FEDERAL BOARD OF INLAND REVENUE (APPELLANT/RESPONDENT)
DIAB A. NASR (RESPONDENT/APPELLANT)
(1964) All N.L.R. 401
Division: Supreme Court
Date of Judgment: 23rd December, 1964
Case Number: S.C.205/1964; Lagos High Court No. M/153/63
Before: Brett, Onyeama, and Ajegbo J.J.S.C.
Appeal by the Board and by the tax-payer:
A. The Board assessed the tax-payer for the years 1960/61 and 1961/62; the Appeal Commissioners substituted other assessments; the High Court set aside all assessments, and referred the matter back to the Board with directions. Both sides appealed.
Section 57(7) of the Companies Income Tax Act, 1961 (made by other provisions applicable to an appeal to the High Court) provides that:-
"(7) The onus of proving that the assessment complained of is excessive shall be on the appellant."
And the tax-payer may, under Rule 15(2) of the High Court of Lagos (Income Tax Appeals) Rules, 1957, adduce evidence.
The tax-payer has the onus to show by evidence both that the assessment is excessive and by how much it is excessive.
B. The High Court held that the tax-payer made a valid deed of gift in 1959 conveying certain house property to himself and other members of his family as tenants-in-common; the rents were said to have formed most of his income. The Board argued that the entire rents must be deemed to be the tax-payer's income by virtue of paragraph 1(ii) of the Second Schedule to the Income Tax Management Act, 1961, which provides that:-
1. "Notwithstanding any other provisions of this Schedule the income of a settlement or trust shall for all purposes of this Act be deemed to be the income of the settlor or person creating the trust, as the case may be, if:-
(ii) That settlor or person may make use directly or indirectly, by borrowing or otherwise, of any part of the income arising under the settlement or trust."
Apart from putting in the deed of gift (and a subsequent ineffectual deed of settlement) the tax-payer gave no evidence.
(1) The provisions of that paragraph only apply if the instrument creating the settlement or trust expressly permits the settlor or other person to make use of the income, and it is not enough for the Board to show that he has in fact done so; but
(2) The deed of gift might lay a foundation for showing that the assessments were excessive but was no proof of the fact in itself, and the onus on the tax-payer was not discharged.
C. The Appeal Commissioners included in the assessable income for 1961/62 a sum of £500 received by the tax-payer as Director's fees during 1960/61. Section 20(5) of the Income Tax Management Act, 1961, provides that "with respect to income from an employment...the assessable income...shall be the amount of the income of the year of assessment"; in light of which the Board conceded that the Commissioners erred.
The Board submitted that the £500 could be included in the assessable income for 1960/61 under section 18(3) (a) of the Income Tax Act (repealed) if the £500 was a new source of income. This was a new point.
As the tax-payer had not had the opportunity of calling evidence on the point, the court was not willing to transfer the £500 to the year 1960/61.
High Court judgment set aside; Appeal Commissioners' assessment of income for 1960/61 restored; that for 1961/62 reduced by £500.
A.L.A.L. Balogun for the Board.
Chief F.R.A. Williams for the Tax-payer.
Brett, J.S.C.(delivering the judgment of the court).:-In these proceedings both the Federal Board of Inland Revenue ("the Board") and Mr Diab A.Nasr ("the tax-payer") complain against the order made by the High Court on an appeal brought to it by the tax-payer against the decisions of the Appeal Commissioners in relation to the assessment of the tax-payer for the Years 1960/61 and 1961/62. The original assessments made by the Board were based on a chargeable income of £8,070 for 1960/61 and £4,164 for 1961/62. The Commissioners substituted assessments based on a chargeable income of £1,970 for 1960/61 and £4,801 for 1961/62. The High Court set aside all assessments and ordered that the whole matter be referred back to the Board, with directions as to how specified points of dispute were to be settled.
The procedure on an appeal to the Commissioners is laid down in section 57 of the Companies Income Tax Act, 1961 and that on an appeal to the High Court in Section 59 of the same Act. These provisions are made applicable on an appeal under the Personal Income Tax (Lagos) Act, 1961 by section 40 of that Act. Section 59(5) of the Companies Income Tax Act lays down that the provisions of subsections (6), (7) and (9) of section 57 shall apply to an appeal to the High Court. Subsection (6) merely provides for legal representation. Subsections (7) and (9) read as follows:-
"(7) The onus of proving that the assessment complained of is excessive shall be on the appellant."
"(9) The Appeal Commissioners may confirm, reduce, increase or annul the assessment or make such order thereon as they see fit."
The reference to the onus of proof makes it clear that an appeal to the High Court is an appeal on fact as well as on law and the High Court of Lagos (Income Tax Appeals) Rules assimilates the procedure on an appeal to that in an action and provide for the adducing of evidence. The position is thus different from that in England where the High Court is bound by the Commissioners' findings of fact, provided there was any evidence to support them. The reference to the onus of proof also means that if the tax-payer wishes the court to hold that the assessment complained of its excessive, he must produce sufficient evidence to enable the court to decide not merely that the assessment is excessive but by how much it is excessive.
It is common ground between the parties that the High Court has no power merely to refer the matter back to the Board though they agree that the effect of annulling an assessment will be that the Board will be at liberty to make a fresh assessment, subject to any limitations of time which may be applicable. We agree with this view though it is not clear that it makes any great practical difference in this case.
The main ground of dispute before the Appeal Commissioners concerned the effect of two Deeds by one or other of which the tax-payer had purported to divest himself of the greater part of his beneficial interest in certain house property in Lagos, the rents from which were said to have formed the greater part of his income. The Commissioners were in some doubt as to the effect of these Deeds but came to the conclusion that:-
"There is no proper settlement creating a proper trust and divesting the appellant of the property and income of the property at 517 Balogun Street, Lagos and vesting it in equal proportion on the six beneficiaries and the appellant in such a way as to exclude the revenue from taxing the rental income in the hands of the appellant."
In the High Court it was held that a Deed of Gift dated the 28th April, 1959, by which the tax-payer conveyed the property to himself and six other members of his family as tenants in common, was a valid Deed and that a subsequent Deed of Settlement relating to the same property was of no effect. The Board submits that notwithstanding this the income from the property must be deemed to be the income of the tax-payer by virtue of paragraph (1)(ii) of the Second Schedule to the Income Tax Management Act, 1961, which provides for the case where the settlor or person creating the trust "may make use directly or indirectly, by borrowing or otherwise, of any part of the income arising under the settlement or trust." On this question we agree with the submission made on behalf of the tax-payer, that the provisions of that paragraph only apply if the instrument creating the settlement or trust expressly permits the settlor or other person to make use of the income, and that it is not enough for the Board to show that he has in fact done so. At one stage in the High Court, the Board wished to submit that the transaction should be disregarded as an artificial one within the meaning of section 14 of the Income Tax Management Act but as this point had not been raised before the Commissioners the High Court refused to allow it to be raised on the further and appeal and no evidence was called which could have justified such a finding.
However, that is not the end of the matter. The only evidence called before the High Court consisted of the Deed of Gift already mentioned and the subsequent Deed of Settlement. The fact that on executing the Deed of Gift the tax-payer divested himself of most of his beneficial interest in the property may lay a foundation for showing that the assessments for the two years in question were excessive but is no proof of that fact in itself, and the onus of proof being on the tax-payer, we see no alternative to holding that he failed to discharge it.
The tax-payer also submitted that his chargeable income for 1961/62 did not include a sum of £500 received as director's fees during the year 1960/61, on the ground that it was income from an employment and that since under section 20(5) of the Income Tax Management Act the income of the year of assessment and not that of the previous year is to be the assessable income of an individual from an employment, this payment should not have been taken into consideration in assessing his liability to tax for the year 1961/62. The Board accepts this construction of section 20(5) of the Income Tax Management Act but points out that if the director's fees were a new source of income during the year 1960/61 they would have formed part of his assessable income for that year under section 18(3)(a) of the former Income Tax Act which is the Act under which tax was payable for the year 1960/61. If this was established it might have been a good ground for including these fees in the assessable income for 1960/61 but what the Appeal Commissioners did was to include it in the assessable income for the year 1961/62 and as the tax-payer has not had the opportunity of calling evidence on the point it would be too late for the Board to invite this Court to vary the assessment by transferring this sum from the assessable income for 1961/62 to the assessable income for 1960/61. The tax-payer's submissions on this point must therefore be upheld.
In the result the appeal of the Board is allowed and the appeal of the tax-payer is dismissed except as regards the sum of £500 included in the assessable income for 1961/62. The judgment of the High Court is set aside and judgment will be given restoring the assessment made by the Appeal Commissioners for 1960/61 completely and that for 1961/62 as varied by the reduction of the assessable income from £4,801 to £4,301 and of the tax payable by the appropriate figure. Mr Balogun has pointed out that under section 59(11) of the Companies Income Tax Act, 1961 the Board is not entitled to costs of the appeal to this Court, but he has asked for costs in the High Court. The tax-payer was not represented when this application was made and the order of the court is that the Board shall receive costs of proceedings in the High Court assessed at 20 guineas, with liberty to the tax-payer to apply within three weeks from the 23rd December, 1964, for this order to be varied.