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[2007] ZASCA 99
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Commissioner for the South African Revenue Service v Brummeria Renaissance (Pty) Ltd and Others (391/06) [2007] ZASCA 99; [2007] 4 All SA 1338 (SCA); 2007 (6) SA 601 (SCA); 69 SATC 205 (13 September 2007)
THE SUPREME COURT OF APPEAL
OF SOUTH AFRICA
Case number : 391/06
Reportable
In the matter between :
THE COMMISSIONER FOR THE SOUTH AFRICAN REVENUE SERVICE
.......................
APPELLANT
and
BRUMMERIA RENAISSANCE (PTY) LTD
.......................
FIRST RESPONDENT
PALMS RENAISSANCE (PTY) LTD
.......................
SECOND RESPONDENT
RANDPOORT RENAISSANCE (PTY) LTD
.......................
THIRD RESPONDENT
CORAM : SCOTT, CLOETE, VAN HEERDEN JJA,
KGOMO
et
MHLANTLA AJJA
HEARD : 24 AUGUST 2007
DELIVERED : 13 SEPTEMBER 2007
Summary: Income tax ─ Act 58
of 1962 ─The right to use loans interest-free is
‘
gross
income’ which ‘accrues’ to a taxpayer; the effect
of ss 79(1), 81(4) and 81(5) discussed.
Neutral citation: This judgment may be referred to as
Commissioner, SARS v Brummeria
Renaissance (Pty) Ltd
[2007] SCA 99
(RSA).
_________________________________________________________
JUDGMENT
CLOETE JA
/
[1] The appellant is the Commissioner for the South
African Revenue Service. The first to third respondents are
respectively Brummeria
Renaissance (Pty) Ltd, Palms Renaissance (Pty)
Ltd and Randpoort Renaissance (Pty) Ltd (‘the companies’).
The companies
have since 1988 developed retirement villages as
contemplated in the Housing Development Schemes for Retired Persons
Act.
1
[2] The Commissioner issued assessments, then revised
assessments and subsequently, further revised assessments to the
companies as
follows: Brummeria, for the years 1996 to 2000; Palms,
for the years 1994 to 2000; and Randpoort, for the years 1995 to
2000. It
is the further revised assessments which are in issue in
these proceedings.
[3] During the relevant years the companies entered into
written agreements with potential occupants of units still to be
constructed
in retirement villages. The salient features of these
agreements were the following:
(a) each company obtained an interest-free loan from a
potential occupant in order to finance the construction of a unit in
a particular
retirement village by the company in question;
(b) a debenture was issued to the lender acknowledging
the loan, the title deeds of the property forming the subject matter
of the
development were endorsed and a covering bond was registered
as further security in favour of the lenders;
(c) the lender was granted the right of lifelong
occupation of the unit, whilst ownership remained with the company;
and
(d) the company was obliged to repay the loan to the
occupant upon cancellation of the agreement, or upon the occupant’s
death.
The standard agreement entered into with each occupier
provided in terms that the interest-free loans constituted the
consideration
for the life rights: ‘Lewensreg’ was
defined as
‘
Die
reg van die okkupeerder om die eenheid te okkupeer en die fasiliteite
te gebruik, onderworpe aan die reels vanaf datum van okkupasie
tot
datum van beëindiging, as teenprestasie vir die lening en
onderworpe aan die betaling van maandelikse heffings en spesiale
heffings’;
clause 6.4 provided:
‘
As
teenprestasie vir die lening onderneem die maatskappy om aan die
okkupeerder lewensreg van die eenheid te verleen . . . ‘;
and clause 8.1 provided:
‘
Die
grondslag van hierdie ooreenkoms is lewensreg teen ‘n lening
met sekuriteit. . . ‘.
[4] Mr Pauw, who was called by the companies, testified
that the interest-free loans were utilized solely as the source of
financing
by the companies for the development of the units; that
nothing was invested in income-earning investments; that repayment of
a loan
was financed by the granting of a new loan (presumably by a
new occupier of the relevant unit); and that the intention of the
companies
was ultimately to sell the units at a profit.
[5] In the further revised assessments amounts equal to
the value of the rights of the companies to use the funds advanced to
them
as interest-free loans were included in the companies’
gross income. Such amounts were determined by applying the weighted
prime overdraft rate for banks to the average amount of the
interest-free loans in the possession of the particular company in
the
relevant year of assessment. The statement of the grounds of
assessment delivered by the Commissioner in terms of rule 10 of the
tax rules (made in terms of s 107A of the Income Tax Act 58 of 1962)
2
reads as follows:
’
11.
In the case of a developer conducting a housing scheme for retired
persons, the capital of the developer is the property units.
The
property units are employed in its business by either:
selling the units under sectional
title to the purchasers; or
granting the use (occupation) of
the units to the occupiers by way of selling life rights to the
occupiers.
12. The
quid
pro quo
which the developer received in
return is, respectively:
12.1 the selling price obtained from the
purchasers, in respect of the disposal of the units under sectional
title; or
12.2 the benefit of the rights to
interest free loans obtained from the occupiers, in respect of the
disposal of the life rights to
occupy the units.
13. The benefit received in exchange for
the provision of occupation rights has an ascertainable money value
and accordingly falls
within the definition of “gross income”
of the Act.
14. As income tax is calculated on an
annual basis, an annual value is placed on the benefit referred to
above. The value of the benefit
is determined by applying the
weighted prime overdraft rate of banks to the average loan capital
over the period for which the developer
had the use of the loan
capital during that specific year of assessment.
15. The money value of the benefit of the
interest free loans accrues to the developers, and as such fall
within “gross income”
as defined in section 1 of the
Act.’
[6] The companies raised several grounds in their
statement of grounds of appeal in terms of rule 11 of the tax rules.
Two remain
relevant:
(a) All of the companies contended that the
interest-free loans did not result in any ‘amounts’ being
‘received
by’ them, as contemplated in the definition of
‘gross income’ in s 1 of the Act, and accordingly that
the amounts
included in their gross income, calculated on the basis I
have already set out, were wrongly so included; and
(b) Brummeria contended that s 79(1) of the Act
precluded the Commissioner from raising the further revised
assessments which the
Commissioner had raised against it.
[7] The Johannesburg Tax Court, presided over by
Goldblatt J, upheld the appeals by the companies on the first ground
and accordingly
found it unnecessary to consider the additional
ground raised by Brummeria. Goldblatt J subsequently granted the
Commissioner leave
to appeal to this court in terms of s 86A(5) of
the Act.
[8] The relevant part of the definition of ‘gross
income’,
3
in relation to any year or period of assessment, was at
the time:
‘
.
. . the total amount, in cash or otherwise, received by or accrued to
. . . [the taxpayer] during such year or period of assessment
from a
source within the Republic, excluding receipts or accruals of a
capital
nature . . . ‘.
[9] It is important to emphasise that the Commissioner
did not contend that the actual receipt of the loan capital resulted
in the
receipt of amounts for the purposes of the definition of gross
income ─ and rightly so, as it has been decided in this court
that a receipt of loan capital, as such, is not a receipt for the
purposes of such definition:
Commissioner for
Inland Revenue v Genn & Co (Pty) Ltd
;
4
Commissioner for Inland Revenue v Felix Schuh (SA)
(Pty) Ltd
.
5
The Commissioner’s case is that it was the right
to retain and use the loan capital,
interest-free
,
for the relevant periods, which constituted the right which had an
ascertainable money value and which accrued to the companies.
[10] Counsel for the companies sought to argue in this
court that the right which the Commissioner sought to include in the
companies’
taxable incomes was of a capital nature. This
question was not an issue before the tax court. Tax rule 10(1)
provides that the Commissioner
must deliver to the taxpayer a
statement of the grounds of assessment and sub-rule (3) provides that
the statement of the grounds
of assessment must be in writing, be
signed by the Commissioner or his or her representative and must be
divided into paragraphs
─
‘
(a)
setting out a clear and concise statement of the grounds upon which
the taxpayer’s objection is disallowed; and
(b) stating the material facts and legal
grounds upon which the Commissioner relies for such disallowance.’
Tax rule 11(1) provides that the taxpayer must deliver
to the Commissioner a statement of the grounds of appeal. Sub-rule
(2) provides
that the statement must be in writing and be signed by
the appellant or his or her representative and must be divided into
paragraphs
─
‘
(a)
setting out a clear and concise statement of the grounds upon which
the appellant appeals;
(b) stating the material facts and legal
grounds upon which the appellant relies for such appeal; and
(c) stating which of the facts and legal
grounds alleged in the statement of the grounds of assessment are
admitted and which of those
facts and legal grounds are denied.’
Tax rule 12 provides that the issues in any appeal to
the court ‘will be those defined in the statement of the
grounds of assessment
read with the statement of the grounds of
appeal’. Tax rule 13 provides:
‘
(1)
The Commissioner and the appellant may agree in writing to the
amendment of the statement of the grounds of assessment or the
statement of grounds of appeal or both.
(2) The Court, consisting of the
President sitting alone, may, on application on notice grant leave to
amend the statement of the
grounds of assessment or the statement of
grounds of appeal, subject to such orders as to postponement and
costs as the Court deems
appropriate.’
The companies did not, in their statement of grounds of
appeal in terms of rule 11 of the tax rules, raise as an issue the
question
whether the rights which the Commissioner sought to include
in their taxable incomes was of a capital nature and neither
procedure
contemplated in tax rule 13 was followed. The issue cannot
accordingly be pursued before this court.
[11] I turn to consider the first ground of appeal, ie
whether the rights to use the loans interest free constituted
‘amounts’
which ‘accrued to’ the companies.
The word ‘amount’ and the phrase ‘accrued to’
were interpreted
by Watermeyer J writing for the full court of the
Cape Provincial Division in
Lategan v
Commissioner for Inland Revenue
6
and both interpretations were approved by this court in
Commissioner for Inland Revenue v People’s
Stores (Walvis Bay) (Pty) Ltd
.
7
The law was restated by this court in
Cactus
Investments (Pty) Ltd v Commissioner for Inland Revenu
e.
8
Hefer JA, who wrote both judgments in this court, summed
up the law in
Cactus Investments
by
saying that the definition of gross income
‘
includes,
as explained in
Commissioner
for Inland Revenue v People’s Stores (Walvis Bay) (Pty) Ltd
[1990] ZASCA 1
;
1990 (2) SA 353
(A), not only
income actually received, but also rights of a non-capital nature
which accrued during the relevant year and are capable
of being
valued in money’
9
and that
‘
The
judgment in the
People’s
Stores
case
tells us that no more is required for an accrual than that the person
concerned has become entitled to the right in question.’
10
[12] The Commissioner’s counsel submitted on the
authority of the decisions to which I have just referred that the
right to
retain and use the borrowed funds without paying interest
had a money value, and accordingly that the value of such right must
be
included in the companies’ gross incomes for the years in
which such rights accrued to the companies. I agree. This court has
held that the making of an interest-free loan constitutes a
continuing donation to the borrower which confers a benefit upon such
borrower:
Commissioner for Inland Revenue v
Berold
.
11
Indeed, it can hardly be doubted that, in the modern
commercial world, a right to retain and use loan capital for a period
of time,
interest-free, is a valuable right. The basis upon which the
Commissioner valued that right in each particular year of assessment
in the further revised assessments, was not challenged on appeal.
[13] It was submitted on behalf of the companies that
the rights so valued by the Commissioner could not be turned into
money by the
companies and therefore did not fall within the ambit of
the decision of this court in the
People’s
Stores
case. For this proposition, counsel
for the companies relied on the decision of the full court of the
Cape Provincial Division in
Stander v
Commissioner for Inland Revenue
12
and the decision of the House of Lords to which it
refers,
13
namely,
Tennant v Smith (Surveyor
of Taxes)
.
14
[14] In
Stander’s
case the taxpayer received an overseas trip as a prize
and the Commissioner sought to include the value of the prize in his
taxable
income. The prize was awarded by Delta Motor Corporation
(Pty) Ltd, which was not Stander’s employer. Friedman JP
writing for
the full court held:
15
‘
The
question, then, is whether the prize of an overseas trip constitutes
“property”, ie did Stander, by being given this
trip,
acquire a right which had a monetary value in his hands.
The promise by Delta to give Stander an
overseas trip amounted to an executory donation. At common law the
promise by Delta gave Stander,
on acceptance by him of the promise, a
personal right to compel performance by Delta. However, by virtue of
s 5 of the General Law
Amendment Act 50 of 1956
“
no
executory contract of donation . . . shall be valid unless the terms
thereof are embodied in a written document signed by the donor”.
The terms of the donation were not
embodied in a written document signed by Delta. Consequently Delta’s
offer of an overseas
trip did not give rise to a valid contract of
donation which was enforceable by Stander and Stander cannot be said
to have acquired
a “right” even if a monetary value could
be placed on the the trip he received. However, once he had embarked
upon the
trip, the donation was no longer executory and the question
then is whether a value could be placed on what Stander received by
going
on the trip. The answer to this question is, in my view, in the
negative. Having gone on the trip he had not received any “property”
on which a monetary value could be placed in his hands. He was no
more able to turn it into money or money’s worth after
accepting
the award, than he was at the time when the donation was
still at the executory stage.’
The learned Judge President then went on to deal with
ITC 701,
16
decided by Conradie J in the Special Court, and said the
following:
17
‘
Conradie
J, in delivering the judgment of the Special Court, accepted the
principle that in order to fall within the tax net, receipts
or
accruals other than money had to have a money’s worth. However
Conradie J rejected the argument that only benefits which
a taxpayer
can turn into money can be said to have a money’s worth. He
stated that there was no warrant for such a restricted
form of
valuation and held that a service which is available in the market
place has a value attached to it by the market. That,
he stated, was
the value of the benefit which anyone who availed himself of the
service, enjoys. In other words, one simply looks
at what the
consumer of the service would have had to pay for it if he had not
been given it for nothing.
With respect to the learned
Judge, this approach fails to take account of the impact of
Watermeyer J’s judgment in
Lategan’s
case
supra
,
as approved by the Appellate Division in the
People’s
Stores
case
supra
.
Having regard to the conditions applicable to the enjoyment of the
award, the overseas trip had no “value” in Stander’s
hand which brought it within the terms of para (
c
)
of the definition of “gross income”.
I did not understand Mr
De
Haan
, who appeared for the Commissioner, to
contend that in order to
qualify
as an “amount” for the purposes of para (
c
),
18
it was not necessary for the award to consist of
“money’s worth”. He submitted that in order to
determine “money’s
worth” an objective value had to
be placed on the award. By “objective value”, he argued,
was meant “market
value”.
I do not agree. If the award
cannot be said to consist of “money’s worth” it
does not qualify for inclusion in terms
of para (
c
).
Nor, in my judgment, is there any basis upon which, on the facts of
this case, “money’s worth” can be attributed
to
Stander’s prize by seeking to place an “objective”
or “market value” on it. Whatever it cost Delta,
or
whatever a person who wished to go on such a trip would have had to
pay for it, does not constitute an amount which can be said
to have
money’s worth in Stander’s hands.’
[15] The views of the learned Judge President are
contrary to what this court had previously held in the
People’s
Stores
case, restated in
Cactus
Investments
. The passage in
Cactus
Investments
has already been quoted in para
[11] above: according to that decision, all that is required is that
rights of a non-capital nature
‘are capable of being valued in
money’. The relevant passage in the
People’s
Stores
case
19
is the following:
‘
It
must be emphasised that income in a form other than money must, in
order to qualify for inclusion in the “gross income”,
be
of such a nature that a value can be attached to it in money. As
Wessels CJ said in the
Delfos
case
20
supra
at 251:
“
The
tax is to be assessed in money on all receipts or accruals having a
money value. If it is something which is not money’s
worth or
cannot be turned into money, it is not to be regarded as income.”
(See also
Mooi
v Secretary for Inland Revenue
21
(
supra
at
683A-F).) On the other hand, the fact that the valuation may
sometimes be a matter of considerable complexity (cf the
Lace
Proprietary Mines
case
22
supra
at 279-81) does not
detract from the principle that all income having a money value must
be included.’
It is clear from the passage quoted from the judgment of
Hefer JA, as well as the passage quoted by him from the judgment of
the Chief
Justice in the
Delfos
case, that the question whether a receipt or accrual in
a form other than money has a money value is the primary question and
the
question whether such receipt or accrual can be turned into money
is but one of the ways in which it can be determined whether or
not
this is the case; in other words, it does not follow that if a
receipt or accrual cannot be turned into money, it has no money
value. The test is objective, not subjective. It is for that reason
that the passages quoted from the
Stander
case incorrectly reflect the law and the reasoning of
Conradie J in ITC 701 was correct. The question cannot be whether an
individual
taxpayer is in a position to turn a receipt or accrual
into money. If that were the law, the right to live in a house
rent-free,
or to drive a motor vehicle without paying for it, for
example, could be rendered tax-free by the simple expedient of
limiting the
right to exercise such benefit to the recipient ─
which manifestly is not the case.
[16] Nor is the decision of the House of Lords in the
Tennant
case authority
for the companies’ argument. That case turned on the provisions
of the income tax legislation applicable in England
at the time,
which were very different from the meaning which this court has held
must be given to the definition of gross income
in the South African
statute. The position as it was in England appears from the following
passage in the speech of Halsbury LC:
23
‘
Now,
Mr. Tennant occupies this house without paying any rent for it. It
may be conceded that if he did not occupy it under his contract
with
the bank rent free, he would be obliged to hire a house elsewhere,
pay rent for it, and pro tanto diminish his income. And if
any words
could be found in the statute which provided that besides paying
income tax on income, people should pay for advantages
or emoluments
in its widest sense (such as I think the word “emoluments”
here has not, for reasons to be presently given),
there is no doubt
of Mr. Tennant’s possession of a material advantage, which
makes his salary of higher value to him than if
he did not possess
it, and upon the hypothesis which I have just indicated would be
taxable accordingly.’
The law in South Africa appears from the following
passage in the
People’s Stores
case:
24
‘
The
first and basic proposition [in
Lategan’s
case
25
]
is that income, although expressed as an
amount
26
in the definition, need not be
an actual amount of money but may be
“
every
form of property earned by the taxpayer, whether corporeal or
incorporeal, which has a money value . . . including debts and
rights
of action”
(
per
Watermeyer J at 209).
This proposition is
obviously correct so that very little need be added to what
Watermeyer J himself said in support thereof. It is
hardly
conceivable that the Legislature could not have been aware of, or
would have turned a blind eye to, the handsome profits often
reaped
from commercial transactions in which money is not the medium of
exchange. Consider, for example, the many instances of valuable
property changing hands, not for money, but for shares in public or
private companies; or share-cropping agreements, dividends in
the
form of bonus shares, or
remuneration for
services in the form of free or subsidised housing
27
and the use of motor vehicles. These are only a few of
the many possible illustrations that readily come to mind and which,
as we
know, have not been overlooked by the Legislature.’
[17] Counsel for the companies submitted that the phrase
relating to free or subsidised housing that I have emphasised in the
passage
just quoted from the
People’s
Stores
case and the further statement that
such a benefit has ‘not been overlooked by the Legislature’
must be taken as a reference
to paragraph (i) of the definition of
gross income
28
and to the Seventh Schedule to the Act; and that unless
a benefit of the nature contemplated falls within those provisions,
it is
not taxable. I cannot agree. Those provisions were inserted
into the Act not because such benefits are not otherwise taxable, but
to put beyond doubt what benefits are taxable and, equally
importantly, to determine how their value is to be assessed for the
purpose
of calculating the tax to be deducted by an employer from an
employee’s remuneration.
29
It is clear from the
People’s
Stores
and
Cactus
Investments
cases that the word ‘amount’
in the definition of gross income is to be interpreted widely.
[18] The Tax Court held that the companies received no
monies on loan which were used to produce any income, and that the
Commissioner
had therefore assessed the companies on notional income.
It is true that had the companies invested the amounts lent, the
income
so derived would also have formed part of their gross incomes.
But that is beside the point. The Commissioner did not seek to tax
the companies on this basis. Nor is the fact that the companies were
unable to make such investments but were obliged to use the
loans for
the purposes of developing the units relevant, as submitted on behalf
of the companies. The Commissioner taxed the companies
on the basis
of the benefit consisting in the right to use the loans without
having to pay interest on them. That benefit remained,
whatever the
companies did or did not do with the loans. Furthermore, no question
of double taxation would arise, as suggested on
behalf of the
companies, if the amounts lent were to have been invested so as to
produce interest ─ in such a case there would
be two separate
and distinct receipts or accruals, each of which would fall to be
included in the companies’ gross incomes.
[19] The Tax Court also held that the benefit included
by the Commissioner in the companies’ gross incomes had no
existence
independent from the liability to repay the monies
borrowed; that it could not be transferred or ceded; and that it
‘clearly
has no money value’. This reasoning loses sight
of the fact that if a right has a money value ─ as the right in
question
did, for the reasons I have given ─ the fact that it
cannot be alienated does not negate such value. The contrary view
articulated
in
Stander’s
case
is wrong.
[20] I therefore conclude that the first ground of
appeal raised by the companies should have been dismissed by the Tax
Court. The
second ground of appeal, that the Commissioner was
precluded by s 79(1) from issuing the further revised assessments,
concerns Brummeria
only and is limited to the tax years 1996 to
1999.
30
The chronology relevant to this question is the
following:
(a) On 13 March 2000 the Commissioner issued original
assessments to Brummeria for the 1996, 1997, 1998 and 1999 years of
assessment.
(b) On 3 March 2002 the Commissioner issued revised
assessments. The basis of these revised assessments was that the
interest-free
loans received in exchange for the granting of
occupation rights constituted ‘gross income’.
(c) In terms of a letter dated 19 April 2002 Brummeria
objected to the revised assessments inter alia on the ground that the
amounts
borrowed by it were not received by and did not accrue to it
for the purposes of the definition of gross income.
(d) On 1 July 2004 and consequent upon the objection the
Commissioner issued further revised assessments ─ the
assessments with
which this appeal is concerned. The basis of these
assessments, as I have already said, was that the value of the
benefit of the
right to utilise the amounts lent without paying
interest, constituted gross income.
[21] The relevant provisions of ss 79(1), 81(4) and (5)
of the Act read at the time as follows:
‘
79(1)
If at any time the Commissioner is satisfied ─
(a) that any amount which was subject to
tax and should have been assessed to tax under this Act has not been
assessed to tax; or
(b) that any amount of tax which was
chargeable and should have been assessed under this Act has not been
assessed; or
(c) . . .
he shall raise an assessment or
assessments in respect of the said amount or amounts, notwithstanding
that an assessment or assessments
may have been made upon the person
concerned in respect of the year or years of assessment in respect of
which the amount or amounts
in question is or are assessable, and
notwithstanding the provisions of sections 81(5) and 83(18): Provided
that the Commissioner
shall not raise an assessment under this
subsection ─
(i) after the expiration of three years
from the date of the assessment (if any) in terms of which any amount
which should have been
assessed to tax under such assessment was not
so assessed or in terms of which the amount of tax assessed was less
than the amount
of such tax which was properly chargeable, unless the
Commissioner is satisfied that the fact that the amount which should
have been
assessed to tax was not so assessed or the fact that the
full amount of tax chargeable was not assessed, was due to fraud or
misrepresentation
or non-disclosure of material facts. . .’.
‘
81(4)
The Commissioner may on receipt of a notice of objection to an
assessment alter the assessment or may disallow the objection
and
shall send to the taxpayer or his or her representative notice of
such alteration or disallowance, and record therein any alteration
or
disallowance made in the assessment.
(5) Where no objections are made to any
assessment or where objections have been allowed in full or
withdrawn, such assessment or
altered assessment, as the case may be,
shall be final and conclusive.’
[22] Section 81(5) deals with three situations:
(a) Where no objections are made to any assessment; the
assessment then becomes final and conclusive.
(b) Where objections are made but have been withdrawn;
the assessment then similarly becomes final and conclusive.
(c) Where objections are made and have been allowed in
full; the altered assessment then becomes final and conclusive.
[23] Broadly stated, the effect of s 79(1) read with s
81(5) is as follows. In the circumstances contemplated in paragraphs
(a), (b)
and (c) of the former section, the Commissioner is obliged
to raise an assessment:
(a) even if previous assessments have been made and
(b) even if
(i) no objections are made to any assessment
(ii) objections have been allowed in full or
(iii) objections have been withdrawn;
but the Commissioner may not do so if the defined three
year period has elapsed, unless he is satisfied that there was fraud,
misrepresentation
or non-disclosure. In other words, if (inter alia)
an objection is allowed in full and the three year period has
elapsed, the Commissioner
cannot raise an assessment (absent fraud or
one of the specified irregularities).
[24] Counsel for Brummeria submitted that the
Commissioner, in changing the basis of assessment in the first
revised assessments pursuant
to its objection, allowed its objection
in full as contemplated in s 81(5); that the further revised
assessments, to the extent that
they set aside the revised
assessments, had the effect of reinstating the original assessments;
that because three years had elapsed
since the original assessments
had been issued, those assessments had become final and conclusive as
contemplated in s 81(5); and
that s 79(1) accordingly precluded the
Commissioner from raising the assessments which he did in the further
revised assessments.
[25] The Commissioner’s counsel submitted that the
Commissioner was entitled to alter the revised assessments by issuing
the
further revised assessments as this was done after receipt of an
objection and s 81(4) in terms permits him ‘on receipt of
a
notice of objection to an assessment’ to ‘alter the
assessment’; and further, that the three year period
contemplated
in s 79(1) ran not from the date of the original
assessments, but from the date of the revised assessments (which was
less than three
years before the further revised assessments were
issued).
[26] It seems to me that these competing contentions
must be resolved by having regard to the purpose underlying ss 79(1)
and 81(5),
which is obviously to achieve finality. To uphold either
of the Commissioner’s contentions would undermine that purpose.
It
is obviously in the public interest that the Commissioner should
collect tax that is payable by a taxpayer. But it is also in the
public interest that disputes should come to an end ─
interest
reipublicae ut sit finis litium
; and it would
be unfair to an honest taxpayer if the Commissioner were to be
allowed to continue to change the basis upon which the
taxpayer were
assessed until the Commissioner got it right ─ memories fade;
witnesses become unavailable; documents are lost.
That is why s 79(1)
seeks to achieve a balance: it allows the Commissioner three years to
collect the tax, which the legislature
regarded as a fair period of
time; but it does not protect a taxpayer guilty of fraud,
misrepresentation or non-disclosure. If either
of the Commissioner’s
arguments were to be upheld, this balance would be unfairly tilted
against the honest taxpayer.
[27] In my view, once the Commissioner changed the
entire basis of the assessment in the further revised assessments, he
allowed Brummeria’s
objection to the revised assessments in
full as contemplated in s 81(5) and, as no fraud, misrepresentation
or non-disclosure is
relied upon, that is the end of the matter. I
therefore consider that the Commissioner was precluded by the
provisions of s 79(1)
read with s 81(5) of the Act from raising the
assessments against Brummeria for the tax years 1996, 1997, 1998 and
1999 which he
did in the further revised assessments.
[28] Counsel representing the companies sought to raise
a further issue, namely, that the Commissioner’s refusal to
direct that
interest should not be paid by the companies on the tax
attributable to the inclusion of the value of the right to use the
amounts
of the loans without paying interest (as he has the power to
do in terms of s 89
quat
)
should be set aside (in terms of s 89
quat
(5)). This issue can be disposed of relatively briefly
and on the same basis as the argument put forward on behalf of the
companies
that the right included in their taxable incomes was of a
capital nature. To repeat: the point was not raised in the grounds of
appeal;
neither of the procedures contemplated in tax rule 13 was
followed; and the point cannot be raised now.
[29] Finally, there is the question of costs. Although
there was one composite record and although the companies were each
represented
by the same counsel, there were in reality three appeals.
There were four discrete issues, three relating to all three
companies
and one just to Brummeria. Palms and Randpoort lost on all
of the issues relating to them and in those appeals, costs must
follow
the result. Brummeria on the other hand lost on three issues
but succeeded on one, the s 79(1) issue. Less time was spent on that
issue than on the other issues, but the effect of its success on that
issue is that the assessments for four of the five years of
assessment raised against it will be set aside with a consequent
reduction in liability for tax from R6,47m to R900 000. In
Protea Assurance Co Ltd v Matinise
31
the appellant raised four distinct issues on appeal.
32
It succeeded on only one issue.
33
Instead of making cross-orders as to costs, this court
made a partial order in favour of the litigant who had enjoyed the
greater
measure of success on appeal ─ it ordered the appellant
to pay two-thirds of the appeal costs of the respondent.
34
A similar course was followed in
Community
Development Board v Mahomed & Others NNO
35
where a provisional order was made requiring the
partially successful appellant to pay one half of the respondent’s
appeal costs.
36
In the present matter it seems to me that justice would
be served if the Commissioner were to be ordered to pay two-thirds of
Brummeria’s
costs of appeal. Two counsel were briefed by the
Commissioner and the companies and this was in my view justified.
[30] The following order is made:
The appeal succeeds against the first respondent to
the limited extent that the
order of the Tax Court is altered to read:
‘
Save in respect of the 2000
year of assessment, the appeal is allowed and the further revised
assessments of 3 March 2002 for the
years 1996, 1997, 1998 and 1999
are set aside. The appeal against the 2000 year of assessment is
dismissed.’
1.2 The Commissioner is ordered to pay two-thirds of the
first respondent’s costs of appeal in this court including the
costs
of two counsel.
2.1 The appeal succeeds against the second respondent
and the order of the Tax Court is altered to read:
‘
The second appellant’s
appeal is dismissed.’
2.2 The second respondent is ordered to pay the
appellant’s costs of appeal in this court which related to the
appeal against
it, including the costs of two counsel.
3.1 The appeal succeeds against the third respondent and
the order of the Tax Court is altered to read:
‘
The third appellant’s
appeal is dismissed.’
3.2 The third respondent is ordered to pay the
appellant’s costs of appeal in this court which relate to the
appeal against
it, including the costs of two counsel.
______________
T D CLOETE
JUDGE OF APPEAL
Concur: Scott JA
Van Heerden JA
Kgomo AJA
Mhlantla AJA
1
65
of 1988.
2
And
contained in GN R467 published in
Government
Gazette
24639 of 1 April 2003.
3
In
s 1 of the Act.
4
1955
(3) SA 293
(A) at 301B-G.
5
[1994] ZASCA 40
;
1994
(2) SA 801
(A) at 812D-G.
6
1926
CPD 203.
7
[1990] ZASCA 1
;
1990
(2) SA 353
(A).
8
[1998] ZASCA 98
;
1999
(1) SA 315
(SCA).
9
At
319G-H.
10
At
320H.
11
1962
(3) SA 748
(A) at 753F-G and cf
Commissioner,
South African Revenue Service v Woulidge
2002
(1) SA 68
(SCA) para 10.
12
1997
(3) SA 617
(C).
13
At
621E-I.
14
[1892] UKHL 1
;
[1892]
AC 150
(HL).
15
At
622D-H.
16
(
1950)
17 SATC 108.
17
At
623C-I.
18
Of
the definition of gross income which includes ‘any amount,
including any voluntary award, received or accrued in respect
of
services rendered . . . or any amount (other than an amount referred
to in s 8(1)) received or accrued in respect of or by virtue
of any
employment or the holding of any office . . .’.
19
At
364G-J.
20
Commissioner
for Inland Revenue v Delfos
1933 AD
242.
21
1972
(1) SA 675
(A).
22
Lace
Proprietary Mines Ltd v Commissioner for Inland Revenue
1938 AD 267.
23
At
155.
24
At
363I-364C.
25
Above,
n 6.
26
Emphasis
in the original.
27
Emphasis
supplied.
28
‘
(i)
[T]he cash equivalent, as determined under the provisions of the
Seventh Schedule, of the value during the year of assessment
of any
benefit or advantage granted in respect of employment or to the
holder of any office, being a taxable benefit as defined
in the said
Schedule, and any amount required to be included in the taxpayer’s
income under section 8A.’
29
In
terms of the Fourth Schedule to the Act.
30
Although
the notice of appeal refers also to the 2000 year of assessment,
counsel for Brummeria did not pursue the argument in regard
to this
year.
31
1978
(1) SA 963
(A).
32
Tabulated
at 970H-
in fine
.
33
The
respondent was deprived of one third of his trial costs: 977G-
in
fine
.
34
At
978A-C.
35
1987
(2) SA 899
(A) at 919F-920B. See also
Hollywood
Curl (Pty) Ltd v Twins Products (Pty) Ltd (1)
1989
(1) SA 236
(A) at 253I-254G.
36
This
order was subsequently made final: See the
Hollywood
Curl
case above, n 35 at 254F.