Rule 32(3) of the Rules promulgated under section 103 of the Tax Administration Act 28 of 2011 ("Tax Court Rules"), as amended, provides that the appellant may include in the statement a new ground of appeal unless it constitutes a ground of objection against a part or amount of the disputed assessment not objected to under rule 7. This issue came under scrutiny in the TALT v CSARS judgment as the Gauteng Division, Johannesburg High Court, had to determine whether the taxpayer is or should be permitted to raise in its appeal these "new grounds" of appeal not raised its objection.
In this matter, the appellant, an inter vivos discretionary trust, in its 2012 tax return had disclosed its taxable capital gain as nil and the return was assessed by the South African Revenue Service ("SARS") on 31 January 2013. On 6 March 2018, after certain tax audit findings, SARS issued the appellant with an additional tax assessment in respect of the 2012 tax year of assessment, in terms of which a sum of capital gain was included in the appellant's taxable income for that year. The appellant's objection to the 2012 additional assessment was limited to the understatement penalty levied. SARS disallowed the appellant's objection as well as objections relating to the additional assessments for the 2013 to 2015 years of assessment.
In 2018, the appellant 'noted' an appeal to the Tax Court against SARS' decision to disallow the aforesaid objection. The appeal was stated to be in respect of all of the grounds of objection set out in the appellant's objection letter. On 28 June 2019, the appellant delivered a further letter of objection to the 2012 additional assessment, on the ground that the period of limitations for the issuance of an additional assessment had expired prior to 6 March 2018, having regard to the provisions of s 99(2)(a) of the TAA. The appellant was therefore of the view that the purported additional assessment dated 6 March 2018 is invalid. This latter objection was also disallowed by SARS and the appellant appealed to the Tax Court against this disallowance.
In the Tax Court appeal, SARS averred in its Rule 31 of the Tax Court Rules statement that the appellant impermissibly raised further grounds of objection to the assessment in addition to disputing the imposition of the understatement penalty and the prescription issue raised. The further ground of objection related to the so-called 'merits' or the 'capital' of the additional assessment in terms of which the appellant endeavoured to make out a case that it is not liable to pay the tax on the additional income which took into account the alleged capital gain. This was argued as an interlocutory matter before the Tax Court, where Bram J found in favour of SARS. The Court ruled that these were new grounds of appeal that the appellant did not rely on in its objection.
The appellant appealed the Tax Court's decision, with the key issue on appeal being whether the appellant is or should be permitted to raise in its appeal these so-called "new" grounds of appeal, not raised in its objection letters.
The court agreed with the submission that the contestation involved the inclusion of a taxable capital gain in the appellant's taxable income as well as the tax liability arising therefrom. Thus, the appellant's objection specifically pertained to this tax liability. The core issue was that the portion of the disputed 2012 assessment concerned the determination that led to the inclusion of the taxable capital gain in the appellant's taxable income, along with the resultant tax liability. The basis for this objection, or the ground of objection, was prescription.
Moreover, the disputed assessment objected to bears the same amount as the amount determined by SARS as being the "taxable capital gain" to be included in the appellant's taxable income.
The court concluded that the appellant's objection to the inclusion of the specified amount in its taxable income on the basis of 'prescription' did not imply that it had not objected to the inclusion of that amount itself. The court was of the view that in fact, this was the essence of the objection, although it was framed in terms of 'prescription. The court provided that the new ground relied on by the appellant relates to the same part (capital gain) and the same amount, as such, this new ground constitutes merely an auxiliary basis that reinforces the same aspect and amount of the disputed assessment previously contested.
The judgment is welcomed as it confirms that subrule 32(3) permits the raising of a new reason or argument on appeal for why the Commissioner was wrong in disallowing the objection to an assessment, but does not permit the raising of a new factual or legal basis for objecting to an assessment, which amounts to a new objection to it, which was never raised at the time. This ruling also underscores the principle that SARS, as an organ of the state subject to the Constitution, should not seek to exact tax which is not due and payable as it allows for the true issues between the parties to be fully ventilated. Ultimately, this decision provides clarity on the boundaries of appeal grounds in tax disputes.
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