Page 796 - SAIT Compendium 2016 Volume1

CASE DIGEST 2014-2015
SARS conducted an audit on the taxpayer for the 2009 tax year and included an amount of R789 338 in respect of closing stock from farming operations. The amount was determined by taking the amount of grapes harvested in tonnes and converting it to an estimation of liquid to be derived from the grapes and multiplying the result with the estimated distilling wine price.
The court had to determine whether:
• Grapes in process constitute “produce” of the taxpayer at year end?
• The grapes were “held and disposed of” by the taxpayer?
• The method of the value determination is correct?
Outcome
The court dismissed the taxpayer’s appeal against the inclusion. In respect of the value determination, the court rejected SARS’ determination on the basis that the calculations were erroneous and SARS failed to provide reasons for the assessment as required in terms of rule 3 of the tax court rules. The court ordered the matter back for remittance by SARS and ordered that interest shall be levied only from the issuance of the new determination. No order was made in respect of costs.
Reasoning
The term “produce” is not de ned in the Act and the court applied the normal grammatical meaning. The court concluded that as the making of wine forms part of wine farming, it logically follows that the crushed grapes remain a result of the farming operation just like the uncrushed grapes.
In respect of the “produce held and not disposed of”, the court concluded that it was common cause between the parties that a member does not transfer ownership of the grapes to the co-operative as the latter merely acts as agent. The court concluded that the taxpayer merely obtained joint ownership of an undivided share citing the following:
“In the case of mingling (confusio) the original owner of the uids or metals become co-owners of the mixture in proportion to the value of their material used in the nal mixture. Each owner thus has an undivided share in the common mixture.”
The court held that “held” extends beyond physical possession and extends to any form of dominium, including an undivided share. The conditions set out in the delivery agreements with the co-operative did not result in a disposal of the grapes, the taxpayer merely exchanged his right to exercise control over the grapes for a monetary claim subject to contingencies. The court held that expanding the legal manifestation of a right does not in this instance, lead to a change in the substance of a right. The grapes were therefore held and not disposed of at year end by the taxpayer.
16. AB CC v CSARS VAT 1005 GTC (9 December 2014)
Issue
Zero rating of services - section 11(2)(s) of the Value-added Tax Act (No. 89 of 1991). At issue was whether the recti cation of houses constructed between 1994 and April 2002, the rehabilitation of damaged houses and the building of completely new houses by the appellant on behalf of C were made in terms of the Housing Subsidy Scheme referred to in section 3(5)(a) of the Housing Act, and, therefore, the appellant was correct to levy VAT at the zero rate.
Posture of the case
The Johannesburg Tax Court sat as the court of rst instance with the taxpayer appealing SARS’s decision not to allow the zero-rating.
Facts
The appellant is involved in the construction of low cost housing. The appellant took cession of an agreement with C whereby the appellant would rehabilitate houses built between 1994 and 2002 in terms of the Housing Subsidy Scheme implemented in terms of the Housing Act. During the period of the contract from 08/2008 – 09/2010 the appellant charged VAT at the standard rate on these services. However C, referring to the contract, informed the appellant that it was entitled to charge VAT at the zero rate. The contract stated that the agreement for the recti cation of the houses would be in terms of Housing Code to assist households in emergency cases. It was furthermore recorded that the agreement complies with the provisions of the Housing Subsidy Scheme and that VAT at a zero rate applied in terms of section 11(2)(s) of the VAT Act. Thereafter the appellant submitted revised VAT returns which entitled it to a refund of R38 million.
SARS refused the refund on the basis that services rendered were not for building new houses for rst time owners and therefore did not qualify under Housing Subsidy Scheme and that the reference to the zero rating in the contract was made in error.
Outcome
The court ordered that the assessment be revised and that SARS refunds the appellant the R38 million with interest at 9 per cent calculated from the date of the order.
Reasoning
The court approached the matter by concluding that it had to determine whether the rehabilitation and building of new houses fell under the Housing Subsidy Scheme and for this it was necessary to determine what such scheme was and
788 SAIT CompendIum oF TAx LegISLATIon VoLume 1