In recent years, SARS' has become increasingly litigious, resulting in disputes often ending up in the Tax Court or the High Court. Such a dispute will generally arise when a taxpayer disagrees with an assessment raised by SARS. An aspect of the dispute process that can have dire consequences if overlooked is that a taxpayer must canvas all relevant grounds of objection from the outset, as these form the basis of any future litigation.
A case in point is Commissioner for the South African Revenue Service v Airports Company for South Africa. In this case, SARS raised an additional assessment for the taxpayer's 2011 year of assessment, disallowing deductions of Corporate Social Investment ("CSI") expenditure and allowances in terms of section 13quin and 12F of the Income Tax Act,1962 (the "ITA"). The taxpayer only objected to the disallowance of the CSI expenditure. No objection was lodged to section 13quin and section 12F allowances and the imposition of an Understatement penalty ("USP") and interest. The objection to the disallowance of the CSI expenditure did not find favour with SARS and the taxpayer lodged a notice of appeal. This was ultimately settled.
In 2019, SARS issued a Letter of Audit Findings in respect of the taxpayer's 2012 to 2016 years of assessment. indicating that it intended to disallow the deductions claimed by the taxpayer in respect of the CSI expenditure, the 13quin and 12F allowances, and to impose USPs and interest, in terms of the Tax Administration Act, 2011 ("TAA").
This prompted the taxpayer to revisit its 2011 objection in which it had not objected to SARS disallowance of its deductions in terms of section 13quin and 12F. The taxpayer requested SARS to agree to the taxpayer's amendment of its objection in relation to its 2011 year of assessment. The taxpayer sought to object to the adjustments effected by SARS in respect of the allowances claimed in terms of sections 13quin and 12F, as well as the imposition of USPs and interest.
SARS refused to allow the objection as it was of the opinion that section104 of the TAA, read with rule 7 of the Tax Court rules precluded such an amendment and that the taxpayer was seeking to introduce new grounds of objection, which was impermissible in terms of rule 32(3) of the Tax Court rules.
The taxpayer applied to the Tax Court, Johannesburg for leave to amend and such leave was granted by the Tax Court. This decision was overturned on appeal to the Supreme Court of Appeal ("SCA").
In , the taxpayer was unsuccessful in the Tax Court. The matter turned on the value of shares disposed of by the taxpayer and resultant donations tax and capital gains tax liability of the taxpayer and in this regard evidence was led by various experts as to the value of such shares. The taxpayer was unsuccessful in its appeal to the Full Court of the High Court on the basis as set out below. The decision of the High Court was upheld on appeal to the SCA.
In the taxpayer's heads of argument, it appeared that he wished to revisit certain questions of fact and interpretation. The court found that this raises an important point of principle anterior to the merits, namely whether these points are properly before this court as grounds of appeal. This was because the tax court is a creature of statute with the result that, as was held in Lion Match Company (Pty) Ltd v Commissioner for the South African Revenue Service, 'the scope of its jurisdiction, its powers and the ambit of any right of appeal from its decisions' are defined in the TAA.
The same principle was applied, in relation to an appeal to the tax court in terms of the Value Added Tax Act, 1991, in H R Computek (Pty) Ltd v Commissioner for the South African Revenue Services when Ponnan JA held that "not having raised an objection to the capital assessment in its notice of objection, the taxpayer was precluded from raising it on appeal before the tax court". The purpose underpinning this principle (which is of general application in civil and criminal appeals too) was set out thus by Corbett JA in Matla Coal Ltd v Commissioner for Inland Revenue in a matter concerning the ITA:
"Section 81(3) of the Act provides that every objection shall be in writing and shall specify in detail the grounds upon which it is made. And in terms of s 83(7)(b) the appellant in an appeal against the disallowance of his objection is limited to the grounds stated in his notice of objection. This limitation is for the benefit of the Commissioner and may be waived by him.' He stressed the importance of adherence to this principle, 'for otherwise the Commissioner may be prejudiced by an appellant shifting the grounds of his objection to the assessment in issue'. At the same time, however, he held that in the application of the principle, a court should not be 'unduly technical or rigid in its approach' and 'should look at the substance of the objection and the issue as to whether it covers the point which the appellant wishes to advance on appeal must be adjudged on the particular facts of the case".
These judgments show that the principle that a taxpayer cannot introduce new grounds of objection after the fact is reinforced. Careful consideration should be given to the merits by taxpayers when preparing grounds of objection.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.