A district-level court has reportedly ruled against the Israeli Tax Authority for failure to honor an earlier court order (Cyviak Case, Tel Aviv District Court, reported judgment of Y. Saroussi, June 3, 2025).
Anyone following the Israeli judicial reform process should note what can happen if an executive authority simply ignores the courts and uses a catch-22 excuse when caught out.
Main facts: The taxpayer asked the Real Estate Taxation Tribunal to allow a capital loss to be offset against a real estate capital gain (appreciation). The tribunal instructed the taxpayer to ask the Holon income tax assessing officer to determine the amount of capital loss from another transaction dating back to 2006.
The taxpayer duly asked, but the assessing officer turned this down in December 2024. The taxpayer appealed to the district court on January 15, 2025 but the Holon assessing officer didn’t respond, so the district court (Judge M. Altuvia) ruled in favor of the taxpayer on March 24, 2025.
Three days later, the Holon assessing officer (i.e. the ITA) swung into action and applied to the court to cancel the March 24 ruling.
The ITA apologized for the failure but claimed it meant no dishonor to the court. But it could not agree to “grant” a tax refund of around NIS 1 million due to a variety of reasons (excuses). In particular, the loss was agreed but the taxpayer had not yet filed a 2023 tax return, so it could not be sure if the loss had been utilized as of the end of 2023.
In other words, there was a catch-22 situation – the taxpayer couldn’t use the loss without confirmation it existed, and the ITA said the loss couldn’t be confirmed in case it had already been used. Fortunately, the judge (a different one, Y. Saroussi) realized this was a catch-22 case and would not stand for it. How? Read on:
Court decisions, processes
The no-nonsense judgment: The court said it is necessary to distinguish between two grounds for canceling a court judgment: (1) to do justice, for example, if a lawsuit is not properly served, (2) at the court’s discretion, as in this case.
In the latter instance (applying discretion), the court needs to weigh up two more things: (a) reason for any failure – does it stem from a good faith error or does it stem from deliberate dishonor of the court? (b) What are the chances of a successful defense for the party requesting the cancellation?
As for (a), the court ruled there was no good faith error nor were there extenuating circumstances, as the ITA “decided by itself that it didn’t need to respond, nor provide a minimal explanation that the procedure was wrong…in the best case, there is no justification for the delay, and in the worst case, it amounts to dishonor of the process and the court.”
As for (b), the chances of the ITA’s case succeeding were not high and certainly not good enough to overcome its dishonor of the court. In this particular case, the amount of the loss had already been determined so there was no need to file a tax return to ascertain the loss.
As for whether the loss had already been utilized, the court said that the ITA “is supposed to know anyway whether the loss had been used or not. If the loss wasn’t used in income tax or land appreciation tax filings, it wasn’t used…”
Therefore, the court ruled that if the ITA found that the loss hadn’t yet been used, it must issue the loss confirmation as requested. End of catch-22.
As always, consult experienced tax advisers in each country at an early stage in specific cases.
leon@hcat.co
The writer is a certified public accountant and tax specialist at Harris Consulting & Tax Ltd.