IN THE TAX APPEAL TRIBUNAL
SOUTH-SOUTH ZONE
HOLDEN AT BENIN
APPEAL No.: TAT/SSZ/020/2022
BETWEEN:
ND WESTERN LIMITED APPELLANT
AND
DELTA STATE BOARD OF INTERNAL REVENUE RESPONDENT
BEFORE:
PROF. OBEHI A. ODIASE-ALEGIMENLEN CHAIRMAN
DR DAVID ALA-PETERS COMMISSIONER
MRS HILDA OFURE OZOH COMMISSIONER
MR VITALIS FRIDAY AJOKU COMMISSIONER
PROF. OLATUNDE JULIUS OTUSANYA COMMISSIONER
THURSDAY 14TH DECEMBER 2023
JUDGEMENT
This Appeal is brought before the Tax Appeal Tribunal (South-South Zone Sitting in Benin), dated and filed on 15th November 2022 in Suit No. TAT/SSZ/020/2022.
BRIEF FACTS
The Appellant is a company incorporated in Nigeria with its registered office at 25 Babatunde Jose Street, Victoria Island Lagos. The Appellant’s principal activity is the exploration and production of crude oil and natural gas while the Respondent is the body responsible for the administration and collection of taxes due to the government of Delta State.
The Appellant being dissatisfied with the decision of the Respondent Conveyed in its Notice of Refusal to Amend dated 22nd September 2022, but received by the Appellant on 17th October 2022, with reference number DT/BIR/ECITI2017/0005/650 appealed to the Tax Appeal Tribunal, South South Zone upon the grounds set out below:
Ground 1
The Respondent misdirected itself and thereby acted in error when it assessed the Appellant to additional Pay as You Earn (PAYE) in Delta State for the years of 2013-2016 for its employes’s resident in Lagos State.
Particulars of Error
a. The Appellant is a company operating in the oil and gas sector in Nigeria. The Company owns a 45% interest in OML 34 and the operations of OML 34 are governed by a Joint Operation Agreement (JOA) between NNPC E&P Limited (NEPL] and the Appellant. NEPL is the Operator of the field and as such, oversees the technical operations carried out at OML 34.
b. Based on the provisions of the JOA, the Operator is responsible for employing staff required for the joint operations. Thus, the Appellant did not directly employ the technical, management or supervisory staff operating the OML 34 located in Delta State during the period under review, being 2013 - 2016 financial years.
c. The Appellant operates out of Lagos State, and as such, most of its employees are resident in Lagos State. Its direct contracts and transactions are also executed in Lagos State.
d. In view of the foregoing, the Appellant only had three (3) employees in Delta State between 2013 - 2015 and seven (7) employees in 2016, while all other employees of the Appellant were resident in Lagos State.
f. The Respondent erroneously issued the PAYE assessment in the sum of ₦258,754,752.69 (Two Hundred and Fifty-Eight Million, Seven Hundred and Fifty-Four Thousand, Seven Hundred and Fifty-Two Naira, Sixty-Nine Kobo only) for the period 2013 - 2016. The assessment included some the Appellant's employees based in Lagos. The Respondent also utilized not reflected on the payroll information provided by the Appellant and has failed to provide its basis for the overstatement.
g. Furthermore, the Respondent in its assessment failed to consider the actual number of months spent in employment by the employees resident in Delta State in the 2016 year of assessment, The total remittances made by the Appellant for the period has also been captured inaccurately. This has led to an erroneous proration of annual tax payable.
h. The Respondent, in its computations of the Appellant's liability, had also failed to take account of the relief available to employees for National Housing Fund contributions, before arriving at the taxable pay of the employees in line with the Sixth Schedule of the PITA.
i. Resulting from the additional employees assigned to the Appellant by the Respondent, it has also assessed the Appellant to additional development levy for the year in the sum of ₦8,000 (Eight Thousand Naira only).
j. The Appellant is compliant with Section 2 of PITA and remits PAYE and for employees resident in Delta State to the Delta State Internal Revenue Service.
k. The Appellant has also provided the relevant documents and paid the undisputed sum of ₦78,302 (Seventy-Eight Thousand, Three Hundred and Two naira only). The Appellant has also objected in writing and the Respondent has failed to review its documents and consider its objection.
Ground Two
The Respondent acted in error when it arbitrarily assessed the Appellant to Withholding Tax (WHT) without providing any basis for the Assessment.
Particulars of Error
a. The Respondent assessed the Appellant to withholding tax in the sum of ₦7,867,156.00 (Seven Million, Eight Hundred and Sixty-Seven Thousand, One Hundred and Fifty-Six Naira only) on rent and executed contracts and supply (BOJA), from 2013 to 2016.
b. WHT is computed on passive income and certain qualifying services received from third parties in which a taxpayer is expected to deduct the tax from compensation paid to these third parties and rent the same to the Respondent.
c. The Appellant did not have a physical office in Delta State from 2013-2016 and as such WHT liabilities of ₦1,000,000 (One Million Naira only) assessed on rent for those periods are not applicable.
d. The Respondent also assessed the Appellant to WHT on executive contracts and supplies (BOJA) in the sum of ₦1,954,646 (One Million, Nine Hundred and Fifty Four Thousand, Six Hundred and Forty Six Naira only). The Appellant does not understand the basis or breakdown of this liability. The Appellant has also requested for a breakdown of this liability and the Respondent has failed to provide its basis.
e. As part of the WHT assessment, the Respondent also assessed the Appellant to WHT on business premises at ₦5,015,000 (Five Million and Fifteen Thousand Naira only) for the period under review. Business premises is a levy payable to State Governments for the occupation of a physical location within the State. It is assessed at ₦5,000 (Five Thousand Naira) per annum in Delta State and it is not an item liable to WHT.
f. The Respondent has erroneously included this item under the Appellant's WHT liability notwithstanding the fact that the Appellant has no business premises within the state. It has also assessed the Appellant to the levy at ₦5,000,000 (Five Million Naira only) for 2016 alone.
Ground 3
The Respondent erred in law when, in computing interests on the Appellant's purported tax liability, it applied 21% interest charges on the disputed sum inclusive of the purported penalty at 10%.
Particulars of Error
a. The Respondent served the Appellant with Demand Notice dated 26 September 2019 and Notice of Refusal to Amend Assessment dated 22 September 2022 with outstanding liabilities due to the Delta State Government for 2013 to 2016 assessed at ₦356,384,408,46 (Three Hundred and Fifty Six Million, Three Hundred and Eighty Four Thousand, Four Hundred and Eight Naira and Forty Six Kobo only).
b. The Respondent calculated interest on the sum of the penalty and tax liability which is section 40 of the Federal Inland Revenue Service Establishment Act 2007.
c. Furthermore, the provision of section 77 of the Personal Income Tax Act is to the effect that interest is imposed on the tax due and not on a composition of tax due and penalty.
Ground 4
The Respondent erred when it assessed the Appellant to penalty on failure to file annual returns for 2014 to 2016.
Particulars of Error
a. The Appellant had filed annual returns for the years 2014-2016 with the Respondent and had provided copies of filed returns and PAYE remittances to the Respondent.
b. The Respondent however failed to take account of the filed returns for 2014-2016 before arriving at its assessment of penalties payable.
c. The Respondent's assessment on the purported penalty payable was therefore over-stated.
Consequently, the Appellant sought the following reliefs from this Honorable Tribunal.
(A) A DECLARATION that the provisions of the Personal Income Tax Act (PITA) do not empower the Respondent to demand personal income tax from Appellant's employees that are not resident in Delta State.
(B) A DECLARATION that the Appellant does not have an obligation under the PITA to remit withholding tax on rent to the Respondent between 2013 to 2016 because the Appellant did not have a physical office in Delta State.
(C) AN ORDER setting aside the Demand Notice dated 26 September 2019 and discharging the Notice of Refusal to Amend dated 22nd September 2022.
(D). And such other Orders or further Orders that the Honourable Tribunal may deem fit to make in the circumstances of the case.
The Respondent on its own part filed its Respondent’s reply to the Notice of Appeal on the 12th April 2023 stating its intention to contest the Appeal. The grounds for contending the Appeal are that:
a) The assessment Demand Notice served on the Appellant was based on information available after a fair assessment of the company based on the industries average after the company had refused to furnish the Respondent with the documents needed to carry out the said assessment and was also in default.
b) The Respondent acted within the law when she applied the penalty for failing to file PAYE and other assessments in the demand notice by the Appellant within time.
TRIAL
The Appellant opened its case on MONDAY 19TH JUNE, 2023 by calling Appellant sole Witness (AW1) - Christopher Ogbonna, an employee of the Appellant, who is currently seconded to the OML 34 Joint Venture AMT as the Deputy Legal Manager. In support of its case, Appellant tendered 15 Exhibits (Exhibit NDW 1 – NDW 15). The examinations-in-chief and cross-examinations were concluded on 18TH July 2023 after which the Appellant closed its case. The Respondent opened its case on TUESDAY 22ND AUGUST, 2023 by calling its sole witness; Mr. Diekola Oyewo (RW1) who in support of its case tendered 4 Exhibits (Exhibit DSR 1 – DSR 4) and gave evidence. The matter was then adjourned to WEDNESDAY 20TH SEPTEMBER, 2023 for cross examination of RW1. RW1 was cross-examined by the Appellant's counsel, further to which, the Respondent closed its case on the same day. The matter was adjourned to the 13TH November, 2023 for Adoption of Final Written Address. Parties adopted their Final Written Addresses on that day and Judgment was reserved for today the 14TH December 2023.
ISSUES FOR DETERMINATION
In its Final Written Address, the Appellant Lead Counsel, Emmanuel Akpeme formulated three (3) issues for determination as follows:
i. Whether from the evidence before this Honourable Tribunal, the Appellant has shown that the additional Pay-As-You-Earn (PAYE) assessment for 2013 – 2016 issued by the Respondent was wrongful and contrary to the provisions of the Personal Income Tax (Amendment) Act 2011 (as amended) ("PITA")?
ii. Whether from the evidence before this Honourable Tribunal, the Appellant is liable to pay Business Premises levies and WHT on rent and executed contracts and supply as assessed by the Respondent?
iii. Whether the Respondent erred in law when it computed interests on the disputed sum inclusive of penalty and assessed the Appellant to penalty for failure to file annual returns for 2014 – 2015?
The Respondent Counsel, A. Kam ESQ, in his Final Written Address, also formulated two issues for determination which are:
1 Whether the Appellant was able to prove it's case before this Tribunal.
2. Whether the appellant carries on business within Delta State.
After listening to the witnesses in this matter and evaluating the evidence tendered and arguments canvassed by their Counsels, the Tribunal is of the view that four (4) issues call for determination. They are:
i. Whether from the evidence before this Honourable Tribunal, the Appellant is liable to the additional Pay-As-You-Earn (PAYE) assessment for 2013 – 2016 issued by the Respondent
ii. Whether from the evidence before this Honourable Tribunal, the Appellant is liable to pay Withholding Tax (WHT) on rent and executed contracts and supply as assessed by the Respondent?
iii. Whether the Appellant is liable to the Business Premises Levy as captured by the Respondent
iv. Whether the Appellant is liable to the interests and Penalty computed by Respondent for 2014 – 2015?
DETERMINATION OF THE ISSUES
Issue 1: Whether from the evidence before this Honourable Tribunal, the Appellant is liable to the additional Pay-As-You-Earn (PAYE) assessment for 2013- 2016 issued by the Respondent.
The crux of the matter is that by a Demand Notice dated 29th September 2019, the Respondent assessed and demanded from the Appellant an additional liability of ₦356,384,408.46 (Three Hundred and Fifty Six Million, Three Hundred and Eighty Four Thousand, Four Hundred and Eight Naira and Forty Six Kobo only) comprising PAYE liability, Withholding Taxes on rent and State Development levies payable on business premises.
It is the Appellant case that the Appellant owns a 45% interest in OML 34 and that the operations of OML 34 are governed by a Joint Operation Agreement (JOA) dated July 1991, between Nigerian Petroleum Development Company Limited [NPDC) (now called NNPC E&P Limited [NEPL)) and the Appellant. NPDC and the Appellant became the parties to the JOA via a Deed of Novation dated 1TH September 2012. It states further that Section 13 (a) of the Deed of Novation, specifically designates NEPL as the Operator of the field and to overseer the technical and personnel operations carried out at OML 34. Thus, the Appellant did not directly employ the technical, management or supervisory staff operating the OML 34 located in Delta State during the period under review, being 2013 to 2016 financial years. In addition, the Appellant claimed that it had only three (3) employees in Delta State between 2013 and 2015 and seven (7) employees in 2016. And that all other employees are resident in Lagos State.
Respondent contended that it is not true that the Appellant had only three (3) staff in the state within the period under review. This is because by the nature of the business done by the Appellant, 3 staff could not do it alone within that period.
Section 2.2.5 of Exhibit NDW 2a – the Joint Operating Agreement (JOA) states expressly that the Operator is responsible for employing staff required for the joint operations. This implies that the Nigerian Petroleum Development Company Limited [NPDC) (now called NNPC E&P Limited [NEPL) who is the operator of the Joint Venture is responsible for the employment, the deduction and remittances of PAYE to the Delta State Government.
Exhibit NDW 13 contains copies of the PAYE remittances to the LIRS for 2013 – 2016. This shows remittances of personal income taxes made to the Lagos State Internal Revenue Service (LIRS) for the relevant periods of assessment in favour of the employees’ residence in Lagos State. In addition, the Appellant also tendered Exhibit NDW 3 which comprises of staff list, location and designation, salary payment instruction and schedules to the bank.
The Appellant has claimed that the Respondent in its assessment captured employees of the Appellant who are resident in Lagos State (‘misstated employees’) and whose returns have been duly filed for all years in its computation. Appellant support this assertion with Exhibit NDW 9.
The Appellant stated that it had deducted the relief available to the employees which include the contributions to the National Housing Fund, before arriving at the taxable payable by the employees in line with the Sixth Schedule to the PITA, The Respondent had failed to take account of this in it’s computations of the Appellant’s liability. The Appellant tendered copies of the 2013 – 2016 Payrolls showing the deductions as contained in Exhibit NDW12.
Furthermore, Appellant contended that in arriving at the outstanding PAYE tax remittances for the period under assessment, the Respondent did not capture the accurate amount of total remittances made by the Appellant with respect to the employees resident in Delta State in all the years of assessment. The total remittances for the period under review are ₦17,053,917.68 (Seventeen Million, Fifty Three Thousand, Nine Hundred and Seventeen Naira, Sixty Eight Kobo only) which is a summation of the revenue receipts evidencing PAYE tax remittances made to the Respondent. This Appellant also supported by tendering Exhibit NDW 11.
The Appellant has also shown before this Honourable Tribunal that although James Okoro, one of the employees of the Appellant was employed in 2012 to work from Delta State, James Okoro had to leave and work from Lagos State during the period under review, that is 2013 -2016 due to operational changes. So, James Okoro's PAYE for these periods was also remitted to the Lagos State Internal Revenue Services (LIRS). They supported this claim with Exhibit NDW 10.
At this point, if the Respondent still believed that the Appellant deployed more than the three (3) staff it claimed, it is now the responsibility of the Respondent to prove otherwise as he who alleges must prove and the onus of proof has now shifted to the Respondent. See the cases of ELEPHANT INVESTMENT LTD v. FIJABI (2015) LPELR-24732(CA); INEME v. INEC & ORS (2013) LPELR-21415 (CA) and AKINDOSOYE v IKUGBAYIRE & ANOR Supra
It is not enough for the Respondent to merely insinuate that the three (3) or Seven (7) workers the Appellant claimed to have in Delta State are not practicable as normal in the Industry without providing facts (this does not fly in the face of the Tribunal).
Issue one is hereby resolved in favour of the Appellant
Issue 2: Whether from the evidence before this Honourable Tribunal, the Appellant is liable to pay WHT on rent and executed contracts and supply as assessed by the Respondent?
Withholding Tax (WHT) is computed on Income and certain qualifying services received from third parties in whom a taxpayer is expected to deduct from these third parties and remit the same to the Respondent. This is based on the actual existence of a supplier or tenancy that the Appellant has made payment. Where there is no rent payable to an individual resident in the Respondent State or where no contract is shown to have been executed with service providers resident in the Respondent State, withholding tax cannot be charged or deducted on imaginary figures. Appellant provided Exhibit NDW 14 which is a list of its Vendors whereas Respondent didn’t provide any evidence to buttress its claim. We submit that it is a trite principle of law that a case cannot be decided on mere speculation. The Court of Appeal stated in the case of Governor of Oyo State v. Ajuwon & Ors as follows:
‘Courts of law decide issues on facts presented and duly proved before them. Speculation and conjecture is therefore not within the realm of Courts of law. In other words, Courts receive and act on evidence presented by the parties in accordance with the law’.
So also, the Court of Appeal stated in Lawson Nnamdi Chukwu v. Hon. Lolo Stella as follows:
‘The principle is trite, that a trial Court is precluded and should not decide a case on mere assumption, conjecture or speculation, Indeed, Courts of law are Courts of both facts and laws. Hence, they decide issues placed before them on facts as pleaded and established by evidence adduced before them; predicated on applicable laws. They are enjoined to avoid speculation of whatever colouration’.
Issue two is also resolved in favour of the Appellant
Issue three: Whether the Appellant is liable, to the Business Premises Levy as captured by the Respondent
The Appellant claimed that it does not have an office premises, building or structure in Delta State during the period under review, which is 2013 – 2016. It is interesting to note that both Respondent and Appellant stated in their submissions that Section 2 of the Business Premises Law of Delta State defines business premises to include businesses within the state with or without a building within or without a building or structure, and whether fenced or unfenced. Appellant accepted that three (3) of its administrative staff were residence in the Respondent state. This means that whether there is a physical structure or not, for the fact that there was a business conducted by these three (3) persons, the law provides that Business Premises levy will be charged.
However during cross examination, there were some conflicts in the figure to be charged for business premises as shown below:
Appellant: So, you have mentioned that the business premises levy in Delta State is Three Hundred Thousand Naira (₦300,000) is that correct?
RW1: Yes.
Appellant: For how many years do you assess the Appellant for business premises levy?
RW1: For 2013, 2014, 2015 and 2016 that is for 4 years and is on the demand notice.
Appellant: So, please tell this Hon. Tribunal the amount that was stated as the business premises levy as contained in Exhibit NDW 4?
RW1: Five Million and Fifteen Thousand Naira (₦5,015,000).
Appellant: So, that is for 4 years?
RW1: Yes.
From the above it is clear that the proper and accurate figure for the Business Premises levy is ₦300,000.00 (Three Hundred Thousand Naira only) as contained in Exhibit DSR 4. Therefore, the sum due to the Respondent for the four years amounts to ₦1,200,000 (One Million, Two Hundred Thousand Naira only).
Issue three is resolved in favour of the Respondent but limited to the sum of ₦1,200.000.00 (One Million. Two Hundred Thousand Naira only) as indicated above.
Issue 4: Whether the Appellant is liable to the interests and Penalty computed by Respondent for 2014-2015?
Section 76 & 77 of the Personal Income Tax Act, LFN 2004 (as amended) and Section 40 of the FIRS (Establishment) Act 2007 provides for a 10% penalty and Interest at the prevailing CBN re-discount rate to be charged on tax due. From the above, the tax due in this matter is the Business Premises levy of ₦1,200.000.00 (One Million, Two Hundred Thousand Naira only), therefore 10% Penalty on One Million, Two Hundred Thousand Naira (₦1,200,000.00) amounts to ₦120,000.00 (One Hundred and Twenty Thousand Naira only) Only whereas, charging the interest at the current CBN re-discount, which is at the rate of 18.75% amounts to ₦225,000.00 (Two Hundred and Twenty Five Thousand Naira). Therefore the total tax due on Business Premise is ₦1,544,000 (One Million, Five Hundred and Forty Four Thousand Naira only) for the period for 2013-2016
Therefore, Issue 4 is resolved in favour of the Respondent but limited to the Business Premises Levy that amount to ₦1,200,000.00 (One Million, Two Hundred Thousand Naira only) only as indicated above.
Consequently, the Tribunal orders as follows:
(1) The Demand Notice dated 26 September 2019 and the Notice of Refusal to Amend dated 22nd September 2022 is hereby dismissed
(2) The Appellant should pay to the Respondent the sum of ₦1,544,000.00 (One Million, Five Hundred and Forty Four Thousand Naira only) Only for Business Premises including Penalty and Interest for the period 2013-2016
This is the unanimous judgement of the Tribunal
Dated this __ 14th _____ day of __ December___ 2023.
Signed:
Hon. Prof. Obehi Adetokunbo Odiase-Alegimenlen Chairman
Hon Dr. Ala-Peters David Hon. Mrs. Hilda Ofure Ozoh
Member Member
Hon. Barr. Ajoku Vitalis Friday Hon. Bar. Vitalis Friday Ajoku Hon. Prof. Olatunde Julius Otusanya
Member Member Member
REPRESENTATION:
Emmanuel Akpeme and Damilola Bamisile - Appellant
P. O. Omatsone and A. Kam - Respondent