Page 798 - SAIT Compendium 2016 Volume1

CASE DIGEST 2014-2015
To the Commissioner’s assertion that the share scheme was a simulation due to the fact that it was formulated mainly to enable the respondents to avoid tax, the court held that for this to have been the case, “the participants in the scheme [must]...have intended, when exercising their options to enter into agreements of purchase and sale of shares, to do so on terms other than those set out in the scheme” [41]. This was found by the court to be highly improbable.
18. AB (Pty) Ltd v CSARS ITC 1132 GTC (18 November 2014)
Issue
Additional tax - section 60 of the Value-Added Tax Act (No. 89 of 1991). At issue is whether additional tax of 200 percent was correctly imposed by the Commissioner.
Posture of the case
The Johannesburg Tax Court sat as the court of rst instance with the taxpayer appealing SARS’s decision to levy the additional tax.
Facts
The Appellant is a private company supplying security services and is registered as a vendor. During July 2012, the Respondent (SARS) issued assessments against the Appellant relating to the 02/07 to 02/11 VAT periods. The assessments were issued as a result of an understatement of output tax, the Appellant’s failure to provide supporting documents to substantiate its input tax deductions and the Appellant’s failure to explain certain discrepancies between its VAT declarations and its VAT control accounts in its books.
This led to the imposition by the Respondent of additional tax of 200 per cent in terms of sec 60 of the Value-Added Tax Act (No. 89 of 1991) (hereinafter ‘VAT Act’) based on the grounds that the failure to submit the requested documents constitutes an intent to obtain an improper VAT refund with the view of defrauding the scus. The Respondent further imposed a 10 per cent late payment penalty in terms of sec 39 of the VAT Act and interest on the capital amounts owing to it.
The Appellant led an objection which was partially allowed by SARS resulting in revised assessments that disallowed the objection to the overstated input tax, additional tax, interest and the late payment penalties. The matter subsequently went on appeal after which, on 11 March 2014, the Appellant has abandoned its appeal against the capital amounts payable which limited the appeal to the above additional tax, interest, and penalties.
The Respondent had the burden of proving that the additional tax of 200 per cent was correctly imposed and called one of its auditors as a witness. It was testi ed that the auditor would typically make a recommendation as to the percentage of additional tax to a committee who would then further escalate the matter to a senior committee who will then decide what percentage of additional tax to impose in terms of sec 60 of the VAT Act.
Outcome
The court set aside the additional tax and the assessment was referred back to the Commissioner, who was directed that the additional tax be remitted to nil. No reference was made to the late payment penalty and interest.
Reasoning
Given the fact that no witness was called to explain the decision of the senior committee, the court held that it is unable to assess the correctness of the senior committee’s decision and that little reliance can be placed on the auditor’s testimony. At par [5] of the judgement, Wepener J referred to Rand Ropes (Pty) Ltd v Commissioner for Inland Revenue 1944 AD 142 at 150 and CSARS v Foskor (Pty) Ltd [2010] 3 All SA 594 (SCA) at par 51 to state the following:
‘‘Where the correctness of a discretionary decision, which is subject to objection and appeal, is contested in a tax court, there is a re-hearing of the whole matter, including the additional tax, by the tax court. Accordingly, the tax court can consider the issue afresh and substitute the respondent’s decision in that regard.’’ With regard to the Respondent’s burden of proof, Wepener J stated the following at paragraph [6]: ‘The Commissioner, having failed to place any evidence before the court as to how and why the senior committee arrived at a decision to impose the 200% additional tax, failed to prove that the imposition of the additional tax was justi ed and the imposition thereof cannot be upheld...”
19. TC – IT 13472 SG (18 November 2014)
Issue
Two issues are addressed in this case:
a. Reduction of proceeds - paragraph 35(3)(c) of the Eighth Schedule to the Income TA Act (No. 58 of 1962). The
issue is whether the proceeds from shares sold ought to be reduced by a payment made by the taxpayer pursuant to
a damages action successfully made against him.
b. Understatement penalty – section 223 of the Tax Administration Act 28 of 2011. The issue in this regard is whether
the taxpayer had reasonable grounds for the tax position taken.
Posture of the case
The Johannesburg Tax Court sat as the court of rst instance with the taxpayer appealing SARS’s decision to increase the amount of proceeds from shares sold and levy an understatement penalty.
790 SAIT CompendIum oF TAx LegISLATIon VoLume 1