GOWORA
J: This matter was argued before me on 25 October 2010. Counsel for both the
applicant and the respondent undertook to furnish me with authorities for the
arguments advanced on behalf of both litigants. Unhappily counsel did not act
on their undertaking with the result that the authorities filed by counsel for
the respondent was only availed on 11 November 2010. To date I have not
received any from the applicant's counsel and as a result this judgment will be
prepared without the benefit of those authorities.
The
applicant has filed a founding affidavit in which the facts surrounding the
application are alleged to be the following. The applicant carries on business
as a diamond miner at Murowa, with its registered office being in Harare. In June or July
2009 officials of the Zimbabwe Revenue Authority (commonly referred to as
ZIMRA) of which the respondent is, in terms of the Revenue Authority Act [Cap 23:11]
responsible for the supervision, management of staff and activities, funds and
property, carried out an audit of the applicant. Arising from that audit was a
determination that the applicant had overpaid an amount of $215 878-54 in
respect of withholding tax between January 2007 and October 2008. It was then
agreed between the applicant and the officials of respondent's office that the
overpayment could be offset against payments due in the future. On 8 July 2009
the applicant addressed a letter to the respondent seeking confirmation that
the overpayments would be used to offset outstanding taxes. In a letter dated
24 July 2009 the applicant sought confirmation of the amount of the overpayment
and further, information as to when a refund would be made, alternatively,
whether there would be an offset against other taxes due by the applicant to
the respondent. This letter was received and signed for on the same day by an
official of ZIMRA.
The
applicant avers that the overpayments were amounts which had been paid to the
Reserve Bank in foreign currency which were credited to an account held in the
name of the ZIMRA. The applicant avers that because of the policy of the
Reserve Bank at the time the foreign currency was itself taken by the Reserve
Bank and an equivalent value in Zimbabwe
dollars was credited to ZIMRA's account.
The
applicant avers that on 25 January 2010 the respondent addressed a letter to
the applicant stating that there was only a possible overpayment and that no
payments had been made. A follow up letter dated 29 September 2010 was
addressed to the applicant's legal practitioners stating that the withholding
tax had not been paid in foreign currency and therefore no payments had been
made. It was also suggested that the Reserve Bank was not authorized to accept
payments on behalf of ZIMRA and that ZIMRA's foreign currency (FCA) account was
held at CBZ Bank and not at the Reserve Bank.
It
is averred by the applicant that the alleged overpayments took place during
January 2007 and September 2008 and that during that period there was no
obligation to pay withholding tax in foreign currency. The obligation was only
introduced by s 4A(1) (f) of the Finance Act which was brought into force
through s 3 of the Finance Act of 2009, which was promulgated sometime in 2009.
The applicant therefore contends that in as much as the respondent was not
entitled to receive foreign currency for withholding tax, the amount which was
received by the Reserve Bank was converted by the bank to Zimbabwe
dollars and posted to the ZIMRA account. The applicant contends that the
respondent is obliged to recognize the payments and give full credit for them
as it derived benefit from the funds between January 2007 and September 2009.
An amount of $178 961-07 was set off and $37 208-07 was paid to ZIMRA as cash.
However, despite receiving payments mentioned above, the respondent has
threatened to institute recovery proceedings against the applicant. If this
action were allowed to be executed the applicant would be crippled in the
conduct of its business activity. The respondent has no basis to fear that the
applicant would be unable to pay any amount that is legally due to it as the
applicant has considerable assets.
The
respondent is opposed to the granting of the relief being sought. The opposing
affidavit has been deposed by Grasia Garuso who is an Investigating Officer
within ZIMRA. A point in limine has
been raised in the affidavit to the effect that the matter is not urgent. The
deponent avers that indeed the respondent has made demand of certain amounts
due to ZIMRA but is of the opinion that even if the respondent were to
garnishee the amount from the applicant's accounts this would not result in the
applicant suffering irreparable harm.
As
to the merits the respondent avers as follows. It is admitted that the
respondent is demanding payment of US $215 878-54 which amount represents
withholding tax for the tax years 2009 and 2010. The respondent emphasizes that
these amounts are due and payable. The respondent denies however that there was
overpayment and denies further that the audit revealed such overpayment for
withholding tax in respect of the period January 2007 to October 2008. It is
the position of the respondent that the issue of overpayment was raised by an
employee of the applicant after the audit was finalized. The respondent states
further that it was then agreed that if there was an overpayment, then such
overpayment could be offset against payments in future if the original payment
was paid to the respondent in foreign currency. The applicant had assured the
respondent that it had paid in foreign currency but the respondent had only
received Zimbabwe
dollars.
The
respondent admitted that it had received a letter from the applicant but denies
that there was an overpayment of US$215 878-54 for the period January 2007 to
October 2008. The respondent confirmed that all payments made by the applicant
for the period in question were in Zimbabwe
dollars into a Zimbabwe
dollar account. The respondent's view is that a payment to the Reserve Bank in
foreign currency was not payment to ZIMRA for withholding tax. The respondent
further states that the applicant had been advised by letter dated 25 January
2010 that the respondent had verified that there had been no overpayment
towards withholding tax in United States dollars for the period January 2007 to
October 2008. A further letter dated 29 September 2010 addressed to the
applicant's legal practitioners had confirmed that there was no overpayment and
that the applicant was being put on terms to pay the amounts due by it. The
respondent contends that prior to the amendment of s 4 of the Finance Act [Cap 23:04] and the introduction of s 4A which came into force on 23 April
2009 there was no obligation on a taxpayer to pay withholding tax in foreign
currency and that any payment by the applicant to the Reserve Bank of any
amount prior to the promulgation of the new section was not in terms of a legal
obligation. The respondent accepts that the applicant has paid withholding tax
for January 2007 to October 2008 but contends that the payment was in Zimbabwe
dollars and not foreign currency. What the respondent denies is that the
applicant made an overpayment of withholding taxes in foreign currency.
The
applicant has annexed to its papers a letter from the Reserve Bank of Zimbabwe
dated 9 September 2009 confirming that the applicant had on certain specified
dates made payments to the Reserve Bank and that the amounts paid on the said
dates had been credited into the Federal Reserve Bank account of the Reserve
Bank of Zimbabwe held in New York. The letter in the final paragraph states
that the funds received by the Reserve Bank were converted to Zimbabwe dollars and posted to
account number 20-11109 in accordance with instructions on the credit
confirmation. The respondent's position is that the applicant owes withholding
tax for January 2009 to 2010 and although the applicant admits that withholding
tax for the period is due, it, the applicant, has not proved that it has paid
such withholding tax. Instead the applicant is alleging a set-off.
The
respondent disputes that he has appointed anyone to recover monies due to it by
the applicant. The respondent further states that the applicant was advised on
25 January to pay the withholding tax and that this constitutes a reasonable
period. Some of the tax was due since 2009 and nothing has been paid. The
respondent prays for the dismissal of the application and a corresponding award
for costs on the higher scale.
In
argument Mr Morris contended that in
so far as urgency was concerned there was a sword of Damocles hanging over the
applicant, given the peremptory powers that the respondent enjoys under the
Act. These powers include the power to appoint a bank as agent for purposes of
collecting money on behalf of ZIMRA. The existence of a dispute between the
applicant and the respondent pointed to a strong possibility that the
respondent would exercise one of his peremptory powers under the Act.
As
regards the issue of urgency, it was contended on behalf of the respondent that
this matter has been conducted by the parties in a professional manner through
the exchange of correspondence since March 2010.
The
first letter on record from the office of the Commissioner General indicating
that withholding taxes for 2009 were outstanding is actually dated 25 January
2010. This was responded to by the applicant's legal practitioners on 4 March
2010. The record reflects that a further
letter was written by the legal practitioners, on 24 August 2010 which the
Commissioner General responded to on 29 September 2010. It is in penultimate
paragraph of this letter where the applicant is put on terms to pay the
outstanding taxes by 5 October 2010 failing which recovery measures would be
instituted against the applicant. This application was filed on 19 October 2010
and by that date there had been no recovery measures put in place by the
Commissioner General.
In
order to decide whether or not this matter can be considered urgent, it is
necessary to scrutinize the relief being sought. The applicant seeks a provisional
order which is framed as follows:
TERMS OF FINAL ORDER SOUGHT
That the respondent show cause to this Honourable Court why a final order
should not be made in the following terms:
- That the respondent be and is hereby
prohibited from appointing agents in terms of s 48 of [Cap 23:12] until such time as the applicant's indebtedness, if any,
to the respondent has been determined in accordance with the procedure
relating to the Declaratory Order to be instituted by the applicant
against the respondent.
- The cost of this application will be borne
by the respondent on the scale of costs as recommended by the Law Society
as between legal practitioner and own client
TEMPORARY RELIEF GRANTED
The applicant is granted the
following relief:
- That the respondent be and is hereby
prohibited from appointing agents in terms of s 48 of [Cap 23:12] pending the
return date of this order
- A copy of this application will be served on
the respondent by the applicant's legal practitioners
The
applicant has not denied that the withholding tax is due and owing. As far back
as July 2009 the applicant had concluded that it had overpaid the respondent by
US$215 878-54. It sought to engage the
respondent in dialogue to have the issue resolved. By January 2010, the
respondent had put his position clearly to the applicant that there had been no
overpayment. Given the attitude of the respondent, in the event that the
applicant felt strongly, as it seems to do, that there had been overpayment, it
would have been prudent for the applicant to then have instituted proceedings
for the dispute to be settled. It has not done so.
The
respondent has the power under s 58 of the Income Tax Act [Cap 23:06] to appoint an
agent for the collection of tax due by a person. The applicant accepts that
this power has been bestowed on the respondent by the legislature to enable the
respondent to comply with his obligations under the Act.
It
cannot be argued by the applicant that the exercise by the respondent of his
powers under the empowering legislation is improper where monies are admitted
to be due and owing. It seems to me that this court can only be enjoined by a
litigant to bar the respondent from exercising those powers on the basis that
the respondent is acting improperly or that there exists some irregularity in
the manner in which the powers are being exercised, or that the sums sought to
be collected from the exercise are not in fact owed to the fiscus. In casu, there is
no allegation that the respondent is improperly seeking to appoint an agent.
There is also no suggestion that withholding tax is not due. What the applicant
seeks to rely on is a payment made to a party, not then appointed as agent for
the respondent, and which payment did not sound in United States dollars when it was
apparently credited to an account of ZIMRA. The United
States dollar payment remained in the account of the
Reserve Bank of Zimbabwe.
The
applicant's case is premised on a set-off which is disputed by the respondent.
In terms of s 58 of the Act, the respondent is empowered to appoint any person,
including a bank as his agent for the purpose of collecting withholding tax.
The payment by the applicant in 2007 to 2008 of the foreign currency now the
reason of this dispute was made to the Reserve Bank of Zimbabwe which only made payment to
the respondent in local currency. The respondent did not have a foreign
currency account with the Reserve Bank. In seeking to deny receipt of the
monies in question during the relevant period the respondent has stated that
the Reserve Bank was not its agent in terms of the Act for the due collection
of tax. The applicant does not dispute this. Rather, the position taken by the
applicant is that as both the Reserve Bank and ZIMRA fall under the umbrella of
the fiscus and that the payment made
by the applicant should be recognized as having been received by the State. The
argument advanced by the applicant is that as long as it can be shown that the
government benefited from the payment, then the set-off should be implemented
in favour of the applicant.
In
2007 the tax due from the applicant was in local currency, this much is
admitted. The applicant however chose, in a transaction agreed between itself
and the Reserve Bank to pay an amount to the latter in foreign currency and the
ZIMRA was then credited with an amount in local currency. The applicant has not
taken this court into its confidence as to the circumstances under which the
payment to the Reserve Bank was made. It cannot however state that it was
paying its tax under the arrangement with RBZ.
This
state of affairs between the applicant and the respondent has been existing for
the better part of 2009 and 2010, and one would assume that the applicant, in
order to seek a resolution to the impasse would have approached the court for a
declaratur. Even when it became
obvious that the respondent might act to recover the disputed tax, the
applicant has not brought the dispute to court for clarity on whether or not
the monies it paid to RBZ can be set-off against what it now owes the
respondent. In my view the applicant has to establish that in the circumstances
of this case, it would be entitled to claim a right of set-off against the
respondent.
Set-off
is a process whereby debts which are mutually owed between the same parties are
extinguished. In order that one debt be set-off for another, it is a
prerequisite that both debts be liquid. In addition, the debts must clearly be
between the same parties. Mr Chinake referred me to CoT v First Merchant Bank 1997 (1) ZLR 350 (S) in which the Supreme
Court made it clear that where debts are due by government departments, a debt
owed by one department cannot be off-set against one owed by a different
department. At p353C-F GUBBAY CJ stated:
“At
common law, set-off or compensatio is a method by which mutual debts, being
liquidated and due, may be extinguished. It takes place ipso jure. If the debts
are equal, both are extinguished; if unequal, the smaller is discharged and the
larger is proportionally reduced. There are, however, two important exceptions
to the operation of the rule. A debt owed by one department of the State cannot
be set-off against a debt owed to another department. And set-off cannot be
raised against taxes due to the fiscus or where goods are sold for the benefit
of the State. See Schierhout v Union
Government 1926 AD 286 at 291; Pentecost
& Co v Cape Meat Supply Co 1933 CPD 472 at 479; Voet Commentarius ad
Pandectus 16.2.16 (Gane's translation, Vol 3 at 166) van Leeuwen Censura
Forensis 1.4.36.11 and 13 (Barber and Macfayden's translation); Wessels The Law
of Contract in South Africa 2 ed vol II at paras 2567 and 2568; Wille's
Principles of South African Law 8 ed at 483. Both these exceptions are grounded
in public policy and utility. The first is designed to avoid confusion in State
accounts; the second is to ensure the uninterrupted flow of tax revenues to the
Treasury in the interests of good governance. In each instance, it is for the
State to decide whether or not set-off should apply even though the debts
co-exist.”
In
casu, the entities in respect of
which set-off is being claimed are not strictu
sensu government departments. They exist in terms of enabling statutes and
are completely separate personae in their own right. They each have boards of
directors which boards are responsible for the management of each. In addition
set-off is being claimed in respect of taxes owed to the fiscus. In my view the exceptions which operate against the right
of set-off as they relate to debts owed and owing by government departments are
pertinent to this dispute. The applicant is clearly not in a position to
legally claim set-off in the circumstances and it is therefore my view that the
applicant has not established a prima facie right for the grant of an interim
interdict.
It
was contended that if the relief sought was not granted the applicant would
suffer loss. What that loss constitutes has not been stated. Indeed, it would be
contradictory for the applicant to seek to establish irreparable harm. In para
17 of the founding affidavit, it is stated that the applicant is a company with
considerable assets and that the respondent would not be at risk in failing to
recover any amount that is found to be properly due. How then can a company
with considerable assets be at risk if its account were to be deprived of the
sums sought by the respondent as withholding tax? The least the applicant could
have done was to present to the court a financial statement that would confirm
its allegation that the exercise by the respondent of his power under the Act
concerned would leave the applicant with a cash deficit. This it has not done.
Indeed, it was submitted on its behalf that the Commissioner would not know how
the applicant's business is run and how a shortfall of US$250 000-00 would
affect that business. The applicant would expect this court to accept its mere
say so that an appropriation by the respondent of an amount of US$250 000-00
which is admittedly owing would leave it impecunious. The court does not know
how the applicant runs its business and would therefore require evidence of the
effect of the deprivation of these funds, especially when one takes into
account the fact that these sums are admittedly owed to the fiscus.
The
applicant has said that it will suffer damage that cannot be compensated in any
other way than the grant of an interdict. It does not specify what specific
harm it will suffer and in the circumstances I am unable to find that any
action on the part of the respondent would cause harm to the applicant.
As
for the balance of equities, in my view this favours ZIMRA which is owed money
by the applicant and which money, in terms of the Act the respondent is obliged
to collect. I am unable to agree with the submission that the State benefited
from the foreign currency paid to the RBZ in 2007 because the circumstances
surrounding such payment have not been explained by the applicant.
In
the premises it is my view that the application is devoid of merit and it is
hereby dismissed with costs.
Gill, Godlonton & Gerrans,
applicant's legal practitioners
Kantor & Immerman, respondent's legal practitioners
