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Deductions of royalties,franchise fees and the ITC 1798 ruling
Master Thesis
2006
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A royalty is generally defined as a payment made for the use or right to use the property of another person such as intellectual property in form of a book or an invention for gain. 1 The term royaltyis --not defined in the Income - Tax Act, but section 35 of the Income Tax Act, which deals with taxation of non-residents' royalties or similar payments from the Republic, gives an idea of what constitutes a royalty. The definition to be construed from this section is more or less the same as the definition above. This paper seeks to critically analyse the Tax Special Court (the lower court) and Supreme Court decisions in the case of BPSA (Pty) Ltd V C: SARS. 2 The issue for determination in this case was whether the royalties incurred by BP SA (Pty) Ltd were capital or revenue in nature. In particular, both courts considered the question, whether the deduction being sought by the appellant was not deductible under section ll(a) of the Income Tax Act.3 The lower court held that the royalties were capital in nature and not deductible. The Supreme Court found that royalties were of revenue nature and deductible. In this paper, I argue that the lower court's judgement was more convincing than the Supreme Court's
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Chirwa, N. 2006. Deductions of royalties,franchise fees and the ITC 1798 ruling. . ,Faculty of Law ,Department of Commercial Law. http://hdl.handle.net/11427/36411