Court Of Appeal Affirms the Jurisdiction of Tax Appeal Tribunal

Court Of Appeal Affirms the Jurisdiction of Tax Appeal Tribunal

Introduction

Recently, the Court of Appeal in the case of TSKJ v. FIRS (2017) 33TLRN affirmed the jurisdiction of the Tax Appeal Tribunal over tax cases particularly cases involving companies’ income and the revenue of the federation. The facts that led to this case are not in dispute. The taxpayer (TSKJ) applied turnover assessment in the computation of its taxes in relevant years of assessment. In applying turnover assessment, TSKJ treated payments made to its Nigerian subsidiary (recharges) as allowable deductions. Federal Inland Revenue Service (FIRS) disallowed this treatment and subjected the entire turnover of TSKJ to tax. Dissatisfied with the above, TSKJ filed an appeal at the TAT, Abuja Zone.

The TAT ruled in favour of FIRS. TSKJ appealed to the Federal High Court which ruled in favour of TSKJ by holding that in turnover assessment, recharges are tax deductible. The FHC also gave an order disbanding the TAT for usurping the functions of the FHC in adjudicating in matters relating to companies’ income tax and revenue of the federation.

Issues for Determination

Subsequently, FIRS appealed to the Court of Appeal and raised the following issues for determination:

  • Whether TSKJ’s appeal at the Federal High Court is incompetent for relying on grounds of fact/mixed law and fact.
  • Whether the jurisdiction of the TAT infringes upon and derogates from the exclusive constitutional jurisdiction of the Federal High Court.
  • Whether the Federal High Court had the jurisdiction to disband and dissolve the TAT.

Decisions of the Court of Appeal

The Court of Appeal ruled in favour of FIRS and held as follows:

  1. Jurisdiction of TAT and conflict with Jurisdiction of FHC
    The Court of Appeal held that there is no conflict between the jurisdiction of the FHC and that of the TAT. Rather, the TAT is a ministerial body setup by the Minister of Finance for the administrative resolution of tax disputes. The Court further held that the TAT is an internal administrative procedure or condition precedent before instituting an action/appeal at the Federal High Court.
  2. Order of the FHC dissolving and Disbanding the TAT
    The Court of Appeal held that the Minister of Finance validly exercised his statutory powers in setting up and empanelling the TAT. Therefore, no injunction can competently restrain the Minister from exercising his statutory powers. According to the Court, the order disbanding the TAT conflicts with the principle of separation of powers.
  3. Competence of Appeals Which Do Not Rely Solely On Grounds of Law
    The Court of Appeal held that the Minister of Finance validly exercised his statutory powers in setting up and empanelling the TAT. Therefore, no injunction can competently restrain the Minister from exercising his statutory powers. According to the Court, the order disbanding the TAT conflicts with the principle of separation of powers.

Implications of the Decision

  1. Tax lawyers must be extremely careful when drafting their grounds of appeal at the FHC to ensure that the appeal is based solely on points of law. This is doubly important because once a ground of appeal does not pass this test, the entire appeal fails. However, it should be noted that the Court of Appeal did not take cognizance of the recent Supreme Court decision in Skye Bank Plc v. Victor Anaemem Iwu (2017) LPELR 42595. In that case, the appellant questioned the validity of the rule restricting appeals from the National Industrial Court to only issues of violation of fundamental rights enshrined in the Constitution. The Supreme Court held that litigants cannot be restricted to appealing based only on issues of fundamental rights violation. Based on this decision, the restriction of tax appeals to points of law only may be arguably unconstitutional.
  2. By designating appeals at the TAT as an internal administrative dispute resolution mechanism, tax lawyers may now be compelled to commence all tax disputes at to TAT. This is to ensure that tax litigants do not contravene the rule which requires that a litigant must exhaust all administrative remedies before approaching the courts. Before this decision, aggrieved taxpayers could choose whether to approach the TAT or FHC or State High Courts, depending on their preference.
  3. One of the primary issues originally agitated by this case was the question of whether recharges are an allowable deduction. The FHC had answered this in the affirmative. However, by nullifying the appeal at the Federal High Court for relying on grounds of facts, the Court of Appeal has automatically dismissed the entire decision of the Federal High Court. Therefore, we must continue to rely on the decision of the Court of Appeal in FBIR v. Halliburton (W.A) Limited (2015) 17 TLRN 1 where it was held that taxing recharges in the hand of the holding company does not amount to double taxation. While this does not directly address the issue of tax deductibility of recharges, it is the only guide Nigerian taxpayers have at the moment.

Pin It on Pinterest

Share This