Johannesburg — The case arose when the SABC sold off its regional radio stations in 1996 in a public bidding process.

Primedia successfully bid and bought a station from the SABC for R65m, R50m of which was allocated to the trademark and the name 94.7 Highveld Stereo.

At that time taxpayers could write off trademarks for tax purposes. The South African revenue Service's (SARS's) view was that the trademarks and name were not worth R50m and that the bulk of the purchase price should have been allocated to goodwill. SARS consequently disallowed Primedia's claim. Nina Keyser, partner at Webber Wentzel who acted for Primedia, said SARS has been known to dispute vigorously the prices allocated to trademarks.

SARS has not indicated whether it will appeal.

Yusuf Abramjee, head of communication at Primedia, said the company had taken note of the judgment and welcomed it. "Primedia is pleased with the outcome," he said.

The Income Tax Act has been amended in the interim so that taxpayers can no longer claim a deduction in respect of trademarks.

But Keyser said taxpayers were still allowed to claim for immaterial property including designs, patents and copyright.

A portion of a trademark is protected by copyright. Although taxpayers may no longer claim a deduction for trademarks, they can claim for the portion that is protected by copyright.

The Income Tax Act provided for a deduction for trademarks based on the cost incurred by the taxpayer. SARS argued that the taxpayer did not perform a formal valuation of the trademark and that the price allocation was a sham. The court found the Income Tax Act does not require a formal valuation of trademarks in order for a taxpayer to obtain a tax deduction.

In this case there was no evidence that the contract between the SABC and Primedia was a sham because in Primedia's honest opinion, the bulk of the value lay in the trademark and the name.

Primedia would not have bought the station without the trademark and testified that it would rather have applied for a new licence if Highveld's name and trademarks were not available. The other bidders for radio stations sold by the SABC at the time also allocated the bulk of their bid prices to the trademarks.

SARS also argued that the value of the stations lay in the licences to be obtained from the Independent Communications Authority of SA (Icasa), but the court dismissed this argument on the basis that the purchase was conditional on Primedia obtaining a licence. No portion of the R65m was paid to Icasa for the operating licence and the SABC could not sell its own right to broadcast to the taxpayer.

SARS spokesman Adrian Lackay said tax cases were confidential, so he could not comment.