GB Mining and Exploration SA (Pty) Ltd v Commissioner, South African Revenue Service

• Jurisdiction: South Africa
• Citation: 2015 (4) SA 605 (SCA)

GB Mining and Exploration SA (Pty) Ltd v Commissioner, South African Revenue Service
2015 (4) SA 605 (SCA)

2015 (4) SA p605

Citation	2015 (4) SA 605 (SCA)
Case No	903/2012; [2014] ZASCA 29
Court	Supreme Court of Appeal
Judge	Navsa JA, Shongwe JA, Theron JA, Wallis JA and Swain AJA
Heard	March 6, 2014
Judgment	March 28, 2014
Counsel	EM du Toit SC for the appellant.; A Subel SC (with J Boltar) for the respondent.

Flynote : Sleutelwoorde B

Revenue — Assessment to tax — Objection — Whether competent if assessment based on incorrect information supplied by taxpayer — Burden of proof C when objecting against such assessment — Income Tax Act 58 of 1992, s 81(1).

Headnote : Kopnota

Section 81(1) [*] of the Income Tax Act 58 of 1992 (the Act) provided that any taxpayer 'aggrieved by any assessment' may object to such assessment in the D prescribed manner. Here the taxpayer had raised objections in terms of this section to revised assessments over four tax years, contending that they were based on incorrect information that the taxpayer itself had supplied to the Commissioner of the South African Revenue Service (the Commissioner) in its tax returns. The objections having been disallowed by the Commissioner — one in full and the others partially — the taxpayer unsuccessfully appealed to the tax court. In the taxpayer's further appeal to the E Supreme Court of Appeal, the issues were —

(1)

whether, given that s 79(A) [†] of the Act specifically dealt with reduction of assessments based on incorrect information provided in the taxpayer's return, it was permissible for the taxpayer to object in terms of s 81(1) rather than relying on s 79(A); and

(2)

whether, given that s 81 of the Act placed the burden of proof on the F taxpayer, the onus of satisfying the Commissioner that the information supplied by the taxpayer was incorrect (and that the reduction was therefore justified) had been discharged.

Held as to (1):

A taxpayer who had been the cause of an incorrect assessment by the Commissioner G could, as an alternative to relying on s 79A, claim to be 'aggrieved' thereby and object to the assessment in terms of s 81. This was because a taxpayer whose taxable income had been determined on an erroneous basis was always 'aggrieved' even if the source of error was entirely attributable to him; and also because the powers of the Commissioner under s 79A could be exercised 'notwithstanding the fact that no objection [had] been made', suggesting that an alternative route for the taxpayer to follow was by way of H objection and, if necessary, appeal. (Paragraphs [23] – [25] at 612B – F, paraphrased.)

Held as to (2):

The onus of satisfying the Commissioner that the information furnished was incorrect and that a reduction in the assessment was justified was on the I

2015 (4) SA p606

A taxpayer. In order to discharge this onus, additional evidence would have to be placed before the Commissioner, the nature of which would depend upon the facts of each case and particularly the nature of the erroneous information supplied to the Commissioner. Such evidence would have to explain the precise nature and extent of the incorrect information and how B it was included, and all relevant supporting documentation to verify the correct information would have to be submitted. So where the contested determinations were based upon incorrect information supplied to the Commissioner by the taxpayer — whether in the form of balance sheets and accounts or otherwise — the taxpayer must show that it provided credible and reliable evidence to explain the error and substantiate what it maintained C was the true position. (Paragraphs [28] – [30] at 613C – 614B.)

This the appellant taxpayer had failed to do, and the appeal was accordingly dismissed insofar as it related to the Commissioner's determinations based on incorrect information furnished by the taxpayer. (Paragraphs [33], [43], [56] and [60] – [69] at 615A – B, 616I – 617A, 619A – C and 619F – 621F.)

Cases Considered

Annotations D

Case law

Commissioner for Inland Revenue v Nemojim (Pty) Ltd 1983 (4) SA 935 (A): referred to

Commissioner, South African Revenue Service v BP South Africa (Pty) Ltd 2006 (5) SA 559 (SCA): dictum in para [23] applied E

ITC 1785 67 SATC 98: applied

Jooste v Score Supermarket Trading (Pty) Ltd (Minister of Labour Intervening) 1999 (2) SA 1 (CC) (1999 (2) BCLR 139; [1998] ZACC 18): referred to

New State Areas Ltd v Commissioner for Inland Revenue 1946 AD 610: dictum at 620 – 621 applied F

Parbhoo and Others v Getz NO and Another 1997 (4) SA 1095 (CC) (1997 (10) BCLR 1337): referred to.

Statutes Considered

Statutes

G The Income Tax Act 58 of 1962, s 81(1): see Juta's Statutes of South Africa 2010/11 vol 3 at 1-546.

Case Information

EM du Toit SC for the appellant.

A Subel SC (with J Boltar) for the respondent.

H An appeal from the Tax Court, Pretoria (Mokgoatlheng P).

Order

1.

The appeal is dismissed, save in the respects set out in paras 2 and 3 below.

2.

I The penalties raised by the respondent in respect of the OTR amount and the travelling expenses are remitted in their entirety.

3.

The order directing the appellant to pay the respondent's costs in the court a quo is set aside.

4.

The respondent is ordered to pay 10% of the appellant's costs in the J appeal.

2015 (4) SA p607

Judgment

Swain AJA (Navsa JA, Shongwe JA, Theron JA and Wallis JA A concurring):

[1] The appellant, GB Mining and Exploration SA (Pty) Ltd (GB Mining), was the subject of revised assessments for the tax years 2003 to 2006 issued by the respondent, the Commissioner for the South African Revenue Service (the Commissioner). B

[2] GB Mining objected to the assessments. The Commissioner disallowed the objection in respect of the 2003 tax year and partially disallowed the objection in respect of the remaining tax years. GB Mining appealed to the Pretoria Tax Court which dismissed the appeal, save in respect of the issue of management fees, which does not form part of C the appeal to this court. The present appeal is with the leave of the president of the tax court. [1]

[3] In order to place the contested assessments of the Commissioner in context, it is necessary to set out the background concerning the history and activities of GB Mining. D

[4] Mr Ken Barnard, a geologist, developed what he considered to be a unique process for the extraction of platinum from chrome-mining tailings. Together with Mr Ricky Gardner he decided to exploit his concept but in order to do so a source of chrome tailings, as well as finance to construct a plant to process the tailings, had to be found. E

[5] The project was designated as 'RK1', and a shelf company was acquired by Mr Gardner and Mr Barnard and renamed GB Mining. This is the taxpayer in the appeal.

[6] Having formed the vehicle to develop the project, a source of chrome tailings was identified on the farm Kroondal 34 (the Kroondal dump). F As regards finance, capital was to be raised from the public via OTR Mining Ltd (OTR), a company which was listed on the Johannesburg Stock Exchange (the JSE), of which Gardner had previously been the managing director. The intention was that GB Mining would transfer its business to and become the principal shareholder in OTR and thereby secure for itself the advantages of access to the JSE. G

[7] OTR was in dire financial straits, and in order to prevent its demise and its delisting GB Mining mounted a rescue operation. In terms of a formal rescue offer, subject to approval by the JSE and the Securities Regulation Panel (SRP), GB Mining would provide loan capital for H payment of creditors and employees in return for shares in proportion to the amount of the loan. The listing of OTR's option shares on the JSE was terminated on 22 August 2003, which effectively brought an end to the rescue operation. In the interim GB Mining had expended funds in the amount of R2 638 070 on the payment of salaries for staff and office expenses. GB Mining contended that these employees were employed by I it and that this expenditure was incurred in the production of income

2015 (4) SA p608

Swain AJA (Navsa JA, Shongwe JA, Theron JA and Wallis JA concurring)

A and qualified as a deduction in terms of s 11(a) read with s 23(g) of the Income Tax Act 58 of 1962 (the Act). The Commissioner, however, determined that the amount had been advanced by GB Mining to OTR as a loan and its deduction was disallowed as being capital in nature. This determination was upheld by the court a quo and is challenged by GB Mining in this appeal.

B [8] In order to secure the chrome tailings in the Kroondal dump, GB Mining concluded a notarial prospecting contract on 7 March 2001 with the farmers who owned the mineral rights to the Kroondal dump. GB Mining was granted the right to prospect for minerals in the tailings with the option to purchase the mineral rights within a period of C six months. This option was duly exercised within the specified period and the mineral rights to the dump were purchased. The purchase price was the sum of R2 400 000, together with 1 250 000 OTR shares and 625 000 OTR options. At this stage the final rescue offer in respect of OTR had not yet failed and it was still envisaged that the mineral rights to the D Kroondal dump would be transferred to OTR in terms of the rescue offer.

[9] Soon however it became clear that the Kroondal dump did not contain sufficient material for the project and additional chrome tailings would have to be obtained from chrome-mining companies operating in the area of the Kroondal dump, namely Xstrata SA (Pty) Ltd (Xstrata) E and Bayer (Pty) Ltd (Bayer).

[10] GB Mining required further capital while the OTR rescue offer was being considered, and approached...