Page 774 - SAIT Compendium 2016 Volume1

CASE DIGEST 2013–2014
The court found that this interpretation of the law by SARS and the tax court was incorrect and that para 14 can only apply once the facts conclude that s 26 applied, for which the latter had two distinct requirements. Firstly, the person must carry on farming operations during the year of assessment and secondly the particular item of income must have been derived from such farming operations. The court stated that the tax court had only addressed the second issue without addressing the rst. The court further stated that SARS did not contend and in fact conceded that the taxpayer was not on the ordinary principles engaged in a pro t-making scheme (ie buying and selling plantations) which would have resulted in a different enquiry.
Steinhoff as contract farmer
The court found that from the uncontested evidence the taxpayer at no stage conducted farming operations on its own account. This was distinctly different to the cases cited by SARS’ counsel where such farming operations were conducted either prior to or after the lease arrangement or sale. The court also rejected SARS’ contention that the various documents indicated that the taxpayer had appointed Steinhoff to manage the farming operations on its behalf based on the common cause facts clearly indicating otherwise. The court agreed with the taxpayer’s submission that at most Steinhoff was managing the taxpayer’s investment and at the same time managing its own farming operations. It concluded that Steinhoff could not have been regarded as managing the farming operations for a fee as the taxpayer stood to make no pro t or loss from the farming operations and merely risked a decreased investment value if Steinhoff failed to maintain the agreed standard.
Held;
The court accordingly rejected SARS’ rst submission that para 14 applies distinct from the requirements in s 26 and the taxpayer’s appeal was upheld. The court also rejected SARS’ submission that Steinhoff acted as contract farmer and the taxpayer’s appeal was upheld.
The court did not give judgment in respect of two matters namely as to the levying of interest and whether the capital gain was correctly calculated. These matters would revert back to the income tax court for hearing once the main matter was determined as agreed by the parties. The court awarded the cost of two counsel in respect of only the High Court proceedings as the tax court did not make an award for those proceedings which the High Court felt was appropriate.
19. Medox Limited v CSARS HC 12795/14 NG (18 February 2014)
Introduction
In this case the applicant applied to the North Gauteng High Court for an order declaring all income tax assessments that were issued in respect of years of assessment following its 1997 year of assessment null and void.
Facts
The applicant, trading as Drake Personnel, carried on a trade in South Africa from 1976 until 1995, after which its compulsory wound-up in terms of an order of court took place. At the time of winding-up, the applicant had a total tax debt of R7 779 214.90 in respect of VAT and employees’ tax. The winding-up was subsequently set aside following a compromise in terms of s 311 of the Companies Act 61 of 1973, which was sanctioned by the court on 7 June 1996. In terms of the compromise agreement, creditors were to receive 10 cents out of the Rand for debts due and the respondent consequently received R769 061.70 as a dividend.
The applicant’s 1996 income tax return re ected an assessed loss of R46 622 063. The applicant also incurred a loss of R1 748 741 in 1997. The applicant made pro ts during the 2004, 2007, 2009 and 2010 years of assessment against which it seeks to off-set its balance of assessed loss. The applicant, however, submitted its 1998 to 2009 income tax returns before its 1997 income tax return. The applicant never lodged an objection to the 1998 income tax return which did not contain the balance of assessed losses arising out of prior years of assessment and he also did not submit his 1997 income tax return until 2009. Given the fact that the 1998 income tax assessment was issued more than three years before, the applicant could not object thereto and the assessment became conclusive in terms of s 79 of the Income Tax Act 58 of 1962 (hereinafter referred to as ‘the Act’). The applicant only realised in 2009 and that the 1997 and 2003 income tax returns had not been assessed and that the balance of assessed loss had not been claimed.
Given the fact that the three years prescription period had expired, the applicant maintained that it has no internal remedies available to it and that its only available remedy was to obtain an order on the validity of the administrative action via a review or a declaratory order. The applicant’s application to the High Court was based on the fact that the Tax Court does not, in terms of the Act, have the powers to issue declaratory orders on the status of income tax assessments.
Section 7 (2) (a) of the Promotion of Administrative Justice Act 3 of 2000 states the following:
‘... no court or tribunal shall review an administrative action in terms of this Act unless any internal remedy provided for in any other
law has rst been exhausted.’
The applicant argued that given the fact that the prescribed period to lodge an objection had lapsed, it had no internal remedies available. Based on this and the fact that the Tax Court does not have any powers to grant a declaratory order, the applicant contended that it was entitled to bring an application for a declaratory order in the form of nal relief to the High Court.
Teffo, J stated the following as obiter dictum:
‘It is my considered view that it cannot be correct to say that a party that has failed to invoke the remedies as provided for in the Act or internal remedies because of its own making, can come to a different forum and claim to be heard on the basis that it has no internal remedies to exhaust’.
At para [27], Teffo, J stated the following:
766 SAIT CompendIum oF TAx LegISLATIon VoLume 1