An interesting judgment was handed down in the North Gauteng High Court on 3 October 2013 in the matter of Commissioner for the South African Revenue Service v Miles Plant Hire (Pty) Ltd (case no 23533/2013).
Miles Plant Hire (Pty) Ltd (the taxpayer) was involved in a dispute with the South African Revenue Service (SARS) in terms of which an appeal was pending.
The taxpayer adopted a resolution to file for business rescue.
When SARS became aware of the resolution, it brought an application for the setting aside of the resolution, and for the taxpayer to be wound up in terms of section 177(1) of the Tax Administration Act, No. 28 of 2011 (the TAA).
The court was mainly concerned with the application by SARS for the winding up of the taxpayer.
Section 177(3) of the TAA provides that, where a tax debt is subject to objection or appeal, SARS may only apply for the winding up of the taxpayer “with leave of the court before which the proceedings are brought”.
SARS did not initially request such leave, but subsequently amended its notice of motion to include a prayer for leave to institute the proceedings.
The taxpayer argued that SARS should first, prior to the current proceedings, have applied for leave to bring an application for the winding up of the taxpayer. Because SARS failed to do so, the application had to be dismissed.
SARS argued that two separate applications are not required, but that it may, in the same proceedings, ask for leave to pursue an application for winding up, and ask for the actual winding up order.
In essence, the question for determination was whether section 177(3) requires that, when SARS seeks an order for the winding up of a taxpayer, there must be two separate applications, the one preceding the other. In other words, whether there must first be an application for leave to institute winding up proceedings, and secondly, if leave is granted, whether there must be a further application for the actual winding up of the taxpayer.
The court effectively sided with SARS and held that two separate applications are not required.
In the court’s view, the correct interpretation of section 177(3) is that it obliges and empowers a court, before it considers the substantive merits of the application for winding up, but during the same proceedings, to also consider the merits of the pending objection or appeal. Only then may it make an appropriate order.
In other words, the court held that the purpose of section 177(3) is to allow a court before which a winding up application is brought, to also evaluate, without deciding, the grounds of the objection or appeal.
For example, should the court find that there is merit in the objection or appeal, it may postpone the proceedings until such time as the dispute has been finally resolved, and then only make an order in respect of the winding up of the taxpayer.
The court therefore confirmed that the purpose of section 177(3) is to prevent abuse of the ‘pay-now-argue-later’ principle and to subject applications by SARS for the winding up of taxpayers to judicial scrutiny in circumstances where an objection or appeal is pending.
In the current matter, the court considered the grounds of appeal of the taxpayer, but found that the taxpayer did not seriously contest the capital amount of tax due – the taxpayer mainly disputed the imposition of a penalty. In respect of the undisputed capital amount alone, the court found that the taxpayer was ‘hopelessly insolvent’ and the court therefore granted the winding up order.
Cliffe Dekker Hofmeyr
TAA: s177 (1), s177 (3)