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SARS says “pay up”, but the court says “no”: An important case on taxpayers’ rights
- 04 September 2017
- Tax Administration
- Louis Botha
Important:
This article is based on tax law for the tax year ending 28 February 2018.
Author: Louis Botha (CDH)
In Nondabula v Commissioner: SARS and Another (4062/2016) [2017] ZAECMHC 21 (27 June 2017), heard by the Mthatha High Court, Nondabula (Taxpayer), brought an application to interdict the South African Revenue Service (SARS) from invoking the provisions of s179 of the Tax Administration Act, No 28 of 2011 (TAA) pending the final determination of the Taxpayer’s objection to an additional assessment of his income tax. Furthermore, the Taxpayer sought an order that SARS withdraw its third party notice, in terms of which SARS instructed Absa to withhold and pay over monies held in the Taxpayer’s bank account.
Facts
The Taxpayer is a businessman and sole proprietor of a fuel service station called Umzimkhulu Shell Garage and it is in respect of this business that he is liable to pay taxes to SARS in these proceedings. The matter at hand arose after SARS issued an additional assessment in terms of which the Taxpayer was ordered to pay an amount of R1,422,637.83 within 10 days, in a letter dated 29 September 2016. The letter was preceded by a statement of account issued by SARS which reflected a balance brought forward in the sum of R1,404,517.97. Apart from the information in the statement of account, SARS did not explain how it arrived at these figures. The Taxpayer objected to the additional assessment on 4 April 2016, but SARS rejected the objection on 5 May 2016. The Taxpayer then wrote another letter to SARS on 3 June 2016 in which the Taxpayer requested that SARS reconsider the objection. The Taxpayer also submitted further documentation with this letter and submitted a further objection, but SARS did not respond to the letter or the objection. It simply raised technical objections against the Taxpayer’s objections.
Legal framework
The court considered the provisions of s92, s95, s96 and s179 of the TAA and the interaction between those provisions. These provisions deal with, among other things, the rules pertaining to the issuing of additional assessments based on estimates and the issuing of a third party notice in terms of which an institution is ordered to pay monies that would have been due to a person, to SARS, to satisfy a person’s tax debt.
Judgment
The court explained that in terms of s92 of the TAA, SARS must issue an additional assessment if at any time it is satisfied that an assessment does not reflect the correct application of a tax Act to the prejudice of SARS or the fiscus, so as to correct the prejudice. However, before SARS can act in terms of s92, it must comply with the provisions of s95, which provides, among other things, that SARS may raise an additional assessment based on an estimate, based on information readily available to it. The court found that SARS had complied with s95, as SARS explained in its answering affidavit that the additional assessment was raised due to the Taxpayer declaring interest income of R0, which did not match the interest income amount of R32,734 for the Taxpayer’s account held at Absa.
The court continued, stating that once SARS had decided to act in terms of s92 and had complied with s95, it was then required to comply with s96 of the TAA. Section 96 contains the formal requirements regarding the information that must be contained in a notice of assessment, but importantly it also states that in addition to these formal requirements “SARS must give the person assessed in the case of an assessment described in section 95 of an assessment that is not fully based on a return by the taxpayer, a statement of the grounds for the assessment”. In other words, SARS had to explain the grounds on which the additional assessment was raised, by providing a statement of the grounds of the assessment. SARS failed to do this under the circumstances as the statement of account issued to the Taxpayer did not provide such grounds.
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This article first appeared on cliffedekkerhofmeyr.com.