Page 712 - SAIT Compendium 2016 Volume1

CASE DIGEST 2007–2008
7. In ITC 1824 (2008) 70 SATC 27 the taxpayer had included in its return certain fees for services rendered, and was assessed on the basis that those fees formed part of its gross income.
Thereafter, the taxpayer disputed liability for the fees. An arbitrator held that the taxpayer had not been entitled to those fees.
The taxpayer then objected to the assessment. It was held that the taxpayer had erred in including those fees in its tax return, and that the fees in question had not accrued to the taxpayer. It was held, further, that although the incorrect assessment had come about because of the taxpayer’s own omission or mistake, the taxpayer was nonetheless entitled to object to the assessment, and that the taxpayer had discharged the onus of proof.
8. In ITC 1825 (2008) 70 SATC 68 the taxpayer had been charged in the magistrate’s court with contravening s 75 (1) (a) of the Income Tax Act 58 of 1962 for failing to submit income tax returns for the 1994 to 1998 years of assessment. Following an admission of guilt, he had paid a ne of R300 in respect of each year of assessment, and additional tax was thereafter imposed in terms of s 76 (1) (a) for the late submission of the returns.
After lodging an objection, revised assessments were issued which reduced the additional tax for all the tax years in question, except for 1996.
The taxpayer then lodged a further objection and appeal, contending that the imposition of additional tax after he had already been convicted and ned in the magistrate’s court for the late submission of his tax returns infringed his rights to a fair trial in terms of s 83A (13) (a) of the Constitution. He also contended that the nes imposed on him by way of an admission of guilt meant that he had already been convicted and sentenced by that court, and that the additional tax imposed in terms of the Income Tax Act was not a tax on income, but a penalty, and that in effect he had been punished twice for the late submission of the returns.
The Gauteng Tax Court held that the rights in terms of s 35 (3) of the Constitution accrue only to an accused person, that is to say, a person answering a criminal charge, and that the right contained in s 35 (3) (m) was intended to protect citizens from repeated prosecution for the same conduct. However, a taxpayer on whom additional tax is levied is not an accused person within the terms of the latter provision; there was no question of his being tried for an offence, or of the proceedings culminating in a criminal conviction with a concomitant criminal record, nor any likelihood of the taxpayer being sentenced to imprisonment or deprived of his liberty. Such additional tax was a penalty of an administrative nature which could not be equated with a ne imposed by a criminal court. There was thus no merit in the taxpayer’s contention that the imposition of the additional tax was unconstitutional, or that it was excessive or inappropriate.
The appeal was dismissed and the assessment con rmed.
9. The facts of ITC 1826 (2008) 70 SATC 72 were the following. For the period ending 30 June 2001, the taxpayer had received a distribution in specie of certain leasehold rights from one of its subsidiaries, A (Pty) Ltd. This distribution was valued at R82 505 092. In the same period, the taxpayer had disposed of the leasehold rights for an amount of R99 990 000 to a third party.
B (Pty) Ltd had acquired the leasehold rights to a site known as ‘the Mayor’s garden’ under a notarial deed of lease during March 1982 from the C Municipality in terms of the lease and B, or its successors in title, was obliged to effect certain leasehold improvements to the site.
For the period 1983 to 1991 B (Pty) Ltd had claimed an amount of R24 522 112 for leasehold improvements incurred in respect of the property under s 11 (g) of the Income Tax Act.
On 30 August 1991, X Ltd, the taxpayer’s holding company, had applied to the Commissioner for a rationalisation exemption under the provisions of s 48 of the Taxation Laws Amendment Act 87 of 1988 as amended by s 28 of the Taxation Laws Amendment Act 70 of 1989.
In terms of this rationalisation application, the intention was to rationalise the property sub-group which had consisted of numerous property-owning companies. The Commissioner responded to the rationalisation application by con rming in a ruling that (a) all allowances then granted to B (Pty) Ltd in respect of the lease would continue to be granted to A (Pty) Ltd as if no transfer of the lease had taken place; and (b) the current method of returning the income and expenditure of the subsidiary-owning companies of B (Pty) Ltd could continue, and all the income and expenditure of the subsidiaries of the taxpayer could be accounted for in the taxpayer’s tax.
The taxpayer duly complied with this ruling and, from the year ending June 1992, it accounted for all income and expenditure of all its subsidiaries in both its annual nancial statements and tax returns and continued to return all the income and expenditure of its subsidiaries on that basis. For the period June 1992 to June 1997, the taxpayer claimed an amount of R26 405 966 by way of leasehold improvements in terms of s 11 (g) of the Income Tax Act in respect of the property in question.
The taxpayer contended that the income, expenditure and allowances of B (Pty) Ltd and A (Pty) Ltd, re ected in its tax returns on their behalf, remained the income, expenditure and allowances of these companies. It further contended that the fact that the allowances were then claimed by the taxpayer in a consolidated income tax return was irrelevant to the dispute as the allowances in issue had been legally claimed by A (Pty) Ltd and had been granted to that entity. Accordingly, it was the only taxable entity which could recoup the allowances in terms of s 8 (4) (a) of the Income Tax Act.
SARS contended that the taxpayer had recognised its liability for the recoupment of the entire amount which it had claimed in terms of s 11 (g) of the Act as it had provided for the tax liability on the full recoupment of R50 928 081, being R15 278 424, and this deferred tax liability had been created in its balance sheet for the period ending 30 June 2000.
The Cape Tax Court held that the only plausible basis in terms of which the Commissioner’s ruling and the taxpayer’s consequent action could be analysed was that the allowances in question were granted by SARS to A (Pty) Ltd, notwithstanding that the assessment was undertaken pursuant to a ‘consolidated’ tax return submitted by the taxpayer; moreover, only if the effect of the ruling was ignored did the submission that the income and expenditure of the subsidiaries had been re ected in the taxpayer’s accounts as its own income and expenditure hold true.
704 SAIT CompendIum oF TAx LegISLATIon VoLume 1