IN THE SUPREME COURT OF NIGERIA
ON FRIDAY, THE 10TH DAY OF APRIL 1970
S.A. AUTHORITY .................................................... APPELLANT
REGIONAL TAX BOARD ....................................................... RESPONDENT
BEFORE: Lewis, Madarikan and Udoma, JJ.S.C.
Income Tax-Levy on Community-Whether by virtue of section 8 of the Income Tax Law, W.N. tax could validly be levied on a community-Income Tax Management Act 1961 section 3 (4).
Appeal from the Court of Appeal (West).
(1) No tax can be imposed on the subject without words in an Act of Parliament clearly showing an intention to lay a burden on him. But when that intention is sufficiently shown, it is vain to speculate on what would be the fairest and most equitable mode of levying that tax.
(2) Section 3 (4) of the Income Tax Management Act does contemplate that when exercising its undoubted constitutional right of imposing tax a state legislature must so far as a community is concerned impose specifically that tax on the basis of one of the three alternative provisions there set out. It was clear the Law had not in any way tied the imposition of tax on a community to one of the alternatives and one could not read into the Law an entitlement to do so in any of these three ways provided by section 4 of the Act when the Law had not said so.
(3) One must look at section 3 (4) of the Act on the basis that it provides that a State imposing a tax on a community is enabled to do so by one of the three ways which it must stipulate in its legislation. The Western State did not by section 8 of the Law impose a tax on a community in one of the three ways permitted by section 3 (4) of the Act and therefore did not validly impose a community tax.
Appeal allowed: judgment of High Court and Western State Court of Appeal set aside.
Case referred to:
Coltness Iron Company v. Black (1881) 6 App. Cas. 315.
Act referred to:
Income Tax Management Act, 1961. Sections 2, 3, 4.
Constitution referred to:
Constitution of the Federation 1960 section 70.
Constitution of the Federation 1963 section 76.
Law referred to:
Income Tax Law W.N. Cap. 48 section 8.
APPEAL from the Court of Appeal (West).
Chief Williams for the plaintiffs/appellants.
Adio (Principal State Counsel, Western State) for the defendants/appellants.
Lewis, J.S.C. (delivering the judgment of the court):-In suit M/42/67 in the Ibadan High Court the plaintiff's summons read-
"The plaintiffs claim against the defendants a declaration that the Holy Apostles' Community Aiyetoro, in Ilaje District Council Area, are not liable to pay tax under the Income Tax Law of Western Nigeria."
On the 27th day of November, 1967 Thompson, J. dismissed the action and on the 13th day of December, 1968 in appeal CAW/46/68 the Court of Appeal of the Western State dismissed the appeal and upheld the dismissal of the action by Thompson, J. though it set aside certain consequential orders that he made. Against that dismissal the plaintiffs have appealed to this Court.
Now it is necessary to say at the outset that this appeal has been argued within a fairly narrow compass as it was not disputed by either party that the matter could be determined without necessitating any constitutional interpretation such as the Court of Appeal of the Western State thought necessary to embark upon, though that was not how the matter was argued by Counsel for either party before it.
It was agreed before us by both parties that the Federal Legislature had validly enacted the Income Tax Management Act, 1961 (hereinafter in this judgment called "The Act") in particular sections 2, 3 and 4, in accordance with its powers under section 76 (2) (c) of the Constitution of the Federation which reads-
"(2) Parliament may make laws for Nigeria or any part thereof with respect to taxes on income and profits other than the income and profits of companies for the purpose of... (c) securing uniform principles for the computation of income and profits of all persons (including members of partnerships) for purposes of assessment of tax and for the treatment of losses, depreciation of assets and contributions to pension or provident funds or schemes."
This power had originally been incorporated in the Constitution of the Federation in 1960 as section 70 and section 76 of the Constitution of the Federation in 1963 reproduces that earlier provision in all material particulars. Prior to 1960 under the 1954 Constitution taxes on income and profits accruing in or derived from a Region were a Regional matter and accordingly in 1957 the then Western Region passed the Income Tax Law (now called the Income Tax and Development Contribution Law) (Cap. 48 of the Laws of the Western Region of Nigeria 1959) (hereinafter in this judgment called "the Law").
In consequence of the new Constitutional powers of 1960 the Federal Legislature enacted the Act and the Western Region unlike the other Regions did not then enact a new Finance Law but only amended the existing Law without any specific reference therein to the Act.
The Issue before us now received itself into determining whether by virtue of section 8 of The Law, tax could validly be levied on a community, here the Holy Apostles Community Aiyetoro, in the Western State. Section 8 of The Law reads-
"8. (1) Tax shall, subject to the provisions of this Law, be charged for each year of assessment of rate hereinafter specified-
(a) upon the income of any person resident in Western Nigeria accruing in, derived from, brought into or received in Western Nigeria;
(b) upon the income of any person from an employment by the Government of Western Nigeria wherever the remuneration is paid, if that person performs the duties of that employment in a country other than Nigeria and that country under any agreement or diplomatic usage exempts him from tax on such income;
Provided that for the purposes of deductions that may be allowed under the provisions of Part V of this Law, such a person shall be deemed to be resident in the Region in the year of assessment;
(c) upon the income of any person not resident anywhere in Nigeria accruing in or derived from Western Nigeria.
(2) For the purposes of subsection (1) of this section "income" shall mean income in respect of-
(a) gains or profits from any trade, business, profession or vocation, for whatever period of time such trade, business, profession or vocation may have been carried on/or exercised;
(b) gains or profits from any employment or office including any allowance paid or payable in money to or on behalf of an employee or office-holder, other than in respect of medical or dental expenses or any passage to or from Nigeria or the maintenance or education of any child;
(c) dividends, interests or discounts;
(d) any pension, charge or annuity;
(e) rents, royalties, premiums and any other profits arising from property;
(2a). Any sum which is fixed as or deemed to be the assumed minimum income of any male person by virtue of section 17a of this Law or of any order made thereunder shall be income for the purpose of subsection (1) of this section.
(3) In this section "person" means an individual and includes a body of persons composed wholly of individuals."
Sections 3 (1) and (4) and 4 of The Act, as amended by the Income Tax (Amendment) Decree 1966 (Decree 65 of 1966), read-
"3. (1) Where the legislature of a territory imposes a tax on the income of individuals, communities or families, or arising to any trustee or executor under any settlement, trust or estate, that income shall be determined under, and the tax thereon shall be subject to, all the provisions of this Act.
(4) In the case of a village or other indigenous community, tax may be imposed for any year only by the legislature of the territory in which that community is to be found and such tax may be charged on either-
(a) the estimated total income of all its members; or
(b) the estimated total income of those of its members whose income it is impracticable, in the opinion of the relevant tax authority, to assess individually; or
(c) the amount of any communal income which, in the opinion of the relevant tax authority in relation to such community, it is impracticable to apportion with certainty between its members.
4. (1) The tax shall, subject to the provisions of this Act, be payable for each year of assessment upon income accruing in, derived from, brought into, or received in Nigeria in respect of-
(a) gains or profits from any trade, business, profession or vocation, for whatever period of time such trade, business, profession or vocation may have been carried on or exercised;
(b) any salary, wages, fees, allowances or other gains or profits from an employment including gratuties, compensations, bonuses, premiums, benefits or other perquisites allowed, given or granted by any person to an employee;
(i) so much of any such sums as may be admitted by the relevant tax authority to represent reimbursement to the employee of expenses incurred by him in the performance of his duties, and from which it is not intended that the employee should make any profit or gain;
(ii) in respect of medical or dental expenses incurred by the employee;
(iii) in respect of the cost of any passage to or from Nigeria incurred by the employee;
(iv) in respect of maintenance or education of a child if the income tax law of the relevant tax authority provides that any such sums received by the employee during a year of assessment shall be deducted from the personal relief's to be granted to him for the next following year.
(v) any compensation for loss of employment;
(c) gains or profits including any premiums arising from a right granted to any other person for the use or occupation of any property;
(d) dividends, interests or discounts;
(e) any pension, charge or annuity;
(f) any profits or gains not falling within the preceding categories.
(2) For the purposes of this section-
(a) 'allowances' include any sum paid or payable in respect of expenses and any sum put by an employer at the disposal of an employee and paid away by the employee;
(b) 'income' includes any amount deemed to be income under this Act; and
(c) the gains or profits arising from a right granted to any other person for the use or occupation of property under any lease or assignment thereof, being rent paid or expressed to be paid in advance, shall be deemed to accrue to the recipient from day to day over the period for which such rent has been paid.
Provided that where the said period exceeds five years the whole amount of the rent so paid or expressed be paid in advance shall be treated as accruing evenly from day to day over the five years commencing on the first day of that said period.
(d) 'employment' includes any service rendered by any person in return for any gains or profits."
Section 2 of the Act defines "individual" as not including a community, unlike "person" which does, and it is not disputed therefore that the only relevant provisions for the purposes of this appeal dealing with a community in the Act are sections 3 (1) and (4) and 4 which we have set out. It was also conceded on both sides, rightly in our view, that having regard to the definition of "person" in section 2 of the Law that this covered a community throughout the Law, other than in section 8, and/by virtue of section 8 (3), as amended, section 8 would also cover a community.
Dealing with this aspect of the case in the High Court Thompson, J. said-
"I hold therefore that the Income Tax Law of 1957 has by section 8 (1) imposed tax on communities as required by section 3 (1) of the Income Tax Management Act and since the Income Tax Law of 1957 was passed the Legislature of the territory-in which the plaintiffs are situated (i.e. Western Nigeria). It is my finding that section 3 (4) of the Act has been complied with, with regard to the imposition of tax.",
having found that in exhibit A a letter addressed by the Regional Tax Administrator to the plaintiffs the Regional Tax Board had assessed the tax on the community in accordance with section 3 (4) of the Act, though in fact it is clear that they rested their claim on section 3 (4) (a) as the letter inter alia read-
"Please note that failure to return the attached forms (RTB, Form 5) duly completed to the Senior Inspector of Taxes, Regional Tax Board Office, Akure, by the date specified will leave the Senior Inspector of Taxes with no option but to impose a best of judgment assessment for 1962/3 to 1964/5 on the Community in accordance with section 3 subsection 4 (a) of the Income Tax Management Act, 1961, and section 45A subsection (5) of the Western Nigeria Income Tax Law, 1957."
Thompson, J. went on in his judgment to make various orders directed to the Western State Government to alter the Law so as to ameliorate the position of a community so far as relief's and allowances are concerned but these orders were set aside by the Court of Appeal of the Western State which otherwise upheld the decision of the learned trial Judge in dismissing the action, but for different reasons as the Court of Appeal found that the Law was not inconsistent with the Act stating-
"If therefore learned Counsel is right that the income Tax Management Act is the law dealing with 'communities', a proper step has been taken by the respondents. They (vide exhibit A) treated the appellants as a community under the Act (which can only regulate income) and proceeded to impose tax under Cap. 48 which is the only valid provision they could employ in imposing tax."
Chief Williams for the appellants put his argument in this way-he submitted that section 3 (4) of the Act enables a State Legislature when imposing tax on a community to do so in one of the three ways which are set out in section 3 (4) but that it is necessary for such a State Legislature to stipulate in its own legislation which alternative method it is adopting when it imposes the tax that it is entitled to do having regard to section 76 (4) of the Constitution of the Federation. He then submitted that while section 8 of the Law is prima facie a tax on a community as well as on an individual, nonetheless it did not impose tax in the Law in accordance with one of the three alternative methods that it was permitted to adopt under section 3 (4) of the Act. Alternatively he submitted that section 8 of the Law does not effectively impose tax on a community as it did so "subject to the provisions of this Law", and the provisions of the Law were no longer appropriate as the Act had dealt with the basis of the ascertainment of income so that Part IV of the Law was no longer appropriate. He further submitted that "income" as defined in section 8 (2) of the Law was not in pari materia with section 4 of the Act dealing with chargeable income so that it was the Act that must apply and not section 8 (2), notwithstanding that section 8 (1) stated that the tax to be charged was "subject to the provision of this Law."
Mr Adio for the respondents for his part took his stand on the basis that all that section 8 of the Law did was to impose tax on a community, as the State Legislature was entitled to do by virtue of section 76 (4) of the Constitution of the Federation, and that for the determination of the basis for the imposition one was entitled to go to section 3 (4) of the Act, and that in fact section 3 (4) (c) of the Act laid down one of the possible alternatives for ascertainment of income and that this had been complied with in the present case.
It may be noted in parenthesis that in exhibit A the tax authorities rested their claim on section 3 (4) (a) and not on section 3 (4) (c) of the Act.
Mr Adio further submitted that section 8 (2) of the Law was not incompatible with section 4 of the Act; and that though sections 4 (1) (b) and (f) were not to be found in section 8 (2) of the Law, they were not appropriate so far as a community was concerned so that though section 8 (1) of the Law had the words "subject to the provisions of this Law" and this prima facie covered possible deductions under section 13 of the Law for a community having regard to the definition of "person", nonetheless this did not apply in so far as the Act had dealt with it, and one must read into the Law always an understanding that, apart from the imposition of tax, it was subject to the overriding provisions of the Act.
In our view section 3 (4) of the Act does contemplate that when exercising its undoubted Constitutional right of imposing tax a State Legislature must so far as a community is concerned impose specifically that tax on the basis of one of the three alternative provisions there set out. It is clear that the Law had not in any way tied the imposition of tax on a community to one of the alternatives and in our view one cannot read into the Law an entitlement to do so in any of these three ways provided by section 4 of the Act when the Law has not said so.
One must look at section 3 (4) of the Act on the basis that it provides that a State imposing a tax on a community is enabled to do so by one of the three ways which it must stipulate in its legislation. The method adopted, for instance, in the Personal Tax Law of the then Northern Region (Cap. 94 of the Laws of Northern Nigeria 1963) was set out in section 7 (b) (ii) and Part III and that Law makes clear provision for imposition of a community tax on the total income of a community with provisions for its estimation and it was all done in accordance with section 3 (4) of the Act. Similarly in sections 11 (d) and 22 (6) of the Finance Law (Cap. 53 of the Laws of Eastern Nigeria 1963) the former Eastern Region made provision for the imposition of tax on the total income of a community.
In our view, the Western State did not by section 8 of the Law, impose a tax on a community in one of the three ways permitted by section 3 (4) of the Act and therefore did not validly impose a community tax.
Further we do not think that sections 3 (4) and 4 of the Act deal merely with ascertainment of income, as Mr Adio submitted, as the ascertainment of assessable income is dealt with in Part IV of the Act, though that in fact pertains to individuals and not to a community, whilst sections 3 (4) and 4 of the Act deal with chargeable income.
We further do not think that section 8 (2) of the Law is consistent with section 4 of the Act, as Mr Adio submitted. On his own concession section 8 (2) did not provide for what is set out in sections 4 (1) (b) and (f) of the Act, and to our minds these provisions of the Act apply to a community, as a community could be paid for its services as a whole, for instance for communal labour by the community under a contract with the community as a whole, so as to fall within section 4 (1) (b) of the Act. Mr Adio in no way advanced any reason to justify his submission that section 4 (1) (f) of the Act does not apply to a community. That being so clearly the tax imposed on a community by section 8 (1) of the Law could not be "subject to the provisions of this Law" as the tax for a community had to be subject to the provisions of the Act and not subject to the provisions of the Law. The result it seems to us is that it could not justifiably be said in any case that there was an effective imposition of tax. The State legislature in section 8 of the Law contemplated the imposition of tax on a community in accordance with the terms of the Law, yet on Mr Adio's own concession the principle for the ascertainment of income was not in accordance with the provisions of the Law which would have applied had the Act not been enacted by the Federal Legislature, but the Act having been enacted it had to be in accordance with the provisions of the Act.
Lord Blackburn in Coltness Iron Company v. Black (1881) 6 App. Ca. 315 at 330 said-
"No tax can be imposed on the subject without words in an Act of Parliament clearly showing an intention to lay a burden on him. But when that intention is sufficiently shown it is, I think, vain to speculate on what would be the fairest and most equitable mode of levying that tax."
It is thus clear that tax has not been shown to have been imposed by the Western State on a community as the legislature had failed to comply with the requirements of section 3 (4) of the Act by the omission to set out in the Law the basis for the imposition of the tax, and had prima facie sought to make the imposition of tax subject to the provisions of the Law, which provisions are quite inconsistent with the Act and so in any case had not effectively imposed tax on the community.
The appeal is accordingly allowed and the judgments of the High Court and the Western State Court of Appeal including the orders as to costs in those courts are set aside and a declaration in the following terms is granted namely-
The Holy Apostles Community Aiyetoro in Ilaje District Council Area is not liable to pay tax under the Income Tax and Development Contribution Law.
The appellants are entitled to their costs of this Appeal which we assess at 65 guineas, and their costs in the High Court which we assess at 55 guineas, and their costs in the Court of Appeal of the Western State which we assess at 44 guineas.
Appeal allowed: judgment of High Court and Western State Court Appeal set aside.