Notices of Objection: Going All the Way for a Second Chance

A taxpayer who is aggrieved by an assessment may object to the assessment in terms of section 104 of the Tax Administration Act, No. 28 of 2011 (‘the Act’). The objection must be instituted within 30 business days from the date of assessment, where the taxpayer has not requested reasons for the assessment. This period may be extended by a further 30 days if a senior SARS official is satisfied that reasonable grounds exist for the delay in lodging the objection and may be extended up to a period of three years if exceptional circumstances exist.

In a recent Supreme Court of Appeal (‘SCA’) judgment CSARS v Airports Company for South Africa (Case no 785/2021) [2022] ZASCA, the taxpayer brought an application to amend an objection after the time period to lodge an objection had lapsed. The facts briefly were that:

During December 2015 to February 2016, SARS conducted an income tax audit on the taxpayer.
SARS issued a Letter of Audit Findings on 8 February 2016 in respect of the 2011 year of assessment advising that it intended to:
1. Disallow a deduction claimed in terms of section 11(a), read with section 23(g), of the Income Tax Act 58 of 1962 (‘the ITA’);
2. disallow an allowance claimed in terms of s 13quin of the ITA;
3. disallow an allowance claimed by the taxpayer in terms of section 12F of the ITA; and
4. impose understatement penalties (‘USPs’) in terms of the Act.
After an exchange of correspondence between SARS and the taxpayer, on 30 March 2016 SARS issued a Finalisation of Audit Letter and issued additional assessments. It disallowed the section 11(a) deduction, the section 13quin allowance, the section 12F allowance, and imposed USPs.
On 12 March 2016, the taxpayer lodged an objection to the additional assessments. However, it only objected to the disallowance of the section 11(a) deduction.
On 6 September 2019 through newly appointed attorneys, the taxpayer addressed a letter to SARS seeking an indulgence to amend the objection it had lodged in respect of the 2011 year of assessment. The taxpayer now wished to object against the disallowances in respect of section 13quin and section 12F as well as the USPs imposed.
SARS refused to allow the objection on the basis that the taxpayer was seeking to introduce new grounds of objection, which was impermissible in terms of the Act read with the Tax Court Rules promulgated under it.
As neither the Act nor the Rules make provision for the amendment of an objection, the taxpayer applied to the tax court for leave to amend its objection in terms of Rule 28(1) of the Uniform Rules read with Rule 42(1) of the Tax Court Rules.
Rule 42(1) provides that if the tax court rules do not provide for a procedure in the tax court, then the most appropriate rule under the High Court rules may be utilised.
The taxpayer asserted that Rule 28(1) of the Uniform Rules was the most appropriate rule, which states that any party desiring to amend a pleading or document filed in connection with any proceedings, shall notify all other parties of its intention to amend and shall furnish particulars of the amendment.
The tax court held that ‘rule 42 of the Tax Court Rules permits an applicant to approach a court for an amendment in terms of rule 28 of the Uniform Rules of Court’.

On appeal by the Commissioner from the Tax Court, the Supreme Court of Appeal held:

An objection is part of the pre-litigation administrative process and is not a pleading.
It is also not a document filed in connection with judicial proceedings envisaged in terms of Uniform rule 28(1).
Rule 42(1) only comes into play when the tax court rules do not make provision for a procedure in the tax court. Rule 42(1) does not apply to those procedures which constitute pre-litigation administrative procedures such as an objection to an assessment.
Therefore, the tax court erred in granting leave to the taxpayer to amend its notice of objection in terms of Uniform rule 28.
The effect of the amendment sought by the taxpayer would be to extend the period for the filing of an objection (or the filing of new grounds of objection) long after the peremptory periods prescribed in section 104 of the TAA, read with Rule 7, have expired.
Accordingly, the Commissioner’s appeal was upheld with costs.

Comment:

Although one may have a measure of sympathy for the taxpayer, with respect, the findings of the SCA are correct.

South African case law (Reed and Others v Master of the High Court of SA [2005] (EC) paras 24 – 26; Marais v Democratic Alliance [2002] (C) at 436-437) has held that an internal remedy has the following characteristics:

It is an extra-curial remedy (it is out of court);
The remedy takes the form of an administrative appeal to an official within the same administrative hierarchy as the initial decision-maker;
The internal appellate body is created or given power to confirm, substitute or vary the decision of the initial decision maker, in terms of an enactment of law.

A notice of objection has all the characteristics of an internal remedy as defined by case law, because it is an extra-curial (out of court) administrative appeal in terms of a statute (the Act) to an official (the Commissioner for SARS or a senior SARS official) within the same administrative hierarchy (SARS) and the official is empowered to confirm, substitute, or vary the decision of the initial decision-maker on the merits.

An objection is therefore not a pleading and is an internal remedy or pre-litigation administrative process. It does not fit into the provisions of Uniform Rule 28(1).

It is important to note that an assessment is not a piece of paper or single document but is defined in section 1 of the Act to mean the determination of the amount of a tax liability by way of self-assessment or assessment by SARS.

An assessment is therefore the Commissioner’s administrative act and determination and when one objects to an assessment, one objects to the individual determinations made by the Commissioner that are complained of, and it is necessary in an objection to deal with each individual determination by which one is aggrieved.

What the taxpayer sought to do in this case was not merely amend an objection but introduce new grounds, which amounted to new objections after the periods in which to object had lapsed, and this was rightly held by the court to be impermissible.

A taxpayer may of course supplement its grounds in appeal proceedings provided it does so in respect of what it has already objected to. The new ground of appeal must be in respect of the same amounts and the same parts of the assessments originally objected to under Rule 7 (see Rule 32(3) and Tax Court decisions ITC 13791 & ITC 13931).

The same reasoning applies to the Commissioner who, in terms of Rule 31(3) may not include a ground of assessment in appeal proceedings that constitutes a novation of the whole of the factual or legal basis of the disputed assessment or which requires the issue of a revised assessment. Had the SCA ruled in favour of the taxpayer, it may have had the unintended consequence of allowing SARS in other contexts to amend its basis of assessment through a similar request for amendment.

Taxpayers must be mindful that there is a difference between a new ground which amounts to a new objection and one which simply supplements what has already been objected to.

Second chances are often limited and our SCA has now authoritatively established that this is true in respect of objections.