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[2011] ZAGPPHC 43
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Hathurani v Commission for the South African Revenue Service and Another (76878/10) [2011] ZAGPPHC 43; 76 SATC 387 (1 April 2011)
NOT
REPORTABLE
IN
THE HIGH COURT OF SOUTH AFRICA
(NORTH
GAUTENG, PRETORIA)
Case
No: 76878/10
Date
heard: 28 and 29 March 2011.
Date
of judgment: 1 April 2011.
In
the matter between:
EDREES
AHMED
HATHURANI
…...................................................................................
Applicant
and
COMMISSIONAR
FOR THE SOUTH AFRICAN REVENUE SERVICE
.....................
First
Respondent
THE
MINISTER OF
FINANCE
.........................................................................................
Second
Respondent
JUDGMENT
On
11 February 2010 the first respondent to whom I shall refer as the
Commissioner or as the respondent1,
1
issued in respect of the applicant a tax assessment in terms whereof
the applicant is to pay R580 247 789,15 in respect
of
income tax, penalties and interest. The applicant has lodged an
appeal to the Tax Court against the assessment. In terms of section
88(1) of the Income Tax Act, 58 of 1962 (the Act), the noting of the
appeal did not suspend the applicant's obligation to pay the
tax in
accordance with the assessment. (This is sometimes called "the
pay-now-argue-later principle".) On 20 October
2010 the
applicant, in terms of section 88(1) of the Act, applied to the
Commissioner for the obligation to pay the assessed tax
to be
suspended pending the appeal. That application was refused.
Thereafter on 15 December 2010 the Commissioner filed a statement
in
terms of section 91 (1 )(b) of the Act and this, without notice to
the applicant, obtained the equivalent of a judgment in the
Magistrates' Court for payment of the full amount of R580 247 789,15.
The applicant has launched an application to rescind this
judgment.
The magistrate concerned has reserved judgment and the rescission
application is still pending in the Magistrates' Court.
Before
this court now is an urgent application for interim relief aimed at
restraining the Commissioner from executing the default
judgment and
from enforcing or recovering the tax assessment until this court has
decided on certain final relief that the applicant
intends seeking
here. The final relief that the applicant proposes to seek in due
course comprises, firstly, the review and setting
aside of the
Commissioner's refusal of his (applicant's) application to suspend in
terms of section 88(1). In the second place,
the intended final
relief seeks to enforce an alleged agreement that, according to the
applicant, settled his relevant tax liability
and precluded the
Commissioner from issuing the assessment referred to above. The
interim relief that the applicant seeks is also
sought pending the
finalisation of the rescission application pending in the
Magistrates' Court.
The
interim relief pending the rescission application may be dealt with
summarily. As long as the Commissioner's decision not to
suspend the
obligation to pay (the section 88(1) decision) stands, the applicant
is in law obliged to pay the assessed amount.
That is so whether the
default judgment is rescinded or not. To grant a restraining
interdict pending the outcome of the rescission
application would
ignore the Commissioner's underlying right to enforce the obligation.
From
the above summary of the final relief that the applicant proposes to
seek, it is apparent that the settlement agreement that
he allegedly
reached with the Commissioner is pivotal to his entire case. It is
pivotal even to his intended application to review
and set aside the
Commissioner's refusal to suspend the applicant's obligation to pay.
I say that for the following reasons. The
applicant's appeal to the
Tax Court is also premised on the enforceability of the alleged
settlement agreement. When considering
the application under section
88(1), the committee delegated to deal therewith concluded, inter
alia, that the applicant had no
prospects of success on appeal. It is
that finding that the applicant seeks to attack on review. If the
applicant fails to prove
an enforceable settlement agreement, he has
indeed a poor prospect of success on appeal to the Tax Court. There
are no other grounds
of substance on which the committee's decision
could be reviewed. Thus, if the applicant has in these proceedings
failed to prove
the settlement agreement, he has by the same token
failed to show that he has a prima facie right to have the decision
under section
88(1) reviewed and set aside.
In
the applicant's founding affidavit, the following is stated to be the
factual context in which the alleged settlement agreement
was entered
into.
The
applicant failed to disclose for tax purposes funds that, in the
period 1983 to 1998, accrued to him from Surus Cash and Carry
CC, a
close corporation that traded under the name Jumbo Cash and Carry
("Jumbo Cash and Carry"). By 2006 the tax affairs
of the
applicant and those of Africa Cash and Carry (Pty) Ltd had for some
time been the subject of investigation by the South
African Revenue
Service (SARS). The applicant had an interest in Africa Cash and
Carry. In the context of that investigation and
of litigation in
respect thereof, the applicant conveyed to SARS representatives that
he wished to settle his tax affairs. He also
offered to disclose
irregularities relating to the members of Jumbo Cash and Carry. It is
the applicant's case that he made the
offer on condition that he be
given the same benefit as those who had applied for and had received
exchange control and tax amnesty
in terms of the Exchange Control
Amnesty and Amendment and Tax Laws Act, 12 of 2003 ("the Amnesty
Act"). (It is common
cause that at the time the applicant made
his offer, the amnesty period under the Amnesty Act had expired. It
is also not the applicant's
case that he at any time followed the
application procedure under the Amnesty Act or that amnesty under
that act had been granted
to him.) Evidently to motivate why SARS
would have settled with him, the applicant states that SARS stood to
benefit from his offer
as his disclosures would have enabled SARS to
recover taxes from other members of Jumbo Cash and Carry who also did
not disclose
income to SARS.
In
the circumstances, the settlement agreement that the applicant relies
upon was allegedly entered into in writing on 12 April
2007. It is
the applicant's case that in terms thereof, he was to make full and
proper disclosure to the best of his "knowledge
and memory"
of the tax irregularities of members of Jumbo Cash and Carry with
particular reference to those funds, including
his own, that were
undeclared and expatriated. The applicant further contends that the
agreement provides that, in return for his
disclosure, his tax
affairs were to be settled on the same terms as those who benefited
from the Amnesty Act. In addition, the
applicant contends, the
settlement agreement provides that he would not be the subject of
criminal prosecution on account of undisclosed
income for the
relevant period. Finally, the applicant contends, he would in terms
of the agreement be obliged to pay in settlement
of his tax
obligations for the relevant period an agreed 2 per cent. The
applicant does not unequivocally say so, but from his
papers as a
whole it seems that the 2 per cent was to be calculated on the
previously undisclosed income that he was to disclose
under the
agreement.
The
applicant annexed to his founding affidavit the written agreement of
12 April 2007. The document primarily records an agreement
between
Africa Cash and Carry and the Commissioner. The applicant is not
recorded as a party thereto. The agreement ("the
April
agreement") records that it was entered into so as to settle a
dispute between the parties thereto and in order to achieve
"a
mutually facilitative and transparent relationship" and to
"achieve a significantly positive shift in that direction".
Against that backdrop, the parties then agreed on practical steps in
order to resolve outstanding tax matters regarding "the
taxpayers", including Africa Cash and Carry. The taxpayers are
then defined, and the applicant is recorded as one of them.
Jumbo
(Surus) Cash and Carry is another. One of the steps agreed to was
that taxpayers who are natural persons, such as the applicant,
were
to submit outstanding tax return. Final returns were to be submitted
for assessment. It is apparent from clauses 3.2 and 4
of the April
agreement that the parties envisaged a process whereby they would,
presumably in terms of section 78 of the Act, endeavour
to settle the
returns and, if they were unable to do so, the normal return,
assessment and dispute resolution procedures would
be followed.It is
the applicant's case that the settlement agreement described above is
contained in clauses 5
2
and 6 of the April agreement. Those clauses read:
"5
SARS hereby agrees to the withdrawal of the section 76C inquiry
against... (a number of persons, including the applicant)
who may
have been subpoenaed ... to attend such inquiry, subject to the
taxpayers making full and proper disclosure as required
by law. SARS
shall not be precluded from instituting such inquiries in the future
should the collaborative approach not prove to
be successful.
"6
SARS agrees that the taxpayers ... who were prevented from
accessing the Tax and Exchange Control Amnesty, shall enjoy:
These
taxpayers have indicated their willingness to make disclosure in the
without prejudice communication of 17 August 2006 addressed
to SARS,
that they otherwise would have made had they permitted to access the
amnesty procedure.
These
taxpayers wish to have the matter resolved and request that they be
treated in respect of the tax aspect of the amnesty
on no more an
onerous basis than was permitted those taxpayers that accessed the
amnesty while it was available, as a matter
of equity."
What
is apparent from these clauses 5 and 6 is that they deal with two
distinct aspects. From clause 5 it is apparent that taxpayers
have
been subpoenaed to attend an inquiry under section 74C of the Act.
SARS agreed to withdraw the subpoenas on condition that
the taxpayers
make full and proper disclosure as required by law. Apart from the
undertaking to make disclosure, this clause does
not remotely
resemble the agreement that the applicant seeks to prove in this
case. The disclosure was to be made in exchange for
the withdrawal of
the subpoenas.
It
is apparent from clause 6 that some taxpayers (including the
applicant) have by way of a letter dated 17 August 2006 indicated
their willingness to make disclosures. They were, however, too late
to make use of the amnesty under the Amnesty Act. Although
the
introductory part of clause 6 is indicative thereof that SARS was
amenable to support a similar amnesty for those taxpayers,
the clause
does not record consensus as to whether the taxpayers would be
entitled to treatment akin to amnesty. It (6.2 in particular)
records
no more than a desire on the part of the taxpayers to enjoy some sort
of amnesty. The clause simply does not record a firm
agreement in
this regard.
Not
only is no agreement apparent from clause 6 of the document. Read as
a whole, the document definitely does not record an agreement
as
contended for by the applicant: The document does not record that, in
return for his disclosure, the applicant's tax affairs
were to be
settled on the same terms as those who benefited from the Amnesty
Act. Moreover, there is no mention in the document
of a percentage,
be it 2 per cent or otherwise that the applicant was to pay once he
had made disclosure.
On
this basis alone, it must be concluded that the applicant did not, on
his own showing, adduce prima facie evidence of the agreement
he
contends for. Insofar as it relates to the applicant, the tenure of
the April agreement is rather that contended for by the
respondent:
The parties reached an agreement as to a process that, if adhered to,
may have resulted in a settlement agreement.
The
applicant contends, almost in passing, that the April agreement falls
to be rectified. He does not, however, put forward any
facts that
show that the requirements for rectification are present. Moreover,
the applicant does not clearly state how the rectified
document is to
read.
My
conclusion that the April agreement does not evince the agreement
contended for, is fortified by the applicant's own evidence
as to
events that followed after the date of the April agreement.
Following
the April agreement, so the applicant says, there were discussions
about "the putting in place of a more detailed
written framework
for the disclosure" that was to be made under the agreement.
From correspondence that the applicant annexes
to his founding
papers, it appears that his tax consultant, Mr Jooma, put forward a
"disclosure framework" on about 2
October 2007. The very
heading of Mr Jooma's proposal belies the applicant's contention that
a settlement of his tax liability
had been reached. The heading
reads: "A proposed framework for the assessment by SARS of
liabilities to tax flowing from disclosures
to be made by various
taxpayers identified in the agreement concluded between SARS and
representatives of the parties dated 12
April 2007". I find it
unnecessary to summarise the proposal. It is apparent from the
document that Mr Jooma may well have
thought that agreement had been
reached that taxpayers who made disclosure would "not be treated
in a manner more onerous
than would otherwise have been the case had
they applied for the amnesty ...". What that entails does not
appear from the
proposal. There is no indication in the proposal that
Mr Jooma thought that agreement had been reached that a percentage of
2 per
cent would be applied. I find it unnecessary to summarise the
entire document. Its tenure is not that an agreement had been reached
as to how the applicant was to be assessed for tax purposes once he
had made disclosure. On the contrary, the document explores
possible
ways in which agreement could be reached on the assessment after
disclosure had been made.
The
applicant annexed to his replying affidavit a minute of a without
prejudice meeting between him, his advisors and representatives
of
SARS. The meeting was held on 2 October 2007. During this meeting the
SARS representatives explained that the 2 per cent that
was available
during the amnesty period under the Amnesty Act "would not
satisfy the internal government of SARS and would
not withstand third
party scrutiny". Again, it is clear from the document that
proposals were made, but that no final and
binding agreement was
reached. I should point out that the percentage mooted during these
discussions was 10 per cent "of
the amount involved""
and 10 per cent of "what was recovered" (whatever these
terms may mean). What is clear
is that the 2 per cent that the
applicant contends had been agreed to in April was not even a
possibility in October.
On
24 October 2007 the applicant and representatives of SARS attended a
comprehensive disclosure session. The parties agreed that
the
applicant's advisor was to prepare a draft disclosure affidavit and
that he would forward it to the SARS officials. The draft
was
prepared and several meetings were held at which the draft was
discussed.
The
applicant alleges that on 28 March 2008 he paid R1,92 million to the
Commissioner, thereby performing in terms of the settlement
agreement
of 12 April. I mention this allegation now only for the sake of its
chronological position. I shall return to the allegation
that this
payment constituted proof tnat the applicant had performed in terms
of the alleged settlement agreement.
Late
in March 2008, the applicant does not state the precise date, a SARS
official and the applicant had a "comprehensive drafting
session" during which the official, Mr Van Loggenberg, went
through the applicant's draft affidavit and made manuscript changes
thereto. Thereafter, the disclosure affidavit was finalised and the
applicant signed it on 26 April 2008. Although the affidavit
pertinently refers to the April agreement and makes reference to
assurances given to the applicant, there is no mention in the
affidavit of an agreed rate at which the applicant was to be taxed on
amounts disclosed.
I
return to the amount of R1,92 that the applicant allegedly paid in
terms of the April agreement. The applicant avers that the
R1,92
million is 2 per cent of the income, R96 million, that he later
disclosed in the disclosure affidavit. In the affidavit he,
however,
does not disclose R96 million as to income. What he discloses is R200
million income from Jumbo Cash and Carry that had
been expatriated
and of which 40 per cent (R80 million) accrued to him personally. In
addition the applicant discloses that R16
million, being portion of
the proceeds of the sale of his share in the Jumbo Group, was
expatriated. Why the latter amount would
be taxable, the applicant
does not explain. In any event, the payment of R1,92 million was sent
under cover of a letter by the
applicant's advisor, Mr Jooma. In the
letter Mr Jooma wrote that the applicant is paying the amount "on
behalf of Jumbo Cash
and Carry". At the time that entity owed
taxes in excess of R1,92 million. Apart from the clear wording of the
letter, the
applicant cannot be believed when he states that he made
the payment (2 per cent of the disclosed amount) in terms of the
April
agreement. As I have pointed out, on the applicant's own
version no agreement as to the percentage had been reached and to the
extent that officials of SARS were agreeable to settle the
applicant's tax liability, the figure mentioned was 10 per cent. Even
as to the latter figure, no agreement had been reached.
In
a nutshell, the applicant has failed to adduce evidence that proves
even on a prima facie basis that he had reached a settlement
agreement with the Commissioner.
Counsel
for the Commissioner pointed out that, even if the agreement that the
applicant sought to prove had been proved, it would
have been void as
neither the Commissioner nor his representatives were empowered to
enter into such an agreement without complying
with the relevant
provisions of the Act and regulations promulgated under it. Counsel
for the applicant did not seek to argue that
the settlement agreement
contended for complied with the relevant statutory requirements. In
view of my finding that there was
no agreement, it is unnecessary to
say more about the lack of power on the part of the Commissioner to
enter into the agreement
that the applicant contended for.
Mr
D'Oliviera, who appeared with Mr Van Nieuwenhuizen for the applicant,
submitted that the Commissioner's conduct in this case
constitutes a
breach of the applicant's fundamental rights under section 33(1) of
the Constitution of the Republic of South Africa,
1996. The
subsection provides that "everyone has the right to
administrative action that is lawful, reasonable and procedurally
fair." In view of my finding that the applicant did not prove
to the requisite degree that a settlement agreement had been
reached,
the only other relevant administrative action is constituted by the
assessment. (The refusal of the applicant's section
88(1) application
is dealt with elsewhere in this judgment.) Apart from the applicant's
contention that the assessment was made
contrary to the settlement
agreement, the lawfulness, reasonableness and procedural fairness of
the assessment is not an issue
before this court. Having found that
there was no agreement that precluded the assessment from being made
as it was made, the attack
based on section 33(1) cannot succeed.
It
follows that the applicant has failed to show that he has a prima
facie right to the final relief that he intends seeking. The
interim
relief cannot be granted.
Both
the parties were represented by two counsel. In view of the bulk of
the papers, the importance of the case and legal principles
that had
to be addressed, the employment of two counsel was warranted.
The
following order is made:
The
application for an order under part A of the amended notice of
motion is dismissed.
The
applicant is ordered to pay the first respondent's costs, which
costs shall include the costs of two counsel..
BR
du Plessis
Judge
of the High Court.
Applicant's
counsel:
….......
S van
Nieuwenhuizen SC
…
...........................................
AJ
D'Oliviera
Applicant's
attorneys: Cliffe Dekker Hofmeyr Inc c/o Rooth and Wessels Inc,
…
............................................
Rooth
& Wessels Building,
…
...........................................
Pare Noveau 225 Veale Street,
…
..........................................
Brooklyn, PRETORIA.
…
...........................................
Ref.
AT Lamey/n/B29156
…
...........................................
Tel
(012) 452 4051.
First
respondent's counsel: AR Bhana SC
…
............................................
CJ
Dreyeer
First
respondent's attorneys:
......
Edelstein-Bosman
Inc
…
.................................................
222
Lange Street, Nieuw Muckleneuk,
…
..................................................
PRETORIA.
…
.................................................
Ref.
A Edelstein.
…
...............................................
Tel (012) 452 8902.
No
appearance for the second respondent.
1
The
second respondent, the Minister of Finance, did not participate in
these proceedings, no relief is sought against him, and
further
reference to him is unnecessary.
2
There are two clauses 5 in the agreement. The applicant relies on
the second one