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[2016] ZAWCHC 9
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New Adventure Shelf 122 (Pty) Ltd v Commissioner of the South African Revenue Service (7007/2015) [2016] ZAWCHC 9; [2016] 2 All SA 179 (WCC); 78 SATC 190 (17 February 2016)
REPUBLIC
OF SOUTH AFRICA
IN
THE HIGH COURT OF SOUTH AFRICA
(WESTERN
CAPE DIVISION, CAPE TOWN)
Case
number: 7007/2015
DATE:
17 FEBRUARY 2016
In
the matter between:
NEW
ADVENTURE SHELF 122 (PTY)
LTD
........................................................................
Applicant
And
THE
COMMISSIONER OF THE
SOUTH
AFRICAN REVENUE
SERVICE
.........................................................................
Respondent
JUDGMENT
Before:
The Hon. Mr Justice Binns-Ward
Hearing:
9 February 2016
Judgement
delivered: 17 February 2016
BINNS-WARD
J:
Introduction
[1]
Section
26A of the Income Tax Act 58 of 1962 provides that ‘[t]
here
shall be included in the taxable income of a person for
a
year of assessment
the taxable capital gain of that person
for
that year of assessment
,
as
determined
in terms of the Eighth Schedule
’.
[1]
This matter concerns how a capital gain accrued as a result of the
disposal of an asset in a particular year of assessment
falls to be
treated for capital gains tax purposes when the contract in terms of
which the asset was sold is cancelled during a
subsequent tax period,
with the effect that the taxpayer does not realise the full proceeds
of the disposal that had been taken
into account in assessing its
taxable income in the year that the asset was disposed of. It
was ultimately common cause between
the parties that on the facts of
the current case the relevant provisions of the Eighth Schedule deem
the date of the disposal
to have been the date upon which the
contract was concluded
[2]
and
that the proceeds are deemed to have accrued to the taxpayer and fall
to be accounted for income tax purposes in the year in
which the
disposal occurs, even if the proceeds actually fall to be received
after that year.
[3]
[2]
A
more detailed description of the facts will be given presently.
It is sufficient for purposes of introduction to relate
that the
taxpayer sold an immovable property in 2006 (during its 2007 year of
assessment
[4]
) in terms of a
contract that provided for payment of the greater part of the selling
price to be effected in subsequent years.
By reason of the
aforementioned incidences of the Eighth Schedule the transaction was
accounted for capital gains tax purposes
in the assessment of the
taxpayer’s taxable income for the 2007 tax year as if the
proceeds had been received in full in
that year. The contract
was cancelled during the taxpayer’s 2012 year of assessment.
The terms of cancellation
provided for the return of the property to
the taxpayer, which was entitled to retain that part of the purchase
price that had
been paid by that stage as pre-estimated damages.
In the result, part of the amount of the proceeds of the transaction
that
had been taken into account in determining the taxpayer’s
capital gain in respect of the disposal became irrecoverable.
[3]
The
taxpayer contends, in essence, that in the circumstances its income
tax assessment for the 2007 tax period should be reopened,
and that a
reassessment of its taxable income in that year of assessment should
be undertaken with regard to the amount of the
proceeds actually
received and retained by it in the context of the cancellation of the
contract. The taxpayer relies in
this regard on what it
contends is the effect of the provisions of paragraph 35(3)(c) of the
Eighth Schedule.
[5]
[4]
The
sum of the proceeds of a disposal is, of course, an integral
component of any calculation of whether a capital gain or a capital
loss has resulted from the disposal.
[6]
The taxpayer accepts that the required redetermination of its capital
gain (or loss) has to occur in terms of paragraph 25(2)
of the Eighth
Schedule.
[7]
The taxpayer
contends that the effect is to require a substitution of the assessed
capital gain on the disposal of the asset
in the tax year in which
the asset was disposed of (2007) with a new determination. If
the taxpayer is right that would necessarily
require an amendment of
its assessed taxable income in the 2007 tax period.
[5]
The
Commissioner rejects the validity of the approach contended for by
the taxpayer. He contends that it would be contrary
to basic
principle to reopen what had been an admittedly correct and
unimpeachable assessment of taxable income for a particular
tax
period on the basis of an event that occurs in a subsequent tax
period. Assuming the balance of the purchase price had
indeed
become irrecoverable as a result of a cancellation of the contract in
a subsequent year, the Commissioner’s position
is that the
effect of the cancellation falls to be addressed in the determination
of the taxpayer’s aggregate capital gain
or loss in the 2012
tax year after a redetermination, in 2012, of the capital gain or
loss from the disposal of the asset in 2007,
as provided in terms of
paragraph 25(2)(b) and (3) of the Eighth Schedule.
[8]
[6]
The
taxpayer has applied
[9]
for
the following substantive relief`:
Orders:
a)
Directing the respondent to amend the IT 34
assessment issued by him on 1 August 2008, in respect of the
applicant’s 2007
year of assessment, so as to comply with the
provisions of paragraph 35(3)(c) of the Eighth Schedule to the Income
Tax Act, 58
of 1962, by reducing the proceeds of the disposal of the
property, described in the cancelled deed of sale dated 20 September
2006
as “perseel 21, Riversdal Nedersetting, Afdeling
Riversdal, Provinsie Wes Kaap”, pursuant to the cancellation
thereof
on 18 November 2011, by the reduction of the accrued amount
forming part of such proceeds;
b)
Reviewing and setting aside:
i.
the assessment
[for
the 2007 tax period]
:
ii.
the respondent’s decision to refuse to condone the late filing
of the applicant’s objection to
the assessment and his decision
to disallow the applicant’s objection to the assessment;
iii. the
respondent’s decision to decline to withdraw the assessment in
terms of section 98 of the Tax Administration
Act 28 of 2011 (“the
Administration Act”);
iv. the
respondent’s decision to decline to reduce the proceeds of the
disposal in terms of paragraph 35(3)(c) of the
Eighth Schedule to the
Income Tax Act 58 of 1962;
c)
Directing that the respondent withdraw the
statement filed by him with the clerk of the magistrates court in
terms of section 172(1)
of the Administration Act;
d)
Remitting the matter for reconsideration by
the respondent as contemplated in
section 8(1)(c)(i)
of the
Promotion
of Administrative Justice Act 3 of 2000
.
e)
Alternatively, directing the respondent to
permit the applicant to object to its 2007 assessment so that it can,
if necessary, proceed
by way of appeal to the Tax Court for an order
directing the respondent to amend such assessment so as to comply
with the provisions
of paragraph 35(3)(c) of the Eighth Schedule to
the Income Tax Act, 58 of 1962, by reducing the proceeds of the
disposal of the
property, described in the cancelled deed of sale
dated 20 September 2006 as “perseel 21, Riversdal Nedersetting,
Afdeling
Riversdal, Provinsie Wes Kaap”, pursuant to the
cancellation thereof on 18 November 2011, by the reduction of the
accrued
amount forming part of such proceeds;
The facts
[7]
The taxpayer purchased the immovable
property concerned in 1999. The purchase price was R185 000.
By virtue of
the ‘
valuation date
’
for capital gains purposes having been fixed in terms of the Eighth
Schedule as 1 October 2001, the property was a ‘
pre-valuation
date asset
’, as defined in
paragraph 1 of the Schedule.
[8]
On
20 September 2006, the taxpayer concluded a written agreement of sale
in terms of which the property was sold by it to a third
party for
the sum of R17 720 000. Despite an initial contention
by the taxpayer that the agreement had been subject
to certain
(unrecorded) suspensive conditions, it was accepted at the hearing
that this had not been so. Accordingly, for
the reason
mentioned earlier,
[10]
the
date of the disposal of the property for the purpose of the
determination of the taxpayer’s capital gain or capital loss
was 20 September 2006. The date of disposal fell within the
taxpayer’s 2007 year of assessment.
[9]
The agreement provided for the payment by
the purchaser of a deposit in the sum of R1 200 000, which
was recorded as having
been paid on 30 November 2005. A
further payment of R1 million was payable against transfer of
the property into
the purchaser’s name, with the balance of
R15 520 000 being payable thereafter in four instalments as
specified.
The property was transferred to the purchaser in
late 2006 against the registration of a mortgage bond over the
property in favour
of the taxpayer as security for the payment of the
outstanding balance of the purchase price. By reason of an
advance payment
on the balance of the purchase price made during the
taxpayer’s 2007 year of assessment, the purchaser became
contractually
entitled to a rebate of R840 000.
[10]
The disposal of the property was duly
accounted for in the taxpayer’s return of income for the 2007
tax period. On 1
August 2008, the taxpayer was issued with an
income tax assessment in respect of the 2007 tax year in which the
capital gain arising
from the disposal of the property was determined
as R9 746 875, and the capital gains tax thereon, levied as
income tax,
was assessed in the sum of R1 413 006,73.
The taxpayer raised no objection to the assessment within the
prescribed
period. In terms of s 81(5) of the Income Tax
Act, 1962, which was then still in force, the assessment therefore
became
‘final and conclusive’.
[11]
The taxpayer failed to pay the assessed
tax. A final demand for payment was made on 26 May 2009.
Payment of the assessed
tax had still not been made as at the date of
the hearing of this application in February 2016.
[12]
On 18 November 2011, during the 2012 tax
year, the taxpayer and the purchaser of the property concluded an
agreement in terms of
which the sale of the property was cancelled
because of difficulties being experienced by the purchaser in being
able to proceed
with the intended development of the property.
The cancellation agreement provided that the property would be
transferred
back into the taxpayer’s name and that the taxpayer
would retain the amount already paid by the purchaser in reduction of
the purchase price as pre-estimated damages. The amount thus
retained by the taxpayer was R4 549 082. The
mortgage
bond in favour of the taxpayer obviously also fell to be cancelled
when it resumed registered ownership of the property.
[13]
The property was transferred back into the
taxpayer’s name on 19 April 2012.
[14]
On 12 March 2012, notwithstanding that, as
mentioned, the prescribed period for objection to the assessment had
long expired, the
taxpayer purported to file a notice of objection to
the assessment of capital gains tax on the sale of the property.
The
grounds stated by the taxpayer for disputing the assessment went
as follows ‘
Sale was cancelled.
No capital gains tax was paid. Assessment needs to be withdrawn.
’
[15]
The
taxpayer was advised by letter dated 22 May 2012 that the
objection could not be entertained. Sections 81(5) and
79A of
the Income Tax Act, 1962, (both since repealed in terms of the
Tax
Administration Act 28 of 2011
, which came into operation on 1 October
2012) were cited in support of SARS’s
[11]
refusal to entertain the objection. The effect of
s 81(5)
has already been described.
[12]
Section 79A(1)
provided that the Commissioner could reduce an
assessment, notwithstanding that no objection or appeal against it
had been made,
if it was proved that an amount had been taken into
account in determining the taxpayer’s liability which should
not have
been taken into account. However,
s 79A(2)
imposed a three-year time limit from the date of assessment on the
exercise of the power conferred on the Commissioner in terms
of
s 79A(1).
That limit had been exceeded by the time the
cancellation agreement was concluded and the purported ‘objection’
to the assessment was raised.
[16]
On 12 February 2014 the taxpayer purported
to submit another objection to the assessment. Upon an overall
consideration of
the relevant correspondence, it would seem that the
second ‘objection’ was in point of fact an application by
the taxpayer
for SARS to withdraw its 2007 assessment in terms of
s 98(1)(d)
of the
Tax Administration Act, 2011
. That
provision read as follows:
Withdrawal
of assessments
(1)
SARS may, despite the fact that no objection has been lodged or
appeal noted, withdraw an assessment which-
(a)…
(b)…
(c)…
(d)
in respect of which the Commissioner is satisfied that-
(i)
it was based on-
(aa)
an undisputed factual error by the taxpayer in a return; or
(bb)
a processing error by SARS; or
(cc)
a return fraudulently submitted by a person not authorised by the
taxpayer;
(ii)
it imposes an unintended tax debt in respect of an amount that the
taxpayer should not have been taxed on;
(iii)
the recovery of the tax debt under the assessment would produce an
anomalous or inequitable result;
(iv)
there is no other remedy available to the taxpayer; and
(v)
it is in the interest of the good management of the tax system.
(Paragraph
(d) has since been deleted from the subsection and substantially
reinserted in paragraphs (d) and (e) of s 93 of
the Act, in
terms of ss 49 and 50 of the Tax Administration Laws Amendment
Act 23 of 2015, with effect from 8 January 2016.)
[17]
SARS
rejected the application on the grounds that
s 99(1)(a)
of the
Tax Administration Act prohibited
it from issuing an amended
assessment more than three years after the date of assessment of an
original assessment. It also
reiterated that in the absence of
a timeous objection, the issued assessment fell to be regarded as
final. In this respect
it invoked
s 101(1)
(b) of the
Tax
Administration Act, which
in essence is a reincarnation of the
repealed provisions in s 81(5) of the Income Tax Act, 1962.
[13]
SARS also contended that in any event none of the conditions
prescribed in terms of
s 98(1)(d)(i)
of the
Tax Administration
Act was
applicable on the facts of the case. SARS communicated
its rejection of the taxpayer’s request for consideration in
terms of
s 98(1)
by letter, dated 15 April 2014.
[18]
On
3 July 2014 the dispute was referred to the Tax Ombud by the
taxpayer’s attorneys. The attorneys requested the Tax
Ombud to recommend to SARS that it (i) withdraw the
assessment, as the taxpayer contended it was empowered to do under
s 98 of the Tax Administration Act, and (ii) ‘give
effect to one or more [unspecified] alternative remedies that
would
reduce the proceeds in accordance with paragraph 35(3)(c) of the
Eighth Schedule’.
[14]
It bears mention in that regard that the Tax Ombud’s mandate is
restricted in terms of
s 16
of the
Tax Administration Act to
attempting to resolve complaints by taxpayers regarding service
matters or procedural or administrative matters. The Ombud
does
not have the authority to make any determinative decision.
[19]
The taxpayer’s attorneys then wrote
to the Legal Delivery Unit of SARS on 30 July 2014 essentially
asking for a reconsideration
by SARS of its responses to the
taxpayer’s earlier approaches. The Corporate Income Tax
Department of SARS responded
on 8 August 2014. The response
reiterated SARS’s position that on the facts of the matter the
prerequisites for the
application of
s 98(1)(d)(i)
of the
Tax
Administration Act had
not been satisfied. It further suggested
that in any event, because the taxpayer could approach the High Court
on review,
s 98(1)(d)(iv)
also stood in the way of any
reassessment in terms of that section.
[20]
Despite this further rejection of the
taxpayer’s request, the matter was referred for consideration
by an ‘internal
committee’ at SARS. By letter dated
28 October 2014, the taxpayer’s attorneys were advised that the
committee
had resolved to confirm SARS’s position on the
non-availability of any remedy in terms of
s 98
of the
Tax
Administration Act. The
taxpayer was also advised of SARS’s
view that paragraph 35(3)(c) of the Eighth Schedule, upon which
the taxpayer sought
to rely, found no scope for application on the
facts. The latter position was reiterated in a further letter
from SARS to
the applicant’s attorneys dated 26 January
2015. In that letter SARS explained that the downward
adjustment in
the computation of the proceeds of the disposal of an
asset provided in terms of paragraph 35(3)(c) of the Eighth Schedule
did
‘
not allow for an adjustment
to be made to a capital gain in the year it arose by an event that
occurred in a subsequent year of
assessment
’.
[21]
On 12 February 2015 the Tax Ombud wrote to
the taxpayer’s attorney stating that he had been advised that
SARS had been in
contact with the attorney concerning the complaint
about the Commissioner’s refusal to afford the taxpayer relief
in terms
of
s 98
of the
Tax Administration Act. The
Tax
Ombud summarised the reasons SARS had given for its refusal and
concluded ‘Your matter is now regarded as finalised by
this
office’.
[22]
The applicant gave notice on 14 April 2015,
as required in terms of 11(4) of the
Tax Administration Act, of its
intention to institute the current proceedings. The application
was instituted on 21 April 2015, when service of the
papers was
effected on the respondent.
The court’s
jurisdiction to entertain the application for review in terms of
section 6
of the
Promotion of Administrative Justice Act 3 of 2000
[23]
Pivotal
to the effective relief sought by the taxpayer is the review and
setting aside of the decisions described in paragraph (b)(i)-(iv)
of
its amended notice of motion and the granting of the ancillary relief
sought in terms of paragraph (d) thereof.
[15]
The application for review has been sought in terms of s 6 of
the Promotion of Administrative Justice Act 3 of 2000
(‘PAJA’).
The interdictory relief sought in terms of paragraph (a) of the
notice of motion also has inherent
in it a review and setting aside
of the assessment. It is by its character directory relief of
the nature contemplated in
s 8(c)(i) of PAJA; that is a remedy
that is awarded concomitantly with an order reviewing and setting
aside the impugned administrative
action.
Section 105
of the
Tax
Administration Act, 2011
, moreover, makes it clear that a taxpayer
may not dispute an assessment except in proceedings in terms of
chapter 9 of the Act
(viz. objection or appeal), ‘or by
application to the High Court for review’. It is
difficult to conceive of
a review predicated on an alleged
misapplication by SARS of the provisions of the Income Tax Act that
would not be a review in
terms of s 6 of PAJA (as distinct from
a so-called ‘legality review’).
[24]
Section 7(1) of PAJA prescribes that review
proceedings in terms of s 6 of the Act must be brought without
unreasonable delay
and
not later than 180 days after the date
on which any proceedings instituted in terms of internal remedies
have been concluded; or
where no such remedies exist, the date on
which the person concerned was informed of the administrative action,
became aware of
the action and the reasons for it, or might
reasonably have been expected to have become aware of the action and
the reasons for
it.
In
Opposition
to Urban Tolling Alliance and Others v The South African National
Roads Agency Ltd and Others
[2013] 4
All SA 639
(SCA), at para 26, it was held that if an application for
review under PAJA is brought outside the 180 day period
stipulated
in s 7(1) a ‘
court
is only empowered to entertain
[it]
if
the interest of justice dictates an extension in terms of s 9
[of the Act]’. The bar to
the court’s ability to entertain a review application brought
in terms of PAJA out of
time operates as a matter of law and applies
irrespective of the failure by a respondent to rely on it; cf.
City
of Cape Town v South African National Roads Agency Ltd and others
2015 (6) SA 535
(WCC),
[2016] 1 All SA 99
,
2016 (1) BCLR 49
, at para
15-16. Section 9 of PAJA allows for the court, on application,
to extend the period in terms of s 7(1) if the
interests of
justice so require. It also permits the parties to extend the
period by agreement.
[25]
The applicant alleged that the application
had been brought within the 180 day limit. I am not satisfied
that that is so.
The applicant did not identify the basis for
its allegation that the 180 day limit had not been surpassed.
It was therefore
not evident on the papers when it contended that the
180 day period would have commenced in the context of the facts
described
above. In oral argument its counsel submitted that
the PAJA clock had started ticking only when the Tax Ombud directed
the
abovementioned letter of 12 February 2015 advising that the
matter was regarded as finalised.
[26]
The rejection of the taxpayer’s
objection to the assessment on the grounds that it was too late
occurred on 22 May 2012.
One of the grounds of rejection was
that a reduced assessment in terms of s 79A of the Income Tax Act
could not be considered more
than three years after the date of the
original assessment.
Section 98(1)(d)
of the
Tax Administration
Act was
essentially nothing other than a reformulated replacement to
s 79A of the Income Tax Act. Any relief under
s 98
of
the
Tax Administration Act also
appears to be subject to a three-year
limit similar to that which applied under the preceding provisions of
s 79A of the Income
Tax Act, certainly in a case like the
present one, in which, if the 2007 assessment were to be withdrawn,
it would need to be replaced
by a fresh assessment. That seems
to me to follow from the provisions of s 99(1)(a).
Moreover, I do not think
that
s 98
of the
Tax Administration Act
substantively
provided a new or alternative internal remedy to that
which had already been exhausted by the taxpayer in May 2012.
The internal
remedy - assuming it to have been one - subsequently
provided in terms of
s 98
of the
Tax Administration Act had
already been exhausted by the applicant when its March 2012
‘objection’ was rejected on the grounds described
earlier.
Subsequently repeated requests for the 2007 assessment
to be reopened, which elicited reiterated rejections on grounds given
earlier,
did not amount, in my judgment, to exhausting internal
remedies within the meaning of
s 7
of PAJA. Internal
remedies within the meaning of
s 7
of PAJA are the defined and
identifiable remedies that were available to the applicant for review
when the basis for the complaint
about the administrative action in
issue, including the administrator’s reasons for it, first
arose or reasonably should
have become known to the applicant.
[27]
Assuming in the applicant’s favour,
without so finding, that notwithstanding the expiry in 2011 of the
three-year limit for
the re-opening of its assessment, the 180 day
period provided in terms of
s 7(1)
of PAJA commenced to run on
or about 22 May 2012, it was required to have instituted review
proceedings by no later than a
date sometime in late November 2012.
[28]
The Commissioner has not admitted that the
application was brought within the 180 day limit. The
respondent’s answering
affidavit takes the point that the
review sought in terms of paragraphs (b)(i) and (ii) of the amended
notice of motion is time
barred. The Commissioner has, however,
indicated that he has no objection to the court adjudicating the
review application,
presumably in respect of the relief sought in
terms of paragraphs (b)(iii) and (iv). Not raising an objection
does not amount
to concluding of an agreement in the sense
contemplated by
s 9
of PAJA. Indeed, on enquiry, counsel
for the respondent confirmed at the hearing that the Commissioner had
not agreed to
an extension in terms of
s 9.
Counsel
explained that by not objecting to the adjudication of the review
application, the deponent to the answering affidavit
had meant an
adjudication within the limits of PAJA, including the time limits set
out in
s 7.
I do not read the answering affidavit to that
effect. Such a construction is impossible to reconcile with the
deponent’s
express reliance on the time bar in respect of
certain of the review relief sought, but not all of it.
However, in the absence
of an agreement between the parties, the time
bar applies as a matter of law irrespective of the anomaly in the
answering affidavit.
[29]
Confronted with this position, the
applicant’s counsel applied orally from the bar for the
necessary extension of time.
That raised the question whether
an application in that form and at that stage of the proceedings was
permissible.
[30]
Section 9
does not prescribe any
particular form of procedure. Applications to the High Court
are, however, generally regulated in
terms of
rule 6.
In
Directory Solutions CC v TDS Directory
Operations (Pty) Ltd and Others
[2008]
ZAECHC 22
(4 April 2008), Jansen J held that it was not competent to
introduce such an application in a replying affidavit. The
learned
judge remarked ‘it is wholly untenable for any
applicant to adopt such an attitude only in reply after a specific
defence
has been raised that the application was not brought within
the time limit. For a Court to exercise the discretion
contained
in
section 9
of PAJA it is necessary for an applicant to
properly seek condonation and to set out the factual basis for such a
(
sic
)
relief’. The remarks implied that an application brought
separately in terms of
rule 6
, or at least one expressly incorporated
in the review applicant’s founding papers, was required.
In
Loghdey v City of Cape Town and
Others, Advance Parking Solutions CC and Another v City of Cape Town
and Others
[2010] ZAWCHC 25
(20 January
2010), 2010 (6) BCLR 591
(WCC), at para 65, in the context of
considering the relevant aspect of the judgment in
Directory
Solutions
, I had this to say:
SPS’s
counsel contended that the application for relief in terms of
s 9
of
PAJA had been brought too late. In this regard it needs to be
mentioned that a notice of application formally seeking the relief
was delivered only at argument stage. Mr
Joubert
submitted
that this court should follow the approach of the Eastern Cape High
Court in
Directory Solutions
…. In that matter Jansen J
held that it was “wholly untenable” for an applicant
which had brought judicial
review proceedings outside the time limit
laid down in
s 7
of PAJA to deal with the delay only in reply and to
make application in terms of
s 9
only at that stage. This
approach is consistent with the approach in some judgments dealing
with the delay rule under the
common law; see e.g.
Scott and
others v Hanekom and others
1980 (3) SA 1182
(C) at 1192G-1193G.
While I agree that any leave required in terms of
s 9
of PAJA should
in general be sought in the notice of motion, there is no need for a
fixed rule in this regard any more than there
was in analogous
circumstances under the common law. In the current matter APS did
deal with the delay in its founding papers and
did indicate therein
that an application in terms of
s 9
would be made at the hearing.
This matter is therefore in any event factually distinguishable in
the relevant respects from
Directory Solutions
.
The conclusion in
Loghdey
that there was no need for a fixed rule in respect of
the applicable procedure for applications in terms of
s 9
militates against the notion that such applications should be
entertained only if brought in writing and in compliance with
rule 6.
[31]
In
Price
Waterhouse Coopers Inc and Others v Van Vollenhoven NO and Another
[2010] 2 All SA 256
(SCA), at para 6, the Supreme Court of Appeal
adopted the following passage from
Van
Wyk v Unitas Hospital & Another (Open Democratic Advice Centre as
Amicus Curiae)
[2007]
ZACC 24
[2007] ZACC 24
; ;
2008
(2) SA 472
(CC), at para 20, as the appropriate test for determining
applications in terms of
s 9
of PAJA:
This
court has held that the standard for considering an application for
condonation is the interests of justice. Whether it is
in the
interests of justice to grant condonation depends on the facts and
circumstances of each case. Factors that are relevant
to this enquiry
include but are not limited to the nature of the relief sought, the
extent and cause of the delay, the effect of
the delay on the
administration of justice and other litigants, the reasonableness of
the explanation for the delay, the importance
of the issue to be
raised in the intended appeal and the prospects of success.
The decision whether
or not to grant an application for an extension of time in terms of
s 9
of PAJA entails the exercise by the court of a broad
discretion in the light of all relevant facts; cf. e.g.
Oudekraal
Estates (Pty) Ltd v City of Cape Town and Others
2010 (1) SA 333
(SCA), at para 57.
[32]
With one exception, all the aspects for
consideration identified in para 20 of
Van
Wyk v Unitas Hospital
have been
sufficiently canvassed in the papers in the review application.
The exception is the absence of any explanation
on the papers for the
delay. Even in that regard, it may be inferred that the
applicant probably thought, albeit misdirectedly,
that its on-going
engagement with SARS obviated the need to institute litigious
proceedings. That much seems to follow from
the aforementioned
claim in the founding papers that the application had in fact been
timeously instituted.
[33]
In the circumstances I do not see why there
should be an absolute bar to the court entertaining the application
moved orally by
the applicant’s counsel. It is not
desirable that applications of this nature be brought informally in
the manner that
happened. But if the manner in which the
application is brought does not occasion the other litigant(s)
involved in the case
substantial injustice it would be
counterintuitive to the promotion of constitutional values for a
court to decline to consider
it on its merits on purely procedural
grounds; cf. in this regard the remarks of Plasket J in
Ntame
v MEC for Social Development, Eastern Cape, and Two Similar Cases
2005 (6) SA 248
(E), at para 25. The apparent reason for the
failure to bring the application in proper form would, nevertheless,
be one
of the considerations to be taken into account in deciding
whether the interests of justice would be served by granting it.
[34]
The respondent’s counsel, whilst
making the point that the application should have been brought in
proper form so that the
respondent could have dealt with it in his
answering affidavit, nevertheless had no objection to my proceeding
to hear submissions
from both sides on the application on the basis
of the contingency that I might find it to be competent to entertain
it notwithstanding
the irregular manner in which it had been
brought. In listening to the respondent’s counsel’s
address in opposition
to the application I did not detect indications
of any areas in which the respondent might have been substantially
prejudiced as
a consequence of not having had the opportunity to deal
with the application on paper. This did not surprise me because
the
relevant factual context seems to have been amply traversed in
the review papers and the determination of the application turned
on
a consideration of the matters identified above in the context of the
given facts. For all these reasons I had decided
to entertain
the applicant’s belated application in terms of
s 9
of
PAJA.
[35]
As it was, three days after the hearing,
and at a stage when this judgment was at an advanced state of
preparation, the applicant
delivered a written application in terms
of
s 9
, together with a set of written submissions in support of
it. The written application was placed before me together with
an email to my registrar from senior counsel for the Commissioner
indicating that the respondent did not object to the late application
and did not intend to oppose it. I understood that to convey
that, upon reflection, the respondent did not persist with the
grounds of opposition raised by his counsel when they were confronted
unexpectedly with the oral application for condonation at
the
hearing. By virtue of the requirements of
ss 7
and
9
of
PAJA, it still remains, however, for the court to determine whether
it is in the interest of justice to entertain the review.
The
considered decision by the respondent not to oppose the application
does, however, suggest that he was not inclined to argue
that it
would not be.
[36]
It does not appear that the delay has been
prejudicial. No third party rights are affected and SARS has
been content to engage
internally with the applicant concerning the
merits of the applicant’s various contentions over a period of
several years.
The institution of the application occurred
reasonably expeditiously after the Tax Ombud’s indication that
he was closing
his file. The issue involved raises important
and difficult questions of statutory interpretation concerning
capital gains
tax. A judicial determination on their import
would, in principle, conduce to certainty, which would be in the
public interest.
In this respect, it has weighed with me that SARS’s
responses to the applicant’s complaints did not provide the
sort
of guidance that one might have expected had a there been a
clear understanding of the legislation. It is not the
Commissioner’s
duty to proactively advise the taxpayer how to
deal with the issue of the reduction in the proceeds of disposal in a
subsequent
tax period (cf.
Medox Ltd v
Commissioner, South African Revenue Service
2015 (6) SA 310
(SCA), at para 17), but having regard to the basic
values and principles governing public administration in terms of
s 195(1)
of the Constitution, one would have expected SARS’s
response to the taxpayer’s purported objection in 2012 to have
been along the lines of the argument advanced by their counsel in
these proceedings had there been a clear understanding by its
officials of the import of the relevant legislation. SARS’s
responses to the taxpayer were not as enlightening as they
ideally
should have been.
[37]
In all the circumstances I am persuaded
that it would be in the interests of justice to entertain the review
application out of
time notwithstanding, as will become apparent, my
adverse opinion as to its merits.
The merits of
the review application
[38]
The merits of the review application turn
on the application and proper construction of the pertinent
provisions of the Eighth Schedule.
The approach contended for
by the applicant would require (as the terms of the relief sought in
terms of paragraph (a) of the amended
notice of motion confirm) an
amendment of the taxpayer’s 2007 tax assessment in consequence
of an event that occurred in
a subsequent tax year. It is
common cause that there was nothing objectionable about the 2007
assessment when it was issued.
It correctly reflected the
amount of the taxpayer’s capital gain on the disposal and the
amount that consequently fell to
be included in the taxpayer’s
taxable income for that year in terms of s 26A of the Income Tax
Act.
[39]
In their written argument, counsel for the
Commissioner emphasised the well recognised principle that income tax
is an annual fiscal
event. They called in aid the following remarks
of Botha JA in
Caltex Oil (SA) Ltd v SIR
1975 (1) SA 665
(A), at 674B-D:
…
[I]ncome
tax is assessed on an annual basis in respect of the taxable income
received by or accrued to any person during the period
of assessment,
and determined in accordance with the provisions of the Act. …
It is only at the end of the year of assessment
that it is possible,
and then it is imperative, to determine the amounts received or
accrued on the one hand and the expenditure
actually incurred on the
other during the year of assessment.
and further, at
677H-678A:
What
is clear, I think, is that events which may have an effect upon a
taxpayer’s liability to normal tax are relevant only
in
determining his tax liability in respect of the fiscal year in which
they occur, and cannot be relied upon to re-determine such
liability
in respect of a fiscal year in the past.
They submitted that
the construction of the relevant provisions of the Eighth Schedule
contended for by the taxpayer ran counter
to that well established
principle.
[40]
In response, the taxpayer’s counsel
submitted that the principle to which his opponents had referred was
pertinent to income
tax and that it was misdirected to confuse income
tax with capital gains tax. Counsel emphasised various
differences between
the operation of the two taxes. While I
accept that there are valid bases to distinguish the nature of income
tax and capital
gains tax, there is no getting away from the fact
that s 26A of the income tax draws them together in requiring
the
taxable capital gain
of that person
for that year of
assessment
to be included in
the
taxable income
of a person for
a
year of assessment
. In my
judgment the provisions of s 26A of the Income Tax Act militate
strongly against the validity of the basis upon
which the taxpayer’s
counsel sought to distinguish the principle highlighted by the
Commissioner’s counsel. As
I shall seek to demonstrate
below, the application of the principle that is evident in the
wording of s 26A is carried through
in the relevant provisions
of the Eighth Schedule. It is, of course, the effect of the
relevant provisions of the Schedule,
rather than the principle, that
is determinant, but I am nevertheless in agreement with the
respondent’s counsel that being
mindful of the principle can
afford some assurance in resolving any difficulties encountered in
construing the applicable provisions.
The principle of finality
that infuses our tax legislation is similarly a relevant
consideration.
[41]
It is useful to begin by describing the
method by which a capital gain (or loss) falls to be calculated in
terms of the Eighth Schedule.
It is provided for in terms of
paragraphs 3 and 4 of the Schedule. I shall deal with those
provisions in more detail later,
but it is sufficient at this stage
to say that a capital gain (or loss) falls to be determined with
reference to a year of assessment.
Ordinarily the calculation
will fall to be undertaken in terms of sub-paragraph (a) of paragraph
3 in respect of capital gains
and in terms of sub-paragraph (a) of
paragraph 4 in respect of capital losses in respect of the year of
assessment in which the
asset in question is disposed of. In
that event the capital gain is equal to the amount by which the
proceeds received or
accrued in respect of the disposal exceed the
base cost of the asset and, in the case of a capital loss, the amount
by which the
base cost of the asset exceeds the proceeds.
[42]
Part V of the Eighth Schedule sets out the
various methods by which the base cost of an asset may be
calculated. It is common
cause in the current matter, which it
will be recalled involves a ‘pre-valuation date asset’,
that the time-apportionment
base cost calculation method provided in
terms of paragraph 30 was used by the taxpayer for the purposes of
its return in the 2007
tax year, being the year in which the disposal
of the asset occurred.
[43]
The bases upon which the amount of the
proceeds of a disposal of an asset fall to be calculated are set out
in Part VI of the Schedule.
It is common ground that the
general provisions set out in paragraph 35 were applicable in the
current case. Insofar as relevant
they provided as follows at
the relevant times:
35.
Proceeds from disposal
.
(1) Subject to
subparagraphs (2), (3), and (4), the proceeds from the disposal of an
asset by a person are equal to the amount received
by or accrued to,
or which is treated as having been received by, or accrued to or in
favour of, that person in respect of that
disposal, and includes –
…
.
(2) ….
(3) The proceeds
from the disposal of an asset by a person, as contemplated in
subparagraph (1) must be reduced by-
(a) …;
(b) …; or
(c) any reduction,
as the result of the cancellation, termination or variation of an
agreement or due to the prescription or waiver
of a claim or release
from an obligation or any other event, of an accrued amount forming
part of the proceeds of that disposal.
(4)
Where during any year of assessment a person has become entitled to
any amount which is payable on a date or dates falling after
the last
day of that year, that amount must be treated as having accrued to
that person during that year.
[16]
[44]
It was also common cause for the purposes
of the argument that the following provisions of paragraph 25 of the
Schedule became applicable
when the applicant became no longer
entitled, as a consequence of the cancellation of the contract, to
part of the proceeds that
had been taken into account in calculating
its capital gain in the 2007 year of assessment:
25
Determination of base cost of pre-valuation date assets
(1)
…
(2)
If a person has determined the base cost as contemplated in
subparagraph (1) of a pre-valuation date asset which was disposed
of
during any prior year of assessment [2007 in the current case] and in
the current year of assessment [2012 in the current case]-
(a…
;
(b)
any amount of proceeds which was taken into account in determining
the capital gain or capital loss in respect of that disposal
has
become irrecoverable, or has become repayable or that person is no
longer entitled to those proceeds as a result of the cancellation,
termination or variation of any agreement or due to the prescription
or waiver of a claim or a release from an obligation or any
other
event during the current year;
(c)
…
; or
(d)
…
that
person must redetermine the base cost of that asset in terms of
subparagraph (1) and the capital gain or capital loss from
the
disposal of that asset, having regard to the full amount of the
proceeds and base cost so redetermined.
(3)
The amount of capital gain or capital loss redetermined in the
current year of assessment [2012] in terms of subparagraph (2),
must
be taken into account in determining any capital gain or capital loss
from that disposal in that current year [2012], as contemplated
in
paragraph 3
(b)
(iii) or 4
(b)
(iii).
[45]
Paragraph 3 of the Schedule provides as
follows insofar as relevant:
3.
Capital gain.
A
person’s capital gain for a year of assessment
[2012
in the current case]
, in respect of the
disposal of an asset-
(a) during that
year, is equal to the amount by which the proceeds received or
accrued in respect of that disposal exceed the base
cost of that
asset; or
(b)
in a previous year of assessment [2007 in the current case], is equal
to-
(i) …
(ii) …
(iii) the sum of-
(aa)
any capital gain redetermined in terms of paragraph 25(2) in the
current year of assessment [2012]
in
respect of that disposal; and
(bb)
any capital loss (if any) determined in respect of that disposal in
terms of paragraph 25 for the last year of assessment during
which
that paragraph applied in respect of that disposal [2007].
[46]
Paragraph 4 of the Schedule provides as
follows insofar as relevant:
4.
Capital loss
.
A
person’s capital loss for a year of assessment in respect of
the disposal of an asset-
(a) during that
year, is equal to the amount by which the base cost of that asset
exceeds the proceeds received or accrued in respect
of that disposal;
or
(b)
in a previous year of assessment [2007 in the current case], is equal
to-
(i) …
(ii) …
(iii)
the sum of-
(aa)
any capital loss redetermined in terms of paragraph 25 (2) in the
current year of assessment
[2012 in the
current case] in respect of that disposal; and
(bb)
any capital gain (if any) determined in respect of that disposal in
terms of paragraph 25 for the last year of assessment
during
which that paragraph applied in respect of that disposal [2007].
[47]
The applicant argues that the
redetermination that falls to be undertaken in terms of paragraph
25(2) and (3) is substitutive in
character and effect; that is that
it replaces the determination done in 2007, which, according to the
argument, is notionally
expunged, with the redetermined capital gain
or loss, as the case might be, being substituted in its place.
It is the effect
thus contended for that underpins the taxpayer’s
claim for the amendment of its 2007 tax assessment. The basis
for
the argument is what the applicant submits is the effect of
paragraph 35(3)(c) of Schedule. It contends that the reduction
in the proceeds which is required by paragraph 35(3)(c) has an
ex
post facto
effect on the original
computation of the proceeds for application in the capital gain
calculation.
[48]
The applicant’s argument finds no
support in the wording of paragraph 25(2) and (3). On the facts
of the case the ‘
current year of
assessment
’ within the meaning of
paragraph 25(2) is the 2012 year of assessment. It is also
clear from the context that the terms
‘
current
year of assessment
’ and ‘
current
year
’ are synonymous. It is
plain that the rationale for the required redetermination, triggered
by an event of the sort
referred to in paragraph 25(2)(b), is to give
effect to the generally applicable requirement of paragraph
35(3)(c). It is
expressly evident that the object of the
redetermination that it is common cause must be carried out is not to
redetermine or amend
the determination of a capital gain or loss in a
previous year of assessment (2007), but to provide a basis for the
result of the
redetermination to be taken into account for capital
gains tax purposes in the current year (2012). The way in which
that
falls to be done is, as indicated in paragraph 25(3), ‘as
contemplated in paragraph 3(b)(iii) or 4(b)(iii)’. Those
provisions make it even clearer that the result of the previous
(2007) assessment falls to be taken into account in computing the
redetermined capital gain or capital loss for the ‘year of
assessment’ (2012). That characteristic of the exercise
is wholly irreconcilable with any notion that the previous
determination is expunged. On the contrary, the event in the
2012 tax period that brought about a reduction in the proceeds fell
to be taken into account in that year of assessment. Regard
would be had in doing so to the previous year of assessment in which
the disposal had been accounted for, but the assessment in
respect of
such previous year would not be affected. It would remain
effective.
[49]
The Commissioner’s counsel handed up
a calculation showing how the redetermination that fell to be
undertaken in terms of
paragraph 25 would work in practice on the
actual figures involved in the current case. It is convenient
to reproduce it
(the formula used for computing the base cost comes
from paragraph 30 of the Schedule) :
Original
(2007) CGT assessment
The
original CGT assessment was based on the following calculation, using
the time-apportionment basis of ascertaining the base
cost:
Base
cost = B + (((P-B) x N) / T + N)
Where:
•
B
= allowable expenditure incurred in respect of the asset (R185 000
plus R1 100 000, i.e. R1 285 000)
•
P
= proceeds as determined under para 35 (R17 720 000 minus rebate of
R840 000, i.e. R16 880 000)
•
N
= years from acquisition to valuation date on 1 October 2001) (here 3
years)
•
T
= years from valuation date to disposal (here 5 years)
Base
cost is therefore:
R1
285 000 + (((R16 880 000 – R1 285 000) x 3) / (5 + 3))
=
R1 285 000 + ((R15 595 000 x 3) / 8)
=
R1 285 000 + R5 848 125
=
R7 133 125
The
capital gain on disposal is then proceeds (R16 880 000) less base
cost (R7 133 125)
=
R9 746 875 (as appears on the original -2007- assessment).
Re-determined
(2012) CGT assessment
in terms of
para 25(2) of the Schedule
Base
cost = B + (((P-B) x N) / T + N)
Where:
•
B
= allowable expenditure incurred in respect of the asset (R185 000
plus R1 100 000, i.e. R1 285 000)
•
P
= proceeds as re-determined under para 25(2) (R4 549 082)
•
N
= years from acquisition to valuation date on 1 October 2001) (here 3
years)
•
T
= years from valuation date to disposal (here 5 years)
Base
cost is therefore:
R1
285 000 + (((R4 549 082 – R1 285 000) x 3) / (5 + 3))
=
R1 285 000 + ((R3 264 082 x 3) / 8)
=
R1 285 000 + R1 224 030
=
R2 509 030
The
capital gain on disposal is then proceeds (R4 549 082) less base cost
(R2 509 030)
=
R2 040 051 (not a capital loss).
Impact
on current year
On
the assumption that paras 3(b) and 4(b) apply to a cancellation of a
sale
where the asset is returned to the
seller
[an issue which is not conceded
by the Commissioner, but does not need to be determined for present
purposes], the re-determined
gain is “pulled through” to
the calculation of capital gains and losses in the current year of
assessment as follows:
Para
3(b)(iii): the capital gain for the current year is (a) the
re-determined capital gain (R2 040 041) plus (b) any prior capital
loss determined in respect of the disposal (R0) = R2 040 041.
Para
4(b)(iii): the capital loss for the current year is (a) the
re-determined capital loss in the current year (R0) plus (b) any
prior capital gain determined in respect of the disposal (R9 746 875)
= R9 746 875.
Assuming
no other CGT events in the current year, the taxpayer shows an
aggregate capital loss for the current year (under para
7 of the
Eighth Schedule) of R9 746 875 less R2 040 041 = R7 706 834.
[50]
The redetermination exemplified in the
calculation put up by the Commissioner’s counsel requires the
word ‘
or
’
in the expression ‘
as contemplated
in paragraph 3 (b) (iii) or 4 (b) (iii)
’
in paragraph 25(3) of the Schedule to be construed as ‘
and
’.
That is not an altogether exceptional incident in statutory
interpretation; see e.g.
Barlin v
Licensing Court for the Cape
1924 AD
472
, at 478, where Innes CJ said
Now
the words “and” and “or” are sometimes
inaccurately used; and there are many cases in which one of them
has
been held to be the equivalent of the other. Much depends on the
context and the subject matter.
In
that matter, the Chief Justice agreed with the finding by the court a
quo that the word ‘and’ in the statutory provision
there
in issue fell to be construed as ‘or’. The reason
was that to find otherwise would give rise to absurdity.
[17]
[51]
If the word ‘or’, were to be
construed in the context of paragraph 25(3) of the Eighth Schedule in
accordance with its
strictly literal meaning, which is disjunctive,
it would give rise to an absurdity. As already noted, the
provisions of paragraph
25(2) and (3) of the Schedule are there to
give effect, in the particularised context of an event in a
subsequent tax period, to
the general principle expressed in
paragraph 35(3) that the proceeds of a disposal must be reduced by
the amounts contemplated
in paragraphs 35(3)(a)-(c). A
reduction in the proceeds necessarily will give rise to either a
reduction in the relevant
capital gain or an increase in the capital
loss. If the reductions provided for in terms of paragraph
35(3) were to happen
in the year of assessment in which the disposal
was made, it would result in a reduction in the taxpayer’s net
capital gain
(determined in terms of paragraph 8), or an increase in
its assessed capital loss (determined in terms of paragraph 9).
It
would be manifestly unjust were the taxpayer not to be afforded
the benefit of the reduction in such circumstances for it would
otherwise result in it being exposed to a capital gains tax liability
calculated with regard to a gain that had become impossible
to
realise. The evident object of the redetermination contemplated
by paragraph 25(2)(b) of the Schedule is to provide a
comparable
benefit to the taxpayer which experiences the events contemplated in
paragraph 35(3(c), not in the year of assessment
in which the
disposal of the asset occurred, but in a subsequent tax period.
[52]
If the redetermination in terms of
paragraph 25 were to result, as it does in the postulated example
using the amounts involved
in the current case and the formula
prescribed in paragraph 30, in a capital gain, it would not achieve
the evident object of the
redetermination if the taxpayer were, in
addition to the assessed capital gain for which it had become liable
in terms of its 2007
assessment, also to be exposed to a further
liability in respect of the redetermined capital gain (R2 040 051)
falling
to be accounted for in 2012 year of assessment as required by
paragraph 25(3). If the redetermined capital gain in the amount
of R2 040 051 were to be dealt with only in terms of
paragraph 3(b)(iii), it would have the effect of making the taxpayer
liable in 2012 tax year for capital gains tax in that year in an
amount over and above that to which it had become liable in 2007.
That result would be absurd. It would defeat the obvious
rationale for paragraph 35(3)(c) and produce a result in conflict
with the evident purpose of the redetermination exercise provided in
terms of paragraph 25. It would also give rise to a
manifestly
unjust and irrational treatment of the taxpayer.
[53]
The absurdity is avoided, and the evident
object of the provisions of paragraph 25(2) and (3) is achieved, only
if the word ‘
or
’
in paragraph 25(3) is construed as ‘
and
’,
with the result that that the redetermined capital gain amount is
treated in terms of paragraph 3(b)(iii)
and
paragraph 4(b)(iii) (and not paragraph 3(b)(iii)
or
paragraph 4(b)(iii)) in the manner illustrated in the
calculation handed up by the Commissioner’s counsel. It
is only by construing the word ‘or’ as ‘and’
that a result consistent with the manifest object of the legislation
is achieved.
[54]
In the circumstances I am satisfied that
the construction of the relevant legislation propounded by the
Commissioner’s counsel
is correct. The contesting
interpretation advanced on behalf of the taxpayer is inconsistent
with the plain wording of the
provisions. It is clear in the
wording of paragraph 25(3) that the outcome of the redetermination
exercise required to be
undertaken in the 2012 year of assessment
falls to be taken into account in that year. If regard is had
to the provisions
of paragraphs 8-10 of the Schedule, the benefit
derived by the taxpayer from the redetermination falls to be realised
by offsetting
the effect of the determined capital loss against any
capital gains realised by the taxpayer in that year (2012), or, if no
capital
gain is made in that in that year, in subsequent years.
There is no basis in the provisions for the expungement of the
capital
gains tax liability in the taxpayer’s 2007 year of
assessment.
[55]
The taxpayer therefore did not have a valid
basis to object to or appeal against its 2007 income tax assessment.
It has not
shown any reason why that assessment should be amended.
It follows that
s 98(1)(d)
of the
Tax Administration Act cannot
be of assistance to it. The 2007 assessment was in any event
not based on an undisputed factual error by the taxpayer in
a
return. The information concerning the disposal given by the
taxpayer in the relevant return was correct. The taxpayer’s
counsel’s contention that
s 98(1)(d)
admitted of what he
called ‘
ex post facto
errors’ to qualify ‘
as a[n]…
factual error by the taxpayer in a return’
finds no support in the wording of the provision.
The return was in fact correctly completed in the relevant
respect.
Counsel’s contention is in any event also
irreconcilable with the effect of the applicable provisions of the
Eighth Schedule
to the Income Tax Act, 1962, discussed above.
[56]
For all these reasons the application for
review and the associated relief will be dismissed with costs,
including the costs of
two counsel.
[57]
The respondent sought costs against the
applicant on the scale as between attorney and client. He did
so because of what he
contended to have been the disingenuous
reliance by the applicant on allegations that the sale agreement had
been subject to suspensive
conditions that had not been expressed in
the deed of agreement. The allegations that the contract had
been subject to such
conditions were misguided and could not have
been sustained for a number of reasons, including their inconsistency
with the applicant’s
conduct. However, I am not persuaded
that they were made with the deliberate intention to mislead the
court. They were
abandoned before the hearing. Costs will
therefore be awarded on the ordinary basis as between party and
party.
[58]
The following orders are made:
1.
The late institution of the review
application is condoned in terms of s 9 of the Promotion of
Administrative Justice Act 3
of 2000 (‘PAJA’) and, to the
extent necessary, leave is granted to the applicant with
retrospective effect to 21 April
2015 for the institution of
those proceedings.
2.
The application for review, including the
relief sought in terms of paragraphs (a), (c), (d) and (e) of the
amended notice of motion,
dated 15 July 2010, is refused with costs,
including the costs of two counsel. The costs awarded to the
respondent shall
include the costs of the application for relief in
terms of s 9 of PAJA.
A.G.
BINNS-WARD
Judge
of the High Court
Before:
Binns-Ward J
Applicant’s
counsel: T.S. Emslie SC
Applicant’s
attorneys: Shepstone & Wylie Attorneys
Cape
Town
Respondent’s
counsel: M.W. Janisch SC
T.S.
Sidaki
Respondent’s
attorneys: State Attorney
Cape
Town
[1]
My underlining for emphasis.
[2]
Paragraph 13(1)(a)(ii) of the Eighth Schedule. The issue of
the date of disposal ceased to be contentious when the taxpayer
abandoned its initially advanced contention that the contract had
been subject to suspensive conditions.
[3]
Paragraph 35(4) of the Eighth Schedule. The relevant
provisions of paragraph 35 and their contextual effect are discussed
in para [43] et seq., below.
[4]
‘
Year
of assessment
’
is defined in s 1 of the Income Tax Act, 1962, to mean ‘
any
year or other period in respect of which any tax or duty leviable
under this Act is chargeable, and any reference in this
Act to any
year of assessment ending the last or the twenty-eighth or the
twenty-ninth day of February shall, unless the context
otherwise
indicates, in the case of a company or a portfolio of a collective
investment scheme in securities be construed as
a reference to any
financial year of that company or portfolio ending during the
calendar year in question
’.
The taxpayer in the current matter is a company. Its counsel
advised in argument that the taxpayer’s
financial year ends on
31 August, although its 2007 return reflected the year-end as 28
February. Nothing turns on the
difference.
[5]
The relevant provisions of regulation 35 are quoted in paragraph
[42], below.
[6]
See paragraphs 3 and 4 of the Eighth Schedule, the relevant parts of
which are quoted in para [45], below.
[7]
The wording of paragraph 25(2) of the Eighth Schedule is set out in
paragraph [44], below.
[8]
The
provisions are set out in para [44], below.
[9]
In terms of the amended notice of motion, dated 15 July 2015.
[10]
In paragraph 1, with reference to note 1.
[11]
The
South African Revenue Service.
[12]
In para [10].
[13]
See para [10], above.
[14]
The relevant provisions of paragraph 35 of the Eighth Schedule are
set out and discussed in para [43] et seq., below.
[15]
See para [6], above.
[16]
The
provisions of paragraph 35(3)(b) and (c) have been amended, in terms
of s 111 of the Taxation Laws Amendment Act 25 of 2015
with effect
from 1 January 2016 to expressly state that the event causing the
reduction in the proceeds must have occurred in
the year of
assessment in which the disposal has occurred. In my view -
notwithstanding s 111(2) of Act 25 of 2015,
which might suggest
the contrary - the amendment is expositionary in character.
[17]
For
a useful collection of reported cases in which the question of
whether ‘or’ can be construed as ‘and’
and
vice
versa
was discussed, see
Coetzee
v Stadsraad van Parys
1986 (2) SA 33
(O). The most recent case that I was able to
find in which the practical approach demonstrated by Innes CJ in
Barlin
was applied is
Panamo
Properties (Pty) Ltd and Another v Nel and Others
NNO
2015 (5) SA 63
(SCA), at para 31.