Chakhaza v Portland Cement (1974) Limited (Civil Cause 1581 of 2000) [2009] MWHC 230 (13 August 2009)

JUDICIARY IN THE HIGH COURT OF MALAWI PRINCIPAL REGISTRY CIVIL CAUSE NUMBER 1581 OF 2000 BETWEEN: GILTON CHA RTA Ass cscscsasssswacascssnavecnas se seannenvaewes PLAINTIFF -AND - PORTLAND CEMENT (1974) LIMITED..................06. DEFENDANT CORAM: HONOURABLE JUSTICE M L KAMWAMBE Mr Mpaka of Counsel for the Plaintiff Mr Chisanga of Counsel for the Defendant Mrs Kamuloni Official Interpreter RULING Kamwambe, J This is an application by the plaintiff by way of summons for summary disposal of the case. It is emanating from the awards made by the Registrar. What happened is this. The Registrar awarded the sum of K28, 600,055.53 for unfair dismissal which included K510, 000.00 damages for defamation. The defendant wanted to appeal against the Registrar’s award but parties settled on an agreed figure of K18, 510,000.00 for unfair dismissal and damages for defamation. K510, 000.00 was paid to the plaintiff without any tax deductions. This award poses no problem. The problem is on the K18m award for unfair dismissal understandably under Section 63(4) of the Employment Act out of which K4, 934, 427.00 was deducted as tax. The plaintiff demands the whole K18m to be paid to him. So, the question before this court is whether the sum of K4, 934,427.00 by way of income tax is deductible from the assessed and subsequently agreed just and equitable compensation due from the defendant to the plaintiff. The position of the defendant is simply that it consulted Malawi Revenue Authority (MRA) on the issue and MRA responded in a non committal manner. If the court says that tax is not deductible then defendant will transfer it to the plaintiff, but if it is deductible then it will give the money to MRA. Meanwhile the money is deposited with the court. It is advisable that I quote the letter of response by MRA which reads:- 29" January, 2009 The Finance Manager Larfage Cement Company Ltd P. O, Box 523 Blantyre Dear Madam CIVIL CAUSE NO. 1581 OF 2006 G. CHAKHAZA VS PORTLAND CEMENT COMPANY (1974) LIMITED Refer to your letter dated 28" January 2009 regarding income tax applicable on the damages and quantifiable benefits awarded to your ex employee by the courts. Please be advised that income tax is applicable on all the awards apart from awards on defamation and _ special compensation. (my emphasis) Yours faithfully S. S. Elias Principal Revenue Officer... FOR: COMMISSIONER GENERAL The reliefs sought are as follows:- a. A declaration that the parties hereto in fact agreed that the defendant would pay to the plaintiff the sum of K18, 510,000.00 without any pre — condition whatsoever or at all. b. A declaration that such sum of money as represents the just and equitable compensation ordered in the trial judgment of 29" May 2008 due from the defendant to the plaintiff as agreed is not subject to income tax or any deduction whatsoever. c. A declaration that even if such sum of money as represents the just and equitable compensation ordered in the trial judgment of 29" May 2008 due from the defendant to the plaintiff were subject to income tax, the defendant and the Malawi Revenue Authority are not entitled to deduct any such income tax without hearing from the plaintiff. d. A declaration that if the just and equitable compensation in the sum of K18, 510,000.00 suffers to be taxed in the manner envisaged herein or at all, the parties agreement that the defendant pays to the plaintiff the said sum of K18, 510,000.00 to finalize this matter stands terminated through frustration. e. An order directing that the sum of K4, 934, 427.00 which the defendant paid into court be paid out to the plaintiff forthwith. Alternatively, and pursuant to clause (iv) and (d) above an order that the parties renegotiate and agree on the sum payable taking into account the income tax implications together with all consequential orders and directions thereon. f. An order that the defendant pays the costs of this application. g. Any other order(s) and direction(s) as the court shall deem appropriate herein. The letter referred to above in my view is a neutral one which does not explicitly say that the K18m is liable to tax deductions. Of course the letter from the defendant seeking advice from MRA is not exhibited so that we know the nature of the inquiry. Nevertheless, I think plaintiff rushed to seek redress from the court when tax was withheld. I say so because at no time did the defendant say that the K18m is taxable but it took a cautious step in case it was taxable to withhold and remit tax to MRA later if need be. MRA is the authority on taxation matters and is capable of giving expert explanations and advice to any inquiries. The defendant is the only one who can explain what awards fall under “special compensation”. Even the court would capitalize on MRA expert meaning of “special compensation”. It may not necessarily be a legal term of art. In his skeletal arguments in paragraph 3.3.1.(iii) plaintiff says that the defendant and the MRA contravened the law of taxation in purportedly deducting income tax without hearing from the plaintiff, and that the act of so deducting was null and void. I beg to differ from the plaintiff as the defendant and MRA have not effectively deducted tax. The issue whether to deduct or not has not been concluded hence, what is purportedly withheld is deposited with the court till the misunderstanding is resolved. The money has not yet passed to MRA. It may go either way. All in all what I am saying is that the plaintiff should have made an effort to inquire specifically from MRA whether the nature of compensation comprised in the K18m qualifies as a “special compensation” or not. The plaintiff so far has not been told that this award does not fall under “special compensation”. So, why take the issue to court without exhausting its status with the relevant body, which is MRA? In his skeletal arguments the plaintiff has not even tried to refer to “special compensation” but has referred to other provisions in the Taxation Act. Even if I looked at all those provisions I would still want to know whether the award of K18m as just and equitable compensation for unfair dismissal qualifies as “special compensation” which does not attract any tax. MRA shall need to justify to the plaintiff how such compensation fails to fall under “special compensation” or where “special compensation” is provided for and how it is applied. I cannot even try to consider if the agreement is frustrated due to deduction of tax from the K18m award because as of now we do not know specifically whether tax is deductible or not. In the event that MRA advises that it is not deductible then the plaintiff would be entitled to the whole K18m, and there would be no need to discuss or consider the law of frustration. I maintain that the defendant has not taken any stand on the issue of taxation. They are neither saying that tax is deductible nor are they saying it is not. Therefore discussions between the parties should have revolved around ascertaining whether tax is deductible. I believe that such ascertainment could only be done with the MRA. In my view, the matter was rushed to court. I can therefore not consider at this stage to grant the several declarations sought by the plaintiff. However, the parties are free to re — engage in negotiations. Made in Chambers this 13" day 9f Augyst, 2009 at Chichiri, Blantyre. M. L. emranalie. UDGE