1
SWAZILAND
HIGH COURT
MAHLALELA
LUCKY G.
Applicant
Vs
SWAZILAND
ROYAL INSURANCE CORPORATION
1st
Respondent
COMMISSIONER
OF TAXES
2nd
Respondent
ATTORNEY
GENERAL
3rd
Respondent
PRESIDENT
OF THE INDUSTRIAL COURT
4th
Respondent
REGISTRAR
OF THE INDUSTRIAL COURT
5th
Respondent
2
REGISTRAR
OF THE HIGH COURT
6th
Respondent
Civ.
Case No. 2810/2001
Coram Sapire,
CJ
For
Applicant Mr A Shabangu
For
Respondent Mr S S Earnshaw
JUDGMENT
The
applicant seeks an order that: -
1. The
tax directive sought by the first respondent from the second
respondent and the consequent deduction and payment of the amount of
E148 722-24 to the second respondent, in terms of the aforesaid tax
directive be declared unlawful, invalid and ultra-vires the Income
Tax Order, 1975.
2. The
first, second and third respondent be ordered to pay the amount of
E148 722.24 to the applicant.
3. The
applicant seeks interest on this amount calculated at nine percent
per annum from the 26th February 2001 to date of payment.
3
4. The
applicant seeks in the alternative that the interlocutory proceedings
commenced before Industrial Court on 17 July, 2001 be reviewed,
corrected and set aside.
5. Further,
that the respondents are to pay the costs of the application jointly
and severally, one paying the other to be absolved.
The
applicant has in support of its notice of motion filed a founding
affidavit in which he states that he is an adult male resident of
Mbabane. The respondents are cited in paragraphs 3 - 8. The applicant
thereafter has recited that on or about 16th May 2000 he commenced
proceedings before the Industrial Court for the determination of an
unresolved dispute in terms of the Industrial Relations Act, and that
such dispute arose from what he alleged to be an unfair termination
of his employment with the First Respondent. The proceedings were
opposed.
In
due course the matter was set down for trial before the Industrial
Court. A settlement to these proceedings was reached and a deed of
settlement was made an order of court.
In
terms of the deed of settlement in the amount of E400 000 was to be
paid to the applicant. This was categorised in the agreement as an ex
gratia payment. Notwithstanding this it could be that this
categorisation hides the fact that the amount paid may have been
compensation for loss of office. The applicant however states in the
affidavit that at the time of
4
the
signing of the deed of settlement the 1st respondent had no liability
to pay any amount by way of remuneration to the applicant as such
liability had ceased on the date of dismissal. It is not clear what
the applicant has in mind but clearly the money was not paid for
nothing and in all probability relates to compensation for his loss
of office.
The
applicant points out that in terms of the deed of settlement the
respondent undertook , subject to clause 16 thereof, to make an ex
gratia payment of E400 000 to the applicant upon signature of the
deed of settlement. This amount was to be paid without admission of
any liability. What is not mentioned in the body of the founding
affidavit at this point, (although on reading the agreement a copy
whereof is attached such is clearly the case) is that the deed of
settlement contemplated that before making the payment the 1st
respondent would seek a directive from the 2nd respondent in regard
to the deduction and retention of monies from the ex gratia payment
in respect of the applicant's liability for tax. The agreement does
in fact provide in paragraph 14 as follows: -
"
Subject to clause 16 of this deed of settlement the respondent shall,
before making payment of the sum of E400 000 to the applicant deduct
the following amounts:-
14.1 Such
sum in respect of taxes as the Commissioner of Taxes shall determine
or direct.
14.2 and
14.3 are not relevant to the present proceedings.
5
It
is provided in paragraph 15 that the ex gratia payment made by the
respondent to the applicant will thus be reduced by the amounts set
out in clause 14. Clause 15 stresses that without in any way
derogating from what is stated in clause 14 it is reiterated that
payment to the applicant shall be subject to any legal obligation
upon the First Respondent (my emphasis) to make any tax deduction
from the ex gratia payment on behalf of the Commissioner of Taxes.
Intention
of the parties is made even clearer by the provisions of paragraph 16
which provide that the respondent was to make part-payment to the
applicant of E100 000 upon signature of the deed of settlement and
the ex gratia payment would be reduced The balance of the ex gratia
payment was to be paid within 72 hours of receipt of the tax
directives by the respondent.
The
1st respondent did indeed seek a directive from the Commissioner of
Taxes and received such a directive. It is common cause that in terms
of the directive which was identified as number 26492 the First
Respondent was obliged to deduct an amount of E156 000 as tax on and
from the ex gratia payment..
The
applicant on 9th March 2001 lodged an objection with the 2nd
respondent. The objection was directed at the 2nd respondent's
decision "effectively taxing the ex gratia payment". A copy
of a letter of objection was annexed to the founding affidavit marked
"E" and was received by the Commissioner of Taxes on the
same day. The 2nd respondent dismissed
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the
objection on the 9th of March 2001. In this connection it is
important to bear in mind that the Income Tax Order makes provision
for objections to assessments but not to directives of that presently
under consideration.
The
applicant then tried to issue a writ on the judgment of the
Industrial Court and this was met by opposition from the 1st
respondent. Having been unsuccessful in obtaining relief in this
manner the applicant has resorted to the present application.
First
Respondent appears to have acted in accordance with the provisions of
the agreement of settlement and the request for the directive to the
2nd respondent was made as contemplated in and in accordance with the
provisions of the deed of settlement itself.
There
is no allegation that the tax on the ex gratia payment has been
assessed. Nor is there any allegation that the amount deducted from
the payment has been remitted to the Commissioner of Taxes, (Second
Respondent). I must assume therefore that the amount still remains
with the First Respondent.
Essentially
the question that has to be answered is whether the lump sum payment
was one to which the provisions of section 58 and the Second Schedule
of the updated Income Tax Order1 apply. In other words was there any
legal obligation on the First Respondent to seek a directive
1
The Income Tax Order 1975 K-O-I-C 21/1/75
7
and
to make a deduction in accordance there with from the amount to be
paid to the Applicant.
The
Section reads.
Payments
of employees tax. (Second Schedule)
58. Payments
in respect of the liability (whether or not such liability has been
ascertained or determined at the date of any payment) of every
employee, as defined in the Second Schedule, for any tax shall be
made in accordance with the Second Schedule, and any such payment may
be made at such place as may be notified by the Commissioner.
And
relevant sections of the Schedule provide
Second
Schedule
AMOUNTS
TO BE DEDUCTED OR WITHHELD BY EMPLOYERS IN RESPECT OF NORMAL TAX
(Under
section 58)
Part
1. Interpretation.
1. In this schedule unless the context otherwise requires -
"employee"
means any person (other than a company) who in respect of an
employment, office or appointment, receives remuneration from an
employer or to whom remuneration accrues;
"employees'
tax" means the tax which an employer is required or requested to
deduct or withhold from remuneration paid or payable to an employee;
"employees'
tax certificate" means a certificate required to be issued by an
employer in terms of paragraph 13;
"employer"
means any authority or person (including any person acting in a
fiduciary capacity or in his capacity as a trustee in an insolvent
estate, an executor or an administrator of a benefit fund, pension
fund, provident fund, retirement annuity fund or any other fund) who
pays or is liable to pay to any person other than a company any
amount by way of remuneration, and any company;
"remuneration"
means any amount of income which is paid or is payable to any person
by way of any salary, leave pay, allowance, wage,
8
revenue:
k.o-i-c. 21/1975
Second
Schedule.
rendered,
including an amount referred to in section 7(a), (b) or (c), or the
annual value of such benefit or benefits referred to in section 7(f)
as the Commissioner may, from time to time, determine in respect of a
year of assessment - (Amended A.5/1988.)
(a) any
amount paid or payable to any person in respect of services rendered
or to be rendered by him as a domestic or private servant if such
amount does not exceed the amounts qualifying for exemption under
section 12(3); (Amended A.5/1988.)
(b) any
annuity under an order of divorce or decree of judicial separation or
under any agreement of separation;
Part
II
EMPLOYEES'
TAX
EMPLOYERS
TO DEDUCT TAX
2. (1) Every
person (whether or not registered as an employer under paragraph 15)
who pays or becomes liable to pay any amount by way of remuneration
to any employee on or after the first day of March, 1967, shall,
unless the Commissioner has granted authority to the contrary, deduct
or withhold from such amount by way of employees' tax an amount which
shall be determined as provided in paragraphs 9, 10, 11 or 12, as the
case may be, in respect of the liability for normal tax of such
employee, and shall pay the amount so deducted or withheld to the
Commissioner within seven days after the end of the month during
which the amount was deducted or withheld, or in the case of a person
who ceases to be an employer, within seven days after the day after
which he ceases to be an employer, or in either case within such
further period as the Commissioner may approve.
(2) An
employer may, at the written request of any employee, deduct or
withhold from any amount of remuneration an amount by way of
employees' tax greater than that
9
revenue:
act 21/1975
Second
Schedule
required
to be deducted or withheld in terms of sub-paragraph (1), and shall
remit such amount to the Commissioner, and the provisions of this
Schedule relating to employees' tax shall, mutatis mutandis, apply in
respect of such amount.
(3) For
the purposes of this paragraph, "month" means calendar
month.
(4) An
amount required to be deducted or withheld from any amount of
remuneration under this Schedule by way of employees' tax shall be
calculated on the balance of such amount of remuneration remaining
after deducting any current contribution by the employee concerned to
any pension fund (excluding so much of such contribution to a pension
fund not established by law as is made at a rate exceeding the sum
specified in section 14(l)(i)) which is calculated with reference to
such amount of remuneration or to a portion of such amount or to the
period in respect of which the amount of remuneration is paid or
payable and which the employer is, vis-a-vis the employee concerned,
entitled or required to deduct or withhold from such amount of
remuneration. (Amended A.6/1991.)
3.
(1) The liability of any employer to deduct or withhold any amount of
employees' tax in terms of paragraph 2 shall not be reduced or
extinguished by reason of the fact that the employer has a right or
is otherwise than in terms of any law under an obligation to deduct
or withhold any other amount from the employees' remuneration, and
such right or obligation shall, notwithstanding anything in any other
law, for all purposes be deemed to have reference only to the amount
of the remuneration remaining after the amount of the employees' tax
referred to in such paragraph has been deducted or withheld.
(2) Paragraph
2 shall apply in respect of all amounts payable by way of
remuneration, notwithstanding any other law which provides that any
such amount shall not be reduced or shall nto be subject to
attachment.
4. Any
amount required to be deducted or withheld in terms of paragraph 2
shall be a debt due to the Government, and the employer concerned
shall save as otherwise provided, be absolutely liable for the due
payment thereof the Commissioner.
5.
(1) Subject to sub-paragraph (6), any employer who fails to deduct or
withhold the full amount of employees' tax as provided in paragraph 2
shall be personally liable for the payment to the Commissioner of the
amount which he fails to deduct or withhold, and shall, subject to
sub-paragraph (2) hereof, pay such amount to the Commissioner not
later than the date on which payment should have been made if the
employees' tax had in fact been deducted or withheld in terms of
paragraph 2.
(2) If
the employer has failed to deduct or withhold employees' tax in terms
of paragraph 2 and the Commissioner is satisfied that the failure was
not due to an intent to postpone payment of the tax or to evade the
employer's obligations under this Schedule, the Commissioner may, if
he is satisfied that there is a reasonable prospect of ultimately
recovering the tax from the employee, absolve the employer from his
liability under sub-paragraph (1).
(3) An
employer who has not been absolved from liability as provided in
sub-paragraph (2) shall have a right of recovery against the employee
in respect of the amount paid by the employer in terms of
sub-paragraph (1) in respect of such employee, and such amount may in
addition to any other right of recovery be
10
revenue:
act 21/1975
Second
Schedule
deducted
from future remuneration which may become payable by the employer to
such employee, in such manner as the Commissioner may determine.
12
(4) Until
such time as an employee pays to his employer any amount which is due
to the employer in terms of sub-paragraph (3), such employee shall
not be entitled to receive from the employer an employees' tax
certificate in respect of such amount.
(5) Any
amount which an employer is required to pay in terms of sub-paragraph
(1) and which he is entitled to recover from the employee in terms of
sub-paragraph (3) shall, in so far as the employer only is concerned,
be deemed to be a penalty due and payable by such employer.
(6) Sub-paragraph
(1) shall not apply in respect of any amount or any portion of any
amount of employees' tax which an employer has failed to deduct or
withhold and in respect of which paragraph 17(3) applies.
6.
(1) If an employer fails to pay any amount of employees' tax for
which he is liable within the period allowed for payment thereof in
terms of paragraph 2 he shall, in addition to any other penalty or
charge for which he may be liable under this Order, pay a penalty
equal to twenty per centum of such amount. (Amended A.7/1992.)
(2) The
Commissioner may, if he is satisfied that the employer's failure to
pay the amount of employees' tax was not due to an intent to postpone
payment of such tax or otherwise evade his obligation under this
Order and was not designed to enable the employee concerned to evade
such employees' obligations under this Order, remit the whole or any
part of the penalty imposed under sub-paragraph (1).
(3) The
penalty imposed under sub-paragraph (1) shall be paid to the
Commissioner when payment is made of the amount of employees' tax to
which it refers or within such further period as the Commissioner may
approve.
7. Any
agreement between an employer and an employee whereby the employee
undertakes not to deduct or withhold employees' tax shall be void.
8. An
employee shall not be entitled to recover from an employer any amount
deducted or withheld by the employer from the employees' remuneration
in terms of paragraph 2.
Deduction
tables.
9.
(1) The Commissioner may from time to time, having regard to the
rates of normal tax as fixed by law and to any other factors having a
bearing upon the probable liability of taxpayers for those taxes
prescribe deduction tables applicable to such classes of employees as
he may determine, and the manner in which such tables shall be
applied, and the amount of employees' tax to be deducted from any
amount of remuneration shall, subject to sub-paragraph (3) and
paragraphs 10, 11 and 12 of this Schedule, be determined in
accordance with such tables, or, if sub-paragraph (3) is applicable,
in accordance with such sub-paragraph. (Amended A.6/1994.)
(2) Any
tables prescribed by the Commissioner in accordance with
sub-paragraph (1) shall come into force on such date as may be
notified by the Commissioner in the Gazette, and shall remain in
force until withdrawn by the Commissioner.
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(3) The
amount to be deducted or withheld in respect of
employee's
tax from any lump sum to which the proviso to paragraph (b) of the
definition of "gross income" applies or any other lump sum
to which the employee is entitled by virtue of the employee's
agreement of employment, shall be ascertained by the employer from
the Commissioner before paying out such lump sum, and the
Commissioner's determination of the amount to be so deducted or
with-held shall be final.
11A. (1) When,
at the end of the tax year, there becomes known the amount of
remuneration received by or accruing to any employee who was in
continuous employment with the same employer in respect of such year
of assessment, the employer concerned shall calculate and determine
the amount of normal tax for which such employee is actually liable
in respect of such year of assessment, and, subject to the provisions
of paragraph 2(4) and to the applicable normal tax rates as
prescribed, make the required adjustments to the amount of employees'
tax deductible or withholdable in respect of such employee.
(2) (i) Where
at the end of any tax year, the employees' tax actually deducted or
withheld from any remuneration paid or payable by an employer to an
employee during any tax year exceeds the amount required to be
deducted or withheld in terms of subparagraph (1) above, the employer
shall repay to such employee the amount of such excess.
(ii) Any
amount of employees' tax which has been repaid by an employer to an
employee under subparagraph (i) above may be deducted from any
subsequent payment of employees' tax due by the employer.
(3) If
the amount of employees' tax actually deducted or withheld from any
remuneration paid or payable by an employer to an employee during any
tax year is less than the amount required to be deducted or withheld
in terms of subparagraph (1), then the employer shall pay the
shortfall to the Commissioner and recover such amount from the
employee.
14
Furnishing
and obtaining of employees' tax certificates.
13. (1) Subject
to paragraphs 5 and 17 every person who during any year of assessment
deducts or withholds any amount by way of employees' tax as required
by paragraph 2 shall, within the time allowed by sub-paragraph (2)
hereof, deliver to each employee or former employee to whom
remuneration has during the period in question been paid or become
due by such person, an employees' tax certificate, in such form as
the Commissioner may prescribe or approve, which shall show the total
remuneration of such employee or former employee and the sum of the
amounts of employees' tax deducted or withheld by such person from
such remuneration during such period, excluding any amount of
remuneration or employees' tax included in any other employees' tax
certificate issued by such person unless such other certificate has
been surrendered to such person by the employee or former employee
and has been cancelled by such person and dealt with by him as
provided in sub-paragraph (10).
The
points to be noted are that
1. The
applicant was not at the time of the accrual or payment of the ex
gratia payment an "employee" as defined, in that at the
relevant time he was no longer in receipt of remuneration by way of
salary or otherwise. The applicant was a former employee, who
although seeking through the Industrial Court to have his severance
reversed, abandoned this claim. He remained therefore at the relevant
time a former or ex employee
2. It
is doubtful for the same reasons whether the Fist Respondent was an
"employer"
3. The
amount that was directed to be deducted was not in respect of
"employee's tax" as defined as it was not in respect of
remuneration of an employee.
4. No
certificate in terms of section 13 appears to have been issued. In
this section a distinction is made between employees and former
employees
5. The
lump sum itself is;
a. not
one to which the proviso to paragraph (b) of the definition of "gross
income" (section 7 of the Order) applies as the payment albeit a
voluntary(ex gratia and without there being any obligation) it was
not received and did not accrue in respect of services rendered or to
be rendered. The Applicant had already been fully paid for the
services he had rendered up to the date of severance and it was not
contemplated that he would render any further services to the First
Respondent.
b. not
one to which the employee is entitled by virtue of the employee's
agreement of employment. The amount was payable in terms of the
agreement of settlement, not the agreement of employment which had
been previously terminated.
c. Not
necessarily "gross Income" as defined as it may well be a
payment of a capital nature. It is not necessary for present purposes
to decide this question. The issue which has to be decided as I have
earlier observed, is whether the provisions of section 58 and the
second schedule are applicable, that is whether the first Respondent
was obliged to obtain a directive from the Second Respondent and to
make a deduction in terms thereof if so directed. The issue is not
whether the accrual or receipt of the lump sum is taxable or not.
15
These
considerations lead me to conclude that the lump sum payment provided
for in the agreement was not subject to the provisions of the
relevant section and the Second Schedule. But for the provisions of
the agreement itself the First Respondent was not obliged or entitled
to deduct any amounts from the payment. The agreement however
provides that the deduction is to be made in respect of such amounts
as the First Respondent was obliged to withhold.
The
provisions of the agreement, in so far as they relate to the
deduction appear to have been made on the basis of a common mistake.
The error was the incorrect assumption that the lump sum payment had
to be dealt with in terms of section 58 and the Second Schedule.
It
does not seem necessary to categorize this error as one of fact, law,
or mixed fact and law.
In
The Law of Contract in South Africa, Third Edition, at page 369 the
author R H Christie in considering the effect of such an error in
negotiations preceding a contract states.
"It
has generally been regarded as settled that a common mistake of law
has no effect on the validity of a contract. This was accepted in
Vluvo Investments (Pty) Ltd v Bezri 1985 4 SA 367 T, but where
neither a landlord nor its tenant realized that the premises was
subject to rent control this was held to be a mistake of fact or
mixed law and fact and the tenant was entitled to recover the excess
rent he had paid. Since S v De Blom 1977 3 SA 513 AD discarded the
cliche that everyone is presumed to know the law, and Willis Farber
Enthoven (Pty) Ltd v Receiver of Revenue 1992 4 SA 202 (A) equated
mistake of fact and mistake of law for the purposes of the condictio
indebiti the time has surely come to reconsider the significance of a
common mistake of law Tredgold J's dictum in Bulawayo Municipality v
Dundee Butchery Limited 1944 SR 120 125 has much to commend it;
'where
the parties contract under a mutual misapprehension of what the law
is, this may be a good ground for holding that the basis on which
they contracted was non-existent and that the contract is
unenforceable' "
I
am persuaded that in the present instance the parties provided for
the deductions from the lump sum under the common mistake of fact or
laboured under a common misapprehension, that the statutory
provisions that have been examined earlier in this judgment applied.
In this they were wrong.
The
mistake does not affect whole agreement, but renders those portions
relating to the First Respondent seeking a directive from the Second
Respondent and making deductions from the amount to be paid in terms
thereof unenforceable. It follows that the First Respondent must pay
the amounts deducted to the applicant. If such amount has been paid
to the Second respondent the First Respondent will have to recover it
from the Second Respondent.
The
order I make is
16
The
First Respondent shall pay the amount of E148 722-24 together with
interest thereon calculated at nine per cent per annum a tempore
morae (which is the date on which the lump sum should have been paid
without deduction), to date of payment.
The
First Respondent is to pay Applicant's costs. There will be no order
in regard to Second Respondents and other Respondents' costs.
S
W Sapire CJ
