The Federal Inland Revenue Service (FIRS) is the agency of the Federal Government of Nigeria that is responsible for the collection of Companies Income Tax (CIT) from companies in Nigeria, pursuant to the Companies Income Tax Act (CITA). In the recent case of THEODAK NIGERIA LIMITED V FEDERAL INLAND REVENUE SERVICE BOARD1, the Abuja division of the Federal High Court had to consider whether the FIRS has any power under the CITA to assess CIT on the basis of the value of the property of a company that is in default of payment of CIT.
In this case, sometime in November 2016 the FIRS issued a notice, pursuant to section 30(1)(a) of the CITA, to Theodak Nigeria Limited (Theodak) demanding over N94 Million as CIT for the year 2015.
As Theodak had not filed any tax returns for the year under review, the FIRS made its assessment by subjecting 20% (Twenty Percent) of the value of a building owned by Theodak to CIT. Theodak refused to comply with the notice and approached the Federal High Court for, inter alia, the determination of the issue of whether the FIRS had the power to assess Theodak to deemed income tax based on the value of its property.
Theodak’s Submission
In arguing that the FIRS had no such power, Theodak contended that under section 9 of the CITA, the value of property occupied or used by a company is not considered as income chargeable to a company as tax. It was also contended that the FIRS failed to comply with the provisions of section 30(1) of the CITA, which provides that assessment of tax should be a fair and reasonable percentage of the turnover of the trade of business of the company.
FIRS Submissions
In response, the FIRS argued that, under section 30 of the CITA, it had a wide range of powers to assess defaulting taxpayers, including a the power to make a ‘best of judgment’ assessment under Section 65 of the CITA. The FIRS also contended that, having regard to sections 69 and 76 of CITA, Theodak’s action was incompetent because Theodak failed to object to the assessment within 30 days, by reason of which the assessment had become final and conclusive.
Court’s decision
In its final judgment in favour of Theodak, the court held that the provisions of the CITA are very clear on how the FIRS is to assess and charge CIT. It was decided that the FIRS can assess and charge any company in Nigeria on such fair and reasonable percentage of the turnover of the trade or business of the company, where the company has failed to make its own assessment or the company’s assessable profit is unascertainable. According to the court, the value of Theodak’s property could not be deemed to be its turnover for the year under review because the turnover of the company has to be tied to the company’s trade or business. In this regard, the Court stated that the imposition of turnover assessment on the value of a company’s disposed properties would be permissible where the company’s business involves selling of properties and such company has failed to file its annual tax returns.
On the question of whether the assessment contained in the notice by the FIRS had become final and conclusive because Theodak did not object to it within thirty days, the court held that Theodak was not under any obligation to file any objection with the FIRS before it could approach the court. This is because Theodak has a constitutional right of access to court and section 69(1) of the CITA provides that if a company disputes an
assessment, it “may” apply to the Board of the FIRS for a review and revision of the assessment.
According to the court, section 69(1) of the CITA is not a mandatory provision, having regard to the use of the word “may” in the section. As a result, a company is entitled to exercise its discretion as to whether or not to apply to the Board of the FIRS for review and is not bound to do so. Finally on this point, the court held that, in any event, Theodak did not approach the court for the purpose of challenging the amount stated in the notice by the FIRS but to challenge the FIRS’ non-compliance with the CITA in arriving at the assessment.
Significance of this decision
This decision is important, due to the fact that it has answered the critical question of whether the FIRS has any power to assess CIT on the basis of the value of the property of a company that is in default of payment of CIT and consequently clarified what is generally a burning issue. Now, unless a company is in the business of selling properties, the FIRS is not entitled to use the value of the company’s property as the basis for assessing CIT, as the valuation of the property is not the same thing as the turnover of the company.
On the question of whether a company is bound to object to an assessment within thirty days, this decision provides authority for the proposition that the failure of a company to raise such an objection will not preclude the company from exercising its right of access to court.
However, it must be noted that this decision did not decide that an assessment not objected to within thirty days of service of the notice is not final and conclusive under section 76 of the CITA. Consequently, where a company disputes a notice of assessment issued by the FIRS, it would be prudent for such a company to advisedly take steps to apply to the Board of the FIRS within the time stipulated by law.
MOFE TAYO OYETIBO
MOFESOMO TAYO-OYETIBO, ACIArb
