BEST CHILDREN INTERNATIONAL SCHOOLS LIMITED v. FEDERAL INLAND REVENUE SERVICES
(2018)LCN/12274(CA)
In The Court of Appeal of Nigeria
On Tuesday, the 11th day of December, 2018
CA/A/393/2016
RATIO
TAXATION: DUTY OF CITIZENS TO PAY TAX
“It is certain and well endorsed by our Court, that taxation is not an all comers or an arbitrary issue. No tax can be imposed on or collected from the subject without the words in an Act of Parliament clearly showing intent on it to lay a burden on the subject (see S.A. Authority v. Regional Tax Board (1970) All NLR 177; Scottish Widows Plc & Ors v. Commissioners for Her Majesty Revenue and Customs (SCOTLAND) & ors. (2011) LPELR – 17822 (UK Sc). The duty of a citizen to obey, oblige and comply with the laws of the land is as fundamental and concomitant with the duty of a citizen to pay taxes.” PER STEPHEN JONAH ADAH, J.C.A.
JUSTICES
STEPHEN JONAH ADAH Justice of The Court of Appeal of Nigeria
EMMANUEL AKOMAYE AGIM Justice of The Court of Appeal of Nigeria
MOHAMMED BABA IDRIS Justice of The Court of Appeal of Nigeria
Between
BEST CHILDREN INTERNATIONAL SCHOOLS LTD Appellant(s)
AND
FEDERAL INLAND REVENUE SERVICES Respondent(s)
STEPHEN JONAH ADAH, J.C.A. (Delivering the Leading Judgment):
This is an appeal against the decision of Federal High Court, Abuja Division in Suit No. FHC/ABJ/C/867/2014 delivered on the 18th day of March 2016 by A.F.A Ademola, J.
The Suit was originated at the trial Court by a Writ of Prohibition wherein the appellant sought for an order of prohibition of the Respondent in two terms namely:
1. An Order for judicial review by way of:
a. An order for the prohibition of the Respondent from the imposition and/or enforcement of the company Income tax on the applicant, encapsulated in a letter dated 1st September, 2014 served on the Applicant by the Respondent and annexed herewith as ANNEXURE 43.
b. An order of injunction restraining the respondent, its staff, agents, privies or anyone acting on its authority from further imposition of wrongful tax and/or enforcing the company income tax on the Applicant, encapsulated in a letter dated 1st September, 2014 served on the Applicant by the Respondent and annexed herewith as ANNEXURE A3.
This matter was heard by the trial Court and the appellant lost the matter.
The appellant being aggrieved appealed to this Court on 22nd of March, 2016. This notice of appeal was amended by an amended notice of appeal dated 28th July, 2016.
The record of appeal was transmitted on 8/7/2016 but deemed properly transmitted and served on 11/4/2015. The appellant filed the appellant’s brief of argument on 18/5/2018 while the respondent filed respondent’s brief on 24/7/2018 but deemed properly filed and served on 29/10/2018. The appellant’s reply brief filed on 26/10/2018 was also deemed on 29/10/2018. The parties adopted their arguments in their respective briefs and made their respective arguments in this appeal.
Two issues were distilled by the appellant while one issue was framed by the respondent for determination. The issues framed by the appellant are:
1. Whether the trial High Court erred in the construction of Section 23(1) (c) of the Companies Income Tax Act by holding that the subsection has in contemplation only companies registered under Section 26 of the Companies and Allied Matters Act (CAMA) consequent upon which it dismissed all the reliefs sought by the appellant in its originating motion on notice (Ground 1 & 3).
2. Whether the trial Court misdirected itself when it relied on the fact of the registration of the appellant, as a private company limited by shares in determining whether the company falls under Section 23 (1) (c) CITA. (Ground 2).
The lone issue framed by the respondent is couched as follows:
“The crux of this case is whether the appellant is exempted from the payment of corporate tax by virtue of Section 23(1) (c) of the Companies Income Tax Act CAP C21 Laws of the Federation of Nigeria (CITA)?”
I adopt the two issues distilled by the appellant which I will consider together in this appeal.
Issues One and Two:
These two issues are whether the trial Court erred in the construction of Section 23(1)(c) of the Companies Incomes Tax Act and whether the trial Court misdirected itself in holding that the fact of the appellant’s registration as a private Company Ltd by shares makes it fall under Section 23(1)(c) of Company’s income Tax.
The contention of the appellant is that it is a private limited liability company registered under Section 22 of the Companies and Allied Matters Act, 1990 which runs and manages Schools which are open to members of the public for the delivery of primary and secondary education.
That the appellant’s schools (learning environment) have pupils who are registered for both primary and secondary schools and who also are boarders and stay in plaintiff’s boarding facilities and hostels. That the appellant’s primary and secondary schools are open to the public regardless of sex, religion and ethnicity. The appellant only provides educational services for members of the public and does not carry on any other trade or business. Counsel contended that by reason of the foregoing, what was in issue before the trial High Court, is whether the plaintiff company is a company contemplated by Section 23 (1) (c) of the Companies and Income Tax (CITA) for purposes of tax exemption being a company which engages in educational activities of a public character.
The learned counsel for the appellant contended further that it is not the case of the respondent that the appellant caries on a trade or business or derive profits from such trade but that the appellant carries on educational activities open to the public. He relied on Section 23(1) (c) of the Companies Income Tax Act (CITA). He canvassed that the trial Court ought to have given the law a good interpretation before concluding that the appellant was exempted from Section 23(1) (c) of CITA. He contended that the trial Court negated a cardinal principle of construction of statutes before concluding that the section only relates to companies limited by guarantee and registered under Section 26 of CAMA. He cited the dictum of Obaseki, JSC in Ojokolobo v. Alamu (1987) 3 NWLR (Pt. 61) 377, 4021 and Ahmed v. Kassim (1958) 1 NSCC 11, 12 Court decisions inCCCT & CS Ltd v. Ekpo (2008) All FWLR (Pt. 418) 198, 222; Araka v. Egbue (2003) FWLR (Pt. 175) SC 507 and ANPP v. Goni & Os. (2012) 2 LREW 440,467.
The learned counsel for the respondent in his own brief canvassed that all registered companies in Nigeria except otherwise exempt are liable to pay tax on its global income generated, brought in or received in Nigeria with respect to trade or investment. He referred to Section 9(1) (a) and (f) of CITA. He contended that no one should be taxed or exempted from tax payment except with the express provision of the law.
He relied on the case of S.A. Authority v. Regional Tax Board (1970) LPELR – 2967 (SC). He canvassed that Section 23 (1) (c) of CITA provides limited exemption for certain companies and in some circumstances. That Section 23 of CITA should be interpreted literally. He relied on the case of Knight Frank & Rutley (Nig.) & Anor v. A.G. Kano State (1998) LPELR – 1694 (SC). That for Section 23 of CITA to apply profits of the company must have been derived from either ecclesiastical, charitable or education activities. That the company must also be of a public character. That the profits of the said company must not be from trade or business. That the conditions must be available simultaneously.
The learned counsel further contended that the statute being revenue statute must be interpreted in favour of the revenue. He relied on the case of Phoenix Motors Ltd v. National Provident Fund Management Board (1993) 1 NWLR (Pt.272) 18.
The point of difference between the parties is that the contention that the appellant’s business does not possess public character as contemplated under the law.
Taxation is a major issue in the economy of any nation.
When issues come up requiring a determination on whether a person either natural or artificial is liable to pay taxes the Court is duty bound to explore the relevant laws and apply them accordingly. It is certain and well endorsed by our Court, that taxation is not an all comers or an arbitrary issue. No tax can be imposed on or collected from the subject without the words in an Act of Parliament clearly showing intent on it to lay a burden on the subject (see S.A. Authority v. Regional Tax Board (1970) All NLR 177; Scottish Widows Plc & Ors v. Commissioners for Her Majesty Revenue and Customs (SCOTLAND) & ors. (2011) LPELR – 17822 (UK Sc). The duty of a citizen to obey, oblige and comply with the laws of the land is as fundamental and concomitant with the duty of a citizen to pay taxes.
The essence of taxation is to enable the state have money to meet up with its traditional obligation of maintaining law and order; ensure good governance and make available essential commodities for its teaming population. In Nigeria as is in all other nations of the world the responsibility of paying taxes is on the people. One of our greatest endowments as a nation is the abundant human natural resources. These resources when well harnessed would silence pain and poverty. The challenge therein is still our inability to harness properly what we have. If the people pay taxes there will be money to cause our prosperity not pain to flourish.
By the demographic outlay of Nigeria, our human population is about 200 million people and we have also artificial persons in the name of registered companies to the tune of one million, five hundred thousand artificial persons. If these pay their dues to the economy, we will be better for it. In the instant case, the gravamen of the appellant is that she had been called upon to pay company income tax. The appellant’s case at the lower Court is expressed at pages 5 to 7 of the Record of Appeal. To have a full and in depth insight into the complaint of the appellant we shall look cursorily at the relief sought and the grounds (in part) for which the reliefs were sought. These are couched as follows: –
a. An Order granting the applicant leave to apply for judicial review for the prohibition and restraining of the respondent, its staff, agents, privies or anyone acting on its authority from further arbitrary imposition of illegal tax and/or enforcing the Company Income Tax encapsulated in a letter dated 1st September 2014 served on the Applicant by the Respondent and annexed herewith as ANNEXURE A3.
b. An such further or other order(s) as the Court may deem fit to make in the circumstance.
3. GROUNDS UPON WHICH RELIEFS ARE SOUGHT
The grounds upon which reliefs are sought are as follows:
a. The Applicant is an educational institution and a member of the National Association of Proprietors of Private Schools, FCT Chapter.
b. The Respondent is a creation of the law established for the enforcement of the tax policies of the Federal Government of Nigeria.
c. The Applicant as an educational institution engages in educational activities of public character and in spite of that the Respondent places all kinds of tax on the Applicant which includes company income tax in flagrant disregard of Section 23(1)(c) of the Companies Income Tax Act which exempts from tax the profits of the Applicant’s educational activities.
d. The Applicant being a responsible company pays its educational tax withholding tax and PAYE as at when due.
A copy of payment slip of the Applicant’s PAYE between January and September 2013 is hereby attached and marked as ANNEXURE 41.
e. The Respondent via a letter dated 5th April 2013 wrote the Applicant through its national association known as the National Association of Proprietors of Private School, FCT Chapter wherein the Respondent clearly brought to the knowledge of the Applicant that it was exempted from being taxed on its profits made on its educational activities so long as such profits are not made or derived from trade or business carried on by the Applicant. A copy of the said letter is herewith annexed as ANNESURE 42.
f. The Applicant has not engaged in any trade or business aside from its educational activities as a school.
g. Then from nowhere, the Respondent, via its letter dated 1st September 2014, started making demands on the Applicant to pay the following heads of tax within seven (7) days. The heads of tax are:
i. Company income Tax for the year 2008, 2009, 2010, 2011 and 2012 amounting to a total of N28,917,31 8.98k
ii. Education Tax for the year 2008, 2009, 2010, 2011 and 2012 amounting to a total of N33,250.
iii. Other (WHT) for the year 2009, 2010 and 2011 amounting to a total of N33,250.
iv. PAYE for the year 2009, 2010 and 2011 amounting to a total of N1,807,644.40k
A copy of the said letter is herewith annexed as ANNEXURE 43.
h. While the Applicant was trying to comprehend the reason for the Respondent demand on it to pay company tax when it has not ventured into any business or trade aside from engaging in its educational activities, the Respondent’s Investigation and Enforcement Unit swung into action on Wednesday 12th November 2014 and arrested and detained the Applicant’s accountant in respect of the attached ANNEXURE 43.
The position of the Respondent is that the appellant is not exempted from payment of company income tax by Section 23 of CITA. The lower Court in its judgment at pages 66, 67 and 69 of the Record held as follows:
“After examining counsels processes and judicial authorities cited this Court agrees with the submissions of Respondent’s counsel that Applicant is a limited liability company by provisions of CAMA. Consequently, it is registered as a profit making venture which does not fall under Section 23 (1) (C) of the Companies Income Tax Act (CITA).
Furthermore the judicial authorities cited in the Applicant’s annexure 2 and written address, in the courts opinion are not in favour of the Applicant’s arguments as the Applicant is not Registered for the purpose being an Educational institution of a public character but registered under Section 22 of CAMA which as rightly submitted by Respondent’s counsel is not the section the makers of the statute had in mind but Section 26 of CAMA.”
The statute being relied upon are the Companies and Allied Matters Act (CAMA), 2004 and the Companies Income Tax Act 2004 (CITA). A little look at the relevant provisions of these laws will help us to have the proper interpretation of these laws. It must be echoed here that construction of statute must not be rudderless nor given the reins of absurdity. It must in all sincerity and candour be purposeful, meet and free from any web of uncertainty.
In the case of – FBIR V. INTEGRATED DATA SERVICE LTD (2009) LPELR – 8191 (CA), this Court held:
“At pg. 522 of Pt. 755 Ahmadu v. Gov. Kogi, Oduyemi JCA had the following to say on the nature of tax legislation:? The law in question is, in its nature, a law which imposes pecuniary burden and is under the rules of interpretation, subject to the rule of strict construction. It is a well settled rule of law that all charges upon the subject must be imposed by clear and unambiguous language because in some degree they operate as penalties; the subject, is not to be taxed unless the language of the statute clearly imposes the obligation. Russel v. Scot (1984) A.C. 422 per Lord Simonds. Language must not be strained in order to tax a transaction which had the legislature thought of it, would have been covered by appropriate words. 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 ensure 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 Cairs in Partingon 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″. (Underlining mine).
The underlined part of the above dictum underscores the expectation of the law in taxation matters. The critical part of construction of taxing legislation is to carefully look fairly at the clear language of the law in focus. The position of the appellant is that Section 23 (1) of CITA has exempted her from paying company income tax. The exemption law is Section 23(1) of Companies Income Tax Act. Section 23 (1) (a) (b) (c) and (d) provides as follows:
“23 Profits exempted
(1) There shall be exempt from the tax-
(a) The profits of any company being a statutory or registered friendly society, in so far as such profits are not derived from a trade or business carried on by such society;
(b) The profits of any company being a cooperative society registered under any enactment or law relating to co-operative societies, not being profits from any trade or business carried on by that company other than co-operative activities. solely carried out with its members or from any share or other interest possessed by that company in a trade or business in Nigeria carried on by some other persons or authority;
(c) The profits of any company engaged in ecclesiastical, charitable or educational activities of a public character in so far as much profits are not derived from a trade or business carried on by such company;
(d) The profits of any company formed for the purpose of promoting sporting activities where such profits are wholly expandable for such purpose, subject to such conditions as the Board may prescribe;”
Let me say the obvious here. Every business set up is among other things intended to yield income. Often times, it is the income of the company that are taxed. There is no business that is averred to profit making. The success or failure of a company is majorly determined by its profit margin. Every registered company in business ought to pay taxes except exempted.
The law as in Section 23(1) of the CITA is very clear, plain and certain. In such a situation, the intention of the legislature should be pursued by giving the words used its simple natural and ordinary meaning.
The guideline in interpretation of statutes as captured by Adekeye, JSC in the case of Basinco Motors Ltd v. Woermann Line & Anor (2009) 13 NWLR (Pt. 1157) 149. There his lordship held as follows:
“The rules or principles governing the interpretation of statutory provisions are as follows:
1. It is the intention of the legislature that should be sought, and same is to be ascertained from the words of the statute alone and not from other sources.
2. Where the word used in the provisions of a statute, are simple and unambiguous, they should be given their simple, natural and ordinary meaning.
3. The Court is not concerned with the result of its interpretation, that is, it is not the Court’s province to pronounce on the wisdom or otherwise of the statute but only to determine its meaning.
4. The Court must not import into a legislation words that were not used by the legislature, and which will give a different meaning to the of the statute as enacted by the legislature.
5. The Court must not bring to bear on the provisions of a statute it prejudices as to what the law should be, but rather should interpret the law from the clear words used by the legislature.
6. The Court must not amend the statute to achieve a particular object or result, Aqua Ltd v. Ondo State Sport Council (1988) 4 NWLR pt. 91 page 622; Fawehinmi V. I.G.P. (2000) 7 NWLR PT. 665 page 491; UBRBDA v. ALKA (1998) 2 NWLR pt. 537 page 326; Awolowo v. Shagari (1979) SC PAGE. 51 ANN v. FRN (1985) 2 NWLR pt. 6 page 137; Salami v. Chairman L.E.D.B. (1989) 5 NWLR pt. 123 page 539; Ogbonna v. AG Imo State (1992) 1 NWLR Pt.220 page 647; Adeleke v. O.S.H.A. 16 NWLR Pt. 1006 page 608; Ojokolobo v. Alamu (1987) 3 NWLR Pt. 6f page 377.”
The right and direct approach to this issue is to look fairly at the language used. The company income is about the profits of any company engaged in ecclesiastical, charitable or educational activities of a public character in so far as such profits are not derived from a trade or business carried on by such company. For the appellant to be entitled to this statutory exemption, she has to prove that she is a company engaged in ecclesiastical, charitable or educational activates of a public character and further that the profits she made are not profits that are derived from a trade or business carried on by her.
The core of the issues to be addressed by the appellant is whether she is such as company exempted by law from paying income taxes. The fundamental and distinctive characteristics or qualities of a company are in its DNA or for clarity, its makeup. This will be reached by how the company came into being and by which form of company it is. Under the Companies and Allied Matters Act, Cap C 20 LFN 2004, any two or more persons can form and incorporate a company by complying with the law (Section 18 CAMA). Under the law, companies formed and registered are allowed to carry on business, make profits and distribute the profits except a Company Limited by Guarantee.
Under Section 26 of CAMA provision is made for Company Limited by Guarantee as follows:
“26. Company limited by guarantee
(1)where a company is to be formed for promoting commerce, art, science, religion, sport, culture, education, research, charity or other similar objects and the income and property of the company are to be applied solely towards the promotion of its objects and no portion thereof is to be paid or transferred directly or indirectly to the members of the company except as permitted by this Act, the company shall not be registered as a company limited by share, but may be registered as a company limited by guarantee.
(2) As from the commencement of this Act, a company limited by guarantee shall not be registered with a share capital and every existing company limited by guarantee and having a share capital shall not later than the appointed day, after memorandum so that it becomes a company limited by guarantee and not having a share capital.
(3) In the case of a company limited by guarantee, every provision in the memorandum or articles or in any resolution of the company purporting to give any person a right to participate in the divisible profits of the company otherwise than as a member or purporting to divide the company’s undertaking into shares or interests shall be void.
(4) A company limited by guarantee shall not be incorporated with the object of carrying on business for the purpose of making profits for distribution to members.
(5) The memorandum of a company limited by guarantee shall not be registered without the authority of the Attorney-General of the Federation.
(6) If any company limited by guarantee carries on business for the purpose of distributing profits, all officers and members thereof who are cognizant of the fact that it is so carrying on business shall be jointly and severally liable for the payment and discharge of all the debts and liabilities of the company incurred in carrying on such business, and the company and every such officers and member shall be liable to a fine not exceeding N100 for every day during which it carries on such Business?.
In the instant case, the appellant from the record before this Court never exhibited her particulars of its registration as an academic institution or an institution of a public character, what was placed before the trial Court was the affidavit of urgency deposed to by One Mr. Oide Victor, the appellant?s accountant. In paragraph 3 and 5 thereof, he averred as follows:
“3. The Applicant is an educational institution and a member of the National Association of Proprietors of Private Schools FCT Chapter.
5. The Applicant as an educational institution engages in educational activities of public character and in spite of that the Respondent places all kinds of tax on the Applicant which includes company income tax in flagrant disregard of section 23 (1) (c) of the Companies Income Tax Act which exempts from tax the profits of the Applicant’s educational activities. (see page 2 of the Record).
Then in the statement in support of the application at page 5 of the record of appeal, the appellant is described as follows:
a. The name of the applicant is Best international Schools Limited.
b. The applicant is an academic institution duly registered in Nigeria with its head office at 131 Road, House 8 Gwarimpa Housing Estate, FCT, Abuja.”
The appellant added under the grounds that she is a member of the National Association of Proprietors of Private Schools, FCT Chapter. There is nowhere in the Record that indicate that the appellant is engaged in any company engaged in educational activities of a public character and that profits are not derived from a trade or a business carried on by such a company. The appellant also never disclosed she is a company limited by guarantee. The respondent in their presentation before the trial Court presented the appellant as a registered Company Limited by Shares. A Company Limited by Shares is for profit making and must pay taxes. The fact that the appellant is a school or an educational institution is not enough to exempt it from payment of taxes under Section 23 (1) of CITA. A company cannot hide under any name or object to escape its tax obligations to the state.
These two issues from the foregoing are resolved in favour of the respondent. This appeal it is obvious lacks merit and it is hereby dismissed. The judgment of the trial Court delivered on 18th day of March 2016 in Suit No. FHC/ABJ/CS11867/2014 is affirmed.
Parties are to bear their respective costs.
EMMANUEL AKOMAYE AGIM, J.C.A.: I had a preview of the judgment just delivered by my Learned brother, STEPHEN JONAH ADAH, JCA. I agree with the reasoning, conclusions and orders therein.
MOHAMMED BABA IDRIS, J.C.A.: I read the draft judgment just delivered by my learned brother; STEPHEN JONAH ADAH JCA. I am in agreement with his reasoning and conclusion that in the circumstances of this case the appeal be dismissed. He has treated all the contentious issues thoroughly.
I only wish to add that the law is settled that the burden of proof is first on the person who asserts the affirmative while it is thereafter on the person who denies to prove the negative. See OWUH & ORS vs. IDU & ORS (2002) FWLR (Pt.94) 65; ONYENGE & ORS vs. EBERE & ORS (2004) All FWLR (Pt.219) 981; OGBU vs. WOKOMA (2005) 7 SC (Pt.11) 123. The appellant had a duty to prove that she is a company exempted by law from paying income tax, and this she had failed to prove. It is not enough to plead the existence of a fact and repeat same on oath in evidence, especially in the face of strong denial from the opponent of the existence of the alleged fact. Something else ought to be done by a plaintiff company to tilt the scale or balance in its favour. Having failed to discharge that burden, any reasonable Court would deny the claim because even where the probabilities are equal, the claim should fail.
The appeal is dismissed.
Appearances:
Charles Ndukwu, Esq with him, Victor Edem, EsqFor Appellant(s)
Osita lbekwute, Esq.For Respondent(s)
