CSARS v Esibonga Investment (Pty) Ltd and Others (16177/21) [2021] ZAWCHC 250 (2 December 2021)

The case relates to a provisional preservation order granted in favour of SARS and against the 8th and 9th respondents (the Watsons) in respect of a South African (“SA”) property registered in the names of the Watsons.

Esibonga Investments (Pty) Ltd (“Esibonga”), as a taxpayer, did not submit its tax returns for the period 2018 to 2020. When SARS contacted Esibonga’s director, he indicated that the entity was under voluntary liquidation and that the liquidation took place before the entity’s first tax returns were due. As a result, Esibonga would not file any tax returns. SARS applied to the High Court and was granted a winding-up order.

SARS audited Esibonga for the period 2019 to 2020, found that it had a tax debt of R 987 million and obtained a compulsory winding-up order. Esibonga’s statements revealed that it purchased inter alia immovable properties in excess of R 11 million, all of which were owned by Zimbabwean nationals and not registered in the name of Esibonga. SARS obtained proof showing that funds were transferred from Esibonga for the purchase of the property, but that the property was not registered in the name of Esibonga, but in the names of the Zimbabwean nationals.

SARS sought and obtained an order to prevent the property from being disposed of, given that it may frustrate the collection of the full amount of tax that was due and payable to SARS by Esibonga. The property referred to includes property owned by the Watsons in Johannesburg.

The Watsons argue that there was no evidence to warrant the granting of the preservation order. In their view, SARS failed to show that in the absence of a preservation order, there was a material risk that the asset available for the satisfaction of tax will no longer be available. SARS failed to show the existence of a material risk that they, the Watson family, would dissipate the property in order to frustrate the collection of tax by SARS. They argued further that they did not seek to and have no intention of disposing or transferring the property.

According to the Watsons, they do not know and have never met any of the other respondents. They alleged that they paid the funds to acquire the property to a Zimbabwean foreign exchange agent and that they were advised that the funds would be paid to the SA conveyancers for payment towards the purchase price through routine and ordinary commercial channels. They further allege that they had no dealings or involvement of any kind with Esibonga and learnt for the first time of the entity’s name upon receipt of the application for the preservation order. The Watsons consequently argue that the channelling of the funds through Esibonga was not on their instructions and they therefore deny any indebtedness to Esibonga.

The judge highlights that the Watsons did not provide any evidence that the operation of the preservation order caused or will cause them undue hardship and that such hardship outweighed the risk that the property may be destroyed, lost, damaged, concealed or transferred. The judge highlights that section 163(1) of the Tax Administration Act, 2011 (Act No. 28 of 2011) (“the TAA”) makes provision for an order to be made for the preservation of assets of the taxpayer or another person.

The judge considers case law and finds that this includes a person in the position of the Watsons, “to whom the trail of money paid from the account of a taxpayer, led SARS to their door”. The judge highlights that it was “incumbent upon the Watsons to consider whether it could be said that they took reasonable steps to investigate whether, in the circumstances, the payment of the purchase price for their home by Esibonga was required and the payment was reasonably made”. The judge adds that this was “necessary because the Watsons should be measured with the yardstick of a reasonable person.”

The judge finds that to avoid a successful and complete dissipation by Esibonga (as the taxpayer), which would frustrate the collection of taxes, it was necessary to preserve the property. It must be borne in mind that the property, now in the hands of the Watsons (the other person and not the taxpayer) are strategically out of the scope of assets preserved by virtue of the liquidation of Esibonga. The judge rules that in the absence of a preservation order, the Watsons would be at liberty to transfer or dispose of the property without the knowledge of SARS and in that freedom, they would have no obligation to wait for the finalisation of the liquidation process.

For these reasons the judge confirms the provisional order granted against the Watsons and orders the Watsons to pay costs.

A copy of the judgment can be accessed here.

10/12/2021