| dc.description | (CORAM: NDIKA. J.A. MWANDAMBO. J.A.. AND KENTE. JJU(Haii. Vice Chairperson)
CIVIL APPEAL NO. 265 OF 2021 MLIMANI HOLDINGS LIMITED VS.
THE COMMISSIONER GENERAL.
(Appeal from judgment and decree of the Tax Revenue Appeals Tribunal at Dar esSalaam.) dated the 30th day of April, 2021
in Tax Appeal No. 66 of 2020
Taxation-withholding tax and payment fee - Whether the appellant had an obligation to deduct from the fees paid to the foreign consultant withholding tax payable to the respondent.
The dispute emanated from Article 7 of the Agreement for Avoidance of Double Taxation and the Prevention of Fiscal Evasion with respect to Taxes on Income, the dispute was for determination on its interpretation. The tale behind the dispute is easy enough to comprehend. Between the year 2013 and 2016, the appellant made payments to a South African entity, to wit, MDS Architecture, henceforth, the foreign consultant in the sum equivalent to TZS 1,500,549,808.00 as service fees for architectural services to its project in Tanzania. In terms of section 83(1) (b) of the Income Tax Act, (the Act), the appellant had an obligation to deduct 15% from the amount paid as withholding tax and remit it to the respondent. As the appellant did not make the deduction, it did not account for the said amount to the respondent by way of withholding tax returns for the relevant period.
On 2017, the respondent conducted a tax audit on the appellant's affairs which revealed that the appellant had paid the foreign consultant an un-accounted sum of TZS. 1,500,549,808.00 as fees for the services rendered without deducting 15% from that amount and remitting it to the respondent on account of withholding tax. Whilst admitting that ordinarily, such amount was liable to 15% withholding tax, the appellant contended that it was exempt from deduction by reason of Article 7 of the DTA. The respondent contended that notwithstanding the DTA, such payment was liable to deduction because it did not constitute part of the business profits of the foreign payee service provider falling within the scope of Article 7 of the DTA.
The appellant was aggrieved, appealed before the Court of appeal alleging erroneous interpretation of the DTA and holding that service fees paid to MDS Architecture were not covered under section 128 of the Act read together with Article 7 of the DTA. the critical issue for the determination waswhether the service fees paid to the foreign consultant constituted part of the business profits covered by Article 7 of the DTA.
HELD
(i) The service fees the appellant paid to MDS Architecture did not constitute part of the business profits of the payee and thus liable to 13 withholding tax in Tanzania. Consequently, as the appellant did not remit the withholding tax in accordance with section 83 (1) (b) of the Act, the respondent was entitled to issue the impugned withholding tax certificates as he did.
(ii) The Appellant had no obligation to deduct from the fees paid to the foreign consultant withholding tax payable to the Respondent, hence, the demands in the withholding tax certificates in the amount of TZS. TZS 346, 462,916.00 were invalid and vice versa.
Statutory Provision referred
Income Tax Act
The Double Taxation Act
Cases referred
Bulmer Limited v. S.A Bollinger [1972] 2 All. ER 1226
Commissioner for the South Africa Revenue Service v. Tradehold Ltd 2012,
Kilombero Sugar Company Limited v. Commissioner General, Tanzania Revenue Authority, Civil Appeal No. 218 of 2019
Mantra (Tanzania) Ltd v. Commissioner General TRA, Civil Appeal No. 430 of 2020 (unreported)
Freeman AikaeliMbowe v. Alex O. Lema& Another, Civil Appeal No. 84 of 2001 (unreported),
Abually Alibhai Aziz v. Bhatia Brothers Ltd [2000] T.L.R. 288,
National Microfinance Bank v. Commissioner General, TRA, Civil Appeal No. 168 of 2018
Ophir Tanzania (Block 1) v. Commissioner General, TRA, Civil Appeal No. 58 of 2020 | en_US |
| dc.description.abstract | (i) The service fees the appellant paid to MDS Architecture did not constitute part of the business profits of the payee and thus liable to 13 withholding tax in Tanzania. Consequently, as the appellant did not remit the withholding tax in accordance with section 83 (1) (b) of the Act, the respondent was entitled to issue the impugned withholding tax certificates as he did.
(ii) The Appellant had no obligation to deduct from the fees paid to the foreign consultant withholding tax payable to the Respondent, hence, the demands in the withholding tax certificates in the amount of TZS. TZS 346, 462,916.00 were invalid and vice versa. | en_US |
