MULTICHOICE GHANA LTD v. COMMISSIONER, INTERNAL REVENUE SERVICE
2011
SUPREME COURT
GHANA
CORAM
- WOOD (MRS.), CJ (PRESIDING)
- DOTSE, JSC
- YEBOAH, JSC
- GBADEGBE, JSC
- AKOTO-BAMFO (MRS.), JSC
Areas of Law
- Tax Law
- Civil Procedure
2011
SUPREME COURT
GHANA
CORAM
AI Generated Summary
Multichoice Ghana Ltd brought a friendly test case to clarify the tax treatment of interest earned on subscription revenues under the Income Tax Decree 1975 (SMCD 5) as amended by PNDCL 61. From 1994–1999, the pay television company placed subscription receipts in an interest-bearing account, reported losses after aggregating subscription and interest income, and deducted television-business expenses from the aggregate. The Commissioner objected, asserting that expenses must relate to the production of the particular income and disallowed deduction of television expenses from interest income. The High Court held the interest income could not be severed from the company’s profit-and-loss account and set aside the tax liability; the Court of Appeal affirmed key findings but reversed the outcome and allowed the appeal in part. On further appeal, applying strict construction of fiscal statutes, Chief Justice Wood held that interest formed part of assessable income under section 11(1) and that section 4 permits deduction of expenses incurred in producing that income, and restored the trial court’s judgment.
J U D G M E N T
WOOD, CJ:
The action which triggered this appeal is described as a “friendly action”, instituted in the joint interest of the two parties for a judicial pronouncement on a tax regimen that is said to have been in practice in
the jurisdiction for a long time without challenge from the business community, the people most affected by it. It is in this light that the appellant company described it, more or less in public interest litigation terms, as having purposely been instituted “for the development of the tax law” as it stood at the date the cause of action accrued. For the material period, the substantive law, which both parties were agreed governed the action and which the parties therefore relied on in support of their respective cases, is the Income Tax Decree 1975, (SMCD 5), as amended by the Income Tax Amendment Law 1983, PNDCL (61).
By the time the trial court came to deliver its judgment however, SMCD 5 had come to be replaced by a new law; The Internal Revenue Act, 2000 (Act 592) and its subsidiary legislation LI 1675. The passage of the new law, Act 592, was intended to plug any legal loopholes that this dispute may have unearthed. Under Act 592, investments incomes, such as the interest income earned by the appellants in this instant case, is amenable to tax independently of a company’s other sources of income. Pertinently, the passage of the Act 592 during the pendency the action did not however render the action or the issues arising therefrom moot, as the law governing the action remained the SMCD 5. The litigation thus remains live, not only in relation to this instant appeal, but other actions based on the old law, SMCD 5, and which may, for one reason or the other be pending in the courts.
The facts which led to the fiscal dispute are in themselves simple. The appellants, a pay television company, broadcasts programmes to its customers, as is to be expected, not gratuitously, but for subscription fees. For the period 1994-1999, it deposited its revenue generated by way of subscription fees in an interest income yielding account, and earned profits thereon. The respondents describe the profits so earned as colossal. Nonetheless, the appellant claimed per its financial statement for each fiscal year that, it recorded losses in respect to its business. The legitimate question is how did this come about? The appellant company arrived at this conclusion by grossing up income from the television business proper and the inte