Lutzkie v Commissioner for the South African Revenue Service

The dispute arose from SARS' inclusion of R1 670 099.85 deposited into the applicant’s bank account on 15 June 2006 (from a BVI entity, Volaw Trust) in his taxable income for the 2007 year of assessment. SARS also imposed an additional tax penalty of 90%. Initially, the applicant claimed the amount was a loan from Volaw Trust for legal fees. Before the Tax Court, he changed his case to allege it was repayment of a shareholder’s loan from a dissolved BVI company, M.C.M Development Limited. The applicant did not testify; he relied on his auditor, Mr van Dyk, whose evidence was based on emails exchanged with Ms Gray of the VG Group in the Isle of Man and was largely hearsay. The Tax Court rejected the evidence as inadmissible hearsay and found the applicant had failed to discharge his onus, upholding the assessment and penalty. The Full Court of the Gauteng Division, Pretoria upheld the Tax Court by majority. The applicant’s application for special leave to appeal to the Supreme Court of Appeal was refused by two judges on 5 October 2023. The President of the SCA referred the refusal for reconsideration under the proviso to s 17(2)(f) of the Superior Courts Act 10 of 2013.

• Whether exceptional circumstances existed warranting reconsideration, under s 17(2)(f) of the Superior Courts Act, of the refusal of special leave to appeal (or whether a grave failure of justice would result or the administration of justice be brought into disrepute).
• Whether the applicant discharged the onus under s 82 of the Income Tax Act 58 of 1962 of proving that the disputed amount of R1 670 099.85 was not taxable income.
• Whether the Tax Court properly exercised its original discretion in upholding the 90% additional tax penalty imposed by SARS under s 76 of the Income Tax Act.
• Whether the applicant’s right to a fair hearing under s 34 of the Constitution was breached by the Tax Court’s treatment of hearsay evidence.

The application for reconsideration of the decision of 5 October 2023 refusing special leave to appeal was dismissed with costs, including the costs of two counsel.

Reconsideration of a refusal of special leave to appeal under s 17(2)(f) of the Superior Courts Act is only competent in exceptional circumstances where a grave failure of justice would otherwise result or the administration of justice may be brought into disrepute; merely rehearsing arguments already rejected is insufficient. Hearsay evidence is inadmissible unless admitted under s 3 of the Law of Evidence Amendment Act 45 of 1988, and cross-examination of a witness on such evidence does not render it admissible. A taxpayer bears the onus under s 82 of the Income Tax Act 58 of 1962 of proving on a preponderance of probability that an amount is exempt from or not liable to tax. An appellate court will not interfere with the Tax Court’s exercise of its discretion regarding additional tax under s 76 of the Income Tax Act unless the discretion was exercised capriciously, without substantial reasons, on a wrong principle, or without an unbiased judgment.

The Court deprecated the Tax Court’s statement that the applicant’s conduct amounted to tax evasion justifying 200% additional tax, finding it regrettable and not borne out by SARS’ pleadings, though it did not affect the ultimate exercise of discretion. The Court observed that judges are fallible and that s 34 of the Constitution does not require perfection in judgments or guarantee a correct decision. The judgment also contains extensive discussion of the divergent judicial views on whether the existence of ‘exceptional circumstances’ under s 17(2)(f) is a jurisdictional fact for the court to determine, noting that this issue was recently resolved in 4 Seasons Logistics CC v Kgothe [2026] ZASCA 09.

The judgment reaffirms the stringent threshold for reconsideration applications under s 17(2)(f) of the Superior Courts Act, holding that such relief is reserved for truly exceptional circumstances where a grave failure of justice would otherwise result or the administration of justice may be brought into disrepute. It restates the taxpayer’s onus under s 82 of the Income Tax Act to prove that an amount is not taxable. It reinforces that hearsay evidence remains inadmissible in civil proceedings unless properly admitted under the Law of Evidence Amendment Act, and that cross-examination cannot cure inadmissibility. The Court also affirmed the limited basis for appellate interference with the Tax Court’s wide discretion in imposing additional tax penalties, and clarified that the right to a fair hearing under s 34 of the Constitution does not entitle a litigant to a correct decision.