Medox Limited v The Commissioner for SARS (20059/2014)  ZASCA 74 (27 May 2015)
02 June 2015
Posted by: Author: SAIT Technical
Author: SAIT Technical
This is an appeal by Medox Limited ("Medox”) to the Supreme Court of Appeals ("SCA”) against the decision taken by the High Court to dismiss an application for a declaratory order compelling the Commissioner for the South African Revenue Service ("the Commissioner”) to set aside various income tax assessments due to the fact that they are null and void.
Medox Limited’s (the appellant) 1996 and 1997 income tax returns reflected an assessed loss of R 46 622 063 and R 1 748 741 respectively. Profits were made during the 2004, 2007, 2009 and 2010 years of assessment but the 1998 to 2009 income tax returns were submitted before the 1997 return.
The appellant never lodged an objection to the 1998 income tax return, which did not contain the balance of assessed losses arising out of prior years of assessment. Furthermore, it did not submit its 1997 income tax return until 2009. Given the fact that more than three years had passed since the 1998 income tax assessment was issued, Medox could not object thereto and the assessment became conclusive in terms of the repealed section 79 of the Income Tax Act (No. 58 of 1962) (hereinafter referred to as ‘the Act’). It only realised in 2009 and that the 1997 and 2003 income tax returns were not assessed and that the balance of assessed loss was not claimed.
Medox then took the view that the 1998 and subsequent income tax assessments were void as the Commissioner for the South African Revenue Service (‘the Commissioner’) had acted ultra vires by failing to set off its balance of assessed losses (as at 1996 and 1997) against the taxable income in respect of subsequent years of assessment. It approached the North Gauteng Division of the High Court, seeking an order declaring that all post-1997 income tax assessments issued to it by the Commissioner are null and void.
The High Court dismissed the application with costs, concluding that
- it did not have jurisdiction to entertain the dispute, and
- the dispute should have been pursued by way of the objections and appeals process, followed by an appeal to the tax court.
Since the final decision of the court was to dismiss the appeal, Fourie J found it unnecessary to debate whether the High Court did indeed have the jurisdiction to entertain the application.
The learned judge held that the appellant’s right to have the relevant assessments declared null and void goes against the now repealed section 81(5) of the Act, which stated that assessments not objected to within the prescribed time period would be held to be final and conclusive.
The fact that more than three years had passed since the issuing of the assessments would in any case, it was held, preclude the Commissioner from reopening those assessments.
The appellant argued that section 81(5) referred to ‘valid’ as opposed to ‘invalid’ assessments, describing a valid assessment as one issued in accordance with the provisions of the Act, while an invalid assessment is not. By not taking into account the balance of assessed losses [in terms of section 20(1)(a)] in the post-1997 assessments, the appellant contended that this made the assessments invalid as they were not issued in accordance with the provisions of the Act.
In response to this contention, the learned judge held the following at paras  and :
"On this argument virtually any assessment in which the Commissioner erroneously refuses to allow a deduction, rebate or exemption provided for in the Act, could be regarded as invalid and therefore not subject to the provisions of ss 81 to 83 of the Act. This would render the mechanisms provided in ss 81 to 83 for objections to and appeals against assessments nugatory and grant aggrieved taxpayers carte blanche to approach the high court in virtually every instance where they disagree with an assessment made by the Commissioner.”
"What counsel for Medox is effectively asking this court to do, is to read words into the Act by implication. As emphasised by Corbett JA in Rennie NO v Gordon & another NNO 1988 (1) SA 1 (A) at 22E-F, this cannot be done unless the implication is a necessary one in the sense that without it effect cannot be given to the statute as it stands. The submission on behalf of Medox requires the word ‘assessment’ in s 81 of the Act, and in particular in subsecs 81(2)(b) and 81(5), to be read as being a reference to a ‘valid’ assessment. In my view there is no basis upon which it can be said that the reading in of the word ‘valid’ in s 81 is necessary to give effect to the section as it stands. On the contrary, I believe that this construction would be in conflict with the intention of the legislature as appears from the clear language of the subsections.”
The court held that the High Court was correct to dismiss the appeal for the declaratory order and consequently dismissed the appeal.
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