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[2015] ZASCA 74
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Medox Limited v Commissioner for the South African Revenue Service (20059/2014) [2015] ZASCA 74; 2015 (6) SA 310 (SCA); 77 SATC 233 (27 May 2015)
Links to summary
THE
SUPREME COURT OF APPEAL OF SOUTH AFRICA
JUDGMENT
Case
No: 20059/2014
Reportable
In
the matter between:
MEDOX
LIMITED
...........................................................................................................
APPELLANT
and
THE
COMMISSIONER FOR THE SOUTH AFRICAN
REVENUE
SERVICE
....................................................................................................
RESPONDENT
Neutral
citation:
Medox
Limited v The Commissioner for SARS
(20059/2014)
[2015] ZASCA 74
(27 May 2015)
Coram:
Brand, Cachalia, Bosielo and Willis
JJA and Fourie AJA
Heard:
15 May 2015
Delivered:
27 May 2015
Summary:
Taxpayer
failing to object to income tax assessments issued by the
Commissioner ─ Absent any objection, the assessments became
final and conclusive by virtue of the provisions of s 81(5) of the
Income Tax Act 58 of 1962 ─ Taxpayer not entitled to relief
by
means of a declaratory order to have the assessments set aside ─
Appeal dismissed.
ORDER
On
appeal from:
Gauteng
Division, Pretoria (Teffo J sitting as court of first instance):
The
appeal is dismissed and no order as to costs is made.
JUDGMENT
Fourie
AJA (Brand, Cachalia, Bosielo and Willis JJA concurring):
[1]
The appellant, Medox Limited (Medox), approached the Gauteng
Division, Pretoria, on application for an order declaring that
all
income tax assessments issued to it by the respondent, the
Commissioner for the South African Revenue Service (the
Commissioner),
in respect of the years of assessment following its
1997 year of assessment, are null and void.
[2]
The Commissioner opposed the application which was heard by Teffo J.
The judge concluded that the high court did not have jurisdiction
to
entertain the dispute and accordingly dismissed the application with
costs. Medox applied for and was granted leave to appeal
to this
court.
[3]
In essence, the court below held that the dispute should have been
pursued by way of an objection to the assessments, lodged
with the
Commissioner and, if necessary, followed by an appeal to the tax
court created in terms of the Income Tax Act 58 of 1962
(the Act), as
the appropriate forum to deal with matters of this kind.
Background
[4]
Medox commenced trading in South Africa under the name and style of
Drake Personnel during 1976, but in 1995 was provisionally
wound-up
in terms of an order of the high court. Whilst under provisional
liquidation, Medox continued trading and on 7June 1996,
the
winding-up order was set aside by the high court when it sanctioned a
scheme of arrangement between Medox and its creditors
in terms of s
311 of the Companies Act 61 of 1973.
[5]
Medox submitted a return to the Commissioner in respect of the income
accrued to it during the 1996 tax year. The Commissioner’s
assessment for this tax year reflected an assessed loss of R46 622
063. Medox did not submit a return to the Commissioner
for the 1997
tax year, but thereafter submitted its income tax returns for the tax
years 1998 up to and including 2010 (excluding
2003). In respect of
each of the returns submitted in the tax years subsequent to 1997,
Medox did not seek to carry forward the
assessed loss incurred in the
1996 tax year and to set it off against profits earned during the
subsequent tax years. The Commissioner
duly issued income tax
assessments to Medox in respect of these subsequent tax years without
reflecting the assessed loss.
[6]
Medox made no objection against the assessments issued by the
Commissioner in respect of the 1998 and subsequent tax years,
but
alleges that during 2009 it realised that it had not submitted a
return in respect of the 1997 tax year and that the income
tax
assessments issued by the Commissioner in respect of the 1998 and
subsequent tax years, had failed to set off the assessed
loss of
R46 622 063 incurred by Medox in the 1996 tax year.
[7]
Medox then took the view that the 1998 and subsequent income tax
assessments were void as the Commissioner had acted
ultra
vires
by issuing
same in disregard of the mandatory provisions of s 20(1)
(a)
of the Act, requiring him to set off assessed losses of a taxpayer
against income derived by the taxpayer in subsequent years.
The
Commissioner denied the allegation, whereupon Medox approached the
court below for declaratory relief.
Applicable
statutory provisions
[8]
At the relevant time, the Act was the statute that regulated the
relationship between the Commissioner, who performed the functions
and exercised the powers assigned to him in terms of the Act, and
Medox as the taxpayer. I should add that the Act was subsequently
repealed and substituted by the
Tax Administration Act 28 of 2011
with commencement date 1 October 2012, but it has no bearing on the
present appeal.
[9]
The following sections of the Act are pertinent to the adjudication
of the appeal:
(i) Section 20,
which provides that for the purpose of determining the taxable income
derived by any person from carrying on any
trade, there shall be set
off against the income so derived by such person any balance of
assessed loss incurred by the taxpayer
in any previous year which has
been carried forward from the preceding year of assessment.
(ii) Section 81, the
relevant part of which reads as follows:
‘
(1)
Objections to any assessment made under this Act shall be made in the
manner and under the terms and within the period prescribed
by this
Act and the rules promulgated in terms of section 107A by any
taxpayer who is aggrieved by any assessment in which that
taxpayer
has an interest.
(2) The period prescribed in the
rules within which objections must be made may be extended by the
Commissioner where the Commissioner
is satisfied that reasonable
grounds exist for the delay in lodging the objection: Provided that
the period for objection may not
be so extended─
(a)
. . .
(b)
where more than three years have lapsed from the
date of the assessment; or
(c)
. . .
(3) Any decision by the
Commissioner in the exercise of his or her discretion under
subsection (2) shall be subject to objection
and appeal.
(4) . . .
(5) Where no objections are made
to any assessment or where objections have been allowed in full or
withdrawn, such assessment or
altered assessment, as the case may be,
shall be final and conclusive.’
(iii)
Section 83, which provides that any person entitled to object to an
assessment, may appeal against such assessment to the
tax court
established in terms of the provisions of s 83. The tax court may in
the case of an assessment appealed against, confirm
the assessment or
order that it be altered or referred back to the Commissioner for
further investigation and assessment.
Discussion
[10]
It is trite that an appeal is directed at the order of the court of
first instance and not the reasons for the order. In
Tecmed Africa
(Pty) Ltd v Minister of Health & another
[2012] 4 All SA 149
(SCA) Ponnan JA put it thus at para 17:
‘
. . .
appeals, do not lie against the reasons for judgment but
against the substantive order of a lower court. Thus, whether
or not
a court of appeal agrees with a lower court’s reasoning would
be of no consequence if the result would remain the
same.’
[11]
For the reasons that follow, I am of the view that there is no merit
in the application for a declaratory order. In view of
this
conclusion, there is no need to enter into the debate as to whether
or not the learned judge a quo correctly held that the
high court did
not have the necessary jurisdiction to entertain the application. I
will assume (without deciding) that the court
a quo did have the
jurisdiction to adjudicate upon the application.
[12]
In order to obtain declaratory relief in the court below, Medox had
to show that it has an existing, future or contingent right
to have
the assessments for the 1998 and subsequent tax years declared null
and void. See s 19(1)
(a)
(iii)
of the Supreme Court Act 59 of 1959 (now
s 21(1)
(c)
of the
Superior Courts Act 10 of 2013
). As it is common cause that
Medox did not object in terms of s 81 of the Act to any of the
assessments issued in respect of the
1998 and subsequent tax years,
it will immediately be apparent that Medox’s contention that it
has a right to have these
assessments declared null and void, flies
in the face of the provisions of s 81(5) of the Act. The latter
subsection expressly
provides that, where no objection is made to an
assessment, such assessment shall be final and conclusive. In
addition, it should
be borne in mind that more than three years have
lapsed from the date of each of these assessments, with the result
that, by virtue
of the provisions of s 81(2)
(b)
of the Act, the Commissioner is precluded from reopening the
assessments.
[13]
This court has over the years dealt with provisions worded similarly
to s 81(5) of the Act and confirmed that, where no
objection is
made to an assessment issued by the relevant tax authority, the
assessment is final and conclusive as between the
tax authority and
the taxpayer. These decisions have been collected in
Commissioner
for Inland Revenue v Bowman NO
[1990] ZASCA 28
;
1990 (3) SA 311
(A) at 316B-C. Further at 316E, Goldstone AJA writing
for the court, reiterated that an assessment to which no objection
has been
made, ‘becomes binding upon the taxpayer as a
statutory obligation’.
[14]
When confronted with the significant obstacle in the form of s 81(5)
of the Act, counsel for Medox was driven to argue that
the section
only applies to ‘valid’ assessments and not to ‘invalid’
assessments. I must confess that I
have considerable difficulty in
following this submission. As I understood counsel, a valid
assessment is one issued in accordance
with the provisions of the
Act, while an invalid assessment is not. To me this appears to be a
distinction without any difference.
[15]
On this argument virtually any assessment in which the Commissioner
erroneously refuses to allow a deduction, rebate or exemption
provided for in the Act, could be regarded as invalid and therefore
not subject to the provisions of ss 81 to 83 of the Act. This
would
render the mechanisms provided in ss 81 to 83 for objections to and
appeals against assessments nugatory and grant aggrieved
taxpayers
carte blanche to approach the high court in virtually every instance
where they disagree with an assessment made by the
Commissioner. For
the sake of completeness, I should mention that it has not been
suggested by Medox that any other good cause,
eg
iustus
error
or fraud,
exists for the setting aside of the relevant assessments. It has
accordingly not laid any basis for an attack upon the
assessments by
virtue of any other avenue of relief.
[16]
What counsel for Medox is effectively asking this court to do, is to
read words into the Act by implication. As emphasised
by Corbett JA
in
Rennie NO v
Gordon & another NNO
1988 (1) SA 1
(A) at 22E-F, this cannot be done unless the
implication is a necessary one in the sense that without it effect
cannot be given
to the statute as it stands. The submission on behalf
of Medox requires the word ‘assessment’ in s 81 of the
Act, and
in particular in subsecs 81(2)
(b)
and 81(5), to be read as being a reference to a ‘valid’
assessment. In my view there is no basis upon which it can
be said
that the reading in of the word ‘valid’ in s 81 is
necessary to give effect to the section as it stands. On
the
contrary, I believe that this construction would be in conflict with
the intention of the legislature as appears from the clear
language
of the subsections.
[17]
Finally, and in any event, I believe that the premise from which
Medox departs in its quest to have these assessments set aside,
is
fatally flawed. What Medox contends, is that it was the duty of the
Commissioner to take the necessary steps to have the assessed
loss of
1996 set off against profits earned by Medox during the subsequent
tax years. As I understand the provisions of the Act,
it is the
taxpayer who has to render a return in which any loss occurred in any
previous year is carried forward to be set off
against income derived
by the taxpayer from carrying on any trade. That this is the
taxpayer’s duty, is made clear in s 20(2A)
(b)
of the Act which states that the taxpayer shall not be prevented from
carrying forward a balance of an assessed loss merely by
reason of
the fact that he or she has not derived any income during any year of
assessment. Further, s 82
(b)
of the Act places the burden of proof ─ that any amount is
subject to set-off in terms of the Act ─ upon the person
claiming such set-off, ie the taxpayer.
[18]
It follows, in my view, that the application for declaratory relief
was correctly dismissed by the court a quo and that the
appeal
accordingly falls to be dismissed.
[19]
This brings me to the issue of costs. When the record of the appeal
was presented to the members of this court, it transpired
that the
Commissioner’s attorney (the State attorney, Pretoria) had not
complied with SCA rules 10(1)
(b)
and 10A. The first requires heads of argument in an appeal to be
lodged by the respondent within one month from the receipt of
the
appellant’s heads of argument. The latter requires the heads of
argument to be accompanied by a practice note dealing
with prescribed
procedural aspects to assist the members of the court in adjudicating
the matter.
[20]
This failure by the State attorney created the impression that the
appeal may not be opposed, yet no notice to abide had been
filed on
behalf of the Commissioner. This uncertain state of affairs led the
court to request the registrar to address the State
attorney in
writing, to establish whether or not the appeal was opposed.
[21]
The registrar’s letter caused a flurry of activity on the part
of the State attorney. The registrar was advised that
the
Commissioner’s heads of argument and practice note had, due to
an administrative oversight, not been filed. It was further
indicated
that an application for condonation would in due course follow,
together with the required heads of argument and practice
note. In
the event, an application for condonation accompanied by the
Commissioner’s heads of argument was filed on Friday,
8 May
2015 (four court days before the hearing of the appeal), while the
practice note was only filed with the registrar on Monday,
11 May 2015.
[22]
In the condonation application, the State attorney attempted to
explain the cause of the delay in filing these documents, but
woefully failed to present a plausible or acceptable explanation.
There is no need to traverse the explanation in any great detail.
The
following aspects, may, however, be highlighted:
(i) the appellant’s
heads of argument were served on the State attorney and filed with
the registrar of this court on 27 August
2014. In terms of SCA rule
10(1)
(b)
heads of argument on behalf of the Commissioner had
to be filed on or before 29 September 2014.
(ii) Junior counsel
acting on behalf of the Commissioner was instructed to and did settle
heads of argument, which were received
by the State attorney on
29 September 2014. A copy thereof was served on the appellant’s
attorneys on 6 October
2014 (there is no explanation as to why
it was not served on the appellant’s attorneys timeously on 29
September 2014). However,
the heads of argument were not lodged with
the registrar of this court nor was the prescribed practice note
prepared for filing.
(iii) Subsequent to
6 October 2014, and due to a litany of administrative deficiencies,
no steps were taken to forward the heads
of argument to this court
nor was any practice note prepared for filing. The administrative
deficiencies leading to this sorry
state of affairs can only be
described as grossly negligent, demonstrating a flagrant disregard
for the rules of this court. It
is clear that, had this court not
brought the failure to file the heads of argument and practice note
to the attention of the State
attorney, nothing would have been done
and the appeal would have been heard without the Commissioner being
represented.
(iv)
It also appears that on 15 March 2015 a notice of set down of the
appeal for hearing on 15 May 2015, was forwarded to the State
attorney by its Bloemfontein correspondent. Notwithstanding this, no
steps were taken to attend to the filing of any heads of argument
or
a practice note.
[23]
Whilst the appellant’s legal representatives may not have been
prejudiced as they had received the Commissioner’s
heads of
argument on 6 October 2014, this court has been seriously
inconvenienced by the supine attitude adopted by the State attorney.
This was readily conceded by counsel for the Commissioner. The
members of this court had to prepare for the appeal without the
benefit of the Commissioner’s heads of argument or practice
note, which were only filed at the very last minute. It has often
been emphasised that a disregard of the rules of this court will not
be tolerated and that the court may mark its disapproval by
means of
a punitive costs order. See
Africa
Solar (Pty) Ltd v Divwatt (Pty) Ltd
2002 (4) SA 681
(SCA) para 45.
[24]
The Commissioner’s application for condonation was granted,
mainly in view of the good prospects of success in the appeal,
while
the question of costs was reserved. In my view, the circumstances set
out above justify a departure from the general rule
that a successful
litigant should normally be entitled to its costs. I believe that an
appropriate sanction for the flagrant disregard
of the rules of this
court by the State attorney, would be to disallow the Commissioner’s
costs of appeal.
[25]
In the result the following order is made:
The appeal is
dismissed and no order as to costs is made.
________________________
P B FOURIE
ACTING
JUDGE OF APPEAL
APPEARANCES:
For
the Appellant: J Truter
Instructed
by:
Couzyn
Hertzog & Horak, Pretoria
c/o
Spangenberg Zietsman & Bloem, Bloemfontein
For
the Respondent: L G Nkosi-Thomas SC
L
Sigogo
Instructed
by:
State
Attorney, Pretoria