The Taxpayer, Lion Match Company Proprietary Limited, disposed of its shareholding in Kimberly Clark Group during 2008 and ascribed the market value to the shares as at 1 October 2001 as the base cost in determining its taxable capital gain on the disposal. The Commissioner for the South African Revenue Service (SARS) raised an additional assessment against the Taxpayer on 30 April 2013 for this and adjusted the base cost of the value of the shares, increasing in the Taxpayer’s capital gain and taxable income.
The Taxpayer objected to the adjustment, which SARS disallowed. It then noted an appeal against the disallowance of its objection to the Tax Court, Durban. SARS then delivered its Rule 31 statement of the grounds of assessment and opposition to the appeal, in terms of the Rules promulgated under section 103 of the Tax Administration Act, 2011 (Rules). Instead of delivering its statement of grounds of appeal in terms of Rule 32, the Taxpayer launched a Rule 31(3) application and sought an order, inter alia, setting aside SARS’ Rule 31 statement on the basis that the grounds constituted a “novation of the whole of the factual and/or legal basis of the additional assessment“. The Tax Court dismissed the application, but granted the Taxpayer leave to appeal to the Supreme Court of Appeal (SCA).
The question on appeal, a la Beinish v Wixley 1997 2 SA 241 (A), was whether the taxpayer may place a particular decision before a court of appeal in isolation, and before the main proceedings have run their full course. In a judgment delivered on 27 March 2018, the SCA held that the decision of the Tax Court was not one that could be objected to and appealed against in terms of section 104(2) of the TAA. The Taxpayer had also argued that the application it launched should be likened to an exception, rather than an application to strike out, in terms of the High Court Rules and that when the Tax Court dismissed the application it spoke the final word on the issue of its jurisdiction.
In dismissing the appeal on this further ground, the SCA held that jurisdictional challenges, whether raised by exception or special plea in terms of the High Court Rules, must be disposed of first because it is linked to the power of a court to make any further order in that matter. In this case, the Taxpayer did not challenge the jurisdiction of the Tax Court. Consequently, the Tax Court could not pronounce on the issue of jurisdiction and the Taxpayer could not appeal against the substantive order dismissing an exception (relating to jurisdiction) that was not made.
When seeking to resolve tax disputes and issues related thereto, Taxpayers should first resort to the Rules. Attempts to take specific Rules and interpret them through the prism of the High Court Rules could, as in this case, be unsuccessful.