Commissioner for the South African Revenue Service vs. Absa Bank Limited and Another - (29 Sep 2023)

High court will only exercise its jurisdiction in exceptional circumstances

Direct Taxation

The Commissioner for the South African Revenue Service (SARS) initiated an investigation into a series of transactions involving Absa Bank and several other entities in 2016. During the audit, SARS obtained information from Absa Bank. At the conclusion of the audit process, SARS issued notices to Absa Bank, in terms of Section 80J of the Income Tax Act, 58 of 1962 (the ITA). The notices signified an intention to apply the General Anti-Avoidance Rule (GAAR) provision of the ITA on the basis that Absa Bank had participated in an impermissible tax avoidance arrangement. The notices provided for the submission of a response by Absa Bank.

On 29 March 2019, Absa Bank launched an application to review the refusal to withdraw the Section 80J notices. They simultaneously submitted responses to the Section 80J notices. While the review application was pending before the high court, SARS, acting in terms of Section 80B of the ITA, determined that Absa Bank were liable for additional tax. It issued additional assessments on the basis that they were parties to an impermissible avoidance arrangement, on 17 October 2019. Absa Bank then amended its review application to introduce a review of the assessments.

The high court concluded that, the decision not to withdraw the Section 80J notices was administrative action susceptible of review. It held that the basis upon which the notices were issued and the assessments were raised, were inextricably linked. It found that SARS was bound by the facts it recorded in the notices, as had been disclosed by Absa Bank. The high court therefore found that the grounds of review involved only questions of law. This constituted exceptional circumstances as envisaged by Section 105 of the Tax Administration Act, 2011 (TAA), which entitled it to hear the matter. It upheld the grounds of review, found that the notices and assessments were unlawful, and set them aside.

In relation to the review of the assessments, Section 105 of the TAA applied. Since the dispute did not involve solely a question of law, no exceptional circumstances existed to justify the high court assuming jurisdiction in the matter. The Supreme Court confirmed the principle that the high court will only exercise its jurisdiction in exceptional circumstances. It found that the high court was wrong in finding that SARS had accepted and was therefore bound by the facts disclosed by Absa Bank. It held that participation in an arrangement; its purpose and effect; and whether it constituted an impermissible avoidance arrangement involve questions of fact and law. The high court had therefore erred in its characterisation of the dispute as being wholly one of law. The high court was therefore incorrect to find that exceptional circumstances were present to entitle it to exercise jurisdiction in terms of Section 105 of the TAA. Order of High Court is set aside. Supreme Court upheld the appeal.

Tags : INVESTIGATION NOTICES JURISDICTION