About SAFLII
Databases
Search
Terms of Use
RSS Feeds
South Africa: Western Cape High Court, Cape Town
SAFLII
>>
Databases
>>
South Africa: Western Cape High Court, Cape Town
>>
2021
>>
[2021] ZAWCHC 165
|
|
Peri Formwork Scaffolding Engineering (Pty) Ltd v Commissioner for the South African Revenue Service (A67/2020) [2021] ZAWCHC 165; 84 SATC 91 (23 August 2021)
IN
THE HIGH COURT OF SOUTH AFRICA
(WESTERN
CAPE DIVISION, CAPE TOWN)
CASE
NUMBER A67/2020
In
the matter between:
PERI
FORMWORK SCAFFOLDING ENGINEERING (PTY) LTD
Appellant
and
THE
COMMISSIONER FOR THE SOUTH AFRICAN REVENUE
SERVICE
Respondent
Coram
:
Erasmus, Steyn and Kusevitsky, JJJ
Heard
:
22 January 2021
Delivered
:
This judgment was handed down electronically by circulation to
the parties’ representatives via email. The date of
hand-down is deemed to be 23 August 2021.
JUDGMENT
KUSEVITSKY,
J
Introduction
[1]
This appeal relates to a 10% penalty of R 1 064
607.69 which was imposed by the Respondent on the Appellant for a
late payment of
employees tax pursuant to paragraph 6(1) of the
Fourth Schedule of the Income Tax Act No. 58 of 1962 (“the
Income Tax Act”)
and interest thereon in terms of section 89
bis(2) of the Income Tax Act, read together with s 213 of the Tax
Administration Act,
No. 28 of 2011 (“the
Tax Administration
Act&rdquo
;).
[2]
The Appellant relies on two contentions; Firstly,
the Appellant argues that the Tax Court erred in dismissing an in
limine
point raised by
the Appellant with regard to the computation of the time periods as
provided for in the Income Tax Act and
Tax Administration Act,
respectively
, which would have meant that the payment made by the
Appellant was, in fact, not late. Secondly, the Appellant appeals
against
the Tax Court’s finding that the Appellant had failed
to show that reasonable grounds existed, in the event that the in
limine
point was not
upheld, for making the late payment to the South African Revenue
Service (“SARS”) in contravention of
the Income Tax Act.
Background
[3]
The following facts are evident from the initial
Request for remission to SARS dated 21 February 2018. The Appellant
submitted its
Employer Reconciliation Declaration which was due on 31
December 2017, on 18 December 2017. An amount of R 10 648 340.93 was
due
in terms of this return. The Appellant submitted the instruction
for payment on e-filing on the same date as the return was filed
to
their bank, Nedbank, for payment on 3 January 2018. According to the
Appellant, the taxpayer’s business was closed for
the holiday
season from 15 December 2017 and only re-opened on 3 January 2018.
[4]
According to the Appellant, third party payments
are authorised on Nedbank electronically by the company’s cash
book administrator
and an accountant when it is sent from SARS
e-filing to Nedbank. In this instance, the cash book administrator
and the accountant
were unable to release the payment on 3 January
2018 as there were insufficient funds available to make the payment.
[5]
A payment of R 10 648340.93 was made by the
Appellant and received by the Respondent on Monday, 8 January 2018,
when the payment
was ostensibly due on Saturday, 6 January 2018.
[6]
According to the Appellant, the reason advanced
for the late payment was that the Appellant was waiting for its
debtors to make
payment to
it
,
and that based on historical payments, it had projected that payments
received would cover its liability to SARS. Suffice to say
that this
did not materialise, which necessitated the Appellant to request a R
5 million overdraft from Nedbank in order for it
to service its
indebtedness to SARS. On 5 January 2018, the overdraft of R 5 million
from Nedbank was approved, which resulted
in an available balance of
R 10 510 079.65. However, the debit order to SARS was in the amount
of R 10 648 340.93, which resulted
in a shortfall of R 138 261.58.
According to the Appellant, an amount of R
200 000.00 had been
predicted to be paid to it by that Friday, 5
January 2018.
[7]
They state further that deposits are only
deposited by Nedbank into their current account at 7pm the same
evening. On Saturday however,
the Appellant’s debtors had only
paid an amount of R 132 338.19, which was insufficient to allow
payment to be released on
6 January 2018, as there was still a
shortfall of R
5 923.39. As a result, the administrator requested additional funds
in the form of a transfer of R 20 000.00 from another of its
entities
in order to make up the shortfall for payment on the Monday morning,
8 January 2018. Once the payment had reflected, payment
to SARS was
released at approximately 10h13 on the same day.
[8]
Late payments to SARS are governed by the
following provisions.
Section 244
of the
Tax Administration Act
provides
as follows:
“
244.
Deadlines
. (1) If –
(a)
A day notified by SARS or specified in a tax Act
for payment, submission or other action; or
(b)
The last day of a period within which payment,
submission or other action under a tax Act must be made,
falls
on a Saturday, Sunday or public holiday, the action must be done not
later than the last business day before the Saturday,
Sunday or
public holiday.”
[9]
Paragraph 6 (1) of the Fourth Schedule of the
Income Tax Act provides as follows:
“
6.
(1) If an employer fails to pay any amount of
employees’ tax for which he or her is liable within the
period
allowable for payment thereof in terms of paragraph 2 SARS must in
accordance with Chapter 15 of the
Tax Administration Act, impose
a
penalty equal to ten percent of such amount
.”
[10]
Section 213
of the
Tax Administration Act
provides
as follows:
“
213
.
Imposition of percentage based penalty
.
– (1) If SARS is satisfied that an amount of tax was not paid
as and when required under a tax Act, SARS must, in addition
to any
other ‘penalty’ or interest for which a person may be
liable, impose a ‘penalty’ equal to the percentage
of the
amount of unpaid tax as prescribed in the tax Act.”
[11]
It is common cause that as a result of the late
payment, penalty interest was raised on 6 January 2018.
First
ground of Appeal – Computation of time
[12]
The Appellant contends that the Tax Court erred
in finding that in terms of paragraph 2(1) of the Fourth Schedule of
the Income
Tax Act, the last day of the period within which the
Appellant was allowed to make payment of the amount of payroll taxes
of R
10 648 340.93 it had declared on 18 December 2017, was 5 January
2018, and not 8 January 2018.
[13]
The Notice of Appeal
inter
alia
states the following:
13.1
The court erred in law in finding that the framework of the Fourth
schedule of the Income Tax Act requires
an employer to pay over to
SARS ‘
within the week the exact amount of PAYE is deducted
or withheld from the employee’s salary or wage’
, and
accordingly failed to distinguish between a period of 7 days, and a
period of one week in a statute, and that in terms of
the Fourth
schedule, an employer must ‘
pay the amount so deducted or
withheld to the commissioner within seven days after the end of the
month during which the amount
was deducted or withheld
.”
13.2
The court erred in law by interpreting
section 244(1)
of the
Tax
Administration Act to
operate in determining the manner of
computation of any statutory period of time prescribed in days in the
Tax Act within which
a payment, submission or other action must be
made by a taxpayer;
13.3
The court incorrectly interpreted
s 244(1)
of the
Tax Administration
Act by
not finding that
s 244(1)
only applies to a deadline,
being the last day of any statutory period of time in a tax act
within which a payment, submission
or other action must be done by a
taxpayer, which deadline has already been reckoned, using the legal
rules for the calculation
of time periods prescribed in statutes
applicable to the relevant deadline, and if that deadline falls on a
Saturday, Sunday or
a public holiday, then
s 244(1)
requires that the
taxpayer make the payment, submission or other action no later than
the last business day before the deadline,
which deadline was
calculated using the normal rules.
13.4
The incorrect interpretation of
s 244(1)
resulted in the court
failing to apply the relevant legal rules to compute the last day
within which the Appellant was allowed
to make payment of the
declared amount, which was 8 January 2018.
[14]
It
argued that the court incorrectly found
[1]
that the intention of the legislature was that a deadline should be
reckoned in days, inclusive of Saturdays, Sundays and Public
holidays
and that the legislature intended that the period within which an
action is to be done by a taxpayer should not be extended
beyond 7
calendar days, and accordingly, that
s 244(1)
excludes the operation
of s 4 of the Interpretation Act 33 of 1957 when calculating any
period prescribed in days within which
an action is to be done in
terms of the Income Tax Act.
[15]
They argue that the court erred by not finding
that s 4 of the Interpretation Act was applicable to the reckoning of
the period
of days within which the Appellant was allowed to make
payment of the declared amount in terms of paragraph 2(1) of the
Fourth
Schedule of the Income Tax Act and accordingly, that the
payment was due on or before 8 January 2018.
[16]
Section 213
of the
Tax Administration Act is
titled “Imposition
of percentage-based penalty” and it is common cause that SARS
imposed the penalty appealed against
in this matter in terms of
sub-section 213(1) which provides that “
If SARS is satisfied
that an amount of tax was not paid as and when required under a tax
Act, SARS must…impose a ‘penalty’
equal to the
percentage of the amount of unpaid tax as prescribed in the tax Act”.
[17]
Paragraph 2(1) of the Fourth schedule of the Income Tax Act requires
payment of declared
amounts “
within seven days after the end
of the month during which the amount was deducted or withheld”.
According to paragraph 6(1) of the Fourth schedule of the Income
Tax Act, the failure by an employer to pay any amount of tax within
the period allowable for such payment will result in the imposition
of a penalty equal to 10 per cent of such amount, and SARS
imposed a
penalty of R 1,064,834 on the Appellant in terms of section 213
of the Income Tax Act, on 6 January 2018.
[18]
The Appellant argues that whenever a period is prescribed by statute
(or contract)
within which a certain act must be performed, or after
expiry of which a legal disability is imposed, or before the expiry
of which
a legal step is incompetent, the legal rules relating to the
computation of time is relevant.
[19]
The general rule is that the ordinary civilian method of computation
of time is applicable
regarding the calculation of time, unless a
period of days is prescribed by law. In that case, the provisions of
s 4 of the Interpretation
Act, the so-called “statutory
method”
,
applies.
[20]
The statutory method will
not apply to the calculation of a period of days prescribed by a law
only where there are clear indications
by the legislator that it
intended another method of calculation to be used, or where its
application will result in a repugnancy
[2]
.
[21]
It argues that the
civilian method is applied in construing statutory provisions
referring to days where the language or context
contains a
repugnancy, or where the legal provision demonstrates an intention
that the statutory method ought not to be used.
The Supreme
Court of Appeal has however warned that in the interest of legal
certainty, in the absence of repugnancy, the application
of the
statutory method is generally required.
[3]
[22]
Applying the general rule,
the Appellant submits that the last day of the 7-day period ought to
be reckoned using the
statutory
method. The Appellant also submits that due to the use of the word
“
after
”
in paragraph 2(1) of the Fourth Schedule, the first day of the 7-day
period is 1 January 2018.
[4]
[23]
Section 4 of the Interpretation Act provides that where any
particular number of
days are prescribed for the doing of any act,
the days must be counted exclusive of the first and inclusive of the
last day of
the period within which to do so, unless the last day
happens to fall on a Sunday or a public holiday. In that case that
last day
must be excluded from the reckoning and the next Monday or
ordinary day counted as the last day.
[24]
The Appellant submits that in applying ss1 and 4 of the
Interpretation Act to the
wording of paragraph 2(1) of the Fourth
Schedule when one calculates the seven-day period within which
payment of the declared
amount were to be made, one would clearly
exclude the last day of December 2017, starting the calculation of
the seven days on
1 January 2018. Thus, the counting of the
seven-day period starts on 1 January 2018, and the last day of the
seven-day period
in this case, thus, the seventh day after the last
day of December 2017, is Sunday 7 January 2018.
[25]
Applying the latter portion of s 4 of the Interpretation Act, Sunday
the 7
th
of January 2018 must be excluded from the counting
of the seven-day period, as it is the last day of the period which
happens to
fall on a Sunday. The immediately following “
ordinary
”
day is then inclusively taken to be the last day of the period, being
Monday 8 January 2018, when the Appellant made the
payment of the
declared amount.
[26]
Thus the Appellant argues that the declared payment was not made
outside of the seven-day
period within which the Appellant was
allowed to pay the amount to SARS, and accordingly the Appellant was
at all times compliant
with the provisions of the Fourth Schedule and
the
Tax Administration Act and
the penalty should not have been
imposed at all.
[27]
It is apparent that the
Tax Court reasoned that
s 244
of the
Tax Administration Act titled
“
Deadlines
”,
demonstrates a clear intention that the legislature intended that a
method other than the statutory method of computation
must be adopted
in reckoning the 7-day period allowed for payment of payroll taxes in
terms of paragraph 2(1) of the Fourth schedule.
[5]
[28]
The relevant part of
s 244
states that “
If the last day of a
period within which payment under a tax act must be made falls on a
Saturday, Sunday or public holiday, the
action must be done the last
business day before the Saturday, Sunday, or public holiday
.”
[29]
It was argued that the Fourth schedule does not require payment by
employers within
a week. They state that the language of the
legislature is clear, the period is defined as 7 days.
[30]
Section 244
of the
Tax Administration Act does
not deal with the
computation of time at all; it deals with deadlines that have already
been computed in terms of the appropriate
method – which they
argue is the civilian method for periods calculated in months, weeks
or years, or the statutory method
in the case of periods calculated
in days that happen to fall on Saturdays, Sundays and public
holidays. Accordingly, where the
deadline for payment calculated in
terms of the statutory method falls on a Saturday, the payment must
be made on the last business
day before that Saturday.
[31]
The Tax Court inferred the intention of the legislature to exclude
the use of statutory
computation from further inferences of fact
regarding the legislature’s intention, such as the intention
not to extend the
7-day period beyond 7 days as defined in the
dictionary, and a finding of misdirection of fact finding that there
is no prejudice
to employers should the 7-day period be curtailed.
[32]
They submit that the Tax
Court erred in the above analysis and failed to apply the relevant
legal principles. If the Tax Court had
done so, it was argued, then
it is clear that the statutory method is the correct method of
computation to be adopted in reckoning
the 7-day period allowed for
payment of the declared amount. The court’s finding that the
clear days method is applicable
[6]
and the decision that the statutory method was inapplicable, was in
conflict with the policy requirement of legal certainty.
[33]
In my view, there is no repugnancy, and no indication from the
context or circumstances,
clear or otherwise, that the legislature
intended that another method of computation was intended to be used,
and if so, which
method.
[34]
Section 244(1)
of the
Tax Administration Act deals
with the
calculation of days specified in the Tax Act for payment, submission
or any other action under the Tax Act. It clearly
states that if the
last day of a period in which the taxpayer is meant to
inter alia
make payment falls on a Saturday, Sunday or public holiday; such
payment should be done no later than the last business day before
such Saturday, Sunday or public holiday. Thus, in my view, the
legislation is very clear.
[35]
The second step is to determine the calculation of said days.
According to the Appellant,
s 4 of the Interpretation Act should be
applied in the calculation of the time periods. If this approach is
adopted, then the computation
of the time periods will exclude
weekends and public holidays for purposes of the calculation and if
this is the case, then 7 days
when calculated from when the payment
fell due, would be on Monday 8 January 2018.
[36]
It is trite that for purposes of computing days in a statute,
ordinary calendar days
are included in the calculation of such time
periods. It is also trite that s 4 of the Interpretation of Statutes
Act only becomes
applicable if the statute is silent about the method
of computation of days. If the applicable statutes are clear and
unambiguous,
then s 4(1) finds no application.
[37]
According to the Appellant, if one applies ss 1 and 4 of the
Interpretation Act to
the wording of paragraph 2(1) of the Fourth
Schedule when calculating the seven-day period, the last day of
December 2017 should
be excluded and the date of payment would only
fall due the following Sunday; and if one applies s 4, then that
payment would only
be due the following business day, being the
Monday, 8 January 2018. If this is the case, then payment was made on
time and the
penalty thus falls away.
[38]
This argument however flies in the face of the clear provisions in
the statute. Section
244 clearly makes a provision for eventualities
where payments fall due on such days, and specifically states that in
such event,
it calls for payment on the last day preceding such a
day, be it a weekend or public holiday. There is nothing ambiguous
about
this provision; it creates certainly for the tax payer. The
Respondent contends that payments of amounts declared as PAYE to SARS
must be paid within 7 (seven) days after month end. In other words,
the calculation of the seven-day period was supposed to commence
from
1 January 2018 and end on 7 January 2018. According to
s 244(1)
of
the
Tax Administration Act, the
Appellant was supposed to pay the
declared PAYE on Friday 5 January 2018. Thus the provisions of
s
244(1)
do not become triggered since that provision is only relevant
to time periods which fall due on weekends and public holidays.
[39]
The Tax court concluded that the intention of the legislature
with regard to
deadlines envisaged that a deadline should be
calculated in days, inclusive of weekends and public holidays and
directs that in
the event of a payment falling on such days, that
such payment should be made on the last day before the weekend or
public holiday.
[40]
I am in agreement that the intention of the legislature is clear and
that there is
no ambiguity in the interpretation of the computation
or formulation of the calculation of the time periods which would
warrant
the activation of s 4 of the Interpretation Act. In other
words, s 4 of the Interpretation Act finds no application in this
instance
and accordingly, this ground of appeal must fail.
Further
grounds of appeal – Reasonable grounds
[41]
Turning to the second ground of appeal, that the Tax court erred in
its finding that
the Appellant had failed to show that reasonable
grounds exist for making the late payment to SARS in contravention of
the Income
Tax Act:- In its heads of argument the Appellant contends
that, should this court uphold the court a
quo’s
finding
that the declared amount was due on Saturday 8 January 2018, hence
payment was due on the Friday 7 January 2018, and that
it was indeed
out of time, then the Appellant submits that it has provided
reasonable grounds for its late payment, and is therefore
entitled to
the relief as provided in
s 217(3)
of the
Tax Administration Act.
>
[42]
Section 217
(3) provides as follows:
“
217.
Remittance of penalty for nominal or first incidence of
non-compliance
(1)
If a ‘penalty’ has been imposed in respect of—
(a)
a
‘first incidence’ of the non-compliance described in
section 210
,
212
or
213
;
40
or
(b)
an
incidence of non-compliance described in
section 210
if the duration
of the
non-compliance
is less than five business days,
SARS
may, in respect of a ‘penalty’ imposed under
section 210
or
212
, remit the ‘penalty’, or a portion thereof if
appropriate, up to an amount of R2 000 if SARS is satisfied that—
(i)
reasonable
grounds for the non-compliance exist; and
(ii)
the
non-compliance in issue has been remedied.
(2)
In the case of a ‘penalty’ imposed under
section 212
, the
R2 000 limit referred to
in
subsection (1) is changed to R100 000.
(3)
In the case of a penalty imposed under
section 213
, SARS may remit
the ‘penalty’, or a portion thereof, if SARS is satisfied
that—
(a)
the
‘penalty’ has been imposed in respect of a ‘first
incidence’ of the non compliance described in
section 210
,
212
or
213
, or involved an amount of less than R2 000;
(b)
reasonable
grounds for the non-compliance exist
;
and
(c)
the
non-compliance in issue has been remedied. (“Own emphasis”)
[43]
The
Tax Administration Act provides
for the remittance of
administrative penalties for non-compliance under very specific and
limited circumstances. Penalties can
be waivered in ‘exceptional
circumstances’. ‘Exceptional circumstances’ are
defined in
s 218(2)
of the
Tax Administration Act to
include,
inter
alia
, natural or human-made disasters, disruptions in services,
such as natural disasters, civil disturbance, serious illness or
accident,
serious emotional or mental distress, SARS errors and
serious financial hardship, such as,
in
the case of a business, an immediate danger that the continuity of
business operations and the continued employment of its employees
are
jeopardised.
[44]
A taxpayer can make a request for remission of penalties imposed for
non-compliance
including,
inter alia
for penalties levied for
Pay-As-You-Earn (“PAYE”). Penalties which are levied are
done in accordance with paragraph
14(6) of the Fourth Schedule of the
Income Tax Act and are equal to 10% of the total amount of employees’
tax for the period
relating to the outstanding return.
[45]
In terms of
s 213
of the
Tax Administration Act, the
late payment of
a tax debt attracts a percentage-based penalty. In the case of late
payments of,
inter alia,
PAYE, late payment penalties
amounting to 10% of the amount that is unpaid will be imposed. Such
penalties may be remitted in circumstances
where the penalty has been
imposed in respect of a ‘
first incidence’
of
non-compliance, in other words, where no other fixed-amount or
percentage-based administrative penalty has been used during
the
preceding 36 months, or, where exceptional circumstances exist, which
rendered the taxpayer incapable of complying with the
relevant
obligation under the relevant tax Act.
[46]
Sections 89 and 89
bis
of the Income Tax Act also allow SARS a
broad discretion to remit or reduce interest after having regard to
the circumstances of
the case in question.
[47]
Under the regulations issued in respect of s 75B of the Income Tax
Act, SARS has
a discretion to remit the whole or a portion of an
administrative non-compliance penalty imposed for a first incidence
of non-compliance,
or if the incidence of non-compliance was remedied
within seven days, in terms of
s 217
of the
Tax Administration Act,
SARS
may only remit administrative non-compliance penalties up to an
amount of R 2 000.00. The remittance is further subject to being
imposed in respect of the first instance of non-compliance or that
the duration of the non-compliance is less than five business
days.
[48]
The limited remittance in terms of the
Tax Administration Act is
further subject to SARS being satisfied that reasonable grounds for
non-compliance exist and that the non-compliance has been remedied.
In respect of percentage based penalties, the amount is also limited
to R 2 000.00, that is, if SARS is satisfied that the penalty
has
been imposed in respect of a first incidence or involved an amount of
less than R2 000.00, provided further that reasonable
grounds for the
non-compliance exist and the non-compliance in issue has been
remedied.
[49]
SARS may also remit the administrative non-compliance penalty or a
portion thereof
if SARS is satisfied that one or more of the listed
exceptional circumstances are present and rendered the taxpayer
incapable of
complying with the relevant obligation under the
relevant Tax act.
[50]
The Appellant contends that it immediately remedied its
non-compliance and in fact,
has never in the past been late in paying
its payroll taxes, or been non-compliant. It relied on the case of
Attieh v The Commissioner for the South African Revenue Service
[2016] ZAGPJHC 371
for the proposition that reliance by a
taxpayer on the expert advice of a tax practitioner, which proved to
be wrong, could amount
to ‘reasonable grounds’ to justify
a taxpayer’s non-compliance. In
casu
, the Appellant
contends that the taxpayer relied upon the company’s
book-keeper, given her 8-year experience in preparing
cash-flow
forecasts for the Appellant, and her predictions of cash inflows for
the period of the first week of January 2018. It
was argued that her
behaviour was not risky or unreasonable but based on her historic
cash flow methodology which had not failed
the company in the eight
years of her employment. In any event, it argued that despite the
fact that the predictions were inaccurate
in this instance, that her
decisions were not unreasonable. Trade debtors paid less than R 200
000.00 to the Appellant on 5 January
2018. This eventuality, it
argued, while not impossible, was highly improbable.
Nature
of the relationship between SARS and the Taxpayer
[51]
The Respondent advanced two arguments in opposition to the contention
that reasonable
grounds exist which would entitle the Appellant to a
reprieve in terms of s 217(3)(b) of the Income Tax Act. In the first
instance,
the Respondent argued that paragraph 2(1) of the Fourth
Schedule establishes a fiduciary relationship between SARS and an
employer.
This is so because the salient points of the provision
provide that an employer, who is a South African Resident, and who is
liable
to pay remuneration to an employee, is duty bound to deduct or
withhold PAYE from such remuneration so paid to an employee;
secondly,
to pay such amounts to SARS within a stipulated period. It
is common cause that the amounts so deducted or withheld are
collected
on behalf of and for the benefit of SARS.
[52]
The Respondent argued that the Appellant failed to act in a manner of
the highest
degree of care in so collecting and paying over the
amounts due to SARS, because the Appellant failed to insulate the
PAYE amounts
collected from its employees, from the business income;
the said amounts were mixed with business income arising from
business
operations; the PAYE amounts deducted or withheld were
exposed to risks associated with non-payment by third parties; the
non-payment
of PAYE amounts to SARS was subjected to trade debtors’
behaviour, predictions of weekly cash inflows and other cash flow
models and ultimately, borrowing money from third parties to
facilitate the payment of PAYE to SARS. The Respondent argued that
the Appellant cannot state that ‘reasonable grounds exist’
in circumstances where it treated PAYE amounts deducted
or withheld,
as its own and subjected such funds to the whims of its own business.
Such conduct, it argued, was unreasonable and
unacceptable.
[53]
The Respondent contends that paragraph 2(1) of the Fourth Schedule
establishes a
relationship between the Respondent and various
taxpayers who happen to be employers. It provides that an employer
who is a South
African resident and who is liable to pay remuneration
to an employee/s is duty bound to deduct/withhold from such
remuneration
so paid to the employee, and to pay such amount to SARS
within a stipulated period. The amounts so deducted or withheld are
collected
on behalf of and for the benefit of SARS.
[54]
The Respondent also argued that the relationship between the taxpayer
and SARS is
akin to a fiduciary relationship in that the taxpayer is
required to act for the benefit of SARS. Counsel for Respondent
relied
on Bryan A Garner, in Black’s Law Dictionary’s
definition of the word ‘fiduciary’ as follows: ‘
A
person who is required to act for the benefit of another person on
all matters within the scope of their relationship…
one who
owes another the duties of good faith, trust, confidence and candour
and one who must exercise a high standard of care
in managing
another’s money or property
.” They argue that all of
these relationships require an unusually high degree of care.
Accordingly, the Respondent argued,
the Appellant and SARS were in a
relationship that resembled a fiduciary relationship in material
respects and that the Appellant
failed to observe the highest
degree of care in relation to PAYE amounts deducted or withheld from
the employees and retained on
behalf of SARS by failing to insulate
the PAYE amounts collected from its employees, from its business
income; mixing it with business
income arising from its income
earning operations; exposing the amounts so deducted to risks
associated with non-payments by third
parties and finally, borrowing
money from third parties to facilitate the payment of PAYE to SARS.
The core of the Respondent’s
argument is that money collected
on behalf of SARS cannot be utilised as cash flow, and that such
money should be insulated. Furthermore,
the specific directives with
regard to obligations of an Employer in s 217(b) is that paragraph
2.1 directs that the money should
be paid over within 7 days after
deduction, and that there is a fiduciary relationship to collect
money on behalf of another.
[55]
I am not in agreement that
the relationship between an employer and SARS is akin to a fiduciary
relationship which would elevate
the obligation by an employer to pay
over monies that is collected on behalf of it to SARS – to that
of, for example, principal
and agent. There have been various
distinctions between the accountability of a trustee to his
beneficiary and the accountability
of a debtor to his unsecured
creditor. Under a trust-type of relationship, the beneficiary is
given an equitable proprietary interest
in some specific trust
property or at least the right to have specific trust property
administered according to the terms of a
trust or legislation,
whereas an unsecured
creditor only has a
personal right against the debtor which is unrelated to any property
in the hands of the debtor.
[7]
[56]
There have been instances where parties have stipulated that monies
received on behalf
of another should be received in a separate
account, and this would be construed as a trust. See
In Re Nanwa
Gold Mines Ltd
[1955] 1 W.L.R 1080
.
[57]
Sometimes the payee occupies a special position with such well
defined incidents
that a payment to him is governed by a standard
contract implied by law. Thus, a deposit of money with a banker, on
current account,
will create the relationship of debtor and creditor
between the bank and the person to whose credit the money is paid.
The banker
does not hold the sums in a bank account on trust for his
customer. Instead, the relationship between them is that of debtor
and
creditor. When the customer deposits money in the account, it
becomes the bank’s money and the bank’s obligation to
repay an equivalent sum (and any agreed interest) to the customer.
See
Foley v Hill
[1848] EngR 837
;
(1848) 2 HLC 28
,
9 ER 1002
, where the House of
Lords stated:
“
The
money paid into the banker’s, is money known by the principal
to be placed there for the purpose of being under the control
of the
banker; it is then the banker’s money; he is known to deal with
it as his own, he makes what profit of it he can,
which profit he
retains to himself, paying back only the principal, according to the
custom of bankers in some places, or the principal
and a small rate
of interest, according to the custom of bankers in other places. The
money placed in the custody of a banker is,
in all intents and
purposes, the money of the banker, to do with it as he pleases: he is
guilty of no breach of trust in employing
it; he is not answerable to
the principal if he puts it into jeopardy, if he engages in a
hazardous speculation: he is not bound
to keep it or deal with it as
the property of his principal, but he is of course answerable for the
amount, because he has contracted,
having received that money, to
repay to the principal, when demanded, a sum equivalent to that paid
into is hands.
[58]
This principle was
reiterated in
Grayston
Technology Investment (Pty) Ltd and Another v S
[2016] 4 All SA 908
(GJ)
, where the full
bench, per Spilg J, opined that a different legal situation arises
where funds standing to the credit of someone’s
account have
either entered that account by reason of a special relationship in
terms of which the holder of the account is in
fact a nominee,
trustee or agent in respect of monies.
[8]
It may occur where the holding of the funds in the account are to be
treated as transferred to another, although they may
only be paid out
at some future date.
[9]
The court was of the view that
Grayston
stood in the shoes of an agent in respect of either a statutory or
civil law obligation of debtor and creditor, pursuant to which
relationship it attracted an obligation to pay over in specie to SARS
or to account for the money actually received or its proceeds.
[10]
[59]
The court in
Grayston
also noted instances in which an agent has a contractual obligation
to account to the principal for all amounts received, even
though the
funds may be turned over to purchase other items for resale, or to
cover overheads (in its business) which portion
need eventually
be paid over at the end of the agreed period
[11]
.
In this case, the money would not be received as agent for
collection, nor would any portion have to be earmarked and set aside
for the principal. The agent could utilise the amount received as he
wished as there was no special property or interest in the
funds when
received, or at any time thereafter. The court held that since the
principal does not acquire any rights in the funds
paid by the
customer, or in their proceeds, but only enjoys a personal right
against the agent arising out of their agency agreement,
a proper
accounting, (in that case) would discharge the agent from liability
for theft.
[12]
[60]
I am therefore not persuaded by the Respondent’s argument that
the relationship
between the parties can be elevated to that of a
fiduciary relationship which would preclude the Appellant from
utilizing the money
or obliging it to be ring-fenced.
Appropriateness
of the proportionality of the penalty imposed
[61]
The Appellant further submitted that a penalty of 10% in the context
of its non-compliance,
which was the next business day after the due
date, was not proportionate to the seriousness and duration of the
non-compliance.
The Respondent contends that it matters not whether
the Appellant was late by one day or twenty days, for, as long as the
as the
Appellant had failed to pay the declared PAYE amounts within
the stipulated seven-day period, the imposition of the 10% penalty
is
triggered.
[62]
Section 213 directs that SARS must, if satisfied that amounts due
were not paid within
the required period, as is required by the
relevant provisions of the Income Tax Act, a 10% penalty must be
implemented. The Respondent
contends that SARS is directed, in a
peremptory manner, to impose a penalty without any discretionary
powers. I agree. In my view,
if one starts to implement various
degrees of penalties in relation to the various degrees of lateness,
this would cause uncertainty
and confusion in the office of the SARS
and it would potentially expose them to a plethora of litigation and
open a flood gate
of challenges to reviews of decisions taken
exercising discretionary powers in evaluating an appropriate penalty
for the degree
of lateness.
[63]
As the legislation now stands, there is certainty amongst tax-payers,
that in the
event of non-compliance, a penalty of 10% is levied on
the amount owing to SARS, irrespective of the degree of lateness.
[64]
It is evident that on SARS’s own approach to remission of
penalties in the
imposition of percentage based penalties, that
all
penalties can be waivered in the event of a first incidence of
non-compliance. The Appellant argued that it had a clean record
with
the SARS and that this would qualify under a first incidence of
non-compliance. This contention was not disputed by the Respondent.
[65]
In my view, the facts relied upon by the Appellant in
Attieh
are distinguishable from this matter.
Attieh
relied on
the expert advice of a tax consultant in the determination of his
liability for capital gains tax to SARS. In
casu
, given the
fact the Appellant knew that payment to SARS fell at a particularly
precarious time of the year, when people notoriously
have fewer rand
to spare after the holiday period, that they should have in fact
predicted that payment by their trade debtors
would be sporadic and
the probabilities existed to the contrary of what the book-keeper
might have predicted or anticipated. Her
reliance on payments from
third parties to ensure sufficient cash flow to comply with its
payment obligations with SARS, was therefore
unreasonable. However,
that in my view is not the end of the matter.
[66]
In my view, s 217(3) envisages a mechanism to come to the assistance
of an aggrieved
first incidence non-complying tax payer, who has in
addition, satisfied two further requirements, most notably, that they
have
satisfied SARS that reasonable grounds exist for the
non-compliance. In my view, in this instance, a factor which SARS
failed to
consider, which could, in my view, render it as a
reasonable ground, is the
manner
in which the Appellant, when
it realised that it would be unable to comply with the payment
instruction on 3 January 2018, attempted
to rectify the deficiency.
[67]
According to the Appellant, the instructions were given to
their bank to process
the payment on 3 January 2018. The Appellant
was able to raise in excess of R 5million to settle its liability to
SARS. Naturally,
given that the process of the payment occurred over
a weekend, it was delayed. The Appellant could therefore only effect
payment
on the first business day thereafter, which it duly did.
There was no prejudice to SARS and neither was there any
mala
fides
indicated; to the contrary, every effort was made by the
Appellant to comply with its obligations to SARS. This, in my view,
evidences
reasonable grounds for the penalty imposed to be have been
remitted, especially given the fact that it was a first incidence of
non-compliance. In the circumstances, I am of the view that the
appeal must succeed.
Should
the matter be remitted back to SARS for reassessment and further
investigation?
[68]
At the end of the hearing, the parties were requested to provide
further submissions
as to whether an appropriate order might be to
refer the assessment back to SARS for “
further investigation
and assessment
” of appellant’s penalty terms of
s129(2)(c)
of the
Tax Administration Act, rather
than setting it
aside, or altering it.
[69]
The Appellant submitted that based on the principles set out by the
Appellate Division
(as it then was) in
SIR v
De Costa
[1985] ZASCA 32
;
[1985] 2 All SA 335
(A) , that it would not be appropriate to
remit the matter to SARS for reconsideration. It argued that the
Appellant is entitled,
in the circumstances, to this court’s
exercise of the discretion provided for in
s 217(3)
, should this
court find that the penalty was correctly imposed, and find reason to
interfere with the Tax Court’s exercise
of its discretion.
[70]
In
De
Costa
the Court
discussed the view that, as SARS deals with large numbers of
applications for remissions of penalties, and that SARS
has
yardsticks by which to go by, SARS is in a far better position to
decide on an appropriate remission of a tax penalty than
a Tax Court
(or an Appeal Court). The proposition advanced was that an appeal
tribunal ought only to interfere with SARS’
discretion
regarding the remission of a penalty on narrow grounds, such as where
it has been done on an incorrect basis or where
there has been an
unreasonable exercise of the discretion by SARS. The determination of
whether the remission is unreasonable would,
of course, require an
Appeal tribunal to make its own value judgment as to what a
reasonable remission is.
[13]
[71]
The Court in
De
Costa
however rejected
the proposition that a Tax Court only had limited power to interfere
with the exercise of a discretion by SARS,
and found it
irreconcilable with the nature of a Tax Court as a court of revision,
as opposed to a court of appeal, which entails
a taxpayer’s
right to a rehearing of the whole matter by the Tax Court. The Tax
Court is required to substitute its own “fresh”
exercise
of discretion on the record before it, for that of SARS, and a
taxpayer is entitled to such a review of SARS’ decision.
[14]
[72]
Accordingly, the Appellant submits that,
in casu
, should this
Court find that the Tax Court had failed to properly exercise its
discretion regarding the remission of the penalty
in terms of
s
217(3)
, the correct order would be to alter the determination of the
extent of the penalty determined by the court
a quo
.
[73]
I am in agreement that a remittance of the matter to SARS would only
serve to delay
the matter. In any event, since I have found that
there has been an unreasonable exercise of the discretion by SARS,
this court
is obliged to uphold the appeal and it is so ordered.
Costs
There
is no reason why costs should not follow the result.
DS
KUSEVITSKY
Judge
of the High Court, Western Cape
Division
I
agree, and it is so ordered:
NC ERASMUS
Judge
of the High Court, Western Cape
Division
I
agree:
ET
STEYN
Judge
of the High Court, Western Cape
Division
Counsel
for the Applicant: Advocate R Marais
Instructed
by: Barnaschone Attorneys
Counsel
for the Respondent: Advocate O Mokgatle
Instructed
by: Tax Court Litigation
[1]
At
paragraphs 26 and 27 of the judgment
[2]
Section
1 of the Interpretation Act.
[3]
Nedcor
Bank Ltd v Master of the High Court and others
[2002] 2 All SA 281
(A) para [12].
[4]
Azisa
(Pty) Ltd v Azisa Media CC and Another
[2002] 2 All SA 488
(C) at 496.
[5]
Judgment
paras [26] and [27]
[6]
Judgment
paragraph [21]
[7]
See
generally
Principles
of the Law of Trusts
,
HAJ Ford, WA Lee (1
st
Ed) at [123] to [126].
[8]
At
para 32
[9]
At
para 32
[10]
At
para 105
[11]
At
para 47
[12]
At
paras 47 - 48
[13]
De
Costa
At
337
[14]
AB
p18.