On 27th June, 2022, Justice Maha of the Federal High Court (“FHC”) declared the Finance Act 2019(FA 2019) as inapplicable to assessments covering the period up to 31st December 2019 since it came into effect on 13th January 2020. This is in consistent with a long line of judgments. The FHC made this decision in Suit No: FHC/ABJ/CS/1289/2020 Accugas Limited v. Federal Inland Revenue Service and The Attorney-General of the Federation. In the instant case, the Plaintiff has brought an action by way of originating summons before the FHC to determine the propriety of the assessment made by the Federal Inland Revenue Service (“FIRS”) on the plaintiff’s Companies Income Tax (“CIT”) for the year 2019 based on the new amendments made to the Companies Income Tax Act (“CITA”) by the Finance Act of 2019 (“FA 2019”).
Analysis of the Accugas Limited v FIRS & Anor
Accugas Limited (“Plaintiff”) a gas gathering and distribution company in the year of assessment, January to 31st December 2019 recorded a loss.
The plaintiff received a notification from the FIRS on the assessment of their CIT for the year 2019. The FIRS based its assessment on the newly amended provisions of the CITA by the FA 2019 – which mandates companies with more than N25 million annual turnover to pay minimum tax if it recorded a loss. Ordinarily the law mandated it to pay a minimum tax as provided for under section 33(2) of CITA. However, by the operations of section 33 (3)(b) of CITA, the plaintiff was entitled to an exemption by virtue of having at least 25% (it had 99.9%) of its equity capital imported. As such, the plaintiff will be statutorily required not to pay a minimum tax as provided for in section 33(2) of the CITA prior to its amendment by the FA 2019. Being unsatisfied by the assessment by the FIRS – (the sum of $609,178 was deducted from the plaintiff’s tax credit to satisfy the assessment made by the FIRS), the plaintiff filed an originating summons at the FHC.
The argument of the plaintiff was that the provisions of the CITA prior the amendment conferred on the plaintiff a vested right which cannot be eroded by any new amendment as provided under section 6(1)(b) of the Interpretation Act. Furthermore, the amendment to the CITA which the FIRS based their assessment on, was assented to on 13th January, 2020, as such, the amendment cannot affect the vested rights of the plaintiff under the old regime of the CITA. In essence, the relevant year of assessment for the CIT was 2019 and the loss recorded by the plaintiff was also in 2019 – therefore, even if the plaintiff was to be assessed on the basis of minimum tax, they were exempted from that. In such case, the provisions of the new regime of CITA as amended by the FA 2019 will not affect that exemption under section 33(3)(b) of the CITA.
In support of their argument the plaintiff cited the cases of Goldmark Nigeria Limited & Ors v Ibafon Company Limited & Ors (2012) LPELR 9349 (SC), Omatseye v FRN (2017) LPELR 42719 (CA), FBIR v Haliburton (WA) Limited (2014) LPELR 24230 (CA).
In their response, the FIRS argued that the plaintiff was not entitled to a vested right under the provisions of CITA as tax issues are treated according to the provisions of the relevant and extant tax laws in force as at the time of assessment. Further, the assessment made by the them was on a preceding year assessment basis, and the plaintiff had a window of 6 (six) months to file its CIT returns immediately after the plaintiff’s accounting year at the FIRS. That being the case, the plaintiff will be bound by the provisions of the FA 2019 as the 6 months of filing the returns fell within the date in which the FA 2019 was assented to by then President Buhari. Which means, that the period within which the plaintiff was to make the payment arose within the period when the FA 2019 was in force. Therefore, the plaintiff is caught by the amendment contained in FA 2019.
To that extent, the plaintiff is not entitled to any exemption as the contemplated exemption by the plaintiff has been repealed by the FA 2019. The FIRS relied heavily on the provisions of section 14 of the FA 2019 which repealed the former section 33(3)(b) of the CITA and replaced it with the new amendment as provided for under section 14 of the FA 2019. The new provision under the FA 2019 sets the parameter to determine an exemption from payment of CIT from the former provision relied on by the plaintiff to having a minimum annual turnover of N25 million – which obviously, the plaintiff crossed in the year of assessment.
The judgment of the Federal High Court
Justice Maha having considered the arguments canvassed by the parties delivered its judgment. In its wisdom, the court noted that when a piece of legislation is repealed by the legislature, such an Act loses all its efficacy and efficiency – the very spiritus of that piece of legislation becomes dead. In such a case, the judiciary as the arm of the government saddled with the onerous task of interpreting laws will have no discretion or power to preside over any matter brought pursuant to such dead piece of legislation. However, the court pointed out that any right, privilege or obligation which accrues to any individual under the defunct or repealed law will be applicable despite the legal death of that law.
Justice Maha made reference to the provisions of section 6(1)(b) of the Interpretation Act which provides for the accrued rights to be vested notwithstanding the repeal or amendment of the law. The court supported its stance citing the cases of Abdu v State (2021) LPELER 55097 (CA), Gusau v APC & Ors (2019) LPELR 46897 (SC) where the courts above had held that the law which will be relied by the courts in determining any right of an individual will be the law applicable when the cause of action arose.
The court further noted, that it was not the intention of the legislature to make the FA 2019 applicable retrospectively. If that was the intention of the legislature, the National Assembly would have made a provision in the FA 2019 to that effect.
In the instant suit, the court held that the plaintiff is entitled to an exemption under the provisions of the defunct CITA (which was amended by the FA 2019). The court reckoned that the year of assessment for the plaintiff’s CIT was 2019 which means that the assessed income in question is that of 2019 and the applicable law which was in force in 2019 was the CITA prior to the amendment by FA 2019 and not the amendment to the CITA made by the FA 2019. Therefore, the assessment made by the FIRS based on the FA 2019 was unlawful a hence, the court ordered that the FIRS is to utilise the sum of
$609,178 deducted from its tax credit to satisfy the CIT payable by the plaintiff in the future.
The judgment of the FHC is a welcome development, not only does it clears any misconceptions regarding the time for the application of FA 2019, it reiterates established principles The law applicable to a cause or matter is the law in place when the cause of action arose. In this case the applicable year of assessment..