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In the Lion Match case[1] SARS argued for an increase in its own assessment. In other words, for the sake of simple explanation, SARS originally raised a capital gains tax liability of R10 and when the dispute reached litigation, SARS effectively argued that their own assessment is wrong and that the CGT bill should in fact be, say, R15. Effectively then, this means that SARS did some more (audit?) work half-way through the case and wanted to include new/more findings in the dispute, halfway through the case.

The tax court did not rule in favour of SARS on the basis the taxpayer’s case was not heard (the taxpayer unsuccessfully applied for postponement in the tax court) and section 129 of the TAA requires that the taxpayer’s case be heard before the assessment can be altered. That judgment was handed down by the tax court in 2020.

SARS appealed to the High Court and won on appeal when judgment was handed down in their favour in 2023.[2] The High Court held that the tax court was wrong because the rules allow the tax court to hear and decide a matter in the absence of the other party. This seems somewhat logical.

However, at first glance, it appears the wrong questions were asked. It is arguably not, in my humble opinion, a question of whether the tax court can hear a case in the absence of the other party or whether the taxpayer’s case must first be heard before section 129 can apply. These questions miss the point.

What about rule 31?

Rule 31 of the tax court rules prevents SARS from raising a ground for assessment that requires the issue of a revised assessment.

An ‘assessment’ is a determination of a tax liability. If SARS originally determined the tax liability at say R10, any ground at appeal stage that would result in a tax liability of R15 would require a revised assessment.  That is not permissible in terms of rule 31, period.

Of course, rule 31 also states SARS may not raise a ground that constitutes a novation of the factual or legal basis for an assessment and that simply increasing numbers is not a novation, in that sense, but there is one crucial element missing in such analysis. The word “or” in rule 31(3). That small, yet important little word, creates a distinction between new grounds that are a novation and new grounds that would require the issue of a revised assessment. Neither are permissible.

This is so regardless of whether the taxpayer will have the chance to be heard in their reply to such new impermissible ground in their rule 32 statement. The rule does not say it is only impermissible if you don’t give the taxpayer a chance to respond. In any event, last I checked, the tax court is a creature of statute and can only act within the rules that govern it. Rule 31 is one of those rules.

Are revised assessments revised numbers?

Unless one must not look only at the numbers to see if a ground requires the issue of a revised assessment. Stated differently, perhaps a “revised” assessment is something other than a change to the numbers contained in the assessment. So, the argument would be, if SARS originally determines proceeds at R100 and base cost at R90 and later, on the same disposal, treats base cost as R85, then it doesn’t require a revised assessment. Sure, the capital gain changes from R10 to R15 but the R15 is a determination on the same disposal. So then, the argument would be, SARS is not revising the determination, only of the amount thereof. The determination made originally was in respect of a disposal and the new one is also in respect of that same disposal.  Therefore it’s not a new determination and the ground that does not require a revised assessment. The trouble with that argument, though is the definition of “assessment” which quite pertinently refers to “the amount of a tax liability or refund”. There is no escaping the fact that when the amount changes, the amount of the tax liability changes and therefore, by definition, there is a new ‘assessment’.

The jurisdiction of the tax court?

Further still, the very existence of an assessment and indeed notice of the assessment to the taxpayer is a prerequisite for the tax court to have jurisdiction in the first place (insofar as relevant here). So too is the existence of an objection and a decision to disallow that objection. Without these things, the tax court simply does not have jurisdiction.

If SARS initially said: here is an assessment and notice of assessment for R10, the taxpayer objects and loses and SARS later wants to say it’s actually R15 (and they do that in their pleadings), where is the assessment and notice of assessment for that additional R5? Where is the objection and the decision to disallow the objection against any such additional assessment to R5?  I’d say these things do not exist. If they do not exist, then the tax court does not have jurisdiction to make any form of decision as contemplated in section 129 of the TAA because the case can’t be in the tax court to begin with.

Or should we interpret section 129 as meaning the tax court can make an assessment also?  If so, does that mean then that the tax court can create the very thing it needs to have jurisdiction (i.e. an assessment) in order for the court to alter it/confirm it? That doesn’t make sense to me. Now, of course, some readers might say that I am missing the point because in the Lion Match case there was an assessment that was raised by SARS (so therefore the court had jurisdiction) and the court could then have altered it to increase the liability and therefore, so the argument could go, it’s not like the court would be creating something that was not already there in order to somehow create its own jurisdiction.

That argument, however, loses sight of what an assessment actually is. An assessment is a determination of a tax liability. If, in my example, the determined tax liability by SARS was R10 and the court rules it must be R15, the court makes a new determination of R5 that did not exist before. Before the court rules it is R15, there is no assessment to the extra R5. The very ruling that it must be R5 more is what creates the assessment but that simply cannot be because for the court to make any form of ruling on the R5, it had to have existed for the court to make a ruling on the R5.

Another way of looking at it is that when SARS argued for the increase in their assessment, they made a determination of a tax liability of an additional R5 (i.e. they made their assessment in the pleadings[3]) and the court therefore simply confirms the assessment raised by SARS in their pleadings. On this argument, the assessment exists, the court has jurisdiction to hear it and therefore can make an order in terms of section 129.

But that also does not check out. Section 107 of the TAA gives the taxpayer the right to appeal. Taxpayers only have that right “after delivery of a notice of the decision referred to in section 106(4)”.[4]  That is after SARS delivered notice of a decision to disallow the objection. If the argument is that the assessment was raised in the pleadings, then that very fact also means there can be no appeal in terms of section 107. Absent an appeal in terms of section 107, the tax court does not have jurisdiction insofar as making rulings on assessments are concerned.

It seems odd to me that we are asking questions about whether the taxpayer’s case must first be heard and whether the court can hear a case in the absence of the other party if the matter could arguably have been decided on the basis of rule 31 or on the basis of the Tax Court’s jurisdiction.   

The earlier rejection of the taxpayer’s striking out application.

The reason we are asking what may at first appear to be wrong questions and why these questions miss the point is maybe, in part, because the taxpayer tried but failed to deal with this issue on the basis of rule 31. The issue of whether rule 31 had been breached was already decided in 2017[5] and an attempt to take it on appeal failed in 2018.[6]

Let’s then consider briefly those two earlier judgments. In the 2017 application launched by the taxpayer to strike out the argument to increase the capital gains tax on the basis of a breach of rule 31, the court concluded that because SARS’ argument to increase the capital gain was not a novation of the factual or legal basis for SARS’ assessment, it does not require the issue of a revised assessment.

That conclusion, however, I respectfully submit, ignores the word “or” in rule 31(3). “Novation” is one ground for impermissibility whilst “revised assessment” is another. If the rule maker intended that we read them as a single ground for impermissibility it would obviously have used the word “and”.  

The apparent confusion between what I submit is two different and distinct criteria seems to have been caused by the jurisprudence on the predecessor the current rule 31, and the old rule 10. The old rule 10 was not clear at all about what can be added at appeal stage but in IT1843,[7]  the court held that because rule 10 was written in the present tense, it meant that SARS could depart from the original grounds for their assessment. Presumably meaning if the rule maker intended to refer to grounds raised by SARS before it got to appeal phase, the rule maker would have said that SARS must set out the grounds for their assessment “relied upon” (as opposed to “relies on”).

In the application to strike brought by Lion Match in 2017, the court concludes that the same principle should apply to rule 31. Presumably, because rule 31 is also written in the present tense. But that is not quite all there is to it, is it? Rule 10 simply said SARS must set out the grounds SARS relies on. Rule 31 says the same (granted, also in the present tense) but then importantly adds that it may not be a ground that constitutes a novation or a ground which requires the issue of a revised assessment.

The carve-outs in rule 31(3) were not contained in rule 10 and whilst the court, in the 2017 judgment, does seem to consider the carve-outs added in rule 32 by launching into an analysis on the meaning of “novation” and “basis” the court appears to ignore the word “or” and treats “novation” and “revised assessment” as one single ground for impermissibility.[8]    

I respectfully submit that the 2017 judgment is incorrect as it ignores the plain wording of the new rule 31. Unfortunately, however, the taxpayer’s appeal against the 2017 judgment failed. Not, however, on the basis that the judgment of the tax court was correct, but on the basis the 2017 judgment is not appealable.

In my view, a ground that requires the issue of a revised assessment is simply not permissible at appeal stage in terms of rule 31 (including the pre-10 March 2023 version of rule 32). Whilst indeed my view contradicts the 2017 Lion Match judgment of the Tax Court, suffice it to say that tax court judgments do not set a precedent. Further still, the High Court, in the 2023 judgment, does not address the issue of the tax court’s jurisdiction nor of whether the grounds are permissible in terms of rule 31.  

My view, however, does not mean SARS cannot increase its assessment if there have grounds for doing so. What it does mean though is that they can’t do it at appeal stage. Rather, they must raise a new assessment if they want to increase it, subject to section 99 (prescription), section 100 (finality of assessments), 92 (additional assessments), 96 (notice of assessment) and 42 (effectively, audi) of the TAA etc. and the taxpayer can then challenge such new assessment afresh, starting in the objection phase. In this regard it is interesting to note that the additional assessment originally raised by SARS in the Lion Match case was issued on 30 April 2013. By the time judgment was handed down in the 2017 Lion Match case, the 2013 assessment would have become prescribed. Perhaps that is part of the reason why SARS did not just simply raise a new assessment for the additional tax (as opposed to adding it to the dispute at appeal phase).[9]

That conclusion also seems fair given the new grounds that can be raised by taxpayers at appeal phase. Rule 32 is clear that taxpayers cannot include a ground for appeal against something that was not placed under objection.[10] It does not mean taxpayers can’t dispute it (subject to prescription and section 100 of the TAA and compliance with time periods etc), it just means they can’t add it to an existing dispute at appeal phase.

But be all that as it may. For now, at least. It has been reported in the media there is an intention to appeal. Maybe SARS’ arguments will go up in flames after all, who knows?[11]

[1] Lion Match Company (Pty) Ltd v CSARS (IT13950) ZATC (24 February 2020).

[2] Lion Match Company (Pty) Ltd v Commissioner for the South African Revenue Services (A 202/2020) [2023] ZAGPPHC 615 (29 May 2023)

[3] Which is not that far-fetched given the judgment in CSARS v SA Custodial Services (Pty) Ltd, 74 SATC 61.

[4] Section 107 of the TAA. In any event, pleadings most probably in any event does not contain the particulars required in terms of section 96 of the TAA. I am yet to see a rule 31 statement where SARS, for example, specifies the grounds for objecting to an assessment. I certainly would not expect to see it there.  

[5] Lion Match Company (Pty) Ltd v Commissioner for the South African Revenue Services (IT13950) [2017] ZATC 5 (30 January 2017)

[6] Lion Match Company (Pty) Ltd v Commissioner for the South African Revenue Service (301/2017) [2018] ZASCA 36 (27 March 2018)

[7] 72 SATC 229.

[8] See for example at paragraph 55 of the 2017 judgment where the court concludes that: “As already held I am not satisfied that SARS has changed the entire basis of the assessment in the statement of grounds of assessment.”

[9] Section 99(2)(d)(i) would not have been of any assistance to SARS.

[10] Nor can they try to avoid this rule by, for example, bringing an application to amend an objection.

[11] Tip: if the tax court did not have jurisdiction to make the ruling made the High Court (i.e. to increase SARS’ assessment), could that ruling have been made on appeal in the High Court?

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