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[2010] ZAGPPHC 605
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First South African Holdings (Pty) Ltd v Commissioner For The South African Revenue Service (21343/2008) [2010] ZAGPPHC 605 (11 May 2010)
IN
THE HIGH COURT OF SOUTH AFRICA
(NORTH
GAUTENG: PRETORIA DIVISION)
CASE
NO.: 21343/2008
DATE:
11 May 2010
In
the matter between
FIRST SOUTH
AFRICAN HOLDINGS (PTY)
LTD
..............................................................
APPLICANT
And
THE COMMISSIONER
FOR THE SOUTH AFRICAN
REVENUE
SERVICE
.............................................................................................................
RESPONDENT
JUDGMENT
WEBSTER
J
1. The question in
issue in this application is whether the Respondent is restricted or
constrained by section 79A(2)(a) of the
Income Tax Act No. 58 of 1962
("the Act"), as amended, from issuing a reduced assessment
to the Applicant's income tax
in respect of its 2007 year of
assessment.
2. Section 79A of
the Act reads as follows:
"(1) The
Commissioner may, notwithstanding the fact that no objection has been
lodged or appeal noted in terms of the provisions
of Part III of
Chapter III of this Act, reduce an assessment-
(a) to rectify any
processing error made in issuing that assessment; or
(b) where it is
proved to the satisfaction of the Commissioner that in issuing that
assessment any amount which-
(i) was taken into
account by the Commissioner in determining the taxpayer's liability
for tax, should not have been taken into
account; or
(ii) should have
been taken into account in determining the taxpayer's liability for
tax, was not taken into account by the Commissioner:
Provided that such
assessment, wherein the amount was so taken into account or not taken
into account, as contemplated in subparagraph
(i) or (ii), as the
case may be, was issued by the Commissioner based on information
provided in the taxpayer's return for the
current or any previous
year of assessment.
(2) The Commissioner
shall not reduce an assessment under subsection (1)-
(a) after the
expiration of three years from the date of that assessment; or
(b) if the amount
was assessed in terms of an assessment accepted by the taxpayer and
which was made in accordance with the practice
generally prevailing
at the date of that assessment.."
3. It is common
cause between the parties that in the 2002 financial year returns the
applicant, in accounting for foreign exchange
gains and losses in
terms of section 241 of the Act, it had included in its taxable
income in 2002 "the full unrealised foreign
exchange gain"
in respect of a loan instead of 10% of that nett gain in terms of
section 241(7) of the Act. The effect of
this, so says the applicant,
is that its taxable income had been inflated by R14 676 954
attracting the tax payable in the amount
of R4.2 million.
4.
It is further common cause that the applicant in the same returns for
the 2002 financial year returns claimed an "assessed
loss"
of R34 978 418 for the 2001 financial year. The effect of this and
what is set out in paragraph 2
supra
was
that the applicant's assessment reflected an assessed tax loss and
nothing payable by way of tax for 2002. This appears in the
applicant's income tax assessment dated 17 July, 2003.
4.1 On 12 April,
2006 the respondent, relying on the provisions of section 79A(2)(a)
of the Act, revisited the 2002 assessment and
disallowed the
applicant's accumulated tax loss from the 2001 year of assessment.
The effect of this revised assessment reflected
an amount of R6 681
010.57 payable by the applicant.
4.2 The applicant
avers further that together with the above revised assessment the
respondent issued further revised assessments
for income tax in
respect of the 2003 and 2004 tax years as well as assessments in
respect of Secondary Tax on Companies (the latter
are not relevant to
the issues herein). The applicant objected to the revised income tax
assessment for the 2002 tax year.
4.3 On 17 July, 2006
the respondent disallowed these objections. On 25 August, 2006 the
applicant appealed against the respondent's
decision.
4.4 The dispute was
then referred to alternative dispute resolution (ADR) in terms of
section 83 and 107A of the Act.
4.5 The parties
reached an agreement on the issues in terms of which the applicant
withdrew its objections and appeal.
5.1 On 25 July 2007
the applicant submitted a request to the respondent for the issue of
a reduced assessment based on the error
set out in paragraph 2 of
this judgment.
5.2 The respondent's
view was that the appeal regarding income tax was confined and
related exclusively to the "...loss...[and]...does
not relate to
a wrong calculation of an amount that has been received by or accrued
to the taxpayer in the 2002 year of assessment".
6. The applicant
states that its "...objection to the revised assessment..."
dated 31 August, 2007 was written after "...having
consulted new
advisors..." ("Annexure F" to the founding affidavit)
This accords with the respondent's view set
out in the preceding
paragraph. Various issues have been raised in the papers by both the
applicant and the respondent. In the
light of the conclusion to which
I have come and further because of very pressing time constraints in
this division I shall not
canvass all the issues raised by the
parties in the papers and in argument. I acknowledge the time and
effort by both silk in the
preparation and presentation of their
intensive and extensive arguments. Those required, under normal
circumstances, an evaluation
of those arguments. No effrontery to
both counsel is intended. On the contrary, listening to them was not
only illustrative but
a pleasure that was appreciated.
7. It was argued
that the assessment issued on 30 June, 2006 "...effectively
incorporates the original assessment and together
they constitute the
assessment which is the subject of the taxpayer's request in terms of
section 79A(l)(b) of the Act and consequently
"...the assessment
in question was not issued more than three years ago and that the
restriction in section 79A(2)(a) is not
applicable".
8. I agree with both
counsel that section 79A is a purely administrative provision, the
primary purpose of which is to accord both
the taxpayer and SARS the
opportunity to rectify errors, be they the processing of data, a
miscalculation or an omission on the
part of both the taxpayer and
SARS. Its existence in the Statute book is not novel but a
restatement of the principles of transparency,
openness and fairness
that are enshrined in the Constitution. A taxpayer who has made an
error in the tax returns is afforded the
opportunity to rectify such
error so that the income tax payable is the correct amount.
9. The redress in
section 79A is not open-ended and valid in perpetuity: it has a time
limit of three (3) years. This period is
nor surprising nor a
thumb-such in my view. The legislature, aware of the law as it is
assumed to be, must have intended to bring
the rights of both the
taxpayers and SARS in the correction of errors within the same period
as the period of prescription. —
10. I have some
misgivings about the applicant's submission. In the first place it is
inconsistent with the clear meaning of section
79A-. Its fundamental
intention is to enable a party that has made an error to have such
error remedied within three (3) years
of the making of such error.
That to my mind is the ordinary meaning of the words in the section.
Secondly, the submission postulates
a situation where errors that
were made more than three (3) years in the past may be brought up
under section 79A as long as the
tax year in issue has been the
subject of proceedings under the section within any three (3) years
of the last "assessment".
This clearly offends the
principle of finality: proceedings have to come to an end at some
time or other. If the applicant's argument
is correct finality would
be elusive and illusive for as long as an "assessment" has
been made "in the last three
(3) years".
11. The notion of
fairness and equity is not compromised by the time limit of three
years.
12. The observations
made above are consistent with the fundamental rule of interpretation
that words must be given their ordinary
or plain meaning of language
unless such meaning leads to "...injustice or incongruity or
absurdity...".
13. The chronology
of the issues, as set out above, indicates clearly that the
respondent invoked the provisions of section 79A
within three (3)
years of the assessment it had made on 17 July, 2003. The item was
the ”2001 loss" reflected in the
2002 tax return which had
been accepted by the respondent.
14. The pertinent
question is whether the applicant could "piggy-back" on the
respondent's reliance on section 79A and
raise the error it had made
in its 2002 tax return by arguing that the respondent's assessment of
30 June, 2006 entitled it to
do so as set out in paragraph 7 of this
judgment.
15. It is my
considered view that a party that wishes to rely on the provisions of
section 79A must specifically invoke its reliance
on the section
within three (3) years. In this regard I am mindful of the fact that
in considering the respondent's right to disallow
the loss of 2001
the effect constituted "that assessment" that entitled the
applicant to raise its own error outside
the period of three (3)
years as it has clearly attempted to do in this case. That, in my
view, is clearly impermissible and the
respondent was correct in
refusing to accede to the applicant's request.
16. Having arrived
at the above conclusion it is not necessary to canvass the other
issues raised in the papers.
17.
The application is
dismissed with costs, such costs to cover the fees of two counsel.
G. WEBSTER
JUDGE IN THE HIGH
COURT
Date of Hearing: 5
December 2008
Counsel for the
Applicant : Adv MJD Wallis SC
Counsel for the
Respondent : Adv Dennis Fine SC
Adv A Lapan