This incident has long since been forgotten by the residents of Port Elizabeth, yet it is often raised in discussions related to tax matters. In particular it is the term “in the production of income”. It is used extensively in tax law to determine what expenses are allowable as deductions. When doing so, the issue raised in the case of this runaway tram is pondered about.
This is the human story behind that tax case.
Main picture: The scene at the foot of Russell Road when a runaway train collided with the Masonic Hotel
Early on a rainy morning on 20 July 1932, Piet Jacobs woke up for work. He was employed as a tram driver for the Port Elizabeth Electric Tramway Company Limited– a company that carried on the business of transporting fare-paying passengers in and around Port Elizabeth. That morning, Piet was the driver of a tramcar on the Russell Road route to the city centre but just after 6 o’clock that morning, with only a few passengers on board, Piet lost control of the tramcar while descending the steep Russell Road hill. The tramcar, after a harrowing trip down the hill, finally derailed at the bottom of the hill and ploughed into the Masonic Hotel and the jewellery business next door. It must have been a terrifying experience for those passengers on board. Fortunately, it appeared as if no one was seriously injured in the accident.
After the accident occurred on 20th July 1932, it was reported in the Eastern Province Herald the next day that only the tramcar driver and a passenger, Mr S Greyling, a post office official, were admitted to hospital reportedly with non-life threatening minor injuries. This was a lucky escape because the tramcar was so badly damaged that it had to be completely demolished to enable it to be removed. In reality the extent of the tram driver’s injuries was incorrectly reported as he subsequently died as a consequence of these injuries.
Little did Piet know that his claim for damages under the Workmen’s Compensation Act against his employer as a result of the tramcar accident would ultimately becomeone of the leading cases in income tax matters in South Africa on the interpretation of the seemingly innocuous phrase “in the production of the income”
The Back Story to Trams in Port Elizabeth
The Port Elizabeth Tramway Company Limited was founded in 1879 as a subsidiary of the Cape Town Tramway company. Two years later, on 14 May 1881, the Port Elizabeth network of transporting passengers by tram commenced. Initially the tram network operated with five horse-drawn tramcars that were imported from America. In 1895 the Cape Parliament passed an Act allowing the Port Elizabeth municipality to construct an electric tram system to replace the horse-drawn tram carriages. Ten electric trams were ordered from Philadelphia, America. The first electric tram in Port Elizabeth was driven on 16 June 1897 from the Market Square to Prince Alfred’s Park where the Nelson Mandela Bay Stadium is now located.
Shortly after the introduction of the electric tram system, a double-decker tram was successfully tested both up and down the steep hill of the Russell Road route. The new route was opened to the public on 20 July 1897. The switch to electric tramcars had a positive influence on the economy of Port Elizabeth since it allowed the labour force from outlying suburban areas like Walmer, to travel quickly and cheaply to work. However, there was also a price to be paid. By 1932 there had already been two accidents of runaway trams on the Russell Road route. Fortunately, Piet Jacobs’ accident in 1932 was the last major accident reported on this route until the tram routes were closed in 1948.
As a result of the accident and the ensuing legal claim for compensation, the Port Elizabeth Electric Tramway Company Limited was ordered by the court, in terms of the Workmen’s Compensation Act, to pay compensation amounting to £664 to Piet Jacobs’ widow as well as the attendant legal fees of £748 in resisting the claim for compensation. Both these expenses were claimed by the taxpayer in terms of the Income Tax Act.
When the Commissioner for Inland Revenue disallowed as a deduction both the compensation paid to the widow of Piet Jacobs (Piet had unfortunately passed away before the compensation claim was finally settled in court) as a result of the accident and the ensuing legal fees incurred in resisting the compensation claim, the directors of the Port Elizabeth Electric Tramway Company Limited appealed to the then Cape Provincial Division of the Supreme Court against the decision after having lost its case in the lower court.
Without considering the minutiae of this case, the learned judges ruled that the Tramway company could claim both of these expenses for tax purposes. Interestingly the rationale for allowing the two components of the expense – compensation and legal expenses – differed. As regards the compensation, the judge ruled that the expense was incurred as a direct consequence of having to employ a tram driver whereas incurring the legal expense was to protect the company’s interests when incurring the expense.
Based upon this legal precedent, South African taxpayers have, since 1932, been able to claim expenses incurred in the production of income.
Who says that tax is boring?
Article entitled: The Port Elizabeth Electric Tramway case: Is the meaning ascribed to the phrase “in the production of the income by Watermeyer AJP in the Port Elizabeth Electric Tramway case still religiously followed today? by G.K. Goldswain & O. Swart
Eastern Province Herald. 1932. Runaway Tram Dashes into Main Street Shop. 21 July. Port Elizabeth: Cape of Good Hope