The Gauteng Division of the High Court delivered judgment on 20 February 2015 in a case where the taxpayer sought to have a decision of SARS set aside in terms of the Promotion of Administrative Justice Act, 2000 (PAJA) or alternatively declared unconstitutional, unlawful and invalid. The court found that the taxpayer, Ackermans Ltd, should rather use the internal remedies afforded by the Income Tax Act, 1962 (ITA) and approach the tax court.
SARS had taken the view that the taxpayer had misrepresented and failed to disclose material facts in regard to the true nature and substance of a series of agreements with other entities. These agreements, according to SARS, were simulated loans aimed at giving the taxpayer improper interest deductions. As a result, SARS issued additional assessments permitting deduction of interest on loans of R100 million instead of the R185 million claimed by the taxpayer.
The present case was not about the merits or demerits of the additional assessments but rather about the review and setting aside, or alternatively the constitutional legality, of SARS’s decision to issue them under section 79 of the Income tax Act, 1962 (since repealed and replaced by section 92 read with section 99 of the Tax Administration Act, 2011).
The taxpayer contended that the decision stood to be reviewed and set aside on three grounds under PAJA:
1 that the proviso to section 79 did not apply. This permits SARS to raise an additional assessment after the expiry of three years from the date of the original assessment only if SARS is satisfied that the original assessment was due to fraud or misrepresentation or non-disclosure of material facts;
2 the raising of the assessments so long after the original assessments (from 1997 to 2012, although SARS had begun its investigation in 2003) was unreasonable and procedurally unfair; and
3 the SARS decision was materially influenced by an error of law, took into account irrelevant considerations and/or did not consider all relevant considerations, was not rationally connected to the information before SARS, and finally that SARS had failed to take a decision or that the decision it did take was so unreasonable that no reasonable person would have done so.
SARS contended that the High Court lacked jurisdiction to decide the matter because the issues in question were complex and required the expertise of the tax court. Alternatively, the taxpayer had not exhausted the remedies open to it before the tax court. Finally, there were disputes of fact that should be resolved by the tax court.
The court found that the tax court is a creature of statute whose powers are limited to those specified in the relevant fiscal Acts. There was adequate precedent to the effect that relief based on judicial review is available to litigants, and this applied to the present matter. The court thus found that it had the jurisdiction to hear the matter.
As for the delay, which was the main ground of review sought by the taxpayer, SARS submitted that the delay between 2005, when it commenced its investigation, and its letter of findings, issued in November 2011 and culminating in the additional assessments in 2012, was because SARS had to wait for the judgment in a case then before the Supreme Court of Appeal, CSARS v NWK 73 SATC 55 [2011] SCA.
The court acknowledged the constitutional imperative to deal with litigation promptly. At the same time, SARS had to be satisfied that the delay beyond three years was on account of Fraud, misrepresentation of a material fact or non-disclosure of a material fact. If SARS was so satisfied, the Act provided for additional assessments at any time after the original assessment. SARS contended that these elements had been present, while the taxpayer argued otherwise. The oral evidence necessary to adjudicate the review application was the same evidence that would be required to adjudicate the merits of the challenge to the additional assessments. The court therefor ordered that the matter be heard by the tax court by way of appeal by the taxpayer, where the conflicting evidence and arguments could be ventilated and judged.
