THE SUPREME COURT OF APPEAL
OF SOUTH AFRICA
Reportable

CASE NO:  290/2002

In the matter between

RANE INVESTMENT TRUST
APPELLANT

and

COMMISSIONER FOR THE SOUTH
AFRICAN REVENUE SERVICE
RESPONDENT

CORAM:  HOWIE P, MARAIS, FARLAM, CLOETE, LEWIS JJA

HEARD:      15 MAY 2003

DELIVERED:  30 May 2003

SUMMARY:  Film investment;  deduction under erstwhile ss 11bis and 24F of Income
Tax Act 58 of 1962;  contractual arrangements interpreted in light of parties’ conduct.

JUDGMENT

LEWIS JA

[1] The appellant (‘Rane’) is an investment trust. In 1989 it became a
partner in an en commandite partnership formed for the purpose of
investing in film ventures. This appeal concerns deductions claimed by
Rane for expenditure incurred from income in 1989 under the then ss
11bis and 24F of the Income Tax Act 58 of 1962. The respondent (the
‘Commissioner’) disallowed the deductions. Rane appealed against the
assessment to the Cape Income Tax Special Court. That appeal
proceeded on  several grounds. Conradie J in the Special Court upheld
Rane’s appeal on one ground (the claim under s 24F) and dismissed it
in respect of  the others (under ss 11(b) and 11bis).  Rane appeals
now against the decision of the Special Court to confirm the
Commissioner’s assessment in so far as the claims under ss 11(b) and

11bis were concerned; and the Commissioner cross appeals in respect
of the decision to grant a film allowance under s 24F.

[2] I shall deal with each ground in turn. Before doing so, however, I
shall describe in summary the nature of the film venture and the
agreements between the partnership, of which Rane subsequently
became a member, and various other entities. The partnership
invested in the making and distributing of two films: ‘Devil Fish’ and
‘Final Cut’. It became clear during the course of the hearing in the
Special Court, and it was conceded on appeal to this Court, that
foreign expenditure in respect of Devil Fish had not been proved and
Rane did not persist in any claim in respect of that film.  Accordingly
only deductions claimed in respect of Final Cut remain relevant.

[3] The agreed facts were as follows.  Four agreements were
concluded between different parties on the same day – 13 December
1988. First, the commanditarian partnership was formed between
Compass Films (Pty) Ltd (referred to as ‘Filmco’) and Movie Ventures
(Pty) Ltd (‘Movie Ventures’). Filmco would be the disclosed partner and
would manage the partnership. It was agreed that, prior to 15 February
1989, Movie Ventures would find other partners in its stead and would
dispose of its interest in the partnership. Movie Ventures undertook to
advance to Filmco the sum of R2 793 000 so that Filmco as disclosed
and managing partner could buy Final Cut for the partnership. On that
date too each partner had to pay its specified contribution to the
partnership. En commandite partners (such as Rane later became)

would be liable not only to pay the contribution but also for any losses
suffered in the tax year in question. Filmco was generally authorized to
manage the partnership and to enter into contracts on its behalf.

[4] In terms of the second agreement  (the ‘sale agreement’) Filmco
bought Final Cut from a production company, Image Films (Pty) Ltd
(‘Image’). The price of R2 793 279 was payable in cash on signature.
Further, Filmco was obliged to pay an amount equal to 50 per cent of
the proceeds of the exploitation of the film to Image.

[5] The third agreement (the ‘marketing agreement’) was concluded
on 13 December 1988 between Filmco and Distant Horizon Ltd
(‘DHL’). DHL undertook to market Final Cut abroad. In consideration

Filmco undertook to pay DHL a marketing fee of R4 480 000 by no
later than 28 February 1989. If the film produced income in excess of
R6,4m DHL would be further remunerated.

[6] The fourth contract (the ‘distribution agreement’) concluded on 13
December 1988 was between Filmco and Niche Investments
Incorporated (‘Niche’). Niche undertook to distribute Final Cut, and to
secure income of at least R6,4m for the partnership by not later than
28 February 1989. Niche further agreed to advance that sum by that
date if it had not produced the required income. In turn, Filmco agreed
to pay Niche as commission 30 per cent of the gross proceeds (as
defined in the agreement). Although the gross proceeds would accrue
to Filmco, Niche was authorized to pay, in the following order of

priority, the commission to itself; the marketing fee of R4,48m to DHL;
recoupment of the capital contributions of the partners in the sum of R2
793 279 (the amount paid by Filmco to Image); and to Image an
amount equal to 50 per cent of the gross proceeds. The balance would
be payable to Filmco. The provisions of the distribution agreement
dealing with the advance, and Niche’s obligations to Filmco and DHL,
and their interpretation, are particularly significant to the Rane claims
for deduction and will be fully set out and discussed later.

[7] Rane became a partner on 27 February 1989, acquiring its
interest from Movie Ventures, and paid a ‘contribution’ of R90 000.
Final Cut had by then been completed (in November 1988) but was
sent to overseas distributors only on 13 October 1989. However, a

certificate was issued by the auditing firm Arthur Young on 17 March
1989 confirming that on 28 February of that year Niche had transferred
into its subaccount , ‘Niche Investments Inc sub-account Compass
Films’, the sum of $2 560 000 (the equivalent then of R6,4m); and that
Niche had paid to DHL an amount of $1 792 000 (the equivalent of R4
480 000) in respect of marketing fees.

[8] In its tax return for the year ended 28 February 1989 Rane
claimed various deductions and allowances, which, as I have said,
were disallowed. The Commissioner wrote to the trustees of Rane (in
February 1998, after considerable correspondence had passed
between them) that:

‘The losses incurred in the film investments namely, “Final Cut” and “Devil Fish/Evil
Below” have been disallowed in respect of both the 1988 and 1989 years of
assessment in terms of Section 103(1) of the Income Tax Act. . . . Accordingly, as I
cannot agree with your contentions, your objection has been disallowed.’
When asked for reasons for the application of s 103(1) the
Commissioner responded (in November 1999):
‘Section 103(1) is being applied in respect of the appellant’s investment in the
production of the films  “Final Cut” and “Devil Fish/Evil Below” by means of en
commandite partnerships. The trust as a partner, is consequently not entitled to
claim the trust’s pro rata share of the deductions and allowances available to the
partnership in terms of sections 11(a), 11(b) and 11bis of the Income Tax Act . ..’

[9] When the appeal came before the Special Court the
Commissioner changed his approach in respect of the refusal of the

deductions and allowances claimed by Rane. Shortly before the
hearing commenced he indicated that he was no longer relying on s
103(1), but on other provisions of the Act, specifically s 11bis  and s
24F .

[10] Rane objected to this change in approach on two grounds. First it
argued that in terms of s 3(2) of the Act, the Commissioner was not
entitled to withdraw any decision; and secondly, that Rane was entitled
to fair administrative action in terms of s 33 of the Constitution, and that
the Commissioner’s change of stance was unfair and prejudicial. The
Special Court rejected both grounds. And in the hearing before this
Court, Rane’s attorney ultimately conceded that there was no merit in
the arguments.  For the sake of completeness, however, and because

some time was devoted to  these arguments, I shall outline the issues
raised by Rane in relation to the withdrawal of a decision, and to
administrative fairness.

[11] Section 3(2) provides that
‘Any decision made and any notice or communication issued or signed by any such
officer [that is, a person engaged in carrying out the provisions of the Act: s 3(1)]
may be withdrawn or amended by the Commissioner or by the officer concerned,
and shall for the purposes of the said provisions, until it has been so withdrawn, be
deemed to have been made, issued or signed by the Commissioner: Provided that
a decision made by any such officer in the exercise of any discretionary power
under the provisions of this Act or of any previous Income Tax Act shall not be
withdrawn or amended after the expiration of two years from the date of the written
notification of such decision or of the notice of assessment giving effect thereto, if

all the material facts were known to the said officer when he made his decision’
(my emphasis).
The decisions made by the Commissioner were to disallow two claims
for  deduction and a film allowance. Rane conceded that the officer
making the decision under each of ss 11bis and 24F, the relevant
sections governing the claims, did not and was not required to exercise
a discretion. He simply considered whether the claimed deductions fell
within those provisions and concluded that they did not. The time limit
imposed in the proviso to s 3(2) was thus of no application. I shall deal
with each of those sections when considering whether Rane was
entitled to claim any deduction or allowance.

[12] In so far as the argument based on administrative fairness is
concerned, Rane contended that it had prepared to argue the appeal to
the Special Court on the basis of s 103(1) of the Act – a tax avoidance
provision. It was for the Comissioner to prove that the section had been
justifiably invoked. When advised that the Commissioner was not
relying on that section, Rane argued that it was not then in a position,
as the party now bearing the onus, to present evidence relating to the
application of the other provisions of the Act. Rane claimed to have
been prejudiced by the change in stance of the Commissioner. The
President of the Special Court, Conradie J, accordingly granted a
postponement for two weeks to enable Rane to present evidence in
support of the deductions and allowance claimed. Although there was
some evidence that Rane had found it very difficult to find

documentation so long after the years of assessment in issue (1988
and 1989, when the Special Court hearing took place in 2001) there
was no evidence to suggest that it had been impossible to find
documents or witnesses, or to  support the argument that Rane was in
fact prejudiced. Rane had been able to call witnesses and had
presented documents in support of its claims. It was not able to show
any prejudice caused by the Commissioner’s change in stance.

[13] In my view the concessions made by Rane’s attorney were
appropriate and the arguments that the Commissioner was not
empowered to withdraw his decisions, or to change his approach to the
appeal, are without substance.

CLAIMS UNDER S11BIS
[14] Rane claimed as deductions its proportionate liability in respect
of two different amounts for the 1989 year: a marketing fee of R4 480
000 paid by Niche on behalf  of Filmco to DHL; and a distribution fee of
R1 920 000 paid to Niche as its commission.
Section 11bis(2) provided, at the relevant time:
‘If any exporter has during any year of assessment incurred marketing expenditure,
determined as provided in subsection (4), there shall be allowed to be deducted
from his income for that year an allowance (to be known as the marketing
allowance) the amount of which shall be determined as provided in subsection (3)’
(my emphasis).
Subsection (3) sets out the quantum that may be claimed. Subsection
(4) provides that the marketing expenditure is that which is incurred by
the ‘exporter’ during the particular year directly in respect of various

activities set out in the section. These include distribution and
advertising. The Commissioner did not contend that the expenditure
incurred by Filmco (and therefore by Rane as a partner) did not fall
within these categories.

[15] The Commissioner contends, however, that Filmco earned no
income in the year of assessment, and also did not pay to Niche the
commission to which it would have been entitled. He does not dispute
that marketing fees were paid to DHL, but argues that no income was
earned, and no obligation to pay had arisen: thus no expenditure could
be deducted. The Commissioner’s contentions are based squarely on
the interpretation of the agreements between the various parties. Rane
too relies on the terms of the agreements, but places a different

interpretation on them, one coloured by the actual conduct of the
parties to the agreements.

[16] The Commissioner argued that in determining the meaning of
various terms in the distribution and marketing contracts respectively,
one must have regard to the fact that they were entered into on the
same day,  as part of a single scheme for the investment of funds in
film ventures. Thus while the parties are different (the distribution
agreement is between Filmco and Niche, and the marketing agreement
between Filmco and DHL), the agreements must be read together and
each understood in the light of the other. Rane argued that each
agreement is a distinct self-standing contract. However, nothing turns

on this difference since Rane’s essential argument was that the
subsequent conduct of the parties tells one exactly what was meant.

The distribution fee
[17] The essence of Rane’s argument in respect of the deductibility of
the fee paid to Niche is that on 28 February 1989 Niche paid into an
account for Filmco the amount of R6 400 000, less the 30 per cent fee
due to it for distributing the film Final Cut. That payment, it argued, was
income, and the fee payment to Niche was deductible expenditure in
terms of 11bis. The Commissioner argued, however, that the amount
of R6,4m was not income, and was not paid to Filmco: it was an
advance of revenue transferred to a sub-account in Niche’s bank
account by means of book entries. Similarly, no fee was paid to Niche

– Niche simply kept 30 per cent of that amount for itself, calling it
commission.

[18]  The Commissioner relies in this regard on clauses 6 and 7 of the
Distribution Agreement. Clause 6 reads:
‘Pre-Sales
Niche hereby undertakes to Filmco that Niche will procure income from the
exploitation of the picture for a minimum amount of R6 400 000 . . . by not later
than 28 February 1989. In the event that such income is not procured from third
parties, Niche will itself be liable for the revenue as an advance against revenue to
be received, provided that all the risks of such recoupment shall be borne by
Niche.’
Clause 7 is as follows:

‘Remuneration
7.1
As consideration for the distribution of the picture Filmco shall pay Niche a
commission equal to an amount of 30% . . . of the gross proceeds in excess
of those referred to in 7.1.1 above (my emphasis).
7.2
The consideration payable by Filmco to Niche in terms of this agreement
shall be determined and payable out of and to the extent of the gross
proceeds as and when received by Niche on behalf of Filmco.
7.3
. . . ’ (my emhasis).
‘Gross proceeds’ is defined as ‘all income derived from the distribution
of the picture in the territory, including . . .’ rentals, advance payments,
subsidies and a host of other items.

[19] One curious aspect of clause 7 is immediately apparent. There is
no subclause 7.1.1. A variety of explanations was offered by the

parties. Clearly, in the drafting process, there had once been such a
clause. Why it disappeared, or whether it was renumbered, are
questions to which the parties have no answer.  One suggestion was
that clause 7.1 was supposed to refer back to clause 6: that is, Niche
would be entitled to 30 per cent of any amount in excess of R6,4m. In
fact, however, 30 per cent of R6,4m was retained by Niche. Moreover,
the clause refers to gross proceeds, whereas clause 6 expressly refers
to an advance on revenue. Another argument advanced was that in 7.1
the words ‘of the gross proceeds in excess of those referred to in 7.1.1’
should be taken pro non scripto.

[20] While conceding that  these provisions did give rise to difficulties
in interpretation, if looked at in a vacuum, Rane argued that the

conduct of the parties on and after 28 February 1989 showed what the
parties had intended in so far as both income and expenditure were
concerned. On that date Niche had, through book entries, credited
Filmco with the advance on revenue (R6,4m): and had paid to itself ‘in
cash’ a commission of 30 per cent (according to the certificate issued
by Arthur Young on 17 March 1989). That the sum paid to Filmco was
not actually derived from gross proceeds, as defined, did not mean,
Rane argued, that it was not income to which Filmco was entitled, and
that the right to claim had not accrued on that date. Equally, Niche had
a liability to pay that amount on that date. Similarly, although on the
face of it Niche should not be entitled to commission, it had in fact
taken it, and Filmco had acquiesced in its conduct. There was no

evidence of any protest made by Filmco or any of the other partners at
the deduction of commission by Niche.

[21] The Commissioner’s contention was that an advance payment
was not a substitute for gross proceeds. It was a minimum amount that
became payable as a form of guarantee.  There was thus no revenue
or income earned in the year ending on 28 February 1989.  Further,
the liability to pay the commission to Niche, if it existed, would have
arisen only after midnight on 28 February 1989, when Niche’s right to
claim payment accrued – after the year under assessment. There was
thus, on the Commissioner’s argument, no income earned by Filmco,
nor any unconditional obligation to pay Niche in that year.

[22] The Commissioner contended further that Niche was not Filmco’s
agent for all purposes. The agreement empowered Niche to act as
agent for a variety of purposes relating to the distribution of the film but
not, it was argued, to act as its banker. Again, however, Filmco raised
no objection to the arrangement or to Niche’s conduct. It made
commercial sense, if Niche was entitled to commission, for it to effect
payment to itself through the making of book entries. Before
determining the soundness of the respective contentions on the
meaning of the distribution agreement, it is useful to consider the
marketing fee paid to DHL, since that too throws light on the meaning
assigned to the agreements by the parties.

The marketing fee
[23] The parties to this agreement, it will be recalled, were Filmco and
DHL. Filmco appointed DHL to market the film in a specified territory
for a period of five years. Clause 4 reads:
‘Marketing fee
4.1
In consideration for the undertaking to market the picture in the territory in
terms of this agreement, Filmco shall pay to DHL a marketing fee of R4 480
000 . . . by not later than 28 February 1989.
4.2
The parties agree that if the income derived from Filmco from the picture
exceeds the pre-sale amount stipulated in the distribution agreement to be
entered into between Filmco and Niche simultaneously herewith, DHL shall
receive a further fee for marketing the picture as determined by agreement
between Filmco and DHL, provided that if the parties fail to reach such
agreement, the amount which the Partnership is prepared to pay shall be
conclusive.’

The Commissioner did not dispute that Filmco was unconditionally
obliged to pay the fee to DHL on or before 28 February 1989. He
contended that there was no actual expenditure and no proof of
payment, but conceded that it was sufficient for the purpose of claiming
a deduction that an unconditional obligation had arisen. The payment
had in fact been made, Rane argued, and the certificate from Arthur
Young, to which I have already referred, was sufficient proof that DHL
had been paid by Niche on behalf of Filmco.

Deductibility of both fees
[24] The Commisioner’s contention that the agreements form part of a
general arrangement for the investment in film ventures is supported
by the terms of clause 4 of the marketing agreement, which refers to

the distribution agreement, and in particular to a further fee payable in
the event of the proceeds exceeding the ‘pre-sale amount’. That
reference is to the sum of R6,4m payable by Niche to Filmco by 28
February in terms of clause 6 of the distribution agreement. It was
argued that clause 4 showed clearly that the sum of R6,4m was not
income, nor ‘gross proceeds’, and that the 30 per cent commission was
payable only on the latter to Niche. The marketing fee, it was
conceded, was different, for there was an unconditional obligation to
pay DHL irrespective of whether the film did produce any proceeds.
Only if the sum of R6,4m was exceeded would any further fee become
payable by Filmco to DHL. Similarly, argued the Commissioner, the
commission became payable to Niche only if that sum were exceeded.

There was no reason to treat them differently, despite the different
wording in the different contracts.

[25] On the face of it, the Commisioner’s argument in this regard is
logical. If one reads the contracts together, as I consider one must do,
it appears that the liability of Filmco to pay commission to Niche (in
contrast to DHL) would arise only when income in excess of R6,4m
was paid by Niche to Filmco: and no such income was ever produced.
However, clauses 6 and 7 of the distribution agreement are far from
clear. Part of clause 7 is meaningless. And the only evidence available
to the Court as to what the parties actually intended lies in their
conduct after the payments had been effected.

[26] It is a general principle of contractual interpretation that where
parties to a contract are not agreed as to its meaning one can have
regard to extrinsic evidence as to what was intended only where there
is ambiguity or uncertainty. In this matter there is undoubtedly
uncertainty as to the meaning of the terms of the contracts in question.
Evidence of surrounding circumstances, and of the post-contractual
conduct of the parties, would in my view be admissible to ascertain
what the various parties had meant, in particular in relation to the
payment of the commission to Niche.  But we are not concerned in this
matter with a dispute between the parties. It is a third person – the
Commissioner – who seeks to place a different interpretation on the
agreements.

[27] There is ample authority for the proposition that in seeking to
establish the parties’ intentions, when a third person is questioning the
meaning of a contact, regard may be had to the parties’ conduct in
executing their obligations. In cases such as  Goldinger’s Trustee v
Whitelaw and Son,1 Commissioner of Customs and Excise v Randles,
Brothers and Hudson2 and Vasco Dry Cleaners v Twycross,3 this
Court, in ascertaining the parties’ intentions, had regard to subsequent
conduct in determining what the parties really intended to achieve. See
also Commissioner for Inland Revenue v Conhage (formerly Tycon)4
where Hefer JA, in dealing with tax avoidance measures, stated that a
Court will give effect to the true nature and substance of a transaction
rather than its form.

1 1917 AD 66.
2 1941 AD 369.
3 1979 (1) SA 603 (A).
4 1999 (4) SA 1149 (SCA) at 115G—I.

[28] The evidence before the Special Court was that of two witnesses
for Rane, and the documents produced by it, in particular the certificate
issued by Arthur Young. The evidence in my view all led to the same
result. The parties had accepted that Niche had paid R6,4m to Filmco
as income, even though it could not be said to have been derived from
gross proceeds; Niche had paid to itself 30 per cent commission on
that amount; Niche had paid DHL the fee agreed, and none of the
parties complained that the contracts had not been complied with. That
their conduct does not quite give effect to the apparent meaning of
clauses 6 and 7 of the distribution agreement should not, in my view,
especially given the confusing terms of these provisions, lead to the

conclusions that income was not received, and that commission should
not have been paid to Niche, nor the marketing fee paid to DHL.

[29] That the parties intended the payment of R6,4m to be a
surrogate for gross proceeds is the inevitable conclusion reached by
having regard to their conduct. The conclusion is supported if one asks
the questions ‘What was the advance payment supposed to be – an
advance of capital or an advance of income? The question is similar to
that asked when one must determine whether a payment of damages
is payment of a sum capital in nature or compensation for lost revenue.
What gap is the payment supposed to fill?5 The distribution agreement,
obscure as parts of clauses 6 and 7.1 may be, clearly indicates that the

5 See Port Elizabeth Electric Tramway Co v CIR 1936 CPD 241; Silke on South African Income Tax
(Revision Service 24, 2001) Vol 1 para 3-23.

payment of the R6.4m was in lieu of actual earnings in the event that
they had not materialized, or been less than that amount, in the year
ended 28 February 1989. It filled the ‘income hole’.

[30] Filmco and the other partners, including Rane, were thus entitled
to claim for the year of assessment ending on 28 February 1989,
deductions under s11bis in respect of both the commission paid to
Niche and the marketing fee paid to DHL. The appeal in respect of the
deductions for the commission paid to Niche in 1989, and the
marketing fees paid to DHL in that year, should thus be upheld.

THE FILM ALLOWANCE
[31] Section 24F(2)(a) of the Act provides:

‘There shall be allowed to be deducted from the income of any film owner an
allowance, to be known as the film allowance, determined in subsection (3) in
respect of the production cost and post-production cost incurred by him in respect
of any film used by him in the production of his income or from which any income is
received by or accrues to him.’
Rane claimed as a deduction its share of the cost of acquiring the film.
‘Production cost’ is defined in s 24F(1), and includes expenditure
incurred by a film owner in the acquisition of a film. The deduction was
refused. The Commissioner based its refusal on the timing of the
acquisition by Rane: the film had been bought in December 1988 and
Rane became a partner only on 27 February 1989.

[32] Earlier in this judgment reference was made to the partnership
agreement between Movie Ventures and Filmco, and to the

sale agreement in terms of which Filmco, as the disclosed partner,
bought from Image the film still in question, Final Cut. The  price was
paid on the date the agreements were entered into – 13 December
1988. Further, fifty per cent of the proceeds would be payable from the
exploitation of the film.

[33] When Rane became a partner on 27 February 1989  it paid
Movie Ventures, which then ceased to be a partner, R90 000. The
Commissioner contended that the film allowance could be deducted
only in the year in which income accrued to a partner. The partnership
was not itself a taxable entity. Moreover, as soon as there is a change
in partners, the partnership is reconstituted. On 27 February 1989, the
argument ran, when Rane became a partner, a new partnership was

formed. Rane, as a new partner, would not be liable for any of the
previous partners’ obligations. However, s 24H(5)(a) of the Act
provided that a portion of income received by or accrued to a
partnership is deemed to have been received by or accrued to each
partner individually on the date it was received by or accrued to them in
common. Subsection (5)(b) provided that where a portion of income is
deemed to have been received by or accrued to a partner, he may
claim his portion of any deduction or allowance from  the income ‘so
derived’.

[34] Conradie J, in the Special Court, held that s 24F does not specify
that the income earned, and in respect of which the allowance may be
granted, must be income produced or accrued in the year of

assessment in which the expenses are incurred. He pointed out that
where the legislature intended (as in s 11bis(2)) that income should be
produced before a deduction will be allowed, it says so expressly. He
concluded therefore that the film was paid for by Filmco (using funds
acquired through partnership contributions) in the year of assessment,
and that the allowance could be carried forward to a future year as an
assessed loss. He held that Rane’s claim for an allowance in the sum
of R89 943,53 under s 24H should have been allowed by the
Commissioner.

[35] The Commissioner argued further, however, that Rane’s
expenditure was in respect of its acquisition of its partnership share,
not in the acquisition of the film. That argument loses sight of the

principle that in acquiring the share, Rane was also acquiring, as part
of the business of the former partnership, a share in the film – already
an asset. It was the expenditure on the film as an asset taken over by
the new partnership, that was deductible, and not the amount of R90
000 paid to become a partner.

[36] The approach of the Special Court to the film allowance under s
24F is in my view sound. It must be borne in mind too that s 24F(3),
which prescribes the manner in which the allowance is to be
calculated, limits the amount that may be claimed to ‘any one film’ and
that any expenditure incurred, if carried forward as an assessed loss,
may be claimed only in respect of the particular film acquired. Where
the allowance is carried forward as an assessed loss it would have

been limited in terms of s 24F(5), applicable at the relevant time, to 50
per cent of the cost of acquisition of the film. That is not the position in
this matter, however.

[37] The finding of the Special Court was based on the premise that
no income was received by Filmco in the year ended 28 February
1989. I have already taken a different view in this regard, having found
that the payment by Niche to Filmco of  R6,4m on that day was
revenue in the hands of Filmco. The cross appeal cannot, therefore,
succeed.

[38] Rane accordingly enjoys substantial success in its appeal against
the decision of the Special Court, and in the cross appeal. The

Commissioner, despite his limited success in respect of the film Devil
Fish, did not argue that, in the event of his succeeding only on this
aspect of the appeal, he should be entitled to a costs order in his
favour. No time was spent in argument on this aspect, Rane having
conceded at the outset of the hearing that it could not succeed in its
claim for foreign expenditure under s 11(b) of the Act. And since the
submissions that were made in the parties’ heads of argument in
respect of the various claims made by Rane largely overlapped, there
is no reason to make any costs order in favour of the Commissioner.

[39] The following order is made:
(a) The appeal in respect of the deductions claimed for Final Cut is
upheld, with costs.

(b) The cross-appeal is dismissed, with costs.
(c) The order of the Special Court is set aside and replaced by the
following: ‘The Respondent is ordered, in respect of the film Final
Cut, to allow the deduction of the film allowance under s 24F of
the Income Tax Act, and the deductions of marketing and
distribution fees under s 11bis of the Act, as claimed by the
appellant in its 1989 tax return.’
________________
C H LEWIS
JUDGE OF APPEAL

CONCUR:

HOWIE P
MARAIS JA
FARLAM JA
CLOETE JA