,TAX3701 Assignment 2 (COMPLETE ANSWERS)
Semester 2 2025 - DUE 18 September 2025 ; 100%
TRUSTED Complete, trusted solutions and
explanations.
QUESTION 1 (10 marks, 18 minutes)
Discuss, whether the amount of R95 000 received by Moses Patel (Pty)
Ltd will be regarded as gross income as defined in the Income Tax Act
for the 2025 year of assessment, supported with relevant legislation
and case law principles. MARKS 10
1. Definition of Gross Income
The South African Income Tax Act 58 of 1962 (the Act) defines gross
income in section 1(1) as:
“…the total amount, in cash or otherwise, received by or accrued to a
person during the year of assessment, excluding receipts of a capital
nature.”
The key elements to consider are:
1. Receipt or accrual: The R95,000 was received in cash on 27
September 2024, during the 2025 year of assessment.
2. Revenue vs Capital: Whether the amount is of a revenue nature
(taxable) or capital in nature (not taxable).
3. In the ordinary course of business: Receipts arising from normal
business operations generally constitute gross income.
2. Analysis of MP’s Business and the Receipt
MP sells animal feed to farmers – this is its ordinary business.
, The company also has specialists who provide know-how and
advice on cost-effective feeding supplements, generating income
from professional services.
The R95,000 was received for services rendered by the newly
appointed animal feeding supplement specialist.
Implication: This is a receipt arising from the carrying on of the
company’s ordinary business, even though the service is specialized.
3. Revenue or Capital?
Case law guidance:
1. CIR v East London Municipality 1932 AD 147:
o Amounts derived from the normal course of business are
revenue in nature.
2. ITC 1540 (1972):
o Payments received for services rendered in the ordinary
course of business are income, not capital.
3. SIR v Investec Bank Ltd 2000 (2) SA 116 (C):
o Distinguishes between capital receipts (from sale of assets,
investments) and revenue receipts (ordinary trading,
services).
Application:
The R95,000 is not a one-off sale of a business asset or a capital
investment return.
It is remuneration for a service rendered in the ordinary course
of MP’s business.
Therefore, it is revenue in nature and forms part of gross income.
4. Timing of Receipt
Semester 2 2025 - DUE 18 September 2025 ; 100%
TRUSTED Complete, trusted solutions and
explanations.
QUESTION 1 (10 marks, 18 minutes)
Discuss, whether the amount of R95 000 received by Moses Patel (Pty)
Ltd will be regarded as gross income as defined in the Income Tax Act
for the 2025 year of assessment, supported with relevant legislation
and case law principles. MARKS 10
1. Definition of Gross Income
The South African Income Tax Act 58 of 1962 (the Act) defines gross
income in section 1(1) as:
“…the total amount, in cash or otherwise, received by or accrued to a
person during the year of assessment, excluding receipts of a capital
nature.”
The key elements to consider are:
1. Receipt or accrual: The R95,000 was received in cash on 27
September 2024, during the 2025 year of assessment.
2. Revenue vs Capital: Whether the amount is of a revenue nature
(taxable) or capital in nature (not taxable).
3. In the ordinary course of business: Receipts arising from normal
business operations generally constitute gross income.
2. Analysis of MP’s Business and the Receipt
MP sells animal feed to farmers – this is its ordinary business.
, The company also has specialists who provide know-how and
advice on cost-effective feeding supplements, generating income
from professional services.
The R95,000 was received for services rendered by the newly
appointed animal feeding supplement specialist.
Implication: This is a receipt arising from the carrying on of the
company’s ordinary business, even though the service is specialized.
3. Revenue or Capital?
Case law guidance:
1. CIR v East London Municipality 1932 AD 147:
o Amounts derived from the normal course of business are
revenue in nature.
2. ITC 1540 (1972):
o Payments received for services rendered in the ordinary
course of business are income, not capital.
3. SIR v Investec Bank Ltd 2000 (2) SA 116 (C):
o Distinguishes between capital receipts (from sale of assets,
investments) and revenue receipts (ordinary trading,
services).
Application:
The R95,000 is not a one-off sale of a business asset or a capital
investment return.
It is remuneration for a service rendered in the ordinary course
of MP’s business.
Therefore, it is revenue in nature and forms part of gross income.
4. Timing of Receipt
