DEF Mining (Pty) Ltd v The Commissioner for the South African Revenue Service (SARSTC IT 24578)

Facts

Following the submission grounds of appeal to the courts, DEF approached the court with a request to amend its statement of grounds of appeal.  The additional ground of appeal argued for the deductibility of qualifying expenditure for 2013, 2014, 2015 income tax years of assessment from income derived by the taxpayer from its mining operations as contemplated in section 11(a), which was previously disallowed in the objection stage.  SARS contended that DEF “abandoned” the grounds of appeal to now be introduced and that they should not be accepted.  (i.e. the deductibility of expenditure, by not previously including them as part of the appeal).  In addition to the above, DEF also wished to attach additional document providing additional information in relation to the classification of expenditure during 2013-2015, summarising the 11(a) argument why expenditure should be deducted.

Issues

The onus is on DEF seeking the amendment to establish that SARS will not be prejudiced by the amendment.  The Court must exercise its discretion in granting/refusing an application for an amendment in order to ensure that justice is done.  Amendments are usually allowed unless it is mala fide or would cause prejudice to the other party which cannot be compensated by the cost order or some other suitable order such as a postponement.

The first ground of amendment was that the section 11(a) issue was "abandoned" by DEF.  The issue was previously raised by DEF as a ground of objection but not included as part of its grounds of appeal.  The reason for omission put forward by DEF was due to advice obtained from X (previous advisors) when preparing grounds of appeal.  It was only when preparing for the tax appeal matter that the applicant now received contrary advice that the expenditure for 2013-2015 years did qualify as a deduction and should have been included in the grounds. 

It was also argued by DEF that although the "additional ground" will constitute a new ground in the appeal, there would be no actual prejudice suffered by DEF as SARS was given the opportunity to consider the ground raised during the objection stage. DEF's election "not to persist" with its second ground of objection in its grounds of appeal did, therefore, not constitute an irrevocable "abandonment" of an issue.

The proposed amendment involves the withdrawal of an admission in the notice of appeal, alternatively, the objection is that DEF's reliance on this ground was abandoned and waived.  As part of the objection process, SARS previously considered section 11(a) issue which was disallowed on basis that the purpose of the expenditure was to develop the Gamsberg mine being more closely related to DEF's income-earning structure, not its income-producing operations (i.e. capital of nature).  At the time this decision was accepted by DEF as being correct.  It was held that admission is an unequivocal agreement by one part with the statement of fact by another.  Withdrawal of admission must be done under oath in which a reasonable explanation of circumstances and reason for withdrawal is made.  DEF failed to take the court into its confidence and provide a reasonable explanation as to why the admission was previously made and why removal now sought is to be withdrawn.

Finding

The court held that, if the amendment was permitted, SARS would have to deal with expenditure which it did not previously have to do and reconsider expenditure that DEF had previously conceded were of a capital nature during the objection phase. SARS would ultimately be prejudiced by such a decision.

Tax court rules specify that lodging an objection must specify the grounds on which the objection is made, including the part or specific amount of the disputed assessment objected to and documentation required to substantiate the grounds of objection. In this instance, the taxpayer had not previously delivered such documentation to SARS for purposes of the disputed assessment.

The application was dismissed and with costs.

Find a copy of the court case here.

​12/06/2021