THE FEDERAL BOARD OF INLAND REVENUE (PLAINTIFFS)
AZIGBO BROTHERS LIMITED (DEFENDANTS)
(1963) All N.L.R. 632
Division: High Court (North)
Date of Judgment: 8th November, 1962
Case Number: (Suit No. JD/51/1962)
Before: Smith, S.P.J.
The defendant company did not deliver to the plaintiffs the return of income required by the Income Tax Ordinance for 1960-61 and by the Companies Income Tax Act (which replaced the Ordinance in respect of the taxation of companies) for 1961-62. The plaintiffs duly raised assessments of £1,000 and £1,500 respectively for the two years, purporting to act under section 55(3) of the Ordinance and section 49(3) of the Act. These sections empower the Board to determine according to the best of its judgment the amount of the chargeable income of a person or company who has not delivered the prescribed return and to make an assessment accordingly.
The defendant company did not object to or appeal against the assessment but waited until the present action for non-payment of the tax had been commenced.
The Board's assessment was based on the Acting Senior Inspector of Taxes experience of mining Companies in Jos (the defendant company was a mining company in Jos) and his experience of the defendant company's tax file relating to previous years. It contended that no capital allowances could be granted as these had to be first claimed and no claims had been made in respect of the current year. The defendant company contended in this action for recovery of tax due that the assessments were arbitrary and were not made to the best of the Board's judgment within the meaning of the relevant sections.
The Board's assessments were made to the best of their judgment.
Judgment for Plaintiffs.
Cases referred to:-
Chairman of the Board of Inland Revenue v. Joseph Rezcallah and Sons Limited 1961 N.R.N.L.R. 32; 1 All N.L.R. 1.
Act and Laws referred to:-
Companies Income Tax Act, 1961, section 49(3).
Income Tax Ordinance, Laws of the Federation of Nigeria and Lagos, 1958,
Cap.85, section 55(3); 67(1).
Balogun for the Plaintiffs.
Rickett for the Defendants.
Smith, S.P.J.:-The Federal Board of Inland Revenue claims from the defendant company the sum of £1,080 being income tax and penalties for the years of assessment 1960-61 and 1961-62.
It is admitted that the Board served the defendant company with notices in respect of each of the years in dispute, requiring them to make a return of income for each of these years which the defendant company failed to do. After the expiry of the period of the notices the Board raised assessments and served the defendant company with notices of assessment in each instance on or about 30th November, 1961. No objection in writing was made by the defendant company to these assessments and demand notes for payment of the income tax assessed and penalties were served on the defendant company on or about 10th February, 1962. The sums demanded have not been paid.
As the requisite notices were served upon the defendant company for the 1960-61 assessment as provided by the Income Tax Ordinance and the 1961-62 assessment as provided by the Companies Income Tax Act, the assessments raised by the Board were made with jurisdiction.
The defendant company averred in paragraph 10 of their statement of defence that the assessments:-
"are arbitrary assessments in that they ignore completely the information furnished to the plaintiffs by or on behalf of the defendants and it was in contravention of the method laid down in the Income Tax Ordinance that assessments should be 'to the best of his judgment.' "
The assessment for 1960-61 was made under section 55(3) of the Income Tax Ordinance; the assessment for 1961-62, under section 49(3) of the Companies Income Tax Act which replaced the Ordinance as regards tax charged for the year of assessment commencing 1st April, 1961. The two subsections are similar. Section 49(3) of the Companies Income Tax Act reads:-
"(3) Where a company has not delivered a return and the Board is of the opinion that such company is liable to pay tax, the Board may, according to the best of its judgment, determine the amount of the total profits of such company and make an assessment accordingly, but such assessment shall not affect any liability otherwise incurred by such company by any reason of its failure or neglect to deliver a return."
On behalf of The Board, Mr Odueyunigbo, the Acting Senior Inspector of Taxes, proposed the assessments which were approved by the Scrutineer Committee. (Exhibits F.B. 1 and 2.) The assessable income for 1960-61 was estimated at £1,000 and for 1961-62 at £1,500. The income tax payable thereon as shown in each of the notices of assessment exhibits F.B. 4 and 5 was respectively £400 and £600.
Mr Odueyunigbo said in evidence:-
"In assessing the proposed chargeable income I am guided by my experience of mining companies in Jos and my experience in dealing with the taxpayer's file of the defendants in my office", and-
"I proposed the chargeable income on my general experience of mining companies. Capital allowances if not claimed cannot be carried on. They must be claimed before they are considered. Mining trade generally was better in 1961-62 than 1960-61.
He was cross-examined on the accounts of the defendant company for the years 1952-53 to 1959-60 (both years inclusive) from which it appeared that while profits had been earned in each year except two, various capital allowances and relief's had been allowed so that no tax was payable in any year except 1953-54. The "adjusted profits" before deduction of allowances varied from year to year. In 1955-56 it was £6,066, in 1953-57 £2,888; in 1957-8 £2,634, in 1958-£1,874. In 1954-55 there was a loss of £3,091-11s-6d In 1959-60 there was an estimated income of nil, but it is said while figures for that year have not yet been agreed.
Mr Odueyunigbo had no information from the defendant company as to their actual earnings in the years in dispute and Mr Gardner, their accountant who gave evidence for the defendant company, was unable to say what had been earned in the arrears in dispute as the accounts for those years are not ready.
It has been submitted by learned Counsel for the defendant company that the Board should have had due regard to what happened in these previous years in estimating the assessable income. I would agree with learned Counsel that these are factors to be considered but not the only factors. Mr Odueyunigbo said he was also guided by his experience of mining companies in Jos and general trading conditions in the mining industry in the years in dispute though he did not give evidence of any specific instances. In estimating the assessable income of the defendant company in the disputed years he ignored capital allowances. His view was that capital allowances had to be claimed and that view in this action must be deemed to be the view of the Board. On that view the assessments were bona fide and reasonable and supported by the figures of "adjusted profit" before deduction of allowances in previous years.
The basis of the case for the defendant company was that having regard to capital allowances which had been permitted as deductions in ascertaining the assessable income of the defendant company, the Board by excluding consideration of capital allowances in estimating the assessable income of the years in dispute did not act according to its best judgment.
The question arises: Is it for this Court in these proceedings to decide whether this view of the Board in estimating the assessable income was right or wrong?
The assessments in dispute were raised by the Board in default of returns of income by the defendant company. It was open to the company on receiving the notices of assessment to apply by objection in writing to the Board under section 59(2) of the Income Tax Ordinance and section 53(1) of the Companies Income Tax Act to review and revise the assessments made; and failing agreement, to appeal against those assessments as provided in Part XII of the Income Tax Act. The defendant company did not in fact object in writing to the assessments. They waited until this action for the payment of income tax thereon had commenced and then in their statement of defence averred that the assessments were arbitrary. The amounts of the estimated assessable income became final and conclusive under section 63 of the Income Tax Ordinance and section 60 of the Companies Income Tax Act when no valid objection or appeal had been lodged within the prescribed time.
Whether or not capital allowances should have been deducted in estimating the assessable income was a matter which would have been considered by the Board on objection to the assessment and, failing agreement, on appeal to the appropriate tribunal and further appeal to the appropriate court. It is not for this Court in an action for the recovery of income tax to investigate this question, which should properly have been raised by the defendant company by objection and appeal. All that is required of this Court is to decide whether the view of the Board in ignoring capital allowances until they were claimed was prima facie reasonable. I conclude that it was.
The Judgment of Reed J. in The Chairman of the Board of Inland Revenue v. Joseph Rezcallah and Sons Limited (1961) N.R.N.L.R. 32 and the judgment of the Federal Supreme Court on appeal from that decision (FSC 304/1961, decided on 4th January, 1962) have been cited to me. The ratio decidendi in that case was that the assessments were null and void because it had not been established that there had been any demand for a return of income from the defendants. That point does not arise in the present case. Reed J. also held on the facts of that case that the Chief Inspector of Taxes did not exercise his discretion "to the best of his judgment" in making the assessments.
The facts in the present case are different from those in Rezcallah's case. On the facts in the present case, I find that the assessments raised by the Board were according to its best judgment; and the amounts of those assessments are those upon which income tax is payable.
As the income tax was not paid by the defendant company within the prescribed time, additional tax became due; on the 1960-61 assessment an additional sum equal to five per cent of the tax payable became due under section 67(1) of the Income Tax Ordinance, making a total of £420; and on the 1961-62 assessment an additional sum equal to ten per cent of the amount of tax payable became due under section 62 (1) of the Companies Income Tax Act, making a total of £600.
There is one other point to which I wish to refer. The defendant company in paragraph 11 of their statement of defence stated:
"11. The defendants further aver that the plaintiffs knew well that all income of the defendants earned by the said company known as Azigbo Brothers Limited was treated as director's fee and that one K.O. Azigbo has paid tax on the amount thereof under the Direct Taxation Ordinance."
Evidence was led as to the amounts paid out in directors' fees but there was no evidence that the directors had in fact paid tax thereon as averred in this paragraph of the statement of defence. There is therefore no need to consider this point further.
I enter judgment for the Board in the sum of £1,080 against the defendant company with costs.
Costs (including disbursements) assessed at £80.
Judgment for plaintiff with costs.