Commissioner of Inland Revenue v DA Costa

• Jurisdiction: South Africa
• Judge: Corbett JA, Joubert JA, Van Heerden JA, Galgut AJA and Nicholas AJA
• Judgment Date: 24 May 1985
• Citation: 1985 (3) SA 768 (A)
• Hearing Date: 06 May 1985
• Court: Appellate Division

Van Heerden JA:

In respect of the years of assessment ended 28 February 1971 to 1977 the respondent submitted returns of his income together with supporting accounts. The Secretary for C Inland Revenue, as the incumbent of the appellant's office was known from 1964 to 1980, was dissatisfied with the returns and caused an investigation to be carried out into the respondent's financial affairs. In the result the Secretary issued additional assessments for the tax years in question and, following on an objection by the respondent, reduced D assessments for 1971, 1972 and 1976, on the basis that the respondent's income had been understated by a substantial amount. The additional, read with the reduced, assessments reflected that additional normal tax was payable in respect of each of the relevant years. Acting in terms of s 76 of the Income Tax Act 58 of 1962 the Secretary furthermore imposed a E penalty equal to the additional normal tax. The upshot was that a total amount of R15 590 was payable as additional tax and a like amount as a penalty.

The respondent lodged an appeal which was eventually confined to the alleged excessiveness of the penalty. The Cape Income Tax Special Court (BERMAN AJ presiding) allowed the appeal and F reduced the amount of the penalty to R3 000. With the leave of the President of the Special Court the appellant in turn appealed to this Court.

It appears from a letter written on behalf of the Secretary to the respondent's representatives that the extent of the penalty was determined by a committee in Pretoria. The Special Court expressed doubt as to whether it was competent for the G Secretary to delegate his function in terms of s 76 (2) (a) to the committee (or, for that matter, to any person or body) but found it unnecessary to decide the point. The Court's approach was that, assuming that it was competent for the committee to fix the penalty, the Court was in terms of s 83 (13) (b) at large to reduce, confirm or increase the amount of the penalty, H unfettered by any discretion exercised by or on behalf of the Secretary. The Court expressed agreement with what was said by MELAMET J in Income Tax Case No 1331 43 SATC 76 at 84, and disagreement with the contrary view entertained by FRIEDMAN J in Income Tax Case No 1295 42 SATC 19 at 30-31, read with I Income Tax Case No 1351 44 SATC 58 at 62-63.

Section 76 (1) (b) provides that, if a taxpayer omits from his return any amount which ought to have been included therein, he shall be required to pay, in addition to the tax chargeable in respect of his taxable income,

"an amount equal to twice the difference between the tax as calculated in respect of the taxable income returned by him and the tax properly chargeable in respect of his taxable income as determined after including the amount omitted".

J Subsections 2 (a) and (b) read as follows:

Van Heerden JA

"(a)

A The Commissioner may remit the additional charge imposed under ss (1) or any part thereof as he may think fit: Provided that, unless he is of the opinion that there were extenuating circumstances, he shall not so remit if he is satisfied that any act or omission of the taxpayer referred to in para (a), (b) or (c) of ss (1) was done with intent to evade taxation.

(b)

In the event of the Commissioner deciding not to remit the whole of the additional charge imposed under ss (1), his B decision shall be subject to objection and appeal."

Section 83 (13) (b) provides that, subject to the provisions of the Act, in the case of any appeal against the amount of the additional charge (the penalty) imposed under s 76 (1) the Special Court may reduce, confirm or increase the amount of the penalty.

C With regard to the discretion conferred upon the Commissioner (previously the Secretary) by s 76 (2) (a), FRIEDMAN J said in Income Tax Case No 1295 at 30:

"The Secretary deals with a large number of cases of this kind. He has yardsticks by which to go and is in a far better position to decide upon appropriate remissions than this Court. D Where, of course, the Secretary exercises his discretion on an incorrect basis or by taking into account matters which he is not entitled to take into account, this Court will disregard the Secretary's decision and be at large to itself decide upon an appropriate remission. Where, however, the Secretary has properly exercised his discretion in a bona fide manner, then it...