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[2016] ZAGPJHC 371
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Attieh v Commissioner for the South African Revenue Service (A5024/2015) [2016] ZAGPJHC 371; 84 SATC 420 (11 August 2016)
IN
THE HIGH COURT OF SOUTH AFRICA
GAUTENG
LOCAL DIVISION, JOHANNESBURG
REPORTABLE
Case
No: A5024/2015
In
the matter between:
MARK
RUSSEL
ATTIEH
Appellant
and
THE
COMMISSIONER FOR THE SOUTH AFRICAN
REVENUE
SERVICE
Respondent
Case
Summary: Revenue – Capital gains tax – sale of
shares – Income Tax Act 58 of 1962 - para 35(1) of the
Eighth
Schedule – meaning of ‘received’ by and ‘accrued’
to - whether full amount of purchase consideration
was received by or
accrued to taxpayer - para 35(c) of the Eighth Schedule –
interpretation – whether general
words ‘any other event’
are
ejusdem generis
with immediately preceding words –
whether ‘event’ on which taxpayer relied in making
deduction from proceeds
of sale of shares within the ambit of
deductions contemplated in subparagraph –
Tax Administration
Act 28 of 2011
-
sections 222
and
223
– understatement penalty
– whether appropriate understatement penalty percentage applied
–
s 270(6D)
– whether penalty should be reduced - Income
Tax Act 58 of 1962 - s 89
quat
– interest must be levied
on underpayment of tax unless taxpayer’s contention founded on
reasonable grounds –
whether taxpayer has on reasonable grounds
contended that deduction made should have been allowed.
JUDGMENT
MEYER,
J (MATOJANE and WEINER JJ concurring)
INTRODUCTION
[1]
This is an appeal against part of the order of the Tax Court, Gauteng
(Wepener J (A Teichert and A Essat concurring)). The tax
court
dismissed the appeal of the appellant, Mr Mark Russel Attieh (the
taxpayer), against the issuing by the respondent, the Commissioner
for the South African Revenue Service (SARS), of an assessment for
the 2008 tax year in which the net proceeds of R216 218 233
declared
by the taxpayer for the sale of shares was increased by R625 437 601
to R841 655 834 for purposes of calculating the capital
gains tax
payable on the proceeds from the disposal of shares. There is also a
cross-appeal by SARS against the part of the order
setting aside its
imposition of an understatement penalty of 75% and levying of
interest on the underpayment, and substituting
it with an order
directing that the understatement penalty is to be levied at 10% and
the interest levied on the underpayment be
remitted in whole.
MATERIAL
FACTS
[2]
The material facts are essentially not in dispute and agreed.
Globalcom Investments Limited (Globalcom) is a foreign company
and
its business was managed by the taxpayer. Globalcom held 47.3%
of the shareholding in Smartphone SP (Pty) Limited t/a
Smartcall
(Smartcall). The taxpayer was also a shareholder in Smartcall.
During September 2003, an offer was received
from Vodacom Group (Pty)
Limited (Vodacom) to acquire, from the shareholders of Smartcall,
such number of shares in Smartcall as
would constitute a 51%
shareholding, together with corresponding claims, at a purchase
consideration of R295 800 000. Globalcom
resolved to totally
disinvest in Smartcall and its entire shareholding was accordingly
sold to Vodacom for a purchase price of
R257 800 000.
[3]
During June 2006, Globalcom notified the taxpayer of its intention to
institute an action for damages against him. He
was advised
that Globalcom had discovered that he had not disclosed material
information to it when he represented Globalcom in
the sale of shares
transaction with Vodacom. The information he withheld,
according to Gobalcom, would materially have affected
the decision to
dispose of its entire shareholding in Smartcall. The
information that the taxpayer was alleged to have withheld
from
Globalcom was that Vodacom had been agreeable to giving minority
rights and protections to shareholders of which Globalcom
was not
aware. In terms of the shareholders’ agreement concluded
between Vodacom, the taxpayer and other co-shareholders
in Smartcall
(dated 31 March 2004), the minority shareholders were afforded a put
option against Vodacom in certain circumstances.
Globalcom
averred that, had it been aware that Vodacom would be prepared to
afford a put option in favour of minority shareholders,
it would only
have sold a
pro rata
portion of its shares, rather than its
entire shareholding.
[4]
Negotiations between Globalcom and the taxpayer ensued.
Globalcom demanded that it be reinstated as a shareholder of
Smartcall for it to be put in the position it would have been if it
had only disposed of 51% of its shareholding at the time when
it had
sold its shareholding to Vodacom. The reinstatement of
Globalcom as a shareholder in Smartcall would have entailed
a
transfer of shares to Globalcom from the then 27,005% shareholding of
the taxpayer and the 2,995% shareholding of Mr Leon Richards
in
Smartcall. They too would then be put in the position they
would have been if they had also sold 51% of their respective
shareholdings to Vodacom during September 2003. In terms of the
shareholders’ agreement between Vodacom, the taxpayer
and Mr
Richards Vodacom was required to waive its pre-emptive rights.
Vodacom wished to acquire all the shares in Smartcall
and it did not
agree to waive its pre-emptive rights.
[5]
On 28 August 2007, the taxpayer and Mr Richards sold their entire
respective shareholdings in Smartcall to Vodacom. The
shares
were sold for a total purchase consideration of R935 000 000.
The taxpayer’s 540 100 shares were sold for R841
655 833 and
the 59 900 shares of Mr Richards for R93 344 167. On 3
September 2007, Vodacom paid the purchase price of R935
000 000 into
the taxpayer’s bank account.
SETTLEMENT
BETWEEN GLOBALCOM AND THE TAXPAYER
[6]
On 8 October 2007, Globalcom instituted an action for damages against
the taxpayer based on his alleged non-disclosure, as Globalcom’s
agent, of relevant facts, and specifically that Vodacom would have
been prepared to agree to extend minority protection to it.
The
claim was for payment of the amount of R925 000 000 as damages, which
amount was alleged to be the value of the shares and
claims that
Vodacom would have held, but lost, by virtue of it having disposed of
all its shares and claims in and against Smartcall.
On 15
October 2007, Globalcom and the taxpayer settled the action for
damages in terms of a written agreement of settlement.
The
taxpayer agreed to pay Globalcom an amount of R694 888 271 in full
and final settlement of its claim. The agreement of
settlement
was made an order of court on 31 October 2007.
CAPITAL
GAINS TAX
[7]
For purposes of calculating the taxable capital gain realised by the
sale of his shares in Smartcall to Vodacom, the taxpayer
deducted the
amount of R625 437 601, which he had paid to Globalcom in terms of
the settlement agreement, from the amount of R841
655 833, which
Vodacom had paid to him, to arrive at the amount of R216 218 233.
This amount of R216 218 233, according to
the taxpayer, represents
‘the proceeds from the disposal of an asset’ as
contemplated in para 35(1) of the Eighth Schedule
to the Income Tax
Act 58 of 1962 (the IT Act). The deduction of R625 437 601 is,
according to him, in any event, one that may be
made in terms of para
35(3)(c).
[8]
The relevant parts of paras 35(1) and 35(3) of the Eighth Schedule to
the IT Act read as follows:
‘
35(1) Subject to
paragraphs (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 received by, or accrued to or in favour
of, that person in respect
of that disposal, and includes-
. . .
(3) The proceeds from the disposal of
an asset by a person, as contemplated in subparagraph (1) must be
reduced by-
(a)
Any amount of the proceeds that
must be or was included in the gross income of that person or that
must be or was taken into account
when determining the taxable income
of that person before the inclusion of any taxable capital gain;
(b)
Any amount of the proceeds that
has been repaid or has become repayable to the person whom that asset
was disposed of; 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.’
[9]
SARS conducted an income tax audit on the taxpayer in respect of the
2007 and 2008 tax years of assessment. The tax audit
was
finalised on 10 December 2012. Following the audit, SARS raised
an assessment to subject the full purchase price received
from
Vodacom to capital gains tax. It increased the net proceeds of
R216 218 233 declared by the taxpayer for the sale of
his shares in
Smartcall by R625 437 601 to R841 655 834, for purposes of
calculating the capital gains tax. SARS maintained
that the
full purchase price of R841 655 833 was deposited in the taxpayer’s
bank account and was therefore the ‘proceeds
from the disposal
of an asset’ as defined in para 35(1). SARS maintained
that the taxpayer had understated the proceeds
of the disposal of the
shares, and, accordingly, also levied an understatement penalty
amounting to R46 907 820 in terms of s 222,
read with s 223, of the
Tax Administration Act 28 of 2011 (‘the TA Act’).
[10]
Section 221 of the TA Act defines ‘understatement’ as any
prejudice to SARS or the
fiscus
as a result of,
inter alia
,
‘an incorrect statement in a return’. Subsections
222(1) and 222(2) of the TA Act provides as follows:
‘
222(1) In the event of an
‘understatement’ by a taxpayer, the taxpayer must pay, in
addition to the ‘tax’
payable for the relevant tax
period, the understatement penalty determined under subsection (2)
unless the understatement results
from a
bona
fide
inadvertent error.
(2) The understatement penalty is the
amount resulting from applying the highest applicable understatement
penalty percentage in
accordance with the table in section 223 to
each shortfall determined under subsections (3) and (4) in relation
to each understatement
in a return.’
[11]
The table in s 223 contains the following items of ‘behaviour’
for the purpose of selecting the highest applicable
understatement
penalty percentage: (i) ‘Substantial
understatement’; (ii) ‘Reasonable
care not
taken in completing return’; (iii) “No
reasonable grounds for ‘tax position’ taken;
(iv)
‘Gross negligence’; and (v)
‘Intentional tax evasion’. Each item of
behaviour
is divided into the following sub-categories: ‘[s]tandard
case’; ‘[i]f obstructive, or
if it is a repeat
case’; ‘[v]oluntary disclosure after notification
of audit or investigation’; and
‘[v]oluntary
disclosure before notification or audit or investigation’.
Different understatement penalty percentages
apply to each item
and sub-category.
[12]
SARS applied the understatement penalty in item (iii) of the
understatement penalty percentage table - ‘[n]o reasonable
grounds for ‘tax position’ taken’ – and the
taxpayer’s case was considered a ‘standard’
one.
An understatement penalty of 75% was levied.
[13]
SARS also levied interest on the taxpayer’s underpayment of tax
in terms of s 89
quat
of the IT Act without waiver, in terms of
s 89
quat
(3), of any portion of the interest based on the
taxpayer’s contention. Subsection 89
quat
(3)
provides as follows:
‘
Where the Commissioner having
regard to the circumstances of the case is satisfied that any amount
has been included in the taxpayer’s
taxable income or that any
deduction, allowance, disregarding or exclusion claimed by the
taxpayer has not been allowed, and the
taxpayer has on reasonable
grounds contended that such amount should not have been so included
or that such deduction, allowance,
disregarding or exclusion should
have been allowed, the Commissioner may, subject to the provisions of
section 103(6), direct that
interest shall not be paid by the
taxpayer on so much of the normal tax as is attributable to the
inclusion of such amount or the
disallowance of such deduction,
allowance, disregarding or exclusion.
GROUNDS
OF APPEAL
[14]
The tax court found that the amount of R841 655 833 is the amount
which was ‘received’ by the taxpayer for the
disposal of
his shares in Smartcall to Vodacom and, consequently, constitutes
‘the proceeds from the disposal of an asset’
by the
taxpayer as contemplated in para 35(1) of the Eighth Schedule to the
IT Act. The taxpayer argues that the whole amount
of R841 655
833 was not ‘received by’ him nor did it ‘accrue’
to him within the meaning of para 35(1) in
the light of his legal
obligation to settle Globalcom’s claim.
[15]
‘Received’ and ‘accrue’ are familiar words,
often encountered in taxation legislation, particularly
in the
context of the definition of ‘gross income’ in s 1 of the
TA Act. The definition includes ‘the total
amount, in
cash or otherwise, received by or accrued to or in favour of’ a
taxpayer. In
Geldenhuys v Commissioner for Inland Revenue
1947 (3) SA 256
(C), at 269, Herbstein AJ said the following:
‘
Technically it may be said that
if the purchase price is paid to him it is ‘received’ by
him. But, in my opinion,
the expression ‘received by him’
means that the money must be received by him in such circumstances
that he becomes
entitled to it.’
[16]
In
Commissioner for Inland Revenue v Genn & Co (Pty) Ltd
1955
(3) SA 293
(A), at 301B-G, Schreiner JA, said the following about the
meanings of the words ‘received’ and ‘accrue’:
‘
I have grave doubts whether
this argument does not fail at the outset on the ground that borrowed
money is not received nor does
it accrue within the meaning either of
the definition of ‘gross income’ or of sec. 12 (f).
It is difficult to
see how money obtained on loan can, even for the
purposes of the wide definition of ‘gross income’, be
part of the
income of the borrower, any more than the value of the
tractor which the farmer borrows is to be regarded as being income
received
otherwise than in cash. Though a borrower for use
differs from a borrowing for consumption in that the borrower in the
former
case does not become the owner of the thing borrowed and must
return it
in specie
,
while in the latter case he does become the owner and is only obliged
to return what is similar, for present purposes there would
seem to
be no difference between the two cases. Nor would it seem to
make any difference whether or not hire is paid for
the use of the
tractor or interest for the use of the money. Neither in the
case of the borrowed or hired tractor nor in
the case of the borrowed
or ‘hired’ money does it seem to accord with ordinary
usage to treat what is borrowed or hired
as a receipt within the
meaning of sec. 12 (f). It certainly is not every obtaining of
physical control over money or money’s
worth that constitute a
receipt for the purposes of these provisions. If, for instance,
money is obtained and banked by someone
as agent or trustee for
another, the former has not received it as his income. At the
same moment that the borrower is given
possession he falls under an
obligation to repay. What is borrowed does not become his,
except in the sense, irrelevant for
present purposes, that if what is
borrowed is consumable there is in law a change of ownership in the
actual thing borrowed.’
[17]
The meaning of the word ‘accrue’ was explained by Plewman
JA in
Commissioner, South African Revenue Service v Executor,
Frith’s Estate
2001 (2) SA 261
(SCA), thus:
[5] ‘Accrue’ is a
familiar word often encountered in our law – particularly, in
the law of succession and
in taxation legislation where it is usually
encountered in a disjunctive sense in phrases such as ‘receipts
or accruals’.
The
Shorter Oxford English Dictionary
gives (in the sense appropriate to the context in which we find
the word) the meaning ‘to come as an accession or advantage’.
[6] In our jurisprudence the
word is, in general, used in contexts which require that it be given
the meaning ‘entitled
to’ in contrast to a meaning such
as ‘actually receive or received’. This too seems
to the sense in which
the word is, for example, used in America.
Black’s Law dictionary
(1979 ed) gives numerous examples
illustrating this. Some of the examples are: ‘alimony
which is due but not yet
paid’; ‘expenses incurred
but not yet paid’; interest which has been earned but is
not yet paid or
payable’. The primary meaning of the word
accrue would thus seem to me to involve a nuance which contrasts it
with
a meaning such as ‘has been received’ or ‘will
be actually received’.’
[18]
The context in which the words ‘received by’ and ‘accrued
to’ are used in para 35(1), in my view, similarly
require that
the word ‘received’ be given the meaning ‘has been
or actually received’ in such circumstances
that the recipient
becomes entitled to it and the word ‘accrued’ the meaning
‘entitled to’ in contrast
to the meaning ‘actually
received’. The ‘proceeds from the disposal of an
asset by a person’ are,
in terms of para 35(1), equal to the
amount received by, or accrued to ‘that person in respect of
that disposal’.
The receipt or accrual relates to the
disposal.
[19]
I agree with the tax court that the taxpayer was unconditionally
entitled to the whole amount of R841 655 833 as consideration
for the
sale of his shares in Smartcall to Vodacom and that that amount was
actually received by him. The ‘disposal’
was the
sale of his shares, and the amount of R841 655 833 ‘accrued to’
him and was ‘received by’ him as
the consideration for
that disposal. There was no obligation on Vodacom to pay any
amount to Globalcom in respect of the
sale of shares nor was there
any obligation on the taxpayer to pay part of the purchase
consideration to Globalcom, at that time.
No one else but the
taxpayer received or was, in terms of the sale of shares agreement,
entitled to any part of the purchase consideration
of R841 655 833.
The taxpayer’s motive for selling his shares in Smartcall to
Vodacom is, as was held by the tax court,
wholly irrelevant.
[20]
This brings me to the alternative argument of the taxpayer, which is
that if the whole amount accrued to him or was received
by him,
within the meaning of para 35(1), the amount falls to be reduced by
the amount of R625 437 601 paid by him to Globalcom,
such payment
being ‘any other event’, as contemplated in para
35(3)(c). There is, in my view, no merit in this argument
either.
The tax court found that the ‘deduction’ provided for in
para 35(3)(c), on a proper interpretation of
that provision, finds no
application to the payment of R625 437 601, which the taxpayer made
to Globalcom in terms of the settlement
agreement. I am, with
respect and for the reasons which follow, in agreement with the tax
court that the words ‘any
other event’ in para 35(3)(c)
are
ejusdem generis
with the immediately preceding words in
that paragraph. The ‘event’ on which the taxpayer
relies – its
payment to Globalcom in terms of the settlement
agreement – does not fall within the ambit of the deductions
contemplated
in para 3(5)(c). Silke on
South African Income
Tax
Vol 1 at 2-28 states:
‘
The fate of the income after it
has accrued or been received is therefore of no consequence to the
tax-gatherer. The ultimate
destination of the income cannot
affect its nature as income.’
[21]
The following definition of the
ejusdem generis
rule was given
by Innes CJ in
Director of Education, Transvaal v McCagie and
others
1918 AD 616
, at 623:
‘
General words following upon
and connected with specific words are more restricted in their
operation than if they stood alone.
Noscuntur
a sociiis
; they are
coloured by their context; and their meaning is cut down so as
to comprehend only things of the same kind
as those designed by the
specific words- unless of course, there is something to show that a
wider sense was intended.’
(Also
see:
Commissioner for Inland Revenue v Lunnon
1924 AD
94
, at 99;
Commissioner of Customs v Joffe
1934 WLD 8
,
at 10-11.) There must be a distinct
genus
or category
for the
ejusdem generis
rule to find application. (See
Santam Versekeringsmaatskappy Bpk v Kruger
1978 (3) SA 656
(A), at 663E-F.)
[22]
In
Commissioner for Inland Revenue v Ocean Manufacturing Ltd
[1990] ZASCA 66
;
1990
(3) SA 610
(A), at 618G-I, Nicholas AJA said the following about the
word ‘any’:
‘
Any
is a ‘word of wide and unqualified generality. It may be
restricted by the subject-matter or the context, but
prima
facie
it is unlimited.’
(
Per
Innes
CJ in
R v Hugo
1926
AD 268 at 271.) ‘In its natural and ordinary sense,
any
–
unless restricted by the context – is an indefinite term which
includes all of the things to which it relates.’
(
Per
Innes JA in
Hayne
& Co v Kaffrarian Steam Mill Co Ltd
1914
AD 363
at 371.)
[23]
The particular words to which the general words ‘any other
event’ relate in subparagraph 3(c), are the events of
‘cancellation, termination or variation of an agreement or due
to the prescription or waiver of a claim or release of an
obligation’. A cancellation terminates the relationship
between the parties to the transaction. (See
Secretary for
Inland Revenue v Hartzenberg
1966 (1) SA 405
(A), at 409H.)
Prescription extinguishes a debt, anything that is owed or due.
(See
Electricity Supply Commission v Stewarts & Lloyds of SA
(Pty) Ltd
1981 (3) SA 340
(A)). The effect of the waiver of
a right is to extinguish that right and the concomitant obligation
(See
Laws v Rutherford
1924 AD 261.)
[24]
The ‘proceeds’ (the amount received by or accrued to the
person who disposed of an asset, in respect of that disposal)
must be
reduced by any reduction in the amount to which the person who
disposed of the asset became entitled, in respect of that
disposal,
as a result of or due to the occurrence of the specific events listed
in subparagraph (3)(c). These specific events
all affect the
rights or entitlements and concomitant obligations of the counter
parties to the disposal - the person who disposed
of the asset and
the person to whom it was disposed. The reduction applies
to the extent that the entitlement of the
person to the amount that
was owed or due to him for the disposal is reduced or extinguished.
The concomitant obligation, of the
person to whom the asset was
disposed, to pay, is similarly reduced or extinguished.
[25]
The general words - ‘or any other event’ – are,
therefore, restricted by the context. They cannot possibly
refer to an event that does not affect the rights and concomitant
obligations of the parties to the disposal of an asset.
There
is nothing to show that a wider sense was intended. The
deduction provided for in para 35(3)(b) also relates to an
event (any
amount of the proceeds that has been repaid or become repayable to
the person to whom the asset was disposed of) that
affects only the
rights and concomitant obligations of the counter parties to the
transaction. To conclude: the words,
‘or any other
event’, are, no doubt, wide, but, within their context in para
35(3), to borrow the words of Innes CJ
in
McCagie
(supra)
623, ‘their interpretation must be affected by what precedes
them’. The taxpayer’s appeal to this
full court
must, in my view, fail.
CROSS
APPEAL
[26]
SARS concluded that the taxpayer had made an incorrect statement in
his tax return for the 2007 – 2008 tax period and
that he,
consequently, in terms of s 222 read with s 221 of the TA Act, was
obliged to pay the highest applicable understatement
penalty
percentage in accordance with the table in s 223. In applying
the table, it categorised his behaviour as falling
under item (iii),
‘[n]o reasonable grounds for ‘tax position’
taken’. It considered the taxpayer’s
case a
standard one and imposed an understatement penalty percentage of 75%.
[27]
The tax court found that, having received advice from a tax
practitioner, there were reasonable grounds for the position which
the taxpayer adopted and that it can also not be said that he did not
take reasonable care in completing his tax return.
The tax
court was persuaded by the following
dictum
in
Estate of
Spruill v Commissioner
(88 TC 1197
(1987)), which is a decision
of the Tax Court in the United States of America:
‘
When
an accountant or attorney advises a taxpayer on a matter of tax law,
such as whether a liability exists, it is reasonable for
the taxpayer
to rely on that advice.
The
tax court directed that an understatement penalty percentage of 10%
be levied on the basis that the taxpayer’s behaviour
fell under
item (i) of the table in s 223 - ‘[s]ubstantial understatement’
– and that his case was a standard
one.
[28]
I am not persuaded that the tax court erred in holding that, having
received advice, there were reasonable grounds for the
taxpayer to
take the position which he did. The determination of the extent
of the taxpayer’s capital gains tax liability
arising from the
sale of his shares in Smartcall to Vodacom required an interpretation
of para 35 of the Eighth Schedule to the
IT Act. The taxpayer
relied on expert advice on a matter of tax law in adopting the tax
position which he took.
[29]
It was also argued before us that the tax court erred in applying the
provisions of s 222 read with s 223 since s 223 came
into operation
on 1 October 2012 and applies to tax returns submitted from that
date. It is common cause that the taxpayer’s
tax return
under consideration was submitted during the year 2010. Section
270(6D) of the TA Act, so it was submitted, applies
to tax returns
that were submitted prior to 1 October 2012.
[30]
The relevant part of s 270(6D) reads as follows:
‘
If an understatement penalty is
imposed as a result of an understatement, as defined in section 221,
made in a return submitted
before the commencement date of this Act,
a taxpayer may object against the penalty under Chapter 9 (whether or
not the taxpayer
has previously objected against the assessment
imposing the penalty) and if the return was required under-
(a) the Income Tax Act, a senior SARS
official must, in considering the objection, reduce the penalty in
whole or in part if satisfied
that there were extenuating
circumstances; . . . ‘.
[31]
The tax court found as follows:
‘
The appellant suggested that
the provisions of s 270(6D) would allow for a reduction of the
penalty to nil. I have no evidence
that there were extenuating
circumstances which would warrant the reduction below the provisions
of s 223, ie a 10% penalty for
a substantial understatement.’
[32]
It seems to me, therefore, that the tax court considered the
imposition of a proper understatement penalty percentage, both
in
terms of s 222 read with s 223 and in terms of s 270(6D), and
concluded that the same result should follow; a reduction of the
understatement penalty percentage to 10%. The table in s 223
guided the tax court in reaching a decision on whether the
understatement penalty should be reduced in terms of s 270(6)(D) and
to what extent it should be reduced. I respectfully agree
with
the conclusion reached by the tax court. It is accordingly
unnecessary for us to consider the question whether the tax
court
erred in applying the provisions of s 222 read with s 223 of the TA
Act in the determination of the appropriate understatement
penalty
percentage.
[33]
The tax audit revealed that the taxpayer wrongly deducted the amount
of his payment to Globalcom in terms of the settlement
agreement from
the proceeds from the sale of his shares in Smartcall to Vodacom.
Interest must, in terms of s 89
quat
of the IT Act, accordingly
be levied, unless, in terms of s 89
quat
(3), ‘the
taxpayer has on reasonable grounds contended’ that the
deduction he made should have been allowed in the calculation
of the
proceeds derived from the disposal of his shares. SARS
considered the taxpayer’s contention not to have been
founded
on reasonable grounds and levied interest, without deduction, in
terms of s 89
quat
.
[34]
The tax court relied on the following passage in the commentary by
Dennis Davis
et al
on s 89
quat
(3) in
Juta’s
Income Tax
Vol 2:
‘
The test as to whether the
grounds are reasonable, is objective, in relation to actions of the
taxpayer. A mere subjective
belief by the taxpayer that a
deduction should be allowed, without taking advice on the matter, is
unlikely to be reasonable.
On the other hand, the reliance by
the taxpayer on expert advice, even if this is wrong, will in most
cases constitute reasonable
grounds for the action taken.’
[35]
The tax court then found that ‘[t]here is no reason not to find
that the appellant’s reliance on advice was reasonable’
and that ‘[n]o facts were proved to show that the appellant was
nevertheless unreasonable.’ I am unable to fault
these
findings. The cross-appeal must, therefore, also be dismissed.
[36]
In the result the following order is made:
(a) The appeal is
dismissed with costs, including those of two counsel.
(b) The cross-appeal is
dismissed with costs, including those of two counsel.
P.A.
MEYER
JUDGE
OF THE HIGH COURT
I
agree:
K.E.
MATOJANE
JUDGE
OF THE HIGH COURT
I
agree:
S.E. WEINER
JUDGE
OF THE HIGH COURT
Date
of hearing: 10 February 2016
Date
of judgment: 11 August 2016
Counsel
for appellant: PJJ Marais SC (assisted by C Louw SC)
Instructed
by: Edward Nathan Sonnenbergs Inc., Sandton
Counsel
for respondent: PM Mtshaulana SC (assisted by L Kutumela)
Instructed
by: The State Attorney, Johannesburg