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[2021] ZAGPJHC 800
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Black Mountain Mining (Pty) Ltd v Commissioner for the South African Revenue Services (A78/2021) [2021] ZAGPJHC 800 (7 September 2021)
REPUBLIC
OF SOUTH AFRICA
IN
THE HIGH COURT OF SOUTH AFRICA
GAUTENG
DIVISION, JOHANNESBURG
CASE
NO: A78/2021
REPORTABLE:
YES/NO
OF
INTEREST TO OTHER JUDGES: YES/NO
REVISED.
NO
DATE:
7 September 2021
In
the matter between:
BLACK
MOUNTAIN MINING (Pty)
Ltd
Appellant
and
COMMISSIONER
FOR THE SOUTH
AFRICAN
REVENUE
SERVICE
Respondent
JUDGMENT
WEINER
J, OPPERMAN J, MAKOLA AJ
Introduction
[1]
The appellant and the respondent are parties in a
pending Tax Court appeal relating to the appellant’s 2013, 2014
and 2015
income tax years of assessment (‘the relevant years of
assessment’). The main dispute relates to the appellant’s
statutory entitlement to deduct qualifying expenditure amounts from
its income.
[2]
The
Tax Administration Act 28 of 2011 (‘the TAA’) governs the
conduct of the parties to this dispute. The Rules under
Part E of the
TAA deal with Procedures of the Tax Court.
[1]
Factual
Background
[3]
The appellant carries on mining operations at
three mines at Aggeneys in the Northern Cape Province, namely, the
Deeps mine, the
Swartberg mine and the Gamsberg mine. In its income
tax returns for each of the relevant years of assessment, the
appellant sought
to deduct from its income the following amounts as
capital expenditure (‘CAPEX’) incurred by it in respect
of its mining
operations:
(a)
2013 year of assessment: R144 673 981;
(b)
2014 year of assessment: R191 264 736;
(c)
2015 year of assessment: R142 278 688.
[4]
Pursuant to an audit process, the respondent
ring-fenced the following amounts (of CAPEX) incurred by the
appellant in relation
to its mining operations at Gamsberg in terms
of s 36(7C) and s 36(7F) read with s 36(10) of the Income Tax Act 58
of 1962 (‘the
ITA’):
(a)
2013 year of assessment: R44 381 000;
(b)
2014 year of assessment: R80 451 000;
(c)
2015 year of assessment: R45 326 000.
[5]
The appellant had claimed the CAPEX relating to
the Gamsberg mine as part of its mining operations of the Deeps and
the Swartberg
mines, and the respondent contended that the Gamsberg
mine should be treated separately from the Deeps and Swartberg mines.
[6]
On 3 April 2017, the respondent raised additional
assessments for the relevant years of assessment, in terms whereof it
disallowed
the deductions by the appellant (of CAPEX) from income
derived by it from its mining operations; it imposed understatement
penalties
of some R4 764 424.
[7]
On 19
June 2017, the appellant objected to the additional assessments and
specifically relied on the provisions of s 11(a)
of the ITA in
respect of the deductibility of CAPEX incurred during the relevant
years of assessment.
[2]
After
the respondent’s partial disallowance of the objections, and on
16 November 2017, the appellant delivered its notice
of appeal in
which it excluded reliance on s 11(a) of the ITA.
[8]
In 18
July
2018, the respondent delivered its Rule 31 statement of grounds of
assessment, and on 20 November 2018 the appellant delivered
its Rule
32 statement of grounds of appeal.
[3]
On 25 September 2020, the appellant gave notice of its intention to
amend its Rule 32 statement, by
inter
alia
,
including s 11(a) of the ITA as a ground of appeal. In the
application for leave to amend its Rule 32 statement, the appellant
sought leave to—
(a)
introduce reliance on s 11(a) of the ITA;
(b)
deduct its qualifying expenditure incurred from
income derived by it from its mining operations during the relevant
years of assessment;
(c)
attach a new annexure, ‘Annexure BMM’,
to its Rule 32 statement, reflecting the classification of the
appellant’s
expenditure during the relevant years of
assessment; and
(d)
insert a table summarising the appellant’s
arguments in relation to its expenditure, with reference to the
applicable provisions
of the ITA.
[9]
The
Tax Court dismissed the appellant’s application for the
amendment on 27 January 2021.
[4]
This is an appeal against the judgment and order of the Tax Court.
[10]
In its judgment, the Tax Court referred to the
fact that the appellant had previously relied on s 11(a) of the
ITA as part
of its grounds of objection against the respondent’s
additional assessments (filed on 19 June 2017), but that it did not
rely on this ground in its notice of appeal (filed on 16 November
2017). The following was stated in paragraph 10 of the appellant’s
notice of appeal:
‘
10....
BMM does not persist in its second (alternative) ground of objection
referred to in paragraph 1.1 of page 2 of the Objection
stating that
such expenditure is deductible in terms of section 11(a) of the ITA,
read with section 23(g) of the ITA.’ [the
‘paragraph 10
statement’]
[11]
The Tax Court found that the aforesaid omission by
the appellant, in not relying on the provisions of s 11(a) of
the ITA in
its Rule 32 statement, coupled with the paragraph 10
statement, had the effect that the appellant abandoned and waived its
reliance
on s 11(a) of the ITA as a ground of appeal.
[12]
The appellant contended that the Tax Court erred
in dismissing the application for amendment, as the dismissal of the
application
precluded the appellant’s intended reliance on
s 11(a) of the ITA, which claim was held to have been abandoned
and waived.
It argued that the issue was thus
res
judicata.
[the ‘s 11(a) issue’]
Legislative
background
[13]
The Tax Court’s jurisdiction is set out in
s 117 of the TAA. It has jurisdiction over tax appeals lodged
under s 107
and, in terms of s 117(3), it may hear and
decide an interlocutory application or an application in a procedural
matter relating
to a dispute under Chapter 9 of the TAA. Chapter 9 is
the chapter dealing with dispute resolution.
[14]
Section 117(3) of the TAA makes an express
distinction between interlocutory and procedural matters. Its powers
in regard to an
assessment or ‘decision’ under appeal or
in relation to an application in a procedural matter referred to in
s 117(3)
of the TAA are set out in s 129(2), which reads:
‘
ln
the case of an assessment or “decision” under appeal or
an application in a procedural matter referred to in section
117(3),
the tax court may—
(a)
confirm the assessment or “decision”;
(b)
order the assessment or “decision” to
be altered;
(c)
refer the assessment back to SARS for further
examination and assessment; or
(d)
make an appropriate order in a procedural matter.’
[15]
Section 129(1) of the TAA is concerned with
the decision by the Tax Court that finally resolves the point in
issue, namely,
the correctness of the assessment or the ‘decision’.
[16]
The TAA statutorily regulates what types of
judgments and orders may be appealed against. Section 133 of the TAA
regulates the right
to appeal a ‘decision’ of the Tax
Court and subsection 133(1) reads: ‘The taxpayer or SARS may in
the manner
provided for in this Act appeal against a decision of the
tax court under sections 129 and 130.’
[17]
The appellant’s right to appeal is founded
on s 133 read with s 129(2). This appeal has been brought
under s 133(2)(a)
of the TAA, which in relation to matters
properly appealable, grants an automatic appeal to the full bench of
the Provincial Division
of the High Court.
Further,
the appellant contended that its right to appeal in the present case
falls within s 129(2)(d), namely, a decision
in a procedural
matter.
The
issues
[18]
The appellant submitted that the order of the Tax
Court is appealable on the basis that:
(a)
the order is final in effect; and
(b)
it constitutes a decision in an application in a
procedural matter as contemplated in s 117(3) read with
s 129(2)(d) and
s 133(1) of the TAA.
[19]
This is disputed by the respondent, who contended
that the judgment and order of the Tax Court are not appealable, as
the order
is not final in effect or determinative of any issue in the
main proceedings.
[20]
The issues in this appeal are thus whether:
(a)
in limine
, the
order of the Tax Court is appealable;
(b)
the appellant is precluded from amending its Rule
32 statement of grounds of appeal by including its reliance on s
11(a) of the
ITA as a ground of appeal in the pending Tax Court
proceedings;
(c)
the introduction of Annexure BMM to the
appellant’s Rule 32 statement is permissible;
(d)
the insertion of a table of expenditure reflecting
the appellant’s legal contentions regarding the deductibility
of those
items of expenditure, is permissible.
Appealability
[21]
Three issues arise in this regard:
(a)
Is the order appealable under the common law –
is it final in effect and definitive of an issue in the appeal?
(b)
Is the order appealable under the TAA?
(c)
Is it in the interests of justice that the order
be declared appealable?
Final
in effect and definitive of the rights of the parties
[22]
The appellant argued that, whilst the order of the
Tax Court dismissing the application to amend may be seen as an
interlocutory
order in the ‘wide sense’, it is in essence
a final order which is appealable. The judgment and order of the Tax
Court,
the appellant submitted, have the effect of disposing of a
substantial portion of the main relief claimed in the Tax Court
appeal.
[23]
In this regard, the appellant sought to include
the additional ground of appeal pertaining to s 11(a) of the ITA
as a main
ground of appeal for a large portion of its expenditure.
According to the appellant, the judgment and order of the Tax Court
is
determinative of the appellant’s reliance on s 11(a) of
the ITA in the main proceedings. By virtue of the judgment and
order,
including the Tax Court’s findings regarding the appellant’s
‘abandonment and waiver’ of its reliance
on s 11(a)
of the ITA, the issue is incapable of being revisited or corrected
during the Tax Court appeal. The appellant submitted
that although a
purely interlocutory order may at common law be corrected, altered or
set aside by the judge who granted it at
any time before the final
judgment, an order which has a final and definitive effect (even
though it may be interlocutory in the
wide sense), is
res
judicata
.
[24]
In contrast, the respondent contended that the
order is not appealable as it is purely interlocutory, is not final
in effect and
does not dispose of an issue in the main proceedings.
According to the respondent, the parties dispute the nature of the
expenses
and the deductibility of CAPEX claimed. At the end of the
Tax Court hearing if the Tax Court finds that all or part of the
expenditure
claimed is not expenditure relating to prospecting or
even capital expenditure, the Tax Court, in terms of s 129(2)(c)
of
the TAA, can ‘refer the assessment back to SARS for further
examination and assessment’, which may be objected to and
appealed against. Alternatively, the Tax Court will make a final
order in terms of s 129(2)(a) or s 129(2)(b), whereafter
the appellant can appeal. The respondent thus submitted that
appellant would still be entitled to deal with the full value of the
CAPEX claimed.
[25]
In
South
Cape Corporation (Pty) Ltd v Engineering Management Services (Pty)
Ltd
,
[5]
Corbett JA considered the meaning of ‘interlocutory’
orders in the context of their appealability. He stated:
‘
(a)
In a wide and general sense the term “interlocutory”
refers to all orders pronounced by the Court, upon matters
incidental
to the main dispute, preparatory to, or during the progress of, the
litigation. But orders of this kind are divided
into two classes: (i)
those which have a final and definitive effect on the main action;
and (ii) those, known as “simple
(or purely) interlocutory
orders” or “interlocutory orders proper”, which do
not….
(b)
Statutes relating to the appealability of judgments or orders
(whether it be appealability with leave or appealability at all)
which use the word “interlocutory”, or other words of
similar import, are taken to refer to simple interlocutory orders.
In
other words, it is only in the case of simple interlocutory orders
that the statute is read as prohibiting an appeal or making
it
subject to the limitation of requiring leave, as the case may be.
Final orders, including interlocutory orders having a final
and
definitive effect, are regarded as falling outside the purview of the
prohibition or limitation….’
[26]
It is not merely the form of the order but also,
and predominantly, its effect that must be considered by this Court.
In our view,
the order in the present matter falls into the first
class described by Corbett JA in
South
Cape Corporation
. By virtue of the Tax
Court’s findings regarding the appellant’s ‘abandonment
and waiver’ of its reliance
on s 11(a) issue, the issue
cannot be corrected during the Tax Court hearing, or thereafter. The
s 11(a) issue is central
to the dispute between the parties. The
decision of the Tax Court, in effect, precludes the appellant from
relying on this significant
issue in the Tax Court appeal. The order
is thus final in effect and is
res
judicata
.
Appealability
under the TAA
[27]
The appellant argued that, in any event, the order
and judgment are appealable in terms of the TAA. More specifically,
it stated
that an application for leave to amend (which the TAA
categorises as a ‘procedural’ matter under Part E of the
Rules)
is specifically provided for in Tax Court Rule 52(7). Rule
52(7) provides:
‘
A
party seeking an amendment of a statement under rule 35, may apply to
the tax court under this Part for an appropriate order…’
[28]
The
appellant submitted that the Tax Court’s decision in such an
application is appealable in terms of s 133(1), read
with
s 129(2)(d) and s 117(3) of the TAA.
[6]
Section 117(3) refers to both ‘interlocutory’
applications and applications in ‘procedural’ matters
relating
to certain disputes.
[7]
[29]
The appellant contended that the terms
‘interlocutory application’ and ‘application in a
procedural matter as
provided for in the rules’ are not
mutually exclusive. However, the reference to an ‘interlocutory
application’
in s 117(3) of the TAA (and the omission of
such reference in s 129) thus refers to a ‘simple (pure)
interlocutory’
application and orders to that effect. Further,
it was contended that the phrase ‘application in a procedural
matter as provided
for in the “rules”’ (as
contained in s 117(3) and s 129 of the TAA) referred to
those orders arising
from applications specifically provided for in
the Tax Court Rules (i.e. those applications contemplated in Rule 52,
in respect
of the procedural matters provided for in Part E of the
Rules).
[30]
The appellant submitted that while an application
for leave to amend a Rule 32 statement may (if interpreted in a
narrow manner)
be considered to be ‘interlocutory’ in the
widest sense of the word, the current application, being an
application
in ‘a procedural matter as provided for in the
Rules’, was legislated to be specifically appealable, and the
order
granted by the Tax Court is not a pure interlocutory order, as
the effect thereof is final.
[31]
The appellant argued that the reference to an
‘interlocutory’ application in s 117(3), on the one
hand, refers
to simple (or pure) interlocutory applications and
resulting orders; whereas the reference to ‘an application in a
procedural
matter relating to a dispute under this Chapter, as
provided for in the “Rules”’, refers to those
orders arising
from applications specifically provided for in the
Rules – and, in particular, the amendment application brought
under Rule
52. Therefore, the appellant submitted that the amendment
application is a ‘procedural’ matter.
[32]
On the other hand, the respondent contended that a
matter cannot be automatically classified as ‘procedural’
in nature
merely because it was brought in terms of s 117(3) and the
Rules. It contended that the test for the appealability of orders
remains
whether the order is final and/or dispositive of the main
issue.
[33]
The respondent submitted further that the order is
not a ‘decision’ as envisaged in the TAA, because a
decision is defined
in a limited and narrow sense. Whilst a
procedural matter has not been defined in the TAA, the authorities
provide guidance on
the meaning and scope of matters of a procedural
nature. It contended that, in the context of the Tax Court, the term
‘procedural
matter’ is something of a ‘term of
art’, and must be distinguished from interlocutory
applications.
[34]
The
respondent referred to the decision of the Supreme Court of Appeal
(the SCA) in
Hassim
v Commissioner, South African Revenue Service
.
[8]
In this case, the SCA considered the meaning of a ‘decision’
for the purposes of appealability in relation to s 86A
of the
ITA. The SCA stated that—
‘
The
words “any decision” are also used in s 21 of the Supreme
Court Act 59 of 1959. In the case of s 21 it was held
that the
“decision” referred to must be a decision of the same
nature as a “judgment” or “order”
in the
sense in which those terms are used in s 20 of the Supreme Court Act
59 of 1959…. A “judgment” or “order”
referred to in s 20 does not in general include “a
decision which is not final (because the Court of first instance
is
entitled to alter it), nor definitive of the rights of the parties
nor has the effect of disposing of at least a substantial
portion of
the relief claimed in the main proceedings” (see
Zweni
v Minister of Law and Order
1993
(1) SA 523
(A) at 536B).
I
do not think that the phrase “any decision” in s 86A
should be interpreted differently and neither of the parties
contended otherwise. To interpret the phrase literally would be at
odds with the generally accepted view that it is in general
undesirable to have a piecemeal appellate disposal of the issues in
litigation and that it is advisable to limit appeals in certain
respects….’
[9]
[35]
In
considering whether the application for the amendment is
‘interlocutory’ under s 117(3), this Court is enjoined to
look beyond the form of the ‘interlocutory’ order, and
consider its effect to determine its true nature. In
Pretoria
Garrison Institutes v Danish Variety Products (Pty) Ltd
,
it was held that:
[10]
‘…
a
preparatory or procedural order is a simple interlocutory order and
therefore not appealable unless it is such as to “dispose
of
any issue or any portion of the issue in the main action or suit”
or, which amounts, I think, to the same thing, unless
it “irreparably
anticipates or precludes some of the relief which would or might be
given at the hearing”.’
[36]
We therefore conclude that the reference to an
‘interlocutory’ application in s 117(3) refers to a
simple interlocutory
application and resulting order, whilst the
reference to ‘an application in a procedural matter relating to
a dispute under
this Chapter as provided for in the “Rules”’,
refers to those orders arising from applications specifically
provided
for in the Rules; provided they are final in effect and
cannot be altered by the Tax Court, are definitive of the parties’
rights and dispositive of at least a substantial portion of the
issues. The application for an amendment brought in this matter
under
Rule 52 falls within the purview of a procedural matter and is
accordingly appealable.
[37]
We want to make it plain that we are not saying
that all applications for amendment brought under Rule 52 are
procedural (as opposed
to interlocutory) and therefore appealable.
However, we find that the application under consideration is
appealable having regard
to the merits of this case, the common law
considerations in respect of appealability, as well as the interests
of justice (as
discussed hereinafter).
The
interests of justice
[38]
In
conclusion on the issue of appealability, the Court must take into
account whether it is in the interests of justice to find
that the
order is appealable. We consider that it is, as the appeal would lead
to a just, reasonable and prompt solution of the
real issues between
the parties. In
International
Trade Administration Commission v SCAW South Africa (Pty) Ltd
,
[11]
the Constitutional Court provided a synopsis of the jurisprudence
post the test as set out in
Zweni
v Minister of Law and Order.
[12]
In
Zweni
,
the test for appealability required the following three attributes,
namely, that—
‘…
the
decision must be final in effect and not open to alteration by the
court of first instance; it must be definitive of the rights
of the
parties; and, third, it must have the effect of disposing of at least
a substantial portion of the relief claimed in the
main
proceedings….’
[13]
[39]
The Constitutional Court in
SCAW
dealt with the evolution in the law
relating to appealability of orders as follows:
‘
After
Zweni
the
Supreme Court of Appeal has recognised that the general rule against
piecemeal appeals could conflict with the interests of
justice in a
particular case. Howie P — writing for a unanimous court in
S
v Western Areas
[2005
(5) SA 214
(SCA)] … concluded that the general principles
enunciated in
Zweni
are
neither exhaustive nor cast in stone. He further held that:
“
(I)t
would accord with the obligation imposed by s 39(2) of the
Constitution to construe the word decision in s 21(1) of the Supreme
Court Act to include a judicial pronouncement in criminal proceedings
that is not appealable on the
Zweni
test
but one which the interests of justice require should nevertheless be
subject to an appeal before termination of such proceedings.
The
scope which this extended meaning could have in civil proceedings is
unnecessary to decide. It need hardly be said that
what
the interests of justice require
depends
on the facts of each particular case.” …
More
recently, in
Philani-Ma-Afrika
and Others v Mailula
and
Others
[2010
(2) SA 573
(SCA)], the Supreme Court of Appeal had to decide whether
an order of the high court which puts an eviction order into
operation
pending an appeal was appealable. In a unanimous judgment
by Farlam JA, the court held that the execution order was susceptible
to appeal. It reasoned that it is clear from cases such as
S
v Western Areas
that
“what is of paramount importance in deciding whether a judgment
is appealable is
the interests of
justice
”
(emphasis
added).
As
we have seen, the Supreme Court of Appeal has adapted the general
principles on the appealability of interim orders, in my respectful
view, correctly so, to accord with the equitable and the more
context-sensitive standard of the interests of justice favoured by
our Constitution. In any event, the
Zweni
requirements on
when a decision may be appealed against were never without
qualification….
…
[I]n
Machele
and Others v Mailula and Others
…
[the
court] reaffirmed the importance of “irreparable harm” as
a factor in assessing whether to hear an appeal against
an interim
order, albeit an order of execution:
“
'The
primary consideration in determining whether it is in the interests
of justice for a litigant to be granted leave to appeal
against an
interim order of execution is, therefore, whether irreparable harm
would result if leave to appeal is not granted.”
…
The
test of irreparable harm must take its place alongside other
important and relevant considerations that speak to what is in
the
interests of justice, such as the kind and importance of the
constitutional issue raised; whether there are prospects of success;
whether the decision, although interlocutory, has a final effect; and
whether irreparable harm will result if leave to appeal is
not
granted. It bears repetition that what is in the interests of justice
will depend on a careful evaluation of all the relevant
considerations in a particular case.’
[14]
[40]
In
considering this question, Maya P in
Director-General,
Department of Home Affairs v Islam
held:
[15]
‘
Traditionally,
under common law, an interim order was not appealable except where it
was shown that it was (a) final in effect as
it could not be altered
by the court which granted it; (b) definitive of the rights of the
parties in that it granted definitive
and distinct relief; and (c)
was dispositive of at least a substantial portion of the relief
claimed in the main proceedings. The
test has since evolved. So
whilst the traditional requirements are still important
considerations, the court may in appropriate
circumstances dispense
with one or more of those requirements if to do so would be in the
interests of, having regard to the court’s
duty to promote the
spirit, purpose and objects of the Constitution eg where the interim
order “has an immediate and substantial
effect, including
whether the harm that flows from it is serious, immediate, ongoing
and irreparable”.’
[41]
As set out above, the respondent, in submitting
that the application for the amendment was purely interlocutory,
contended that
the consequence of any interlocutory decision which is
adverse to the taxpayer, can be negated by the Tax Court which court
can
make one or other of the orders contemplated in s 129(2)(a)
or s 129(2)(b) of the TAA. The Tax Court could refer the
assessment back to the respondent for further examination and
assessment in terms of s 129(2)(c) of the TAA, or the Tax Court
could make a final order in terms of s 129(2)(a) or s 129(2)(b).
[42]
This
suggestion is not in accordance with the test laid out in the various
authorities referred to. As was held by the SCA in
Phillips
v National Director of Public Prosecutions
,
[16]
a restraint order made in terms of the
Prevention
of Organised Crime Act 121 of 1998
was appealable
notwithstanding that it ‘…is only of interim operation
and that, like interim interdicts and attachment
orders pending
trial, it has no definitive or dispositive effect…’.
[17]
The SCA continued—
‘
Absent
the requirements for variation or rescission laid down in
s 26(10)(a)
… a restraint order is not capable of being changed. The
defendant is stripped of the restrained assets and any control
or use
of them. Pending the conclusion of the trial or the confiscation
proceedings he is remediless. That unalterable situation
is, in my
opinion, final in the sense required by the case law for
appealability.’
[18]
[43]
Similarly, in the present case, in holding that
the appellant had abandoned and waived its rights to rely on the
s
11(a)
issue, the order granted cannot be varied, altered or corrected
at a later stage.
[44]
As was noted by Binns-Ward J in
Velocity
Trade Capital (Pty) Ltd v Quicktrade (Pty) Ltd
—
‘
Phillips
stands
as an illustration of two truths. First, that it is not necessary
that all the requirements in
Zweni
be
satisfied for a decision to be appealable. Second, that the
insusceptibility of a decision to being altered by the court of first
instance does not have to be absolute for the decision to be
considered as sufficiently final in effect to render it
appealable.’
[19]
[45]
In
FirstRand
Bank Limited t/a First National Bank v Makaleng,
[20]
it was held that ‘even where a decision does not bear all the
attributes of a final order it may nevertheless be appealable
if some
other worthy considerations are evident, including that the appeal
would lead to a just and reasonable prompt solution
of the real
issues between the parties’.
[46]
The appellant submitted that if one has regard to
the table of expenditure (Annexure BMM) sought to be included by the
appellant
as part of its amended
Rule 32
statement, the portion of
the expenditure for its claim under
s 11(a)
of the ITA (as the main
proposed ground of appeal) is the total amount of R63 930 507.
If the appeal is not adjudicated,
and the Tax Court's judgment
stands, it will constitute authority that a taxpayer is precluded
from relying on a provision of (and
an entitlement afforded by) the
ITA in an appeal in circumstances where the taxpayer failed to
initially plead reference thereto
in its
Rule 32
statement.
[47]
It is the respondent’s case that it has
already dealt with the
s 11(a)
issue during the objection stage,
when it disallowed the appellant’s objection. The appellant
must have accepted that the
respondent was correct. Thus, the
respondent contended that the issue had been finalised.
Section 11(a)
of the ITA is therefore not an issue that SARS should be required to
deal with again in the Tax Court appeal. It will suffer prejudice
if
the issue was allowed to be reintroduced.
[48]
In considering the interests of justice, the Court
must also balance the prejudice that will be caused to each of the
parties if
the appeal is allowed. The respondent submitted that the
appellant had waited for almost two years before the amendment was
sought
and the respondent would be prejudiced if the appeal was
granted and the amendment allowed.
[49]
The appellant had explained that the delay in
launching the application for the amendment was based on a change in
advice when it
employed a new legal team on 5 June 2018. The Tax
Court had erroneously found that the new legal team came on board in
2017. Its
decision not to persist with the second ground of objection
was premised upon an incorrect legal conclusion.
[50]
Although there appears to be a considerable delay
between the new legal team coming on board and the launching of the
application
for the amendment, the question is whether this delay has
caused prejudice to the respondent which outweighs the prejudice to
the
appellant if we find that the order is not appealable. We are of
the of the view that, for the reasons stated above, the prejudice
which would be occasioned to the appellant far outweighs that which
the respondent would suffer if the issue of appealability was
decided
against the appellant.
[51]
The Tax Court acts as a court of review and is
obliged to hear the dispute
de novo
.
The granting of the appeal and the subsequent amendment will lead to
a prompt resolution of the real issues between the parties.
The
amount claimed as being deductible under
s 11(a)
of the ITA is
substantial. For these reasons, we find that it is in the interests
of justice to hold that the order is appealable.
Relevant
legal principles relating to amendments under the TAA
[52]
Rule 35
provides that the
parties may agree that a statement under
Rule 31
,
32
or
33
may be
amended.
[21]
If the other
party does not agree to the amendment, the party that requires an
amendment may apply to the Tax Court under Part
F for an order under
Rule 52.
Rule 52(7)
provides that a party seeking an amendment for a
statement under
Rule 35
may apply to the Tax Court for an appropriate
order, including an order concerning a postponement of the hearing.
[53]
The relevant applicable legal principles have been summarised as
follows:
(a)
The primary object of allowing an amendment is to obtain a proper
ventilation
of the dispute between the parties, to determine the real
issues between them so that justice may be done. A court will
generally
grant an amendment where it can be done without prejudice
to the other party.
(b)
An application for an
amendment will generally be allowed unless that application is
mala
fide
,
or unless the amendment would cause an injustice and prejudice to the
other side which cannot be compensated by a costs order.
[22]
(c)
Delay is no ground for
refusing an amendment – provided that the applicant can show
that the application is
bona
fide
and
explain any delay there may have been in making the application. The
applicant must however show that the opponent will not
suffer
prejudice.
[23]
(d)
Where a party would be no
worse off if the amendment were granted with a suitable order as to
costs than if his adversaries’
application were dismissed,
there is no prejudice in granting the amendment. The mere loss of the
opportunity of gaining time is
not, in law, prejudice or
injustice.
[24]
(e)
The fact that the
granting of the amendment would necessitate the re-opening of the
case for further evidence to be led is no ground
for refusing the
amendment where the reason for the failure to lead the evidence was
the state of the pleadings, and not a deliberate
failure on the part
of the applicant.
[25]
(f)
The fact that an
amendment may cause the other party to lose its case against the
party seeking the amendment is not of itself ‘prejudice’
of the sort which will dissuade the court from granting it. The fact
that the effect of allowing an amendment to a plea might be
to
benefit the plaintiff’s claim is not what is meant by prejudice
which cannot be remedied by an appropriate order as to
costs.
[26]
The
amendment in terms of
s 11(a)
of the ITA
The
nature of the amendment
[54]
As set out above, the appellant did not rely on
s 11(a)
of the ITA as a ground in its
Rule 32
statement, and
indicated that it would not be persisting with this ground of
objection in the paragraph 10 statement. It now seeks
to amend its
Rule 32
statement by relying upon
s 11(a)
of the ITA as a ground of
appeal.
The
evolution of the objection
[55]
As set out above, the respondent initially, in a
letter of objection, objected to the introduction of the reliance on
s 11(a)
of the ITA in the amendment on the basis that the
appellant had abandoned the ground of appeal sought to be introduced,
as the
issue was previously raised during the objection stage, but
not persisted with in the grounds of appeal. After the appellant
instituted
its application for amendment, the respondent raised two
further grounds of opposition, namely that the appellant’s
proposed
amendment involved the withdrawal of an admission in the
notice of appeal and it also alleged irreparable prejudice.
Reliance
on grounds of objection to the amendment not previously raised
[56]
The appellants argued that the respondent was
bound by the content of its initial notice of objection and that the
expanded grounds
of objection by the respondent, being the alleged
waiver and the withdrawal of an admission (which were only raised in
its answering
affidavit) should not have come into play in
considering whether the amendment should be granted.
[57]
Without deciding the correctness of this alleged
procedural transgression, we intend to deal with all the objections
raised before
the Tax Court which heard the amendment application –
with one proviso: insofar as it is argued by the respondent that a
case ought to have been made out in the founding affidavit in respect
of the expanded grounds of objection, such argument should
quite
evidently be rejected, as clearly the appellant ought only to have
dealt with the objections raised by the respondent at
the time. It
was not for the appellant to put up the proverbial skittles, simply
to knock them down again. Had it done so, it would
have been
criticised for dealing with irrelevant considerations.
Withdrawal
of admission
[58]
The respondent submitted that the appellant’s
decision not to persist with the
s 11(a)
issue, because it, in
effect, admitted that the respondent was correct in rejecting this
ground, coupled with its failure to have
included it as one of its
grounds of appeal, constituted an admission. In our view, this does
not amount to an admission of the
sort envisaged in pleadings.
[59]
An
admission is ‘an unequivocal agreement by one party with a
statement of fact by the other’.
[27]
No admission is contained in the appellant’s Rule 32 statement
of grounds of appeal that is sought to be withdrawn.
[28]
The proposed amendment can therefore not amount to a withdrawal of an
admission.
[60]
Rule 34
provides that the issues in an appeal to
the Tax Court will be those contained in the
Rule 31
statement of
grounds of assessment, read with the
Rule 32
statement of grounds of
appeal and the
Rule 33
reply, if any.
[61]
Paragraph 12 of the appellant’s Rule 32
statement of grounds of appeal reads:
‘
12…
in what follows the Appellant clearly and concisely pleads which of
the facts and the legal grounds in the
Rule 31
Statement are admitted
and which of those facts or legal grounds are opposed…..’
[62]
Paragraph 39 of the
Rule 31
statement of grounds
of assessment contains the response to the paragraph 10 statement of
the appellant’s notice of appeal
in which the alleged admission
appears. The response to the averment in the notice of appeal was
‘[t]he contents hereof are
noted’. This, in turn, is
responded to in the
Rule 32
statement of grounds of appeal as
follows: ‘[t]he contents thereof are noted’. There
clearly is no agreement regarding
a statement of fact on the
pleadings. More crucially, the pleadings consisting of the
Rules 31
and
32
statements, not the notices, do not contain the alleged
admission.
[63]
Applications
for amendments seeking to retract incorrectly admitted legal
consequences are normally granted by our courts (even
on appeal), for
only the law would be prejudiced if cases were to be decided on what
parties might, in ignorance, have agreed the
law to be. A court is
not even obliged to consider prejudice to the other side in such
circumstances.
[29]
[64]
Mr Bhana SC, representing the respondent, argued
that this principle does not avail the appellant because the
admission was not
only an admission of law, but also an admission of
fact. In the respondent’s letter disallowing the appellant’s
objections,
the issue is dealt with as follows:
‘
In
BMM’s instance the purpose of the expenditure was to set up
and/or develop its Gamsberg mine. This setting up costs and/or
development expenditure will create a source of profit. The
expenditure related to the development of the Gamsberg mine and not
to the operating of the Gamsberg mine. In the circumstances the
expenditure is more closely related to BMM’s income-earning
structure rather than its income-producing operations. [‘the
factual portion’]
The
expenditure incurred by BMM is therefore of a capital nature and will
not qualify for deduction in terms of
section 11(a)
’. [‘the
conclusion’]
[65]
To this, the appellant responded in the paragraph
10 statement disavowing reliance on
s 11(a)
of the ITA. The
disavowal may have arisen from a particular ‘incorrect’
interpretation of the section, or it may have
been made in ignorance
of evidence sufficient to bring the section into operation. A
combination of these possibilities would constitute
a mixed question
of fact and law.
[66]
In the fullness of time, the amendment may well be
found to constitute evidential material, which might have a bearing
on whether
reliance on
s 11(a)
of the ITA was abandoned or
waived, but that would depend on the evidence, not the pleadings
alone. It might be an admission outside
of the pleadings to be taken
into consideration for purposes of deciding whether the right to rely
on
s 11(a)
of the ITA had been waived or abandoned.
[67]
Assuming that the respondent pleads a waiver in
response to the amendment, nothing precludes the respondent from
cross-examining
the appellant’s witnesses on the reasons for
the change of tack and, if the facts justify the conclusion, from
establishing
that evidence necessary to sustain reliance on
s 11(a)
of the ITA is absent from appellant’s case. It does not follow
that the amendment should be refused, for the parties are,
in
pleadings, merely setting out what cases they propose presenting.
[68]
Even if the intended amendment constituted a
withdrawal of an admission (and if we are wrong about the finding
that the
Rule 31
statement of grounds of assessment did not
incorporate by reference the communication to not persist with the
s 11(a)
issue) then we would conclude that the appellant has
provided an explanation for the circumstances giving rise thereto
which would
entitle it to withdraw it.
[69]
The appellant contended that it had received
incorrect tax advice, which informed its allegedly incorrect legal
conclusion at the
time to not persist with its reliance on
s 11(a)
of the ITA. This was, contrary to the Tax Court’s finding,
pertinently stated in the founding and replying affidavits. During
argument in this Court, it was suggested that there was no
explanation on record from the attorneys currently representing the
appellant, ENSafrica, as to why the legal advice changed. However,
ENSafrica only became the attorneys of record of the appellant
on 5
June 2018, and were thus not the attorneys representing the appellant
when the notice of appeal was delivered on 16 November
2017. The
current attorneys were not party to the ‘incorrect’
advice which had been given.
[70]
The Tax Court, however, found that—
‘
at
all material times throughout engagement with the respondent (as far
back as 2017) the applicant was represented by the same
legal team as
is today, and its affidavit is evidently silent as to why its legal
representatives acted on this “incorrect
legal conclusion”
made by KPMG……’.
[30]
[71]
This of course is incorrect. As stated, ENSafrica
only came on record in 2018. This error was crucial to the Tax
Court’s reasoning
process and understanding of the factual
substrata. This misdirection of fact (in addition to the failure by
the Tax Court to exercise
a discretion at all) would entitle this
Court to interfere with the conclusion reached by the Tax Court.
[72]
The proposed amendment is, in our view,
bona
fide
. Nothing has yet been put up to
counter it, and it was also not suggested that the opposing legal
view in relation to the application
of
s 11(a)
of the ITA to the
facts quoted and referred to as ‘the factual portion’,
was so outlandish that it could safely be
rejected.
The
abandonment and waiver finding
[73]
In our view, the finding of abandonment and waiver
made by the Tax Court seized with the application to amend, was
neither relevant
nor appropriate within the factual matrix of this
case and the stage of the proceedings. Such issue stands to be raised
by the
respondent and determined by the Tax Court in the main Tax
Court appeal proceedings. The appellant did indicate earlier that it
was not persisting in its reliance on
s 11(a)
of the ITA. Was
this conduct plainly inconsistent with an intention never to change
its mind if it later determined (or was advised)
that it should rely
on that section? We think not.
Provided
that neither incurable prejudice nor excipiability is introduced by a
change of legal foundation to a case (via an amendment
to a party’s
pleadings, which do no more than tell the other side what case they
have to meet and are not evidence of the
facts which the pleader
intends to prove) the amendment ought to be allowed.
[74]
The
Tax Court disregarded the fact that it was a court of revision and
not a court of appeal,
[31]
and
that the nature of the appeal is a hearing
de
novo
.
[32]
The appellant should, as a matter of principle, be entitled to raise
any appropriate ground of appeal forming part of its objection,
subject to Tax Court
Rule 32(3).
[75]
We wish to make it plain that the present case
should not be read as authority for the proposition that a new ground
of appeal can
be introduced where such new ground was not part of the
grounds of objection initially. That is not the case before us. We
make
no finding on such a situation, as those are not the facts we
have to deal with in this matter. The facts in this case are that
the
appellant previously relied on the
s 11(a)
issue but not in its
Rule 32
statement and the respondent has therefore – and still
will be when the matter comes to a hearing – been afforded an
opportunity to deal with the issue in full. Thus the respondent will
suffer no prejudice in this regard.
[76]
In
terms of
Rule 10(2)(c)(iii)
read with
Rule 32(3)
, the appellant is
entitled to raise a new ground of appeal, provided that such ground
is not against ‘a part or amount of
the disputed assessment not
objected to under
rule 7
’.
[33]
The appellant had objected to all of the disputed assessments. The
appellant had accordingly previously objected to all parts and
amounts of the disputed assessments. The total amounts disallowed by
the respondent in respect of each of the relevant years of
assessment
therefore formed part of the dispute between the parties at the
objection stage. Given the indication of non-persistence,
the
s 11(a)
issue now constitutes a new ground of appeal which is expressly
authorised by
Rule 10(2)(c)(iii)
and which is not struck by the
exclusion.
[77]
Even
if the initial election by the appellant not to persist in its
reliance on
s 11(a)
of the ITA is akin to an abandonment by the
appellant of its right to appeal on that ground (i.e. a pre-emption),
the Tax Court
is a court of revision, not of appeal. Thus, there can
be no pre-emption of a specific ground of appeal. This Court (and the
Tax
Court) is not bound by what is legally untenable. This principle
is equally valid in the context of a mistake of law by a party
not
to, on appeal, plead reliance on a particular ground.
[34]
[78]
Relying
on
Commissioner
for the South African Revenue Service v Brummeria Renaissance (Pty)
Ltd
,
[35]
the respondent contended that if the appellant did not persist with a
ground of objection previously raised, ‘it is final
and
conclusive’. We do not read the
Brummeria
case
to have distilled such a rigid principle.
Brummeria
,
in our view, simply held that the issues in any appeal court would be
those defined in the statement of the grounds of assessment
(now
Rule
31
then
Rule 10(1))
read with the statement of the grounds of appeal
(now
Rule 32
and then
Rule 11(1))
and, in the absence of an amendment
sought in terms of the then
Rule 13
(now
Rule 42(1))
, an issue
could not be pursued before the higher court.
[79]
It would appear to us that the respondent is
conflating the principles applicable to establishing the existence of
admissions, with
those relating to what would constitute evidential
material for purposes of deciding the issues of abandonment and
waiver.
Conclusion
in respect of the admission, abandonment and waiver issues
[80]
We find that the Tax Court was influenced by wrong
principles of law in that it found the factual and legal existence of
an admission.
Insofar as we may have erred on this, we find that the
Tax Court misdirected itself by finding that the same attorneys
represented
the appellant at all relevant and material times and, by
using this mistaken factual finding as a springboard to conclude that
the explanation proffered to withdraw such admission, was inadequate.
[81]
We thus find that the Tax Court was also
influenced by wrong principles of law and that it misdirected itself
on fact by finding
that the appellant had abandoned and waived its
right to rely on
s 11(a)
of the ITA, when it ought to have found
that triable issues exist in this regard and that these issues could
and should be distilled
for determination in the trial.
Annexure
BMM
[82]
In the application for the amendment, the appellant sought to
substitute annexures “BMM1”,
“BMM2” and
“BMM3” of the Notice of Objection (‘the previous
annexures’) with Annexure BMM.
The previous annexures were
attached to the appellant’s grounds of objection dated 19 June
2017.
[83]
In relation to Annexure BMM, the appellant says that during the
relevant years of assessment,
it incurred various items of
expenditure in respect of the Gamsberg mining operations set up,
particularised, and elaborated upon
in Annexure BMM.
[84]
The respondent objects to the introduction of Annexure BMM on the
basis that it is irreconcilable
with what was previously furnished to
it; that the amounts reflected in Annexure BMM are different from
those in the previous annexures;
and that, in relation to the amounts
claimed, Annexure BMM seeks to raise and claim amounts that were not
all included in the notice
of objection. It also argues that Annexure
BMM seeks to raise, on appeal, matters that were previously
abandoned.
[85]
The Tax Court held that, because the appellant had conceded that the
contents of Annexure
BMM differ from the previous annexures, the
concession was indicative of prejudice to the respondent, as the
respondent would now
have to meet a case that was not previously
presented to it. This was compounded by the fact that the appellant
had failed to explain
to the Tax Court why Annexure BMM was not
presented earlier.
[86]
The Tax Court also held
that Annexure BMM was impermissible under the Tax Court Rules.
[36]
The particular Rules were, however, not identified in the judgment.
The appellant’s
submissions
in respect of the
annexures
[87]
The appellant’s case in respect of the annexures can be
summarised as follows:
(a)
Annexure BMM supports and substantiates the additional argument
raised
at the objection stage, but not previously included in the
appeal. This relates to the deductibility of the appellant’s
qualifying
expenditure for the relevant years of assessment income,
which was earned by the taxpayer from its mining operations as
contemplated
in s 11(a) of the ITA.
(b)
In order to support the additional argument, the appellant wishes to
rely
on Annexure BMM which, it contended, is of a factual nature.
(c)
The appellant seeks to place Annexure BMM before the Tax Court to
reflect
the classification of the various items of expenditure
incurred by it during the relevant years of assessment. It was not
disputed
that Annexure BMM reflected the classification of the
various expenditure amounts incurred by the appellant during the
relevant
years of assessment. The only dispute between the parties is
the classification of expenditure in order to determine the
deductibility
thereof.
(d)
The appellant admits that the contents of the previous annexures are
different
from those of Annexure BMM. The initial annexures related
to expenditure classified by the appellant’s erstwhile advisor,
KPMG, as being related to prospecting. Annexure BMM includes the
classification of all expenditure, namely, the total expenditure
incurred by the appellant for the relevant years of assessment.
Annexure BMM does not only cater for the s 11(a) of the ITA
claim, but reflects the classification of all expenditure incurred by
the appellant in respect of its Gamsberg operations.
(e)
The appellant contended that the difference between the total amounts
of expenditure incurred by it during each year of assessment (as
reflected in Annexure BMM), and the amount(s) to be considered
in the
appeal, are immaterial. In 2013, it is nil; in 2014, R102.88; and in
2015, R103.00. The appellant also disputed that the
amendment seeks
to claim deductions of amounts which did not previously form part of
the objections.
(f)
The appellant contended that that there is no prejudice to the
respondent
because the respondent had, at the objection stage,
already considered and dispensed with the s 11(a) issue, which
is now
sought to be re-introduced.
(g)
The incurrence and quantum of the expenditure is already common cause
between the parties. Annexure BMM seeks to crystallise and simplify
the appellant’s argument in respect of the deductibility
of the
expenditure, with reference to each of the grounds of appeal. This,
it contended, will assist the parties and the Tax Court
when
adjudicating the appeal.
(h)
The respondent will have ample opportunity to amend its Rule 31
statement,
and the respondent has not pleaded any prejudice as a
consequence of the intended amendments.
(i)
A failure by a taxpayer to present a document to the respondent
during the objection stage does not bar the use of that document
during the Tax Court appeal proceedings, and it is not a relevant
consideration in determining whether the amendments by the appellant
should be allowed.
[88]
The appellant’s counsel contended, in conclusion, that the Tax
Court did not provide
a reason for its finding that the introduction
of Annexure BMM is not permissible under the Tax Court Rules.
The
respondent’s submissions in respect of the annexures
[89]
The respondent’s case can be summarised as follows:
(a)
In the previous annexures, the appellant, in support of its claim in
its
tax returns and notice of objection, set out the nature,
classification and amount of the expenses. SARS has accepted those
expenses
as the nature, classification and amounts that are in
dispute, and prepared its case in line therewith. Annexure BMM now
reclassifies
those expenses, including the nature of the expense and
the amount.
(b)
The expenditure listed in the previous annexures compared to the
expenditure
listed in Annexure BMM is different in the following
respects:
(i)
The expenses listed in each year are different;
(ii)
The expenditure previously listed in one year is listed in a
different year;
(iii)
The expenditure amounts have changed;
(iv)
There are additional expenses listed.
(c)
The respondent denies that the previous annexures related to
prospecting
and that Annexure BMM extends the classification of the
expenditure so as to cater for the s 11(a) of the ITA claim, and
all
other classifications and the total amounts of expenditure
incurred. The appellant accepted in its objection and appeal that
certain
of the expenditure was capital in nature and that the
annexures differ; Annexure BMM extends and changes the classification
of
the expenditure.
(d)
The respondent would be prejudiced by the amendment. The respondent
will
now have to deal with expenditure, which it previously did not
have to, and the appellant has failed to show this Court why it says
the respondent will not be prejudiced in the circumstances.
(e)
This being a tax matter, the proposed amendment is not permissible
under
the Tax Court Rules.
(f)
By changing the nature of the expenditure, the taxpayer would be
changing the factual ground of the expenditure. If the amendment were
to be allowed it would undermine the entire structure of
the TAA and
this is not permissible under Rule 32.
[90]
In our view, having found that the amendment pertaining to s 11(a) of
the ITA, should be
granted, axiomatically, the inclusion of Annexure
BMM must be permitted. The initial annexures only dealt with
expenditure related
to prospecting. Annexure BMM deals with the
classification of all expenditure incurred by the appellant in
respect of its Gamsberg
operations including expenditure relating to
the s 11(a) issue. The document is thus an essential factual
record of the claims
relating to this ground and the amendment
seeking to include same should be granted.
Prejudice
[91]
Prejudice is generally the determinative factor in
allowing or refusing amendments. If incurable, then the prejudice
will generally
preclude the granting of the amendment. The
respondent’s arguments underpinning its contention that the
order of the Tax
Court is not appealable, exposes the absence of
prejudice were the amendment to be granted: the respondent argued
that the matter
was not appealable because the order of the Tax Court
was not final. As set out above, the contention that the Tax Court
could
find that all or part of the expenditure claimed is not
expenditure relating to prospecting or even capital expenditure, and
that
the Tax Court could refer the assessment back to the respondent
for further examination and assessment in terms of s 129 of
the
TAA, undermines the prejudice argument. As set out above, if the s
11(a) issue is going to be traversed anyway, it is difficult
to see
why the amendment should not be granted.
[92]
It thus follows that if the amendment is granted,
it is not, as argued by the respondent, that the respondent has to
meet a case
it did not have to meet prior to the amendment. On its
own argument, it acknowledges that the Tax Court has the powers to
make
orders in terms of s 129(2)(a), (b) and (c) and that it
would therefore have to deal with the nature of the expenditure with
all its nuances.
[93]
Put differently, the Tax Court will not be bound
by the incorrect legal conclusion apparently reached by KPMG (if that
is indeed
what it ultimately finds it to be). This is particularly
so, as the Tax Court has expressly been directed to s 11(a) of
the
ITA in paragraph 26 of the Rule 32 statement of grounds of
appeal.
[94]
The section 11(a) issue was properly raised by the
appellant as its second ground of objection to the respondent’s
findings
contained in its Audit Finalisation Letter during the
objection stage. The respondent had proper and sufficient opportunity
to
consider and determine the issue at that time already. The
respondent cannot contend to be either surprised or incurably
prejudiced
by the issue raised.
[95]
Furthermore, the appellant quite squarely claimed
in its founding affidavit in support of the amendment, that it would
be in the
interests of justice and also just and equitable to allow
the amendments with ‘regard
inter
alia
had to the Appellant’s
constitutional rights in respect of access to court, and to have its
dispute(s) resolved by the application
of law in a fair,
de
novo
hearing before a court of
competent jurisdiction.’ [Emphasis added.]
[96]
The appellant submitted that the respondent would
not be required to meet a new case. But even if it were, that would
not be a relevant
consideration in deciding whether the amendments
should be allowed. The overall burden of proof rests upon the
appellant to prove
its entitlement to deduct the qualifying
expenditure in terms of the appropriate and relevant sections of the
ITA. There would
be no onus on the respondent as a result of the
amendment.
[97]
Furthermore, the respondent never raised prejudice
in its initial objection to the notice of appeal; this was only
raised in the
heads of argument which shed some light on this aspect.
It records: ‘…if the amendment is allowed, SARS is
required
to deal with a different case than prior to the amendment
and SARS will not be put in the same position it was before the
amendments
were made….’. As emphasised previously, the
hearing before the Tax Court is a hearing
de
novo
, so there can be no talk of a
different case for which the respondent could not adjust its
pleadings, prepare, present and argue
its case as the case is only
just starting.
[98]
Should the amendment be allowed, the respondent
would be entitled to consequentially amend its Rule 31 statement or
file a Rule
33 reply. There is thus no prejudice of the sort relevant
during an amendment application. There will be a
de
novo
hearing with all the issues
clearly distilled, thereby ensuring that justice is done between the
parties with a full ventilation
of the issues, which is what the
interests of justice require.
[99]
The Tax Court found that no prejudice would result
if the amendment was granted, which finding is borne out by the
facts, as the
s 11(a) issue had already been dealt with by the
respondent.
[100]
The taxpayer in the Tax Court, save for certain
limited exceptions, is always saddled with a burden of proof to prove
deductibility
in the Tax Court litigation. It therefore does not lie
in the mouth of the respondent to argue that it is incurably
prejudiced
by this withdrawal of the admission (assuming it to be
that) as the appellant will have to prove everything it relied upon
in any
event, and the respondent will be able to present its case on
the point – provided it is properly pleaded in a consequential
amendment.
Authority
to interfere with finding of Tax Court and the issue of discretion
[101]
In
Oakdene
Square Properties v Farm Bothasfontein (Kyalami)
,
[37]
Brand JA discussed the authority of a court of appeal to interfere
with the exercise of a discretion by a lower court. He concluded
that
if the discretion is no more than a value judgment (also referred to
as a ‘wide discretion’ or a ‘discretion
in the
loose sense’), the court of appeal would be bound to interfere
if it differed from the finding of the court
a
quo.
[102]
The refusal of an
amendment is not a value judgment and therefore this Court may only
interfere if the Tax Court was influenced
by wrong principles of law,
or a misdirection of fact, or if it failed to exercise a discretion
at all. The reason for the limitation
being that, in an appeal
against the exercise of such discretion, the question is not whether
the lower court had arrived at the
right conclusion, but whether it
had exercised its discretion in a proper manner.
[38]
[103]
We have already dealt
with the wrong principles of law and the misdirection of facts which
would justify our interference,
[39]
but we may also do so for another reason.
[104]
The Tax Court did not
exercise a discretion at all. It recognised, in summarising the
relevant legal principles, that in exercising
the discretion it has,
it should lean in favour of granting the amendment in order to ensure
that justice is done between the parties
in deciding the real issues
between the parties, but then failed to exercise this discretion.
[40]
[105]
The failure to have done so entitles this Court to consider the
application for an amendment afresh.
[106]
This Court is accordingly entitled to exercise the discretion the Tax
Court failed to exercise. The absence
of prejudice to be suffered by
the respondent should the amendment be granted weighs so heavily in
favour of exercising the Court’s
discretion in favour of the
appellant, that it is difficult to conceive of factors which could
counter this.
[107]
The considerations in concluding that the interests of justice would
be served if the amendment were granted,
strongly feed into
exercising the discretion in favour of the appellant. In addition,
the Tax Court will consider the distilled
issues
de novo
and
will be called upon to determine the real issues between the parties
so that justice may be done. The matter has not started
yet so there
is no question of the re-opening of a case or the re-visiting of
evidence already led. Neither this Court nor the
Tax Court has made
any adverse findings in respect of the
bona fides
of the
appellant. As things stand on the papers, the receipt of the
‘incorrect’ advice (if that is what it is ultimately
found to be) stands uncontested.
[108]
Finally, in exercising the discretion in favour of the appellant, we
are mindful of the general tendency
in our courts that where an
amendment can be granted without prejudice, courts would generally do
so.
Conclusion
[109]
The appeal should therefore succeed with costs. However, in the Tax
Court, the appellant sought an indulgence,
did not adequately explain
the delay, and the respondent’s opposition in that court was
not frivolous or unreasonable. The
appellant should accordingly bear
the costs of that application.
Accordingly,
the following order is granted:
(a)
The appeal is upheld with costs, including the costs of two counsel
where
so employed;
(b)
The order of the Tax Court dismissing the appellant’s
application
for leave to amend its Rule 32 statement of grounds of
appeal is set aside and replaced with the following:
‘
1.
Leave is granted to the appellant to effect the proposed amendments
to its Rule 32 statement of grounds of appeal in terms of
appellant’s
notice in terms of Tax Court Rule 42(1) read with Uniform Rule 28(1),
dated 25 September 2020.
2. The appellant is
ordered to pay the costs of the application for amendment, including
the costs of two counsel where so employed.’
____________________________
SE
WEINER
JUDGE
OF THE HIGH COURT
GAUTENG
DIVISION, JOHANNESBURG
_____________________________
I
OPPERMAN
JUDGE
OF THE HIGH COURT
GAUTENG
DIVISION, JOHANNESBURG
____________________________
B
MAKOLA
ACTING
JUDGE OF THE HIGH COURT
GAUTENG
DIVISION, JOHANNESBURG
This
judgment was handed down electronically by circulation to the
parties’ and/or parties’ representatives by email
and by
being uploaded to CaseLines. The date and time for hand-down is
deemed to be 10h00 on
7 September 2021.
Date
of hearing:
21
May 2021
Date
of judgment:
7
September 2021
Appearances:
Counsel
for the appellant:
Adv. PA Swanepoel SC;
Adv. CA Boonzaaier
Attorney
for the appellant:
Edward Nathan Sonnenbergs Incorporated
Counsel
for the respondent:
Adv. AR Bhana SC;
Adv. L Haskins
Attorney
for the respondent:
State Attorney, Johannesburg
[1]
TAA
Rules in GN 550
GG
37819
of 11 July 2014, promulgated in terms of s 103 of the TAA.
[2]
Section
11, titled, ‘General deductions allowed in determination of
taxable income’ provides:
‘
For
the purpose of determining the taxable income derived by any person
from carrying on any trade, there shall be allowed as
deductions
from the income of such person so derived—
(a)
expenditure and losses actually incurred in the
production of the income, provided such expenditure and losses are
not of a capital
nature;
(b)
…’
[3]
See
Rule 31 and Rule 32 in footnote 21 below.
[4]
Black
Mountain Mining (Pty) Ltd v The Commissioner for the South African
Revenue Service
[2021]
ZATC 2.
[5]
South
Cape Corporation (Pty) Ltd v Engineering Management Services (Pty)
Ltd
1977
(3) SA 534
(A) at 549F–550A
[6]
See
paras [13]-[17]
above.
[7]
As
stated above,
s
117(3)
of the TAA provides that a Tax Court ‘may hear and decide an
interlocutory application or an application in a procedural
matter
relating to a dispute under this Chapter [Chapter 9] as provided for
in the “rules”.’
[8]
Hassim
v Commissioner, South African Revenue Services
[2002]
ZASCA 140; 2003 (2) SA 246 (SCA).
[9]
Ibid
paras 10-11.
[10]
Pretoria
Garrison Institutes v Danish Variety Products (Pty) Ltd
1948
(1) SA 839
(A) at 870, cited with approval in
South
Cape Corporation
(note
5 above) at 550B-C.
[11]
International
Trade Administration Commission v SCAW South Africa (Pty) Ltd
[2010]
ZACC 6
;
2012 (4) SA 618
(CC) paras 47-55
[12]
Zweni
v Minister of Law and Order
1993
(1) SA 523
(A) at 532I-533A.
[13]
SCAW
(note
11 above) para 49.
[14]
Ibid
paras 51-55 (footnotes omitted). See also
Velocity
Trade Capital (Pty) Ltd v Quicktrade (Pty) Ltd
[2019]
ZAWCHC 92; [2019] 4 All SA 986 (WCC).
[15]
Director-General,
Department of Home Affairs and Another v Islam and Others
[2018]
ZASCA 48
para 10 (footnotes omitted).
[16]
Phillips
and Others v National Director of Public Prosecutions
2003
(6) SA 447
(SCA).
[17]
Ibid
para 20.
[18]
Ibid
para 22.
[19]
Velocity
Trade Capital
(note
14 above) para 51.
[20]
FirstRand
Bank Limited t/a First National Bank v Makaleng
[2016]
ZASCA 169; [2016] JOL 36910 (SCA).
[21]
‘
Procedures
of tax court
31.
Statement of grounds of assessment and opposing appeal
(1)
SARS must deliver to the appellant a statement of
the grounds of assessment and opposing the appeal within 45 days
after delivery
of-
(a)
the documents required by SARS under rule 10(4);
(b)
if alternative dispute resolution proceedings
were followed under Part C, the notice by the appellant of
proceeding with the appeal
under rule 24(4) or 25(3);
(c)
if the matter was decided by the tax board, the
notice of a de novo referral of the appeal to the tax court under
rule 29(2);
or
(d)
in any other case, the notice of appeal under
rule 10.
(2)
The statement of the grounds of opposing the
appeal must set out a clear and concise statement of-
(a)
the consolidated grounds of the disputed
assessment;
(b)
which of the facts or the legal grounds in the
notice of appeal under rule 10 are admitted and which of those facts
or legal grounds
are opposed; and
(c)
the material facts and legal grounds upon which
SARS relies in opposing the appeal.
(3)
SARS may not include in the statement a ground
that constitutes a novation of the whole of the factual or legal
basis of the disputed
assessment or which requires the issue of a
revised assessment.
32.
Statement of grounds of appeal
(1)
The appellant must deliver to SARS a statement of
grounds of appeal within 45 days after delivery of-
(a)
the required documents by SARS, where the
appellant was requested to make discovery under rule 36(1); or
(b)
the statement by SARS under rule 31.
(2)
The statement must set out clearly and concisely-
(a)
the grounds upon which the appellant appeals;
(b)
which of the facts or the legal grounds in the
statement under rule 31 are admitted and which of those facts or
legal grounds
are opposed; and
(c)
the material facts and the legal grounds upon
which the appellant relies for the appeal and opposing the facts or
legal grounds
in the statement under rule 31.
(3)
The appellant may not include in the statement a
ground of appeal that constitutes a new ground of objection against
a part or
amount of the disputed assessment not objected to under
rule 7.
33.
Reply to statement of grounds of appeal
(1)
SARS may after delivery of the statement of
grounds of appeal under rule 32 deliver a reply to the statement
within –
(a)
15 days after the appellant has discovered the
required documents, where the appellant was requested to make
discovery under rule
36(2); or
(b)
20 days after delivery of the statement under
rule 32.
(2)
The reply to the statement of grounds of appeal
must set out a clear and concise reply to any new grounds, material
facts or applicable
law set out in the statement.’
[22]
YB
v SB and Others NNO
2016
(1) SA 47
(WCC) paras 9-11.
[23]
Trans-Drakensburg
Bank Ltd (under judicial management) v Combined Engineering (Pty)
Ltd and Another
1967
(3) SA 632
(D) at 640G–641B.
[24]
Ibid.
[25]
Myers
v Abramson
1951
(3) SA 438
(C) at 450A-B.
[26]
D E
van Loggerenberg et al
Erasmus:
Superior Court Practice
(RS15,
2020) at D1-333 – D1-334.
[27]
See
Erasmus:
Superior Court Practice
(note
26 above) (RS13, 2020) at D1-337 and the authorities cited therein.
[28]
The
rules regarding withdrawals of admissions refer to admissions on the
pleadings and not admissions
dehors
the
pleadings. See
Wild
Sea Construction (Pty) Ltd v Van Vuuren
1983
(2) SA 450
(C) at 452F.
[29]
Potters
Mill Investments 14 (Pty) Ltd v Abe Swersky & Associates and
Others
[2016]
ZAWCHC 5
;
2016 (5) SA 202
(WCC) at 205E–G, 205H–J,
207G–J and 209F–G. In this case the defendants, acting
on the advice of their
legal team, mistakenly admitted in their plea
that the law attached certain consequences to an event. When they
sought to withdraw
the admission by amending their plea, the
plaintiff objected, citing prejudice. The objection was rejected by
the court hearing
the defendants’ subsequent application for
leave to amend their plea, and the application was granted.
[30]
Black
Mountain Mining
(note
4 above) para 29.
[31]
Africa
Cash and Carry (Pty) Ltd v Commissioner, South African Revenue
Service
[2019]
ZASCA 148
;
2020 (2) SA 19
(SCA) para 52. See also
Silke
on Tax Administration
,
February 2020 (SI 12), at Chapter 5.12 where it is stated: ‘
...
the
Tax Court (unlike ordinary courts of appeal which are generally
confined to the record of the proceedings in the court a quo)
rehears the entire matter and can, if it so decides, substitute its
decision for that of the Commissioner. In so doing, the Tax
Court
may consider facts which were not placed before the Commissioner.’
[32]
See
Tikly
and Others v Johannes NO and others
1963
(2) SA 588
(T) at 590G, where the court discussed the different
connotations of the word ‘appeal’, and held that, ‘an
appeal in the wide sense, that is, a complete re-hearing of, and
fresh determination on the merits of the matter with or without
additional evidence or information…’
[33]
Section
10(2)(c)(ii) provides that: ‘A notice of appeal must specify
in detail any new ground on which the taxpayer is appealing’.
[34]
Government
of the Republic of South Africa and Others v Von Abo
[2011]
ZASCA 65
;
2011
(5) SA 262
(SCA) paras 18-19; and
Paddock
Motors (Pty) Ltd v Igesund
1976
(3) SA 16
(A) at 23E-F: ‘[I]t would create an intolerable
position if a Court were to be precluded from giving the right
decision
on accepted facts, merely because a party failed to raise a
legal point, as a result of an error of law on his part....’.
[35]
Commissioner
for the South African Revenue Service v Brummeria Renaissance (Pty)
Ltd and Others
[2007]
SCA 99 (ZASCA);
2007
(6) SA 601 (SCA).
[36]
Black
Mountain Mining
(note
4 above) para 42.
[37]
Oakdene
Square Properties (Pty) Ltd and Others v Farm Bothasfontein
(Kyalami) (Pty) Ltd and Others
[2013]
ZASCA 68
;
2013 (4) SA 539
SCA paras 18-20.
[38]
Ibid
para 18. See too
Mabaso
v Law Society of the Northern Provinc
es
and
Another
[2004]
ZACC 8
;
2005 (2) SA 117
(CC) para 20.
[39]
Paras [58] to [100]
hereof.
[40]
Black
Mountain Mining
(note
4 above) paras 9 & 12.