One would think it is obvious that you cannot but, alas, it appears it is not that obvious. The context: rule 31(3) of the Tax Court rules as promulgated under section 103 of the Tax Administration Act, 2011 (“the rules”).
It reads as follows:
“SARS may include in the statement a new ground of assessment …[1] unless it constitutes a novation of the factual or legal basis of the disputed assessment or which requires the issue of a revised assessment”
On plain reading of the rule, it is glaringly obvious that (a) SARS may raise new grounds in their statement but (b) they are restricted to the type of new grounds they can raise.
In terms of the rule, SARS is restricted in that they may not raise a ground that constitutes a novation of the factual or legal basis for their assessment or which requires the issue of a revised assessment.
The “or” between the words “assessment” and “which” in rule 31(3) is the one that I refer to in the title. With respect, it seems the tax court is simply ignoring it.
Two judgments from the tax court serve to illustrate my point:
Lion Match case – The main dispute
In the lion Match case, the main dispute between the taxpayer and SARS was a capital gains tax dispute. The taxpayer declared a capital gain of, say R10. SARS said it must be, say R15 because SARS disagreed with the valuation used by the taxpayer in arriving at the base cost of the asset in question.
When the dispute reached litigation, SARS pleaded that the capital gain ought to be, say R20. The reason for the difference, said SARS, was that SARS had changed an underlying assumption regarding the proper valuation method to be used to determine the base cost of the asset. This, in turn, resulted in a decrease in the base cost by R5 and therefore an increase in capital gain from R15 to R20.
Taxpayer SC case – the main dispute
The main dispute (a transfer pricing matter) involves the question of what an arm’s length price is respect of certain cross border transactions. The taxpayer charged a fee of 1% of turnover. SARS disagreed and said a comparable uncontrolled price (CUP), and therefore arm’s length price, is 4% of turnover.
When the dispute reached litigation, SARS roped in an expert to determine what the correct arm’s length price ought to be. The expert, it seems, rejected the CUP method of arriving at an arm’s length price (meaning SARS’ 4% of turnover is not correct) in favour of an altogether different method called the Profit Split Method (PSM). SARS then pleaded reliance on the expert report in support of its case.
Whilst the judgment is silent as to what effect the PSM method will have on SARS’ original determination/assessment, I would imagine that 4% of turnover yields a number quite different to the number arrived at by applying the PSM.
The procedural issue in both cases:
In both the Lion Match case and the Taxpayer SC case, the taxpayers argued that SARS was raising impressible new grounds for assessment as contemplated in rule 31(3).[4] In Lion Match, the alleged impermissible issue was the change by SARS of the valuation and in Taxpayer SC, it was the change by SARS from CUP to PSM.
The Tax Court, in both instances, disagreed that SARS was novating the factual or legal basis for their assessment. I can understand that:[5]
- In Lion Match, the legal provision was paragraph 30 of the Eighth Schedule (the provisions governing market value rules for CGT purposes) and a change in the calculation does not make SARS’ case leave, so to speak, the parameters of paragraph 30. Indeed, SARS also relied on the same facts. There is then no replacement/novation of the facts or the law on which they raised their assessment.
- In Taxpayer SC, the legal provision was section 31. Changing the method of arriving at an arm’s length price does not make SARS’ case “leave” the parameters of section 31 and, to the extent the PSM method is based on the same facts on which CUP was arrived at, SARS also relied on the same facts. There is no replacement/novation of the facts or the law on which they raised their assessment.
So then, having established there is no factual or legal novation, does it mean SARS’ new grounds in Lion Match and Taxpayer SC was properly admissible? No! Because that’s only half the enquiry!
The word ‘or’
Rule 31(3), using the word “or” between the words “assessment” and “which” creates two separate grounds for impermissibility – those that appear before the word “or” and those that appear after the word “or”. It seems it may be difficult for some to see this. I will therefore highlight those that appear before and after the ‘or’:
- Those that appear before the word “or” are grounds that constitute a novation of the factual or legal basis for SARS’ assessment (“impermissibility ground one”); and
- Those that appear after the word “or” are those that require the issue of a revised assessment (“impermissibility ground two”).
They are separate and distinct requirements! So, any new ground SARS seeks to introduce in its rule 31 statement must be measured against two separate impermissibility tests. If the new ground fails to pass either of the two tests, it would be impermissible. This much, I would dare say, is obvious.
The words ‘revised assessment’, as appears in impermissibility ground two, is not defined in the Tax Administration Act, 2011 (“the TAA”). The word “assessment” is, though, in section 1 of the TAA,[6] as meaning “the determination of the amount of a tax liability…”. The word ‘revised’ quite obviously means changed. So then, revised assessment must be taken to mean, ‘changed amount of a tax liability.’
It follows then that if SARS raises a ground that requires a change in the amount of the previously determined tax liability (i.e. the one what is under appeal), then that ground will quite simply be an impermissible new ground. This is so, regardless of whether the new ground constitutes a novation of the factual or legal basis.
The tax court’s jurisdiction
Indeed, this conclusion also makes sense because the tax court will have no jurisdiction to adjudicate a dispute about an assessment that is raised for the first time in SARS’ pleadings. Allow me to explain.
When taxpayers and SARS are exchanging pleadings under rule 31 and 32, it means the taxpayer has appealed under section 107 of the TAA against an assessment. [7]
An appeal to an assessment can only follow from a disallowed objection under section 104. An objection lies only against “assessments” and certain decisions as contemplated in section 104(2). It has already been pointed above that assessments constitute determined amounts of a tax liability.
It follows then, that, for the tax court to be engaged/to have jurisdiction, there must have:
- existed a determined amount of a tax liability (i.e an assessment) otherwise there could not have been an objection; and
- That objection must have been disallowed under section 106 of the TAA, otherwise there can be no appeal to the tax court.
Indeed, if SARS were to be allowed to raise a ground in their rule 31 statement that gives rise of a changed amount (i.e. revised assessment), that revised assessment:
- Would not have been objected to under section 104 because it is “created” in a rule 31 statement well after objection remedy has been exhausted;
- There would have been no decision to disallow the objection under section106; and
- There would be no appeal under section 107 to that revised assessment.
Quite simply then, the tax court will have no jurisdiction to adjudicate any possible dispute about that revised assessment.
I pause to note that there would obviously be a notice of assessment where a case reaches litigation and where SARS seeks to introduce a new ground. That, however, does not mean that the revised amount SARS is seeking to introduce in its rule 31 statement when the case gets to litigation is included in that notice assessment.[8] In any event, taxpayers do not object to notices of assessment, they object to assessments and these are not the same things (something the taxpayer was reminded about by the SCA in CSARS v ACCSA).[9] Where a notice of assessment reflects a determined tax liability of R10, then a ground in SARS’ pleading requiring that amount to change to R15 would be a ground that requires the issue of a changed assessment.
Further still, the TAA prescribes what sort of assessments can be raised. It also gives the power to raise assessments exclusively to SARS. The tax court cannot create an assessment![10] In addition, in raising an assessment, the taxpayer ought to be given proper notice thereof in terms of section 96 of the TAA. Further allowing SARS to create an assessment in its pleadings renders the entire objection process redundant and indeed also other very important provisions of the TAA.
Conclusion
With respect, it is almost inconceivable that in Lion Match and indeed in the Taxpayer SC, that SARS, in my opinion, were allowed to add grounds that seems so glaringly impermissible they are almost blinding. The issue is compounded by the fact that the SCA in 2018[11] ruled that a decision by the Tax Court in Lion Match, i.e. that SARS’ new grounds were not impermissible, is not appealable in terms of the TAA.
[1] The omitted part here reads “or basis for allowance or partial disallowance of an objection”.
[2] (IT13950) [2017] ZATC 5 (30 January 2017).
[3] Cape Town Tax Court, Case No. 45840 (15 April 2025).
[4] Rule 31 read slightly differently at the time of the lion match case as it does now and at the time of the Taxpayer SC case, that difference is irrelevant.
[5] I would not necessarily say I agree. A discussion for another time perhaps.
[6] The same definition must be used when interpreting the rules as evident from rule 1 of the rules.
[7] It is possible for an appeal to be in relation to a section 104(2) decision but that’s not relevant to the point here.
[8] Which is effectively what it seems the taxpayer was at one stage trying to argue in lower courts but eventually rejected by the SCA in CSARS v ACCSA 85 SATC 1.
[9] 85 SATC 1.
[10] Whilst section 129(2)(b) indeed provides that the court may alter an easement, the word “alter” cannot mean ‘create’. To alter something, it must first exist, otherwise there is no alteration but rather creation.
[11] Lion Match Company (Pty) Ltd v Commissioner for the South African Revenue Service (301/2017) [2018] ZASCA 36 (27 March 2018).
