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.
