In Respublica (Pty) Ltd v CSARS, case No 864/2014, the Gauteng High Court decided in favour of the taxpayer on the meaning of “commercial accommodation” in the Value-Added Tax Act, 1991. The court found that the narrow meaning that SARS ascribed to the term was untenable, and arrived at a wider meaning by applying the by now well known “proper manner of interpretation” set out by the Supreme Court of Appeal in its landmark decision in Natal Joint Municipal Pension Fund v Endumeni Municipality 2012 (4) SA 593 (SCA).
This case was an application by Respublica for a declaratory order as to the meaning of “commercial accommodation”, arising from a dispute between Respublica and SARS. It was not an appeal against an assessment and hence had not been through the tax court.
Respublica owned immovable property divided into furnished units comprising kitchenette, bathroom and bedroom/living area. It let the building to the Tshwane University of Technology for a five year period for the sole purpose of accommodating TUT’s students. Respublica supplied domestic goods and services in the form of water, electricity, maintenance, management of the building, a common TV room and laundry services. TUT paid rental of R1 376 480 per month plus R275 per unit for utilities. TUT was entitled to accommodate other people during holiday periods, when the student occupants were required to vacate their units and return home.
SARS contended that the agreement did not comprise commercial accommodation, defined in section 1 of the Act to the extent here relevant as “lodging, board and lodging, together with domestic goods and services, in any…flat…which is regularly and systematically supplied…but excluding a dwelling in terms of an agreement for the letting and hiring thereof”. The term “domestic goods and services” is defined to include cleaning and maintenance, electricity, television set, furniture and fittings and laundry.
This definition was crucial to the matter because section 10(10) of the Act provides that: “where domestic goods and services are supplied at an all-inclusive charge in any enterprise supplying accommodation for an unbroken period of exceeding 28 days, the consideration in money is deemed to be 60% of the all-inclusive charge”. So Respublica was contending for an order that it was conducting a commercial accommodation enterprise, meaning that it was liable for VAT on only 60% of the all-inclusive charge.
Before addressing the merits, SARS first argued that the court lacked the jurisdiction to hear the matter, which should have been dealt with under the Tax Administration Act. However, the court approved of Respublica’s contention that the matter involved a question of law and also that there was no assessment in respect of which it could raise an objection. The provisions of the TAA relating to litigation are predicated upon response to an objection leading to an appeal, and in the present matter there had been no objection or appeal.
Noting that the dispute revolved around interpretation of relevant sections of the VAT Act, the court referred to the seminal statement in Endumeni and proceeded to follow its principles in addressing SARS’ arguments on the merits. These arguments were that:
- the dictionary meaning of “lodging” should be interpreted to refer to a natural person. As the lessee, TUT could thus not be a lodger;
- there was no nexus between Respublica and the students upon which it could be argued that they were lodgers in the leased premises;
- TUT should be regarded as a tenant and not as a lodger;
- since the dictionary meaning of lodging is “temporary accommodation”, and the contract was for five years, the contract could not be one of lodging; and
- the utilities were paid separately from the rental and could not be considered part of an all-inclusive charge as envisaged in section 10 (10).
- there is no clause in the Act that stipulates that a lodger be a natural person;
- the students were an integral part of the lease agreement and obliged to abide by its terms. The premises were let to TUT for the sole purpose of accommodating the students;
- the students went home during the holidays, making their stay a temporary one;
- Respublica did provide domestic goods and services;
- SARS’ interpretation of “commercial accommodation” was too restrictive and Respublica’s application was not about the meaning of “lodging” but about the phrase “commercial accommodation”.
