THE SUPREME COURT OF APPEAL OF SOUTH AFRICA
JUDGMENT

Case No: 20059/2014
Reportable

In the matter between:

MEDOX LIMITED

APPELLANT

and

THE COMMISSIONER FOR THE SOUTH AFRICAN
RESPONDENT
REVENUE SERVICE

Neutral citation:
Medox Limited v The Commissioner for SARS (20059/2014)  [2015]

ZASCA 74 (27 May 2015)
Coram:
Brand, Cachalia, Bosielo and Willis JJA and Fourie AJA
Heard:
15 May 2015
Delivered:
27 May 2015

Summary:  Taxpayer failing to object to income tax assessments issued by the
Commissioner ─ Absent any objection, the assessments became final and conclusive
by virtue of the provisions of s 81(5) of the Income Tax Act 58 of 1962 ─ Taxpayer not
entitled to relief by means of a declaratory order to have the assessments set aside ─
Appeal dismissed.

ORDER

On appeal from: Gauteng Division, Pretoria (Teffo J sitting as court of first
instance):
The appeal is dismissed and no order as to costs is made.
___________________________________________________________________

JUDGMENT
___________________________________________________________________

Fourie AJA (Brand, Cachalia, Bosielo and Willis JJA concurring):

[1] The appellant, Medox Limited (Medox), approached the Gauteng Division,
Pretoria, on application for an order declaring that all income tax assessments
issued to it by the respondent, the Commissioner for the South African Revenue
Service (the Commissioner), in respect of the years of assessment following its 1997
year of assessment, are null and void.

[2] The Commissioner opposed the application which was heard by Teffo J. The
judge concluded that the high court did not have jurisdiction to entertain the dispute
and accordingly dismissed the application with costs. Medox applied for and was
granted leave to appeal to this court.

[3] In essence, the court below held that the dispute should have been pursued
by way of an objection to the assessments, lodged with the Commissioner and, if
necessary, followed by an appeal to the tax court created in terms of the Income Tax
Act 58 of 1962 (the Act), as the appropriate forum to deal with matters of this kind.

Background
[4] Medox commenced trading in South Africa under the name and style of Drake
Personnel during 1976, but in 1995 was provisionally wound-up in terms of an order
of the high court. Whilst under provisional liquidation, Medox continued trading and

on 7June 1996, the winding-up order was set aside by the high court when it
sanctioned a scheme of arrangement between Medox and its creditors in terms of s
311 of the Companies Act 61 of 1973.

[5] Medox submitted a return to the Commissioner in respect of the income
accrued to it during the 1996 tax year. The Commissioner’s assessment for this tax
year reflected an assessed loss of R46 622 063. Medox did not submit a return to
the Commissioner for the 1997 tax year, but thereafter submitted its income tax
returns for the tax years 1998 up to and including 2010 (excluding 2003). In respect
of each of the returns submitted in the tax years subsequent to 1997, Medox did not
seek to carry forward the assessed loss incurred in the 1996 tax year and to set it off
against profits earned during the subsequent tax years. The Commissioner duly
issued income tax assessments to Medox in respect of these subsequent tax years
without reflecting the assessed loss.

[6] Medox made no objection against the assessments issued by the
Commissioner in respect of the 1998 and subsequent tax years, but alleges that
during 2009 it realised that it had not submitted a return in respect of the 1997 tax
year and that the income tax assessments issued by the Commissioner in respect of
the 1998 and subsequent tax years, had failed to set off the assessed loss of
R46 622 063 incurred by Medox in the 1996 tax year.

[7] Medox then took the view that the 1998 and subsequent income tax
assessments were void as the Commissioner had acted ultra vires by issuing same
in disregard of the mandatory provisions of s 20(1)(a) of the Act, requiring him to set
off assessed losses of a taxpayer against income derived by the taxpayer in
subsequent years. The Commissioner denied the allegation, whereupon Medox
approached the court below for declaratory relief.

Applicable statutory provisions
[8] At the relevant time, the Act was the statute that regulated the relationship
between the Commissioner, who performed the functions and exercised the powers
assigned to him in terms of the Act, and Medox as the taxpayer. I should add that
the Act was subsequently repealed and substituted by the Tax Administration Act 28

of 2011 with commencement date 1 October 2012, but it has no bearing on the
present appeal.

[9] The following sections of the Act are pertinent to the adjudication of the
appeal:
(i) Section 20, which provides that for the purpose of determining the taxable income
derived by any person from carrying on any trade, there shall be set off against the
income so derived by such person any balance of assessed loss incurred by the
taxpayer in any previous year which has been carried forward from the preceding
year of assessment.
(ii) Section 81, the relevant part of which reads as follows:
‘(1) Objections to any assessment made under this Act shall be made in the manner and
under the terms and within the period prescribed by this Act and the rules promulgated in
terms of section 107A by any taxpayer who is aggrieved by any assessment in which that
taxpayer has an interest.
(2) The period prescribed in the rules within which objections must be made may be
extended by the Commissioner where the Commissioner is satisfied that reasonable
grounds exist for the delay in lodging the objection: Provided that the period for objection
may not be so extended─
(a) . . .
(b) where more than three years have lapsed from the date of the assessment; or
(c) . . .
(3) Any decision by the Commissioner in the exercise of his or her discretion under
subsection (2) shall be subject to objection and appeal.
(4) . . .
(5) Where no objections are made to any assessment or where objections have been
allowed in full or withdrawn, such assessment or altered assessment, as the case may be,
shall be final and conclusive.’
(iii) Section 83, which provides that any person entitled to object to an assessment,
may appeal against such assessment to the tax court established in terms of the
provisions of s 83. The tax court may in the case of an assessment appealed
against, confirm the assessment or order that it be altered or referred back to the
Commissioner for further investigation and assessment.

Discussion
[10] It is trite that an appeal is directed at the order of the court of first instance
and not the reasons for the order. In Tecmed Africa (Pty) Ltd v Minister of Health &
another [2012] 4 All SA 149 (SCA) Ponnan JA put it thus at para 17:
‘. . . appeals, do not lie against  the reasons for judgment but against the substantive order
of a lower court. Thus, whether or not a court of appeal agrees with a lower court’s
reasoning would be of no consequence if the result would remain the same.’

[11] For the reasons that follow, I am of the view that there is no merit in the
application for a declaratory order. In view of this conclusion, there is no need to
enter into the debate as to whether or not the learned judge a quo correctly held that
the high court did not have the necessary jurisdiction to entertain the application. I
will assume (without deciding) that the court a quo did have the jurisdiction to
adjudicate upon the application.

[12] In order to obtain declaratory relief in the court below, Medox had to show that
it has an existing, future or contingent right to have the assessments for the 1998
and subsequent tax years declared null and void. See s 19(1)(a)(iii) of the Supreme
Court Act 59 of 1959 (now s 21(1)(c) of the Superior Courts Act 10 of 2013). As it is
common cause that Medox did not object in terms of s 81 of the Act to any of the
assessments issued in respect of the 1998 and subsequent tax years, it will
immediately be apparent that Medox’s contention that it has a right to have these
assessments declared null and void, flies in the face of the provisions of s 81(5) of
the Act. The latter subsection expressly provides that, where no objection is made to
an assessment, such assessment shall be final and conclusive. In addition, it should
be borne in mind that more than three years have lapsed from the date of each of
these assessments, with the result that, by virtue of the provisions of s 81(2)(b) of
the Act, the Commissioner is precluded from reopening the assessments.

[13] This court has over the years dealt with provisions worded similarly to s 81(5)
of the Act and confirmed that, where no objection is made to an assessment issued
by the relevant tax authority, the assessment is final and conclusive as between the
tax authority and the taxpayer. These decisions have been collected in
Commissioner for Inland Revenue v Bowman NO 1990 (3) SA 311 (A) at 316B-C.

Further at 316E, Goldstone AJA writing for the court, reiterated that an assessment
to which no objection has been made, ‘becomes binding upon the taxpayer as a
statutory obligation’.

[14] When confronted with the significant obstacle in the form of s 81(5) of the Act,
counsel for Medox was driven to argue that the section only applies to ‘valid’
assessments and not to ‘invalid’ assessments. I must confess that I have
considerable difficulty in following this submission. As I understood counsel, a valid
assessment is one issued in accordance with the provisions of the Act, while an
invalid assessment is not. To me this appears to be a distinction without any
difference.

[15] On this argument virtually any assessment in which the Commissioner
erroneously refuses to allow a deduction, rebate or exemption provided for in the
Act, could be regarded as invalid and therefore not subject to the provisions of ss 81
to 83 of the Act. This would render the mechanisms provided in ss 81 to 83 for
objections to and appeals against assessments nugatory and grant aggrieved
taxpayers carte blanche to approach the high court in virtually every instance where
they disagree with an assessment made by the Commissioner. For the sake of
completeness, I should mention that it has not been suggested by Medox that any
other good cause, eg iustus error or fraud, exists for the setting aside of the relevant
assessments. It has accordingly not laid any basis for an attack upon the
assessments by virtue of any other avenue of relief.

[16] What counsel for Medox is effectively asking this court to do, is to read words
into the Act by implication. As emphasised by Corbett JA in Rennie NO v Gordon &
another NNO 1988 (1) SA 1 (A) at 22E-F, this cannot be done unless the implication
is a necessary one in the sense that without it effect cannot be given to the statute
as it stands. The submission on behalf of Medox requires the word ‘assessment’ in s
81 of the Act, and in particular in subsecs 81(2)(b) and 81(5), to be read as being a
reference to a ‘valid’ assessment. In my view there is no basis upon which it can be
said that the reading in of the word ‘valid’ in s 81 is necessary to give effect to the
section as it stands. On the contrary, I believe that this construction would be in

conflict with the intention of the legislature as appears from the clear language of the
subsections.

[17] Finally, and in any event, I believe that the premise from which Medox departs
in its quest to have these assessments set aside, is fatally flawed. What Medox
contends, is that it was the duty of the Commissioner to take the necessary steps to
have the assessed loss of 1996 set off against profits earned by Medox during the
subsequent tax years. As I understand the provisions of the Act, it is the taxpayer
who has to render a return in which any loss occurred in any previous year is carried
forward to be set off against income derived by the taxpayer from carrying on any
trade. That this is the taxpayer’s duty, is made clear in s 20(2A)(b) of the Act which
states that the taxpayer shall not be prevented from carrying forward a balance of an
assessed loss merely by reason of the fact that he or she has not derived any
income during any year of assessment. Further, s 82(b) of the Act places the burden
of proof ─ that any amount is subject to set-off in terms of the Act ─ upon the person
claiming such set-off, ie the taxpayer.

[18] It follows, in my view, that the application for declaratory relief was correctly
dismissed by the court a quo and that the appeal accordingly falls to be dismissed.

[19] This brings me to the issue of costs. When the record of the appeal was
presented to the members of this court, it transpired that the Commissioner’s
attorney (the State attorney, Pretoria) had not complied with SCA rules 10(1)(b) and
10A. The first requires heads of argument in an appeal to be lodged by the
respondent within one month from the receipt of the appellant’s heads of argument.
The latter requires the heads of argument to be accompanied by a practice note
dealing with prescribed procedural aspects to assist the members of the court in
adjudicating the matter.

[20] This failure by the State attorney created the impression that the appeal may
not be opposed, yet no notice to abide had been filed on behalf of the
Commissioner. This uncertain state of affairs led the court to request the registrar to
address the State attorney in writing, to establish whether or not the appeal was
opposed.

[21] The registrar’s letter caused a flurry of activity on the part of the State
attorney. The registrar was advised that the Commissioner’s heads of argument and
practice note had, due to an administrative oversight, not been filed. It was further
indicated that an application for condonation would in due course follow, together
with the required heads of argument and practice note. In the event, an application
for condonation accompanied by the Commissioner’s heads of argument was filed
on Friday, 8 May 2015 (four court days before the hearing of the appeal), while the
practice note was only filed with the registrar on Monday, 11 May 2015.

[22] In the condonation application, the State attorney attempted to explain the
cause of the delay in filing these documents, but woefully failed to present a
plausible or acceptable explanation. There is no need to traverse the explanation in
any great detail. The following aspects, may, however, be highlighted:
(i) the appellant’s heads of argument were served on the State attorney and filed
with the registrar of this court on 27 August 2014. In terms of SCA rule 10(1)(b)
heads of argument on behalf of the Commissioner had to be filed on or before
29 September 2014.
(ii) Junior counsel acting on behalf of the Commissioner was instructed to and did
settle heads of argument, which were received by the State attorney on
29 September 2014. A copy thereof was served on the appellant’s attorneys on
6 October 2014 (there is no explanation as to why it was not served on the
appellant’s attorneys timeously on 29 September 2014). However, the heads of
argument were not lodged with the registrar of this court nor was the prescribed
practice note prepared for filing.
(iii) Subsequent to 6 October 2014, and due to a litany of administrative deficiencies,
no steps were taken to forward the heads of argument to this court nor was any
practice note prepared for filing. The administrative deficiencies leading to this sorry
state of affairs can only be described as grossly negligent, demonstrating a flagrant
disregard for the rules of this court. It is clear that, had this court not brought the
failure to file the heads of argument and practice note to the attention of the State
attorney, nothing would have been done and the appeal would have been heard
without the Commissioner being represented.
(iv) It also appears that on 15 March 2015 a notice of set down of the appeal for
hearing on 15 May 2015, was forwarded to the State attorney by its Bloemfontein

correspondent. Notwithstanding this, no steps were taken to attend to the filing of
any heads of argument or a practice note.

[23] Whilst the appellant’s legal representatives may not have been prejudiced as
they had received the Commissioner’s heads of argument on 6 October 2014, this
court has been seriously inconvenienced by the supine attitude adopted by the State
attorney. This was readily conceded by counsel for the Commissioner. The members
of this court had to prepare for the appeal without the benefit of the Commissioner’s
heads of argument or practice note, which were only filed at the very last minute. It
has often been emphasised that a disregard of the rules of this court will not be
tolerated and that the court may mark its disapproval by means of a punitive costs
order. See Africa Solar (Pty) Ltd v Divwatt (Pty) Ltd 2002 (4) SA 681 (SCA) para 45.

[24] The Commissioner’s application for condonation was granted, mainly in view
of the good prospects of success in the appeal, while the question of costs was
reserved. In my view, the circumstances set out above justify a departure from the
general rule that a successful litigant should normally be entitled to its costs. I
believe that an appropriate sanction for the flagrant disregard of the rules of this
court by the State attorney, would be to disallow the Commissioner’s costs of
appeal.

[25] In the result the following order is made:
The appeal is dismissed and no order as to costs is made.

________________________
P B FOURIE
ACTING JUDGE OF APPEAL

APPEARANCES:

For the Appellant:
J Truter

Instructed by:

Couzyn Hertzog & Horak, Pretoria

c/o Spangenberg Zietsman & Bloem, Bloemfontein

For the Respondent:
L G Nkosi-Thomas SC

L Sigogo

Instructed by:

State Attorney, Pretoria

THE SUPREME COURT OF APPEAL OF SOUTH AFRICA

MEDIA SUMMARY OF JUDGMENT DELIVERED IN THE SUPREME COURT OF APPEAL

FROM

The Registrar, Supreme Court of Appeal

DATE

27 May 2015

STATUS

Immediate

Please note that the media summary is for the benefit of the media and does not form part of
the judgment.

Medox Limited v The Commissioner for SARS (20059/2014) [2015] ZASCA 74 (27 May 2015)

MEDIA STATEMENT

The SCA today dismissed the appeal of a taxpayer who sought to have the income tax assessments
issued by the Commissioner of SARS, declared null and void. It held that, in view of the taxpayer’s
failure to object to the assessmnts, the high court was correct in finding that the taxpayer was not
entitled to a declaratory order to have the assessments set aside.