Medox Limited v CSARS HC 12795/14 NG – 18 Feb 2014

court hoodIntroduction

In this case the applicant applied to the North Gauteng High Court for an order declaring all income tax assessments that were issued in respect of years of assessment following its 1997 year of assessment null and void.

Facts

The applicant, trading as Drake Personnel carried on a trade in South Africa from 1976 until 1995 after which it was compulsory wound-up in terms of an order of court. At the time of winding-up, the applicant had a total tax debt of R 7 779 214.90 in respect of VAT and employees’ tax. The winding-up was subsequently set aside following a compromise in terms of sec 311 of the Companies Act (No. 61 of 1973) which was sanctioned by the court on 7 June 1996. In terms of the compromise agreement, creditors were to receive 10 cents out of the Rand for debts due and the respondent consequently received R 769 061.70 as a dividend.

The applicant’s 1996 income tax return reflected an assessed loss of R 46 622 063. The applicant also incurred a loss of R 1 748 741 in 1997. The applicant made profits during the 2004, 2007, 2009 and 2010 years of assessment against which it seeks to off-set its balance of assessed loss. The applicant however submitted its 1998 to 2009 income tax returns before its 1997 income tax return. The applicant never lodged an objection to the 1998 income tax return which did not contain the balance of assessed losses arising out of prior years of assessment and he also did not submit his 1997 income tax return until 2009. Given the fact that the 1998 income tax assessment was issued more than three years ago, the applicant cannot object thereto and the assessment becomes conclusive in terms of sec 79 of the Income Tax Act (No. 58 of 1962) (hereinafter referred to as ‘the Act’). The applicant only realised in 2009 and that the 1997 and 2003 income tax returns were not assessed and that the balance of assessed loss was not claimed.

Given the fact that the three years prescription period has expired, the applicant maintained that it has no internal remedies available to it and that its only available remedy is to obtain an order on the validity of the administrative action via a review or a declaratory order. The applicant’s application to the High Court was based on the fact that the Tax Court does not, in terms of the Act, have the powers to issue declaratory orders on the status of income tax assessments.

Sec 7(2)(a) of the Promotion of Access to Justices Act (No. 3 of 2000) states the following:

‘… no court or tribunal shall review an administrative action in terms of this Act unless any internal remedy provided for in any other law has first been exhausted.’

The applicant argued that given the fact that the prescribed period to lodge an objection has lapsed, it has no internal remedies available. Based on this and the fact that the Tax Court does not have any powers to grant a declaratory order, the applicant contended that it is entitled to bring an application for a declaratory order in the form of final relief to the High Court.

Teffo, J stated the following as obiter dictum ‘It is my considered view that it cannot be correct to say that a party that has failed to invoke the remedies as provided for in the Act or internal remedies because of its own making, can come to a different forum and claim to be heard on the basis that it has no internal remedies to exhaust’. At paragraph [27], Teffo, J stated the following:

‘The applicant did not exhaust the internal remedies when time still allowed it. Now he wants to circumvent the provisions of the Act by coming to the High Court in terms of a declaratory order which it contends will have the same effect as a review of the respondent’s decision under PAJA where the administrative action is reviewed and set aside. Our courts should discourage this kind of applications as they are tantamount to forum shopping.’

Held

It was held that the application cannot be considered without going into the merits of the assessment which must be considered by the Tax Court as set out in Van Zyl NO v Master and Another 1991 (1) SA 874 (E) at 877/878 (as set out in paragraph 13 in this judgement). Once an assessment has been issued the parties fall within the jurisdiction of the Tax Court, in which Court they must exercise their rights. It was held that the High Court does not have the jurisdiction to hear the matter and that the dispute should have been pursued by an objection lodged with the Commissioner followed by an appeal to the Special Tax Court. The application was consequently dismissed with costs.

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