You win some, you… cases where costs were awarded to the tax­payer against SARS

Finweek English Edition - - Cover -

ITC 1816 68 SATC 316, year: 2006 In this mat­ter the tax­payer had en­tered into a re­straint of trade agree­ment (RTA), in terms of which she would be paid R1,1m in two tranches: R440 000 to be paid on 25 Oc­to­ber 1999 and R660 000 on 30 Septem­ber 2001. The em­ployee was later re­trenched on 17 Au­gust 2001.

Rev­enue had in­cluded the full R1,1m in the tax­payer’s gross in­come for the rel­e­vant tax year. Rev­enue ar­gued the amount was ac­tu­ally for ser­vices ren­dered or to be ren­dered, which had the amount fall into sub- para (c) of the gross in­come def­i­ni­tion. Rev­enue fur­ther ar­gued that the RTA was a sham and a dis­guise for com­pen­sat­ing the tax­payer for ser­vices ren­dered.

The court found Rev­enue had pro­vided no ex­pla­na­tion for its whim­si­cal con­duct in re­la­tion to the grounds of as­sess­ment. The tax­payer had been as­sessed for the year 2000 and the first tranche hadn’t been in­cluded in her gross in­come. That was also the case in the re­vised ad­di­tional as­sess­ment for the same tax year.

On 18 De­cem­ber 2003, Rev­enue is­sued the dis­puted as­sess­ment and in­cluded the full RTA amount. When re­quested by the tax­payer to fur­nish full rea­sons for the dis­puted as­sess­ment in July 2004, Rev­enue re­sponded in De­cem­ber 2004 with the same rea­sons it had fur­nished in its let­ter dated 22 De­cem­ber 2003.

In the course of the ap­peal, Rev­enue didn’t ad­mit any ev­i­dence that showed any im­pro­pri­ety on the part of the tax­payer. It had not even been put to the tax­payer in cross-ex­am­i­na­tion that she had par­tic­i­pated in a dis­hon­est trans­ac­tion.

Rev­enue’s own wit­ness also sup­ported the tax­payer’s ev­i­dence. Rev­enue and its coun­sel knew their wit­ness sup­ported the tax­payer’s ver­sion. Yet Rev­enue per­sisted in the ap­peal with an out­come that was pre­dictably ad­verse to it.

The court viewed such con­duct as ha­rass­ment of a tax­payer. The court ruled Rev­enue had acted un­rea­son­ably in pur­su­ing tax of about R400 000 when its case was ten­u­ous, if not weak, and sub­jected the tax­payer to enor­mous costs. The court fur- ther found Rev­enue dis­played an ar­ro­gant dis­re­gard for the rights of the tax­payer to ad­min­is­tra­tive action that was rea­son­able and pro­ce­du­rally fair. ITC 1806 68 SATC 117 In this mat­ter, Rev­enue in­formed the tax­pay­ers it would be aban­don­ing its claim, which at that stage had brought the two tax­pay­ers to bear the cost of three coun­sels each.

The court awarded costs, in terms of sec­tion 83(17)(e) where the ap­peal has been with­drawn or con­ceded by one of the par­ties af­ter a date of hear­ing has been al­lo­cated by the reg­is­trar. The court fur­ther awarded costs on the scale of at­tor­ney and client, as Rev­enue’s rep­re­sen­ta­tives knew there were good com­mer­cial rea­sons for the trans­ac­tion that had noth­ing to do with a scheme in terms of sec­tion 73 of

the vAT Act.

The fail­ure of the rep­re­sen­ta­tives to recog­nise that fact hadn’t been ex­plained to the court. The court found the fail­ure of rev­enue to cor­rect its erred po­si­tion was vex­a­tious. The court also granted the tax­pay­ers costs for the prepa­ra­tion of the ap­pli­ca­tion, for costs on the at­tor­ney client scale in terms of sec­tion 83(17)(d) and (e). The court held rev­enue’s re­fusal to of­fer to ten­der costs was vex­a­tious. ITC 1821 (2006) 69 SATC 194 (P) The tax­payer was a busi­ness­woman and had filed her in­come tax re­turns for the tax years 1994 to 1998. Three years af­ter the 1994-1996 tax years rev­enue de­cided the tax­payer had failed to de­clare her in­come in full. rev­enue con­tended it had been de­frauded by the tax­payer, or at the least was a vic­tim of mis­rep­re­sen­ta­tion.

on 30 Jan­uary 2002, rev­enue raised an ad­di­tional as­sess­ment, even though the tax­payer had pro­vided a detailed ex­pla­na­tion of the na­ture of the al­legedly undis­closed in­come, which in­di­cated that none of the rel­e­vant amounts were in­come in her hands. rev­enue also im­posed ad­di­tional tax at 100% of the al­legedly undis­closed in­come, as well as penal­ties.

In the ap­peal, the tax­payer’s ev­i­dence re­mained largely un­chal­lenged by rev­enue. It also hadn’t pre­sented a case that would jus­tify the con­clu­sion that the tax­payer had set out to de­fraud rev­enue.

The court noted rev­enue had had lit­er­ally sev­eral years dur­ing which the truth of the tax­payer’s as­ser­tions could have been scru­ti­nised and the ac­cu­racy of her ver­sion checked. There was no ev­i­dence at all; rev­enue had done noth­ing more than stick to its dis­be­lief of the tax­payer’s story.

mere sus­pi­cion, the court ruled, is no ba­sis upon which the char­ac­ter and hon­esty of the tax­payer may be im­pugned. Nei­ther is it an ex­cuse to force a tax­payer to ap­peal against an as­sess­ment man­i­festly without merit.

The court found rev­enue had acted in a high-handed and reck­less fash­ion and that it would be un­just to have the tax­payer pay costs in de­fend­ing the mat­ter.

The court be­lieved the ac­tions of the of­fi­cials fell far short of the stan­dard of pro­fes­sional con­duct the pub­lic was en­ti­tled to ex­pect of them. DJ Visser (Pty) Ltd v CIR 25 SATC 403 In this mat­ter the tax­payer paid a trans­fer duty in re­spect of the sale of prop­erty. rev­enue then claimed ad­di­tional trans­fer duty and cited cer­tain ver­sions of the ap­pli­ca­ble Act in the let­ter it sent the tax­payer. The tax­payer be­gan no­tice of mo­tion pro­ceed­ings, ap­peal­ing in terms of sec­tion 18 of that Act.

rev­enue then raised a point in lim­ine that the in­cor­rect sec­tion had been ini­tially cited by it and that in terms of the cor­rect sec­tion an ap­peal in terms of sec­tion 18 (as the tax­payer had cited) wasn’t pos­si­ble.

The court agreed with rev­enue’s ar­gu­ment but stated it was obliged to pay the tax­payer’s costs, which flowed as a con­se­quence of the in­cor­rect ci­ta­tion of the sec­tion of the Act by rev­enue.

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