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[2016] ZAGPPHC 155
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Respublica v Commissioner for the South African Revenue Services (864/2014) [2016] ZAGPPHC 155; 78 SATC 368 (29 February 2016)
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IN THE HIGH COURT OF
SOUTH AFRICA
GAUTENG DIVISION,
PRETORIA
29/2/2016
Not
reportable
Not
of interest to other judges
Revised.
CASE NO:864/2014
In the matter between:
RESPUBLICA
(PTY)
LTD APPLICANT
and
THE
COMMISSIONER RESPONDENT
FOR
THE SOUTH AFRICAN
REVENUE
SERVICES
JUDGEMENT
SEMENYA AJ:
[1]
The applicant, Respublica (PTY) Ltd (Respublica) entered into a five
year lease agreement expiring on 31st December 2016 with
Tshwane
University of Technology (TUT) in respect an immovable property
situated at Erf […] Kwaggasrand, province of Gauteng.
The
property in question was let to TUT for the sole purpose of
accommodating its students.
[2]
The property is divided into smaller units which are fully furnished
with a kitchenette, bathroom and bedroom/ living area.
Respublica
supplies domestic goods and services in the form of water and
electricity, maintenance costs, management of the building,
a common
TV room and laundry services.
[3]
The monthly rental payable by TUT comprises of an amount of R1,
376,480, 00. It is recorded in the agreement that an amount
of R275.
00 is payable for utilities and shall be included in the monthly bed
rentals. The lease agreement allows TUT to accommodate
other people
during school holidays referred to as holiday users.
[4]
The dispute in these proceedings is between Resbuplica and The
Commissioner for the Receiver of Revenue (SARS). The question
being
whether-
(a)
In terms of the lease agreement, the
letting of accommodation by Respublica to TUT, comprise a taxable
supply of commercial accommodation
for value-added tax purposes and
Respublica is obliged to levy and account for VAT in accordance with
the Value-Added Tax Act 89
of 1991 on the rental payment it receives
as consideration; and;
(b)
as a consequence of the letting of
accommodation by Respublica to TUT, Respublica is liable to account
for VAT on only 60% of the
rental income it receives in accordance
with the provisions of section 10(10) of the Value-Added Tax Act 89
of 1991 (the Act).
[4]
The question arises from the wording of section 10 (10) of the Act
which provides as follows:
"Where
domestic goods and services are supplied at an all-inclusive
charge in any enterprise supplying commercial accommodation for an
unbroken period of exceeding 28 days, the consideration in money is
deemed to be 60 per cent of the all-inclusive charge.”
[5]
In addition to section 10(10), the Act defines commercial
accommodation in section 1 as:
commercial
accommodation:
"(a)
Lodging, board and lodging, together with domestic goods and
services, in any house, flat, apartment, room, hotel, motel,
inn,
guest house, boarding house, residential establishment, holiday
accommodation unit, chalet, tent, caravan, camping site, houseboat
or
similar establishment, which is regularly and systematically supplied
and where the total annual receipt from the supply
thereof
exceed
R60.000 in
a
period of 12 months or is reasonably
expected to exceed
that
amount in
a
period
of 12 months, but excluding
a
dwelling
in terms of an agreement for the letting and hiring thereof;
(b)
Lodging or board and lodging in
a
home
for the aged, children,
physically
and mentally handicapped parson; and
(c)
Lodging and board and lodging in a hospice.”
Furthermore
domestic goods and services are defined as:
"(a) cleaning and
maintenance;
(b) electricity, gas,
air-conditioning or heating ;
(c)
a
telephone,
television set,
a
radio
or similar article;
(d) furniture and
fittings;
(e) meals"
(f) laundry; or
(g)
nursing services.”
[6]
Respublica seeks a declaratory order to the effect that its supply to
TUT is that of commercial accommodation and that it is
liable to
account for 60% of the rental it receives.
[7]
The respondent is opposing the application on the bases that this
court lacks the necessary jurisdiction to hear the matter
as such
matters should be dealt with in terms of the
Tax Administration Act
28 of 2011
. It also contends that the merits of the application are
not in favour the order sought.
[8]
I agree with Respublica that the
Tax Administration Act does
not oust
this court's jurisdiction to hear the application as this matter
involves a question of law and also because there is
no disputed
assessment in respect of which it could raise an objection-
Metcash
Trading Ltd v C: SARS
2001 (1) SA 1109
(CC)
[9]
The parties agree that the issue revolves around interpretation of
the relevant sections of the Act.
[10]
A proper manner of interpretation of statutes has been enunciated as
follows in
Natal Joint Municipal Pension Fund v Endumenl
Municipality
2012 (4) SA 593
(SCA):
(
Emdumeni)
"Interpretation
is the process of attributing meaning to the words used in
a
document, be it legislation, some other
statutory instrument, or contract, having regard to the context
provided by 188ding the
particular provision or provisions in the
light of the document
as a
whole
and the circumstances attendant upon its coming into existence.
Whatever the nature of the document, consideration must be
given to
the language used in the light of the ordinary rules of grammar and
syntax; the context in which the provision appears;
the apparent
purpose to which it is directed and the
material known to those responsible for
its production. Where more than one
meaning is possible each possibility
must be weighed in the light of all these factors. The process is
objective, not subjective.
A sensible meaning is to be preferred to
one that leads to insensible or unbusinness like results or
undermines the apparent purpose
of the document. Judges must be alert
to, and guard against, the temptation
to substitute what they regard
as
188sonable, sensible or businesslike for
the words actually used. To do so in regard to
a
statute or statutory instrument Is to
cross the divide between interpretation and legislation; in a
contractual context it is to
make
a
contract for the parties other than the
one they in fact mads. The 'inevitable point of departure is the
language of the provision
itself, reed in context and having regard
to the purpose of the provision and the background to the preparation
and production
of the document.”
[11]
It was contended on behalf of SARS that the application cannot
succeed based of the following:
11.1.
That the dictionary meaning of the word
"lodging,• as it appears in the definition of commercial
accommodation in the
Act, should be interpreted to refer to a natural
person . That on this basis, TUT, not being a natural person, cannot
lodge in
the premises supplied by the applicant.
11.2.
That there is no
nexus
between Respublica and the students
upon which it can be argued that the students are lodgers in the
leased premises.
11.3.
That TUT should be regarded as a tenant and
not as a lodger.
11.4.
That since the dictionary meaning of
lodging is "temporary accommodation", it cannot be said
that a contract between TUT
and Respublica, which is for a period of
five years, qualifies to be of lodging.
11.5.
That utilties are paid separately from the
rental, and cannot be considered to be part of all-inclusive charge
as envisaged in section
10 (10) of the Act.
[12]
Respublica on the other hand argued that it supplies commercial
accommodation on the following bases:
12.1.
That the students are an integral part of
the lease agreement and are required to abide by its terms. The
premises are let to TUT
for the sole purpose of accommodating its
students.
12.2.
That the students only occupy the rooms
during the term and go to their respective homes during holidays
making their stay a temporary
one.
12.3.
That there is no clause in the Act that
stipulates that a lodger can only be a natural person.
12.4.
That Respublica does provide domestic goods
and services to the students.
12.5.
That SARS interpretation of the phrase
"commercial accommodation" is too restrictive and that the
application is not about
the meaning of the word "lodging".
[13]
As the issues revolve around the interpretation of the Act, Iam of
the view that the correct approach would be to interpret
its relevant
sections in conjunction with the agreement between Respublica and
TUT.
[14]
In my view, SARS's reliance on the sterile dictionary meaning of the
word lodger and lodging is faulty as it ignores the purpose
for which
the property was let to TUT being to accommodate students. That the
students are indeed lodging in the property is not
in dispute. I
agree with Respublica that a
nexus
between the lessor and the
end user is not a requirement for the supply of commercial
accommodation.
[15]
The argument·that the lease was for a fixed period of five
years and not temporary in line with the meaning of the word
lodging
cannot stand as it loses sight of the purpose for which the agreement
was made. It is an undisputed fact that the students
go home during
holidays and do not occupy the same room during their stay with TUT.
The students do not occupy the property continuously
for the entire
period of the lease.
[15]
TUT students stay in the premises for a period longer than 28 days.
[16]
The agreement between Respublica and TUT clearly stipulates that the
amount of R275.00 payable for utilities is part of the
allinclusive
charge. I see no reason why I should disregard their intention as per
the agreement.
[17]
It is common cause that Respublica supplies domestic goods and
services as defined in the Act for use by the lodgers.
[18]
The method of interpretation suggested by SARS is indeed restrictive
and if applied, will result in absurdity. It cannot be
said that the
legislature imagined a situation where educational institutions would
be in a position to own sufficient properties
to accommodate all
their students. A need to outsource this function from those who deal
in property will always arise. I am of
the view that the words used
in the definition of "commercial accommodation" must be
read in conjunction with the purpose
for which the property was let
to TUT. It would result in the most sensible meaning which is in the
interest of commerce-Emdumeni.
A literal manner of interpretation
alone, as suggested by SARS will not make the co-business of TUT and
other educational institutions
easy. It also overlooks the expenses
landlords incur in maintaining buildings occupied by students.
[19]
The following order is made:
1.
It is declared that the letting of
accommodation by Respublica to TUT in terms of the lease agreement
comprises of a taxable supply
of commercial accommodation for value
-added tax purposes and Respublica is obliged to levy and account for
VAT in accordance with
the Value-Added Tax 89 of 1991 on the rental
payments it receives as consideration
2.
Respublica is liable to account for VAT on
only 60% of the rental it receives in accordance with section 10 (10)
of the Act.
ACTING JUDGE OF THE
HIGH OF
SOUTH AFRICA, GAUTENG
DIVISION, PRETORIA
FOR THE APPLICANT:
ADV. JC VILJOEN
INSTRUCTED
BY:LIEZENBERG MALAN
FOR THE RESPONDANT:
ADV.
INSTRUCTED BY:BOSMAN
ATTORNEYS
DATE OF HEARING:
DATE OF JUDGMENT: