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Flour Mills of Fiji Ltd v Fiji Revenue & Customs Authority [2015] FJHC 368; HBT03.2012 (20 May 2015)

IN THE TAX COURT, HIGH COURT OF FIJI
AT SUVA
CENTRAL DIVISION

HBT No. 03 of 2012

IN THE MATTER
of the Decision made by the Tax Tribunal on 25th June 2012 in dismissing the Appellant's Income Tax Appeal No. 19 of 2007.

AND

IN THE MATTER
of Section 107 of the Tax Administration Decree 2009 (Decree 50 of 2009)

BETWEEN:

FLOUR MILLS OF FIJI LIMITED
(Tax Identification Number 50-02667-02)
Appellant

AND:

FIJI REVENUE & CUSTOMS AUTHORITY
Respondent

Appearance: Mr Nagin H.; Counsel of Sherani & Co., Barrister & Solicitors for the Appellant
Ms Malani R.; Counsel – Legal Officer of Fiji Revenue & Customs Authority for the Respondent

Date of Judgment: 20 May 2015

JUDGMENT

[1] This is an appeal against the decision made by the Tax Tribunal dated 25 June 2012 seeking to set aside the said decision and for an order that the cash donation of $200,000.00 made by the Appellant be allowed as a 200% deduction under Section 21(1)(v) of the Income Tax Act.

[2] Grounds of Appeal

(a) That the Learned Tribunal erred in law and in fact in disallowing the Appellant's Appeal to the Tribunal dated 22nd October 2007 when the grounds before the Tribunal stipulated that the provision of Section 21(1)(v) of the Income Tax Act Cap 201 were not properly considered. The said provision allows any taxpayer to deduct from their total taxable income, twice the amount of cash donation exceeding $100,000.00 if the donation is made between the 1st January 2004 and 31st December 2005 to a Sports Fund for the purposes of sports development in Fiji.

(b) The Learned Tribunal erred in law and in fact in not properly considering that the donation in question was a genuine donation and was properly negotiated by all parties and agreed and accepted that it would be qualify under Section 21(1)(v) of the Income Tax Act Cap 201.

(c) The Learned Tribunal erred in law and in fact in wrongly applying the Australian case authorities in this matter when these Australian case laws had no relevance to the issue before the Tribunal as the Australian provisions were difference from Section 21(1)(v) of the Income Tax Act Cap 201.

(d) The Learned Tribunal erred in law and in fact in giving undue importance to the naming rights agreement when that agreement was only a byproduct of the negotiated donation agreement.

(e) The Learned Tribunal erred in law and in fact in applying Punjas Limited case when this case was different and the Naming Rights Agreement was provided to the Respondent and the Respondent agreed that 200% deduction would be allowed on that basis and the Respondent only wrongly retracted from this based on erroneous belief that because the Agreement was terminated it the Respondent was obliged or entitled to disallow the deduction.

[3] Facts

3.1 On the 29th of January 2003, the Ministry of Youth, Employment Opportunities and Sports wrote to the President of Fiji Institute of Accounts, advising that the Government had offered 200% tax deduction incentive to corporate bodies to encourage private sector participation in the development of sports in Fiji. This was decided since there was a problem faced by the Fiji Sports Council when it needed funds to carry out maintenance of its sports facilities and to attract the investors for sports development.

3.2 The Appellant decided to be involved in this 200% tax deduction incentive scheme introduced by the Government and decided to enter into a Sponsorship arrangement with Fiji Sports Council in this regard.

3.3 On 25th October 2004, the Chief Executive Officer of the Ministry of Youth, Employment and Sports wrote to the Chief Executive Officer of Fiji Revenue and Customs Authority (FRCA) requesting FRCA to issue Flour Mills of Fiji Limited (FMF) a letter confirmation on the 200% tax incentive.

3.4 On 26th October 2004, the Chief Executive Officer for Youth, Employment Opportunities and Sports wrote to the Fiji Sports Council (FSC) again confirming that the Appellant was entitled to 200% tax rebate.

3.5 On 4th November 2004, the Appellant entered into an Agreement with FSC for naming the rights and various payments to be made to the FSC. This Agreement also provided an assurance by FSC that the Appellant was entitled to 200% tax deduction on the amount given to FSC.

3.6 On 10th November 2004 PricewaterhouseCoopers (PWC) on behalf of the Appellant wrote to FRCA setting out the details regarding the 200% tax deduction for cash contribution made to the Sports Fund. On 11th November 2004 PWC again wrote to FRCA enclosing a copy of the Agreement entered with FSC by the Appellant. On 11th November 2004 FRCA wrote to PWC confirming the 200% deduction.

3.7 On 19th November 2004 the Appellant paid $200,000.00 to National Sports Funding Commission. In 2006 a payment under the Agreement was overlooked because of the resignation of FMF's Financial Controller and Sales and Marketing Manager. Because the payment was not made on time FSC purported to terminate the Agreement between the Appellant and FSC. On 25th April 2007 FRCA wrote to PWC purporting to review his earlier decision made on 11 November 2004.

3.8 Then on 1st May 2007 FRCA issued an Amended Assessment on the Appellant for the Income Year ended 30th June 2005. PWC on behalf of the Appellant objected to the Amended Assessment but this was totally disallowed by FRCA on 22nd October 2007.

3.9 FMF appealed against the said decision of FRCA and this appeal was heard on the 1st and 19th June 2012 by the Tax Tribunal and was dismissed on the 25th June 2012 on the ground that the Naming Rights Agreement went well beyond what was envisaged within the language "cash donation", as the concept to be understood under taxation law.

3.10 This appeal was made by the Appellant against that decision of the Tax Tribunal that the appeal should be allowed as the donation in this case was coming under Section 21(1)(v) on the Income Tax Act and the donation was made on that basis.

[4] Consideration, Analysis and Determination

4.1 All the Appeal Grounds urged by the Appellant revolved around the Section 21(1)(v) of the Income Tax Act and the Appellant complains the Learned Tribunal erred in law and in fact when it arrived at the decision dated 25 June 2012.

4.2 Section 21(1)(v) of the Income Tax Act provides:

"Section 21(1) In determining total income, the following deductions should be allowed.

(a) .............................;

to

(u) .............................;

(v) one and half times the amount of cash donation exceeding $100,000.00 made by a taxpayer to a sports fund (as approved by the Commissioner of Inland Revenue) for the sports development in Fiji"

The above section provides to allow the deduction at the time of determining the total income. If any taxpayer had complied with the Section 21(1)(v) of the Act, if the cash donation was made there is no discretion for the Commissioner and it's mandatory for him to allow the deduction. It is now this court has to decide as to whether the Learned Tribunal made any errors in law or in fact arriving at its conclusions.

4.3 The Ministry of Youth Employment Opportunities and Sports in January 2003 announced that the Government would offer 200% tax deduction to corporate bodies to encourage private sector participation in the development of sports in Fiji which was an agreed fact.

4.4 To implement the tax concession offered followed by the Income Tax Budget Amendment Bill which was passed in June 2004 inserted the following provision:

"(v) two times the amount of cash donation exceeding $100,00 made by a taxpayer between 1st January 2004 and 31st December 2006 to a sports fund for the purposes of sports development in the Fiji Islands".

4.5 Subsequent to the passing of the above Act on 4 November 2004 Appellant in this matter had entered into an Agreement with Fiji Sports Council (FSC) for naming rights. There was an assurance given by the Fiji Sports Council to the Appellant that the Appellant was entitled to 200% tax incentive (on page 31 of the Copy Record). It was stated:

"C. The council assures FMF that the full sum of money paid in consideration in accordance to this contract qualifies for the 200% tax rebate by the Government of Fiji for sports related sponsorships".

It is evident by the letter dated 25 October 2004 (prior to entering into the Agreement dated 4 November 2004) the FSC requested the FRCA (the Respondent) under the heading "200% Tax Rebate – Naming and Advertising Rights to the National Indoor Stadium by Flour Mills of Fiji".

I conclude on this understanding only the Naming and Advertising Rights Agreement was signed between FSC and Fiji Flour Mills Ltd. This position was further supported by the letter dated 10 November 2004 written by PricewaterhouseCoopers to the Commissioner of the Inland Revenue where the last paragraph of which it stated:

"We therefore believe that FMF's arrangement with FSC via the Sports Fund should quality for the 200% tax deduction. We look forward to your confirmation that payments by FMF into the Sports Fund under the arrangements detail above qualify for the 200% tax deductions" (page 40 of the Copy Record).

This was followed by the letter dated 11 November 2004 and stated as follows:

"Further to our letter of 10 November 2004, and as requested, we enclose copy of the Agreement for your information. You will note in Clause 16 that the Agreement is conditional on FMF being able to obtain the 200% tax deduction should FIRCA not approve the arrangements as it is currently stands; this basically means that FMF will nullify the Agreement and renegotiate in a manner which satisfies you in order that it can obtain the 200% tax deduction".

4.6 In response to the said letter dated 10 November 2004, the Respondent replied by the letter dated 11 November 2004 which I reproduce below:

11 November 2004

Chirk Yam

PricewaterhouseCoopers

GPO Box 200

Suva

Dear Chirk

Re: Flour Mills of Fiji

I refer to your letter dated 11 November 2004 regarding the request for 200% tax deduction on the cash donation given by Flour Mills of Fiji for the indoor stadium.

We have thoroughly looked at the proposal to determine the eligibility of the request keeping in mind the intention of the provision to entice cash contribution towards the development of sports in general. Some of the guiding principles of the provision amongst others were to ensure that each contribution should exceed $100,000 and be given to Government through Ministry of Sports and Finance. From each contribution, Government will retain 2.5% for distribution to minor sports as sponsorship is usually attracted to bigger sporting bodies like rugby, netball, soccer and so on.

Given the difficulty experienced by the Sports Council to raise funds for the maintenance of the sporting facilities under its control and the problem of attracting sponsors for sporting development in general, the Authority is of the view that the request for 200% deduction be supported. This approval is one off and future request of similar nature will be dealt with on a case by case basis depending on the nature of the contract and the amount of sponsorship, which in this case is $600,000 for a period of 4 years.

Yours faithfully

Solomone S Kotobalavu

CHIEF EXECUTIVE OFFICER

It is abundantly clear that the time the Respondent issued the letter dated 11 November 2004, it was well aware there was an agreement between the parties.

4.7 The Learned Tribunal had dealt with this issue in the paragraphs 12 to 41 and discussed the issue of cash donation against the Naming and Advertising Agreement and concluded the monies paid by the Appellant do not come within the meaning of "cash donation" as provided in the 21(1)(v) of the Act. The Learned Tribunal concluded that the Respondent can review its position. I refer to page 18 of the record which states:

"Conclusions

42. As mentioned earlier, both parties accept the fact that the decision of the Court of appeal in Punjas Limited and Anor vs. Commissioner of Inland Revenue, is authority for the proposition that the Respondent is free to review its position (and its earlier assessment) based on a reconsideration of the law.

43. According to Ms Gavidi, the Respondent has done just that.

44. I find that the structure and terms of the Naming and Advertising Agreement went well beyond what is envisaged within the language of a "cash donation", as the concept is to be understood under taxation law. The Agreement clearly provided a material benefit to Company F. The donation did have a number of strings attached.

45. On that basis, I also find that the Amended Assessment conformed to the purpose of the former provision, that was Section 21(1)(v) of the Income Tax Act (Cap 201).

4.8. I will now consider whether the Respondent can review its position taken up in the letter dated 11 November 2004, I conclude it cannot be for the following reasons:

1. The Section 21(1)(v) stipulates that "two times of the cash donation exceeding $100,000.00 made by a tax payer between 1st January 2004 and 31st December 2007 towards sports funds for the purposes of sports development in the Fiji Islands".

I agree with the counsel this provision does not require annual cash donations of $100,000.00 to qualify for the tax deduction. It could be made between the period of 1st January 2004 and 31st December 2007, then the Appellant is entitled to claim. It is an agreed fact that on 19 November 2004, the Appellant made a payment of $200,000.00 to the Ministry of Finance and the Ministry had issued a receipt (page 43 of the Record). This fact was overlooked by the Respondent. It was a material error of fact made by the Respondent. In such circumstances the Learned Tribunal and the Respondent made error in law and in fact that the Appellant had not made a payment of over $200,000.00 to the FSC. Further I conclude rescinding the agreement does not affect the rights conferred upon the Appellant pursuant to Section 21(1)(v) as such the Respondent fails.

2. Now it is a matter to be decided as to whether the payment of $200,000.00 is a cash donation in terms of the Section 21(1)(v). In this regard the Learned Tribunal had failed to take into consideration the following:

(a) That there is no reference made with regard to the mode of payment by entering into a contract or not. However, the contract was divulged to the Respondent when it issued the confirmation for tax deduction by the letter dated 11 November 2004. The Respondent was aware the Agreement was Naming and Advertising Agreement (Letter dated 25 October 2004 – page 29 of the Copy Record) well before the confirmation was granted and now the Respondent cannot argue since there was an agreement and the Appellant had not made a cash donation. The Respondent is stopped from denying the letter was issued without knowing the clauses of the agreement and from denying that it was not a cash donation as per the agreement. The Learned Tribunal had failed to consider these factors before it and made error in law and in fact.

(b) There is no interpretation for donation in the Act in such situation in whose favour the interpretation should be made is an issue. I quote from Maxwell on Interpretation of Statutes 13th edition (pages 275-278):

Section 2 – Statutes Encroaching on Rights or Imposing Burdens

Encroachment on Rights

Statutes which encroach on the rights of the subject, whether as regards person or property, are similarly subject to a strict construction in the sense before explained. It is a recognized rule that they should be interpreted, if possible, so as to respect such rights. A statute under which a house owner is being deprived of his rights to property should be construed strictly against the local authority. If there is ambiguity as to the meaning of the section, inasmuch as it is a disabling section, the construction which is in favour of the freedom of the individual (to contract) should be given effect. Proprietary rights should not be held to be taken away by Parliament without provision for compensation unless the legislature has so provided in clear terms. It is presumed, where the objects of the Act do not obviously imply such an intention, that the legislature does not desire to confiscate the property or to encroach upon the right of persons, and it is therefore expected that, if such be its intention, it will manifest it plainly if not in express words at least by clear implication and beyond reasonable doubt. It is a proper rule of construction not to construe an Act of Parliament as interfering with or injuring persons' rights without compensation, unless one is obliged so to construe it. But a local authority was permitted by the erection of street shelters to interfere with the adjacent property owner's right to a free frontage, since the section impliedly authorized such interference in reasonable exercise of the powers which it conferred....................

............On this ground, it would seem, Statutes of Limitation are to be construed strictly. The defence of lapse of time against a just demand is not to be extended to cases which are not clearly within the enactment, while provisions which give exceptions to the operation of such enactments are to be construed liberally.

Similarly, a penal statute which throws the burden of proof of innocence on to the defendant, does not lay the same high standard of proof on him as would be required on the part of the prosecution to secure a conviction in a normal case". (emphasis mine)

In the present case cash donation in absence of any interpretation has to be interpreted safe guarding the rights of the person, not the authority as such I conclude the Appellant's payment of $200,000.00 to FSC should not affect his right to get the tax deduction under Section 21(1)(v). The Learned Tribunal had failed to address this issue and erred in law and in fact.

3. I agree with the Appellant's submission that the Tax Tribunal erred in applying Australian Case Authorities to this case and failed to apply the case authority in Fiji, Fiji Sugar Corporation vs. CIR [1983] FJSC 7. (decided on 18 May 1983) Stuart J. stated

"I pass then to a consideration of sub-section (b) in the context of this expenditure. Both counsel relied to some extent upon Australian cases. Generally speaking, however, I doubt the sub-sections (b), (c ), and (j) in Section 19 of the Fiji Act parallel Section 130 of the Income and Corporation Tax Act 1970 which reproduces English Sections which have been in existence since 1842".

4. The Learned Tribunal applied the Australian Taxation ruling 2005/13 (page 89 of the copy record) which relates to Section 78A of the Australian Income Tax Assessment Act 1936 and Fiji Act does not have equivalent provision. As such by applying Australian Authorities, the Tribunal erred in law and in fact.

4.9 Accordingly, I conclude that the Appellant succeed in the Appeal and he is entitled to claim the tax deduction under Section 21(1)(v) of the Income Tax Act.

[5] As a passing remark, I state present era of tax law is not applied on the basis of traditional common law definition of a gift or donation such as intention, transfer of property, the transfer must be voluntary and no consideration or advantage for the donor. Now there is new concept of gift or donation for tax purposes; which permits a donor to receive a benefit; provided that the value of the property donated exceeds the benefit received by the donor. This concept is commonly known as "Split receipting". This concept too is not a new one it is an importation of the civil law concept of gift which permits a benefit back to the donor. In brief to implement the concept of "Split receipting", the tax authority can consider the amount donated or fair market value of the property donated and then calculate the advantage received by the donor. The percentage of the advantage received by the donor will decide eligibility for tax deduction.

I presume this type of concept will attract more donations towards the social benefit and development of various projects that need funds. Applying rigid rules of taxation will eliminate such donations by the corporate sector and the individuals. The Legislature and the Tax Authority of Fiji should consider the new development of Tax Law by adopting such concepts for better management of Tax collections but not to discourage the donors to fund needed projects.

Orders of the court:

(1) The decision of the Tribunal is set aside and the Appeal allowed.

(2) No order made as to cost and parties to bear their own costs.

Delivered at Suva this 20th Day of May 2015.

..............................
C. KOTIGALAGE
JUDGE