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[2014] ZAGPPHC 98
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Medox Limited v Commissioner for the South African Revenue Service (49017/11) [2014] ZAGPPHC 98; 76 SATC 369 (20 February 2014)
IN THE
NORTH GAUTENG HIGH COURT PRETORIA
CASE
NO: 49017/11
DATE:
20 FEBRUARY 2014
In the matter
between:
MEDOX
LIMITED
........................................................................................
Applicant
And
THE COMMISSIONER
FOR THE
SOUTH AFRICAN
REVENUE
SERVICE
................................................
Respondent
JUDGMENT
TEFFO. J:
[1] The applicant
seeks an order declaring all income tax assessments that were issued
in respect of the years of assessment following
its 1997 year of
assessment, null and void.
[2] The application
is based on the following contentions:
2.1 Before the
respondent issued the applicant’s 1997 income tax assessment he
had already issued income tax assessments to
the applicant in respect
of its 1998 to 2002 and 2004 to 2009 years of assessment. In doing
so, he has failed to set off the balance
of assessed loss incurred in
the 1996 year of assessment.
2.2 As a result the
applicant was assessed for income tax together with interest
totalling R5 204 481 in respect of its 2004 year
of assessment and
this tax liability was carried forward to subsequent income tax
assessments until 2009.
2.3 Those
assessments are void as the respondent acted ultra vires when he
issued them by disregarding the mandatory provisions
of s 20(1 )(a)
of the Income Tax Act, 58 of 1962 (“the Act’).
[3] The application
is opposed.
[4] The respondent
contends that the High Court does not have jurisdiction to entertain
the application as the dispute between the
parties concerns the
merits of the assessment.
[5] Before hearing
the application condonation was granted for the late filing of the
respondent’s answering affidavit as
well as the applicant’s
replying affidavit.
[6] The following
facts are common cause between the parties:
6.1 The applicant
(trading as Drake Personnel) commenced trading in South Africa during
1976 until 1995 when it was compulsory wound-up
in terms of an order
of court.
6.2 At the time of
winding-up, the applicant was indebted to the respondent in the total
amount of R7 779 214,90 being the total
outstanding tax in respect of
value added tax (VAT) and the employees’ taxes (PAYE). It had
incurred no liability for income
tax.
6.3 The winding-up
order was set aside following a scheme of arrangement made in terms
of s 311 of the Companies Act, 61 of 1973.
The scheme of arrangement
was sanctioned by the court on 7 June 1996. In terms of the
compromise arrangement, the creditors accepted
payments in the amount
of 10 cents in a rand for the debts due. The respondent was paid an
amount of R769 061,70 as dividend in
terms of the scheme of
arrangement.
6.4 The applicant’s
1996 return of income reflected an assessed loss of R46 622 063,00.
6.5 In the tax years
of 2004, 2007, 2009 and 2010 the applicant started to make profits.
It seeks to carry forward the assessed
losses and set off same
against the profits earned during the tax years 2004, 2007, 2009 and
2010. The applicant also incurred
a further loss of R1 748 741,00 in
1997.
6.6 The applicant
submitted its 1998 tax year return before submitting its 1997 tax
return.
[7] The respondent
made the following submissions:
7.1 The applicant is
not entitled to approach the High Court to declare the assessments
void where it has not exhausted the internal
remedies, or remedies
provided for in the Act namely, statutory objections and appeal
processes as contemplated in s 81 read with
s 107 of the Act. It was
argued that once there is an assessment or purported assessment the
starting point for expression of dissatisfaction
of any sort is to
lodge an objection as provided for in terms of s 81 within a
specified time.
7.2 The applicant
never lodged an objection for the 1998 year of assessment. It never
said there is an assessed loss. No return
was submitted for
the 1997 tax year. No appeal was also brought in terms of the Act.
The respondent issued the assessments more
than 3 years ago. The 3
year period within which to object has lapsed. The applicant realised
in 2009 that the 1997 and 2003 returns
have not been assessed and
that the losses were not claimed. It decided to re-submit the 1997
and 2003 returns in 2011. Once the
3 year period has lapsed in terms
of s 79 the assessments become conclusive.
7.3 The Act makes it
clear that the lawfulness and correctness of disputed assessments
must be dealt with by the Tax Court.
7.4 In dealing with
the declarator, the High Court will inevitably deal with the merits
of the assessment.
7.5 The relief
sought by the applicant is a final order.
[8] On the other
hand the applicant made the following submissions:
8.1 The Tax Court is
a creature of statute as it was established in terms of s 83 of the
Act and the Rules promulgated in terms
of s 107A of the Act. It is
not a court of law and its ruling is not a decision of a competent
court of law. It does not have a
similar status as that of a High
Court.
8.2 The rules of
stare decisis do not apply to the decisions of a Tax Court as its
decisions are not binding.
8.3 The Tax Court
unlike the High Court, does not have inherent jurisdiction. It is
only clothed with limited powers derived from
the Act, namely the
power to consider the correctness of assessments issued by the
Commissioner and appealed against in terms of
s 83(1) of the Act. In
terms of s 83(13) of the Act the Tax Court may confirm, alter or
refer an assessment back to the Commissioner
for further
investigation and assessment. The Act does not provide powers to the
Tax Court to make declaratory orders on the status
of the income tax
assessments.
8.4 It concedes that
its right to object the assessment in terms of the Act has
prescribed. It is adamant that it has no internal
remedies available
to it.
8.5 It maintains
that the only remedy available to it is to obtain an order on the
validity of the administrative action via a review
or a declaratory
order.
[9] I have to
determine whether the High Court has jurisdiction to entertain an
application for an order to declare the legal status
of assessments.
[10] Section 81 of
the Act read with the rules promulgated in terms of s 107A of the Act
provides that “a taxpayer who is
aggrieved by an assessment may
object to such an assessment in the manner and under the terms and
within the period prescribed
by the Act and the rules promulgated in
terms of S 107A\
[11] Section
81(2)(b) provides that the prescribed period within which the
taxpayer ought to lodge an objection to an assessment
and/or a
revised assessment is a period of 3 years after which the period for
objecting may not be extended.
[12] The procedure
in respect of assessments and objections thereto is contained in s 81
read with s 107A of the Act and Part A
of Chapter III of the Act and
the rules promulgated in terms of s 107A. This procedure can be
summarised as follows:
12.1 The
Commissioner makes the assessment;
12.2 In terms of
Rule 3, the Commissioner must provide reasons for the assessment on
demand, unless he is of the opinion that adequate
reasons have been
provided;
12.3 In terms of s
81(1) and Rule 4, the taxpayer may object to the assessment;
12.4 In terms of s
81(4) and Rule 5, the Commissioner may allow or disallow the
objections;
12.5 In terms of s
83 and Rule 6, the taxpayer may appeal against the disallowance of
his or her objection;
12.6 If there is an
appeal, the Commissioner must give his grounds of assessment in terms
of Rule 10; and
12.7 The taxpayer
must give his grounds of appeal in terms of Rule 11.
[13] In Van Zyl NO v
Master and Another
1991 (1) SA 874
(E) at 877/878 Eksteen J said the
following:
“The only way
in which these assessments can be questioned is in the manner
provided for in the Act, viz, by objecting to
the Respondent in terms
of $ 81 of the Act and then appealing to the Special Court in terms
of s 83 of the Act. The Act specifically
prescribes that procedure
and entrusts the determination of the amount owing to the Respondent
and on appeal from his decision,
to the Special Income Tax Court. If
he was of the view that the document tendered was not an assessment
issued by the Respondent
at all or that there was some patent error
in the calculation of the claim, ... the master could expunge the
claim altogether or
reduce it so as to reflect the amount assessed;
but apart from such patent defects, the only way in which the
validity of the amount
claimed can be brought into question is in the
manner provided for in the Act ... It is not necessary to decide
whether or not
the assessments were correctly made. That is a matter
for the Special Court to decide and I have no intention of usurping
the function
of that Court (my underlining).”
[14] The court in
Metcash Trading Ltd v Commissioner, SARS 2001 (1) SAA 1109 (CC) held
that the Tax Court is a specialist tribunal
specifically tooled to
deal with disputed tax cases. The following was said:
“Firstly s 31
constitutes a valuable weapon in the hands of the commissioner; but
the compulsive force of this mechanism of
the Act goes a good deal
further. The dissatisfied vendor can, by lodging an objection under s
32 of the Act and, that failing,
by noting an appeal under s 33, both
compel the commissioner to reconsider the assessment and have its
correctness reconsidered
afresh by an independent tribunal."
[15] The court
further found that the High Court has jurisdiction to adjudicate upon
tax matters only in circumstances where the
relief sought is of an
interlocutory nature.
[16] It is common
cause between the parties that the applicant submitted the tax
returns for the tax years of assessment 1998 onwards
until 2009
before it submitted the 1997 tax return.
[17] The applicant
contends that the respondent failed to set off the balance of the
assessed loss incurred in the 1996 year of
assessment as it issued
the income tax assessment to it in respect of the 1998 tax year of
assessment onwards without issuing its
income tax assessment for the
1997 tax year.
[18] The applicant
concedes that it did not object to the 1998 income tax assessments
and neither did it appeal that decision within
the prescribed 3 year
period.
[19] It is clear
from the papers that it was only in 2009 that the applicant realised
that the 1997 and 2003 returns have not been
assessed and that the
losses were not claimed.
[20] Section 7(2)(a)
of the Promotion of Access to Justices Act (“PAJA”)
stipulates that no court or tribunal shall
review an administrative
action in terms of this Act unless internal remedies provided for in
any other law have been exhausted.
[21] The applicant
argued that it has no internal remedies to exhaust as the prescribed
period in terms of which it has to object
and appeal to the
assessment had lapsed. It therefore maintains that because the Tax
Court has no powers to grant a declaratory
order, it is entitled to
bring this application in the High Court.
[22] It is correct
that the declaratory order sought by the applicant in this
application is in the form of a final relief. Inasmuch
as the
applicant submitted that in the Metcash case referred to supra, it
was never held that the High Court cannot grant a final
relief, the
same can also be said that the court in that case never arrived at a
decision that the High Court can grant a final
relief in tax-related
disputes.
[23] It is my
considered view that it cannot be correct to say that a party that
has failed to invoke the remedies as provided for
in the Act or
internal
remedies because of
its own making, can come to a different forum and claim to be heard
on the basis that it has no internal remedies
to exhaust.
[24] It is clear
from the authorities referred to supra that the lawfulness and
correctness of disputed assessments must be dealt
with by the Tax
Court.
[25] It cannot be
correct that the Legislature intended to create competing and
concurrent fora for resolution of tax disputes with
resulting
confusion as to selection of fora.
[26] The role of the
High Court is to provide a judge as a member of the specialised Tax
Court to hear appeals and not matters of
first instance.
[27] The applicant
did not exhaust the internal remedies when time still allowed it. Now
he wants to circumvent the provisions of
the Act by coming to the
High Court in terms of a declaratory order which it contends will
have the same effect as a review of
the respondent’s decision
under the PAJA where the administrative action is reviewed and set
aside. Our courts should discourage
this kind of applications as they
are tantamount to forum shopping.
[28] I am of the
view that this application cannot be entertained without getting into
the merits of the assessments. The merits
of the assessments fall
within the competency of the Tax Court.
[29] It is further
my considered view that once an assessment has been done, the parties
are therefore locked into the jurisdiction
of the Tax Court. They
must exercise their rights in the Tax Court. Once they have failed in
the Tax Court, they can go to the
Supreme Court of Appeal (“SC/A”)
and the Constitutional Court (“CC”).
[30] Having read the
papers and having heard counter-arguments from both counsels, I agree
with the submissions made by the respondent’s
counsel.
[31] I am therefore
of the view that this Court does not have jurisdiction to entertain
this dispute. The dispute should have been
pursued by way of an
objection lodged with the Commissioner and thereafter appealed to the
Special Tax Court which is the appropriate
forum to deal with matters
of this kind.
[32] In the premise
I make the following order:
The application is
dismissed with costs.
MJ TEFFO
JUDGE OF THE
NORTH GAUTENG
HIGH COURT,
PRETORIA
COUNSEL FOR THE
APPLICANT DUVENHAGE ATTORNEYS
INSTRUCTED
BY TRUTER
COUNSEL FOR THE
RESPONDENT MKHAWANE
INSTRUCTED
BY STATE ATTORNEY