UCHENA
JA: This
is an appeal against part of the
judgment
of the Special Court for Income Tax Appeals handed
down
on 14 August 2020, dismissing the appellants appeal
against
the
respondent's
Commissioner's
dismissal
of
its
objection
in respect of its failure to deduct Pay As You Earn
(PAYE)
in respect of meals and accommodation the appellant
provided
to its
employees
and penalties the respondent's
Commissioner
had imposed against the appellant.
At
the hearing
of
the appeal the appellant abandoned its grounds of appeal in
respect
of penalties. The appeal was therefore argued on
whether
or not the accommodation and meals the appellant
provides
to
its
employees
are
taxable.
FACTUAL
BACKGROUND
The
appellant
is
a
company
duly
registered
in
terms
of
the
laws
of
Zimbabwe.
It
is
involved
in
the
mining
industry
at
its still
to
be
fully
developed
mines
at
Ngezi
and
Selous
areas
in
Zimbabwe.
The
respondent
is
an
administrative
authority
established
in
terms
of
the
Revenue
Authority
Act
[Chapter 23:11]
and
is
tasked
with,
inter
alia, the
collection
of
income
tax
from
income
earners
in
terms
of
the
Income
Tax
Act
[Chapter
23:06]
(ITA).
On
establishing its mines, the appellant built Ngezi,
Mupani
and Eagle's Nest Villages where it accommodates and
provides
meals to employees on shifts and those waiting to go
on
shifts. It gives packed meals to employees who will be on
shift
in the mines. The employees on shift in the mines are
given
breaks of only 15 minutes to eat their packed meals
before
continuing
with
their
duties.
The
appellant's villages can
only
be accessed by
employees
who it will have authorised to be accommodated there for the periods
they will be on shifts and waiting to go on
shifts.
The appellant completes forms authorising the admission
of
employees
going
on
shifts
into
its
villages.
The
villages
do
not have individual cooking facilities for the employees.
The
appellant
provides
them
with
meals.
The
villages
can
only accommodate
employees. They do not accommodate the employees
dependents.
An employee can only stay in the villages while on shift or waiting
to go on shift. When an employee is off duty
he
has
to
go
back
to
his
own
accommodation.
The
respondent carried out a tax review audit of the
appellant's
payroll
tax
compliance.
Upon
concluding
the
investigations,
the respondent's officers found the appellant
liable
for
failure
to
withhold
pay
as
you
earn
tax
on
advantages and benefits accruing to the appellant's employees
in
respect of the accommodation and meals it provides to them
in
the villages and mines.
As
a result, the respondent issued
the
appellant with revised assessments for the period 2010 to
2016
and
required
it
to
pay
the
outstanding
taxes.
The
appellant objected in terms of section 62 of the ITA to
the
assessments raised by the respondent in respect of the
accommodation
and
meals
it
gives
to
its
on
shift
and
waiting
to
go on shift employees. It submitted that the employees were not
deriving
any
benefit
from
the
accommodation
arrangements
as they were purely designed for the employer's business
transactions.
The
respondent's
Commissioner
disallowed
the
appellant's
objections.
The
appellant appealed to the court a
quo
challenging
his
determination
of
its
objections.
In
the court a
quo
the
appellant argued that the meals
and
accommodation
it
provided
to
its
employees
did
not
constitute a taxable advantage or benefit in terms of section
8(1)
of
the
ITA.
In
response, it was submitted for the respondent that
the
assessments had been done in terms of the law. It was
argued
that the appellant's employees were getting a benefit
from
the free accommodation and meals they got from Eagle's
Nest,
Ngezi and Mupani villages as they were relieved of the
financial
burden of paying for their own accommodation and
buying
their own meals. The respondent therefore argued that
this
made the provision of accommodation and meals taxable
benefits
in
the
hands
of
the
appellant's
employees.
In
determining
the
issue
of
the
meals
and
accommodation provided by the appellant to its employees at
Eagle's
Nest, Ngezi and Mupani Villages, the court a
quo
held
that
they were taxable as they relieved the employees from
having
to
pay
for
their
own
accommodation
and
meals.
The
appellant was aggrieved by the decision of the
court
a
quo.
It
appealed against it to this Court, on the
following
ground
of
appeal:
“The
court a
quo
erred
in law by holding that the meals
and
accommodation provided by the appellant to its
employees
temporarily residing at Eagle's Nest, Ngezi and
Mupani
Villages and working at the appellant's mines
constitutes
a taxable advantage or benefit in terms of
section
8(1)(f)(ii)(b) of the Income Tax Act (Chapter
23:06)
accruing
to
the
employees”.
SUBMISSIONS
BY
THE
PARTIES
Mr
Muchada
for
the appellant submitted that he will be
advancing
argument in respect of ground 3 which dealt with
section
8(1)(f)
of
the
ITA
focusing
on
taxation
of
accommodation
and meals provided by the appellant to its
employees.
He submitted that section 8(1)(f) of the Income Tax Act
contained
an exception
to
the effect
that
advantages or
benefits
used, enjoyed or consumed by employees for purposes
of
the employer's business transactions are not taxable. He
averred
that the meals and accommodation provided by the
appellant
to its employees in the mines and villages were not
taxable
as they were provided for the employer's business
transactions.
He
further submitted that the circumstances
surrounding
the operations of the appellant demanded that the
employees
be
provided
with
temporary
accommodation
and
meals
on
site
for
the
employer's
benefit.
Per
contra,
Mr
Magwaliba
for
the respondent submitted
that
the appellant's employees enjoyed a benefit that was
unrelated
to the services they rendered and so they ought to
have
been taxed on the meals and accommodation they received
from
the
appellant.
He
further
averred
that
the
appellant's employees
ought to have found their own accommodation in
neighbouring
towns because the accommodation and meals which
were
provided by the appellant were not in line with the
business
transactions of the appellant, but was mainly for the convenience
of
the
employees.
He
however
conceded
that
employees
who
are
off
duty
cannot
stay
in
the
villages
and
have to go back to their own accommodation and would not be
entitled
to
meals.
The
appellant
having
abandoned
the
issue
of
the
penalty
imposed upon it, the only issue remaining to be
determined
relates
to:
Whether
or
not
the
court
a
quo
correctly
held
that
there
was
no misdirection on the part of the respondent in holding that
the
meals
and
accommodation
provided
by
the
appellant
constituted
a taxable advantage or benefit in terms of the
Income
Tax
Act.
THE
LAW
It
is settled law that the taxpayer bears the onus of
proving
its case on appeal. Section 63 of the Act provides as
follows:
“63
In
any
objection
or
appeal
under
this
Act,
the
burden
of
proof that any amount is exempt from or not
liable
to the tax or is subject to any deduction in
terms
of this Act or credit, shall be upon the person
claiming
such exemption, non-liability, deduction or
credit
and upon the hearing of any appeal the court
shall
not
reverse
or
alter
any
decision
of
the
Commissioner
unless it is shown by the appellant that
the
decision
is
wrong.”
The
tax
payer
can
prove
this
by
giving
evidence
which proves that the law exempts him/her/it, from paying the
tax
the
Commissioner
is
requiring
it
to
pay.
In
the
case
of
Parkington
v
Attorney
General
1869
LR 4
H.L.
100,
122
LORD
CAIRNS
commenting
on
the
interpretation
of
fiscal
statutes
said:
“As
I understand the principle of all fiscal legislation it is this. If a
person sought to be taxed comes
within
the letter of the law he must be taxed, however
great
the hardship may appear to the judicial mind to
be.
On
the other hand if the Crown, seeking to recover the tax, cannot bring
the subject within the letter of
the
law, the subject is free, however apparently within
the
spirit
of
the
law
the
case
might
otherwise
appear
to
be.”
The
facts of each case and the relevant provisions of
the
ITA must therefore be carefully examined to determine
whether
or
not
a
tax
payer
falls
within
or
outside
the
ambit
of
the
taxing
provision.
Section
8(1)(f) provides 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)
to
(g)…
(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.”
The
Act proceeds to define the terms advantage or
benefit
as
including:
“the
use
or
enjoyment
of
any
other
property
whatsoever…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…”
(emphasis
added)
The
words “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” provides an exception
which
determines whether or not an employee who receives an
advantage
or
benefit
should
be
taxed.
The
words “in so far as it is not” which precedes the
words
“consumed,
occupied
used
or
enjoyed”
means
the
taxability
of
the
advantage
or
benefit
depends
on
the
purpose for
which
the
consumption,
occupation
use
or
enjoyment
is
given
by
the
employer.
The
words
“for
the
business
transactions
of
the
employer” exempts the employee from taxation if he/she/it
consumes,
occupies,
uses
or
enjoys
the
advantage
or
benefit
for the business transaction of the employer.
It
must be noted
that
the consumption, occupation use or enjoyment would be
taxable
but is exempt because of the need to further the
employer's
business transactions.
The
Legislature deliberately provided for the exemption in appreciation
that circumstances
may
arise when employees may get an advantage or benefit which should be
exempt because it will have been necessitated by the business
transaction
of
the
employer.
The
purpose of the employer's business transaction can
be
identified by considering, who is the dominant beneficiary
between
the employer and the employee or who determines the
need
for the giving of the benefit and is enriched by it. If
the
transaction is predominantly for the employer's benefit or
interest
the employee should be exempt from taxation. If the
transaction
gives
the
employee
an
advantage
or
benefit
as
would be the case when employees are given incentives the
employee
must
be
taxed.
This,
therefore, means advantages and benefits which
are
given to an employee are taxable unless they are consumed
or
used by the employee for the purpose of the business
transactions
of
the
employer.
APPLICATION
OF
THE
LAW
TO
THE
FACTS
In
determining
the
appeal
on
whether
or
not
the
accommodation and meals provided by the appellant to its
employees
were
taxable
the
court
a
quo
said:
“The
issue
herein
is
whether
the
meals
and
the
accommodation
provided
by
the
appellant
to
its
employees
at
these camps constitute a taxable advantage or benefit
accruing
to the employees in terms of section 8(1)(f) of the
Act.
The appellant's contention is basically that
it
provides
meals and accommodation to its employees at these
villages
because
it
is
a
necessary
part
of
its
business.
In
other words, there is no taxable benefit which is given to the
employees. During the hearing the appellant chose
not
to pursue the issue as to whether or not there was a
practice
generally prevailing within the respondent in
terms
of which meals provided to low level employees were
not
subjected to tax. I will therefore focus on the
remaining
issue.
It
is trite that section 8(1)(f) of the Act excludes from
taxation
any advantage or benefit in so far as it is used,
consumed
or enjoyed for the purpose of the business
transactions
of the employer.
The
appellant contents that
this
provision
is
not
different
from
the
so-called
convenience
of the
employer
doctrine, applied in the
United
States
of
America.
The
later
doctrine
as
codified
by
the Internal Revenue Code of 1954, established two
requirements
for excluding meals:
(a)
the employer must
provide
the
meal
for
the
convenience
of
the
employee;
and
(f)
the meal must be provided 'on the business premises of
the
employer'.
See
also Commissioner
v Kawalisk
434
US 77
(1977).
I
disagree with the appellant. Section 8(1)(f)
creates
a dispensation that is materially different from
the
US doctrine of the convenience of the employer.
The
respondent
correctly relies upon a case from this court in ITC number 1336
(1981) 43 SATC 114 (Z). In that case
SQUIRES
J
stated:
'The
advantage
of
(sic)
benefit
of
using
a
car
belonging
to the employer is to relieve the employee
tax
payer of the financial burden of owning a car
himself.
It can be a very substantial benefit compared
to
the person who receives no such advantage------ 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
income
particularly
as
they
are equally
clear
a
cost
to
the
employer'.
Although
the court was dealing with a, motoring benefit
the
principle is equally applicable to accommodation and
meals
benefits in casu.
These
benefits are subject to
taxation.
The
accommodation and meals provided by the
appellant
to its employees relieves the employees of the
financial
burden
of
paying
for
their
own
accommodation
and
buying their own meals.
They
are therefore benefits
taxable
in the hands of the employees.
The
accommodation
and
meals were not consumed for the business transactions of the
appellant. The job would have been done whether or
not
the appellant had provided the
accommodation and
food.
The employees could have looked for their own
accommodation
and
their
own
food
to
sustain
themselves.
If
all that the appellant wants was to prevent its
employees
from wondering away from the workplace and at
the
same time not give them a taxable benefit was for the
appellant
to
provide
the
accommodation
and
the
meals
for
a
market price consideration. The appellant even provided meals
to
employees
who
were
no
longer
on
shift.”
(emphasis
added)
In
his
evidence
Mr
Jokonya
the
appellant's
Human
Resources
and
Community
Services
Manager
during
his
examination
in-chief told the court how they run three shifts.
During that part of his evidence the following exchange took
place
between
him
and
the
appellant's
Counsel:
“Q.
In relation to that can I ask you Mr Jokonya to tell
the
court how long does an employee stay at this (sic)
accommodation
villages?
A.
We
run
three
shifts
what
we
call
7:3
when
employees
are
on day shift they are at work for 7 days and then
they
go off for 3 days. That is when they are on
day
shift. When they go on night shift they go on what
we
call
7:4
which
means
that
they
are
at
work
for
7 days
and they go off for 4 days. And at any one point
in
time there is a shift that is off so two shifts are
at work, one shift is off. And then we have got the
third
one that we call 5:2. This basically refers to
people
who work Monday to Friday and they are off over the
weekend.
Q.
Mr Jokonya you have explained to the court the various
shifts
that employees work for 7
days
then after 4
days
off,
then
5
days
off,
when
these
employees
are
not
on
shift
where
did
they
stay?
A.
My Lord when these employees are not on shift they are
expected
to go on (sic) wherever they call home.”
(Emphasis
added)
The
fact that employees who are not on shift or
awaiting
to go on shift have to go to their own accommodation
resolves
the issue.
It
means the court a
quo
erred
when it, in its
judgment
held
that
“The
accommodation
and
meals
provided
by
the appellant
to
its
employees
relieves the employees of
the
financial burden of paying for their own accommodation and buying
their
own
meals.”
If
employees have to go to their own accommodation
when
not on shift or waiting to go on shift it means they have to own or
rent their own accommodation for use when they are
not
on shift. Their stay in the appellant's camps or villages
is
temporary and does not relieve them of the financial burden
of
owning or renting their own accommodation.
Mr
Magwaliba
for
the respondent conceded during the hearing of the appeal that
employees
go to their own accommodation when they are not on
shift
or
waiting
to
go
on
shift.
Entry
and exit from the villages are controlled by the employer.
An
employee
can
only
be
accepted
into
the
villages
at
the
instance
of
the
employer
who
completes
a
form
instructing
the village to book in the employee who will be
about
to go on shift. The employees can only stay in the
villages
for the period specified by the employer. At the end
of
his shift an employee has to leave the village and go back
to
his
own
accommodation.
He
will
be
replaced
in
the
village
by
another
employee
who
will
be
coming
to
stay
for
the
duration
of
the
next
shift.
The
accommodation
is
therefore
only
availed to employees during the duration of their shifts.
This
clearly demonstrates that the accommodation is for the
benefit
of the employer's business. The employer controls the
employees
stay in the villages at times it requires their
presence
in
the
villages
to
work
in
its
mines
which
are
located
in
the
bush.
The
employer also controls
the provision
of food in
its
villages and mines. The villages have no provision for
employees
to cook their own food. They have to eat what the
employer
provides. Employees working in the mines are given
fifteen
minutes per shift to eat the packed meals. This is
obviously
to
avoid
loss
of
production
time.
This
is
clearly
for
the benefit of the employer's business transaction.
The
employees
can therefore only stay in the villages and consume
the
meals for purposes of
rendering
efficient services to their employer during the times they are
confined to the
villages
and
mines for the business transactions
of
the
employer.
It
is only the appellant's employees on shift who can
stay
in the villages. The employees have to find their own and their
families accommodation elsewhere. They have to provide
meals
for their families during the period they will be on
shift.
They have to go back to their own accommodation when
they
are not required to be in the villages or mines for the
business
transactions of the employer.
The
appellant clearly
uses
its villages and meals for the
furtherance
of its business
transactions.
The
appellant in my view discharged on a balance of
probabilities,
the onus placed on it by the law to prove that
the
Commissioner erred when he held that the meals and
accommodation
provided to the employees constitute a taxable
advantage
or
benefit.
The
advantages
or
benefits
received
by
the
employees
of
the appellant fall within the broad definition of the term
gross
income
but
also
fall
within
the
exemption
under
section 8(1) of
the Act.
The
court a
quo
therefore
erred when it held
that
the accommodation and meals provided by the appellant to
its
employees serve as a financial relief and they are therefore
benefits taxable in the hands of the employees.
That
finding is contrary to the uncontroverted evidence led from Mr.
Jokonya, who said the employees temporarily stayed at the
camps/villages
when they were on shifts or waiting to go on
shift
but would go back to their own accommodation at the end
of
the shift. He also said they provided meals to employees
working
in the mines because they only give them 15 minutes
breaks
to eat their meals. He explained that 15 minutes is not
even
enough for an employee to get out of the mine and be
cleared
out by security to enable an employee to go out and
look
for his/her own food at the shops located seventeen
kilometres
from the mine.
It
is clear that the provision of
food
to employees working in the mines is for the benefit of
the
employer's
business
transactions.
The
food
given
to
employees
who will be in the employer's villages, awaiting
their
turn
to
go
on
shift
is
in
my
view
also
in
the
interest
of the employer's business transactions.
The
employer will
have
brought the employee from his/her own accommodation and
confined
him/her in its own accommodation for the efficient
running
of its mines. The employer gives them food because
there
are
no
individual
cooking
facilities
in
its
villages.
This
case
is
distinguishable
from
the
facts
in
Arundel
School & Ors v Zimbabwe Revenue Authority
SC
61/17 in
which
this Court held that the exemption of a school's teacher
from
paying
fees
for
his/her
children
is
a
taxable
benefit.
The
free education given to a teacher's child is a benefit to
the
child who acquires education at the expenses of his or her parent's
employer. The teacher is relieved of the burden of
paying
for the education of his or her child. The employer
derives
no benefit from the education of its employee's child. It is not
comparable to merely temporarily staying in the
employer's
accommodation and consuming the employer's meals
because
the employer realised that it had to make these
provisions
for
the
efficient
running
of
its
mines.
It
is also distinguishable from ITC number 1336 (1981) 43 SATC 114 (Z)
were the Special Court held that the
benefit
of using the employer's vehicle for one's own use
relieves
the employee from having to own his own vehicle.
An
employee
who uses the employer's vehicle for the employer's
business
and for his own uses is relieved of the burden of
having
to buy his own motor vehicle. While the provision of
meals
for employees in villages while waiting to go on shift
may
be a benefit to employees because
for
the duration of
their
stay in the villages they do not have to buy their own
food.
One must however be guided by the law which acknowledges these
benefits but exempts them because they are given as part
of
the employer's business transactions.
As
already explained
under
the analysis of the law what the Legislature has exempted should
remain exempted and what the legislature says
should
be taxed must be taxed.
Tax
legislation must be interpreted
in
such
a
way
as
to
give
effect
to
the
intention
of
the
legislature
even
if
it
may
seem
to
cause
hardship
to
the
taxpayer
or
loss
to
the
fiscus.
In
light of the above, I find that the meals given by
the
appellant to its employees may be income but they are
exempt
from taxation by the operation of law. The meals and
accommodation
have a value that is taxable in terms of section 8(1)
of
the Act but are exempt in terms of section 8(1)(f) of the same
Act.
The
court a
quo
therefore
correctly found that the meals
and
accommodation fit in the definition of gross income in
terms
of section 8(1) but erred in holding that they do not fall
within
the
exemption
provided
for
by
section
8(1)(f).
The
appeal
has
merit.
It
is
accordingly
ordered
as
follows:
1.
The
appeal
succeeds
with
no
order
as
to
costs.
2.
The decision of the court a
quo
in
respect of the
taxation
of the employees for the accommodation and
meals
given to them at the appellant's villages and
mines
is
set
aside
and
is
substituted
by
the
following:
“The
objection lodged by the appellant against the
amended
tax
assessments
issued
by
the
respondent
on
23 May 2017 in respect of employment tax (PAYE)
on
meals
and
accommodation
provided
to
employees at
Eagle's
Nest,
Ngezi
and
Mupani
Villages
and
working
on
the
appellant's
mines
is
allowed”.
BHUNU
JA:
I
agree
CHATUKUTA
JA:
I
agree
Maguchu
&
Muchada,
appellant's
legal
practitioners
Advocates
Chambers,
respondent's
legal
practitioners
