Mr. Legane

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THE APPROACH BY OUR COURTS TO THE APPORTIONMENT OF EXPENDITURE IN TERMS OF SECTION 11(a) READ WITH SECTION 23 (g) OF THE INCOME TAX ACT NO 58 OF 1962

DUMISANI RICHARD NGUBANE

Submitted in fulfillment of the requirements of the degree

Of MASTER OF COMMERCE (TAXATION)

In the University of KwaZulu-Natal

Supervisor: M. Hafejee

Submitted: November, 2004

ACKNOWLEDGEMENTS

For the completion of this study, I am indebted to those people who helped me in a variety of ways. It is needless to say that it is impossible to thank all persons who have helped me in shaping my personality, philosophy of life from the tender age to the present time. This makes my task easier because it leaves me with one option of thanking those whom I know. Firstly I am highly indebted to Mr M. Hafejee, my supervisor for the interest he has shown in me and in my field of study from the time we started to work together. I wish to record my great gratitude for his generous help. I also wish to thank him for providing essential background information thus giving greater meaning, purpose and realism to the entire dissertation. Further, I also wish to thank the University of KwaZulu Natal for allowing me to use its Library facilities. By no means the least, I also wteh'to.«express my heartfelt gratitude and my penultimate thanks to my friend, Irvin Mkhize for his encouragement and guidance towards my research.

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DECLARATION

I declare that:

THE APPORTIONMENT OF EXPENDITURE BY OUR COURTS IN TERMS OF SECTION 11(a) READ WITH SECTION 23(g) is my own work and that, ail the sources I have used or quoted have been indicated and acknowledged by means of complete references.

DUMISANI RICHARD NGUBANE NOVEMBER 2004

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PREFACE
The primary aim of a dissertation is to try to discover information that could assist in solving a particular problem at hand. The object of this dissertation is to determine the approach by our courts to apportionment of expenditure in terms of section 11(a) read with section 23(g) of the Income Tax Act No 58 of 1962. A single expenditure incurred for more than one purpose poses a problem when deduction of such an expenditure, is sought by a taxpayer. The problem that ttie courts have always encountered when dealing with the deductibility of expenditure incurred for a dual purpose, is that there is no provision in the Income Tax Act that directs what to do when faced with such a problem. The courts have always chosen apportionment of expenditure as a solution to the deductibility of expenditure incurred for more than one purpose, one such purpose being for tax purposes and the other being for non tax purposes.

Apportionment of expenditure is used as a device to allocate part of the expenditure, which was incurred to produce income, as taxable expenditure, and another part of that expenditure which was incurred to produce non-taxable income, as non-deductible expenditure. This dissertation seeks to find out whether courts do take into consideration the provisions of the Income Tax Act applicable to the deduction of expenditure when called upon to make a decision on a particular case. The South African Revenue Services use apportionment of expenditure where it deems appropriate and the courts have never opposed it.

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The Legislature, which is responsible for the enactment of the act, seems to be happy to lie low, and allow the courts to dominate in handling the disputes that arise as a result of expenditure incurred with a dual purpose. It has been suggested that whilst the Income Tax Act does not provide any direction in situations where the deductibility of dual purposes expenditure is in dispute, apportionment is implied in the terms of section 11(a) read with section 23(g) of the Income Tax Act no 58 of 1962. The main aim of this research is to establish whether the path taken by the courts is the correct one in terms of section 11(a) and section 23(g) of the Income Tax Act no 58 of 1962....
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