CSARS v Airports Company South Africa

Facts

From December 2015 to February 2016, the South African Revenue Service (“SARS”) conducted an income tax audit in respect of Airports Company for South Africa (“ACSA”) 2011 year of assessment.  ACSA was advised that SARS intended to, inter alia: (a) disallow a deduction claimed in respect of corporate social investment (“CSI”) expenditure in terms of section 11(a), read with 23(g) of the Income Tax Act No 58 of 1962 (“IT Act”); (b) disallow an allowance claimed in terms of section 13quin of the IT Act; (c) disallow an allowance claimed in terms of section 12F of the IT Act; and (d) impose understatement penalties (“USPs”) in terms of the Tax Administration Act No 28 of 2011 (“TA Act”).  Through its attorneys, ACSA responded to SARS’s audit findings letter on 15 March 2016 and conceded to the findings made by SARS in respect of the claims submitted in terms of section 12F of the IT Act only.  On 30 March 2016, SARS issued a Finalisation of Audit letter in respect of the 2011 year of assessment and disallowed the CSI expenditure, the claims in terms of sections 13quin and 12F of the IT Act, and imposed UPS’s and interest in terms of the TA Act.  On 12 May 2016, ACSA lodged an objection to the additional assessment, but only against the disallowance of the CSI expenditure.  No objection was lodged to the allowances claimed under sections 13quin and 12F of the IT Act, or the imposition of the USPs and interest.  The objection was disallowed and ACSA lodged a notice of appeal against the disallowance of the CSI expenditure.  Subsequent to the filing of the appeal, ACSA and SARS entered into “without prejudice” settlement discussions, and the appeal litigation was suspended, and as a result, ACSA did not file a statement in terms of rule 31 of the rules promulgated under section 103 of the TA Act (“Tax Court Rules” and/or “Rules”). On 25 January 2017, the parties commenced with the alternative dispute resolution proceedings (“ADR”), which were ultimately unsuccessful.  Two years later on 22 January 2019, SARS issued a Letter of Audit Findings in respect of ACSA’s 2012 to 2016 years of assessment.  Consistent with its stance in respect of the findings in the 2011 year of assessment of ACSA, SARS indicated that it intends to disallow the deduction claimed in respect of CSI expenditure, allowances claimed in terms of sections 13quin and 12F of the IT Act, and to impose USPs and interest in terms of the TA Act.  On 29 March 2019 SARS issued a Finalisation of Audit Letter and disallowed the aforementioned deductions and allowances, and imposed USPs and interest.  On 6 September 2019, through its newly appointed attorneys, ACSA addressed a letter to SARS, seeking an indulgence to amend the objection that was lodged by ACSA in May 2016 in respect of the 2011 year of assessment.  ACSA wanted to object against the disallowance of the claims in respect of sections 13quin and 12F of the IT Act, as well as the imposition of USPs and interest raised.  SARS refused this request since it was of the opinion that section 104 of the TA Act, read with Rule 7 of the Tax Court Rules, preclude this, and that the ACSA is seeking to introduce new grounds, which was impermissible in terms of Rule 32(3) of the Tax Court Rules.  As no provision is made for amending an objection to an additional assessment in the TA Act or the Tax Court Rules, ACSA applied to the tax court, Johannesburg for leave to amend in terms of the Uniform Rules of the Court, specifically Uniform Rule 28(1), read with Tax Court Rule 42(1).  ACSA argued that Rule 42(1) of the Tax Court Rules provides that if the Tax Court Rules do not provide for a procedure in the tax court, then the most appropriate rule under the rules of the High Court made in accordance with the Rules Board for Courts of Law Act, and to the extent consistent with the IT Act and these rules, may be utilised by a party or the tax court.  In this regard, ACSA submitted that Uniform Rule 28(1) was the most appropriate rule, which stated that any party desiring to amend a pleading or document other than a sworn statement, filed in connection with any proceedings, shall notify all other parties of its intention to amend and shall furnish particulars of the amendment.  The tax court then held that Rule 42 of the Tax Court Rules permits ACSA to approach a court for an amendment in terms of Rule 28 of the Uniform Rules.  It is against this decision that SARS appealed to the Supreme Court of Appeal.

Issues

Issue 1 – Is it permissible to amend the grounds of objection against an additional assessment issued by SARS after the expiry of the periods prescribed in the Tax Court Rules; and

Issue 2 – Is such an order appealable.

Findings

The Court noted that the question raised in Issue 2, should logically speaking be addressed first, but explained that after Issue 1 was addressed, the outcome would automatically settle Issue 2.

When the Court addressed Issue 1, it started with Uniform Rule 28(1) and where it is applicable.  Uniform Rule 28(1) applies to pleadings and documents after proceedings have commenced. The Court reminded all that Rule 42(1) of the Rules specifically caters to a situation where the Tax Court Rules do not provide for a procedure in the tax court. The Court described an objection as part of the pre-litigation administrative process and referred to Metcash Trading Ltd v CSARS 2001 (1) SA 1109 (CC), where it was stated that the Commissioner is not a judicial officer, and assessment and concomitant decisions by the Commissioner are administrative and not judicial actions.  Objections are decided at the branch level by a committee, the majority of which comprise of officials not involved in the audit and assessment process.  This meant that an objection is an administrative process, (pre-litigation), and not a pleading.  An objection is therefore also not a document filed in connection with judicial proceedings envisaged in terms of Uniform Rule 28(1).  Rule 42(1) of the Rules cannot apply to procedures that constitute pre-litigation administrative procedures, such as an objection, and the tax court erred in granting leave to ACSA to amend its notice of objection.

 Even though the Court explained why the tax court erred, it continued to provide further clarification.  The effect of the amendment sought by ACSA was to extend the period for filing an objection long after the peremptory periods prescribed in section 104 of the TA Act, read with Rule 7 of the Tax Court Rules.  This would unjustifiably undermine the principles of certainty and finality and would allow taxpayers to impermissibly introduce new grounds for objection to additional assessments.  Section 104 of the TA Act, read with Rule 7(2)(b) of the Tax Court Rules clearly and unambiguously state that taxpayers who lodge an objection must specify the grounds in detail, including the part or specific amount of the disputed assessment, objected to.  Since ACSA never objected against the disallowance of the claims in terms of sections 13quin and 12F of the IT Act, and the USPs raised in terms of the TA Act, the assessment for the 2011 year became final and conclusive as provided for in section 100(1) of the TA Act.

Regarding Issue 2, ACSA argued that the order of the tax court is interlocutory and not appealable.  The Court has shown above that the tax court wholly misconceived the matter and it would be plainly wrong and in the interest of justice to permit it to stand.

The appeal was upheld with costs.   

Find a copy of the court case here.

03/11/2022