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[2014] ZASCA 8
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MTN International (Mauritius) Ltd v Commissioner of South African Revenue Services (275/2013) [2014] ZASCA 8; 2014 (5) SA 225 (SCA); 76 SATC 217 (14 March 2014)
Links to summary
THE
SUPREME COURT OF APPEAL OF SOUTH AFRICA
JUDGMENT
Case
no: 275/2013
Reportable
In
the matter between:
MTN
INTERNATIONAL (MAURITIUS)
LTD
........................................................
APPELLANT
and
THE
COMMISSIONER OF SOUTH AFRICAN
REVENUE
SERVICES
...................................................................................
RESPONDENT
Neutral
citation:
MTN International v CSARS
(275/2013)
[2014] ZASCA 8
(14 March
2014)
Bench:
Mpati P, Lewis, Ponnan, Maya and Wallis
JJA
Heard:
26 February 2014
Delivered:
14 March 2014
Summary
:
Income Tax Act 58 of 1962 – revised assessment – not
invalid by reason of error in fixing due date.
ORDER
On
appeal from
:
North
Gauteng High Court, Pretoria (Tlhapi J sitting as court of first
instance):
The
appeal is dismissed with costs, such costs to include those
consequent upon the employment of two counsel.
JUDGMENT
Ponnan
JA (Mpati P, Lewis, Maya and Wallis JJA concurring):
[1]
The issue that arises in this appeal is whether a revised assessment
raised by the respondent, the Commissioner for the South
African
Revenue Service (SARS), on 31 March 2011 in terms of the Income Tax
Act 58 of 1962 (the Act) to assess the appellant, MTN
International
(Mauritius) Limited (MTN), to tax for the 2006 year of assessment,
falls to be set aside. The North Gauteng High
Court, Pretoria (per
Tlhapi J) held that it did not, but granted leave to MTN to appeal to
this court.
[2]
MTN is a subsidiary of the MTN Group Limited, a South African Company
listed on the Johannesburg Securities Exchange and the
intermediate
holding company of cellular telephone operating subsidiaries outside
South Africa for the MTN group. MTN claimed the
following interest on
loans it incurred as expenditure in terms of the Act, against its
gross income for the 2006 year of assessment:
(a)
R3 044 873 on a loan for the purposes of making investments in
Nigeria (the Nigeria loan). The interest expenditure on this
loan was
claimed for a number of years up to and including the 2006 year of
assessment; and
(b)
R238 171121 on a loan for the purposes of making investments in the
Middle East (the Investcom loan). MTN incurred this loan
from its
holding company, MTN Holdings Limited. The interest expenditure on
this loan was claimed for the first time during the
2006 year of
assessment.
[3]
The Nigeria loan was utilized to set up a new company in Nigeria as
part of the MTN Group of companies. This new company, referred
to as
MTN Nigeria, successfully tendered for a mobile telephone licence in
Nigeria. There are minority Nigerian shareholders in
MTN Nigeria as
required by Nigerian law. Investcom, on the other hand, was an
already established mobile phone operator in the
Middle East, with
existing cell phone carrier licences and an existing business. The
holding company of the group was situated
in Dubai. MTN purchased
that established, already functioning group, in its entirety. No
minority shareholders were maintained
in the Investcom company, which
was renamed MTN Dubai.
[4]
On 31 March 2011, which was the last day before the original
assessment was due to prescribe in terms of s 79(1) of the Act,
SARS
raised the revised assessment disallowing the interest expenditure.
When raising the revised assessment, the relevant SARS
official, Mr
Tshilongo, manually fixed the ‘due date’ on the IT40 form
as 30 March 2011, being one day prior to the
day on which the
assessment was actually raised. The ‘second date’ and
something described as a ‘process date’
was fixed as 31
March 2011. The IT40 form intimated that ‘a combined IT34
assessment [was] to follow’. The revised
assessment resulted in
an income tax liability by MTN of R73 476 101. SARS recovered
this amount by setting it off against
a tax refund due on MTN’s
provisional tax account. On 2 April 2011 an IT34 notice of assessment
was issued to MTN. It reflected
the ‘due date’ as 1 May
2011 and the ‘second due date’ as 31 May 2011.
[5]
On 15 April 2011 and after the issuance of the IT34 by SARS, MTN
applied to the North Gauteng High Court, Pretoria for an order
(as
amended) that:
‘
1.
The additional tax assessment in respect of the Applicant’s
2006 tax year with a due date of 1 May 2011, be and is hereby
set
aside;
2.
The additional tax assessment processed by the Respondent in respect
of the Applicant’s 2006 tax year on 31 March 2011,
be and is
hereby set aside;
3.
The Respondent is ordered to credit or reverse any set-off that it
has applied against the refund owed by the Respondent to the
Applicant;
4.
The Respondent is ordered to pay to the Applicant the amount of:
4.1.
. . .; and
4.2.
R73 476 101.00;
within
10 (ten) days after date of this order, together with any additional
accrued interest in terms of s 89
quat
(4) of the Income Tax
Act, No. 58 of 1962, as amended, and interest
a tempore mora
on the amount set-off by the Respondent against the Applicant’s
refund;
5.
The Respondent is ordered to pay the costs of this application,
including the costs consequent upon the employment of 2 (two)
Counsel.’
[6]
The gist of MTN’s application is expressed in the affidavit of
Mr Carel Gericke, the Executive: Group Tax of the MTN Group,
thus:
‘
This
application deals with the Applicant’s year of assessment for
2006 and the Respondent raising an additional tax assessment
on 31
March 2011. The additional tax assessment (also referred to as a
“revised” assessment) for 2006 is attached as
“
CG2
”.
May I immediately point out that the additional tax assessment was
backdated to show the due date as being 30 March 2011,
which is the
date of the assessment, as prescribed in the Income Tax Act, No. 58
of 1962 (“the Act”), as amended, even
though the
assessment was clearly only processed and created on 31 March 2011.
It shall be submitted to the Honourable Court that
such a
manipulation of dates to meet the Respondent’s needs is so
irregular and unlawful that the additional tax assessment
stands to
be set aside on this basis alone. . . .’
[7]
In response to those allegations Ms Amanda Warner, a Senior Manager:
International Tax at SARS’ Large Business Centre,
stated:
‘
SARS
contends that it at all relevant stages acted within its powers and
duties in terms of the Income Tax Act. It was entitled
and in fact
duty bound in terms of s 79 of the Income Tax Act to raise the 2006
additional assessment on 31 March 2011. The original
2006 assessment
had by then not prescribed. SARS was satisfied as envisaged in terms
of s 79(1)(a) of the Income Tax Act that an
amount which was subject
to tax and should have been assessed to tax had not been assessed,
due to the fact that the interest expenditure
that the applicant
claimed was erroneously allowed by SARS as a deduction when raising
the original 2006 assessment. SARS was satisfied
that the expenditure
should from the outset have been disallowed, since it was not
incurred for the purposes of producing taxable
income in the form of
management fees and royalties. It was expended for purposes of
producing non-productive dividend income which
was in terms of the
Income Tax Act exempt from tax.
SARS
contends that the so-called “
manipulation”
or “
backdating”
of the “
due date”
of the assessment and the fixing of the “
second
date”
not 30 days in the future,
are of no consequence for present purposes. This, at best for the
applicant, may theoretically have
had a one day detrimental impact on
the period allowed within which applicant could file an objection or
when prescription started
to run. However, the said detrimental
effect never materialised insofar as the objection period is
concerned and the chances of
it ever materialising in three years’
time insofar as prescription is concerned is so remote that it can be
ignored. However,
from whatever angle the matter is viewed, it had no
impact on the validity of the assessment.’
[8]
In explaining how the due date and second date came to be fixed on
the IT40 form, Ms Warner stated:
‘
An
IT40 local assessment was therefore raised on 31 March 2011, which
was sent to the taxpayer under cover of the assessment letter.
Mr
Tshilongo informs me that he manually fixed the “
due
date
” and the “
second
date
” of the local assessment, as
respectively 30 March 2011 and 31 March 2011. According to Mr
Tshilongo, he was under the impression
that the two dates could not
be on the same day (erroneously, SARS has been advised) and was
afraid that if he fixed later dates,
then it could perhaps be said
that the assessment had prescribed (which was also wrong since the
relevant date was the date upon
which the assessment was raised, SARS
has been advised). Mr Tshilongo therefore fixed the “
due
date
” as the date prior to the
date upon which the assessment was raised. SARS contends that nothing
inappropriate or untoward
can be inferred from this. In fact, little
turns on this whole issue and the applicant’s contentions
regarding this are factually
unfounded and legally untenable.’
[9]
It is common cause in this case that: (a) on 31 March 2011 SARS
assessed MTN to additional tax; (b) that assessment was made
within
the prescriptive period allowed by the Act; and (c) the assessment
was notified to MTN on that day. An ‘assessment’
is
defined in s 1 of the Act as:
‘
.
. . the determination by the Commissioner, by way of a notice of
assessment (including a notice of assessment in electronic form)
served in a manner contemplated in section 106 (2)—
(
a
)
of an amount upon which any tax leviable under this Act is
chargeable; or
(
b
)
of the amount of any such tax; or
(
c
)
of any loss ranking for set-off; or
(
d
)
of any assessed capital loss determined in terms of paragraph 9 of
the Eighth Schedule . . . .’
An
assessment, so
First South African
Holdings (Pty) Ltd v Commissioner for South African Revenue Service
73 SATC 221
para 15 held, is a
determination by SARS of one or more matters. What is required is at
least a purposeful act – one whereby
the document embodying the
mental act is intended to be an assessment (
Commissioner
for the South African Revenue Service v South African Custodial
Services (Pty) Ltd
2012 (1) SA 522
(SCA) para 29).
[10]
As is apparent from the definition of ‘assessment’ it is
not a requirement that in order for a notification of
a determination
by SARS to be a valid assessment, it should be dated. Much less that
a valid ‘due date’ should be fixed.
On the contrary the
legislature in s 1 of the Act defined ‘date of assessment’
to mean ‘. . . the date specified
in the notice of such
assessment as the due date or, where a due date is not so specified,
the date of such notice’. It follows
that where no ‘due
date’ (to be read ‘lawful or valid’ due date) is
specified (
S v Mapheele
1963
(2) SA 651
(A) at 655D-E), it cannot be said that the assessment is a
nullity. Indeed, counsel for MTN accepted during argument that the
notice
did not have to be dated and that ‘an undated notice’
would still constitute a valid notice. Likewise, it was accepted
that
inadvertently fixing an incorrect date by way, for example, of a
simple clerical error would not have affected the validity
of the
assessment. In those circumstances had the dates fixed by Mr
Tshilongo (which plainly were unworkable) been disregarded,
the
default position in terms of the Act would have been the date on
which the taxpayer was notified of the determination. In fact,
it
seems to me, that it was open to Mr Tshilongo to have raised the
revised assessment on 31 March 2011 and fixed the due date
on some
later occasion, which, I daresay, was the effect of the IT34 that
issued on 2 April 2011. If it is to be accepted (as I
believe it must
be) that the fixing of a due date in the IT40 was not necessary for a
valid assessment, it must follow that the
fact that the ‘due
date’ may have been incorrectly fixed would be irrelevant to
deciding whether or not the assessment
is valid. Much less, can it be
said, that that in and of itself must result in the revised
assessment being set aside.
[11]
That conclusion, ordinarily at any rate, ought to dispose of the
appeal, but it may nonetheless be necessary to touch, albeit
briefly,
on two further contentions advanced on behalf of MTN. First,
according to MTN, Mr Tshilongo’s approach left it with
only 29
days to object to the assessment. This, so the contention went,
‘robbed’ it of its right (being the 30 days
afforded to
it by the Act) within which to object. It goes without saying that
the Commissioner cannot ‘rob’ a taxpayer
of a right
afforded it by the Act. But, that plainly did not occur here. It is
important to note that it is not the notice of assessment
that allows
or disallows MTN the 30 days within which to object. Its right to do
so derives from the Act as read with the rules
promulgated under s
107A. Thus where, as here, the due date was unworkable, the 30 days
fell, in terms of the Act, to be computed
from the date of
assessment, being 31 March 2011. In any event, MTN elected not to
file an objection within 30 days from the date
of assessment. By 29
April 2011 it requested reasons for the assessment, as it was
entitled to do in terms of rule 3(1)(
a
).
That suspended the initial 30 day period, giving MTN a renewed 30 day
period from the date when the reasons were provided to
file its
objections (rule 4(
e
)).
It can therefore not be said that MTN was indeed deprived of the 30
day period within which to respond to the revised assessment.
[12]
Second, it was contended by MTN that we must make it clear that the
Commissioner is subject to the Constitution and the law
and that the
lack of probity and good faith encountered here will not be
countenanced by our courts. The effective way of achieving
that end,
so the contention went, is to set aside the assessment in its
entirety (see
Pretoria Portland Cement
Co Ltd v The Competition Commission
2003
(2) SA 385
(SCA) para 71). Here though one is not dealing with
conduct that even remotely comes close to conduct of the kind
encountered in
Pretoria Portland Cement
.
Schutz JA considered the conduct encountered there an abuse of power.
Here, we are concerned with no more than an official, in
the form of
Mr Tshilongo, who simply misapprehended what was required. Labouring
under that misapprehension he fixed the dates
in the belief that he
was obliged so to do. Nothing in his conduct was clandestine or
surreptitious. According to MTN, however,
Mr Tshilongo, in acting as
he did, was ‘influenced by ulterior motives’. But motive
is irrelevant (
National Director of
Public Prosecutions v Zuma (Mbeki and another intervening)
2009
(1) SCAR 361
(SCA) para 37). For, as Schreiner JA put it in
connection with arrests, the best motive does not cure an otherwise
illegal arrest
and the worst motive does not render an otherwise
legal arrest illegal (
Tsose v Minister
of Justice
1951 (3) SA 10
(A) at 17).
There thus appears to be no logical or rational distinction that can
be drawn between the error which underpinned Mr
Tshilongo’s
conduct and the simple clerical error postulated earlier.
[13]
It follows that the appeal must fail and in the result it is
dismissed with costs, such costs to include those consequent upon
the
employment of two counsel.
_________________
V M PONNAN
JUDGE OF APPEAL
APPEARANCES:
For
Appellant: M M Rip SC (with him T Emslie SC and H V Vorster)
Instructed
by:
Maurice
Phillips Wisenberg c/o Rooth & Wessels
Attorneys,
Pretoria
Symington
& De Kok, Bloemfontein
For
Respondent: J J Gauntlett SC (with him H G A Snyman SC and M P D
Chabedi)
Instructed
by:
Edelstein-Bosman
Inc, Pretoria
McIntyre
& Van Der Post, Bloemfontein