The interpretation of Sub-Section 177(3) of the Tax Administration Act was recently the subject of a dispute in the North Gauteng High Court (CSARS v. Miles Plant Hire (Pty) Ltd. Case Number 23533/2013. Judgement delivered on 3 October 2013). Section 177 deals with sequestration, liquidation and winding-up, and notes: “If the tax debt is subject to an objection or appeal… the proceedings may only be instituted with leave of the court before which the proceedings are brought.”
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In its submission, the taxpayer argued that the correct interpretation of the sub-section is that when an appeal in respect of tax is outstanding, an application for winding up cannot be brought by SARS before it has obtained leave to do so from the court.
The submission was made after SARS had applied to set aside business rescue proceedings for the taxpayer and, instead, institute final winding-up proceedings. In other words, the taxpayer contended that Sub- Section 177(3) affords immunity from suit. In interpreting the legislation, the judge made reference to a recent Supreme Court of Appeal decision in Natal Joint Municipal Pension Fund v. Edumeni Municipality 2012 (4) SA 593 (SCA). Here, it was said that the ‘interpretation process’ is objective, with a sensible meaning being preferred to one that leads to ‘un-businesslike’ results.
The judge next looked at the language of Sub- Section 177(3), and held that the meaning of the phrase to “institute proceedings” is not limited only to the act of service of a notice of motion. Proceedings are capable of being initiated in the sense of being instituted or started or commenced.
Getting the facts
The limitation in the language of the statute is one that precludes a court from exercising its discretion in respect of winding up in the face of a tax appeal until all the facts relating to the pending appeal are considered. The court does not have to determine the appeal, but, based on the facts, it has to ascertain if there is merit in terms of the pending tax appeal.
The court found that the interpretation submitted by the taxpayer could lead to frustrations and delay once a court had ruled in its favour. The judge held that the true meaning of the sub-section is that the disputed tax debt is not recoverable under the ‘pay now, argue later’ principle during winding-up proceedings, except by leave of the court. The inherent discretion of the court in respect of winding up proceedings was thus affirmed.
Avoiding delay in winding up
One of the purposes of the sub-section seems to be to delay the inclusion of the tax debt in winding-up proceedings, unless the court decides otherwise, and to avoid delay in winding-up proceedings based upon tax appeals that, on the face of it, have little merit.
The meaning is therefore that the winding-up cannot be halted if application to court for leave to institute winding proceedings is not first sought. Application for leave to wind up can be made simultaneously with the application for winding up, with the judge being appraised of all the facts surrounding the pending tax appeal.
Peter O’Halloran is head of tax at BDO, Gaborone. Phone him on 00267 390 2779.
