The Tax Court is a specialist court equipped to adjudicate on tax-related matters pertaining to the legality and correctness of disputed assessments. Sections 104 to 107 of the Tax Administration Act(1) together with the rules of the Tax Court, prescribe the procedures to be followed where a tax assessment is disputed and essentially entrust the Tax Court with the power to determine the merits of a tax assessment.
In Medox Limited v The Commissioner for the South African Revenue Service(2) the North Gauteng High Court was recently faced with the question of whether the High Court has the necessary jurisdiction to rule on the legal status of income tax assessments.
The South African Revenue Service (SARS) raised assessments against the applicant in respect of its 1998 to 2002 and 2004 to 2009 years of assessment, before raising an assessment for 1997. According to the applicant, certain assessed losses arising from previous years were therefore not properly brought forward and taken into account in determining the applicant's tax liability.
In 2009 the applicant realised that its 1997 and 2003 returns had not been assessed (and that the losses from previous years were not brought forward) and decided to re-submit the 1997 and 2003 returns, but did so only in 2011. However, SARS was unwilling to accept the taxpayer's claim.
The applicant subsequently approached the North Gauteng High Court for an order declaring all income tax assessments issued after 1997 to be null and void. The applicant contended that SARS had acted ultra vires when issuing the assessments because it failed to take into account the assessed losses as provided for in Section 20 of the act.
SARS opposed the application on the basis that the High Court had no jurisdiction to hear the application as the dispute between the applicant and SARS concerned the merits of the income tax assessments. SARS submitted that:
- the applicant never submitted its 1997 return;
- the applicant never objected to the 1998 assessment not reflecting the assessed losses under the act;
- the three year period, as contemplated in Section 79 of the act, had lapsed;
- the assessments in question had become conclusive;
- the applicant was not entitled to approach the High Court for an order declaring the assessments void without exhausting the internal remedies or the remedies set out in the act;
- the act makes it clear that the legality and correctness of an assessment must be dealt with by the Tax Court;
- in dealing with the application, the High Court would inevitably have to deal with the merits of the assessment; and
- the relief sought by the applicant was a final order rather than an interlocutory order.
The applicant submitted that:
- the Tax Court is a creature of statute and does not have inherent jurisdiction – it has only limited powers as derived from the act;
- the act does not confer on the Tax Court the power to make declaratory orders on the status of income tax assessments; and
- no internal remedies were available to the applicant because the three-year period for objecting had lapsed and the only remedy was to obtain an order on the validity of the administrative action, by way of either a review or a declaratory order.
Having regard to the submissions made by the parties, the court referred to Section 81 of the act and the rules of the Tax Court:
"a taxpayer who is aggrieved by an assessment may object to such an assessment in the manner and under the terms and within the period prescribed by the Act and the rules promulgated in terms of section 107A."
The court further referred to Van Zyl NO v Master(3) where Justice Eksteen confirmed that assessments can be questioned only in the manner provided for in the act. The act specifically prescribes the procedure and entrusts the determination of the amount of tax to SARS (by way of objection), and on appeal, to the Tax Court. Eksteen further confirmed that only the Tax Court can determine whether assessments were correctly made and that there was no intention to usurp that function of the Tax Court.
In Metcash Trading Ltd v Commissioner(4) the court held that the Tax Court is a specialist court specifically tooled to deal with disputed tax cases, and further found that the High Court has jurisdiction to adjudicate on tax matters only in circumstances where the relief sought is of an interlocutory nature.
Based on the authorities mentioned above, the court held as follows:
- The legality and correctness of disputed assessments must be dealt with by the Tax Court.
- The role of the High Court is to provide a judge as a member of the specialised Tax Court to hear appeals and not matters of first instance.
- The applicant failed to exhaust its internal remedies when it still had the time to do so and now wanted to circumvent the act by seeking a declaratory order in the High Court.
- The application for an order declaring assessments null and void could not be entertained without assessing the merits of the case, and such merits fall within the competency of the Tax Court.
- Once an assessment has been made, the parties are confined to the jurisdiction of the Tax Court and must exercise all their rights in the Tax Court – only once they have failed can the matter be referred to the Supreme Court of Appeal or the Constitutional Court.
Therefore, the court held that the High Court did not have the necessary jurisdiction to grant the order sought.
It is clear from the judgment that courts discourage 'forum shopping' applications by parties, as it could not have been the legislature's intention to create competing and concurrent forums for the resolution of tax disputes.
For further information on this topic please contact Nicole Paulsen at DLA Cliffe Dekker Hofmeyr Inc by telephone (+27 11 562 1000), fax (+27 11 562 1111) or email (firstname.lastname@example.org). The DLA Cliffe Dekker Hofmeyr website can be accessed at www.cliffedekkerhofmeyr.com.