Page 770 - SAIT Compendium 2016 Volume1

CASE DIGEST 2013–2014
cent of that interest on behalf of RKMSA and that RKMSA would hold 62 per cent of the interest in the second project (the one that RKMSA started) on behalf of GB Mining.
The CSARS subsequently held that the 38 per cent interest that GB Mining held in the rst project on behalf of RKMSA constituted a disposal of an asset in the 2005 tax year. The CSARS determined the proceeds as R23 277 530 and the base cost as R8 284 506, which was bumped-up with donations tax in terms of para 20 (1) (c), read with para 22 of the Eighth Schedule to the Act. The Tax Court, however, held that the transaction did not involve a donation but that GB Mining did dispose of 38 per cent of the joint interest in the rst project/venture for proceeds equal to 62 per cent of the value of the interest held by RKMSA in the second project/venture. The CSARS is now contending for the capital gain on this disposal to be consequently increased (due to the reduced base cost as a result of not taking into account the donations tax as above).
GB Mining contented that no capital gain came into existence as the transaction was in the form of a ‘...multiparty agreement between two groups of shareholders and their companies, which entailed the exchange of assets of equal value...’. This also constituted an issue which had to be decided upon by the SCA.
Held
The SCA held that the agreement between GB Mining and RKMSA triggered a ‘disposal’ in terms of para 11 (1) (a) of the Eighth Schedule to the Act, which includes a ‘cession’. It was held that the proceeds must be determined in terms of para 38 of the said Schedule on the 38 per cent share ceded to RKMSA, as the disposal took place for proceeds not measurable in money. The SCA agreed with the Tax Court’s interpretation that no donations tax was payable on the disposal and consequently held that the base cost must be reduced from R8 284 506 to R3 629 000, which would result in an increase of the capital gain from R14 993 024 to R19 648 530 for GB Mining’s 2005 tax year. The appeal accordingly failed.
Additional tax on disputed items
The CSARS raised additional tax in terms of s 76 (1) of the Act in respect of the tax assessed for each of the disputed items as he contended that there was either an omission in terms of s 76 (1) (b) or an incorrect statement in terms of s 76 (1) (c) of the Act. The CSARS, however, used his discretion to reduce all of the additional taxes to different percentages. GB Mining contended that the grounds for imposing the penalties were not present. The Tax Court, however, held that the penalties were appropriate and this matter then also served before the SCA.
Held
The SCA held that there was no incorrect statement or omission in respect of the travel expenditure and the OTR payment and that the CSARS consequently raised these additional taxes in error. The SCA, however, held that the CSARS raised additional taxes correctly on the other items (disposal of rights in Kroondal dump to Aquarius, disposal of mineral rights and intellectual property to a joint venture and the disposal of interest in the joint venture) at appropriate rates. Consequently the appeal succeeded with regards to the additional tax raised in respect of the travel expenditure and the OTR payment but it failed with regards to the additional tax raised in respect of the remaining items.
Cost order:
The SCA ordered the CSARS to pay 10 per cent of the GB Mining’s costs in the appeal.
16. Huang & Others (Incl. Mpisi Trading 74 (Pty) Ltd) v CSARS NGHC 1/2013 (13 August 2013)
Introduction
This case is one of a series between the parties and is a continuance of the legal dispute between SARS and the three applicants. On 18 April 2013 SARS (2/2013), on ex parte application to the high court, obtained a warrant to conduct a search and seizure on the property of the three applicants. Furthermore, on 9 October 2013 (3/2013) SARS obtained a court order in terms of s 50 of the Tax Administration Act 28 of 2011 (‘TAA’) to conduct inquiry proceedings into the tax affairs of the three applicants. However, on 18 November 2013 (4/2013), the applicants approached the North Gauteng High Court for an injunction to stop the inquiry proceedings on the basis that that the applicants contested the validity of the search warrants and would be prejudiced in the proceedings should the warrants be held to be invalid at a later date. The court accepted the applicant’s plea and held that the inquiry proceedings would temporarily exclude the applicants and any information obtained in terms of the search warrants until the validity of the search warrants had been reviewed by the court, which is the matter at hand (1/2013) in the Pretoria High Court.
Facts
The applicants are Mr Jen-Chih Huang (1st applicant), his wife Shou-Fang Huang (2nd applicant) and a company owned by the 1st applicant, Mpisi Trading 74 (Pty) Ltd (3rd applicant) with the respondent being the Commissioner for SARS.
a.
b. c.
The applicants contended that the search warrants that were issued to SARS were invalid on the basis that:
the search warrant application did not satisfy the requirements of an ex parte application on the basis of material non-disclosures and misrepresentations by SARS;
the application for the warrants did not satisfy the requirements of the Tax Administration Act; and
the ex parte application by SARS for the warrant was an abuse of the court process.
Requirement of bona des for ex parte applications
The applicants alleged that various material facts were not disclosed by SARS to the court when applying for the warrant. The court approached this rst matter by con rming the principle that ex parte proceedings are a departure from the ordinary principles applicable to civil proceedings and therefore the person applying bears a duty of utmost good faith in placing before the court all relevant material facts within its knowledge that might in uence the court in coming to a
762 SAIT CompendIum oF TAx LegISLATIon VoLume 1