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.

2. 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.
3. 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.
4. 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.
5. 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.