D.S.A. Agric. Mach. MFG. CO. Ltd. V. Lagos State Internal Revenue Board (2006)
LawGlobal-Hub Lead Judgment Report
KUMAI BAYANG AKAAHS, J.C.A.
The Lagos Slate Internal Revenue Board took out an originating summons against D.S.A. Agric. Mach. Mfg. Co. Ltd seeking the following reliefs:-
“(A) A DECLARATION that by virtue of the provision of Section 50 and Section 56 of the Personal Income Tax Law Lagos State 1994 Cap 142 or/and Decree 104 of 1993 the Applicant is empowered to distrain the Respondent of his goods, chattels, hind or premises etc for non payment of tax; being under deductions or under remittance in respect of P.A.Y.E. and W.H.T. under the said Law or/and under Personal Income Tax Decree No. 104 of 1993.
(B) A DECLARATION that the amount of N2,579,684.31 (Two Million five hundred and seventy-nine thousand six hundred and eighty-four Naira thirty-one kobo) reflected in the demand note is unpaid and is due as Tax to the government of Lagos State from the Respondent.
(C) AN ORDER DISTRAINING the Respondent of its goods, chattels, Land or premises for non payment of N2,579,684.31 (Two Million five hundred and seventy-nine thousand six hundred and eighty-four Naira thirty-one kobo) being outstanding Tax payable by the Respondent to the Applicant under the pay as you earn (P.A.Y.E.) deductions and Withholding Tax for the years 1996 until the settlement of the Tax liability”
The application was supported with a 17 paragraph affidavit to which were annexed the Report on Statutory Tax Audit (1996) and Demand Notice on Liabilities for PAYE, Withholding Taxes Etc.
The Respondent deposed to a 7 paragaph Counter-Affidavit to which were annexed several exhibits.
The motion came on for bearing on 5/3/98 and after Mr. Pedro, learned counsel for the Applicant had moved the motion, Mr. Idongesit, learned counsel for the Respondent sought for an adjournment which was refused and he proceeded to reply to the motion.
Thereafter the learned trial Judge delivered his ruling wherein he made an order empowering the Applicant to distain the Respondent of their goods, chattels and other things as prayed for non payment of N2,579,684.31 being outstanding tax payable by the Respondent to the Applicant.
The Respondent appealed against the ruling in the Notice of Appeal dated and filed on 10/3/98. Subsequently on 19/5/98 the Respondent brought a motion for stay of the judgment and for an order setting aside the judgment entered in favour of the Applicant on 5/3/98. The application was dismissed on 16/10/98. The Respondent also appealed against the dismissal for stay of execution and setting aside the judgment. The Respondent will hereinafter be referred to as the Appellant while the Applicant in the Originating Summons becomes the Respondent to the Appeal.
When the appeal was called for hearing the Appellant though served was absent and unrepresented. Since the parties had filed their briefs the appeal was deemed argued on the briefs. See Order 6 Rule 9(5) Court of Appeal Rule 2002.
The Appellant filed an Amended Notice of Appeal containing two grounds of appeal and adumbrated two issues in the Appellant’s brief. The two Issues are:-
(i) Whether the Appellant herein was a competent party to protest the PAYE taxes assessed in respect of its employees.
(ii) Whether in the circumstances, the conditions precedent to the court below taking jurisdiction upon the matter had been satisfied.
The Respondent agreed with the issues as formulated in the Appellant’s brief
On issue NO.1, learned counsel for the Appellant argued that the reliance by the learned trial Judge on Regulation 12 (1) and 2 of the Personal Income Tax (Employments) Regulations (Cap. 142) Laws of Lagos State 1994 in coming to the conclusion that there is no valid objection to the assessment in the matter as only the affected employees of and not the Appellant can validly raise the objection is not correct. According to the learned counsel the Regulations referred to clearly deal with the determination of an employee’s income and emoluments and not the assessment of tax payable thereon. It is contended that the Personal Income Tax Decree No. 104 of 1993 and the Personal Income Tax Law (Cap. 142) Laws of Lagos State 1994 which are in pari materia recognize 2 (two) classes of persons that can raise objection to the tax assessment viz:-
a taxable person and a person in whose name a taxable person is chargeable and relied on sections 32 and 33 of the Personal Income Tax Law. Learned Counsel submitted that by virtue of Section 56 of the Personal Income Tax Law and Section 81 (f) of Decree No, 104 of 1993, where an employer fails to make deductions from emoluments paid to his employee and account to the Board of Internal Revenue in respect of such deductions, such amount with penalty shall be recoverable as a debt due from the employer to the Government. He argued that since an employer is chargeable with the tax payable by his employees, it follows that the employer is a proper person recognized by law to object to a tax assessment. He therefore submitted that the failure of the trial Judge to give Appellant opportunity to address him on the issue occasioned a miscarriage of justice and urged this court to overturn the lower court’s finding in this regard. It is further contended that as the learned trial Judge raised the issue suo motu and considering the fundamental nature of the issue which in the mind of the Judge determined the argument in favour of Respondent, the learned trial Judge ought to have called upon counsel to the parties to address him on it and cited the case of IMAH VS. OKOGBE (1993) 9 NWLR (PT 316) 159 at 178 in support.
In Reply learned counsel for the Respondent argued that it is only under the Company Income Tax Act (CITA) that the Appellant is vested with the rights of objection and appeal against any tax assessment but the tax in issue IS Personal Income Tax on the employees of the Appellant which is governed by the Personal Income Tax Act (Decree) 104 of 1993 (PITD) and/or Personal Income Tax Law Cap 142 Laws of Lagos State 1994 (PITL). It is therefore learned counsel’s contention that Regulation 12 which deals with objection to determination of aggregate income or free emoluments from which income tax is deducted can be made only by an employee who has the right to object to the assessment and not an employer such as the Appellant. Relying on 7 UP BOTTLING CO. PLC. VS LAGOS STATE BOARD OF INTERNAL REVENUE (2000) 3 NWLR (PT 650) 565 at 604-605, learned counsel submitted that the provision relied on by Appellant’s counsel apply to individual tax payers subject to the assessment and therefore are inapplicable to the Appellant who is a collecting agent to the Respondent. Also placing reliance on Section 33 (4) PITL, learned counsel argued that it is only the employees of the Appellant who are the tax payers that have the right to object or protest against the PAYE taxes assessed upon them. It was further argued that the interpretation given to the phrases “person in whose name a person is chargeable” and “any person” which appear in Section 32 and 33 PITL to include an employer is grossly misconceived. Learned Counsel contends that under Section 40 PITD or Section 22 PITL, it is either the tax payer himself or his trustee, guardian or agent in whose name the tax is chargeable that shall be answerable for all matters within the Law for the assessment of the income of such taxable person and payment of any tax charged.
Consequently only these two sets of persons can object and appeal against any tax assessment or demand under the law. It was therefore submitted that the Appellant being an employer is not an agent to its employees but an agent of the employer. On the complaint that the learned trial Judge raised the issue of the validity of the Appellant’s objection suo motu without calling on the parties to address him on it, learned counsel to the Respondent contended that the submission was far from being correct. He referred to paragraphs 3 and 4 of the Appellant’s affidavit in support of its motion for stay and to set aside the judgment as well as the submission of the learned counsel on the issue and submitted that the learned trial Judge was right to consider the provisions of the statute relating to right of objection in his ruling wherein he held that there was no valid objection by the Appellant since the Appellant was incompetent to protest or object on the tax assessed in respect of its employees.
The word “person” is not defined under the Personal Income Tax Law (PITL) but it is defined in the Personal Income Tax Decree (PHD) No 104 of 1993, It includes “an executor”, “trustee” “company”, “partnership”, community” “family” and “individual” It is “taxable person” that is defined under the Personal Income Tax Law (PITL) and it means any individual or body of individuals (including a family) and any corporation sole, trustee or executor, having any income which is chargeable with tax under the provisions of this Law. The word “person” as defined in section 18 (1) of the Interpretation Act includes anybody or persons corporate or unincorporated, See A-G BENDEL STATE VS. AGBODOFOB (1990) 2 NWLR (PT 592) 476. In Black’s Law Dictionary 5th Edition the word as generally used means a human being (i.e. natural person) though by statute the term includes a firm, labour organizations, partnerships, associations, corporations, legal representatives, trustees, trustees In bankruptcy, or receivers.
In the construction of a statute, the court is enjoined not to take a section in isolation of the whole. See: CHIME VS. UDE (1996) 7 NWLR (PT 461) 379. It should construe the statute according to the intention expressed therein. See: IBRAHIM VS. GARDE (1996) 9 NWLR (PT 474) 513.
Section 22 of the Personal Income Tax Law provides as follows:-
“22 (1) A taxable person shall be chargeable to the tax-
(a) in his own name, or
(b) in the name of any receiver, trustee, guardian, curator or committee having the direction, control or management of any property or concern in his behalf, or in the name of any persons treated as his agent under the provisions of Section 5 of the principal Act or declared to be his agent under the provision of subsection (1) of section 29 of that act, in like manner and to like amount as such taxable person would be chargeable.
(2) And person in whose name a taxable person is chargeable to tax shall be answerable for all matters within his competence which are required to be done by virtue of this Law for the assessment of the income of such taxable person and payment of any tax charged thereon.
(3) Where two or more persons act in the capacity of trustees they may be charged jointly or severally with the tax with which they are chargeable in that capacity and shall be jointly and severally liable for payment of the same.”
Sections 32 and 33 of the Law relate to service of notice of assessment and revision in case of objection. The sections state as follows:
“32 The Board shall cause to be served on or sent by registered post to each taxable person, or person in whose name a taxable person is chargeable, whose name appears in the assessment lists a notice stating the amount of any assessable, total or chargeable income, the tax charged, the place at which payment is to be made, and setting out the rights of that person under the following next section.
33 (1) If any person disputes an assessment he may apply to the Board, by notice of objection in writing, to review and to revise the assessment, and such application shall state precisely the grounds of objection to the assessment and shall be made within thirty days from the date of the service of the assessment”.
There should be no difficulty in construing the phrases “person in whose name a taxable person is chargeable” and “any person” appearing in Sections 32 and 33(1) of the Personal Income Tax Law if reference is made to the facts. The claim relates to the PAYE tax and Withholding tax with penalties and interest thereon, The Demand Note written by the Respondent addressed to the Managing Director of the Appellant Company clearly depicts this. The letter is reproduced as follows:
“22nd December, 1997 DEMAND NOTE NO TA/DMC/TMA/1892/97
The Managing Director
D.S.A. Agric Mach. Man. Limited
34 Docemo Street,
Lagos.
Dear Sir,
DEMAND NOTICE ON LIABILITIES FOR PAVE, WITHHOLDING TAXES ETC
We have been directed to draw your attention to the outcome of a recent Tax Audit of your records and documentation with regard to under deductions and your unremitted deductions for certain taxes due to the Government of Lagos State. It has been established that your outstanding liabilities for PAYE, Withholding Taxes and Development Levy covering the period from January to December 1996 are as follows:-
(i) Total PAYE Outstanding N1,659,133.00
(ii) Withholding Taxes 276,522,00
(iii) State Development Levy 2,500.00
Sub-Total 1,938,155.00
Add: Interest at 21% 407,012.55
Sub-Total 2,345,167.55
Penalty at 10% 234,516.76
TOTAL AMOUNT NOW DUE N2,579,684.31
You are expected to effect payment of the ascertained liability within 14 (fourteen) days from the date hereon to the Lagos Stale Government Revenue Accounts as published. The appropriate government agency is being advised by a copy of this Demand Note, to take appropriate steps to enforce payment.
PLEASE NOTE THAT PAYMENTS MADE TO LOCATIONS OTHER THAN AS PRESCRIBED HERE SHALL BE TREATED AS INVALID
Your prompt response is hereby solicited
Signed: C. O. Okoh
for: Chairman
Board of Internal Revenue” (Page 8 of Record)
On receipt of the Demand Note the Appellant through their Solicitors replied on 7th January 1998 protesting their liability and the letter goes thus:
“7th January 1998
The Executive Consultant II
Accelerated Revenue Programme
Zonal Headquarters
Headquarters Secretariat Complex
Alausa-Ikeja
Dear Sir,
RE: REPORT ON STATUTORY TAX AUDIT (1996):
D.S.A. AGRIC MACHINERY MANUFACTURING COMPANY LIMITTED
We are Solicitors to D.S.A. AGRIC MACHINERY MANUFACTURING COMPANY LIMITED and write this letter with full instructions. We write further to the above with particular reference to your letter No. TA/DMC/TMA/1892/97 of 22nd December, 1997 received by us on the 5th day of January, 1998. We protest the stated Demand Notice on liability for PAYE, WITHHOLDING TAXES etc as stated in your letter.
Our client have paid their due taxes and denounce this Demand in its entirety.
In the first place our client should not have paid to Lagos State Government as they are located in Akwa Ibom State.
Should you like a meeting with us please schedule one and we shall be willing to give an indepth explanation to this issue.
Truly yours,
For: Essien & Essien
ABIOLA OJOBARO” (See page 30 of the Records)
In the letter written by the Solicitors of the Appellant to the Respondent, they stated that the PAYE and withholding tax were deducted but instead of remitting the amount to the Lagos State Government, it was paid to Akwa Ibom State Government. The protest lodged by the Appellant’s Solicitors was not an objection to the assessment of tax. Regulation 28(1)(a) & (b) of the Personal Income Tax (Employments) Regulations stipulates what an employer should do in such a circumstance. It says-
“28(1) Not later than one month after the end of each year, the employer shall render to the Board, either on the tax deduction card or in such other form as the Board may provide or authorize, a return in respect of each employee in the employer’s employ at any time during that year showing-
(a) the name of the employee;
(b) the place and nature of the employment at the end of the year or at the date of cessation of employment if earlier.
It is the return that will show who among the employees of the Appellant is liable to pay tax to Lagos State Government. In paragraph 4 of the Counter affidavit of Ekerette Utioh, the following facts were deposed to i.e.
“4. That in a meeting with the Company Secretary Essien, we were informed of the following facts which I verily believe.
(a) That the respondent is a limited liability Company located in Uyo in Akwa Ibom State. The business permit of the company is hereby attached and marked Exhibit “A”
(b) That sometime in 1991 it became convenient to open an office in Lagos to conduct some liaison duties for the company, accordingly, the 34 Dacemo Street, Lagos was rented for the company.
(c) That prior to 1993 the respondent had been paying tax to its Dost State. Some Tax Clearance certificates of some staff of the respondent before 1994 are hereby attached and marked Exhibits B1-B3.
(d) That in 1994 Essien and Essien Solicitors as company secretary to the respondent based in Lagos started paying tax to the Lagos State Government instead of respondents host State
(e) That between 1993 and 1996 the tax to the Lagos State Government (sic) Some lax clearance certificates of the employees are hereby attached and marked Exhibit C1-C3.
(f) That at the time officials of the Akwa Ibom State Government started paying visits to the factory of the respondent demanding tax, the board of directors had to decide that the company secretary pay the taxes to the host State of the respondents.
(g) That at the time officials of the Applicant approached the Company Secretary of the respondents to conduct a tax audit inspection, the principal partner of the firm Hamster Tony Essien informed the officers of the Applicant of the fact that the company was not entitled to pay tax to the Lagos State Government but to Akwa Ibom State Government.
(h) That despite the information the officers still insisted on conducting the Tax audit whereby they were given every information and assistance they required to do their job.
(i) That the officers did not base their calculations of the personal income tax and withholding tax on the earnings of the expatriates but based it on extraneous and speculative criteria
(j) That the respondent shall dispute the amount arrived at by the Applicant as being the correct amount the respondent shall pay as its pay as you earn and withholding tax for the period as being based on extraneous and speculative criteria.
(m) That the respondent have already paid tax for the 1996 and 1997 financial year to the Akwa Ibom State Government.
(n) That the respondent on receiving the Applicants letter titled Report on Statutory Tax Audit 1996, the respondent replied stating its case, the respondent letter dated of January 1998 is hereby attached and marked Exhibit E.
(o) That since the applicant received the letter of protest of the respondents they did not even invite the respondent for a discussion to ascertain the truth of their claim instead decided to file this application.”
The appellant is not liable to tax assessment on PAYE or Withholding Tax and so it cannot protest against an assessment of tax on PAYE. It is merely an agent for the Respondent.
Sections 55(1) and 56 of the Personal Income Tax Law provide as follows:-
“55(1) Income tax chargeable upon any employee by any assessment, whether or not such assessment has been made shall, if the Board so directs, be recoverable from any emoluments, by the employer to such employee.
- Every employer required under any provision of this Law or the principal Act to make any deduction from emoluments or amounts on account of emoluments paid by him to any employee shall account to the Board in such manner as the Board may prescribe for the deductions so made, and m the event of failure by such employer to make any such deduction, or properly to account therefor, the amount thereof together with a penalty of ten per centum of such amount shall be recoverable as a debt due by such employer either to the Government of the Lagos State or, in the case of any income rate collectible by a Local Government Council, to that Council”
The underlined phrase “and in the event of failure by such employer to make any such deduction, or properly to account therefor” in Section 56 reproduced above clearly shows that the employer is required to deduct the tax from the employees’ emoluments and then remit same to the Board. I respectfully agree with the interpretation given by this court in 7UP BOTTLING COMPANY PLC VS. LAGOS STATE INTERNAL REVENUE HOARD (2000) 3 NWLR (PT 650) 565 which was relied upon by learned counsel for the Respondent where it was held per Nzeako J.C.A. at page 607 thus:-
“Sections 56-61 do not convey any rights to notice on the appellant who is not the tax – payer. The tax – payer in terms of the PAYE and WHT systems cannot be the employer. Rather, it is the employee as rightly submitted by the Respondent. Therefore the Appellant has no basis or locus to complain about any anomaly or non compliance with the provisions.”
The Report on Statutory Tax Audit (1996) issued by the Respondent was unmistakable in its content. In the first sentence of the Report it is stated-
“We have concluded the audit of your PAYE and withholding Tax (WHT) for the year 1996,”
The summary of Findings also referred to PAYE/WHT where the breakdown was given as follows:
“2, SUMMARY OF FINDINGS
(a) Additional liabilities in respect of PAYE/WHT arose mainly from under deductions made fully up to date to the State Board of Internal Revenue
(b) Under deductions were due to the following.
(i) None inclusion of taxable allowances in the computation of total taxable income
(ii) Understatement of expatriate staff and other Nigerian Senior management salaries
(iii) Non inclusion of benefits in kind in the total taxable income of staff who enjoy such benefits.
(iv) Non deduction of WBT from some of the specified payments to which the WHT regulation apply.
(v) Application of the wrong WHT rates for some category of payments.
Your company has therefore not complied with the provision or the Personal Income Tax Decree 104, 1993 (PHD)” (See pages 5-6 of the Records)
All these lapses were not directed at the taxes which the Company was required to pay itself but the assessed taxes of the employees. In any event only the Federal Board of Inland Revenue can recover taxes paid by a company and not the Lagos State Board of Internal Revenue (See: Section 2 of the Companies Income Tax Act Cap. 60 Laws of the Federation of Nigeria 1990).
The Reply which the Appellant’s Solicitors sent to the Respondent on receipt of the Demand Note was not in respect of the employees of the Company and even the counter-affidavit did not address the issue relating to the employees emoluments and the under deductions observed in the Statutory Report.
The learned trial Judge was right to hold that there was no defence to the Applicants claims since the only defence the applicant had was a spurious one as they failed to comply with Regulation 28(1)(b) of the Personal Income Tax (Employments) Regulations.
The second issue is predicated on the refusal of the learned trial Judge to set aside the judgment which is purely discretionary. It was in the course of the Ruling that the learned trial Judge remarked that it is none of the business of the Defendant to complain about Pay as you earn on behalf of any of its employees and concluded that the tax being sued for is not company tax as it is tax payable by individual employees under the PAY AS YOU EARN scheme and Withholding tax affecting individuals for which companies are appointed collecting agents and remittance agents. The learned trial Judge was merely restating the position of the law and did not have to invite counsel to address him on it. The application for stay of execution and setting aside the judgment delivered on 5th March 1998 was properly dismissed.
The appeal lacks merit and it is accordingly dismissed. The order made by Alabi J. (as he then was) empowering the Applicant/Respondent to distrain the Respondent/Appellant of their goods, chattels and other things for non payment of N2,579,684.31 being outstanding tax payable by the Respondent/Appellant to the Applicant/Respondent is hereby affirmed.
There shall be costs in favour of the Respondent to this appeal which are assessed at N5,000.00.
Other Citations: (2006)LCN/2073(CA)
