the sale
to give rise to a capital gain in the first year and a capital loss in the
second in circumstances where the taxpayer might have no corresponding
gain against which to offset that loss.8

[21]  I am not convinced that these points, even if valid, are sufficient
justification for departing from a considered judgment of this court. If
there are such anomalies and they are as serious as was suggested the
remedy lies in the hands of the legislature. However, I am not convinced
that either point is valid. In Corondimas v Badat9 this Court held that
when a contract of sale is subject to a true suspensive condition ‘there

7 Recently reaffirmed in Patmar Explorations (Pty) Ltd and Others v Limpopo Development Tribunal
and Others [2018] ZASCA 19 2018 (4) SA 107 (SCA) para 3.
8 Relying on New Adventure Shelf 122 (Pty) Ltd v Commissioner: South African Revenue Service
[2017] ZASCA 29; 2017 (5) SA 94 (SCA).
9 Corondimas and Another v Badat 1946 AD 548 at 551.

exists no contract of sale unless and until the condition is fulfilled’. While
that decision has been subject to fierce academic criticism,10 it has not
been overruled. The agreements with which s 24(1) is concerned will in
the ordinary course be agreements of purchase and sale. If subject to a
true suspensive condition then, until the condition is fulfilled, on a proper
interpretation of the section there may well be no binding agreement that
ownership be passed upon or after receipt of the amount payable to the
taxpayer. I make no definite finding on a point that does not arise for
decision. We have not had the benefit of full argument, nor do we know
whether there is any significance in the accounting treatment of these
agreements, but this may provide an answer to counsel’s concern.

[22] As regards the other concern with capital gains, the determination
of the amount of any capital gain falling to be included in the taxpayer’s
taxable income is a matter dealt with in the Eighth Schedule to the Act. It
is not apparent to me that the provisions of s 24(1) apply in determining
when an accrual occurs for the purpose of para 3 of the Eighth Schedule.
There is no reference back to s 24(1) and on its face the Schedule seems
to provide a self-contained method for determining whether a capital gain
or loss has arisen. Again I refrain from any definitive decision on the
point, but it may be an answer to the concern expressed by counsel. For
present purposes both points raised in criticism of the decision in
Silverglen Investments are not sufficiently weighty to justify our
departing from the decision of our predecessors.

[23] The Tax Court was accordingly correct to dismiss the appeal on the
grounds that it was bound by Silverglen Investments. This appeal must

10 Geue v Van der Lith 2004 (3) SA 333 (SCA) paras 8-12.

suffer the same fate. It is dismissed with costs, such costs to include the
costs consequent upon the employment of two counsel.

___________________________
M J D WALLIS
JUDGE OF APPEAL

Appearances

For appellant:
T S Emslie SC (with him S R Kotze)
Instructed by:
David Borman & Strong, Cape Town;
Webbers, Bloemfontein.

For respondent:
R T Williams SC (with her C D Tsegarie)

Instructed by:
State Attorney, Cape Town and Bloemfontein.