Page 801 - SAIT Compendium 2016 Volume1

CASE DIGEST 2014-2015
[21] In the case of the powers which the Commissioner can exercise upon being satis ed of particular matters, one is dealing with a different situation. One is not dealing with a situation where the law prescribes that certain expenses shall be disallowed or certain income shall be taxed if a certain state of affairs objectively exists. One is dealing, rather, with a situation where a particular scal result follows only if the Commissioner himself is satis ed of certain matters. In the latter class of case it is the Commissioner’s satisfaction upon the points in question which constitutes the jurisdictional fact for the issuing of the assessment.
[22] It is for this reason that one will nd that, where the Commissioner’s powers are so expressed, special provision is made for an appeal against the Commissioner’s decision. In the case, for example, of ss 103(1), (2) and (3) of the Income Tax Act, s 103(4) says that any decision of the Commissioner under the preceding three subsections shall be subject to objection and appeal...”
The court subsequently held that it is necessary to establish on which matters the Commissioner was satis ed when he invoked section 103(2) to disallow the set-off of the assessed loss to determine against what it is that the taxpayer has a right to appeal against in terms of section 103(4) of the Act. The court predominantly investigated SARS’ assessment letter to determine the matters on which the Commissioner was satis ed and referred to ITC 1862 75 SATC 34 at paragraph [60] where Desai J held the following:
“...If the Commissioner did not make his tax determination on the basis of being “satis ed” about an alternative scheme, he cannot rely on the alternative when his s 103(1) determination is challenged on appeal.” The following was subsequently held at paragraph [44]:
“I agree with those observations and they appear to me to apply as much to what can legitimately be relied upon by the Commissioner in his rule 10 statement as to what he can rely upon at the end of a trial in the tax court. That is not to say that if, having assessed on the basis of being satis ed of certain matters, the Commissioner discovers other facts which cause him to be satis ed on other matters, he cannot issue a further assessment based on his new satisfaction. However, it is only upon reaching satisfaction on the new elements that he can then issue a fresh assessment. What he cannot do is support his existing assessment on the basis of matters on which he was not satis ed when he issued that rst assessment.”
The court accordingly held that the statement of grounds of assessment (which was predominantly based on the assessment letter) focuses more on the rst change of shareholding. SARS’ application to amend its statement of grounds of appeal was consequently dismissed and the taxpayer’s counter-application was allowed with costs.
21. Ackermans Ltd v Commissioner, South African Revenue Service 2015 (6) SA 364 (GP); GNP HC Case No: 16408/2013 (20 February 2015)
Issue
The prescription period and a review application to the High Court – repealed section 79 of the Income Tax Act (No. 68 of 1962) and section 7 of the Promotion to Administrative Justice Act (No. 3 of 2000) (“PAJA”). The issue is whether the decision by SARS to issue additional assessments after the prescription period stands to be reviewed and set aside in terms of the PAJA or declared unconstitutional, unlawful and invalid.
Posture of the case
The North Gauteng High court sat as a court of rst instance with the taxpayer seeking relief in the form of an order for the review and setting aside of additional assessments.
Facts
On 23 October 1997, Ackermans was indebted to Pepkor n (Pty) Ltd (“Pepkor n”) to the amount of R191,3 million. In order to settle part of the debt, Ackermans borrowed R185,6 million from Mettle who was instructed by Ackermans to pay the funds over to Pepkor n. Through another series of interrelated agreements, including sale of shares agreements, promissory notes, a subscription agreement and swap agreements, Ackermans attempted to service its debt.
SARS requested information and documents pertaining to the above agreement from Ackermans on the 15th of October 2003. An exchange of letters and the relevant documents ensued between Ackermans and SARS from that date up until the 5th February 2005. In this regard, Ackermans contended that it supplied all the requested documents to SARS, while SARS contended that this was not the case.
SARS noti ed Ackermans of its intention to issue additional assessments on both the 5th of February 2005 and the 6th of July 2006. The communication on the 6th of July 2006 was, however, the last communication between Ackermans and SARS on the question of additional assessments up until the 9th of November 2011 (some ve years later) when SARS issued a letter of ndings to Ackermans. The letter provided Ackermans the opportunity to comment on SARS’ audit ndings and the revised assessments which it intended to issue for the 1998 to 2003 years of assessment based on the fact that it is disallowing a portion of the interest paid on the Mettle loan as it constitutes a simulated loan. SARS further intended on imposing additional tax in terms of section 76 of the Act and interest in terms of section 89quat in respect of all relevant years of assessment. SARS only issued the additional assessments on the 19th of September 2012 (six years after SARS’ notice of intent to issue additional assessments).
SARS contended that the additional assessments were valid because of misrepresentation and non-disclosure of material facts by Ackermans in its tax returns for the relevant period. SARS contended that the misrepresentation took place through Ackermans claiming interest deductions on simulated loans in its 1998 to 2003 tax returns and because Ackermans answered in the negative to the questions on the returns asking whether it entered into interest rate swap transaction and whether it was a party to a structure nance transaction.
SAIT CompendIum oF TAx LegISLATIon VoLume 1 793
CASE DIGEST 2014-2015