Shell Petroleum Development Company Of Nigeria Limited V. Federal Board Of Inland Revenue (1996)

LAWGLOBAL HUB Lead Judgment Report

UWAIS, C.J.N. 

This case arose from the decision of the Board of Inland Revenue, the respondent herein, not to allow deductions from the Petroleum Profits Tax for 1973 payable by the appellant in respect of exchange losses, Central Bank of Nigeria commissions and scholarships expenses incurred by the appellant.

The facts of the case are not in dispute. They are as follows. The appellant was registered in Nigeria as a company. Its main object was to engage in petroleum operations. Its yearly profits therefore, became taxable by virtue of the provisions of the Petroleum Profits Tax Act, 1959 (now Cap. 354 of the Laws of the Federation of Nigeria. 1990). Section 8 of the Act provides:-

“8. There shall be levied upon the profits of each accounting period of any company engaged in petroleum operations during that period a tax to be charged, assessed and payable in accordance with the provisions of this Act.”

Pursuant to these provisions and those of Section 28 of the Act which provides in subsection (1) thereof as follows:-

“(1) Every company which is or has been engaged in petroleum operations shall for each accounting period of the company, make up accounts of its profits or losses, arising from those operations, of that period ……..”

The appellant submitted its Petroleum Profits Tax returns for the accounting period of 1st January, 1973 to 31st December, 1973 to the respondent (Exhibit 39). The returns contained the revised tax assessment which in the view of the appellant was payable by it. The respondent disallowed the following 4 items from the returns, which were incurred by the appellant, on the ground that such expenses were not deductible for the purpose of computing chargeable tax under the provisions of the Petroleum Profits Tax Act, 1959:-

1. Exchange losses on payment of Petroleum Profits Tax N3,355,091.00
2. Central Bank Commission for payment of Petroleum Profits Tax 2,915,429.00
3. Scholarships expenses 257,550.00
4. Gifts and donations 61,222.00

The appellant objected to the exclusion of these items in the computation made by the respondent for the tax payable on the adjusted profits for the period in question. They, therefore, appealed to the Federal Body of Appeal Commissioners.

At the hearing, the appeal in respect of the 4th item on “Gifts and Donations” was abandoned by the appellant. In its ruling the Federal Body of Appeal Commissioners dismissed the appellant’s appeal and confirmed the revised assessment made by the respondent

The appellant appealed further to the Federal High Court (Ayinde, J.) against the ruling of the Federal Body of Appeal Commissioners. The Federal High Court allowed the appeal in respect of exchange losses and Central Bank of Nigeria Charges, but dismissed the appeal against scholarships expenses as follows:

“In accordance with Section 35(8) of the Petroleum Profits Act (sic) 1959. I hereby annul the tax assessments on exchange losses of N3,355.091 (Sic) and Central Bank charges of N2,915,429 (Sic). I confirm the tax assessment on N257,550 (Sic) scholarship expenses.”

Both the appellant and the respondent were dissatisfied with the decision of the Federal High Court. They appealed to the Court of Appeal. The appellant, against the confirmation of the assessment on scholarship expenses and the respondent, against the annulment of the assessments on exchange losses and Central Bank of Nigeria charges.

In its judgment, the Court of Appeal (Akpata, Babalakin, JJ.C.A. as they were then, and Awogu, J.C.A.) dismissed the appeal by the appellant and allowed the appeal by the respondent and thus in effect setting aside the decision of Ayinde, J. in respect of Exchange Losses and Central Bank of Nigeria charges.

The appellant appeals to this court. As the 3 items of assessment were treated separately by the lower court and in the parties’ briefs of argument, I too propose to deal with them accordingly. But before doing so I would like to make some observations on the briefs of argument filed by the parties. It is well settled, as a rule of practice, that a well written brief of argument should be brief and concise, containing concise statement of the facts of the case which are material to the consideration of the questions presented for determination by the court. It should also contain direct, concise and succinct statement of the argument in the appeal. But what are we confronted with in this appeal The appellant’s brief consists of 70 pages while the respondent’s brief is made up of 435 pages (including the preliminaries). Surely these are, with respect, far from the ideal. Rather than assist the Court to easily follow the argument in support of the questions for determination, they helped in making the arguments complex. Had it been the circumstances herein were ordinary, we would have no difficulty in striking out the briefs for offending the rules. Be that as it may, I consider the questions raised by the appeal as important and will, therefore, endeavour to consider the argument contained in the briefs as best as I can, but not without trepidation. The worse culprit in this respect is without doubt learned counsel for the respondent.

1. Exchange Losses

The issues for determination formulated by the appellant in this regard are as follows:-

“(i) What is the effect of the agreement between Shell and the Federal Government on the liability of Shell to pay instalments of petroleum profits tax.

(ii) Whether the exchange losses incurred by Shell were “outgoings and expenses wholly, exclusively and necessarily” incurred for the purpose of its petroleum operations (as found by the Federal High Court) or whether they are expenses incurred in respect of tax on its profits (as found by the Court of Appeal).

While those formulated on behalf of the respondent are 15 in number even though the appellant filed only 6 grounds of appeal. Clearly this defeats the purpose of formulating questions for determination, which is to enable parties to an appeal to narrow the issues contained by the grounds of appeal in the interest of accuracy, clarity and brevity.

A proliferation of questions for determination ought to be discouraged – See Ogbuanyinya v. Okuda (No.2) (1990) 4 NWLR (Pt.146) 551 and Carlen (Nig.) Ltd. v. Unijos (1994) 1 NWLR (Pt.323) 631 at p. 664 A-D per Onu, J .S.C. Therefore, in determining the questions here I will ignore the issues formulated by the respondent and rely on those by the appellant

It is common ground between the parties to this appeal that the tax payable by the appellant is assessable in Naira and that by the provisions of the Petroleum Profits Tax Act such tax if not paid constitutes a debt owed by the appellant, which is payable to the respondent Section 36 subsection (1) of the Petroleum Profits Tax Act provides:-

“(1) The Board shall cause to be served personally on or sent by registered post to each person whose name appears on an assessment in the Assessment List a notice of assessment stating its accounting period and the amount of its chargeable profits, assessable tax and chargeable tax charged and assessed upon the company , the place at which payment of the tax should be made, and informing such company of its rights under subsection (2).”

In compliance with these provisions the Board of Inland Revenue sent to the appellant a notice of assessment of tax in respect of the accounting period for the year 1973. The notice reads thus:-

“Federal Inland Revenue Department.

Private Mail Bag, 12672,

Ajasa Street.

Lagos.

Reference No. PC.1/Vol.4/2/1973/163

18th December, 1978.

The Finance Manager,

Shell-BP Petroleum Development

Company of Nigeria Limited,

Freeman House,

21/22 Marina,

P. M. B. 2418,

LAGOS.

Dear Sir,

Petroleum Profits Tax 1973

I have carefully considered your grounds of objection to the above notice of assessment and have revised my computation of the profits you objected against by allowing the following items of expenses:-

Education Assistance N311,664

Ex – gratia Payment 17,148

The revised tax computation is as follows:

Chargeable Profits as

per my letter dated 26/7/78 N841,783,332

Less Expenses now allowed as above 328.812

Chargeable Profits (revised) 841.454.520

Assessable Tax at 55% N462,799,986

Less Section 17 deductions 8,644,200

Chargeable Tax N454,155,786

Less Tax already paid 450.531.675

Balance Payable or Due N3.624.111

The relevant notice of revised assessment and of refusal to amend the revised assessment are attached herewith to enable you settle the tax due without delay.

Yours faithfully,

(Signed)

(J. O. Akinmola)

Chief Inspector of Taxes & Pioneer Branch.”

Although by the provisions of section 36 subsection (1) of the Petroleum Profits Tax Act the Board of Inland Revenue is obliged to state the place where the payment of tax should be made, there are a number of formal agreements entered into by the Federal Government and the appellant, which alter the manner and indeed the place where the tax assessed was to be paid. The first of such agreements is Exhibit 1, dated the 25th day of April, 1967. The second is Exhibit 2, dated the 10th day of May, 1971 and the third is Exhibit 3 dated the 5th of June, 1972. There is also Exhibit 4 which is a letter addressed to companies engaged in petroleum operations. The letter was dated 15th March, 1968. It reads as follows:-

“Ref: No. F.12215/255

Federal Ministry of Finance,

P. M. B. 12195,

Mosaic House,

Tinubu Square,

Lagos.

15th March, 1968.

The General Manager,

The Shell-BP Petroleum Development

Company of Nigeria Limited,

40,Marina,

Lagos.

The Manager,

Philips Petroleum Company,

Western House,

Third Floor Block “A”,

8/10, Broad Street,

Lagos.

The President,

Tenacco Oil Company of Nigeria, P. O. Box 2119,

Western House,

8/10, Broad Street,

Lagos.

The Manager,

Nigerian Gulf Oil Company,

19, Tinubu Square,

Lagos.

The General Manager,

Mobil Exploration Nigeria Incorporation,

P. O. Box 31, Industry Road,

Port Harcourt.

The Resident Manager,

SAFRAP (Nigeria) Limited,

Western Nigeria Development Corporation Building,

21 Wharf Road,

Apapa.

Dear Sirs,

NEW PROCEDURE FOR PAYMENTS OF ROYALTIES, PETROLEUM PROFITS TAX AND RENTS TO THE FEDERAL GOVERNMENT

I am directed to inform you that with effect from the 1st of January, 1968 and until further notice all payments due to the Federal Government of Nigeria from your company in respect of the three items mentioned above should be made to the account of the Central Bank of Nigeria with the Bank of England. As the amounts due are normally expressed in Nigerian Pound, the payer/company must ensure that enough Sterling is made available to make Nigerian Pound equivalent of the amount due from the company.

2. This letter supersedes all previous correspondence which your company has received from any Federal Government Department regarding the method and procedure for these payments.

Yours faithfully,

Abubakar Alhaji

Exchange Control Officer”

By reason of the agreements between the appellant and the Federal Government (Exhibits 1, 2 and 3) and the above letter (Exhibits 4) payments of petroleum profits tax made by the appellant, at all the times material to this case, were made in Pound Sterling into the account of the Central Bank of Nigeria with the Bank of England at London. This resulted in the appellant converting United States dollars into Naira and then converting Naira into Pound Sterling in order to be able to meet its obligation to the Federal Government. The conversion from United States dollars to Naira became necessary because the former was and still is the currency in which sale of petroleum is made. It is because of the conversions which the appellant had to undertake that it claimed that it incurred losses. Hence its demand that the losses should be deductible for tax purposes.

Section 10 subsection (1) of the Petroleum Profits Tax Act 1959 provides:

“(1) In computing the adjusted profit of any accounting period from its petroleum operations there shall be deducted all outgoings and expenses wholly, exclusively, and necessarily incurred, whether within or without Nigeria, during that period by such company for the purpose of those operations, including but without otherwise expanding or limiting the generality of the foregoing –

Furthermore clause 4 of Exhibit 3 reads thus:

“4(a) For purposes of the arrangements under which the company carries on its operations in Nigeria, posted prices stated in U.S. Dollars with respect to any complete or partial month of petroleum operations subsequent to the Effective Date shall be converted into Nigerian Currency at a rate of exchange equal to the arithmetic average as certified by the Central Bank of Nigeria of the mean of the buying and selling rates in respect of telegraphic transfers for U.S. Dollars to Nigerian Currency quoted by the Central Bank of Nigeria at 10.30a.m. G.M.T. on each day when such Bank is open during such complete or partial month.

(b) The Nigerian Currency amounts determined under paragraph 4(a) above shall be the basis for determining the company’s tax and royalty obligations.

(c) For purposes of satisfying obligations due to Government as stated in Nigerian currency and amount of U.S. Dollars or Pounds Sterling, as determined below shall be deposited with the Federal Reserve Bank of New York or the Bank of England respectively for the account of the Central Bank of Nigeria. When such currency of deposit is U.S. Dollars there shall be deposited to the account of the Central Bank of Nigeria an amount of U.S. Dollars determined by converting such Nigerian Currency obligation into U.S. Dollars by using a rate of exchange equal to the arithmetic average as certified by the Central Bank of Nigeria of the mean of the buying and selling rates in respect of telegraphic transfers for U.S. Dollars to Nigerian currency quoted by the Central Bank of Nigeria at 10.30 a. m. G.M.T. on each day when such Bank is open during the thirty day period ending on the 20th day of the month of the date of payment (d) When such currency of deposit of paragraph 4(c) above is Pounds Sterling, Nigerian currency obligations shall be converted firstly, into U.S. Dollars in accordance with the second sentence of Paragraph 4(c) above and such U.S. Dollar amount determined hereunder will be converted, secondly, into Pounds Sterling by using a rate of exchange equal to the arithmetic average as certified by the National Westminster Bank, London of the mean of the buying and selling rates in respect of telegraphic transfers for U.S. Dollars to Pounds Sterling quoted by the National Westminster Bank, London at 10.30 a. m. G.M.T. each day when the London

foreign exchange market is open during the third day period ending on 20th day of the month of the date of payment.”

The question which arises is: should the determination of the deductions due to the appellant be limited to the interpretation of these provisions of the Act or should it be extended to the form agreements (that is Exhibits 1, 2 and in particular 3 and also the letter Exhibit 4) as well The Federal Body of Appeal Commissioners held in its ruling that the issue dealt exclusively with the interpretation of sections 2,8,9,10 and 11 of the Petroleum Profits Tax Act, 1959 and that Exhibit 3 could not apply to vary the provisions of the Act nor apply to the respondent which was not a party to it. The Body reasoned as follows:-

“Counsel for the appellant strongly contended before us that the charge losses incurred by the company were caused by the separate obligation of Shell B. P. vis-a-vis the Federal Government in compliance with the specific requirements of Clauses 4(c) and 4(d) of the 1972 Agreement, these losses were wholly, exclusively and necessarily incurred by the company for the purposes of its petroleum operations and consequently qualify as allowable deduction under the provisions of section 10(1) of the P.P.T.A. 1959. The losses were incurred because of the Compliance with the 1972 Agreement, which was not part of the P.P.T.A. nor can any agreement not properly enacted into the legal (blurred) the respondent was not a party to the Agreement. In which case it cannot be bound by it. Also the Agreement cannot override the law. Any of its provisions which is in conflict with the law will be ultra vires the law.”

On appeal to the Federal High Court from this ruling, Ayinde, J. set aside the ruling and held thus:-

“… it is obvious that the combined effect of the letter Exhibit 4 and the Agreements Exhibits 2, and 3 is to abrogate the previous arrangement whereby Petroleum Profit Tax was to be paid to the respondent in Naira in Nigeria and to substitute, by way of accord and satisfaction, an agreement whereby the appellants were obliged to pay their profit tax obligation in Sterling into the account of the Central Bank of Nigeria with the Bank of England. In other words, the obligation of the appellants to pay their petroleum profit tax in Naira in Nigeria was dissolved and discharged. In view of the foregoing, I agree with the learned counsel for the appellants that various sums paid in Sterling by the appellants into the account of the Central Bank of Nigeria as detailed in Exhibit II were not actually payment of the tax assessment of the appellants for the accounting period ending 31st December, 1973 but were accord and satisfaction of their tax indebtedness for the accounting period.

As stated in the pleadings of the appellants, I agree that the parties to the accord and satisfaction were the Federal Government to whom the tax debt was owed and the appellants who owed the debt. I also agree that the fact that the respondent, Federal Board of Inland Revenue (which is only an agency of the Federal Government for the assessment and collection of tax) was not a party to the agreement which constituted the accord and satisfaction is irrelevant.

Having found that what the appellants paid in Sterling in London was accord and satisfaction of their tax indebtedness in Nigeria, I will now consider whether the amounts paid were expenses wholly, exclusively and necessarily incurred for the petroleum operations of the appellants which according to the Section 10(1) of the PPTA should be deducted from the adjusted profit of the appellants for 1973 accounting period.

At the risk of being considered to be unduly repetitive, I will recite here again the definition of Petroleum Operations. Petroleum operations according to Section 2 of the PPTA 1959 means “The winning and transportation of petroleum or chargeable oil in Nigeria by or on behalf of a company for its own account by any drilling, mining, extracting or otherlike operations or process not including refining at a refinery, in the course of a business carried on by the company engaged in such operations and all operations incidental thereto and any sale of or any disposal of chargeable oil by or on behalf of the company.”

I agree with the submission of the learned counsel for the appellant that, if the appellants as an oil company (and like other oil companies) had not been required by the Agreement evidenced by Exhibits 2, 3 and 4 to pay their tax indebtedness in Sterling they would have incurred no losses. Apart from confirming the arrangement in Exhibit 4 whereby the appellants were directed to pay their tax liability in Sterling in London, the Agreements Exhibits 2 and 3 also regulated the petroleum operations of the appellants.

In view of the foregoing, I am of the view that the expenses incurred by the appellants in complying with the directive in Exhibit 4 that they should pay their tax liability in Sterling into the account of the Central Bank of Nigeria with the Bank of England which directive was confirmed by the Agreements, Exhibits 2 and 3, were expenses incurred wholly exclusively, and necessarily for the purpose of petroleum operations of the appellants.”

The respondent, being dissatisfied with this decision, appealed against it to the Court of Appeal. In allowing the appeal, the court below reversed the decision of the Federal High Court and held as follows, as per Awogu, J .C.A. who wrote the lead judgment-

“Petroleum operations are defined in Section 2 of the P.P. T. Act to mean:-

“The winning or obtaining and transportation of petroleum or chargeable oil in Nigeria by or on behalf of a company for its own account by any drilling, mining, extracting or other like operations or process, not including refining at a refinery, in the course of a business carried on by the company engaged in such operations and all operations incidental thereto, and any sale of or any disposal of chargeable oil by or on behalf of the company.”

By this definition, the two items in issue can only properly come under “all operations incidental thereto.” It is difficult however to conceive of exchange losses and Central Bank charges as “operations incidental to petroleum operations.” Profits come under Section 9, but under Section 11(1)(f), no deductions shall be allowed in respect of “any amounts incurred in respect of any income tax, profits tax or other similar tax, whether charged within Nigeria or elsewhere.” Finally, any deductible expenses must pass the W.E.N. Test. Thus, by no stretch of the imagination can the two items in issue be said to pass the W.E.N. Test when they were not in operations incidental thereto, under Section 2 of the Act. Perhaps only in the con of Exhibits 1,2, 3, 4, can such an inference be drawn.”

After examining Exhibits 1, 2, 3 and 4 in the judgment, the learned Justice of the Court of Appeal concluded as follows:-

“In other words, before Exhibit 3 of 5/6/72, Shell and the other five companies in Exhibit 4 had been paying their due tax abroad and in dollar or in sterling. Each company made the choice of whether to pay in dollar or in sterling

Indeed, Exhibit 3, in Clause 4(c), made it clear that for the purposes of “satisfying obligations due to the Government as stated in Nigerian currency, an amount of U.S. Dollars or Pound Sterling, as determined below, shall be deposited.” It is therefore clear to me that the choice of payment in sterling was voluntarily made by Shell. If any doubt remains on the issue, Exhibit 6 clears it. It was written by Shell on 5/6/72 (in response to Exhibit 3) and states that the company elects pounds sterling as the currency of deposit.”

Clearly, if Shell paid their tax in sterling abroad, as agreed, and the Board issued the necessary receipts in acknowledgement of the payments, how can it be argued that the payments did not discharge the tax obligations of the company It was no longer open to the Board to approbate and reprobate. Ayinde, J. appears to have been right in so holding, but, was the issue really a matter of accord and satisfaction …

As I understand it, the position might have been different if Shell were compelled by the Federal Government to pay in sterling. In other words had Exhibit 4 been the only directive on the issue, common sense would have dictated that any expenses incurred as a result should be deductible. But Exhibit 4 led later to Exhibits 2 and 3, which then became the basis of this accord and satisfaction. Thus, if Exhibits 2 and 3 do not provide for deduction of expenses incurred, how can one of the parties unilaterally do so. The true purport of the accord and satisfaction is exemplified by Exhibit 11, where Shell as a result, made an excess payment of N3,671,274.84K (sic). Had this been a deficit as a result of the varying exchange rates, the Federal Government would have similarly absurbed (sic) the loss and, having regard to accord and satisfaction, cannot call upon Shell to make up the deficit …

Accordingly the appeal on Exchange Losses is allowed and the decision of Ayinde, J. on the deduction is hereby set aside.”

The appellant was aggrieved by this decision. It appealed before us and argued thus: The definition in section 2 of the Petroleum Profits Tax Act. 1959 of the expression “petroleum operations” includes all operations that are incidental to petroleum operations. Therefore all activities of the appellant which are not strictly petroleum operations but which are activities occurring or liable to occur in connection with those operations are deemed to be “petroleum operations”. The section provides:-

“Petroleum operations” means the winning or obtaining and transportation of petroleum or chargeable oil in Nigeria by or on behalf of a company for its own account by any drilling, mining, extracting or other like operations or process, not including refining at a refinery, in the course of a business carried on by the company engaged in such operations, and all operations incidental thereto and any sale of or any disposal of chargeable oil by or on behalf of the company.”

The appellant argued further that the agreement between it and the Federal Government, which it claimed to constitute an accord and satisfaction, is an agreement entered into by it in connection with its petroleum operations. Accordingly, the agreement, including the execution or performance of its terms, was incidental to the appellant’s petroleum operations and, therefore, by the definition of the expression “petroleum operations” it should be deemed to be part of the appellant’s petroleum operations. It is contended that losses and charges incurred by the appellant in the discharge of its contractual obligations under the agreement in question are incurred for the purpose of petroleum operations. The appellant referred to the provisions of section 11 subsection (1)(f) of the Petroleum Profits Tax Act, 1959 which read:-

“11.(1) Subject to the express provisions of this Act, for the purpose of ascertaining the adjusted profit of any company of any accounting period from its petroleum operations, no deduction shall be allowed in respect of –

…

(f) any amounts incurred in respect of any income tax, profits tax or other similar tax whether charged within Nigeria or elsewhere;” .

and contended that the payments made by the appellant in pound sterling were based upon the amount of debt payable in Naira owed to the Federal Government. It was then submitted that it was misconception in both law and fact for the Court of Appeal to regard such payments as tax, as envisaged under section 11(1)(f) of the Petroleum Profits Tax Act, 1959. It was contended further that section 11(1)(f) clearly intended to disallow deduction of amounts paid in respect of income tax, profits tax and other similar taxes. We were, therefore, urged to hold that section 11(1)(f) docs not prevent the deduction of exchange losses.

The respondent, in reply, submitted that the payment of tax is a mandatory statutory and constitutional obligation of all companies. To illustrate this, reference was made to sections 8, 15(1), 16(1) and (2), 17(1) ,29(1) and 31(1) of the Petroleum Profits Tax Act, 1959 and sections 69, 31(3)(a) and 76(1) and (6) of the 1979 Constitution (Cap. 62 of the Laws of the Federation of Nigeria, 1990). With regard to the provisions of section 10 subsection (1) of the Petroleum Profits Tax Act, 1959, it was argued that the phrase “outgoings and expenses wholly, exclusive and necessarily incurred, whether within or without Nigeria, for the purpose of petroleum operation of an Oil Company”, which the lower court tagged the “W.E.N. Test” was not applicable to both Exchange Losses and Central Bank Charges as found by the Court of Appeal. This was so, because they were expenses incurred after profits had been earned and after the completion of the petroleum operations of the appellant. Nor were they incurred in the course or as a result of or within or during the business activities of the appellant. Again they were not expenses incurred on operations that were incidental to petroleum operations of the appellant. An English authority which was said to be the locus classicus on the applicability of the “W.E.N. Test” was cited in support of the above contention of the respondent. It was Strong & Company of Romsey Limited v. Woodifield (Surveyor of Taxes) (1906) A.C. 448; 5 T.C. 215, per Lord Davey’s at pp. 453 and 220 respectively.

Referring to the agreements between the appellant and the Federal Government and the latter’s letters (i.e. Exhibits 1, 2, 3, 4 and 6), the respondent argued that the principle of accord and satisfaction being relied upon by the appellant had no bearing on its statutory and primary obligation to pay petroleum profits tax. It was argued further that the effect of Exhibits 2, 3, 4 and 6 was merely to modify the procedure for making the payment of the petroleum profits tax. Respondent contended that this modification came about by mutual agreement and did not in any way alter the character of the obligation from that of paying petroleum profits tax by the appellant to the Federal Government. Therefore, no matter how Exhibits 2, 3, 4 and 6 were viewed, they were not intended to “obliterate, transform or dwarf the primary obligation to pay tax.” It followed, still being argued, that the obligation under the Exhibits to pay the tax assessed in foreign currency was at best “an ancillary duty, a complementary, supplementary, adjunctive and supportive action to the primary civic duty of payment of P.P.T. to the respondent Board.” In construing the Exhibits they should be interpreted in a manner that renders them secondary to the statutory obligation of the appellant under the Petroleum Profits Tax Act, 1959. Reliance was placed on our decision in Salami Afolabi & Ors. v. Governor of Oyo State & Ors. (1985) 2 NWLR (Pt.9) 734 at p. 778. Numerous foreign cases were cited by the respondent to show the difference between form and substance and we were urged to hold that merely describing or labelling Exhibits 2, 3 and 4 as constituting accord and satisfaction was a misnomer since their substance as opposed to their form failed to give rise to the principle of accord and satisfaction.

On the provisions of section 11 subsection (1) of the Petroleum Profits Tax Act, 1959, the respondent submitted that its wordings were clearly against the deduction from tax of the Exchange Losses. The case of Gulf Oil Company of Nigeria Ltd. v. F.B.I.R.. Suit No. FHC/L/3A/83 (unreported) judgment delivered on 30th January, 1985, was cited in support and in particular where Belgore, CJ stated as follows:-

“……… I have no doubt in my mind as to the meaning of the subsection. It may be unique or general in taxation legislation but it is clear, meaningful and unambiguous. Under this provision deduction allowed in the Harrods (Buenos Aires) case (i.e .Harrods (Buenos Aires) Ltd. v. Taylor-Gooby (H. M. Inspector of Taxes) (1961-64) 41 T.C. 450 will not be allowed supposing one chooses or one is asked to post one’s tax assessment to the tax authority, the expense of postage will not be a deductible expense or if one chooses to drive one’s vehicle to a Government Treasury in order to pay one’s tax, such expenses incurred by the travelling would not be allowed under subsection (1)(f) of Section 11. It is a notorious fact that when it comes to the issue of taxation, Government is usually of excessive sensitivity and unscrupulous thoroughness and the method and expenses of paying tax, though such method be laid down by the law is regarded as tax payer’s burden and not that of the Government ….”

The respondent also submitted that the principle of accord and satisfaction was not formulated with any tax law in mind. Therefore, it cannot supersede any statutory provision governing taxation.

It was contended that the agreement between the appellant and the Federal Government (Exhibit 3) gave the appellant the option to pay the tax in either Pound Sterling or U.S. Dollars. Had the appellant chosen to pay in U.S. Dollars instead of Pound Sterling it would not have incurred any exchange losses. Therefore, the exchange losses suffered by the appellant were self-inflicted. For that reason the appellant cannot derive any benefit therefrom.

The respondent referred to the Petroleum Profits Tax (Amendment) Act, 1973 (No. 15 of 1973) and argued that the Act incorporated the agreements entered between the appellant and the Federal Government (Exhibits 2 and 3). Reliance was placed on the “Explanatory Note” to the 1973 Act to support the argument. It was then submitted that the provisions of the 1973 Act do not provide that there should be deduction from the adjusted profits of the appellant in respect of Exchange Losses, Central Bank Commissions and Scholarships Expenses.

Finally it was canvassed that the claim for deduction by the appellant cannot succeed on the ground that the items on which the claim was based, that is, Exchange Losses, Central Bank Commission and Scholarships Award are not allowable deductions under the provisions of sections 2, 10(1)(g) and 11(i)(f) of the Petroleum Profits Tax Act, 1959, as amended.

Now by section 8 of the Petroleum Profits Tax Act, 1959 any company engaged in petroleum operations is liable to pay profits tax. Section 2 of the Act defines “petroleum operations”. It includes not only winning or obtaining petroleum oil by drilling, mining etc, but all operations that are incidental to such operations. By Section 10 of the Act, all outgoings and expenses incurred wholly, exclusively and necessarily should be deducted in computing the adjusted profits to attract assessment for petroleum profits tax. The question, therefore, is: whether the exchange losses suffered by the appellant are outgoings, that is expenditure, incurred necessarily, wholly and exclusively for petroleum operations

There can be no doubt that if the exchange charges were incurred for the purpose of paying the petroleum profits tax, they would not have been deductible since such outgoings cannot be said to be incurred for the purpose of petroleum operations as defined by section 2. Nor can they be said to have been incurred wholly, exclusively and necessarily for the purposes of petroleum operations. The outgoings would have fallen under the head of expenditure incurred after the petroleum operations had been carried out and would not, therefore, qualify as deductible expenditure under the provisions of section 10 of the Act. See the cases of Strong & Company of Romsey Ltd. (supra) and the Gulf Oil Company of Nigeria Ltd. (supra); Potato Estates Ltd. v. Boland (B.M. Inspector of Taxes) (1948) 30 T.C. 267; Usher’s Wiltshire Brewery Ltd. v. Bruce (Surveyors of Taxes) (1914) 6 T.C. 399 and Bentleys, Stokes and Lowless v. Beeson (H.M. Inspectors of Taxes) (1952) 33 T.C. 491 at p. 504.

The foregoing would have been the correct position in law had it been that this case is being contested purely on the provisions of the Petroleum Profits Tax Act, 1959. For the principle of construction of statute is that if the words of the statute are plain, precise and unambiguous, they should be given their ordinary and natural meaning – see Lawal v. G.B. Ollivant (1972) 3 S.C. 124 at p. 137; Aya v. Henshaw (1972) 5 S.C. 87 at p. 95; Queen v. Onuegbu (1957) SCNLR 130; 2 F.S.C. 10 at p. 12 and Toriola v. Williams (1982) 7 S.C. 27 at p. 46. However, the controversy in this case is not limited to the provisions of the Petroleum Profits Tax Act 1959, it extends to the terms of agreements entered into by the parties and their consequences vis-a-vis the Act.

It is clear that the profits tax to be paid by the appellant for the 1973 period had been assessed. But for Exhibits 1,2,3 and 4, the tax would have been paid in Nigeria and in Nigerian currency which is Naira. However, the appellant was under the additional obligation by virtue of the Exhibits to effect payment in England. Failure to do so would have undoubtedly rendered the appellant liable to sanction at the instance of and by the Federal Government. There is also the legal effect to be given to the agreements entered between the appellant and the Federal Government. There is no doubt that the agreements (Exhibits 2 and 3) are not illegal contracts because their terms vary the obligations of the appellant and the respondent under the Petroleum Profits Tax Act, 1959; nor are they against public policy – See Solanke v. Abed (1962) 1 SCNLR 371; (1962) 1 All NLR 230 at pp. 233-4. Since the agreements are not illegal it follows that the principles of contract can rightly apply to them. Hence the issue of accord and satisfaction becomes pertinent to this case. The term accord and satisfaction has been judicially defined as follows:-

“Accord and satisfaction is the purchase of a release from an obligation whether arising under contract or tort by means of any valuable consideration, not being the actual performance of the obligation itself. The accord is the agreement by which the obligation is discharged. The satisfaction is the consideration which makes the agreement operative.” – See British Russian Gazette and Trade Outlook Ltd. v. Associated Newspapers Ltd. (1933) 2 K.B. 616 at pp. 643-4; (1933) All E.R. Rep. 320 at p. 328.

Although the definition talks of the obligation arising from contract or tort, yet the principle of accord and satisfaction extends to all obligations irrespective of their source, according to the learned authors of the Principles of the Law of Contracts by Salmond and Williams, 2nd Edition at page 496.

By the provisions of section 41 subsection (1) of the Petroleum Profits Tax Act. 1959 the respondent may sue for and recover tax in a court of competent jurisdiction. The tax is to be deemed “as a debt due to the Government of the Federation.” It follows that the obligation to pay petroleum profits tax is the same as the obligation to pay debt. The payment of a debt by a going-concern or company is undoubtedly incidental to the operations of such an organisation. In the present case, it is incidental for the appellant to pay debt for the purposes of its petroleum operations as defined by section 2 of the Petroleum Profits Tax Act, 1959. However, section 11 subsection (1)(f) of the Act disallows any deduction on such debt.

It must be made clear here that the lis in this case is not the tax or debt assessed but the loss incurred in sourcing the pound sterling for the payment of the tax. In my opinion such expenditure is necessary for the purpose of the appellant undertaking its operations. This is made clearer by the fact that the payment of tax from year to year cannot be detached from the operations of the company. The appellant could not have incurred the exchange losses but for Exhibits 1,2, 3 and 4. If the payment of the tax were to have been made in local currency no such losses, would have arisen. Similarly, if the Federal Government had been paid the tax in Naira and it were to purchase pound sterling equivalent to the amount so paid it would have incurred the exchange losses. I, therefore, do not see the reason why the respondent should not allow deductions in respect of the exchange losses suffered by the appellant.

The facts of this case are distinguishable from those of the cases mentioned above on which the respondent is relying. This has been made so by the fact that no agreements such as Exhibits 1,2,3 and 4 existed in them to raise the application of the principle of accord and satisfaction. By reason of the agreements and not the provisions of the Petroleum Profits Tax Act. 1959, as amended, the doctrine of equity will apply to compensate the appellant for the Exchange Losses it incurred.

It is pertinent to point out that the appellant is not exempted from suffering the Exchange Losses but that it should not pay petroleum tax on the Exchange Losses because the obligations imposed by the agreements in question are incidental to petroleum operations as defined by section 2 of the Petroleum Profits Tax Act, 1959.

Finally, although it is true that the Petroleum Profits Tax (Amendment) Act, 1973 was promulgated to give effect to the agreements entered into between the appellant and the Federal Military Government, it did not in fact incorporate all the terms of the agreements in question.

I need not touch on whether the respondent and the Federal Government are the same for the purposes of this case since the former is an agent of the latter. The issue is not contentious before us because both the Court of Appeal and Federal High Court came to the same decision on the point and there is no appeal on that by the respondent.

In conclusion, I am of the opinion that the appeal in respect of exchange losses succeeds and should be allowed.

2. Central Bank of Nigeria Charges

The letter Exhibit 4 (quoted above in extenso) was followed by another letter dated 16th day of March, 1972 (Exhibit 5) addressed to the appellant by the Permanent Secretary, Federal Ministry of Finance. The letter directed that a commission of 0.5 per cent was payable with effect from December, 1971 in respect of pound sterling lodgments into the account of the Central Bank of Nigeria with the Bank of England. The letter (Exhibit 5) reads as follows:

“FEDERAL MINISTRY OF FINANCE PETROLEUM DIVISION LAGOS

Tel: 56110/29

Ref. No: F. 10643/S. 53

16th March, 1972

The Managing Director

Shell-BP Petroleum Development Co. Nig. Ltd.,

40, Marina,

Lagos.

Dear Sir,

STERLING LODGEMENTS AT CENTRAL BANK’S BUYING RATE

I am directed to re-affirm this Ministry’s undertaking to study closely any proposal for the de-escalation of the Central Bank of Nigeria’s rate of commission on the foreign exchange transactions of the oil companies.

2. In the meantime, I am to request that Sterling lodgements into the Federal Government of Nigeria’s account with the Bank of England should, with effect from 1st December, 1971, be at the Central Bank of Nigeria’s current buying rate of 117.25, which rate incorporated the commission element of 0.5%.
3. Adjustments, one way or the other, will finally be made if and when the proposals for sliding scale commission rates are adopted, but, as of now, it will be appreciated if you will make good the resultant short falls in payments since December 1971, as well as adopt the current buying rate of N100 to 117.2 Sterling in your future payments. The foregoing arrangement is designed to put Accounts in their proper position and eliminate the present muddle between the oil companies, the Federal Board of Inland Revenue and the Central Bank of Nigeria.

(Signed)

W.O. Uwomu,

for Permanent Secretary.”

The rate of commission made payable to the Central Bank of Nigeria was reduced from 0.5 per cent to 0.25 per cent with effect from 1st April, 1975 vide a letter dated 9th May, 1975. However, this is immaterial to the case in hand since it does not affect or concern the period which is material to this appeal.

The questions for determination which have been formulated in the alternative by the appellant read:-

“Whether the Central Bank charge incurred by Shell were –

(a) outgoings and expenses wholly, exclusively and necessarily incurred for the purpose of its petroleum operations (as found by the Federal High Court) or whether they are expenses incurred in respect of tax on its profits (as found by the Court of Appeal)

or

(b) sums the liability for which were incurred to the Federal Government by Shell ‘by way of any rate, impost, fee or otherlike charge.”

The appellant argued that by their nature the Central Bank charges were not charges made by the Bank for services rendered to appellant; rather it was a sum fixed by the Federal Government without any real connection with or reference to any services rendered to the appellant. Reference was made to section 10 subsection (1)(g) of the Petroleum Profits Tax Act, 1959, as amended, and it was submitted that the provisions thereof allow for the deduction of all outgoings and expenses which were wholly, exclusively and necessarily incurred whether within or without Nigeria for the purposes of petroleum operations. Furthermore, it was argued that the provisions of section 10 subsection (1)(g) allow deduction of any sum by way of “impost, fee or other charges” incurred by the appellant. The allusion by the Court of Appeal to the provisions of section 11 subsection (1)(f) of the 1959 Act in connection with Central Bank Charges was said to cause confusion since the provisions apply to disallowance of deductions and have nothing to do with permissible deductions.

In reply the respondent relied on the dictum of the Court of Appeal when giving judgment in this case, where Awogu, J .C.A. held as follows:-

“The argument in respect of Central Bank charges is similar (to the argument on Exchange Losses), save that it calls into question the status of the Central Bank of Nigeria. Shell claimed that it was deductible under section 10 (1) or section 10 (1)(g) of the P.P.T. Act In addition that it passed the W.E.N. Test. The Board does not agree, but Ayinde, J. did. Section 10( 1)(g) raises the question of the status of the Central Bank of Nigeria because expenses are deductible in respect of:-

‘(g) all sums the liability for which was incurred by the company during that period to the Federal Government of Nigeria, or to any State or Local Government, by way of any rate, impost, fee or other like charge.’

The question which arises is whether or not the Central Bank of Nigeria, which made the charges, is the same as the Federal Government of Nigeria. For this purpose, counsel cited Trendtex Trading Corporation v. Central Bank of Nigeria (1977) 1 Q. B. 529 …

What calls for interpretation here is the language of sections 10(1)(g) and 11(1)(f). The former makes deductible any expenses incurred in respect of –

‘all the sums the liability for which was incurred by the company during that period to the Government of Nigeria by way of duty (other than customs and excise duties) stamp duty, tax (other than the tax imposed by this Act) or any rate, impost, fee or any other like charge.’

By the canons of interpretation, the Central Bank charges must be one of the kind envisaged in the section. It is clearly not a duty, stamp duty or tax. It is also not a rate, fee or any other like charge. It can only be an impost, and so Ayinde, J. held. But an impost cannot be a Bank Charge in the con of section 10(1)(g), even if such a bank charge was paid to the Government in the process of fulfiling a tax obligation. It will be like paying one’s tax to the government by a personal cheque and charging government with the Bank commission. What is more, section 11(1)(f) only allows deductions for expenses incurred from ‘petroleum operations’ and one cannot readily see how bank charges incurred in the process of paying tax for profits made can be said to arise from ‘Petroleum Operations’ as defined in section 2 of P.P.T. Act. I am of the firm view that Ayinde, J. was wrong in treating the Commission charged by the Central Bank as an impost . It is clearly not deductible item of expenditure under the Petroleum Profits Tax Act, and I so hold ….”

It was argued that the commission payable to the Central Bank of Nigeria by the appellant in the course of paying its Petroleum Profits Tax to the Federal Government is not deductible expenditure under section 10 subsection (1) (g) of the Petroleum Profits Tax Act. This is so, it was further argued, because the liability to pay the commission was not incurred to the Federal Government or a State Government or a Local Authority but to the Central Bank of Nigeria which was neither of the three authorities stated. It was then submitted that the Bank commission did not pass the test for deduction set in the phrase “expenses wholly, exclusively and necessarily incurred; ” nor did it pass the test under the phrase “money wholly and exclusively expended for the petroleum operations” of the appellant. Reliance was placed on the dictum of Collins, M.R. in the case of Strong & Co. v. Woodifield (Surveyor of Taxes) (1905) 2 K.B. 350 at p. 356 where he stated thus:-

“It seems to me, looking at these rules, that the root of the matter is that all expenses necessary for the purpose of earning the profits may properly be deducted, but that expenses to come out of the profits after they are earned cannot be deducted, unless there can be found some express provision of the Act authorising the deduction … The cardinal distinction seems to me to be that those expenses were not a sum that had to be paid as a condition of earning the profits, but, in point of fact, a sum which the company were compelled to payout of the profits after they were earned.”

and the cases of The Commissioners of Inland Revenue v. Alexander Von Glehn & Co. Ltd. (1919) 12 T.C. 232 at pp. 243-244; Gresham Life Assurance Society v. Styles (1892) 3 T.C. 183 at p. 195 and Strong v. Woodifield (1906) 5 T.C. 215 at p. 220. The respondent then canvassed that Bank Commission, like Exchange Losses, being an expenditure or disbursement, was an unfortunate incident which followed the earning of petroleum profits after the conclusion of petroleum operations by the appellant.

The respondent further urged that the phrase “all operations incidental thereto” in section 2 of the Petroleum Profits Tax Act, which defines “petroleum operations” must not be read in isolation from the rest of the definition but that it must be read in conjunction with the various activities specified earlier in the definition in accordance with the construction rule of ejusdem generis. Therefore applying the rule to the phrase, the respondent submitted that the phrase would mean”things or operations incidental to drilling, mining, extracting or other like operations as stipulated in section 2 of the Act.”

It seems to me obvious that in computing the adjusted profit of the appellant, bank charges cannot be deducted under the provisions of section 10 subsection. (1)(g). This is because the Central Bank of Nigeria, as rightly held by the Court of Appeal (per Awogu, J.C.A.), is neither the Federal Government of Nigeria, nor Government of any State nor a Local Authority. – See the case of Trendtex Trading Corporation v. Central Bank of Nigeria (1977) 1 Q. B. 529; (1977) 2 W.L.R. 356.

However, the situation differs with regard to the provisions of section 10 subsection (1) simpliciter. What needs to be determined thereunder is the question whether the payment of the bank charges arose in the course of the operations of the appellant as defined under the definition of “petroleum operations” in section 2 of the Petroleum Profits Tax Act; and whether the expenses were incurred “wholly, exclusively, and necessarily.”

The directive given to the appellant to pay the bank charges did not come from the Central Bank of Nigeria but from the Federal Government. If it had come from the former, the appellant could have rightly queried such demand as it had no account with the Central Bank of Nigeria and the Bank had not performed any services on its behalf. In paying the Bank Charges the appellant merely carried out the directive of the Federal Government. The issue here is not whether the Federal Government had the power to give the directive. It is enough that the appellant was asked to pay the charges to the Central Bank of Nigeria. The appellant had no choice than to comply and this it did. There can be no gainsaying that the payment of tax by the appellant to the Federal Government is certainly incidental to the business of the appellant which is petroleum operations. I have already so held earlier while considering the issue on Exchange Losses. The definition of the phrase “all operations incidental thereto” in section 2 of the Petroleum Profits Tax Act, cannot be circumscribed to “drilling, mining, extracting or other like operations” as argued by the respondent. To do so is to do violence to the true meaning of the definition of petroleum operations. The ejusdem generis rule must not be pushed too far. It is to be applied with caution. It is wrong to treat it as if it is automatically applicable since it is a mere presumption in the absence of other indications of the intention of the legislature. See Anderson v. Anderson (1895) 1 Q.B. 749 at pp. 753 and 755. The modern tendency of the law is to attenuate the application of the rule – See Craies on Statute Law 7th Edition at p. 181. There must be a distinct genus or category before the rule of ejusdem generis can be invoked.

A close examination of the definition of the words “petroleum operations” in section 2 would show that the specific words therein are not limited to “drilling, mining, extracting or other like operations” but include in addition the phrase “or process, not including refining at a refinery, in the course of a business carried on by the company engaged in such operations”. In my view there is no distinct genus in the definition for the phrase “and all operations incidental thereto” to allow the rule of ejusdem generis to apply – See Tillmans & Co. v. S. S. Knutsford, Limited (1908) 2 K.B. 385 at p. 403; (1908) A.C. 207 ..

The next question is whether the expenses were incurred “wholly, exclusively and necessarily”. According to ordinary dictionary meaning the words “wholly” and “exclusively” have virtually the same meaning. They can be said to mean “solely” or “entirely”. The dictionary meaning of the word “necessarily” is the same as that of the words “inevitably” and “unquestionably”. Therefore, was the payment of the Bank Charges solely and inevitably incurred for the petroleum operations of the appellant As already seen the payment of the Central Bank Charges was imposed on the appellant by the Federal Government vide Exhibit 5. The appellant is expected to receive directives from the Federal Government from time to time in the course of its business which is “petroleum operations”. Clearly this is incidental to such operations. I have no doubt whatsoever in my mind about that. The payment of bank charges to the Central Bank of Nigeria which had not rendered any service to the appellant but simply because the Federal Government had so directed was inevitable and was, therefore, incurred in the course of the appellant’s business which was petroleum operations.

In my respectful opinion, the bank charges qualify for deduction under the general provisions of section 10 subsection (1) of the Petroleum Profits Tax Act. I am mindful of the decisions in the cases of Ricketts v. Coloquhoun (H. M. Inspector of Taxes) (1925) 10 T.C. 118; Rosakaus v. Bennet (1950) 31 T.C. 129; Blackwell (HM. Inspector of Taxes) v. Mills (1945) 26 T.C. 468 and Brown v. Bullock (H. M. Inspector of Taxes) (1961) 40 T.C. 1, which were cited by the respondent I find the facts of those cases not on all fours with those of the present case since the agreements and directives in question here have no counterparts in the former. The case of Gulf Oil Company (Nigeria) Ltd. v. Federal Board of Inland Revenue Suit No. FHC/L/3A/83 (unreported) was also cited by the respondent This being a local case, its facts may be the same as those of the present case, but, unfortunately, learned counsel for the respondent has not made the of the judgment available to us. We, therefore, cannot say its facts are on all fours with this case. Furthermore, the decision was given by the Federal High Court. Although it may well be persuasive, it is not binding on this court.

I am of the firm view, in the light of the aforesaid, that the bank charges qualify for deduction under section 10 subsection (1) as claimed by the appellant.

3. Scholarship expenses

Paragraph 37 of the First Schedule to the Petroleum Act, 1969 (now Cap. 350 of the Laws of the Federation of Nigeria, 1990) provides:-

“37. The holder of an oil mining lease shall ensure that –

(a) Within ten years from the grant of his lease-

(i) the number of citizens of Nigeria employed by him in connection with the lease in managerial professional and supervisory grades (or any corresponding grades designated by him in a manner approved by the Minister) shall reach at least 75 per cent of the total number of persons employed by him in those grades, and

(ii) the number of citizens of Nigeria in anyone such grade shall be not less than 60 per cent of the total, and

(b) all skilled, semi-skilled and unskilled workers are citizens of Nigeria. ”

The Petroleum (Drilling and Production) Regulations, 1969 (now Cap. 350 of the Laws of the Federation, 1990) provide in regulations 26, 27, 28 and 29 as follows:-

“26.(1 )The licensee of an oil prospecting licence shall within twelve months of the grant of his licence, and the lessee of an oil mining lease shall on the grant of his lease, submit for the Minister’s approval, a detailed programme for the recruitment and training of Nigerians.

(2) The programme shall provide for the training of Nigerians in all phases of petroleum operations whether the phases are handled directly by the lessee or through agents and contractors.

27. Any scholarship schemes prepared, and any scholarships proposed to be awarded, by the licensee or lessee (whether or not related to the operations of the licensee or lessee or to the oil industry generally) shall be submitted for approval of the Minister.
28. Once a programme under regulation 26 of these regulations or a scholarship scheme under regulation 27 of these Regulations has been approved by the Minister, it may not be varied without his permission.
29. A report on the execution of the programme mentioned in regulation 26 of these Regulations and the progress of Nigerianisation shall be submitted by the licensee or lessee at or about the end of June and December in every Calendar year.”

In compliance with these provisions the appellant created a Scholarship Scheme. It incurred expenses in 1973 on the scheme amounting to N257,550.00 in respect of awards of various scholarships to Nigerians. The appellant claimed that the amount was deductible under section 10 of the Petroleum Profits Tax Act, for the purpose of computing its adjusted profits from petroleum operations. The claim was denied by the respondent. The denial was contested before the Federal Body of Appeal Commissioners which disallowed it. The Federal High Court as well as the Court of Appeal upheld the decision of the Federal Body of Appeals Commissioners. Hence the appeal to this court. Three issues for determination have been formulated by the appellant. They read thus:-

“(i) What was the question for determination in the appeal before the Federal High Court

(ii) In the light of the answer to Questions (i), has the Federal High Court or the Court of Appeal jurisdiction to determine whether the scholarship expenses were incurred “exclusively” for the purpose of Shell’s petroleum operations.

(iii) In the alternative to Question (i) and (ii) whether the scholarship expenses were outgoings and expenses incurred “wholly” and “exclusively” for the purpose of Shell petroleum operations.”

The respondent formulated no less than 11 issues for determination. As the issues raised by the appellant appear sufficient to determine the question before us I do not deem it necessary to advert to or state the issues postulated by the respondent.

In its judgment on the subject, the Court of Appeal held (per Awogu, J.C.A) as follows:-

“In any event, even if Ayinde, J. was wrong in finding that the expenses were not incurred ‘wholly’ and ‘exclusively’ no miscarriage of justice was thereby occasioned ….. It is not in dispute that the scholarship scheme is for non-employees of Shell/appellant. Appellant’s 2nd witness, Henry Omenai, made this clear when he said under cross examination (see page 224 of the Record):

“Our scholarship programme is for non-employees of the appellants while training programme is for employees. I believe that for the years 1973 accounting period, training scheme expenses were allowed while scholarship expenses were disallowed in computing the chargeable profits of the appellant company. The approval for award of scholarship contained in Exhibits 27, 35 and all other exhibits relating to approval of scholarship did not permit them to deduct the expenses from the chargeable profits”.

Under re-examination, he added:

“The Government will not permit our operation if we failed to award scholarship for non-employees of the appellants”

I am therefore of the view that Ayinde, J. arrived at the correct decision in respect of the N257,550.00 claimed as expenses incurred on the scholarship scheme, and his decision is hereby affirmed.”

The appellant complained that its case before the Federal Body of Appeal Commissioners was that the amount expended on the award of scholarship was “wholly” spent for the operations of the appellant and the Commissioners decision was based on that submission. However, when the appeal from the Commissioners decision came before Ayinde, J. the learned Judge dealt with it on the basis whether the expenditure was “wholly and exclusively” for the operations of the appellant. In doing so the learned Judge did not call upon counsel for the parties to address him. It is submitted on the authority of Iyaji v. Eyigebe (1987) 3 NWLR (Pt. 61) 523; (1987) 18 NSCC Part 11, 1035; Aluminium Industries Aktien Gesellschaft v. F.B.I.R. (1971) 2 NCLR 122 at pp. 130-13 and Olusanya v. Olusanya (1983) 1 SCNLR 134; 14 NSCC 97 at pp. 102, that the Federal High Court had no jurisdiction to deal with the issue whether the expenditure in question was incurred “exclusively” for the petroleum operations of the appellant.

I think we need not consider the issue at this stage. If the learned Judge lacked that jurisdiction he at least had the jurisdiction to consider whether the expenditure was “wholly” incurred for the purposes of the appellant’s petroleum operations and this he did. Therefore, his consideration, in addition, of the question whether the expenses were also “exclusively” incurred, which was not raised by the parties, without calling on counsel for the parties to address the court did not, in my opinion, vitiate the proceedings before the Federal High Court. In any event, I have already held that the words “wholly” and “exclusively” virtually have the same meaning as per the dictionary meanings given to them. Consequently the issue of jurisdiction raised by the appellant is no more than a storm in a tea cup.

Appellant complained further that the Federal High Court, with which the Court of Appeal agreed, failed to hold that the scholarship awards were “wholly and exclusively” incurred as part of its petroleum operations because there were “scholars who did not work with the company after completing their training”. The Federal High Court went on to point out that “the position would have been different if all the recipients of the awards were under bond to serve the appellant’s company on completion of their courses in return for the expenses incurred on them for their education.” Appellant submitted that in upholding this decision the Court of Appeal failed to distinguish between the object of the expenditure and its effect. The object being that had all the beneficiaries of the awards obtained 1st class or 2nd class honours in their training, the appellant would have employed them. The effect of their failure to achieve 100% passes in 1st or 2nd class honours was that the scholars who did not attain the required grades were not employed. It was submitted that the effect should not be allowed to blur the object. The cases of Bentleys. Stokes and Lowless v. Beeson (Inspector of Taxes) (1952) 2 All E.R. 82 at p. 85A-B and Mallalieu v. Drummond (1983) 2 A:C. 861 at p. 870 were cited in support. The appellant argued further that it is erroneous to contend that the existence of scholars who are in fact not recruited by the appellant for its operations demonstrates that the expenditures on the scholarship awards were not “wholly and exclusively” incurred for the purposes of those operations.

In reply, the respondent contended that the appellant’s scholarship scheme was made up of two categories. The first being for the generality of the Nigerian public, which concerns this appeal, and the second being for the employees of the appellant. The first category, it is argued, does not satisfy the requirements of section 10 subsection (1) of the Petroleum Profits Tax Act since it cannot be shown to satisfy the test of being wholly, exclusively and necessarily incurred for the petroleum operations of the appellant. Therefore, such expenditures are not allowable for deductions. It was urged upon us that there had been concurrent findings of fact that the expenditures on the scholarship awards were not wholly, exclusively and necessarily incurred for the operations of the appellant and, therefore, should not be interfered with by us. A number of cases were relied upon to buttress the argument. They include Nigerian Bottling Company Ltd. v. Ngonadi (1985) 1 NWLR (pt.4) 739 at p. 752; Fasoro v. Abdallah (1987) 3 NWLR (Pt.59) 134 and Ogbodu v. The State (1987) 2 NWLR (Pt.54) 20 at p. 29.

Now, in determining whether expenses on awards of scholarship by the appellant should be deducted in computing its adjusted profits for 1973, the circumstances of the expenses must meet the requirements of section 10 subsection (1) of the Petroleum Profits Tax Act. In order words they must be “expenses wholly, exclusively and necessarily incurred” for the purpose of the petroleum operations of the appellant I have already alluded in this judgment to the meanings of the phrases “petroleum operations” and “expenses wholly, exclusively and necessarily incurred”. The meanings which I have ascribed to them also apply here. The creation of a scholarship programme is a statutory obligation to be observed by the appellant as indicated above. It is one of the things it had to perform as incidental to the carrying out of its business. It has no choice but to comply. The awards were not to be made after it made profits, for no provisions of the relevant legislations provide so. On the contrary, the appellant was enjoined to make the awards during the year and to submit a report to the Minister responsible in June as well as December, 1973. It is very clear to me that the creation of the scholarship scheme and the award of scholarships to Nigerian citizens were incidental to the petroleum operations of the appellant It should be borne in mind that the definition of the words “petroleum operations” in section 2 of the Petroleum Profits Tax Act is wide and not restricted to “drilling, mining, extracting of other like operations” as contended by the respondent. Once there is a statutory or contractual obligation, and in this case it is the former, for a company engaged in petroleum operations to perform, such obligation is “wholly, exclusively and necessarily” for the purpose of the operations of the company. None of the provisions of the relevant legislations applicable to awards of scholarship makes it obligatory for the appellant to employ all those who benefited from its scholarship awards. What the relevant legislations provide is that the appellant is enjoined to ensure that 75% of its employees in managerial, professional and supervisory grades are Nigerian citizens and that the number of Nigerian citizens in each of such grades should not be less than 60% of the total number. The lower courts were, therefore, in error when they based their decision on the reasoning that not all those awarded scholarship by the appellant in 1973 were employed by it. Again the concurrent findings by the lower courts that the expenditures incurred on awards of scholarship were not “wholly, exclusively and necessarily incurred” were wrong because there was a statutory duty on the appellant to incur the expenditures and that is what the expenditure in question is about. It cannot, therefore, be held that the expenditures were not solely and inevitably incurred. Consequently, I hold, with respect, that the concurrent findings on the point made by the lower courts are perverse.

The appeal against the refusal by the respondent to allow deduction in respect of expenses to the tune of N257,550.00 incurred in connection with the awards of scholarship by the appellant succeeds.

On the whole the appeal on the three items of expenditure succeeds in its entirety. The decision of the Court of Appeal is hereby set aside. In its place I hold that the expenditure incurred by the appellant in respect of Exchange Losses Central Bank of Nigeria charges and Scholarship Awards in 1973 are deductible in computing the adjusted profits of the appellant for that year. The appellant is awarded N1,000.00 costs against the respondent

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SC.87/1994