TAX

Facts: Thistle is a registered inter vivos discretionary trust and a South African tax resident. Thistle is a beneficiary of 10 vesting trusts described as the Zenprop Group. Zenprop is a property developer and property owner. In the course of its business, it frequently buys and sells properties. In the 2014, 2015 and 2016 tax years, Zenprop disposed of assets and realised capital gains, the proceeds of which it distributed to Thistle. Thistle, in turn, distributed the proceeds of those capital gains to the natural persons who were its beneficiaries. The proceeds of the capital gains were all passed through the multi-tiered trust structure to the ultimate beneficiaries within the same tax years in which they were realised. Acting on legal advice received, Zenprop and Thistle did not account for the capital gains in their tax returns for the 2014, 2015 and 2016 tax years. They were advised that the relevant amounts were capital gains which, in terms of the common law conduit principle, and the relevant provisions of the Income Tax Act 58 of 1962 (ITA), were taxable as capital gains in the hands of the ultimate beneficiaries. The beneficiaries accounted for the capital gains in their tax returns and paid the capital gains tax for which they would have been liable in respect of these capital gains.

Appeal: SARS conducted a tax audit of Thistle. It took the position that on a proper application of the ITA, liability for the capital gains realised by Zenprop had passed from Zenprop to Thistle as the direct beneficiary of Zenprop, but did not pass further from Thistle to its beneficiaries. It accordingly held Thistle liable for capital gains tax in respect of the amount of the capital gains distributed to it by Zenprop. An additional assessment followed, which Thistle successfully appealed to the Tax Court. The Supreme Court of Appeal upheld SARS’ argument that the capital gains realised by the disposal of properties by Zenprop were taxable in the hands of Thistle and not in the hands of the ultimate beneficiaries (the court also dealt with the imposition of understatement penalties).

Discussion: Thistle argues that the conduit principle is a rule of common law that applies to the taxation of trusts. Therefore, it must not only inform the interpretation of the relevant provisions of the ITA but also apply to the taxation of the relevant capital gains, unless the ITA has clearly excluded or qualified such application. Thistle contends that there is nothing in the ITA that excludes or qualifies the application of the conduit principle to the capital gains in this case. Apart from the conduit principle, Thistle relies on the deeming provision in section 25B of the ITA. It argues that in terms of section 25B the capital gain of Zenprop is deemed to be the capital gain of Thistle when it was distributed to Thistle and then deemed to be the capital gain of the beneficiaries when it was distributed further from Thistle to the beneficiaries. SARS submits that section 25B does not apply to capital gains, only to other income that is relevant for income tax purposes. It emphasises that section 25B was introduced into the ITA at a time when capital gains tax did not exist in South Africa and accordingly could not, originally, have been intended to apply to capital gains.

Findings: Paragraph 80(2) of the Eighth Schedule of the Act deals with capital gain in respect of the disposal of an asset by a trust. The wording of paragraph 80(2) shows that the provision applies the conduit principle only to the first beneficiary trust in a multi-tiered trust structure. It is not reasonably possible to interpret paragraph 80(2) to allow the conduit principle to run through a multi-tiered trust structure to attribute liability for capital gains tax in respect of the disposal of an asset to a beneficiary beyond the first beneficiary of the trust that realised the capital gain by disposing of that asset. The legislative history of paragraph 80(2) and the 2008 memorandum both confirm that paragraph 80(2) was amended into its present form for the purpose of preventing the conduit principle operating through multiple discretionary trusts in a tiered trust structure. Paragraph 80(2) thus admits of only one interpretation – that, in relation to capital gains tax, the conduit principle does not apply throughout a multi-tier trust structure and capital gains are taxable once distributed to a second-tier trust.

Order: The appeal is dismissed.

CHASKALSON AJ (MAJIEDT J, MATHOPO J, MHLANTLA J, THERON J and TSHIQI J concurring)

BILCHITZ AJ (with MADLANGA J) dissenting from para [94]

Facts and issue: The appellant’s (taxpayer’s) tax return in which the taxable capital gain was disclosed as nil, was assessed by the respondent (SARS). Based on tax audit findings, SARS issued the taxpayer with an additional tax assessment. The taxpayer objected to the additional assessment. SARS disallowed the objection. The taxpayer noted an appeal to the Tax Court against SARS’s decision to disallow the objection. The taxpayer appeals against the Tax Court’s decision which dismissed the taxpayer’s application. In issue is whether the taxpayer is or should be permitted to raise in its appeal the so-called ‘new’ grounds of appeal not raised in its objection letters.

Discussion: The taxpayer’s ground of objection was that its original assessment for the 2012 year of assessment had ‘become prescribed’ due to expiry of the relevant three-year period laid down in section 99(1)(a) of the Tax Administration Act. In its Rule 32 statement, the taxpayer relied on the new ground of appeal in relation to the 2012 year of assessment, which it considered it was entitled to do in terms of the previous Rule 32(3) of the Tax Court Rules. The additional assessment in dispute was the determination of the amount of tax liability by way of assessment by SARS. This necessarily involves the determination of both taxable income and the tax liability that results therefrom once the applicable rate of tax is applied. The taxpayer’s objection was, necessarily, an objection to the amount of the taxable income, being the amount of R47,329,834, giving rise to the tax liability determined by SARS and, as a matter of course, the tax liability resulting therefrom.

Findings: The fact that the taxpayer objected to the inclusion of the said amount in its taxable income on the ground of ‘prescription’ does not mean that it did not object to the inclusion of the said sum in its taxable income. That is precisely what it objected to, albeit on the grounds of ‘prescription’. The new ground of appeal does not constitute a ground of objection against an amount of the disputed assessment not objected to under Rule 7, as contemplated in Rule 32(3).

Order: The appeal is upheld with costs.

Facts: The applicant’s case originates in an additional tax assessment imposed for 2015. He became aware of this when submitting his income tax return for the following year. The explanation received was that business expenses were disallowed and that there was no explanation for his decline in turnover. The applicant took issue with the additional assessment. The applicant filed an objection in March 2017. He was advised that this was refused as it was outside the time period prescribed by Tax Administration Act 28 of 2011 (TAA). The applicant applied to Allan Gray for the withdrawal of his retirement benefit as he had reached the age of 55. He was informed that the full amount due had been paid over to the South African Revenue Service (SARS) following receipt of a notice in terms of section 179(1) of the TAA.

Application: The applicant seeks repayment of an amount of R145,934,99 paid by Allan Gray Retirement Annuity Fund to the respondent. He claims that the notice for payment of the funds, in terms of section 179(1) of the TAA violates other provisions of the TAA and contravened section 37A(1) of the Pension Funds Act 24 of 1956 (the PFA) so that it was invalid and a violation of the constitutional right to have access to social security.

Discussion: The applicant contests the section 179(1) notice on the basis that it was not written by a senior SARS official, as required by the legislation, is "a product of artificial intelligence" and is null and void. Moreover, there was non-compliance with sections 179(4) and 179(5) of the TAA, a violation of section 37A of the PFA and section 27 of the Constitution. SARS is an organ of state within the public administration. The TAA provides for the effective and efficient collection of tax, including measures for the recovery of tax. SARS is afforded further powers to enforce the collection of taxes due, including the appointment of a third party as an agent of the taxpayer in terms of section 179 of the TAA. If a taxpayer’s obligation to pay tax pending an objection or an appeal is not suspended, SARS can actively take steps to enforce the collection of tax. Various demands were issued to the applicant for an unpaid tax debt in accordance with section 179(5). The correspondence included the prescribed details and in each instance the applicant was put on clear and unequivocal terms to settle his debt.

Findings: The respondent is permitted to appoint a third party to act as an agent for the taxpayer. SARS was entitled to issue the third-party notice and thereby recover the funds in question to satisfy an existing tax debt. Allan Gray, upon receipt of what it considered to be due notice, effected the payment to SARS. In attaching proof of its payment to SARS, Allan Gray also informed the applicant of the link between the IT88 directive and section 179(1) of the TAA. The complaint that the respondent did not afford the applicant another opportunity to raise his personal circumstances overlooks the purpose of the notice and its intended recipient. The applicant had received notification of a final demand for payment prior to the issue of the notice, as required by the legislation. The argument that the respondent acted unconstitutionally fails to consider the limitation of rights envisaged by section 36 of the Constitution. The respondent’s conduct constitutes a reasonable and justifiable limitation of the right to have access to social security.

Order: The application is dismissed.

GOVINDJEE J

Facts and issue: The applicant is a clearing agent, and it was alleged that, in respect of 67 consignments of imported goods, it could not sufficiently account for the successful exporting thereof. SARS accordingly demanded payment from the applicant of some R14 million of import duties and payment of some R20 million comprising of interest, penalties and forfeiture amounts. The applicant seeks to have the decision to issue the demand reviewed and set aside.

Discussion: The matter relates to RIT documentation prepared by the applicant and submitted to SARS. Part of SARS’ case against the applicant was that it had failed to keep and furnish records in terms of section 18(3) of the Customs and Excise Act 91 of 1964 to show that goods cleared by it as RIB or RIT have subsequently been exported out of the country. On the evidence presented, this claim was clearly substantiated. The fact that the applicant could not, even after the launch of the application prove the exporting of all but two of the consignments (which was in one instance even only done after the fact) confirms that SARS’ impugned decision was therefore both rational and factually correct.

Findings: The failure by the applicant to produce acquittal documents after the notices of intention to raise a debt had been issued also indicate that the release of liability as provided for in section 99(2) of the Act had not occurred. Although the applicant sought to rely on this section, it had not produced any evidence that it had taken all reasonable steps to prevent non-fulfilment of the exporting requirements or that it had reported to the customs controller any such non-fulfilment, as required by the section. As a clearing agent, the applicant’s liability incurred upon importation of the diesel therefore never terminated.

Order: The application is dismissed with costs.

Facts: The appellant, Tholo Energy Services, is a licensed distributor of fuel (LDF) as defined in section 64F(1) of the Customs and Excise Act 91 of 1964 (the Act). The appellant submitted to the respondent, the Commissioner of SARS, four claims for a refund of fuel and Road Accident Fund (RAF) levies under the Act, totalling some R4,25 million, in respect of 25 consignments of diesel exported to the Kingdom of Lesotho. The Commissioner made a determination under section 47(9)(a) of the Act, in terms of which he disallowed the refund claims on the basis that the appellant had not complied with the requirements for refunds prescribed by the Act and the Customs and Excise Act Rules (the Rules).

Appeal: The appellant lodged an internal administrative appeal but the appeal committee disallowed the appeal and confirmed the determination. The appellant then appealed the determination to the High Court in terms of section 47(9)(e) of the Act. The High Court dismissed the appeal with costs. The High Court also found that the appellant had removed the fuel to Lesotho without the requisite permit issued in terms of the International Trade Administration Act 71 of 2002 (the ITA Act), by the International Trade Administration Commission (ITAC).

Discussion: The appellant’s sole member is also a shareholder and the sole director of Tholo Tholo Lesotho. It carries on business in that country and supplies fuel mainly to companies operating in the construction and mining industries. 25 consignments of fuel were collected on behalf of the appellant from depots of PetroSA for removal to Lesotho. PetroSA is a licensee of a customs and excise manufacturing warehouse (a refinery) in Mossel Bay, also known and referred to in the papers as a “VM”. The fuel was not obtained from PetroSA’s VM in Mossel Bay, but from depots and storage tanks at other locations. The Commissioner contends that the fuel was not exported in accordance with the requirements for rebate because: there is no evidence that the goods were manufactured in South Africa; the fuel was not obtained from stocks of the licensee of a VM; the fuel was not wholly and directly removed for delivery to Lesotho; the fuel was not transported by a licensed remover of goods; the fuel was not removed by a LDF, the appellant; the appellant did not pay the debt in respect of which the refund was sought; and the fuel was unlawfully exported to Lesotho without the requisite export permit.

Findings: The appellant failed to establish that the fuel was obtained from stocks of the licensee at a licensed VM, as the Commissioner rightly determined. The fuel was removed from PetroSA’s depots in Bloemfontein and Tzaneen, and from the depot of TotalEnergies in Alrode. The undisputed evidence is that none of these depots is a licensed manufacturing warehouse. Solely on this ground, the appeal in terms of section 47(9)(e) of the Act was correctly dismissed. An ITAC permit is required to export fuel. The appellant’s claim that it was established that the fuel was locally manufactured is unsustainable on the evidence. None of the depots from which the fuel was obtained is registered with SARS as a VM. The movement and storage of fuel in storage tanks, prior to export (or removal), does not comply with the requirement that the fuel be “wholly and directly” exported. Tholo Lesotho, which transported the fuel to Lesotho, is not a registered remover of goods in bond. The fuel was delivered by Tholo Lesotho to the purchaser in Lesotho. It is not a LDF.

Order: The appeal is dismissed with costs, including the costs of two counsel.

SCHIPPERS JA (HUGHES JA, WEINER JA, KGOELE JA and TOLMAY AJA concurring)

Facts and issue: The urgent application brought by the applicant against the Commissioner for SARS, the respondent, arises from search and seizure operations conducted by the respondent at the applicant's premises. These operations were executed pursuant to warrants obtained ex parte from the Magistrates Court. The applicant seeks an order compelling the respondent to furnish it with copies of the ex parte applications used to obtain the search warrants, as well as interdictory relief preventing the respondent from conducting further searches or using seized materials pending the provision of the ex parte applications.

Discussion: The respondent initially contended that it was not obliged to provide the applicant with the ex parte applications, as a competent court issued the warrants after considering the relevant affidavits and information. This contention cannot be sustained. Rule 55(3)(e) of the Magistrates' Courts Rules imposes an explicit and peremptory obligation on the respondent to serve on the applicant copies of the ex parte applications and supporting affidavits used to obtain the warrants. This obligation exists independently of the magistrate's consideration of the applications. This rule aims to enable a party affected by an ex parte order to exercise its right to challenge that order appropriately. Access to the application papers is necessary for the applicant to assess the lawfulness of the warrants and to exercise its right to apply for reconsideration.

Findings: The respondent was legally obliged to furnish the applicant with copies of the ex parte applications and supporting affidavits used to obtain the search warrants. The applicant has established a clear right to be furnished with the ex parte application papers. There is a well-grounded apprehension of irreparable harm. The respondent has already conducted one search operation and has indicated its intention to perform further operations. Without timely access to the ex parte applications, the applicant could not assess and challenge the lawfulness of these actions appropriately. The balance of convenience favours granting relief. The potential prejudice to the applicant outweighs the temporary limitation on the respondent’s powers if relief is refused. It is noted that the respondent has now furnished the applicant with copies of the ex parte applications.

Order: Pending the final determination of an application to be brought by the applicant, the respondents are interdicted from conducting any further searches or seizures at the applicant's premises under the warrants. The respondents are interdicted from using, for any purpose whatsoever, any materials, information or data seized or obtained during the search conducted.

Facts: Tunica is a licensed distributor of fuel (LDF) in terms of section 60 of the Customs and Excise Act 91 of 1964. It is a small-scale distributor which purchases fuel for supply to foreign-going ships. In 2014 Tunica purchased diesel from Masana Petroleum Solutions, which supplies fuel to small-scale distributors. A letter by BP Southern Africa (BP) states that it supplies fuel to Masana in terms of a supply agreement between BP and Masana. BP is a licensee of a customs and excise manufacturing warehouse within the meaning of section 64F of the Act. In 2015, SARS rejected the refund application on the ground of non-compliance with section 64F(1)(b) of the Act, because Tunica did not acquire the fuel from the licensee of a customs and excise manufacturing warehouse (BP). Instead, the fuel was purchased from an intermediary, Masana, which allegedly had purchased it from a licensed manufacturing warehouse, BP. Tunica appealed the decision to an internal administrative appeal committee of SARS (appeal committee). Tunica was advised that the appeal committee had disallowed the appeal. Tunica brought an application in the High Court. The High Court dismissed the application with costs. The full court upheld the appeal with costs. It set aside the High Court’s order and replaced it with an order declaring the commissioner’s decisions invalid and reviewed and set aside those decisions.

Appeal: The appellant, the commissioner of the South African Revenue Service (Commissioner), appeals against the decision of the full court of the High Court, Cape Town, which reviewed and set aside two decisions by the SARS relating to applications by the respondent, Tunica, for the refund of excise duty and fuel levy under the Customs and Excise Act 91 of 1964.

Discussion: It is clear from the evidence, contrary to the finding of the full court, that SARS’ response to that notice in its letter is not a decision made under section 77F of the Act. SARS’ response was thus not reviewable. A notice in terms of section 96 plainly falls outside the appeal process contemplated in section 77F of the Act. Rather, it is a mandatory first step required by the Act before legal proceedings may be instituted against the Commissioner. It is therefore not surprising that the response to the section 96 notice does not constitute "administrative action" as defined in the Promotion of Administrative Justice Act. Tunica sent the section 96 notice pursuant to the dismissal of its appeal by the appeal committee, after it had requested reasons for that decision. The section 96 notice unequivocally states that "there are a number of grounds on which Tunica intends to challenge the approach by SARS as constituting an error of law" under the PAJA, a decision which directly affected its right to a refund of the customs duty and fuel levy. Consequently, there can be no suggestion that Tunica was seeking a decision by the commissioner in terms of section 77F of the Act. The full court’s findings are unsustainable on the evidence. So too, its finding that "the decision is the operative decision which constitutes administrative action as defined in PAJA and is therefore reviewable". The full court’s order on this aspect must therefore be set aside.

Findings: SARS’ interpretation of the Act is correct. The full court erred in holding that on a proper interpretation of section 64F(1)(b) of the Act, it includes the purchase of fuel from an intermediary; that the purchase of the fuel from Masana was an irrelevant consideration which SARS had considered; and that Tunica had complied with all regulatory requirements. Tunica did not begin to make out a case for a refund of the customs duty or fuel levy. On its own version, Tunica failed to establish that the fuel was obtained from the stocks of the licensee. Ms Gillian Grobbelaar, the deponent to the founding affidavit, states that Tunica purchased the fuel from Masana. This is inadmissible hearsay. There is no evidence from BP or Masana to show that the fuel originates from the stocks of a licensee of a customs and manufacturing warehouse. A consequence of its failure to adduce evidence of the origin of the fuel is that Tunica has not established that the fuel was manufactured in South Africa as required by section 75(1) of the Act. On this basis too, its claim for a refund of duty had to fail. The appeal committee refused Tunica’s appeal essentially because the fuel had not been sourced from the stocks of a licensed customs and excise manufacturing warehouse and was not a direct movement from the stocks of such licensee. In deciding that Tunica failed to comply with section 64F(1)(b) of the Act read with rule 64F.06(d) and Schedule 6 to the Act, SARS committed no reviewable irregularity.

Order: The appeal is upheld with costs. The application is dismissed with costs.

SCHIPPERS JA (MOLEMELA P, MOCUMIE JA, MEYER JA and TLALETSI AJA concurring)

Facts and issue: SARS conducted an audit into certain diesel fuel consignments declared for export to Zimbabwean entities. The applicant had rendered services as clearing agent in respect of the consignments. The audit had uncovered various infractions of the Customs and Excise Act 91 of 1964 including acts of misrepresentations. The respondent held the prima facie view that the fuel had not been exported and that the diesel refunds claimed by the applicant’s principals had been unlawfully claimed. The applicant was informed of the commissioner’s intention to hold it liable, jointly and severally, with its principals, for amounts, in lieu of forfeiture, as well as duties.

Discussion: The applicant’s case is that there is no liability for duties on the goods entered by the applicant for export as duties were paid upon removal from the manufacturing warehouse by Shel and BP, in line with the duty at source system of rules. Does the respondent have any legal basis to hold the applicant liable for the export value of the goods, in lieu of forfeiture? The applicant framed invoices reflecting transnational sales of fuel by Shell or BP to Zimbabwean entities. The applicant further framed export bills of entry representing Shell or BP (its principals) as the exporter of fuel to Zimbabwean entities as consignee and purchaser. Each of these entries reflected false information, which to the knowledge of the applicant was contrary to the local and the true sale, as represented by the second invoice issued by Shell or BP, to the local purchasers. These assertions are made in every LOI sent to the applicant and are not placed in dispute by the applicant. The applicant knew that its clients had not sold fuel to the Zimbabwean entities but to the local entities.

Findings: Given the commissioner’s determination that the fuel was not exported, the refund was unlawfully claimed and wrongfully allowed. The commissioner is thus entitled to demand and reclaim the duties. The fact that the refund was unlawfully claimed, does not mean that it was not paid. The refund was allocated to discharge liability in respect of other goods on the excise account. The commissioner has grounds to hold the applicant liable for amounts payable in lieu of forfeiture. The order sought by the applicant cannot be granted.

Order: The application is dismissed with costs.

Facts and issue: The applicants seek an order reviewing and setting aside a decision by SARS to reject the refund application of the applicants in respect of duties and levies paid in respect of 48 vehicles that were imported into the Republic, and then exported to Zimbabwe and Zambia. Furthermore, the applicants seek a refund from SARS of R3,536,488. DSV established that the XGR entries had been entered in error, and that in the case of the vehicles being exported, only XE entries were required to be made. It also established that the duties and charges had been paid in error.

Discussion: The applicants' case is premised simply on the contention that SARS has collected monies to which it is not entitled, and that it has an obligation as an organ of state to refund the money. SARS admitted that DSV had submitted both XGR and XE entries. The XGR entries were invalid in that they not only incorrectly described the circumstances under which duty was allegedly payable, but it is also undoubtedly so that the incorrect duties were paid. SARS approach, that two valid but opposing entries were submitted to the Controller is also incorrect. If an entry is incorrect in the sense that it declares that the vehicles are intended for importation, when that is in fact not the case, the entry is invalid by virtue of the provisions of section 40(1)(b) of the Customs and Excise Act 91 of 1964. Section 40(3)(a)(i) allows an importer or exporter who discovers that a bill of entry either does not comply with section 39, or is invalid in terms of section 40(1), to adjust the bill of entry by way of a voucher of correction. DSV was correct to adjust the bill of entry by means of a voucher of correction.

Findings: The purpose of the Act is to collect duties and charges that are due to SARS in terms of the Act, and not a cent more. The Act does not empower SARS to collect more than is due to it, and the retention of the money in this case is not authorised by the Act. The decision not to refund the money is therefore reviewable. SARS retention of monies that are not due to it offends against the rights enshrined in the Constitution, and, as an organ of state, SARS is obliged to promote these rights.

Order: The decisions of the first respondent to reject the refund applications made by the applicants is reviewed and set aside. The first respondent is ordered to refund the sum of R1,154,552 to the first applicant.

Facts: The Tullow Group undertook a restructuring of its African operations during January 2007. Prior to the restructure, Energy Africa (taxpayer) formed part of the Tullow Group. The taxpayer sold its shares and claims in Energy Africa to Tullow Overseas Holdings BV on 25 January 2007. The tax return submitted for that period did not raise any liability for the capital gains tax (CGT). The Commissioner for the South African Revenue Services (SARS) instituted action against the appellants for payment of R216,6 million. SARS claimed that the appellants caused, or assisted in causing, Energy Africa to dissipate its assets in order to obstruct the collection of a tax debt owed by it to SARS. The dissipation was alleged to have occurred by transferring a loan account claim Energy Africa held in TSD as a dividend in specie to Elandspad, its holding company. The High Court was required to decide whether the transcript of evidence presented by the appellants at an inquiry is admissible in the trial proceedings and, if so, for what purpose; whether the assessments raised by SARS against Energy Africa for secondary tax on companies (STC) and CGT constitute "tax debts" for purposes of section 183 of the Tax Administration Act 28 of 2011.

Appeal: The High Court found that the transcript was admissible. It held that the purpose for which the evidence could be used should be determined by the trial court. The High Court also found that the STC and CGT tax assessments constitute tax debts for purposes of section 183 of the TAA. The appeal, with the leave of the High Court, is against these findings. The same issues as served before the High Court now serve before this court.

Discussion: The argument advanced by counsel for the appellants was that in order to establish liability under section 183, the person concerned must have knowingly assisted in the dissipation of assets "in order to obstruct the collection of a tax debt". A "tax debt" must necessarily exist at the time of the alleged dissipation and the person concerned must know that the tax debt exists. A tax debt is an amount which is due and payable, as the ordinary meaning of the term suggests. In this instance the tax debt only arose upon notice of assessment. The particular assessments to tax, in this case, do not constitute tax debts as contemplated by section 183 of the TAA. Counsel for SARS contended that the term "tax debt", as used in section 183, must be read in the light of section 169(1) which provides a specified definition of the term for the purposes of the recovery of tax as contemplated by Chapter 11, of which section 183 forms part. The opening passage of section 1 of the TAA provides that the terms there defined have the assigned meaning "unless the context otherwise provides". The starting point is therefore that Chapter 11, and therefore section 183, envisages a debt that is either due, in the ordinary sense, or payable.

Findings: The term "tax debt" in section 183 undoubtedly refers to a recoverable tax debt, in the sense of a determined tax debt, insofar as it permits recovery from the third party. But that is not its exclusive meaning. The term also encompasses the amount of tax a taxpayer is liable to pay to SARS. If a taxpayer is chargeable to tax, the taxpayer is indebted notwithstanding that the amount of the indebtedness has not yet been determined. A tax debt exists, irrespective of the absence of an assessment of the tax debt. To hold that the section requires that, at the time of the dissipation, the taxpayer’s obligation to pay tax due to SARS should be liquidated and immediately claimable by action, would defeat the purpose of the section. Considering the text of the relevant sections of the TAA and the approach to comparable provisions in the Companies Act and the Insolvency Act, the transcript of the evidence given at the section 50 inquiry is admissible in the litigation between the parties. The evidence obtained pursuant to section 50 of the TAA serves a legitimate purpose, which is to enable SARS to execute its statutory duty, to recover tax debts due to the fiscus.

Order: The appeal is dismissed with costs.

GOOSEN JA and TOLMAY AJA (MOCUMIE ADP, MOTHLE JA and SEEGOBIN AJA concurring)

Facts and issue: A previous judge granted a provisional preservation order in terms of section 163 of the Tax Administration Act 28 of 2011 against Majestic Silver, placing under provisional curatorship the business of Majestic Silver, and appointed a certain Miller as the provisional curator and conferred on him certain extensive powers as contained therein. In terms of the said provisional preservation order, Majestic Silver and any other interested parties were called upon to show cause why such provisional preservation order should not be made final. At the time of the issue of such provisional preservation order, Majestic Silver was already placed under business rescue proceedings and a business rescue practitioner was appointed.

Discussion: It is contended by the BRPs that the preservation application was fatally defective for non-compliance with the provisions of section 133(1)(b) of the Companies Act 71 of 2008. The contention raised in this regard is to the effect that section 133(1)(b) prohibits legal proceedings against a company placed under business rescue, unless done with leave of the court in accordance with the terms the court considers suitable. The analysis of section 133(1)(b) of the Act, reveals that having regard to its text, context and purpose, there is no exclusion or preclusion of a creditor from utilising the hybrid procedure of simultaneous seeking in the same legal proceedings for the preservation order, leave of the court to uplift the moratorium to avoid a multiplicity of legal actions and to save time and limited court resources. Consequently, the hybrid procedure adopted by SARS was proper, valid and permissible.

Findings: It was not incompetent, impermissible or unlawful for SARS to seek and obtain the provisional preservation order after Majestic Silver had already been placed under business rescue and the BRP had been appointed. Nor was it necessary or required for SARS to initiate a separate and distinct formal application to seek and obtain the leave of the court as so contemplated in section 133(1)(b) of the Act, prior to launching the preservation application. It was likewise, not improper, unlawful or impermissible for SARS to use the hybrid procedure to seek and obtain such leave of the court in the same main application i.e. provisional preservation application. Nor was it incompetent for the court to grant such provisional preservation application in circumstances where leave of the court was sought in the self-same main application for the preservation order.

Order: The provisional preservation order, as per the court order, is confirmed.

Facts and issue: The applicant, Atlantis, operates a mining company. It is carrying on business as a contract miner providing mining services to three different mining sites. Atlantis has brought two applications. Atlantis seeks declaratory relief concerning the interpretation of section 36(7F) of the Income Tax Act, 58 of 1968. Secondly, Atlantis seeks interim relief pending a judicial review. The review application has subsequently been withdrawn and the only issue to be dealt with is the aspect of costs.

Discussion: Atlantis contends that for income tax purposes it is a contract miner not owning the mining rights nor the property of the three sites where it performs its mining activities. In consequence, its mining activities are not site-specific, and the machinery owned and used on such sites is not exclusive to any one site. In fact, it contends that the machinery is moved from site to site, depending on the job requirements and the nature of the tasks. The mining income relates directly to all the assets owned by the company as a whole. Therefore, it argues it is allowed to claim deductions on the capital expenditure on the machinery which is used in a manner which is not site-specific. If not, a lacuna in the ITA exists in respect of contract miners verses conventional miner. From the correspondence relied on it is clear that SARS was never placed in a position to consider nor reconsider or alter its view for lack of further information in support of Atlantis’ adopted view. Atlantis had no information or intention of supplying the further information. This is not only evident from the numerous requests since December 2019 but also evident from the last correspondence Atlantis had with SARS after the section 11 notice when Aphane stated that although their client was able to supply information but did not wish a response thereto.

Findings: Atlantis did not, as it should have, follow the default rule by adopting the special machinery created by the Tax Administration Act 28 of 2011. The court exercises its discretion against entertaining the merits of the application. In consequence, the objection, albeit by not applying section 105 of the TAA on principle is successful, and the necessity to deal with merits unnecessary.

Order: The application is dismissed.