MAFUSIRE J: This was an urgent chamber
application. One had to wade through layers of emotional hyperbole to get to
the nub of the matter and to identify the real issues for determination. Each
side gave as much as it got. It was a mortal combat, in the literal sense.
The applicant is a company. It runs a
hospital. It said it was fighting for its life and that of its patients,
especially its cancer patients and also its employees. It said unless the
exorbitant tax assessments by the respondent for the period 2010 to 2013 were
set aside in the long run, and unless the suffocating garnishees that the
respondent had imposed on its revenue sources were uplifted in the interim, and
as a matter of urgency, it surely was going to liquidate. It said the situation
was that dire.
The respondent is a statutory corporation.
It is established by s 3 of the Revenue Authority Act, [Cap 23:11]. It
is the tax collector for government. Despite the Biblical exhortation “render
therefore to Caesar the things which are Caesars'” undoubtedly few
obey willingly, Christians and non-Christians alike. It is not hard to imagine
hard-pressed workers and other taxpayers with families and extended families to
support wanting to exclude government from the list of dependants. The
temptation sometimes is for some to craft some tax evasion schemes. Viewed from
that angle the respondent's task must be an unenviable one. But the government
is a step ahead. The respondent is clothed with enormous powers to levy and
collect taxes.
It is public policy that revenue inflows
to government should not be interrupted. Government functions must not grind to
a halt. Therefore, for example, through the Income Tax Act, [Cap 23: 06],
(“the Act”), in addition to the power to levy and collect
taxes (s 6) the government, through Parliament, has granted respondent the
following sweeping powers:
1.
Section 45 of the Act, the power to make tax assessments and even to make
estimates of taxes due from the available information,
2.
Section 46 of the Act, the power to levy penalties on taxes due but
unpaid,
3.
Part VI of the Act, the power to appoint another person to be the agent of a
taxpayer where there is some taxable income due by the agent to the taxpayer,
and the power to penalise the agent for any breach of this obligation.
4.
Part VII of the Act, the power to insist on payment of any tax as levied
pending the determination of any objection to, or an appeal against, a tax as
charged, and the power to resort to self-help to recover such tax.
In casu,
the record shows that since 2010 the respondent has been tussling with the
applicant for alleged non-payment of taxes. The respondent complained that the
applicant has not provided useful information on the financial aspects of its
hospital project which would enable it to make a meaningful assessment of the
tax payable. The respondent made an assessment of the tax due by the applicant
for the years 2010, 2011, 2012 and 2013. Together with penalties the total
amount required from the applicant was US$3 253 646-62 (three million two
hundred and fifty three thousand six hundred and forty six United States
dollars and sixty two).
The record also shows that initial
assessments by the respondent had subsequently been revised considerably
downwards, sometimes even to the point of carrying over zero balances into the
next assessment year. The respondent explained that this happened following the
receipt of further information from the applicant.
The respondent had at one time or other
appointed representative taxpayers in respect of the applicant and had imposed
garnishees for the attachment of moneys due to the applicant. The
representative taxpayers were some medical aid societies, apparently the main
revenue streams for the applicant. It appears that despite the tussles the
parties remained in constant dialogue to find an amicable solution and a
workable plan. However, it is apparent that mutual mistrust remained. Matters
deteriorated from July 2013 when the respondent started reinstating the
garnishees. In November 2013 the applicant lodged a comprehensive objection to
the tax assessments for all the years from 2010 to 2013. The respondent treated
the objection as one made in terms of s 62 of the Act. The relevant portions of
that section read:
“62 Time and manner of lodging
objections
(1) Any taxpayer who is
aggrieved by –
(a)
any assessment made upon him under this Act;
(b)
……………………………………………………….
(c)
……………………………………………………….
may, unless it is otherwise provided in
this Act, object to such assessment, ……. within thirty days after the date of
the assessment …….. in the manner and under the terms prescribed by this
Act;
(2)
…………………………………………………………….
(3)
……………………………………………………………..
(4) On receipt of a notice of
objection to an assessment, …………………. the Commissioner –
(a)
may reduce or alter the assessment, ……….. or may disallow the objection,
and
(b)
shall send the person upon whom the assessment has been made …………notice of the
……..alteration or disallowance.
Provided that, if the Commissioner has not
notified the person who lodged the objection of his decision on it within three
months after receiving the notice of objection, or within such longer period as
the Commissioner and that person may agree, the objection shall be deemed to
have been disallowed.”
Upon receipt of
the applicant's objection aforesaid respondent invoked the provisions of s 69
of the Act. That section reads:
“69 Payment of tax pending
decision on objection and appeal
(1)
The obligation to pay and the right to receive any tax chargeable under this
Act shall not, unless the Commissioner otherwise directs and subject to such
terms and conditions as he may impose, be suspended pending a decision on any
objection or appeal which may be lodged in terms of this Act.
(2)
If any assessment or decision is altered on appeal, a due adjustment shall be
made, for which purpose amounts paid in excess shall be refunded and amounts
short paid shall be recoverable”
On 16 January 2014 respondent appointed
the applicant's bank, Stanbic Bank Zimbabwe, as the applicant's agent in terms
of s 58 of the Act. It imposed the last of the garnishees. That stung the
applicant. On 4 February 2014 it filed the urgent chamber application. Through
its deponent Dr Munyaradzi Kereke (“Dr Kereke”), the Chairman
of the Board of Trustees for the Rockfoundation Family Trust, the applicant's
holding entity, the applicant went on the attack. It condemned the garnishees
as a hatchet job. The respondent was said to have been heavy-handed,
vindictive, dishonest, malicious, cold-hearted and it was accused of an abuse
of power in that, inter alia, it generate false and gargantuan tax
liabilities to collapse the applicant.
Away from the emotions and hyperbole, the
substance of the application was that the respondent's tax assessments were
demonstrably fallacious, manifestly wrong and grossly unreasonable in the “Wednesbury”
sense. The applicant picked a number of examples. Respondent had rejected
certain sources of income or the shareholder assets that had been injected as
start-up capital for the hospital project. Those ranged from Dr Kereke's
immovable property upon which the hospital was to operate. The respondent was
said to have disallowed the cost of the renovations and extensions to those
premises as not being genuine tax deductible expenditures. The respondent
argued that the premises remained registered in the name of Dr Kereke and that
they would not form part of the assets for the applicant in the event of its
liquidation.
The respondent was also accused of having
treated as income for the applicant and of having taxed it accordingly, Dr
Kereke's terminal benefits and severance package from his former employer, the
Reserve Bank of Zimbabwe (“the Reserve Bank”) in the sum of
US$950 000 (nine hundred and fifty thousand United States dollars). Almost half
of it was said to have been injected into the hospital project.
Other sources of income for the hospital
project were said to have included the proceeds from Dr Kreke's farming
operations, including the sale of tobacco and goats. It was also said that they
had included the bride price, or lobola proceeds from sisters getting
married.
Other flash points included the
respondent's refusal to acknowledge payments for specialist consultants such as
doctors and auditors whose fees would ordinarily not be subject to 'Pay As You
Earn' (PAYE) but to a 10% withholding tax. There were numerous other issues
such as those relating to related party borrowings. In particular, the
respondent was said to have disallowed tax deductions for interest charges on
certain loans by the applicant from certain commercial banks that the applicant
had accessed through a surrogate entity called Pedalball Investments (Private)
Limited (“Pedaball”. Dr Kereke said he controlled Pedaball
indirectly. It was explained that such a disguised manner of borrowing had been
necessary as a sanctions-busting measure since Dr Kereke was one of those
Zimbabweans under sanctions by Western countries.
The respondent in turn accused Dr Kereke
of having been extremely uncooperative. He was said to have failed or refused
to supply proper information on the applicant's tax liabilities. The applicant
was said to have evaded paying taxes ever since its inception. It was argued
that there simply had been no paper trail or verifiable information on all the
impugned transactions. The respondent scoffed at the suggestion that capital
for such a massive project as the applicant's hospital could have been raised
from the sale of goats and the proceeds oflobola as if the business
was a tuck-shop!
As final relief the applicant sought an
order of mandamus to compel the Commissioner General to hear and determine the
applicant's appeal filed on 21 November 2013 within seven days of the order.
For interim relief the applicant sought the suspension of the garnishees
pending the determination of the applicant's appeal on 21 November 2013,
including any appeal to the Fiscal Appeal Court.
At the hearing the respondent went on the
attack. It took some points in limine. The first was in relation to a
fourth set of affidavits that had been filed by the applicant. It was a
supplementary affidavit by Dr Kereke. It had been filed on the new day of
earing. No leave had been sought. The matter had already been twice postponed
before.
Mr Magwaliba, for the respondent,
objected to the admission of this supplementary affidavit. He said he had not
read it. And no leave had been sought. Mr Uriri, for the applicant,
submitted that he had not read it either. The affidavit had been handed over to
him by his instructing practitioner just before the commencement of the proceedings.
Therefore, Mr Uriri argued that none of them had an advantage over the
other. At any rate, he said, in urgent applications, the courts tended to be
more flexible in the application of the rules.
I disallowed the affidavit. If none of the
parties' counsel had read the document then it would add no value to their
submissions. Urgent chamber applications are a species of court applications or
motion proceedings. Among other things, no further affidavits beyond the
answering affidavit can be filed without the leave of the court or judge. In Silver's
Trucks (Pvt) Ltd & Anor vDirector of Customs and Excise 1999
(1) ZLR 490 (H) it was held that it is only in exceptional circumstances that
the court will allow the filing of an additional affidavit. There must be an
application for leave to file such an affidavit. An explanation must also be
given for the failure to submit all the information in the previous affidavits
and for the late filing of the additional affidavit.
The next objection in limine by
Mr Magwaliba was that the application was not urgent. The garnishees
had been imposed from since July 2013 to November 2013. The last had been on 16
January 2014. The need to act had arisen much earlier than 4 February 2013 when
the urgent chamber application had finally been filed.
The urgency that is contemplated by the
rules of court is not only gauged by the imminence of the day of reckoning. It
is also gauged by the day the need to act arose. In Kuvarega vRegistrar-General
& Anor 1998 (1) ZLR 188 (H) CHATIKOBO J said, at p 193 F -G:
“What
constitutes urgency is not only the imminent arrival of the day of reckoning; a
matter is urgent, if at the time the need to act arises, the matter cannot
wait. Urgency which stems from a deliberate or careless abstention from action
until the dead-line draws near is not the type of urgency contemplated by the
rules. It necessarily follows that the certificate of urgency or the supporting
affidavit must always contain an explanation of the non-timeous action if there
has been any delay.”
Mr Uriri argued that in this
matter there was commercial urgency in the sense contemplated in the Silver's
Trucks' case above. In that case the urgent chamber application had been
brought some four months after the applicant's goods had been embargoed by
customs. It was held that the court has power to hear an application as a
matter of urgency not only when there is a serious threat to life or liberty
but also where the urgency arises out of the need to protect commercial
interests. See also the case of 20th Century Fox Film
Corporation & Another vAnthony Black Films (Pty) Ltd 1982 (3)
SA 582, at 586, which is quoted by SMITH J in the Silver's Trucks'
case above , at p 492F – H.
I was satisfied that the matter was
urgent. The last garnishee by the respondent was on 16 January 2014. It was
against the applicant's bank. It was a very serious stranglehold on the
applicant's major revenue. There was no inordinate delay when the urgent
chamber application had eventually been filed on 4 February 210. The
application was quite voluminous - 199 pages. Therefore it must have required
lots of time to put it all together.
On the merits, for one to succeed for an
interim interdict one must show at least four elements. These are:
1.
that one has a prima facie right that one wishes to protect even
though the right be open to some doubt,
2.
that one has a well-grounded apprehension of an irreparable harm such as would
not be cured by damages,
3.
that the balance of convenience favours the granting of an interim
interdict,
4.
that there is no other alternative remedy that is effective;
See Networking Technologies v System
Publishers and Anor 1997 (1) SA 391 at p 398 – 399; Universal Merchant
Bank Zimbabwe Ltd vThe Zimbabwe Independent And Anor 2000 (1) ZLR
234 (H) and Flame Lily Investments Company (Pvt) Ltd vZimbabwe
Salvage (Pvt) Ltd and Anor 1980 ZLR 378.
During argument I kept asking how the
applicant's situation could be said to be any different from that of any other
taxpayer who objects to an assessment and appeals to the Commissioner General
but against whom the provisions of s 69 are nonetheless invoked. Mr Uriri
submitted that the respondent's tax assessments in issue were grossly
unreasonable in the Wednsesbury sense.
A decision that is grossly unreasonable in
the Wednesbury sense is a decision that is irrational. It is a
decision that is so outrageous in its defiance of logic or of accepted moral
standards that no sensible person who had applied his mind to the issue to be
decided would have arrived at it: see CCSU v Minister for the
Civil Service [1984] 3 All ER 939 (HL) at p 950 – 951 which was quoted
with approval by DUMBUTSHENA CJ in Patriotic Front – ZAPU v Minister
of Justice, Legal and Parliamentary Affairs 1986 (1) SA 532 (ZS) at p 548
(also reported in 1999 (2) ZLR 305 (SC).
The Wednesbury principle derives
from the English case one of whose parties bore that name. This was the case of
Associated Provincial Picture Houses Ltd vWednesbury Corporation
[1948] 1 KB 223 9 (CA). As McNALLY JA observed in the case of City of
Harare vParsons 1985 (2) ZLR 293 SC, at p 298, the Wednesbury
principle was laid down by LORD GREENE MR in the Wednesbury
Corporation case aforesaid in the context of a judicial review. LORD
GREENE had said, at p 228:
“When an executive discretion is entrusted
by Parliament to a body such as the local authority in this case, what appears
to be an exercise of that discretion can only be challenged in the courts in a
strictly limited class of cases.”
It appears though that the Wednesbury
principles have been developed to apply to virtually every exercise of power by
executive authority or statutory functionary such as the respondent in casu.
If a decision is so grossly unreasonable as to be outrageous in its defiance of
logic or of acceptable moral standards then it is grossly unreasonable in the Wednesbury
sense. In such a situation the court will ask whether the executive authority
or statutory functionary whose decision is being impugned had taken leave of his
senses. This undoubtedly is a very high standard indeed.
In this matter Mr Uriri
highlighted a few examples of the alleged gross irrationality of the
respondent's tax assessments. He said the respondent would in one year raise
tax assessments with substantial sums of money said to be due, only to reverse
them in the following year, sometimes even carrying forward negative balances
or losses. In response, Mr Magwaliba, submitted that the assessments
were always reviewable and that the amounts were sometimes reversed upon the
supply of more information by the applicant That to me is quite a rational
explanation.
Mr Uriri pressed on with the
issue of shareholder funds, particularly in relation to the immovable premises
and the renovations thereto. He also referred to the respondent's treatment of
related party borrowings involving Pedalball. He referred to the treatment of
Dr Kereke's terminal benefits and his severance package from the Reserve Bank.
He referred to Dr Kereke's complaint about respondent's heavy handedness and
the high degree of scrutiny his transactions were subjected. Such conduct, he
argued, was manifestly an abuse of statutory power. The respondent could have
easily got the information it wanted from the Reserve Bank itself or from its
lawyers at the time.
Mr Magwaliba countered that the
applicant was the author of its misfortune. It been extremely uncooperative.
The onus had been upon it to supply all the information required to the
satisfaction of the respondent. For example, there was no reason why a basic
finance document like a balance sheet should remain outstanding years after it
had been requested. He said even by the time of the hearing certain of the
information was still outstanding.
On the issue of an irreparable harm and
the preponderance of equities, Mr Uriri submitted that the balance of
convenience favoured a suspension of the guarantees. He said the applicant had
established a prima facie right by showing a gross unreasonableness on
the part of the respondent. The applicant stood to suffer irreparable harm if
the garnishees were not suspended. The applicant was on the verge of
liquidation. Only US$10 remained in its Stanbic Bank account. Employees had not
been paid for months. The pharmacy department had shut down. The cancer unit
would inevitably shut down and thereby put many cancer patients in jeopardy.
Creditors were descending on the hospital and one of them had already made an
attachment of some of the applicant's assets. But despite all that, applicant
argued, the situation could still be managed if revenue streams were unblocked.
On the other hand there would be no significant prejudice to the respondent. At
any rate, since inception the garnishee had yielded only US$172 000 (which the
respondent corrected to US$132 000).
In response Mr Magwaliba
submitted that the garnishees had nothing to do with the applicant's plight.
The litigation against it had commenced well before the onset of the
garnishees. The applicant had simply failed to prudently manage its affairs and
should not cry foul when the law was taking its course.
The applicant is not without my sympathy.
It is undoubtedly in dire straits. It has made a very strong and persuasive
moral argument for the hardships it is facing. But one should not be dazzled by
that. The argument is short on law. The respondent has the law on its
side. It must be assumed that parliament was alive to the hardships or
unfairness of the application of s 69 of the Income Tax Act. The law says in
spite of any objection or any appeal, the tax as charged is payable. Any
overcharge is refunded should the objection or the appeal succeed.
I find nothing peculiar in the
circumstances of the applicant to warrant a treatment that is different from
the rest of the other taxpayers that may find themselves with objectionable tax
assessments against which they will have appealed. The garnishees may worsen
the applicant's bad situation. But regrettably, those are some of the natural
consequences of the application of the law. I have found nothing outrageous or
grossly unreasonable in the respondent's conduct. The applicant was offered the
chance to avert the garnishees by offering an acceptable payment plan. Before
it filed the urgent chamber application none had been submitted. The one
submitted after the launch of the application was rejected by the respondent.
The respondent made a counter offer. The applicant said the counter offer was
way beyond its means. But that does not make the conduct of the respondent,
grossly unreasonable in any sense.
Furthermore, the applicant had defaulted
on a previous payment plan. Admittedly there would have been reasons for such
default. But in such circumstances I am unable to find fault with the
respondent's conduct, let alone anything that would amount to conduct so grossly
outrageous in its defiance of logic or accepted moral standards as to be liable
to impeachment by the court.
In the premises the application is hereby
dismissed with costs.
Magaya-Mandizvidza,applicant'slegal practitioners
Legal
and Corporate Services Division, respondent's legal
representative
