Supreme Court Orders 75,000 NIS Costs Over Harsh Language in Tax Appeal

The Supreme Court has ordered Eli Kahana and two of his companies—Eli Kahana Holdings and Ahi Eisenberg—to pay 75,000 NIS in costs due to harsh remarks made by Adv. Gilad Wexelman against Tel Aviv District Court Judge Yardena Sarusi. Wexelman is the co-head of the litigation department at the Herzog law firm and one of Israel's leading litigators.

In 2014, Kahana sold the operations and assets of Eisenberg, a company dealing inter alia in electron microscopes, to Philips Electron Optics. The sale was executed through two agreements: Kahana received $3.3 million for the operations and another $2.2 million for his commitment not to compete with Eisenberg for three years. Kahana argued that the second payment was capital income subject to a 25% tax, whereas the Tel Aviv 3 Assessing Officer classified it as revenue income subject to a marginal tax rate of 50%.

The District Court Ruling and Supreme Court Appeal

Judge Sarusi rejected the appeal by Kahana and the companies, ruling that there was heavy doubt regarding the authenticity of the basis for splitting the sale into two transactions. She further determined that the non-compete payment was indeed revenue income and ordered Kahana and the companies to pay 75,000 NIS in costs. They appealed to the Supreme Court, raising what the State described as disgraceful arguments against Sarusi.

During the February 2025 appeal hearing, Wexelman initially insisted there was no flaw in the wording of the appeal. "I do not think the language is harsh," he said. "We provided a factual datum. I checked and we found not a single case where a tax authority ruling... was ever accepted. Therefore we thought it appropriate to note this. We do not think there is harsh language here."

Judge Yechiel Kasher responded: "Such a statistical argument is meant to blacken the judge's face." Judge Yael Vilner added: "It is so extreme, so sharp, again and again." Wexelman eventually apologized, stating his intention was not to offend, but Vilner emphasized that the apology must be directed toward the District Court.

Supreme Court Decision on Tax Classification

Despite dismissing the harsh language, Justice Kasher concluded that splitting the agreements was not artificial. However, following consistent Supreme Court precedent, Kasher ruled that the non-compete payment constituted revenue income rather than capital income, as the non-compete clause did not chop down the tree—Kahana's overall capacity to earn a living from his expertise—but merely restricted some of its fruit for a limited three-year period. Justices Vilner and Deputy President Noam Solberg concurred with Kasher.