This is an appeal against the decision of the Special Court
for Income Tax Appeals which dismissed the appellants' appeals against the
determination of the Commissioner-General turning down the appellants'
objection against an income tax assessment for additional profit tax.
The appeal is based on a statement of agreed facts which
was summarised in the judgment of the court a quo. For the purposes of this
appeal I summarise them as follows:-
The six appellants are private senior schools operating in
Zimbabwe in terms of their respective Trust Deeds. The second to fourth
appellants also operate primary schools which are jointly administered with the
high schools.
Some employees of these schools had their children enrolled
at the schools where they worked or at other schools which had mutual
agreements with the school at which they are staff members. In terms of those
arrangements, the employees of the appellant schools whose children were
enrolled at these schools did not pay the same amount of school fees as
non-staff parents whose children were enrolled at the schools. The employees'
children were spread across the schools and were enrolled in various classes.
The appellants charged their employees between 20 per cent
and 25 per cent of the full fees payable per child. No taxes were paid on the
difference between the 20 per cent and 25 per cent of the fees and the full
fees payable at the respective schools for the 2009 and 2010 tax years. The
first, second, third and sixth appellants charged 20 per cent while the
remaining two charged 25 per cent. The fourth appellant used to charge 3 per
cent before it was directed by the respondent, on 30 November 2009, to charge
25 per cent. It started charging 25 per cent from the third term of 2009.
The respondent contended that the difference between the
fees paid by the employee parents to the schools and the full fees payable at
the schools was an advantage or a benefit in terms of section 8(1)(f) of the
Income Tax Act [Chapter 23:06] to
the employee parents, arising from their contracts of employment with the
appellants, which should have been taxed.
The respondent further asserted that the cost of the
benefit to the appellants in respect of each benefiting child was the same as
the cost of every other pupil enrolled at the school and therefore decided to
tax the appellants on the basis that the advantage or benefit claimed by the
respondent was equivalent to the waived amount.
The appellants disputed the respondents' contentions.
Tax assessments were raised and issued against the
appellants in terms of paragraph 10 of the Thirteenth Schedule to the Income
Tax Act for taxes which were alleged to be due from the employee parents and
which the respondent asserted the appellants were obliged, but failed, to
withhold from the incomes of the concerned employee parents. The appellants
disputed both the obligation asserted by the respondent and the application of
the legislation in the manner invoked by the respondent. The appellants
objected to the respondent's tax assessments. The respondent dismissed the
objections. The appellants appealed to the Special Court for Income Tax Appeals
against the decisions of the Commissioner-General disallowing their objections.
The appellants' contention before the court a quo was that the difference between the
subsidised school fees paid by children of the appellants' employees and the
fees paid by full school fee paying students was not taxable in terms of section
8(1)(f) of the Income Tax Act [Chapter 23:06] because it was not an
advantage or benefit.
The court a quo dismissed the appellants' appeals holding
that the concessionary scheme for the payment of part of the school fees by
employees whose children were enrolled at these schools should be included in
the gross income of the employees in terms of section 8(1) and section 8(1)(b) of
the Income Tax Act [Chapter 23:06] and should be included in the
assessment of Pay As You Earn. The court a quo held that the subsidised school
fees was an advantage or benefit in terms of section 8(1)(f) I (a) of the
Income Tax Act [Chapter 23:06]. It found that the correct assessment had
been made in terms of section 8(1)(f) I (a) of the Income Tax Act
[Chapter 23:06].
In respect of the second and third appellants, the court a
quo set aside the assessments raised by the respondent. It found that the
liability of the second and third appellants was not in terms of section
8(1)(f) of the Income Tax Act [Chapter 23:06], but was in terms of the
main charging provision of section 8(1) of the Income Tax Act
[Chapter 23:06]. It held that the respondent should include in the gross
income the amount waived by the school at which the child of each such employee
parent was enrolled before re-assessing the appropriate Pay As You Earn
liability of the second and third appellants.
The appellants were aggrieved by the decision of the court
a quo.They appealed against it to
this court. The appeal is based on the following grounds of appeal:-
“1.The court a quo erred at law by holding that the
difference between what was paid by full school fee paying children at each
appellant and the school fees charged on each of the affected children of
employees enrolled at each appellant constitutes “gross income” in terms of
both ss 8(1) and 8(1) (b) of the Income Tax Act [Chapter 23:06] of the employee
parent and should be assessed for Pay As You Earn tax whereas it should have
found that, that difference does not constitute an “amount” in terms of s 2 of
the same Act.
2. Alternatively, the court a quo erred at law by holding
that the difference between what was paid by full school fee paying children
enrolled at each appellant and the school fees charged on each of the affected
children of employees enrolled at each appellant constitutes gross income in
terms of both ss 8(1) and 8(1)(b) of the Income Tax Act [Chapter 23:06],
whereas it should have found that, that difference constitutes an advantage or
benefit in terms of s 8(1)(f) of the same act.
3. Alternatively , the court a quo erred at law by finding
that the correct value of the amount that accrued to the employee parents in
each of these matters, is computed as the difference between what was paid by
full school fee paying children enrolled at each appellant and school fees
charged on each of the affected children of employees enrolled at each
appellant, whereas the court should have found that the correct value of the
amount accruing to the employees should be their proportionate share of the
variable cost of running the school excluding boarding fees.
4. Alternatively, the court a quo erred at law by finding
that the cost to the employer in terms of s 8(1)(f)(ii)(b) is the total cost
incurred in running each school divided by the total enrolment of each school
inclusive of the favoured pupils less the concessionary fees paid and all costs
related to boarding facilities whereas the court should have found that the
cost to the employer is each employee's child's proportionate share of the
variable cost of running the school excluding boarding fees.
5. The court a quo erred at law by finding as gross income,
in terms of s 8(1) of the Income Tax Act [Chapter 23:06], the difference
between what was paid by full school fee paying children enrolled at either of
these two schools by mutual agreement and should be assessed for Pay As You Earn
tax whereas the court should have found that, that difference does not
constitute an amount in terms of s 2 of the same Act.
6. Alternatively, the court a quo erred at law by finding
as gross income in terms of s 8(1) of the Income Tax Act the difference between
what was paid by full school fee paying children enrolled at the second and
third appellant, whichever is applicable, and school fees charged on each of
the 77 children of employees enrolled at either of these two schools by mutual
agreement, whereas the court should have found that, that difference
constitutes an advantage or benefit in terms of s 8(1)(f) of the same Act.
7. Alternatively , the court a quo erred at law in finding
that the correct value of the benefit accruing to the employee parents of the
77 children enrolled at either second or third appellant on the basis of mutual
agreement between these two schools is the difference between what was paid by
full school fees paying children enrolled at each appellant and school fees
charged on each of the affected children of employees enrolled at each
appellant, whereas the court should have found that the correct value of the
amount accruing to the employees should be their proportionate share of the
variable costs of running the school excluding boarding fees.”
The appeal raised three issues for determination. These
are:
1. Whether or not the court a quo correctly found that the
subsidised school fees fit in the definition of gross income in terms of sections
8(1) and 8(1)(b) of the Income Tax Act [Chapter 23:06] and is therefore liable to
taxation.
2. Whether or not the court a quo correctly found that the
subsidized school fees were “an advantage or benefit” in terms of section
8(1)(f) I(a) of the Income Tax Act [Chapter 23:06].
3. Whether or not the court a quo correctly assessed the
calculations of such waived amounts.
I deal with each of these in turn.
Whether or not the
court a quo correctly found that the subsidised school fees fits in the
definition of gross income in terms of sections 8(1) and 8(1)(b) of the Income
Tax Act [Chapter 23:06] and is therefore liable to taxation
Counsel for the appellants submitted that the difference
between the amount paid by full school fee paying children and the amount paid
by the children of parents employed at these schools is not part of the
appellants' employees' gross income in terms section 8(1) of the Income Tax Act
[Chapter 23:06]. He submitted that the court a quo erred in dismissing their objection to that difference being
included in the assessment of payable tax.
On the other hand, counsel for the respondent submitted
that the appellants were liable to pay tax in terms of section 8(1) of the
Income Tax Act [Chapter 23:06]. According to the respondent, the definition of
the term 'gross income' covers the position of the appellants' employees'
school fee concession for their children.
Counsel for the appellants' submitted that the subsidised
fees is not part of the appellants' employees' gross income in terms of section
8(1) of the Income Tax Act. He argued that the subsidised fees were not an
amount in terms of section 2 of the Income Tax Act.
The Income Tax Act defines the term “gross income” as
follows:
“8 (1) For the
purposes of this part:-
“gross income” means the total amount received by or
accrued to or in favour of a person or deemed
to have been received by or to have accrued to or in favour of a person in any
year of assessment from a source within or deemed to be within Zimbabwe excluding
any amount (not being an amount included in 'gross income' by virtue of any of
the following paragraphs of this definition) so received or accrued which is
proved by the taxpayer to be of a capital nature, and, without derogation from
the generality of the foregoing, includes -
(a)…,.
(b) Any amount so received or accrued in respect of services
rendered or to be rendered, whether due
and payable under any contract of employment or service or not, and any
amount so received or accrued by reason of the cessation of the employment or
service of a person other than a benefit (not being a pension or gratuity)
received or accrued by reason of contributions made to the Consolidated Revenue
Fund, and any amount so received or accrued in commutation of amounts due under
a contract of employment or service:-“…,.
In terms of section 2 of the Income Tax Act [Chapter 23:06],
an “amount” is defined as;
“'Amount', for the purposes of the provisions of this Act
relating to the determination of the gross income, income or taxable income, as
defined in subs (1) of section eight, of a person, means -
(a) Money; or
(b) Any other
property, corporeal or incorporeal, having an ascertainable money value;
and “accrued”, “paid, “received” or any cognate expression shall, in so far as
it applies to an amount as defined in paragraph (b), be construed in a sense correlative with that in which it is
construed when it applies to money;”…,.
In my view, these provisions are wide enough to cover all
money and any other property, corporeal or incorporeal, which has an
ascertainable monetary value. Non-monetary items which have an ascertainable
monetary value are included in the terms of this provision. A non-monetary item
can only escape if it has no ascertainable value.
The question which arises, is whether the difference
between the amount paid by full school fee paying children and the amount paid
by the children whose parents are employed at these schools an incorporeal
thing with an ascertainable value?
It is obvious that the benefit received by the employees of
the appellants is an incorporeal thing with an ascertainable value. As such,
the advantage received by the employees of the appellants falls within the
broad definition of the term gross income.
It should also be noted that income is not only construed
in monetary terms but may be in any other form other than money. In
Commissioner for Inland Revenue v People's Stores (Walvis Bay) (Pty) Ltd 1990 (2) SA 353 (A) HEFER JA…, said:
"It must be emphasised that income in a form other
than money must, in order to qualify for inclusion in 'gross income', be of
such a nature that a value can be attached to it in money. As WESSELS CJ said
in the Delfos case (supra) at 251:
'The tax is to be assessed in money on all receipts or
accruals having a money value. If it is something which is not money's worth or
cannot be turned into money, it is not regarded as income.'
(See also Mooi v Secretary for Inland Revenue (supra at
683A-F).
On the other hand, the fact that the valuation may
sometimes be a matter of considerable complexity (of the Lace Property Mines
case (supra) at 279 - 81) does not detract from the principle that all income
having a money value must be included. How the valuation is to be done depends,
of course, entirely on the nature of the income and the circumstances of the
case.”
In light of this dictum, I find that the concessionary rate
of school fees which was offered to the appellants' employees is income and
should have been taxed. The concessionary rate of school fees has a value which
is taxable in terms of section 8(1) of the Income Tax Act [Chapter 23:06]. The
court a quo, therefore, correctly found that the subsidised school fees fits in
the definition of gross income in terms of section 8(1) of the Income Tax Act
[Chapter 23:06] and is therefore liable to taxation.
Section 8(1)(b) of the Income Tax Act [Chapter 23:06] clearly
states that any amount received or accrued in respect of services rendered or
to be rendered, whether due and payable under any contract of employment or
service is liable to taxation. Having accepted that the subsidised fees are an
amount in terms of the Act, it is therefore clear that that amount accrued to
the appellants' employees because of their contract of employment.
I therefore find that sections 8(1) and 8(1)(b) of the
Income Tax Act [Chapter 23:06] are wide enough to cover the difference between
the concessionary fees and full school fees which accrued to the appellants'
employees.
I do not accept counsel for the appellants' contention that
the court a quo erred in finding that the difference between the amount paid by
full school fee paying children and the amount paid by the children of parents
employed at these schools is income in terms of sections 8(1) and 8(1)(b) of
the Income Tax Act.
It is clear that the benefit received by the employees of
the appellants' falls within the broad definition of the term gross income and
therefore was subject to taxation.
Whether or not the
court a quo correctly found that the subsidised school fees is “an advantage or
benefit” in terms of section 8(1)(f) I (a) of the Income Tax Act
Even though I have already found that the appellants were
liable to pay tax in terms of sections 8(1) and 8(1)(b) of the Income Tax Act
[Chapter 23:06], the determination of the second issue is important in the
disposition of the third issue concerning the value of the benefit.
It is important to highlight that the assessment of the tax
in question was for the 2009 and 2010 tax years. Section 8(1)(f) of the
Income Tax Act, as applicable during the relevant period, included within the
meaning of “gross income” the following:-
“(f) An
amount equal to the value of an advantage or benefit in respect of employment,
service, office or other gainful occupation or in connection with the taking up
or termination of employment, service, office or other gainful occupation:
Provided that -
(i)…,.
(ii)…,.
For the purposes of this paragraph -
1. 'advantage or benefit” –
(a) means -
(i) Board; or
(ii) The occupation of quarters or of a residence; or
(iii) The use of furniture or of a motor vehicle; or
(iv) The use or
enjoyment of any other property whatsoever, corporeal or incorporeal, including
a loan, whether of the same kind as
that referred to in subparagraph (i), (ii) or (iii) or not, which is not an
amount referred to in paragraph (a),
(b) or (c) of the definition of “gross income” in this subsection; or
(v) An allowance;'
granted to an employee,
his spouse or child by or on behalf of his employer in so far as it is not
consumed, occupied, used or enjoyed, as the case may be, for the purpose of the
business transactions of the employer and in so far as a amount is not paid by
the employee, his spouse or child in respect of its grant; and…,.”
The use, in (iv) above, of the words 'any other property
whatsoever…, whether of the same kind as that referred to in subpara (i) (ii)
or (iii) or not' is significant.
It means the words 'advantage or benefit' are not confined
to what is stated in (i) to (iii). It, in my view, means any 'advantage or
benefit' and what is stated in (i) to (iii) are mere examples whose possible
limiting effect is removed by paragraph (iv) which provides that the advantage
or benefit can be the use of 'any property whatsoever' and can or cannot be of
the same kind as those mentioned in paragraphs (i) to (iii). The words 'any other
property whatsoever' and 'or not' broadens the ambit of the meaning of the
words 'advantage or benefit.'
There is no doubt that the concessionary school fee benefit
was granted to the appellants' employees by the appellants. The benefit is not
being used for the benefit of the appellants' business but that of their
employees. It is not paid for by the employees but is an advantage or benefit
accruing to them by virtue of their being the appellants' employees in terms of
their contracts of employment.
It is therefore part of the employees' taxable income.
Section 8(1)(f) I(a)(iv) of the Income Tax Act [Chapter
23:06] was subsequently amended by the Finance Act (No.2) of 2012 (Act 6 of
2012) which includes, in the definition of the words 'advantage or benefit',
the following:-
“(vi) In the case of an employee who is a member of the
teaching or non-teaching staff of a 'school' as defined in the Education Act
[Chapter 25:04], the waiver of the whole or any portion of the amount of
tuition fees, levies and boarding fees (hereinafter called a 'school benefit')
that would otherwise be payable by the employee for any child of his or hers
who is a student at that or another school;”
It should be noted that the amendment specifically
addresses a problem identical to the one before this court. It specifically
provides for the taxation of a school benefit, an issue which had been in
dispute between the appellants and the respondent since 2009.
Counsel for the appellants submitted that the clear meaning
of section 8(1)(f) of the Income Tax Act [Chapter 23:06], prior to its
amendment in 2012, is that not all perquisites fall to be treated as advantages
or benefits, but only those to which specific meaning is given. He submitted
that the use of the verb 'means' in subparagraph I(a) of the definition of
'advantage or benefit' is undoubtedly used in contradistinction to the more
general verb 'includes.' He further submitted that the fact that the provision
was amended meant that the legislature cannot be assumed to be repeating
itself. He submitted that section 8(1)(f)I(a)(iv) of the Income Tax Act
[Chapter 23:06] was amended to include something new which had not previously
been covered by legislation. He submitted that the difference between what
other parents pay for the education of their children and what the employees of
the appellants pay is not an 'advantage or benefit' contemplated by section
8(1)(f) of the Income Tax Act [Chapter 23:06]. He submitted that the waived
amount was not corporeal or incorporeal property as it has no tangible being.
I do not agree.
It seems to me that on a proper interpretation of the
provision, if the legislature intended to exclude other advantages and benefits
which it subsequently decided to include in the amended section 8(1)(f) I(a)(iv),
it would not have used the words “any other property whatsoever…, whether of
the same kind as referred to in paras (i), (ii) or (iii) or not.” The
subsequent specific inclusion of the school fees advantage or benefit in 2012
does not mean that the employee parents' “advantage or benefits” were being
included for taxation for the first time. In my view, it was merely being
clarified. That is why the amendment is worded in a manner which gives the
impression that it was intended to resolve the disputes in this case which had
started in 2009.
Counsel for the respondent submitted that the concessionary
rate of school fees which was offered to the appellants' employees was an
advantage or benefit in terms of section 8(1)(f)I(a)(iv) of the Income Tax
Act [Chapter 23:06] in that it was an entitlement arising from an employment
contract, and, as such, it was a right. According to him, it was not the pupils
who have a right to education but rather the parents who have the right to have
their children educated at the concessionary rate. That right to have their
children educated at a concessionary rate constituted incorporeal property
which has a monetary value. Counsel for the respondent therefore submitted that
the amendment did not bring in a new thing, but was legislated to clarify
existing legislation.
I agree.
It is not unusual for the legislature to clarify
legislation whose wording would have caused disputes. In this case, the wording
of section 8(1)(f) I (a)(iv) of the Income Tax Act had caused disputes between the six appellants
and the respondent in the 2009 and 2010 income tax years which had not been
resolved at the time of the amendment.
L.W. HILL In his book; Income Tax in Zimbabwe, 4th Edition…, commented on section
8(1)(f) of the Income Tax Act, as it was before the 2012 amendment, as
follows:-
“Employers may remunerate their employees for services
rendered either in cash or in any other way, but any advantage or benefit which can be connected with an employee's
employment forms part of his gross income. 'Advantage or benefit' is
defined as: board; the occupation of quarters or of a residence; the use of
furniture or of a motor vehicle; the use
or enjoyment of any other property, including a loan; or an allowance…,.
For the most part, paragraph
(f) imposes liability on the employee's private use of the employer's assets. This
is because many receipts by employees from employers, in cash or in kind, will
already have fallen within the provisions of paragraph (b), considered earlier.”…,.
In view of the above, it is clear that the liability
imposed by paragraph (f) is for the use of the employer's assets.
In this case, it is not in dispute that the employees of
the appellants have rights which entitle their children to be educated at the
appellants' educational institutions at concessional rates because of their
contracts of employment. Those rights, although personal, are capable of being
enforced against the appellants. The right to have their children educated at a
concessionary rate is an incorporeal property envisaged in paragraph (f) of the
Income Tax Act.
It is on that basis that I find no fault in the judgment of
the court a quo that the waived
amount is an amount equal to the value of an advantage or benefit in respect of
employment.
Whether or not the
court a quo correctly assessed the calculations of the waived amounts
Counsel for the appellants submitted that the court a quo
erred at law by finding that the cost to the employer, in terms of section
8(1)(f)(ii)(b) of the Income Tax Act [Chapter 23:06] is the total cost incurred
in running each school divided by the total enrolment of each school inclusive
of the favoured pupils less the concessionary fees paid and all costs related
to boarding facilities whereas the court should have found that the cost to the
employer is each employee's child's proportionate share of the variable cost of
running the school excluding boarding fees.
I do not agree.
Section 8(1)(f)II(b) of the Income Tax Act provides:
“II. The value of the grant of an advantage or benefit,
other than a payment by way of an allowance, shall be determined…., -
(a) In the case of the occupation or the use of quarters,
residence or furniture, by reference to its value to the employee; and
(b) In the case of any other advantage or benefit, by
reference to the cost to the employer.”
The import of this provision is that the value of the
school fees benefit which is afforded to the employees of all six appellants
should be computed with reference to the cost to the employer.
The appellants' argument was that the non-variable costs
should not be included in the assessment of the value of the benefit because
these costs would have been incurred by the employer whether or not the
employee is conferred with the benefit and these are incurred by the employer
in running the school.
That argument is flawed.
The provision made it clear that the value of the benefit
is to be determined with regard to its cost to the employer. To draw a
distinction between variable costs and non-variable costs would be tantamount
to reading into the provision what was never intended by the legislature. The
remarks of GUBBAY JA…, in Mxumalo & Ors v Guni 1987 (2) ZLR 1 (S) are apposite. He said:-
“The language used is plain and unambiguous and the
intention of the Law Society is to be gathered therefrom. It is not for a court
to surmise that the Law Society may have had an intention other than that which
clearly emerges from the language used. This principle has been stated
frequently and I need only refer to Ex parte Minister of Justice: In re R v
Jacobson & Levy 1931 AD 466 at 480, where STRATFORD J said that:
'The function of a
Court of Law is to construe the language of the Legislature and arrive at its
intention in that way; it has no power to redraft or alter the language. (The)
intention is not to be ascertained by surmise however probable such surmise may
be.'”
The provision does not draw a distinction between variable
and non-variable costs. The learned judge a quo, in making his determination,
made reference to Income Tax Case No.1336…,
where SQUIRES J said:
“The clear intention of the legislature is manifestly to
tax, in a taxpayer's hands, all the benefits or advantages afforded to him as
an employee from his employment, as well as the income he earns. The advantage
or benefit of using a car belonging to the employer is to relieve the employee
taxpayer of the financial burden of owning the car himself. It can be a very
substantial benefit compared to the person who receives no such advantage, and
not the least relief is the costs of licencing and insuring such asset, quite
apart from the diminution in value that is inherent in the aspect of
depreciating whether actual or notional. Since the relief thus afforded is
unquestionably a benefit to the employee, I can see no basis on which the
spirit of the Act would save to exclude these from what falls into the gross
income, particularly as they are equally clearly a cost to the employer. Not
only, therefore, is there no reason for implying additional words, but, as it
seems to me, a strong reason for giving the word used their ordinary meaning."
Counsel for the appellants submitted that the facts of that
case can be distinguished from the facts in casu because in that judgment the car was not used for the public. He
argued that if the car was used for the public as well as for the employee's
benefit, the learned judge would not have come to the same conclusion because
all the costs of running the vehicle (variable and non-variable) would not have
been found to constitute the value of the benefit to the employee.
I do not agree with that argument.
The cost to the employee should be computed with regard to
the total cost of running the school regardless of the allegation that under
the school budget, the non-variable costs are covered by the full school fees
paying children. To hold that non-variable costs should be excluded from the meaning
of “cost to the employer” would be reading into the language of the statute
what was not intended by the legislature.
The appeal is devoid of merit. It is accordingly
dismissed with costs.
