Tax and Receipts from fraudulant activities
The issue in 67 SATC 1789 was whether amounts paid by investors in a fraudulent and unlawful pyramid scheme to the taxpayer were received as gross income within the meaning of section 1 of the Income Tax Act 58 of 1962. The taxpayer acting through different entities and represented by agents solicited many millions of rand from a multitude of investors in a scheme which was fraudulent and unlawful from the outset.
The court held that the essential nature of a taxable receipt is the intention to benefit from the money received in the sense that commissions were appropriated therefrom. Further held that notwithstanding the illegal nature of the transactions in issue and the consequences that flowed there from inter partes the amounts received from investors were receipts within the meaning of the definition of gross income in section 1 of the Income Tax Act and that the Commissioner had correctly assessed them as such.
