This is an appeal to the Tax Court against the penalty of R5 456 484.60 levied by the Commissioner for the South African Revenue Service ("SARS") in terms of section 76 of the Income Tax Act, 58 of 1962 (“ITA”) where the court was requested to remit the levy as a whole or, alternatively, to such an extent that the court deems reasonable.
Point in Limine
In limine is a hearing on a specific legal point, which takes place before the actual case referred, can be heard.
Prior to the hearing of the matter, the Tax Court was asked to rule on two points in limine regarding firstly the incidence of the burden of proof pertaining to the imposition of the additional tax and consequently whether the duty to commence the proceedings is on SARS.
The court had to decide whether Section 76(1) of the Income Tax Act was applicable or whether the comparable sections in the Tax Administration Act, 28 of 2011 ("TAA") had application.
In this matter, the relevant portion of Section 76(1)(c) of the ITA provides that if a taxpayer makes an incorrect statement in any return rendered by him which results in the assessment of less tax than that which is properly chargeable, he is liable to pay an amount to twice the difference between the tax as assessed in accordance with the return made by him and the tax which would have been properly chargeable.
SARS imposed a 100% additional tax in terms of section 76 of the ITA.
In terms of Section 82 of the ITA, the burden of proof that any amount is exempt from or not liable to any tax chargeable shall be upon the person claiming such exemption.
On 1 October 2012, sections 76 and 82 of the ITA (amongst others) were repealed by section 271 of the TAA. Section 270(2)(d) of the TAA effectively states that any objection or appeal to the tax court instituted under the provisions of a tax Act repealed by the TAA, but not completed by the commencement date of the comparable provisions in the TAA, must be continued and concluded under the provisions of the TAA as if taken or instituted under the TAA.
It was common cause that the objection, disallowance of the objection and appeal were all lodged prior to 1 October 2012 when the TAA came into operation. The court looked at previous case law regarding new law affecting changes in procedure and found that it is not always easy to tell whether a statutory provision is purely procedural in effect or not. To avoid confusion, therefore, many statutes that repeal other statutes expressly regulate their transitional effect.
Section 270 of the TAA regulates transitional matters such as the matter in this case, and deals with procedural matters as well. Section 270(2)(d) provides clearly that an appeal which was launched prior to 1 October 2012 and not completed before 1 October 2012 is to be concluded under the provisions of the TAA, such as this case. In the circumstances, the court held that the result is that the provisions of section 102(2) and 129(3) of the TAA, pertaining to the burden of proof is applicable when dealing with penalties imposed and apply to the current proceedings.
The appellant had derived income as a beneficiary of four inter vivos trusts. SARS conducted an audit over the appellant for the 2009 tax year and found that she had under-declared her income for 2009 in the amount of R27million. SARS’s Objection Committee in terms of section 76(1) (c) of the ITA imposed a penalty of R5 456 484.60 on the appellant on 15 September 2011. This section was repealed with effect from 1 October 2012 in terms of Schedule 1 of the TAA. The court acknowledged that it must exercise its own, original discretion, irrespective of the penalty imposed by SARS. It entails that the Tax Court must deal with the matter without having regard to the findings of SARS.
It appears from the evidence that there were errors made by both parties in both the assessments done by the auditor acting on behalf of SARS as well as the auditor for the appellant. The errors made by the auditor for SARS resulted in 5 assessments being issued pertaining to the 2009 tax year, all of which contained different amounts. Furthermore, the auditor for the Commissioner did not disclose to the Objection Committee at the time that they reduced the penalty from 100% to 50% and that there was a credit to the taxpayer of approximately R13 million. There was thus no loss to the fiscus at the time the committee considered the objection.
The auditor for the appellant had made a mistake on 1 September 2010 when completing the appellant's tax return by pressing the 'file' button instead of the 'save' button.
The appellant conceded to the Tax Court that she knew that taxes had to be paid, however, she tried to lay the blame solely on the part of her auditor who had made the mistake. The fault of the appellant's auditor was compounded by the fact that although he was aware of his error, he failed to convey this to SARS. The court found that one would expect a reasonable, experienced accountant to do so.
It was obvious to the Tax Court that the appellant's auditor was taking the blame for the under-declaration of the appellant's income to SARS. The court found that the appellant's accountant's behaviour as an accountant in this matter was less than exemplary. The court had to decide whether the appellant should be punished for her accountant's dilatory behaviour, or only because she did not make enough enquiries as to whether the correct tax return had been submitted timeously and making sure that all was done to have the correct tax return furnished to SARS timeously.
The Tax Court considered all the facts, including the fact that SARS was not blameless, and found that due to the fact that the fiscus did not lose any income (a fact that was not disclosed to the Committee), the 50% additional tax should be reduced to 35% additional tax.
What is interesting for the taxpayer to take from this case is the fact that:
- They cannot hide behind the professionals that they appoint to deal with their tax affairs, and
- That the ultimate responsibility to submit the correct tax return timeously is that of the taxpayer, without exception.