Page 768 - SAIT Compendium 2016 Volume1

CASE DIGEST 2013–2014
clear that a taxpayer whose taxable income has been determined on an erroneous basis, is always “aggrieved” even if the source of error is entirely attributable to him.’
The SCA consequently held that a taxpayer may be ‘aggrieved by any assessment’ for purposes of s 81 of the Act (and for that matter, s 104(1) of the TAA) irrespective of whether it provided the erroneous information in the return. It was therefore held that GB Mining was allowed to take the objection route against the assessments, which included point 1, 2 and 3 of this summary’s facts.
GB Mining also attempted to challenge the constitutionality of s 82 of the Act (now contained in s 102 of the TAA), but did not succeed as it did not follow Rule 10A of the Uniform Rules of Court in the process.
With regards to the onus on GB Mining to satisfy the CSARS that the assessments were based on the incorrect information, the SCA held the following at paras [28] to [30]:
‘[28]... In order to do this, additional evidence would have to be placed before the Commissioner. The nature of this evidence will depend upon the facts of each case and particularly the nature of the erroneous information supplied to the Commissioner. So for example, the scus might rightly ask how it can be expected to alter or reduce an assessment when information supplied by a taxpayer is not withdrawn or substituted so as to enable the reduction or alteration contended for.
[29] In terms of regulation A2 of the Regulations issued under s 107 of the Act (Government Notice R105 – in Government Gazette Extraordinary 1011 of 22 January 1965) any return must “be accompanied by all such balance sheets, trading accounts, pro t and loss accounts and other accounts of whatever nature, as are necessary to support the information contained in the return”. The evidence to “support” the information in the return must accordingly “corroborate” it (Concise Oxford English Dictionary, 12 ed). Balance sheets and accounts perform a vital and formal role in corroborating the information in the return. The Commissioner must be able to rely upon the veracity and accuracy of this evidence which forms the basis for the assessment. The Commissioner is entirely dependent upon the taxpayer to furnish this evidence. In the event of incorrect information being included in the balance sheets or accounts, evidence would have to be furnished to explain the precise nature and extent of the incorrect information and how it was included. All relevant supporting documentation to verify the correct information would have to be submitted. An amended balance sheet or account may have to be submitted to the Commissioner, together with a full explanatory note to clarify the amendment.
[30] Each of the contested determinations made by the Commissioner must be approached on the basis that GB Mining bears the onus of proving that the Commissioner was wrong. In addition, where GB Mining contends that the determination was based upon incorrect information supplied to the Commissioner by GB Mining, whether in the form of balance sheets and accounts or otherwise, GB Mining must show that it has provided credible and reliable evidence to explain the error.’
Rulings:
This case considers various transactions; headings will therefore be used to distinguish the different disputes from one another.
Payments made to OTR Mining Ltd as part of a nancial rescue offer
GB Mining started off as a shelf company acquired by two persons (Mr Barnard and Mr Gardner) to exploit a unique process developed by Mr Barnard to extract platinum from chrome mining tailings. In order to do business, GB Mining needed to obtain a source of chrome tailings (identi ed Kroondal dump for this purpose), as well as nancing which would have been obtained from OTR Mining Ltd (OTR), a JSE listed company of which Mr Gardner had previously been the managing director and which was at the time in nancial distress. The intention was for GB Mining to gain access to public funds through the JSE by transferring its business to and becoming the sole shareholder of OTR. Given OTR’s nancial distress, GB Mining entered into a rescue operation to save OTR from being delisted by providing loan capital to OTR in order to allow it to pay its employees and creditors in exchange for shares in proportion to the amount of the loan. OTR got delisted on 22 August 2003 and to that date, GB Mining advanced an amount of R2 638 070 to OTR in order to allow it to pay its employees and general of ce expenses. GB Mining attempted to claim the above amount as a deduction in terms of ss. 11 (a) and 23 (g) of the Act, as it contended that OTR’s employees were employed by it. The CSARS and the Tax Court, however, held that the amount so advanced was a loan and that it is therefore capital in nature. No deduction was therefore allowed. This was the rst item for consideration by the SCA.
Held
The payment was accounted for in GB Mining’s nancial statements for the year ending 29 February 2014 as an ‘OTR loan’. The nancial statements were signed by the sole director and its auditors. In giving evidence, the director of GB Mining explained that ‘the mechanism was such that the expenditure that was incurred by GB on behalf of OTR would be repaid in terms of the shares’. Further correspondence between GB Mining and SARS as well as with OTR indicated that the amount constituted a loan and that GB Mining does not have complete control over OTR and the employment decisions thereof.
GB Mining failed to provide credible and reliable evidence to explain the alleged error in its nancial statements (where the payment was described as an ‘OTR loan’) and the appeal against this item consequently failed.
Disposal of rights in Kroondal dump to Aquarius Platinum (South Africa) (Pty) Ltd
Before the nal rescue offer of OTR failed, GB Mining purchased the mineral rights on Kroondal dump for a purchase price of R2 400 000 plus 1 250 000 OTR shares and 625 000 OTR options with the ultimate intention of transferring the mineral rights to OTR in terms of the rescue offer.
In order to obtain further capital, GB Mining concluded an agreement with Aquarius Platinum (South Africa) (Pty) Ltd (hereinafter referred to as ‘Aquarius’) to jointly exploit the Kroondal dump on a 50:50 basis and to make use of the equipment of a wholly owned subsidiary of Aquarius to process the material in exchange for a R14 million contribution by Aquarius for its 50 per cent share. The contribution consisted out of a R3.5 million payment, a 25 per cent share in
760 SAIT CompendIum oF TAx LegISLATIon VoLume 1