Alitalia Airlines Ltd V. Federal Board Inland Revenue. (1971)
LawGlobal-Hub Lead Judgment Report
LEWIS, J.S.C.
The appellants before us, Alitalia Airlines Ltd., are an Italian company having a branch in Nigeria and which operates the business of transport by air in many parts of the world including Nigeria. There had been correspondence between the appellants and the Chief Inspector of Taxes acting for the respondents, the Federal Board of Inland Revenue, about tax assessments on the Nigeria Branch of the appellants in respect of 1961/62 -1969/70 assessments and the Chief Inspector of Taxes had finally on the 5th of May, 1970 sent a letter of assessment in the following terms
“Gentlemen:
Alitalia Airlines Limited (Nigeria Branch)
1961/62 – 1969/70 Assessments
I refer to your letter of 7th April, 1970 in which you have proved that section 19(2) of the Companies Income Tax Act, 1961, is not applicable to the above-named client’s case and have to detail hereunder the assessment basis of this Airlines Company for the years of assessment 1961/62 to 1969/70 after considering the whole aspects of the matter.
- Foreign companies engaged in air transport in Nigeria are chargeable to Nigerian Income Tax under section 19 of Companies Income Tax Act, 1961 subject to the provisions of paragraph (g) of subsection 1 of section 26 of that Act. Under section 19, there are only two ways to determine the profits or loss deemed to be derived from Nigeria by such companies.
- Section 19(2) provides the first basis of calculating the profit or loss of the company operating aircrafts in Nigeria; but it is obvious now that this basis is not applicable to this case after you have proved that the Italian taxation authority computes and assesses the profit or loss of the companies operating aircrafts and others on a basis materially different from that prescribed by the Nigerian Companies Income Tax Act, 1961. In case the provisions of subsection 2 cannot, for any reason, be satisfactorily applied, then subsection 3 of section 19 provides for the second basis of assessment of these airlines companies, that is to say, the profits deemed to be derived from Nigeria would then be computed on a fair percentage of the full sum receivable in respect of the carriage of passengers, mails, lives-stocks and goods loaded in Nigeria.
- In the light of the aforementioned, it has become incumbent on the Inland Revenue to assess your clients in accordance with the provisions of subsection 3 of section 19 of the Companies Income Tax Act, 1961 after subsection 2 has been proved to be inapplicable to the case.
- For the purpose of subsection 3 of section 19, I have considered 10% of the Nigerian total earnings as a fair percentage in arriving at the profits of the company deemed to be derived from Nigeria in all the years under review.
Accordingly, the total profits of the Nigeria Branch of Alitalia Airlines have been ascertained as follows:-
1961 1962 1963 1964 1965 1966 1967 1968 (3 months) Total Revenue Collections As Per Accounts Submitted
23,415 211,891 269,285 388,289 439,316 485,588 453,100 440,911
Total Revenue For years of Assessment
1961/62 62/63 63/64 64/65 65/66 66/67 67/68 68/69 69/70
76,388 182,334 211,891 269,285 388,289 439,316 485,588 453,100 440,911
10% Profit
7,640 18,230 21,190 26,930 38,830 43,930 48,560 45,310 44,090.
Income Tax
3,056 7,292 8,476 10,772 15,532 17,572 19,424 18,124 17,636.
Super Tax 1,909
Total Income Tax Payable 117,884pounds
1966/70 Super Tax 1,909pounds
The revised notices of assessment will be raised and forwarded to your clients in due course. The requested tax clearance will also be issued immediately after the outstanding tax due is settled.
Yours faithfully,
(Sgd.) M. Haman
(M.A.H. K. HAMAN)
for Chief Inspector of Taxes.”
The appellants objected and filed a notice of appeal to the Board of Appeal Commissioners, and also filed in the High Court, Lagos in Suit M/213/70 a motion seeking leave to apply for orders for certiorari and prohibition in the following terms –
”TAKE NOTICE that this Honourable Court will be moved on Monday the 11th day of January, 1971 at the hour of nine o’clock in the forenoon or so soon thereafter as counsel can be heard on behalf of the above-named applicant for an order –
(i) for leave to apply for an order of certiorari to remove into this Honourable Court for the purpose of being quashed the decision made by the Federal Board of Inland Revenue and communicated to the applicant by letter dated 5th May, 1970 whereby it was ordered that the applicant should pay income tax and super tax as set forth in the letter aforesaid:
(ii) of prohibition prohibiting the Federal Board of Inland Revenue from proceeding or further proceeding with any step to enforce payment of the said income tax and super tax. And that all necessary and consequential directions be given;
(iii) directing that further proceedings on the assessments aforesaid be stayed pending the final determination of this matter or until further order; and
(iv) such further or other orders as this Honourable Court may deem fit to make.”
They also filed a statement that read –
“Pursuant to the Rules of the Supreme Court in force in the High Court of Justice in England, Order 53, rule 1(2):
- The name and description of the applicant is Alitalia Air Lines Limited of Martin Street, Lagos. The applicant is an air transport company.
- The reliefs sought are:-
(a) an order of certiorari to remove into this Honourable Court for the purpose of being quashed the decision made by the Federal Board of Inland Revenue and communicated to the applicant by letter dated 5th May, 1970 whereby it was ordered that the applicant should pay income tax and super tax as set forth in the letter aforesaid; and
(b) an order of prohibition prohibiting the Federal Board of Inland Revenue from proceeding or further proceeding with any step to enforce payment of the said income tax and super tax. And that all necessary and consequential directions be given.
- The grounds upon which the said reliefs are sought are as follows:-
(1) The decision of the respondent was in excess of jurisdiction because sub-section (3) of section 19 of the Companies Income Tax Act is inapplicable to the applicant and accordingly there is no jurisdiction to impose tax on them under the aforesaid subsection.
(2) Having been satisfied that sub-section (2) of section 19 of the Companies Income Tax Act does not apply to the applicant the respondent proceeded to ask itself the wrong question and thereby arrived at a decision which it had no jurisdiction to make.
Particulars of Ground 2
(i) The correct question should have been ‘What are the profits or loss of the applicant tax-payer arising from the carriage of passengers, mails, livestock or goods loaded in Nigeria as laid down in subsection (1) of section 19 of the Companies Income Tax Act’
(ii) The wrong question which the respondent asked themselves was:
‘What is a fair percentage of the total earnings or full sum receivable by the applicant tax payer in respect of the carriage of passengers, mails, livestock and goods loaded in Nigeria as laid down in subsection (3) of section 19 of the Companies Income Tax Act’
(3) The respondent took into account in arriving at their decision a matter which the law does not direct them to take into account, namely, the matter set forth in item (ii) of the Particulars of Ground 2 above.”
On the 11th of January, 1971, orders nisi of certiorari and prohibition were made but on the 1st of March, 1971, Odesanya, J. gave judgment discharging the orders nisi of certiorari and prohibition with 50 guineas costs to the respondents and against that decision the appellants have appealed to this Court.
Now when the matter was argued before Odesanya, J. it was the contention of Chief Williams for the applicants that the respondents had asked themselves the wrong question and that instead of assessing tax under section 19(3) of the Companies Income Tax Act 1961 they should have assessed tax under section 19(1) of that Act. The respondents however before the learned trial Judge claimed that they rightly assessed the applicants under section 19(3) but they also raised the objection that anyway there was no right for the applicants to come to the High Court by way of certiorari and prohibition, especially when they had filed a notice of appeal to the Appeal Commissioners. In fact the applicants then on the 23rd January, 1971, discontinued their appeal to the appeal Commissioners, but the learned trial Judge, whilst in his judgment appearing to appreciate that a vital question in determining whether certiorari or prohibition could lie here was whether the decision of the respondents could be an error in law within their jurisdiction or an error in law outside their jurisdiction, did not in fact make any finding on this question as he ought to have made. It appears to us that the learned trial Judge dealt with the matter before him on the basis that he must first determine on the merits whether the applicants were right that the assessment made on them under section 19(3) was an error; he then determined that point and came to the conclusion that the assessment was correctly made so in his view no question of certiorari or prohibition could in fact arise. He thus left open whether in any circumstances this was a proper case for certiorari or prohibition to lie. To our mind this was a classic example of putting the cart before the horse. When the issue as to whether orders of certiorari and prohibition could lie was raised it was incumbent on the trial Judge to determine whether, even assuming that the applicants were right on the merits, certiorari and prohibition could lie and if they could not then there was no basis for determining the matter on the merits.
Here, as counsels on both sides have conceded, the learned trial Judge did not deal with the question whether certiorari or prohibition could lie. Nonetheless Chief Williams for the applicants submitted that it was incumbent on the respondents to have filed a notice to uphold the Judgment on other grounds if they wished now to contend that the learned trial Judge should have found that certiorari or prohibition could not lie and that as they have not done so, we should not allow the point to be taken now.
However, we pointed out to Chief Williams that the question whether certiorari or prohibition could lie was fundamental and the point could be taken at any time, and here was being taken by this Court suo motu. Indeed this Court was bound to take the point because if we found Chief Williams was right that the assessment had been wrongly levied under section 19(3) of the Companies Income Tax Act 1961, then he stated he would ask this Court to order the issue of certiorari and prohibition; if we did so we would automatically be assuming there was jurisdiction to so do when the point as to whether certiorari or prohibition could lie has not been determined. He then rightly conceded that the point could now be raised but asked us not to send the matter back to the High Court to determine the point as it should have done ab initio but to hear argument and determine that issue ourselves.
We do not think it right on such a fundamental matter as to whether certiorari or prohibition could lie, especially when as here it is an extremely difficult legal point, to determine this issue ourselves without first having had the benefit of seeing how the matter was argued and determined in the High Court. We appreciate however that a considerable sum of money is involved here and that time is important so we have decided to remit this point to Odesanya, J. so that after hearing such further argument as either party wishes to adduce before him on the point, he may make determination whether or not orders of certiorari or prohibition could lie in regard to the matter. Until that point has been properly determined, the merits of the case cannot arise, as unless certiorari or prohibition could lie, the question of the merits does not properly arise to be determined.
We accordingly direct that the matter be given an accelerated hearing by Odesanya, J. so that the point may with all speed be determined.
5 We must, however, draw attention to a fundamental error in procedure that seems to have occurred in the High Court. Although Chief Williams applied ex parte under Order 53, rule 1 of the English Rules of the Supreme Court for leave to apply for an order of certiorari and an order of prohibition when the application came before the High Court, Chief Williams, according to the record, asked for an order nisi of certiorari and an order nisi of prohibition. That however, is not the proper course to adopt, as it once was, as now under Order 53 what has to be sought is leave to argue the application and if that leave is granted, then other interested parties are put on notice and all the parties can be heard and the Judge then makes a determination whether or not to issue the orders as requested. The proper procedure is not only set out clearly in the English Supreme Court Practice under Order 53 but can also be helpfully found in Judicial Review of Administrative Action by de Smith at page 319 et seq. Under Order 53 no order nisi is issued, yet that is what Odesanya, J. albeit at Chief Williams’ request, did on the 11th of January, 1971 and then in his Judgment on the 1st of March, 1971 he discharged the order nisi of certiorari and prohibition. We must therefore set aside not only the original erroneous grant of an order nisi of certiorari and an order nisi of prohibition but also the order of Odesanya, J. discharging those orders as they were all made without jurisdiction. What should, as we have said, have been granted was leave to apply for these orders and we will accordingly now grant that leave as that was the form of the application but it was not dealt with by Odesanya, J. and when at the direction of this court Odesanya, J. comes to determine the point as to whether this is a proper case for orders of certiorari and prohibition to issue then he must, depending on what he then decides, either direct the orders to issue or refuse them. There will at this stage be no order as to costs in this court.
Case sent back to High Court for hearing.
Case Number: SC.40/1971
