By PWC Tax Synopsis
The decision in ITC 1855 (2012) 74 SATC concerned the fundamental question of what constitutes an "assessment” for purposes of the Income Tax Act and in particular whether a document other than SARS’s customary form IT 34 can be an assessment.
The implications of this question
The answer to this question impacts on many important issues such as rights of objection and appeal and the associated time limits for doing so, and on SARS’s power to issue a revised assessment.
In this particular case, the issue was whether an assessment issued by SARS in respect of the 2002 tax year and bearing a due date of 1 June 2004, had prescribed three years later on 31 May 2007, in which event it could not have been superseded by a purported revised assessment, such as the one dated 4 May 2007.
SARS cannot issue a reduced assessment once three years have elapsed from the original assessment
Section 79A of the Income Tax Act 58 of 1962 provides, in effect, that the Commissioner does not have the power to issue a reduced assessment once three years havegone by since the date of the original assessment.
The issue in this case was whether the Commissioner had issued an additional assessment within that three year prescriptive period.
On 5 June 2006, the taxpayer had written to the Commissioner requesting a reduced assessment for the 2002 tax year in terms ofs79A of the Act on the basis that certain expenses that qualified for deduction had not been claimed as deductions in its tax returns for the 2001 to 2004 years of assessment.
The issue was whether the Commissioner’s power to issue a revised assessment had prescribed, in which event the assessment, even if incorrect, was final and could not be reduced.
At the heart of the matter was whether a letter sent by SARS to the taxpayer on 4 May 2007 and headed "Income tax revised assessment for the years of assessment 2001 to 2004” (which was a response to a letter from the taxpayer raising certain objections to the assessment), constituted a revised "assessment” as envisaged in the Act.
SARS contended that the letter of 4 May 2007 was not a revised assessment and, since three years had elapsed since the date of the assessment (namely 1 June 2004), the assessment for the 2002 year of assessment had become final.
The taxpayer argued that SARS’s letter of 4 May 2007 was indeed a revised assessment and consequently that the assessment for the 2002 year of assessment had not become final.
The customary forms used by SARS are not prescribed by law
The Tax Court held that although SARS uses various set forms for particular purposes, such as form IT 34 for assessments, these forms are not prescribed by law.
It was further held (following the decision in ITC 1740 65 SATC 98) that an "assessment” means a "purposefulact, whereby the document embodying the mental act is intended to be an assessment”.
In Irvin & Johnson (SA) (Pty) Ltd v CIR 14 SATC 24 it had been held that, subjectively, an assessment is an abstraction which has no real existence until it is published in a manner which conveys a meaning to others; thus, the unexpressed thoughts of the assessing officer would not constitute an assessment. Furthermore, that an assessment must result in an amount which the Commissioner may then reduce or alter in terms of s 76(4) of the Act.
Applying these principles to the facts of the matter before it, the court held that SARS’s letter of 4 May 2007 was indeed an "assessment” and that SARS power to issue a revised assessment for the 2002 tax year had therefore not prescribed. The court said in this regard that –
‘the said letter [from SARS to the taxpayer, dated 4 May 2007] did indeed constitute an intentional published act of assessment, giving the required ‘amount’, ie a zero tax liability. For those reasons it is found that the assessment for the tax year 2002 had not prescribed'.