TNM Limited v ZIMRA (14 of 2021) [2021] ZWHHC 469 (20 January 2021)

1 HH 14-21 ITC 13/18 TNM LTD versus THE COMMISSIONER GENERAL ZIMBABWE REVENUE AUTHORITY HIGH COURT OF ZIMBABWE MTSHIYA AJ HARARE, 3 March 2020, 8 July 2020, 11 & 12 November 2020 and 20 January 2021 Income Tax Appeal Advocate T Mpofu with Advocate T Mapuranga, for the appellant T Magwaliba, for the respondent MTSHIYA, AJ : This is an appeal in terms of section 65 of the Income Tax Act, ( ITA) where on 3 March 2020 the parties agreed that the main issues for determination would be the following: “1. Whether or not the respondent failed to give reasons for reassessing the appellant thus rendering the assessment unlawful. 2. Whether or not there was any fraud, misrepresentation or willful non- disclosure of facts entitling the Respondent to reassess the Appellant for the years 2010 and 2011 after the expiry of the six (6) year prescription period? 3. Whether or not General Notice 274 of 2010 is applicable to the loss in the amount of $33 849878.00 brought forward from 2009 by the appellant in its returns submitted well before the aforesaid General Notice was promulgated? 4. Whether or not the disallowance of the following is lawful and justifiable 4.1 capital redemption allowance in the amount of $21 181 955.05 4.2 Cost of Sales (Shangani Mine) in the amount of $18 511 860 4.3 Freight and Insurance Costs in the mount of $28 597 184.09 4.4 MgO and Arsenic penalties in the amount of $4 805 699 and $2 523 457 respectively. 4.5 Toll manufacturing revenue and toll manufacturing cost in the amount of $4 241 547 and $4 186 627.94 respectively. 4.6 Management fees in the amount of $5 079 096.74 HH 14-21 ITC 13/18 4.7 Interest on smelter borrowing in the amount of $1 788 520 5. Whether or not the respondent was wrong to refute the income versus the VAT reconciliation? 6. Whether or not the Respondent correctly classified the amount of $2,761,500.00 as non- executive Director’s fees (NED)? 7. Whether or not the interest rate of 10% per annum levied by the respondent is lawful and justified? 8. Whether or not the respondent lawfully and justifiably imposed the 20% penalty against the appellant?” When trial commenced on 11 November 2020, the parties indicated that issues under paragraphs 4.5 and 5 to 8 had been abandoned and therefore fell away. The background and facts. The appellant’s parent company is a company, registered on the Zimbabwe Stock Exchange. The parent company wholly owns the appellant and another subsidiary called B (Ltd). B (Ltd) was a smelting and refining company and remained productive until July 2004 when it became dormant. An internal group reorganization was undertaken in January 2004. The reorganization facilitated that all assets and liabilities belonging to B (Ltd) be sold to the appellant. A signed board resolution was produced as evidence of the reorganization scheme. The board also resolved that B (Ltd)’s VAT certificate be cancelled and that one in the appellant’s name be obtained. It was also highlighted that a revaluation exercise be done on B (Ltd)’s assets and professional valuators be called in. As a result of the reorganization the appellant started operating under its name two trading divisions namely, mining division and a smelting and refining division. The appellant informed the respondent of the above arrangement and applied for change of its accounting year end, which respondent approved in a letter dated 10 October 2006. As is well known, the Zimbabwe Revenue Authority is an administrative authority established in terms of the Revenue Authority Act [Chapter 23: 11] and is tasked with, inter alia, with the collection of income tax from income earners in Zimbabwe. This it does in terms of the Income Tax Act [Chapter 23:06] (ITA). The income tax collection system in Zimbabwe is embodied in the ITA and involves submission of self-assessments of one’s income tax, which is however subject to audit by the respondent. The system therefore largely relies on self-assessments HH 14-21 ITC 13/18 by the income earners. This is so mainly because the Respondent does not have the requisite capacity, technology and manpower to effectively monitor every income earner’s liability for income tax. To ensure that tax payers comply with the requirements of the ITA, the respondent carries out periodic audits. In February 2018, following an audit on the affairs of the appellant for the periods 2009 - 2017 tax years., the respondent forwarded to the appellant a tax bill of USD29 898 042.95 including a penalty of 100%. The bill was due and payable by 20 February 2018. On 14 March 2018 the appellant wrote to the respondent objecting to the amended assessments issued by the respondent. Several meetings were then held, in the hope of resolving the issue between the parties. On the 14 June 2018, the respondent wrote to the appellant advising that the objection was still under consideration and asked for extension of time to 14 July 2018. On 16 of July 2018 the respondent wrote to the appellant dismissing the objections. A notice of appeal was then filed with this court on 3 August 2018. The grounds of appeal were listed as follows: 1. “1. The respondent erred at law in failing to give reasons why he was reassessing the appellant on the 15th of February 2018. As a result of this fatal failure the reassessments are unlawful. 2. The respondent erred at law and grossly misdirected himself in reassessing the 2010 and 2011 years, when same at law had lapsed by way of extinctive prescription. 3. The respondent misdirected himself in holding that General Notice 274 of 2010was applicable to the loss brought forward from 2009 by the appellant, which was way before the promulgation of the General Notice. 4. The respondent without just cause disallowed a whole host of expenditure and loss despite overwhelming evidence that the various expenditure and loss are deductible as they are costs incurred for the purposes of trade or in the production of income. 5. The respondent erroneously declared that a loan repayment was not proved by the appellant despite evidence of the loan and its movement. HH 14-21 ITC 13/18 6. The respondent grossly misdirected himself in such a way as no reasonable person rightly applying his mind would have done in the circumstances, by shockingly imposing a 20% penalty and charging interest against the appellant.” Remaining issues for determination. With some of the issues, originally agreed to by the parties having been abandoned, the remaining issues for determination are: “1. Whether or not the respondent failed to give reasons for reassessing the appellant thus rendering the assessment unlawful. 2. Whether or not there was any fraud, misrepresentation or willful non- disclosure of facts entitling the Respondent to reassess the Appellant for the years 2010 and 2011 after the expiry of the six (6) year prescription period? 3. Whether or not General Notice 274 of 2010 is applicable to the loss in the amount of $33 849 878.00 brought forward from 2009 by the appellant in its returns submitted well before the aforesaid General Notice was promulgated? 4. Whether or not the disallowance of the following is lawful and justifiable 4.1 capital redemption allowance in the amount of $21 181 955.05 4.2 Cost of Sales (Shangani Mine) in the amount of $18 511 860 4.3 Freight and Insurance Costs in the mount of$28 597 184.09 4.4 MgO and Arsenic penalties in the amount of $4 805 699 and $2 523 457 respectively. 4.5 …………………………… 4.6 Management fees in the amount of$5 079 096.74 4.7 Interest on smelter borrowing in the amount of $1 788 520.” Evidence In support of its case the appellant called two witnesses. However, in view of my decision on the point in limine raised by the respondent, it will now not be necessary to narrate the witnesses’ evidence. The respondent did not lead evidence but instead indicated that it would rely on the papers filed of record. Point in limine raised by the respondent and resolution of same. HH 14-21 ITC 13/18 At the close of the hearing, I allowed parties to file written submissions as follows:- Appellant: 18 November 2020 Appellant: 25 November 2020 The appellant filed its closing submissions on 19 November 2020 and the respondent filed its own on 19 December 2020. In its written submissions the respondent raised, for the first time, a point in limine based on what it termed “an invalid appeal”. To that end the respondent submitted: “1. 2. The first submission made on behalf of the respondent is that the present appeal is completely invalid on account of mis-citation of the respondent. The respondent is cited as the Commissioner General (Zimbabwe Revenue Authority). That moniker is carried out through all the documents filed in the present matter save for the heads of arguments where the name is slightly altered to Commissioner General (ZIMRA)” 4. 3. Whichever of the two mis-descriptions that are presented by the Appellant before the Honourable Court, the fact is that who should have been cited is the Zimbabwe Revenue Authority and not its Commissioner General. Section 3 of the Revenue Authority Act [Chapter 23:11] provides for the establishment of the Zimbabwe Revenue Authority in the following manner: “There is hereby established an authority, to be known as the Zimbabwe Revenue Authority, which shall be body corporate capable of suing and being sued in its own name and, subject to this Act, of performing all acts that bodies corporate may by law perform.” In support of his argument, Mr Magwaliba, for the respondent, relied, in the main, on two decided cases, namely Treger industries (Pvt) Ltd v Zimbabwe Revenue Authority 2006 (Z) ZLR 62 (H) and G (Pvt) Ltd v The Commissioner General Zimbabwe Revenue Authority HH 347/20. In Treger, (supra), it was stated as follows; “Although there is specific reference in the Value Added Tax Act to the Commissioner being responsible for the carrying out of the provisions of this Act, it is clear that such responsibility is subject to the control and management of the Authority through the Revenue Board. At the end of the day it is the Authority that is specifically given the power to sue or be sued. In the circumstances, I find that the Commissioner General of the Authority has been wrongly cited as the respondent and it is the Authority itself that should have been so cited. I accordingly uphold the point in limine raised by the respondent and on that basis alone would dismiss the application” Also in G (Pvt) Ltd, (supra), ZIYAMBI AJ, stated: HH 14-21 ITC 13/18 “It seems to me that the law on the matter has been clearly stated. For the purposes of application there is no legally recognized respondent before this court. Unfortunately for the appellant, there is no mis-description that can be rectified by amendment. It is n invalid citation contrary to statute- the Revenue Authority Act [Chapter 23:11] which has specific power to litigate to the Zimbabwe Revenue Authority. It is a nullity and cannot be amended. In the circumstances, the application is invalid in that there is no respondent before the court. The matter must be accordingly be struck off the role.” this I have also read Marange Resources (Pvt) Ltd v Core Mining & Minerals (Pvt) Ltd (in liquidation) and 3 others SC 37/16 where in matter dealing with the issue of citation of parties, the Supreme Court, quoted from the Civil Practice of the High Court of South Africa as follows: “The need for the proper citation of parties is highlighted in, Cilliers, A. C. et al in Herbstein & van Winsen’s The Civil Practice of the High Courts of South Africa, 5 ed, vol.1 p 143 as follows: “Before one cites a party in a summons or in application proceedings, it is important to consider whether the party has locus standi to sue or be sued (legitima persona standi in judicio) and to ascertain what the correct citation of the party is.” (Emphasis added). In dismissing the application for wrong citation in the cited case, the Supreme Court went further to say: “Thus, the fate of an application where a wrong party is cited is clear. The proceedings cannot be sustained…” The above cases clearly state the law on the preliminary issue raised by the respondent. I am therefore persuaded to agree with Mr Magwaliba that there is no basis in law on which the Commissioner General may be cited in his or her personal capacity. The Commissioner is a designated agent of the board. The Authority itself is a legal persona that may sue and be sued in its own capacity. Indeed in the notice of appeal filed on 3 August 2018 the respondent is cited in the following manner: “THE COMMISSIONER GENERAL (ZIMBABWE REVENUE AUTHORITY)” There can be no argument that the Commissioner General is not the Zimbabwe Revenue Authority as established under section 3 of the Revenue Authority Act [Chapter 23:11] . That is the “body corporate capable of suing and being sued in its own name.” The Commissioner General is the person appointed by the authority through its Board in terms of section 19 of the Revenue Authority Act [Chapter 23:11] to run its affairs. As clearly HH 14-21 ITC 13/18 stated under section 3 it is the authority that has the capacity to sue and be sued. The authority and capacity to sue and be sued do not reside in the Commissioner General. In casu the respondent has been cited as the Commissioner General, who, as already said, is not the authority. I agree with Mr Magwaliba that the Commissioner General has been wrongly cited as the respondent. I would accordingly uphold the point in limine raised by the respondent. The appeal should be struck off the roll. In coming to this decision, I am aware that the issue was raised for the first time in submissions. It being a point of law, there is nothing wrong with it being raised at that stage. However, the manner in which it was raised appears to be an ambush on both the court and the appellant. That, notwithstanding, I want to believe that, as is the practice in our courts, the respondent’s submissions were served on the appellant. To that end, I take the view that the appellant had ample time to react to the point in limine raised by the respondent. As I complete the writing of this judgment, over 2 months after the matter was heard, I have not heard from the appellant. My upholding of the point in limine renders it inappropriate for me to go into the merits of the matter. The finding I have made means that there is no proper appeal before the court. On the issue of costs, and given the manner in which the point in limine was raised, I think it will be in the interests of justice to order that each party bears its own costs. I therefore order as follows: 1. 2. The appeal is struck off the roll. Each party shall bear its own costs. Mawere, Sibanda Commercial Lawyers, appellant’s legal practitioners ZIMRA Legal Services, respondent’s legal practitioners