SPRIGG INVESTMENT CASEBy Johan Kotze

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SPRIGG INVESTMENT’S CASE

• The precise nature of the relationship between Sprigg and its distributors.

• Sprigg – principals, SARS – employees

• SARS contended that the sales to consumers were Sprigg’s own sales, because the distributors were its ‘employees’.

• SARS issued assessments - VAT & PAYE

• Sprigg asked for reasons – which had 97 detailed questions

• SARS did not indulge Sprigg, said that the responses are akin to responding to questions in tax court.

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SPRIGG INVESTMENT’S CASE

Rule 26(1) application:

• Tax Court is empowered to compel SARS furnish ‘adequate reasons’

• Sprigg asked the Tax Court to order: To give adequate reasons that were structured ‘so as to motivate his assessment clearly and set out the findings or fact on which his conclusion depend; the relevant law upon which his conclusion are abased; and the reasoning process which led to those conclusions’

• The Tax Court ordered

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SPRIGG INVESTMENT’S CASE

On appeal – adequacy of SARS’ reasons

• Phambili Test: ‘Even though I may not agree with it, I now understand why the decision went against me. I am now in a position to decide whether that decision has involved an unwarranted finding of fact, or an error of law, which is worth challenging’

• SCA in agreement with this test

• Question as seen by SCA: ‘Whether Sprigg has sufficiently been furnished with SARS’ actual reasons for the assessments to enable it to formulate an objection thereto’

• SCA agreed with SARS that Sprigg employed a delaying tactic

• SCA held that reasons were adequate

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SPRIGG INVESTMENT’S CASE

Matter of law and fact, consequences

• SCA held that the request for reasons = matter of law + matter of fact

• Tax Court to be constituted = judge + assessors, unless matter of law However, rule 26 provides for judge to consider application sitting alone

• Tax court which dealt with Sprigg’s matter was therefore before the judge sitting alone, without his assessors

• SCA held that the Tax Court application was a nullity, of no force or effect

• Rule 26 – ultra vires the Income Tax Act

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SPRIGG INVESTMENT’S CASE

Other issues:

• Question whether SCA’s whole judgment, given that the Tax Court case was a nullity, is rather obiter

• The Constitution provides that the SCA can only consider appeals, but if the case a quo was a nullity, there could legally not have been an appeal.

• Ironically the SCA chastised the judge a quo for a poor judgment and violating the Constitutional