RESPUBLICA (PTY} LTD

and

THE COMMISSIONER

FOR THE SOUYH AFRICAN REVENUESERVIGES

APPLICANT

RESPONDENT

SUD EM€NT

SEMENYA A.ï:

(11 The applicant, Respublica (PTY) Ltd (RespubEca) entered into a Ëve year tease zgreement e:•piring on 31st Secemùer 2016 'ñ/ïth Tsh.wane University of Technology (TUT) in respect an immovobie property situated at Erf 750 waggasrand, province of Gauteng. The property in question was les to TUT for tàe sole suxpose of accommodating its students.

[2] The propert‘¿ is divided into smülle‹ units vzh'ch are fuIi•y furnis'zed xß,f,th a •:itche lette, bathroom and oedroom/ living ürea. Respuölica supplies domestic goods and services in the forrr. of water and electûc”ity, maintenance costs, manz¿ement of the 'auilüing, a common TV room and laund services.

|3] The monthly rental payable by TUT comprises of an amount of R1, 376,480, 00. It is recorded in the agreement that en amount of R275. 00 is payable for utilities and shall be included in rte monthly bed rentals. The lease agreement allows TUT to

accomrnodate othsr seople duïia¿ schooi ûolidays referted to as holiday users.

[*ï-] The dispute in thèse proceedirgs is between Resbuplica and TP.e

!?ommissioner for the Receiver of Re•'enue (SARS). The question

öeing v'hether-

In terms of the lease agreerr.ent, the letting of accommodahori by Respu'alica to TUT, com¿risg a taxable supÿ\l*• o1 cor«.merciaI accommodation for value-added ta:‹ purposes and Respublica is obliged to ›ev›,• mnd account for VAT in accordance smith the Value-Addeü Tax Act 8ü of 1991 on the ren:al payment it receives as consideration; and;

as a conse›quence of the leiting of accommoüation by Respublica ‹o TUT, Respu»lica is liable to acco›unt for VAT on only 60% of the reatat income it rece.ves in ccoïdance v'ith the provisions of section 10(CO) of the Value-Added Tax Act B9 of 1991 (the Act).

[4] The question arises from the wording of section 10 10) of tile Act which pro•'ides as follows:

here domestic goods and services are supplied at an all-inclusive charge in any enterprise supplying commercial accommodation for an unbroken period of exceedinQ 28 days, the consideration in money is deemed to be 60 per cent of th.e a'l-›”nc!usive charge.”

[5j In addition to” section 10(10), the Act del.nes camrtlercial accommodation in section 1 as:

commercial accommodation:

“(a) Lodging, board and lodging, together with domestic goods and services, in any house, flat, apadmeni, room, hotel, motel, inn, guest house, boarding house, residential establishment, holiday accommodation un"it, cha/ed, fenf, caravan, camping sile, houseboal or Slf72ilar establishment, which is regularly and systematically supplied and .where the total annual receipt from the supply themof exceed R60.000 in a period of 12 months or is reasonably expected to exceed that amount in a period of 12 months, buf excluding a dwelling in terms of an agreement for the letting and hi/inp fhe/eo/,

Lodging or board and lodging in a home for the aged, cii/siren,

physically and mentally handicapped person; and

Lodging and board and lodging in a hospice.”

Furthermore c.omestic gooJs and services are defined as:

‘(a) cleaning and maintenance;

electricity, gas, air-conditioning or healing ,’

a telephone, te/evasion set, a radio or similar article;

furniture and fittings,’

meals”

laundry: or

nursing services.”

[6j Ñespublica seeks a declaratory arder to the effect that its supply to TUT is that of commercial accommodatton a*d that it is liabie to account for 60% of the rental it receives.

The espondent -s opçosing the apslication on the bases that this court lacks the necessary jurisdiction to ‹Year the matter as such rnatters shoufd be dealt with in term.s of the Tax Administration

.4c‹ 28 of 2011. It cJso contends t'1at the merits of the application »re not in favoMr the arder sought.

I zgree with espuólica that t‹ze Tax Administration Act does :1o‹ oust this court's jurisdicticn to hear the application as this maxer involves a question of let.'• and eiso becac se there is no dispui»d assessment in ressect of •..•hich it coulc! raise an objection-

The parties agree that the issue revolves around interpretation of the relevant sections of the Act.

[“OJ A proper manner of interpretation of statutes has been

“/nte/prefafion is the process of attributing meaning Io the words used in a document, be it legislation, some other statutory instrument, or contract, having regard to the context provided by reading the particular provision or provisions in the fight of the document as a whole and the circumstances attendant upon its coming intc existence. Whatever the nature of the document, considerafion must be given to the language used in the light of the ordinary rules of grammar and syntax,’ the context in H//ic/? the provision appeals; the apparent purpose to which “it is directed and the material known to those responsible for its production. W'here mom than one m=anirig is possible each possibility must be wetghed in the I)ght of a// these factors. The process is objective, not subjective. A sensible meaning is to be preferred to a.ce that leads to /nsens/b/e or unbusinness like msults or undermines the apparent purpose of the document. Judges must be alert to, and guard against, the temptation to substitute w/?af they mgard as reasonab/e, sensible or businesslike for the words actually used. To do so in regard to a statute or s/a/ufo/y tnstmment is to cross the

divide between interpretation and legislation, in a contractual context it is to make a contract for the parties other than Ihe one they in fact made. The 'inevitable point of departure is the language of the provision itself’, read in context and having regard ie the purpose of the provision and the background to the preparaticn and production of the document.”

7

[11) it was come:Idea on behalf of ”SARS thzt the appIica ion cannot

succeed based o'f the following.

That the dictionary meaning of ‹he word “lodging,” as 't appears in the ciefinition of commercial accommoclation in the Act, should we interpreted to refer to a natural

person . That on *is basis, TUT, not being a natural

person, cannot 'odge in the premises supplied b› the›

applicant.

That there is no nexus between Respublica and tt'e students upon ’/hich it can Lee argued that the students are lodgers in the leased premises.

That T'JT shouid be regarded as a tenant and nDt as a

lodger.

1 i.4 That since tile evict.onary meaning of lodging is “temporary accommodation°, it cannot be said them a contract bet•*'een TUT and Respublica, which is for a period of five years, qualifies to be of lodging.

11.5 That utilities are ¿aid separately from the rental, and cannot ae considered to be part cf all-inclusive cha ge as en'›isaged in section 10 (*›0) of t1e Act.

Respublica on the other hznd argued that it supplies commercial accornmodation on the following bases:

12.1 That the studen‹s »re an integral purt of the lease agreement znd are .equired to abide by its terms. The premises are let to TUT for the sole puroese of accommodating its s uüents.

i0.2 i hot ths students onl'.• occupy the roOfTlS during the term and go to their respective homes during h.oIidays making the'r stay a temporal one.

12.3 That there is no clause in the Act that stipulates that a lodger can only be a nütural person.

12.1 That Respublica does provide domestic ¿oods and services

to the students.

12.5 That SARS interpretation' of ti.e phrase “commercial accommodation“’ is too res:trictive and that the application is not about the meanirg of the word “Iodgin.g”.

As the issues revolve around the interpretation of ti•.e A4, ! am of the view that the correct approach would be to interpret its relevant sections in conjunction with the agreement bed*.veen Respublic» and TUT.

In m\/ view, SARS's reliance on the sterile dictionary meaning of the word !odger and lodging is faulty as it ignores the purpose for which the property was let to TUT being to accommodate students. That the students are indeed lodging in the property is not in dispute. I agree with Respubiica that a nexus between the lessor

and tile enci user is not a requirement for the supply o* commercial accommodation.

The argument that the lease was for a fixed period of five years and not temporary in line v7ith the meaning of the word lodging cannot stand as it loses sight of the purpose for which the agreement was made. It is an undisputed fact that the students go home during holidays and do not occupy the same room. during their stay with TUT. The students do not occupy the property‘ continuousi • for*he entire period of the ieasc

[15] TUT students stay in the premises for a per.od longer than 28 days.

[16j The agr=ement bet.veen Respub)ica and -i“LT clearly stipulates that tile atTiouct of R275.00 payable for utilities is part of the ail- inclusive charge. I see no reeson why I should disregard their intention as per the agreement.

[17) It is common cause that Respublica supplies domestic goods and

se ices as defined in time Act for use by the lodgers.

|18] The method of interpretat.on suggested bj' SARS is indeed restrictive and if applied, will result in absurdity. It cennot be said that the legislature imagined a situation •*'here educational institutions would be in a position to o»/n sufficien: properties to

accommodate all their stucien s. /. need to outsource this functicn from those who deal in propert› vziil always arise. I em of the view that the words used in the definition of “commercial accommodat”ion" must be read in conjunction with the purpose for which the property was let to ”UT. It would result in the most sensible meaning which is in the interest of commerce-Emdumeni. A literal manner of interpretation alone, as suggested by SARS will not make the co-business of TUT and other educational institutions

easy It also overlooks ihe expenses landlords incur .n maintaining buildings occupied by students.

9j The %o1lowirg order is mzde:

It is dedared that the lef.ng of accommodation b›,• Raspublica to TUT in ‹erms of the lease agreement coaprises of a taxable sc:pply of commercial accDmmodation for value —edded 'a:‹ pur,ooses and Respublisa is obliged to levy and accoun* for VA i

‹n accordance with the Value-Added T»: 89 of 1991 on the

renta( payments it receives as consicleration

Respu'olica is liable to account for Vé,”i- on only 50% of the rental it receives in accordance with section 10 (10) of the Act.

12

AC’7ING JUDGE OF THfi HiGH OF

SOUTH AF!2!CA, GAUTENf?

DIVISION, PRETORA

PORTHEAPPUGANT:ADV.dDVLJOEN

iug‹RucTED BY:LIEZENBERG MALAN FOR THE RESPONDANT: ADV.

i steucvzo sY:aoeuAN ATTORNEYS

BATS OF HEARNG:

DATE OF JUDGMSXT: