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[2009] ZAGPPHC 386
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First South African Holdings (Pty) Ltd v Commissioner For The South African Revenue Service (21343/2008) [2009] ZAGPPHC 386 (22 October 2009)
IN
THE HIGH COURT OF SOUTH AFRICA
(NORTH
GAUTENG: PRETORIA DIVISION)
CASE
NO.: 21343/2008
DATE:
22 OCTOBER 2009
In
the matter between
FIRST
SOUTH AFRICAN HOLDINGS (PTY)
LTD APPLICANT
And
THE
COMMISSIONER FOR THE SOUTH AFRICAN
REVENUE
SERVICE
RESPONDENT
JUDGMENT
WEBSTER
J
1.
The question in issue in this
application Is whether the Respondent is restricted or constrained by
section 79A(2)(a) of the Income
Tax Act No. 58 of 1962 ("the
Act"), as amended, from issuing a reduced assessment to the
Applicant's income tax In respect
of its 2007 year of assessment.
2.
Section 79A of the Act reads as follows:
“
(1)
The Commissioner may, notwithstanding the fact that no objection has
been lodged or appeal noted In terms of the provisions
of Part III of
Chapter III of this Act, reduce an assessment-
(a)
to rectify any processing error made in
issuing that assessment; or
(b)
where it is proved to the satisfaction
of the Commissioner that In issuing that assessment any amount which-
(i)
was taken into account by the Commissioner in determining the
taxpayer's liability for tax, should not have been taken into
account; or
(li)
should have been taken into account in determining the taxpayer’s
liability for tax, was not taken into account by the
Commissioner:
Provided
that such assessment, wherein the amount was so taken into account or
not taken into account, as contemplated in subparagraph
(i) or (ii),
as the case may be, was issued by the Commissioner based on
information provided In the taxpayer’s return for
the current
or any previous year of assessment
(2)
The Commissioner shall not reduce an assessment under subsection (1)-
(a)
after the expiration of three years from
the date of that assessment; or
(b)
if the amount was assessed in terms of
an assessment accepted by the taxpayer and which was made in
accordance with the practice
generally prevailing at the date of that
assessment.."
3.
It is common cause between the parties
that in the 2002 financial year returns the applicant, in accounting
for foreign exchange
gains and losses in terms of section 241 of the
Act, it had included in its taxable income in 2002 "the full
unrealised foreign
exchange gain" in respect of a loan instead
of 10% of that nett gain in terms of section 241 (7) of the Act. The
effect of
this, so says the applicant, Is that its taxable income had
been inflated by R14 676 954 attracting the tax payable in the amount
of R4.2 million.
4.
It is further common cause that the
applicant in the same returns for the 2002 financial year returns
claimed an "assessed
loss" of R34 978 418 for the 2001
financial year. The effect of this and what is set out in paragraph 2
supra was that the
applicant's assessment reflected an assessed tax
loss and nothing payable by way of tax for 2002. This appears in the
applicant's
Income tax assessment dated 17 July, 2003.
4.1
On 12 April, 2006 the respondent,
relying on the provisions of section 79A(2)(a) of the Act, revisited
the 2002 assessment and disallowed
the applicant’s accumulated
tax loss from the 2001 year of assessment. The effect of this revised
assessment reflected an
amount of R6 681 010.57 payable by the
applicant.
4.2
The applicant avers further that
together with the above revised assessment the respondent Issued
further revised assessments for
Income tax in respect of the 2003 and
2004 lax years as well as assessments In respect of Secondary Tax on
Companies (the latter
are not relevant to the issues herein). The
applicant objected to the revised income tax assessment for the 2002
tax year.
4.3
On 17 July, 2006 the respondent
disallowed these objections. On 25 August, 2006 the applicant
appealed against the respondent's
decision.
4.4
The dispute was then referred to
alternative dispute resolution (ADR) In terms of section 83 and 107A
of the Act.
4.5
The parties reached an agreement on the
issues In terms of which the applicant withdrew its objections and
appeal.
5.1
On 25 July 2007 the applicant submitted
a request to the respondent for the Issue of a reduced assessment
based on the error set
out in paragraph 2 of this Judgment.
5.2
The respondent's view was that the
appeal regarding income tax was confined and related exclusively to
the”...loss. [and]...does
not relate to a wrong calculation of
an amount that has been received by or accrued to the taxpayer in the
2002 year of assessment".
6.
The applicant states that its ”
..objection to the revised assessment..." dated 31 August, 2007
was written after “
having consulted new advisors..."
("Annexure F" to the founding affidavit) This accords with
the respondent's view
set out in the preceding paragraph. Various
issues have been raised In the papers by both the applicant and the
respondent. In
the light of the conclusion to which I have come and
further because of very pressing time constraints in this division I
shall
not canvass all the issues raised by the parties in the papers
and In argument. I acknowledge the time and effort by both silk in
the preparation and presentation of their intensive and extensive
arguments. Those required, under normal circumstances, an evaluation
of those arguments. No effrontery to both counsel Is intended. On the
contrary, listening to them was not only Illustrative but
a pleasure
that was appreciated.
7.
It was argued that the assessment issued
on 30 June, 2006 "...effectively incorporates the original
assessment and together
they constitute the assessment which is the
subject of the taxpayer's request in terms of section 79A(l)(b) of
the Act and consequently
“ the assessment in question was not
issued more than three years ago and that the restriction in section
79A(2)(a) Is not
applicable".
8.
I agree with both counsel that section
79A is a purely administrative provision, the primary purpose of
which is to accord both
the taxpayer and SARS the opportunity to
rectify errors, be they the processing of data, a miscalculation or
an omission on the
part of both the taxpayer and SARS. Its existence
in the Statute book Is not novel but a restatement of the pnnciples
of transparency,
openness and fairness that are enshrined In the
Constitution. A taxpayer who has made an error in the tax returns Is
afforded the
opportunity to rectify such error so that the income tax
payable is the correct amount.
9.
The redress in section 79A Is not
open-ended and valid in perpetuity: it has a time limit of three (3)
years. This period is nor
surprising nor a thumb-such in my view. The
legislature, aware of the law as it is assumed to be, must have
intended to bring the
rights of both the taxpayers and SARS in the
correction of errors within the same period as the period of
prescription.
10.
I have some misgivings about the
applicant’s submission. In the first place it is inconsistent
with the clear meaning of section
79A. Its fundamental intention is
to enable a party that has made an error to have such error remedied
within three (3) years of
the making of such error. That to my mind
is the ordinary meaning of the words in the section. Secondly, the
submission postulates
a situation where errors that were made more
than three (3) years in the past may be brought up under section 79A
as long as the
tax year in issue has been the subject of proceedings
under the section within any three (3) years of the last
"assessment".
This dearly offends the principle of
finality: proceedings have to come to an end at some time or other.
If the applicant's argument
is correct finality would be elusive and
Illusive for as long as an "assessment'' has been made "in
the last three (3)
years”.
11.
The notion of fairness and equity is not
compromised by the time limit of three years.
12.
The observations made above are
consistent with the fundamental rule of interpretation that words
must be given their ordinary or
plain meaning of language unless such
meaning leads to " injustice or incongruity or absurdity ".
13.
The chronology of the issues, as set out
above, indicates clearly that the respondent invoked the provisions
of section 79A within
three (3) years of the assessment it had made
on 17 July, 2003. The item was the "2001 loss" reflected in
the 2002 tax
return which had been accepted by the respondent.
14.
The pertinent question is whether the
applicant could "piggy-back" on the respondent's reliance
on section 79A and raise
the error it had made in its 2002 tax return
by arguing that the respondent's assessment of 30 June, 2006 entitled
it to do so
as set out in paragraph 7 of this judgment.
15.
It is my considered view that a party
that wishes to rely on the provisions of section 79A must
specifically invoke its reliance
on the section within three (3)
years. In this regard I am mindful of the fact that in considering
the respondent's right to disallow
the loss of 2001 the effect
constituted “that assessment" that entitled the applicant
to raise its own error outside
the period of three (3) years as it
has clearly attempted to do in this case. That, in my view, is
clearly impermissible and the
respondent was correct in refusing to
accede to the applicant's request.
16.
Having arrived at the above conclusion
it is not necessary to canvass the other Issues raised in the papers.
17.
The application is dismissed with costs,
such costs to cover the fees of two counsel.
G.
WEBSTER
JUDGE
IN THE HIGH COURT
Date
of Hearing :
5
December 2008
Counsel
for the Applicant :
Adv
MJD Walls SC
Counsel
for the Respondent :
Adv
Dennis Fine SC
Adv A Lapan