The Supreme Court of Appeal (“SCA”) handed down judgment in the matter of Medox Limited v The Commissioner for SARS [2015] ZASCA 74 on 27 May 2015. This case relates to the failure of a taxpayer to object to an income tax assessment issued by the Commissioner for the South African Revenue Service ("the Commissioner”). The SCA confirmed in this case that failure by a taxpayer to object to an income tax assessment issued by the Commissioner will render such as assessment final and conclusive.
The Tax Administration Act 28 of 2011 (“TAA”) makes provision for a taxpayer who is aggrieved by an income tax assessment or by certain decisions made under the TAA or the Income Tax Act 85 of 1962 (“ITA”) to object to and appeal against those assessments or decisions. An objection must be delivered to the Commissioner within 30 days after the date on which the Commissioner issued the assessment or when the taxpayer has requested the Commissioner to provide reasons for the assessment, either the date of the notice by the Commissioner that adequate reasons have been provided or the date that reasons were furnished by the Commissioner. A senior SARS official may extend the period within which a taxpayer can lodge an objection if satisfied that reasonable grounds exist for the delay in lodging the objection. In addition, the TAA provides that an assessment issued by the Commissioner will be final if the taxpayer does not object to it.
In Medox Limited v The Commissioner for SARS, the company Medox Limited’s income tax return for the 1996 year of assessment reflected an assessed loss of R 46 622 063. Medox Limited did not submit an income tax return for the 1997 year of assessment, but submitted its income tax returns for the 1998 tax year up to and including 2010 year of assessment. In respect of each of the returns it submitted, Medox Limited did not include the 1996 assessed loss for purposes of setting it off against profits earned during 1998 up to 2010. Accordingly the Commissioner issued income tax assessments to Medox Limited in respect of these subsequent years of assessment without taking into account the 1996 assessed loss. Medox Limited did not raise any objections against these assessments when they were issued. According to Medox Limited it only realised in 2009, three years after the assessments were issued, that the 1997 income tax return was not submitted and that the 1996 assessed loss was not taken into account in the tax returns it submitted for 2008 up to 2010.
Medox Limited took the view that the assessments issued to it by the Commissioner were void as the Commissioner acted against its powers when issuing the assessments. However, the Commissioner denied this allegation and refused to reconsider the assessments on the basis that it was precluded to do so and that the assessments were final and conclusive. Medox Limited then applied to the High Court for a declaratory order to set aside the assessments on the basis that they were void. The High Court dismissed Medox Limited’s application and held that it did not have jurisdiction to hear the matter. Medox Limited then took he matter to the SCA.
In its judgement the SCA considered the provisions of section 81 of the ITA and held that Medox Limited’s right to have the relevant assessments declared null and void goes against section 81(5) of the ITA. Section 81(5) provided that an income tax assessment issued by the Commissioner will be final and conclusive if a taxpayer has not raised an objection against the assessment within the time period prescribed for in the ITA. According to the court, the fact that more than three years had passed since the Commissioner issued the assessments would in any case, by virtue of the provisions of section 81(2)(b), preclude the Commissioner from reopening those assessments. The SCA also disagreed with Medox’s argument that it was the Commissioner’s duty to ensure that the 1996 assessed loss was set off against the income earned in the subsequent tax years. The court held that it is the taxpayer’s obligation to submit an assessment and thus it is the taxpayer that must ensure that in completing its income tax returns that any assessed losses from previous years of assessments are set off against income earned in subsequent years of assessment. The SCA therefore dismissed Medox Limited’s application for a declaratory order on this basis.
Section 81 of the ITA has been repealed, however a similar provision is found in section 100 of the TAA which provides that failure by a taxpayer to object to an assessment will render such assessment final. Therefore if a taxpayer receives an assessment and does not agree with the assessment then it may request SARS for reasons for the assessment or lodge an objection within 30 days of the assessment being issued. Failure to lodge an objection within this period will prevent the taxpayer from contesting the assessment irrespective as to the merits of the taxpayer’s objection.
