Exemption - Meaning of 'educational institutions' as used in s10(1)(f) of the Income Tax Act 58 of 1962 - Company limited by guarantee and having as its main object the promotion of travel by students as an integral part of their education - Such company not an 'educational institution', and consequently liable to tax .
As set out in clause 2 of its memorandum, the main object of appellant, a company limited by guarantee and established in 1972, read:
'To encourage students and all young people to travel both within South Africa and throughout the world as an integral part of their education through the promotion of travel opportunities and facilities...'
Clauses 3 and 4 of the memorandum provided as follows:
'3. The income and property of the company whensoever derived shall be applied solely towards the promotion of the objects of the company, as set forth in this Memorandum of Association, and no portion thereof shall be paid or transferred, directly or indirectly or by way of dividend, bonus or otherwise by way of profit to the members of the company; provided that nothing therein contained shall prevent the payment in good faith of remuneration to any officer or servant of the company or to any member thereof, in return for services actually rendered to the company.4. If, upon winding up or dissolution of the company, there remains, after the satisfaction of all its debts and liabilities, any property whatsoever, the same shall not be paid to or distributed among the members of the company but shall be given or transferred to some other institution or institutions have objects similar to the objects of the company, or, alternatively in the sole discretion of the members of the company in general meeting at such time to some other student organisation, to be determined by the members of the company in general meeting at the time of dissolution.'
Appellant's principal activities were the arranging and conducting, at reduced rates, of group (or charter) overseas flights and conducted tours for students from institutions of higher learning. Overseas travel arrangements consisted mainly of sight-seeing tours of educational interest, but included occasional tours of more specialized interests - such as drama - which sometimes included foreign students sharing such interests. Appellant also arranged for ancillary facilities such as reduced, and sometimes free, admission by touring students to places of cultural interest (museums, art galleries and the like) and the making of travel arrangements for students proceeding overseas for further study,
In respect of the tax years 1973 and 1974, respondent issued appellant with assessments of taxable income amounting to R3 714 and R10 070 respectively. Appellant's main source of income during those years was described in its profit and loss account as 'surplus-charter flights and tours'; appellant also earned some income from the sale of students' identity cards, retention of cancellation fees, interest received and commission on insurance.
Its objection to the above-mentioned assessments having been overruled, appellant appealed to the Special Court on the ground that it fell within the ambit of s10(1)(f) of the Income Tax Act 58 of 1962. That section exempts from tax 'the receipts and accruals of all ecclesiastical, charitable and educational institutions of a public character, whether or not supported wholly or partly by grants from the public revenue.'
Before the Special Court the sole issue for decision was whether appellant is an 'educational institution' within the meaning of the above cited section. On behalf of appellant it was submitted that the word 'Educational' therein is sufficiently wide to embrace appellant's activities.
Held
(i) That, inasmuch as in the context of s10(1)(f) of the Act, 'educational' cannot mean the acquisition of knowledge, skill or competence by any means whatever, it is necessary to draw the line between, on the one hand, the acquisition of knowledge etc. in a completely unsystematic and informal manner and, on the other hand, its acquisition in a formal institution of learning.
(ii) That such line cannot be drawn short of the dictionary definitions of 'systematic instruction, schooling or training'.
(iii) That the concept of education which the legislature has in mind when exempting 'educational institutions' from tax, requires at least an element of systematic or formal instruction, schooling or training.
(iv) That, although appellant's activities are doubtless of cultural benefit to the majority of students who use the services offered, and while a very limited part of appellant's activities might conceivably approximate to (ii) above, the totality of appellant's activities falls short of (iii) above, and in reality amount to no more than a non-profit-making travel agent for students.
Appeal accordingly dismissed and the assessments confirmed.
In delivering the judgment of the Court the President, Grosskopf J, said:...
Click for the top of this file or SATC1376 or SA saga introduction or Berman J's judgment or OUP's US tax-exemption.