CHANCELLOR, MASTERS AND SCHOLARS OF THE UNIVERSITY OF OXFORD v. COMMISSIONER FOR INLAND REVENUE, REPUBLIC OF SOUTH AFRICA

Appellate Court, before Corbett CJ, E M Grosskopf JA, Nestadt JA, Van Den Heever JA and Schutz JA, 24th and 30th November, 1995

Tax Cases Volume 58 SATC 45 also cited as [1996] (3) 1 All SA 257 (A)

[Corbett CJ's Who's Who entry follows]

Income tax - Exempt income - Receipts and accruals of educational institutions of a public character exempt from tax in terms of s10(1)(f) of the Income Tax Act 58 of 1962 - Whether surplus funds of Oxford University Press, operating in South Africa, being part of the world-wide publishing arm of Oxford University, subject to income tax in South Africa - University's aim, through the Oxford University Press, to promote high standards of learning and of scholarship by the universal distribution of educational, scholarly and academic works - Oxford University Press itself not a legal Persona - Effective management and control of the Oxford University Press exercised in England by committee of senior members of the University - Committee in turn appointing person to act as executive functionary of the Oxford University Press who was empowered by the University to manage and carry on its activities both in the United Kingdom and in other countries including South Africa - University's activities in South Africa, carried on through the Oxford University Press, resulted in excess of income over expenditure - Surplus funds reinvested in furtherance of University's South African pursuits and excess over reinvestment requirements remitted to University in the United Kingdom for use there by it - Held that the Oxford University Press, including all its branches, constituted one single persona and, therefore, one single taxable entity - Oxford University Press was regarded and treated as a department of the University - a fortiori Oxford University Press South Africa could not be regarded as a persona and a taxable entity separate from the Oxford University Press - Held that the University was manifestly an educational institution of a public character in terms of s10(1)(f) of the Income Tax Act 58 of 1962 - Held that s10(1)(f) included reference to non-resident, or foreign, institutions and they qualified for exemption from tax in terms of that section - Held that there was no basis for contending that the University must be categorised by reference to its activities or operations in South Africa only - Once one postulates that institutions in foreign countries are included under s10(1)(f), it follows inevitably that such an institution must be categorised by its activities generally, including what it does in the foreign country - Held accordingly that the receipts and accruals derived from the activities carried on by the University in the Republic (of South Africa) under the name of Oxford University Press are exempt from income tax under s10(1)(f) of the Income Tax Act 58 of 1962.

Appellant was the University of Oxford carrying on academic activities at Oxford through 16 teaching faculties with laboratories, central lecture halls, libraries and museums.

It pursued its academic purpose, viz the furtherance of education and learning, partly by way of publishing books and it did so through one of its departments known as 'The Oxford University Press' ('the OUP').

Appellant exercised control over the OUP by means of a university body known as 'the Delegacy', which was first established in 1633 and currently consists of 19 members. The chosen delegates are all scholars of distinction and are selected to represent, as far as practicable, the major fields of learning.

While the Delegacy was placed in charge generally of the affairs of the OUP and at all times carried overall responsibility therefor, the day-to-day management of the OUP was carried out by salaried officers and employees. The Chief Executive of the OUP is the Secretary to the Delegates who was appointed by the Delegacy. The Delegacy also maintains ultimate control over the Finance Committee.

The OUP operates in the United Kingdom and, through branches, in many other parts of the world, there being eleven such branches at present, including South Africa, which has its headquarters in Cape Town and serves a number of countries in southern Africa, including South Africa.

Each branch office has a measure of freedom and authority to make its own decisions, as long as these conform to a laid-down policy, in the form of guidelines issued to managers of the various branches, but it is ultimately subject to the direct authority and control of the University through the Delegacy.

For accounting purposes the world-wide operations of the OUP are consolidated and the OUP, being a department of the appellant, has no shareholders and does not distribute dividends. It has no access to capital markets and is entirely self-financing. Earnings generated by the activities of the OUP are in general devoted to maintaining and improving its ability to perform its functions. An overseas branch producing an operating surplus is permitted to retain what it requires to finance approved local programmes and any moneys in excess of these requirements are remitted to the United Kingdom to sustain the general development of the OUP either in the United Kingdom or overseas. Once the internal needs of the OUP have been satisfied, any balance is applied towards the conduct of academic activities elsewhere within the appellant.

In order to implement this policy each overseas branch is, for the purposes of financial management, treated as a separate business centre and is required to prepare and submit, for approval, annual budgets to the headquarters of the OUP, and also annual accounts for consolidation with the general accounts of the OUP.

In South Africa, a local publishing programme was initiated in 1946 and the first locally published book was brought out in 1947. Over the years the size of this branch ('OUPSA') and its publishing programme has increased considerably and, in 1993, had a staff of 67 people and published 60 to 80 titles per annum.

In accordance with appellant's aims, acting through the OUP, to promote scholarship, education and culture, OUPSA concentrates on the publication of scholarly monographs, academic and school textbooks, reference works, selected children's fiction and non-fiction, general books and health topics and a few titles per year on contemporary socio-political issues.

For the past eleven years all surplus funds generated by the branch in its publishing operations have been reinvested in new local publishing programmes and, in recent years, OUPSA has apparently run on 'a more or less break even basis'.

The crisp issue for determination by the court was whether the receipts and accruals of OUPSA were exempt from tax by virtue of the provisions of s10(1)(f) of the Income Tax Act 58 of 1962, as amended.

Section 10(1)(f) of Act 58 of 1962 provided at the relevant time:-

"Exemptions
10 (1) There shall be exempt from tax -
(f)the receipts and accruals of all religious, charitable and educational institutions of a public character, whether or not supported wholly or partly by grants from public revenue..."

In 1961 the Receiver of Revenue, Cape Town, ruled that the Oxford University Press was an educational institution within the meaning of s10(1)(f) and therefore exempt from income tax.

However, in 1991, the Commissioner for Inland Revenue advised OUPSA in writing that he had come to the conclusion that OUPSA 'is not engaged in charitable or educational activities in the Republic of South Africa' and that it was 'merely carrying on the business of a dealer in books, acts as a publisher and receives interest'.

He accordingly ruled that the provisions of s10(1)(f) were not applicable to OUPSA and that it would be subjected to tax as from the 1993 year of assessment.

In order to resolve this dispute Appellant applied on notice of motion to the Cape of Good Hope Provincial Division for orders declaring (a) that appellant was an educational institution of a public character as contemplated in s10(1)(f) and (b) that the receipts and accruals derived from the activities carried on by appellant in the Republic under the name and style of Oxford University Press were, accordingly, exempt from tax as contemplated by s10(1)(f).

The case in the court a quo was reported as Chancellor, Masters and Scholars of the University of Oxford v. Commissioner for Inland Revenue 57 SATC 231, per Berman J.

The court a quo ruled in favour of the Commissioner for Inland Revenue and dismissed the application with costs, but granted leave to appeal to the Appellate Division.

While the court a quo appeared to have accepted that appellant was an educational institution of a public character, it nevertheless held that it did not follow that it, or the OUP, was entitled to the exemption provided for in s10(1)(f).

On appeal the Commissioner for Inland Revenue contended, in the first place, that foreign institutions did not qualify for exemption under s10(1)(f) and, in the second place, that, even if they did, they must be categorised with reference to their operations within South Africa only.

Held

1. That appellant and the OUP, including all its branches, constituted one single persona and, therefore, one single taxable entity and there was no basis for treating appellant and the OUP as separate and individual legal personae and as separate taxable entities; a fortiori OUPSA could not be regarded as a persona and a taxable entity separate from the OUP.
2. That in order to apply s10(1)(f) of Act 58 of 1962, it is necessary in each case to categorise the person (i.e. taxable entity) who has received gross income or to whom gross income has accrued, i.e. to determine whether or not such person is a religious, charitable or educational institution of a public character; in the present case such categorisation presents no difficulty as appellant is manifestly an educational institution of a public character and it was not disputed.
3. That s10(1)(f) was intended to include reference to non-resident or foreign institutions and that they did qualify for exemption from tax under that section; there was nothing in s10(1)(f) or in the Income Tax Act as a whole to indicate that the general wording of the subsection should be given a restricted meaning.
4. That there was no warrant in the language of s10(1)(f) for the approach that appellant must be categorised with reference to its activities or operations in South Africa only; where in s10 the Legislators intended to limit the ambit of an exemption by reference to the activities of the taxpayer it did so in express terms - and the aforementioned approach would lead to a wholly artificial and illogical splitting up of the activities of a foreign institution into what was done outside South Africa and what was done within South Africa.
5. That, once one postulates that institutions in foreign countries are included under s10(1)(f), it followed inevitably that such an institution must be categorised by its activities generally, including what it does in the foreign country; otherwise, only a foreign institution which carried on the full range of its activities both in the foreign country and in South Africa would qualify under s10(1)(f) and there is no warrant for so circumscribing the scope of s10(1)(f).
6. That in this case one is not dealing with the case where a foreign educational institution is taking advantage of the law in order to run, in South Africa, a profitable business unrelated to the general scope of its aims and activities; on the contrary, appellant had for centuries regarded the publication of books to be an integral part of its general aim and function to further education and learning and this is precisely what it does in South Africa through the OUPSA.
7. That, accordingly, appellant is an educational institution of a public character in terms of s10(1)(f) of the Income Tax Act 58 of 1962 and the receipts and accruals derived from its activities in the Republic under the name of Oxford University Press are exempt from income tax under s10(1)(f).

Appeal allowed with costs, including the costs occasioned by the employment of two counsel and the order of the court a quo set aside.

CORBETT CJ: The appellant, the University of Oxford, was founded more than 800 years ago. The first formal statement of its legal status was attempted in 1461 during the reign of King Edward IV. This was followed by a more comprehensive statement in the Great Charter of 1523 prepared for King Henry VIII...

[da-de-da-de-da... You get the picture. E M Grosskopf JA, Nestadt JA, Van Den Heever JA and Schutz JA concurred without adding a syllable. More relevant here may therefore be Corbett CJ's Who's Who entry, reproduced below and also as a separate file. - A. M.]

CORBETT, Michael McGregor, B.A., LL.B.; South African judge; born 14 September 1923, Pretoria; son of Alan Frederick Corbett and Johanna Sibella McGregor; married Margaret Murray Luscombe 1949; two sons, two daughters; educated University of Cape Town, Trinity Hall, Cambridge, England; enlisted in South African army 1942, active service 1943-44; admitted as advocate and commenced practice at Cape Bar, Cape Town 1948, appointed Q.C. 1961, Judge of Cape Province Division of Supreme Court 1963, Judge of Appeal 1974, Chief Justice of South Africa 1989; Hon. LL.D. (Cape Town) 1982, (O.F.S.) 1990, (Rhodes) 1990, (Pretoria) 1993, (Witwatersrand) 1994; Hon. Bencher Lincoln's Inn 1991; Hon. Fellow Trinity Hall, Cambridge 1992. Publications: The Quantum of Damages in Bodily and Fatal Injury Cases (jointly) 1960, The Law of Succession in South Africa (jointly) 1980. Leisure interests: tennis, walking. Address: Court of Appeal, P.O.Box 258, Bloemfontein (Office); 18 Ladies Mile Extension, Constantia, Cape Town 7800, South Africa (Home).

Corbett retired as Chief Justice of South Africa in 1996.

Click for the Berman's judgment a quo or for OUP's South African introduction or for its US tax-exemption.