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[2018] ZASCA 89
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Commissioner for the South African Revenue Service v Char-Trade 117 CC t/a Ace Parking (776/2017) [2018] ZASCA 89; 81 SATC 18 (31 May 2018)
THE
SUPREME COURT OF APPEAL OF SOUTH AFRICA
JUDGMENT
Reportable
Case
No: 776/2017
In
the matter between:
THE
COMMISSIONER FOR THE
SOUTH
AFRICAN REVENUE
SERVICE
APPELLANT
and
CHAR-TRADE
117 CC t/a ACE PACKAGING
RESPONDENT
Neutral
citation:
CSARS
v Char-Trade
(776/2017) ZASCA 89 (31
May 2018)
Coram:
Navsa, Lewis and Mbha JJA and Davis and
Schippers AJJA
Heard:
21 May 2018
Delivered:
31 May 2018
Summary
:
Assessment issued for secondary tax on
companies (STC) – S 64B
and 64C of the Income Tax Act – Commencement of prescription –
S 99 of the Tax Administration
Act Prescription commences to
run against CSARS when return for STC is submitted by the taxpayer -
Return for STC never
submitted by taxpayer – Prescription never
commenced to run against CSARS – Assessment confirmed.
ORDER
On
appeal from:
Tax Court, Johannesburg
(Jansen J sitting as a court of first instance).
1 The
appeal is upheld,
2 The
order of the court a quo is set aside and replaced with the
following:
‘
The
assessment of the dividend cycle ending in the 2007 year of
assessment is confirmed.’
3 The
respondent is ordered to pay the costs of this appeal.
JUDGMENT
Mbha
JA (Navsa, Lewis JJA and Davis and Schippers AJJA concurring):
[1]
This appeal concerns the question, whether an assessment issued for
secondary tax on companies (STC) in respect of the dividend
cycle
ending in February 2007, which was levied in terms of ss 64B and 64C
of the Income Tax Act 58 of 1962 (the ITA), had
become
prescribed in terms of s 99 of the Tax Administration Act 28 of 2011
(the TAA). The appeal is against the judgment and order
of Jansen J,
sitting with assessors, in the Tax Court, Johannesburg, in terms of
which it was held that prescription for the STC
assessment commenced
running from 31 March 2007 and that, as the assessment was issued on
19 November 2012, it had prescribed.
The appeal is with the leave of
the Tax Court.
[2]
The factual matrix from which the dispute arose can be described as
follows: During the 2007 to 2011 years of assessment the
respondent,
Char-Trade 117 CC t/a Ace Packaging (Char-Trade), made various loans
to related close corporations and companies within
its group of
companies. These loans were reported by Char-Trade in its annual
financial statements and described as follows: ‘unsecured,
bear
interest at current rates and have no fixed terms of repayment’.
[3]
During an audit by the appellant (CSARS) of Char-Trade’s tax
affairs, it was discovered, so CSARS alleged, that the latter
had
provided interest free loans or loans to a number of related close
corporation and companies. CSARS subjected the loans to
STC on the
basis that these loans constituted deemed dividends, as less than the
official rate was charged. As a result of the
non-payment of STC by
Char-Trade, CSARS also levied interest in terms of s 64B(9) of the
ITA on the capital amounts owed by it.
[4]
On 9 November 2012, CSARS issued assessments for STC against
Char-Trade for the 2007 to 2011 STC cycles, in terms of s 64C(2)
(g)
of the ITA. The adjustments made by CSARS in the revised assessment
resulted in Char-Trade’s total tax liability for payment
of STC
in the amount of R4 653 870.20. Of this amount, R1
812
609.00 was in respect of Char-Trade’s STC liability for the
2007 STC cycle.
[5]
On 12 December 2012 Char-Trade filed a Notice of Objection against
the assessments on the basis that s 64C(2)
(g)
of the ITA was not applicable, as the loans it had made to
independent companies were not made to connected persons as defined
in the ITA. CSARS disallowed the objection on 18 January 2013, having
regard to s 64C(2)
(g)
,
read together with the definition of ‘connected person’.
[1]
[6]
On 11 April 2013, Char-Trade lodged an appeal against the
disallowance of its objection. In the Notice of Appeal (ADR 2),
Char-Trade
conceded that the loans were made to ‘connected
persons’ as defined in the ITA. Char-Trade contended, however,
that
the loans made to connected persons during the years of
assessment, bore interest that was not less than the official rate of
interest.
Thus, it contended, s 64C(4)(
d
)
of ITA was inapplicable and that no STC was payable.
[7]
On 17 June 2014, Char-Trade, relying on the provisions of s 99 of the
TAA, introduced a new and additional defence namely, that
the
assessment for 2007 had become prescribed and fell to be set aside in
its entirety. I will return to this aspect shortly in
fuller detail,
as the 2007 year of assessment became, ultimately, the only focus of
this appeal.
[8]
Shortly, before the commencement of the trial in the court a quo,
Char-Trade made a ‘with prejudice’ offer of settlement
to
CSARS, contained in a written letter dated 5 May 2015, in which it
stated:
‘
1.3
The Appellant [Char-Trade] concedes the appeal except for the 2007
year of assessment. The appellant will argue that the time
period for
raising the assessment for 2007 had prescribed;
1.4
The Appellant will not be proceeding with the appeal on the merits.
2.
Please acknowledge receipt hereof and advise the Court of the above
so as to prevent any unnecessary preparation being done before
trial
date.’
[9]
Indeed, when the trial resumed on 9 December 2015, Ms Dreyer,
appearing for Char-Trade, addressed the court stating:
‘
So,
M’ Lady, consequently, the only matter for determination by
this Court is the question of the 2007 year of assessment,
whether in
fact that has become prescribed. At the initial hearing in May, I
indicated to your Ladyship that the further years
of assessment,
2008, ’09,’10 and ’11, had been conceded.
So
that is the only issue that is for determination
.
(My emphasis).
[10]
In the light of what I have said, it is clear that, save for the
singular issue relating to the prescription of the assessment
in
respect of the 2007 STC cycle, Char-Trade effectively conceded the
entire merits of the appeal. Therefore, the only issue in
dispute is
whether CSARS was prohibited by s 99(1)
(b)
of the TAA from issuing the assessment for STC in respect of the
dividend cycle that ended in 2007. This would be the case if more
than five years have lapsed since the date of assessment of the
original assessment. Ms Dreyer was constrained to concede this
fact.
[11]
In finding that the 2007 assessment had prescribed, the court a quo
reasoned as follows: Char-Trade’s dividend cycle
coincided with
its financial year end, being 27 February each year.
Accordingly, the STC return and payment in respect of
the loans
advanced by Char-Trade should have been submitted and paid by no
later than 31 March 2007. Char-Trade’s dividend
cycle for
the 2007 year of assessment was deemed to be declared on 27 February
2007. So it was from the date for the filing of
the STC return that
an obligatory payment is determined in terms of s 64B(7) of the ITA.
[12]
The Tax Court then concluded that, as the assessment for 2007 was
raised on 9 November 2012, more than five years after
the return
and payment were deemed to be due in terms of s 64B(7), the 2007
assessment had become prescribed.
[13]
The issue as to whether or not the 2007 assessment has prescribed
must be determined against the backdrop of the following
factors,
which are common cause. In the 2007 income tax return interest
payable to the taxpayer by connected persons is stated
to be R2 160
868. In the amended Annual Financial Statement for 2007, dated 12
June 2014, interest received from connected persons
is reflected as
R8 273 267. Char-Trade never submitted any return in respect of STC
in respect of the dividend cycle ending in
2007. Furthermore, no
payment of STC has been made in respect of the 2007 year.
[14]
Before I consider the parties’ submissions on appeal, it bears
mentioning that Char-Trade bears the onus in terms of
s 102(1)
(a)
of the TAA, to prove that it is not liable for STC for 2007, and must
prove prescription. To do so, Char-Trade must prove the
jurisdictional facts required in terms of s 99(1)
(b)
of the TAA namely, that five years have
expired after the date of assessment of an original assessment.
[15]
Char-Trade’s submissions regarding prescription can be
summarised as follows: (a) If there had been an obligation on
Char-Trade to render a return and pay STC as contended by CSARS, then
the payment accompanied by the return should have been made
to CSARS
by 31 March 2007; and (b) the assessment in respect of STC for 2007
was issued on 9 November 2012, more than five years
after the end of
the deemed dividend cycle. Accordingly the assessment had become
prescribed.
[16]
Ms Dreyer also attempted to proffer an alternative argument based on
s 64C(4)
(d)
of
the ITA, namely, that the loans that Char-Trade made to connected
persons bore interest at a flat rate of 10%. As this rate was
not
less than the prescribed rate of interest in the 2007 dividend cycle,
there was in terms of s 64C(4)
(d)
of the ITA, no obligation on Char-Trade to render a STC return or pay
any tax as a consequence of a deemed dividend.
[17]
In my view the alternative argument was no more than an attempt to
re-introduce the merits of the appeal in respect of the
2007
assessment for STC through the back door. As I have said above, this
aspect was squarely conceded on 5 May 2015. It is not
before this
court and nothing further need be said on this aspect.
[18]
The assessment in respect of STC for 2007 was issued in terms of s
64C(2) of the ITA, which read:
‘
For
the purposes of s64B, an amount shall, subject to the provisions of
subsection (4), be deemed to be a dividend declared by a
company to a
shareholder, where –
.
. . .
(g)
any loan or
advance is granted and made available to that shareholder or
connected person in relation to that shareholder’.
[19]
Char-Trade was obliged in terms of s 64B(7) of the ITA to submit a
return for STC for 2007. At the relevant time this section
provided:
‘
The
secondary tax on companies shall be paid to the Commissioner by the
company liable therefor by not later than the last day of
the month
following the month in which the dividend cycle relevant to such
dividend ends and each payment of such tax shall be
accompanied by a
return in such form as the Commissioner may require’.
[20]
There was no dispute that the return that was required in terms of s
64B(7) of the ITA constituted a ‘self-assessment’.
This
is defined in of the TAA to mean:
‘
determination
of the amount of tax payable under a tax Act by a taxpayer and –
(a)
submitting a return which incorporates the determination of the tax;
or
(b)
if no return is required, making a payment of tax’.
Clearly,
Char-Trade was under an obligation to submit a return but failed to
do so.
[21]
What remains to be determined is, when did the five year prescription
period commence running? Section 99(1) of the TAA states
that:
‘
An
assessment may not be made in terms of this Chapter –
(b)
in the case
of self-assessment for which a return is required, five years after
the date of assessment of an original assessment
–
(i)
by way of self-assessment by the taxpayer; or
(ii)
if no return is received, by CSARS’.
[22]
Section 1 of the TAA defines, in relevant part, ‘date of
assessment’ to mean:
‘
(b)
in case of self-assessment by the taxpayer –
(i)
if a return is required, the date that the return is submitted’.
[23]
The intended effect of s 99(1)
(b)
of the TAA, read with the definition of ‘date of assessment’,
is that prescription cannot commence to run against CSARS
until such
time as a return has been submitted by the taxpayer. It is by
submitting a return that the taxpayer informs CSARS about
a dividend,
including a deemed dividend, and that STC is payable thereon.
[24]
It follows that prescription in respect of the dividend cycle of 2007
could only have commenced once Char-Trade had filed a
return for STC.
Having conceded the merits of the assessment for all the years in
question Char-Trade acknowledged it was liable
for STC and was
obligated to file the return for all these years including the 2007
year of assessment. This return would have
constituted the original
assessment. As Char-Trade failed to submit the STC return, there was
no original assessment from which
assessment date the five year
period could have run.
[25]
In the light of what I have stated, it becomes apparent that
prescription never commenced to run. It could only have commenced
in
the event that Char-Trade filed a return for STC which it failed to
do. For this reason, the court a quo erred when it held
that
prescription commenced in March 2007, which being one month following
the dividend cycle for 2007 and which was the date when
Char-Trade
was obliged to file a STC return and make payment. The appeal must
accordingly succeed.
[26]
I make the following order:
1
The appeal is upheld,
2
The order of the court a quo is set aside and replaced with the
following:
‘
The
assessment of the dividend cycle ending in the 2007 year of
assessment is confirmed.’
3
The respondent is ordered to pay the costs of this appeal.
_______________
B
H Mbha
Judge
of Appeal
APPEARANCES:
For
Appellant:
C Louw SC
Instructed
by:
The State Attorney, Pretoria
The State Attorney,
Bloemfontein
For
First Respondent:
CJ Dreyer
Instructed
by:
Fluxmans Attorneys, Johannesburg
Lovius Block,
Bloemfontein
[1]
A connected person is defined in section 1 of the ITA to include a
close corporation which is a connected person to any member.
It is
common cause that the members of Char-Trade and the members of the
related entities to whom the loans were advanced have
either the
same members or shareholders.