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Ackermans Limited v CSARS – HG 16408 – 2013 NG (20 February 2015)

09 March 2015   (0 Comments)
Posted by: Author: Erich Bell
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Author: Erich Bell (SAIT)

Introduction

This case considers a review application to the North Gauteng High court in terms of section 7 of the Promotion to Administrative Justice Act (No. 3 of 2000) ("PAJA”) against additional assessments issued by SARS in terms of section 79 of the Income Tax Act (No. 58 of 1962) ("Act”) on the 19th September 2012 for the 1998 to 2003 years of assessment. The court had to determine whether the decision by SARS to issue additional assessments stand to be reviewed and set aside in terms of the PAJA or declared unconstitutional, unlawful and invalid.

Facts

On 23 October 1997, Ackermans was indebted to Pepkorfin (Pty) Ltd ("Pepkorfin”) to the amount of R191,3 million. In order to settle part of the debt, Ackermans borrowed R185,6 million from Mettle who was instructed by Ackermans to pay the funds over to Pepkorfin. Through another series of interrelated agreements, including sale of shares agreements, promissory notes, a subscription agreement and swap agreements, Akermans attempted to service its debt.

SARS requested information and documents pertaining to the above agreement from Ackermans on the 15th of October 2003. An exchange of letters and the relevant documents ensued between Ackermans and SARS from that date up until the 5th February 2005. In this regard, Ackermans contended that it supplied all the requested documents to SARS, while SARS contended that this was not the case.

SARS notified Ackermans of its intention to issue additional assessments on both the 5th of February 2005 and the 6th of July 2006. The communication on the 6th of July 2006 was, however, the last communication between Ackermans and SARS on the question of additional assessments up until the 9th of November 2011 (some five years later) when SARS issued a letter of findings to Ackermans. The letter provided Ackermans the opportunity to comment on SARS’ audit findings and the revised assessments which it intended to issue for the 1998 to 2003 years of assessment based on the fact that it is disallowing a portion of the interest paid on the Mettle loan as it constitutes a simulated loan. SARS further intended on imposing additional tax in terms of section 76 of the Act and interest in terms of section 89quat in respect of all relevant years of assessment. SARS only issued the additional assessments on the 19th of September 2012 (six years after SARS’ notice of intent to issue additional assessments).

SARS contended that the additional assessments were valid because of misrepresentation and non-disclosure of material facts by Ackermans in its tax returns for the relevant period. SARS contended that the misrepresentation took place through Ackermans claiming interest deductions on simulated loans in its 1998 to 2003 tax returns and because Ackermans answered in the negative to the questions on the returns asking whether it entered into interest rate swap transaction and whether it was a party to a structure finance transaction.

At paragraph [11] Mothle, J made it clear that Ackerman’s application is "…not about the merits or demerits of the Additional Assessments, but rather about the review and setting aside alternatively the constitutional legality of the decision of SARS to issue the Additional assessments”.

Grounds of review

Ackermans’ argument

Ackermans contended that the circumstances did not allow SARS to issue an additional assessment in terms of section 79 of the Act as there was no fraud, misrepresentation or non-disclosure of material facts.

It further contended due to the five years that passed without any communication from SARS with regards to the agreements that the decision to issue additional assessments was therefore procedurally unfair. It further contended that SARS did not have any reason for the delay as it provided SARS with all of the necessary information to make a decision, which SARS failed to do. It contended that this failure to take a timeous decision was in contravention of section 237 of the Constitution that holds "All constitutional obligations must be performed diligently and without delay”. It submitted that SARS’ contravention of section 237 of the Constitution is a breach of the constitutional principle of legality.

It was also contended that SARS’ decision was materially influenced by an error of law, in that it did not consider all of the relevant considerations of the agreements and that the decision therefore was unreasonable. Lastly Ackermans contended that the delay in raising the additional assessments can potentially prejudice a taxpayer in that the documents relevant to its defence may have been lost or destroyed and that the memories of witnesses may fade.

SARS’ argument

SARS contended that the High court does not have jurisdiction to decide on the matter due to the complexity of the issue in dispute that requires the expertise of the Tax Court. SARS further submitted that the Tax Court has powers of review for the relief sought by Ackermans and alternatively that Ackermans has not exhausted its internal remedies before the Tax Court and that its review application in terms of the PAJA should therefore not be entertained by the High court. It also contended that there are disputes of fact which should be resolved by the Tax Court. In defence to the five year period between the second notification in July 2006 and the letter of findings in November 2011, SARS contended that it had to wait for the outcome of CSARS v NWK (2010) ZASCA 168 as the case had a bearing on the legal principles involved in the issuing of additional assessments under these circumstances. It further held that it acted within its prescription period of 30 years to recover taxes due.

Held

In dealing with the jurisdiction of the High court, Mothle J at paragraph [17] and [18] referred to ITC 1866 (2012) 75 SATC 268 andMetcash Tading Ltd v Commissioner SARS and Another 2001 (1) SA 1109 (CC) as authority for the fact that a review application in terms of the PAJA must be heard by a High court. SARS’ contention that the High court does not have jurisdiction accordingly failed.

The court further held that the comprehensiveness of Ackerman’s deponents to the founding affidavit, supplementary affidavit, confirmatory affidavits as well as the replying affidavit, do not demonstrate faded memories. It further held that the bundles of documents attached to the review application are clearly not lost and destroyed. The court consequently held that any alleged prejudice on the part of Ackermans appears to be perceived and not real.

With regards to the six year delay in issuing additional assessments, Mothle J stated the following at paragraph [27]:

"It is indeed imperative that all Constitutional obligations executed by organs of Sate in the exercise of public power, must be performed diligently and without delay. An unreasonable delay will result in a procedurally unfair administrative action, which is a reviewable conduct in terms of section 6 of PAJA. The decision to raise Additional Assessments is an administrative action which is an exercise of public power and it falls within the ambit of Section 237 of the Constitution…’

Given the fact that section 237 of the Constitution does not state what period would be considered an unreasonable delay, the court turned to section 79 of the Act to determine if the 6 years delay from July 2006 to 19 September 2012 for SARS to issue an additional assessment was unreasonable. Section 79 of the Act held that SARS may not issue an additional assessment after three years of the original assessment unless SARS is satisfied, after the expiry of the three year period that prior to the original assessment being raised there was fraud, misrepresentation or non-disclosure of a material fact that led to the incorrect amount being assessed. In this regard, the following was held by Mothle J:

"[35] There is clearly a dispute off fact on this part of the evidence, which is relevant in deciding whether, apart from other explanations, the delay in raising Additional Assessments falls or does not fall within the prosivo to subsection (1)(c)(i) paragraph (aa) of section 79. If it is concluded on the resolution of the disputed facts, that there was misrepresentation or non-disclosure of material facts on the part of Ackermans, the delay by SARS will be covered by the prosivo in paragraph (aa) and will thus be reasonable. If, however, it is found that there were no misrepresentations and there was a disclosure of the material facts, the delay from 2006 to 2012 when Additional Assessments were raised, would constitute an unreasonable delay in contravention off section 79(1)(c)(i)…

[36] In essence, the oral evidence necessary to adjudicate the review application is the same evidence that would be required to adjudicate the merits of the challenge on the Additional Assessments. Such adjudication will entail examination of the oral and documentary evidence relating to the allegations of misrepresentations and non-disclosure of material facts, within the context of the relevant agreements and transactions conducted by Ackermans and other entities.”

In this regard Ackermans submitted that the court should refer this application for review to the hearing of oral evidence in order to adjudicate on the reasonableness of the delay while SARS held that the Tax Court is better placed to adjudicate on the disputed facts necessary to make a finding, not only on the delay, but also on the merits of the additional assessments. It was further contended by SARS that since Ackermans lodged its objection to the additional assessments that the matter may in the normal course be heard on appeal by the Tax Court. In this regard, Mothle J held the following at paragraph [38] to [40]:

"[38] While there appears to be very few authorities supporting the contention that a review application filed on papers should be referred to the hearing of oral evidence, I agree with the submission that there are no rules which prohibit such. However, the disputed facts and issues raised in this application require, in my view, the expertise of a tax court to adjudicate. It seems to me therefore that the adjudication of the disputed facts on the allegations of misrepresentations and non-disclosure of material facts, will bring this matter to finality.

[39] I have been referred to a recent Full Court appeal judgment off the Western Cape Division, Cape Town, in the matter off AB (Pty) Ltd v the Commissioner of the South African Revenue Service, case no A129/2014. This case is an appeal against the judgment of the Tax Court. In paragraph [22] of that judgment, the Full Court endorsed the view expressed in Kommissaris van Binnelandse Inkomste v Transvaal Suikerkorporasie Bpk 1985 (2) SA 668 (T), that the "appeal” to the Tax Court is in reality a review of the Commissioner’s decision on customary review grounds.

[40] Having regard to the views expressed above, I am of the opinion that it would be appropriate to defer to the internal remedies in the ITA which Ackermans may resort to by way of appeal to the Tax Court, should it not be satisfied with the decision on the objection. Consequently, and in view of the conclusion I have reached, there is no need for this Court to consider other points of argument raised by both SARS and Ackermans in this application.”

The application was therefore dismissed. Each party was ordered to pay its own costs.

Please click here to view full judgement.


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