➥ CASE SUMMARY OF:
Nigerian Breweries Plc. V. Oyo State Board of Internal Revenue (2012) – CA/I/M.25/2007
by Branham Chima.
Nigerian Breweries Plc
Oyo State Board of Internal Revenue
Court of Appeal – CA/I/M.25/2007
➥ JUDGEMENT DELIVERED ON:
21 June 2012
➥ THIS CASE IS AUTHORITY FOR:
⦿ PURPORT OF WITHHOLDING TAX
✓ Withholding Tax (WHT) or retention tax is really a term of art/generic expression (or sui generis) devised by tax authorities for tax administration through the method of deduction of tax at source from income including payments due to a benefiting party, by the paying party, for onward remittance to the appropriate tax authority of the benefiting party – See 7Up Bottling Company Plc v. L.S.I.R.B. (supra) at pages 617-618 thus: ‘The way I understand it, is that the withholding Tax (WHT) system is a form of tax administration which enables tax authorities to recover at source from taxable persons tax from payment made for certain services which such persons render to another. What is deducted by the person who pays for the services is a percentage of this payment. Now if so deducted, when the taxable person’s tax for the year is duly assessed, whatever had been deducted is credited to him in a manner that he does not pay tax twice on the same income accruing from that payment. Under both PAYE and the WHT systems, the employer or payer who pays for the services of his employee/taxable person, by way of emolument or the cost of supplies or other services to a taxable person, is obliged to deduct and remit tax so deducted (from source) to the authority. He is the Agent of the tax authority as it were. This is the effect of section 72(5) of Decree 104 (supra) and Section 4 of the Regulations of 1997. We are unable, with respect to agree with the appellants that there is no statutory provision for WHT. It must be realized that the employer/person deducting the tax from source is not the assessable person or tax-payer under the tax laws. As earlier stated, if anyone needs object to the assessment or deduction, it should be the tax payer or tax assessable person.’ – J.S. Ikyegh, JCA.
✓ In other words, WHT or retention tax occurs in any of the statutorily provided transactions respecting goods and services when payments from one person to another, including corporate bodies, are expected to be deducted at source on specified percentage on the total value of the transactions and remitted to the relevant tax authority within the statutory period on pain of penalty, in the event of default by the payee. In effect WHT or retention tax is required by tax legislation to be withheld by a party acting as a conduit or handler of the tax authority from each payment made to another contracting party from income or services rendered and/or arising from such transactions and remitted to the tax authority by the withholder within the fixed statutory period. By the procedure the payee of an item of income temporarily withholds tax from the payments and pays same in lump sum to tax authority which acts as check against tax evasion and delinquency in filing tax returns by the payee. – J.S. Ikyegh, JCA.
⦿ TAX LAWS ARE STRICTLY OR NARROWLY INTERPRETED
Tax laws are strictly or narrowly interpreted from the bare words used in the enactment. There is no presumption or equity about a tax – See Ahmadu and Anor. v. The Governor of Kogi State and Ors. (2002) 3 NWLR (Pt. 755) 502 at 522 thus – “In a taxing legislation, one has to look merely at what is clearly said. There is no room for any intendment. There is no equity about a tax. There is no presumption about a tax. Nothing is to be read in and nothing is to be implied, one can only look fairly at the language used. But the strictness of interpretation may not always enure to the subject’s benefit, for “if the person sought to be taxed comes within the letter of the law, he must be taxed, however great the hardship may appear to the judicial mind” – Per Lord Cairns- in Partington v. Attorney-General (1869) L.R. 4 H.L. 100 at P. 122. See Maxwell on the Interpretation of Statutes 12th Edition by P. St J, Langan at p.256.” See also Okupe v. Federal Board of Inland Revenue (1974) 4 S.C. 93, Aderawos Trading Co. Ltd. v. F.B.I.R. (1966) L.L.R. 195 at 200 or (1966) 2 ALR (Commercial) 219, Ormond Investment Co. v. Betts (1928) A.C. 143. – J.S. Ikyegh, JCA.
⦿ THE COURT CANNOT IGNORE GOVERNMENT CIRCULARS
Government circulars convey Government Policy and serve as the mouth-piece of Government on such issues and cannot be ignored by the Court – See C.B.N. v. Amao and Ors. (2007) ALL FWLR (Pt. 1614) 1490 at 1522-1525. One of such circulars is contained at pages 52-54 of the record helpfully referred to by Mr. Ganiyu for the respondent. It is Federal Inland Revenue Circular No. 9801 dated 1.10.98, stating inter alia at page 54 of the record that- “…where the trader enters into contract for the sale of the goods, he is no longer acting within his ordinary course of business, that is trading, but has made an adventure into another business, that is contracts. Further, a manufacturer who makes contractual sale or purchase is no longer acting within his ordinary course of business that is contract. Although the manufacturer may use the items purchased or sold in his manufacturing business, the contractual arrangement for the sale or purchase will be subject to 5% withholding Tax.” (My emphasis.) The circular (supra) appears to me to be explanatory of the Schedule to the WHT Regulations of 1997 made pursuant to section 63(7) of CITA and section 72(6) of PITA which provides 5% WHT for – “All types of contracts and agency arrangements, other than outright sale and purchase of goods and property in the ordinary course of business.” – J.S. Ikyegh, JCA.
⦿ TRANSACTION LOCATION, AND NOT RESIDENCE, DETERMINE WHT
It is clear to me that the residence of third parties engaged in transactions attracting WHT with a payee is not material. The significant factor is the venue or place the transactions were effected. Once it is shown the transactions with third parties were implemented in Oyo State by way of supplying the transacted items or goods or services in Oyo State, whether the supplier or group of suppliers are not resident in Oyo State, the transactions that arose from the contractual arrangement for the sale or purchase of the goods or services would be the items subject to 5% WHT liability, not the manufacturing business of the payee itself. The WHT is therefore on the goods and services contracted for, not on the manufacturing concern of the payee. – J.S. Ikyegh, JCA.
➥ LEAD JUDGEMENT DELIVERED BY:
Joseph Shagbaor Ikyegh, JCA
⦿ FOR THE APPELLANT
⦿ FOR THE RESPONDENT
➥ CASE FACT/HISTORY
The tax appeal is from a judgment of an Oyo State High Court holden at Ibadan (the court below) empowering the respondent to distrain the movable and immovable property of the appellant for non-payment of ₦21,233,213 (Twenty-one Million, Two Hundred and Thirteen Naira) unremitted deduction in respect of Withholding Tax until settlement of the tax liability by the appellant. Skeletally put, the appellant is a public liability company engaged in the business of brewing and selling inter alia alcoholic beverages with its branch office in Ibadan, Oyo State; a disputed withholding tax (WHT) assessment made and served by the respondent on the appellant for the 1998 tax year in respect of trade transactions between the appellant and individual contractors caused the respondent to launch an action on originating summons to determine the dispute. In the course of hearing the originating summons, the dispute became controversial or hostile, and evidence was tendered by the appellant and the respondent towards settlement of the dispute.
At the end of the day, the court below accepted the respondent’s case that it is the appropriate tax authority to collect or recover WHT from the appellant which it adjudged to be ₦21,233,213. The court below accordingly ordered the movables and immovables of the appellant to be distrained by the respondent until liquidation of the adjudged sum of WHT liability by the appellant.
Aggrieved, the appellant filed a notice of appeal containing three grounds of appeal on 13.10.06.
➥ ISSUE(S) & RESOLUTION(S)
I. Whether based on the evidence adduced, the Respondent substantiated its claim to the sum allegedly owed it (Respondent) as withholding Tax by the Appellant herein or to the amount held by the lower court to be owed by the Appellant to the Respondent?
A. THE RESPONDENT CONCEDED TO THE WHT LIABILITY OF THE APPELLANT
[‘The WHT dispute at hand is in respect of transactions made by appellant as a corporate body with third parties for the 1998 tax year. Exhibit AO3 at pages 22-40 of the record contained the transactions that attracted the WHT liability. I agree with the appellant’s learned counsel that Exhibit AO3 prepared by the appellant and conceded to by the respondent is an admission by the respondent that the WHT liability of the appellant is as recorded in Exhibit AO3 – See sections 19 and 20 of the Evidence Act and the string of cases cited on the issue (supra) by the appellant.’]
B. THE TRIAL COURT’S FINDINGS OF FACT CANNOT BE FAULTED
[‘In my opinion, on the strength of the circular (supra), all transactions of buying produce and/or goods by the appellant from individuals and corporate bodies for the purpose of commercial production within the 1998 taxable year that brought income chargeable to tax in Oyo State attracted WHT rate of 5% on the purchases. The unshaken evidence of the PW1 at page 47 lines 14-16, page 57 lines 8-15 and 21-28 of the record referred to by respondent’s learned counsel conformed to the said circular in proof of the respondent’s case that the appellant was liable for WHT on such transactions. The evidence of the DW1 for the respondent denying liability on the ground stated in part of his testimony at page 61 of the record that the grains were bought by the appellant in the ordinary course of business flies in the face of the circular (supra) and was rightly discountenanced by the court below which properly utilized the evidence of the PW1 that was in line with the circular (supra) to hold at pages 211-212 of the record that the transactions in question attracted WHT liability. I cannot fault the said findings of fact – See Coker v. Olukoga and Ors. (1994) 2 NWLR (Pt. 328) 648 at 664 thus – “It is trite that an appellate court has no jurisdiction to reject the findings of a trial judge unless such findings are perverse. See Dom v. Jov (1992) 6 NWLR (Pt. 246) 195; Ogunbiyi v. Ogundipe (1992) 9 NWLR (Pt. 263) 24; Okuzua v. Amosu (1992) 6 NWLR (Pt. 248) 416; Fadiora v. Abonde (1992) 6 NWLR (Pt. 246) 221; Akibu v. Oduntan (1992) 2 NWLR (Pt. 222) 210.”’]
C. FOR WHT, WHAT IS CRUCIAL IS THE PLACE OF PERFORMANCE
[‘By Exhibit ‘AO3’, at pages 22 – 40 of the record the transactions recorded therein were made in Oyo State bringing “Income” within the meaning of “that which comes in” vide Longsdon (supra) and brought the taxable transactions under WHT liability recoverable by the respondent, as what is crucial to WHT liability is the place of performance of the transaction, not necessarily on the residence of the third parties involved in the transaction.’]
D. THE APPELLANT WHT LIABILITY IS N19,688,486 IN RESPECT OF TRANSACTIONS DONE WITHIN OYO STATE
[‘In my respectful view, the respondent was bound to limit its claim to the sum assessed and served by it on the appellant as the WHT liability of ₦19,688,486 which the parties disagreed upon, resulting in the litigation. The point made by Mrs. Akeredolu that the claim and the award made by the court below exceeded the amount of money assessed by the respondent as WHT liability is well taken and is hereby countenanced. The respondent cannot, therefore, be allowed to approbate and reprobate at the same time. Limiting the WHT liability assessed and served on the appellant by the respondent to the said ₦19,688,486 and, having been satisfied that the WHT liability assessed by the respondent was in respect of transactions done within Oyo State that attracted WHT recoverable by the respondent, not the Federal Government, I would dismiss the appeal on liability for lacking in merit but reduce the judgment debt to ₦19,688,486 as the just entitlement of the respondent representing the WHT liability of the appellant for the 1998 tax year.’]
‘No order as to costs. Both Mrs. Akeredolu for the appellant and Mr. Ganiyu for the respondent are commended for the impressive briefs prepared by them for their respective clients on the appeal.’
➥ MISCELLANEOUS POINTS
➥ REFERENCED (LEGISLATION)
➥ REFERENCED (CASE)
⦿ DEFINITION OF INCOME FOR THE PURPOSE OF TAX
See Longsdon v. Minister of Pensions and National Insurance (1956) 1 ALL E.R. 83 defining “income” inter-alia as “that which comes in.” While Lord Chetwode v. IRC (1977) 1 ALL E.R. 638 held inter-alia that “income” means gross income as reduced for the purpose of tax assessment by deductions specified in the tax code. Consequently, any contractual transaction in which something of exchangeable worth proceeding from the property, severed from the capital, is drawn by the recipient for separate use or benefit is “income” – See Goodrich v. Edwards 255 U.S. 527 referred to in the authoritative work titled Encyclopedia of Taxation Law and Practice (First Edition) page 138 by Sir T.A. Nwamara, and 7up Bottling Company (supra) on the sugar transaction between the company and third parties which was held to attract WHT liability in that case.
➥ REFERENCED (OTHERS)