FIRST SOUTH AFRICAN HOLDINGS CASE

By Johan Kotze

2

FIRST SOUTH AFRICAN HOLDINGS’ CASE

• Application for a declaratory order setting aside SARS’ decision that it was precluded by law to issue a reduced assessment in terms of section 79A

• Application in the High Court – Gauteng North was unsuccessful

• On appeal to Supreme Court of Appeal

3

FIRST SOUTH AFRICAN HOLDINGS’ CASE

Facts

• 2002’s return was originally assessed on 17 July 2003

• Additional assessment was issued on 12 April 2006, disallowing the carrying forward of a tax loss

• FSAH did appeal against the additional assessment, but the matter was subsequently settled

• On 24 July 2007 FSAH wrote to SARS and requested a reduced assessment, because the taxpayer erroneously included a foreign exchange gain in its income.

4

FIRST SOUTH AFRICAN HOLDINGS’ CASE

SARS’ arguments:

• First point in limine that section 79A did not apply to 2002

• Alternatively, the 3-year period began to run when the original assessment was issued on 17 July 2003, and not on the date of the additional assessment, which was 12 April 2006

5

FIRST SOUTH AFRICAN HOLDINGS’ CASE

Did section 79A apply to 2002?

Section 85(2) of the Taxation Laws Amendment Act provided that:

‘Save in so far as is otherwise provided in this Act or the context otherwise indicates, the amendments effected to the Income Tax Act, 1962, by this Act shall for purposes of assessments in respect of normal tax under the Income Tax Act, 1962, be deemed to have come into operation as from the commencement of years of assessment ending on or after 1 January 2003.’

6

FIRST SOUTH AFRICAN HOLDINGS’ CASE

Did section 79A apply to 2002?

The Amendment Act did not only amend the Income Tax Act but:

• Insurance Act

• Estate Duty Act

• Customs & Excise Act

These amendments, according to general principles, came into effect on the date of publication of the Act, which was 5 August 2002.

7

FIRST SOUTH AFRICAN HOLDINGS’ CASE

Did section 79A apply to 2002?

Section 13(1) of the Interpretation Act provides that:

‘[t]he expression ‘commencement’ when used in any law and with reference thereto, means the day on which that law comes or came into operation, and that day shall, subject to the provisions of subsection (2) and unless some other day is fixed by or under the law for the coming into operation thereof, be the day when the law was first published in the Gazette as a law.’

8

FIRST SOUTH AFRICAN HOLDINGS’ CASE

Did section 79A apply to 2002?

The amendments to the Income Tax Act in the Amendment Act were a mixed bag.

• Some were taxing provisions, with their own particular dates of commencement

• Those amendments to the Income Tax Act that were introduced for purposes of assessments in respect of normal tax were to come into operation as from the commencement of years of assessment ending on or after 1 January 2003.

• As to the balance the provisions of the Interpretation Act applied.

As a general principle taxing provisions deal with future matters and are backdated only exceptionally. Section 79A is not a provision inserted for purposes of assessments in respect of normal tax and the point in limine, which was not decided in the court below, cannot be upheld.

9

FIRST SOUTH AFRICAN HOLDINGS’ CASE

From when did the three year started? From the date of the original assessment or the additional assessment:

• if ‘assessment’ in section 79A of the Act referred to the’ notice of assessment’, the date of the additional assessment would presumably be the applicable one,

• but that is not what an assessment is – it is a ‘determination’ by the Commissioner of one or more matters and this appears from the definition of ‘assessment’, which defines it to mean ‘the determination by the Commissioner, by way of a notice of assessment...’

The importance is that this limitation is also on SARS, when it wishes to raise additional assessments