C ITIBANK N IG . L TD . V .

L SIRS 2021 60TLRN 01

CITIBANK NIGERIA LIMITED

V.

LAGOS STATE INTERNAL REVENUE SERVICE

APPEAL NO. TAT/LZ/PIT/001/2021

PROF. A. B. AHMED - CHAIRMAN

P. A. OLAYEMI - COMMISSIONER
SAMUEL N. OHWERHOYE - COMMISSIONER
B. SOBAMOWO - COMMISSIONER
TERZUNGWE GBAKIGHIR - COMMISSIONER

TAX APPEAL TRIBUNAL, LAGOS ZONE, LAGOS

4TH JUNE 2021

FINANCE ACT 2020 – On the need not to apply provisions retrospectively.

INTERPRETATION OF STATUTE – On interpretation of a taxing

legislation.

INTERPRETATION OF STATUTE – On the need for any lacuna or

ambiguity in the interpretation of a taxing legislation to be resolved in favour of
the tax payer.
 T AX L AW R EPORT OF N IGERIA 2021 60TLRN 02

PAY AS YOU EARN – Gross Emolument – Meaning within the provision of

Personal Income Tax Act.

PAY AS YOU EARN – Consolidated Relief Allowance – Income exempted

from tax whether can be treated as part of Consolidated Relief Allowance.

PAY AS YOU EARN – Severance Benefits such as compensation for loss of

employment whether forms part of Gross emolument for the purpose of
calculation of Consolidated Relief Allowance

PAY AS YOU EARN – On the need to restrict PAYE tax to months an employee
was engaged in employment.

PENALTY AND INTEREST – When payable.

PERSONAL INCOME TAX ACT - Section 33(2) of the Personal Income Tax
Act – On Gross Emolument.

ISSUES

1. Whether the Appellant is liable to pay the alleged additional PAYE

liability in light of the Respondent's failure to apply the statutory
consolidated relief allowance on the severance payments made to the
Appellant's employees, being a part of the employees' gross income.

2. Whether the Appellant is liable to pay the alleged additional PAYE

liability in light of the Respondent's failure to recognize and apply the
statutory consolidated relief allowance on relocation allowance made
by the Appellant to its employee (Mr. Rasheed Omoniyi) being a part
of his gross income.

3. Whether the Appellant is liable to pay the alleged additional PAYE

liability arising from the Respondent's erroneous annualisation of the
incomes of employees who spent less than 12 months in the Appellant's
employment in the 2017 year of assessment.
 C ITIBANK N IG . L TD . V . L SIRS 2021 60TLRN 03

FACTS

Sometime in 2017, the employment of Three of the Appellant's employees

namely, Mr. Kevin Odebili, Mr. Cross Nsofor and Mr. Martins Ebuehi came
to an end. Meanwhile, Mr. Rasheed Omoniyi was transferred in early 2017
from the Ibadan branch of the Appellant in Oyo State, to a branch in Lagos State.
The severance payments as well as the relocation allowances paid on account of
the terminations and transfer was excluded from the gross income of these
employees in computing the applicable allowances.
th
By a Demand Notice dated the 9 Day of September, 2019 and received by the
Appellant on the 12th Day of September, 2019, the Respondent imposed an
additional PAYE liability of #6,448,791.93 (Six Million, Four Hundred and
Forty-Eight Thousand, Seven Hundred and Ninety-One Naira, Ninety-Three
Kobo) on the Appellant for the 2017 tax year. The additional PAYE liability was
split into penalties and interest on the Appellant. The Appellant through its tax
advisors Ernst & Young objected to the Demand Notice by a letter dated the 7th
Day of October, 2019 delivered to the Respondent on the 9th Day of October,
2019. The grounds of objection were as follows:

§ that the Respondent failed to grant personal relief on the relocation

allowance and severance payments made by the Appellant to its
employees, thus overstating the PAYE tax due from the employees’

§ that the Respondent annualized for tax purposes, income of employees

who spent less than 12 months in the Appellant's employment, thus
overstating the income figures of such employees and

§ having objected timeously to the Respondent's Demand Notice, the

Appellant is not liable to pay the accruing interest and penalties.

The Respondent by its Notice of Refusal to Amend (NORA) dated the 15th Day
of March, 2020 (instead of January) and received by the Appellant on the 20th
Day of January, 2020 rejected the Appellant's objection which in response, the
th
Appellant by a letter dated the 25 Day of January, 2020 further referenced the
Demand Notice and objected to same with comprehensive and detailed
 T AX L AW R EPORT OF N IGERIA 2021 60TLRN 04

explanation, contending that the position taken by the Respondent was contrary
to law.

The Appellant being dissatisfied with the decision of the Respondent not to
discharge the Demand Notice contained in its NORA, challenged the said
decision vide a Notice of Appeal dated and filed on the 19th Day of February,
2020, seeking the Orders of the Honorable Tribunal to set aside the Demand
Notice including the interests and penalties. In response to the Notice of Appeal,
th
the Respondent filed a Reply dated the 20 Day of March, 2020, setting out the
grounds on which the Respondent purports to prosecute the Appeal.

Again on 18th Day of November, 2020, the Respondent issued an Amended

th
Demand Notice dated the 13 Day of November, 2020 imposing an additional
PAYE liability of #5,044,381,31 (Five Million and Forty-Four Thousand, Three
Hundred and Eighty-One Naira, Thirty-One Kobo) on the Appellant for the
2017 tax year. This additional liability was split into penalties and interests. The
Appellant through her tax advisors, Ernst & Young, again objected to the
th
Amended Demand Notice by a letter dated 8 Day of December, 2020 delivered
to the Respondent on the same day.

The Appellant, being dissatisfied with the failure of the Respondent to respond
to the Appellant's objection to the Amended Demand Notice by either
discharging the assessment or refusing to amend the assessment, challenged the
th
said decision vide a Notice of Appeal dated and filed on 8 Day of January, 2021
seeking the Orders of this Honorable Tribunal to set aside the Amended Demand
Notice including penalty and interests. The Respondent in response also filed
her Reply dated the 10th Day of February, 2021.

HELD

1. On Gross Emolument

The provision of Section 33(2) of the Personal Income Tax Act, defines
Gross Emoluments as wages, salaries, allowances (Including Benefits
in Kind), gratuities, superannuation and any other income derived
 C ITIBANK N IG . L TD . V . L SIRS 2021 60TLRN 05

solely by reason of employment.[Page 21]

2. Consolidated Relief Allowance – Income exempted from tax

whether can be treated as part of Consolidated Relief Allowance

The implication of the provision of Section 32 of PITA is that any

income of whatever description should be aggregated for the purpose
of applying the Consolidated Relief Allowance (CRA). However
statutorily exempted income, which by its definition, are incomes
clearly exempted by the wordings of a statute cannot and should not be
aggregated for the purpose of applying the Consolidated Relief
Allowance. [Page 21]

3. Notable Pronouncement on whether severance benefits such as

compensation for loss of employment will form part of
consolidated relief allowance

A combined reading of the provisions of Section 19(1) of the Personal

Income Tax Act, 2004 as amended, which provides thus;

“There shall be exempt from the tax all incomes specified in the
Third Schedule to this Act”

And paragraph 26 of the said Third Schedule to the Personal Income

Tax Act, 2004 as amended which specifically mention thus;

“Any compensation for loss of employment”

gives a clear indication that the said severance payment cannot be

aggregated for the purpose of applying the Consolidated Relief
Allowance by the Applicant. This is because the said allowance is
expressly stated to be tax exempt and therefore totally free from
taxation and cannot for that reason enjoy the benefit of the
Consolidated Relief Allowance in its computation.[Pages 21 - 22]
 T AX L AW R EPORT OF N IGERIA 2021 60TLRN 06

4. On the need for any lacuna or ambiguity in the interpretation of a

taxing legislation to be resolved in favour of the tax payer

The dispute was caused by the lacuna in the law which both parties took
advantage of. This has clearly created some ambiguity in the
application of the two sections, and it is the considered view of this
Honourable Tribunal that if there are any doubts or ambiguity of any
taxing provisions, the beneficial construction will be in favour of the
taxpayer rather than the Revenue Authorities. According to Idris, J in
Citi Bank v FIRS (2017) 30 TLRN 40;

"Where a literal interpretation of a tax statute is inappropriate

because the provisions to be construed are ambiguous or in doubt,
the tax statute must be constructed in favour of the taxpayer."

In Aderawos Timber Trading Co. v. FBIR (1966) NCLR 416 at 422

the Supreme Court held that if the State claims a tax under a statute, it
must show that the tax is imposed by clear and unambiguous words,
and where the statute is ambiguous, it must be construed in favour of
the subject. The Court will not help legislature or the Revenue fill
omitted gaps.

Thus, the CA held in Ibrahim & Anor v. Kogi State Govt. & Ors(2002)
3 NWLR (PT. 755) 502 at 522 that:

"A law which imposes pecuniary burden is under the rules

of interpretation subject to the rule of strict construction.
All charges upon the subject must be imposed by clear
and unambiguous language because in some degree they
operate as penalties. Thus, the subject is not to be taxed
unless the language of the statute clearly imposes the
obligation: The language of the statute must not be
strained in order to tax a transaction which had the
legislation thought of it, would have been covered by
appropriate words.
 C ITIBANK N IG . L TD . V . L SIRS 2021 60TLRN 07

The Federal High Court in Nigeria NLG v A.G. Federation (2018) 33

TLRN 9 at 18 held that;
“a statute which deprives the citizen of his rights must be
strictly constructed. Such statute must be construed
Fortussimo Contrapreferentes, that is strictly against the
acquiring authority but sympathetically in favour of the
citizen whose property rights are being acquired.”
[Pages 23 - 24]
5. On the need not to apply the provisions of the Finance Act 2020
retrospectively

It is also well settled that applying the provisions of the Finance Act
2020 which came to address some of the ambiguities will constitute a
retrospective application of the Act, which is clearly frowned at by the
apex courts in Nigeria.[Page 24]

6. On the need not to apply the provisions of the Finance Act 2020
retrospectively

However, the Consolidated Relief Allowance is granted on the income

earned per annum. So, if an employee did not stay in an organization for
the year, the allowance to be granted will be pro-rated for the period of
service. In order to determine this, the Tax Authority needs to annualize
the income to put the income earned and Consolidated Relief
Allowance at the same level to know the annual tax payable on the
income earned. Thereafter the annual tax payable is then divided by 12
to know the tax payable on monthly basis. Therefore, on the basis of the
relevant laws and the facts presented before this Honorable Tribunal,
we hold that the Appellant cannot be made to remit the PAYE of
employees for the months during which the employees were no more
on the payroll of the Appellant as during that period there was no
income from which the PAYE was to be deducted and remitted.[Pages
25 - 26]
 T AX L AW R EPORT OF N IGERIA 2021 60TLRN 08

7. Notable Pronouncement on when interest and penalty will be

payable

Penalties and Interest must be applied for delay or failure to remit the
withheld or deducted taxes by the withholding institution or the
employer to the relevant tax authority. This is because the sum withheld
or deducted is regarded as a debt or monies kept and/or retained for the
relevant tax authority. This therefore means that the unpaid tax liability
becomes subject of penalty and interest when not paid by the
withholding institution or employer by the due date of the return.

By the provisions of Section 74 (1) of the PITA, WHT must be remitted

within 30 days from the date the amount was deducted or the time the
duty to deduct arose. The prescribed time for remitting PAYE is 10 days
after the end of any month as provided in Paragraph 8 of the Operation
of PAYE Scheme Regulations. From a combined reading of the
foregoing provisions, it will mean that where the WHT or PAYE is not
remitted within the time prescribed by statute, penalty and interest
becomes due and payable on the unremitted tax from the very moment
the time prescribed by statute expires. It is pertinent to note that Section
32 (1) (a) and (b) of the FIRS Act uses the word 'shall' which connotes
that the relevant tax authority has no discretion in imposing penalty and
interest. Once it is established that tax was not paid/remitted within the
time prescribed by law, the tax authority must impose penalty and
interest on the taxpayer. However, this can only be limited to the time
within which the employees were under the payroll of the employer. It
is therefore the considered view of this Honourable Tribunal, that
liability of the Appellant with respect to interest and penalty should be
limited only to those amounts with respect to the PAYE that was
collected during the period that the said employees are on the payroll of
the Appellant and/or those of such PAYE which the Appellant were
under the legal obligation to collect and remit which was collected but
never remitted.[Pages 26 - 27]
 C ITIBANK N IG . L TD . V . L SIRS 2021 60TLRN 09

CASES CITED

1. Aderawos Timber Trading Co. v. FBIR (1966) NCLR 416

2. Adewole v. Adesanoye (1998)3 NWLR (Pt. 541) 175

3. Basinco Motors Ltd v. Woermann Line (2009) LPELR- 756

4. Cape Brandy Syndicate v Inland Commissioners (1921) 1 KB 64

5. Citi Bank v. FIRS (2017) 30 TLRN 40

6. Egunjobi v. FRN (2012) LPELR-15537

7. Eze & Ors v. Governor of Abia State & Ors (2010) LPELR-4133

8. Federal Board of Inland Revenue v. Integrated Data Services Ltd

(2010)3TLRN 1

9. FIRS v. Mobitel (Unreported Appeal No. TAT/LZ/VAT/082/2014)

10. Ibrahim & Anor v. Kogi State Govt. & Ors (2002) 3 NWLR (Pt. 755)
502

11. Intels Nig Ltd v. Williams E. Bassey (2011) LCN/4332

12. KLM Airlines v. Kumzhi (2004)8 NWLR (Pt. 875) 231

13. Lagos State Board of Internal Revenue v. Shell Petroleum

Development Company of Nigeria 6 ALL NTC

14. Nigeria NLG v A.G. Federation (2018) 33 TLRN 9

15. Ojokolobo v Alamu (1987) 3 NWLR (Pt.61) 377

16. SPDC v Anaro (2015) LPELR-2475

 T AX L AW R EPORT OF N IGERIA 2021 60TLRN 10

STATUTES REFERRED TO

1. Federal Inland Revenue Service (Establishment)Act, 2007

2. Finance Act 2020

3. Personal Income Tax Act, Cap P8, Laws of the Federation of Nigeria,
2004

JUDGEMENT

FACTS OF THE CASE

Sometime in 2017, the employment of Three of the Appellant's employees

namely, Mr. Kevin Odebili, Mr. Cross Nsofor and Mr. Martins Ebuehi came
to an end. Meanwhile, Mr. Rasheed Omoniyi was transferred in early 2017
from the Ibadan branch of the Appellant in Oyo State, to a branch in Lagos State.
The severance payments as well as the relocation allowances paid on account of
the terminations and transfer was excluded from the gross income of these
employees in computing the applicable allowances.
th
By a Demand Notice dated the 9 Day of September, 2019 and received by the
Appellant on the 12th Day of September, 2019, the Respondent imposed an
additional PAYE liability of #6,448,791.93 (Six Million, Four Hundred and
Forty-Eight Thousand, Seven Hundred and Ninety-One Naira, Ninety-Three
Kobo) on the Appellant for the 2017 tax year. The additional PAYE liability was
split into penalties and interest on the Appellant. The Appellant through its tax
advisors Ernst & Young objected to the Demand Notice by a letter dated the 7th
Day of October, 2019 delivered to the Respondent on the 9th Day of October,
2019. The grounds of objection were as follows:

§ that the Respondent failed to grant personal relief on the relocation

allowance and severance payments made by the Appellant to its
employees, thus overstating the PAYE tax due from the employees'
 C ITIBANK N IG . L TD . V . L SIRS 2021 60TLRN 11

§ that the Respondent annualized for tax purposes, income of employees

who spent less than 12 months in the Appellant's employment, thus
overstating the income figures of such employees and

§ having objected timeously to the Respondent's Demand Notice, the

Appellant is not liable to pay the accruing interest and penalties.

The Respondent by its Notice of Refusal to Amend (NORA) dated the 15th Day
th
of March, 2020 (instead of January) and received by the Appellant on the 20
Day of January, 2020 rejected the Appellant's objection which in response, the
Appellant by a letter dated the 25th Day of January, 2020 further referenced the
Demand Notice and objected to same with comprehensive and detailed
explanation, contending that the position taken by the Respondent was contrary
to law.

The Appellant being dissatisfied with the decision of the Respondent not to
discharge the Demand Notice contained in its NORA, challenged the said
th
decision vide a Notice of Appeal dated and filed on the 19 Day of February,
2020, seeking the Orders of the Honorable Tribunal to set aside the Demand
Notice including the interests and penalties. In response to the Notice of Appeal,
the Respondent filed a Reply dated the 20th Day of March, 2020, setting out the
grounds on which the Respondent purports to prosecute the Appeal.
th
Again on 18 Day of November, 2020, the Respondent issued an Amended
th
Demand Notice dated the 13 Day of November, 2020 imposing an additional
PAYE liability of #5,044,381,31 (Five Million and Forty-Four Thousand, Three
Hundred and Eighty-One Naira, Thirty-One Kobo) on the Appellant for the 2017
tax year. This additional liability was split into penalties and interests. The
Appellant through her tax advisors, Ernst & Young, again objected to the
th
Amended Demand Notice by a letter dated 8 Day of December, 2020 delivered
to the Respondent on the same day.

The Appellant, being dissatisfied with the failure of the Respondent to respond to
the Appellant's objection to the Amended Demand Notice by either discharging
the assessment or refusing to amend the assessment, challenged the said decision
 T AX L AW R EPORT OF N IGERIA 2021 60TLRN 12

vide a Notice of Appeal dated and filed on 8th Day of January, 2021 seeking the
Orders of this Honorable Tribunal to set aside the Amended Demand Notice
including penalty and interests. The Respondent in response also filed her Reply
th
dated the 10 Day of February, 2021.

Thus, in the bid to resolve the issues raised in the Notice of Appeal, both parties
in a virtual meeting held on the 20th Day of January, 2021, reached an
understanding that the difference in respect of issues relating to calculation of
pension contribution, NHF relief, Mortgage interest and contributions to
medical insurance as a result of minor mathematical differences be resolved and
that, since the facts of the dispute not being in contention, the Tribunal Ordered
parties to file their respective written addresses on question of law.

ISSUES FOR DETERMINATION

Following the submissions made by the parties, these issues have been distilled
for determination:

1. Whether the Appellant is liable to pay the alleged additional PAYE

liability in light of the Respondent's failure to apply the statutory
consolidated relief allowance on the severance payments made to the
Appellant's employees, being a part of the employees' gross income.

2. Whether the Appellant is liable to pay the alleged additional PAYE

liability in light of the Respondent's failure to recognize and apply the
statutory consolidated relief allowance on relocation allowance made
by the Appellant to its employee (Mr. Rasheed Omoniyi) being a part
of his gross income.

3. Whether the Appellant is liable to pay the alleged additional PAYE

liability arising from the Respondent's erroneous annualisation of the
incomes of employees who spent less than 12 months in the Appellant's
employment in the 2017 year of assessment.

4. Whether the Appellant is liable to pay interest and penalties.

 C ITIBANK N IG . L TD . V . L SIRS 2021 60TLRN 13

PARTIES SUBMISSIONS

THE APPELLANT

On issue one, the Appellant submits that, by the provisions of Section 33(1)
Personal Income Tax Act (PITA), consolidated relief allowance shall be
deducted from the total gross income of an employee and that by the provisions
of Section 33(2) PITA, gross emoluments shall include any income derived
solely by reason of employment and so that by the letters of the law are clear in
her definition of what would constitute gross income. The Appellant in support
of this position cited the case of INTELS NIG LTD & ANOR V. WILLIAMS
E BASSEY (2011) LCN/4332 (CA) where in the Court held that, relying on
definition of ''gross income'' given at page 778 of Black's Law Dictionary, gross
emoluments mean total income from all sources before deductions. The
Appellant maintains that, the provisions of PITA is clear and unambiguous and
ought to be given its literal and strict interpretation and that the only
interpretation that could be given to Sections 33(1) and (2) of PITA is that,
consolidated relief allowance should apply to any income derived by the
Appellant's employees solely by reason of employment.

The Appellant states further that, it is not disputed by the Respondent that the
severance payments were derived by the Appellant's employees solely by virtue
of their employment with the Appellant and that, the severance payment is only
payable to the Appellant's employee based on the employer-employee
relationship existing between them. The Appellant went on to say that the
severance payment was made solely on account of the employment relationship
between the Appellant and the four employees to whom the payments were
made, is put beyond doubt, upon reading the four letters of termination and that,
as a result of this accepted fact, it is only logical that what follows is that the
consolidated relief allowance be applied to the entirety of the employees' gross
income including severance payments. The Appellant therefore argued that, the
Respondent ought to apply consolidated relief allowance to the total income of
those employees inclusive of the severance payment made by the Appellant to
those four employees.
 T AX L AW R EPORT OF N IGERIA 2021 60TLRN 14

The Appellant maintains further that, whether compensation for loss of

employment is subject to Capital Gain Tax, does not change how employment
income should be treated under the clear provisions of the PITA since that the
severance payment was not treated by the parties as a compensation for loss of
office nor is there any basis to treat the payment as such.

The Appellant submits further that though the Finance Act 2020 has introduced
a new definition of '' gross income'' to mean income from all sources less all non-
taxable income, income on which no further tax is payable, tax exempt items
listed in paragraph 2 of the Sixth Schedule and all allowable business
expenses and capital allowances. That the amendment to the statute is intended
to expressly exempt non-taxable income items from an employee's income base
for the purpose of computing the applicable consolidated relief allowance. The
Appellant insist that the implication of the amendment to the Act is that, the tax-
exempt deductions listed under paragraph 2 of the Sixth Schedule to PITA
will be deducted from total income to arrive at the gross income for the purposes
of computing the consolidated relief allowance and that this will lead to a lower
gross income upon which the consolidated relief allowance will be computed
and ultimately result in an increase in chargeable income compared to what was
previously obtained. The Appellant further submits that, the Finance Act 2020
is inapplicable to the instant appeal because the facts of the appeal are in relation
to the 2017 year of assessment, that this is 3years before the new law came into
force and that laws do not have retrospective or retroactive effects especially
when they deal with vested rights of individuals or entities, unless it is expressly
provided to be so. The cases of KLM AIRLINES V. KUMZHI (2004)8 NWLR
(Pt. 875) 231 and ADEWOLE V. ADESANOYE (1998)3 NWLR (Pt541) 175
are cited by the Appellant to support her submission.

On issue two, the Appellant maintains that, relocation allowance is a part of the
Appellant's employee's gross income upon which the consolidated relief
allowance is to be computed and that PITA does not exclude any income from
the allowance of consolidated relief, so long as the income is derived by the
employee solely by reason of his employment. The Appellant argued that
Section 33(1) and (2) PITA is clear in this regard, and a literal interpretation of
the law does not create an ambiguity. So, the Appellant said that the relocation
allowance paid by the Appellant to its employees, is derived solely by reason of
 C ITIBANK N IG . L TD . V . L SIRS 2021 60TLRN 15

employment and as such, should be subjected to the consolidated relief

allowance and that Section 33(1) PITA does not provide any conditions that
need to be satisfied before a sum received by an employee by reason of his
employment is granted the statutory personal relief. The Appellant maintained
further that, to hold otherwise is to, not only ignore the plain language of PITA
but subvert one of the key objectives of the 2012 amendments to PITA, which
was meant to avoid the previous system of piecemeal allowance and deductible
expenses.

On issue three, the Appellant submits that, the Personal Income Tax (PIT) is
payable on the actual income, earned by the employees and not on fictitious
/assumed income of employees, for periods during which these four employees
were not working with the Appellant during the year of assessment. That the law
imposing personal income tax on employees, and imposing the obligation on the
employers to withhold taxes at source, on behalf of the tax authorities is well
settled, that personal income tax is to be deducted by the employers on monthly
basis and that the statutory scheme establishing the Pay As You Earn (PAYE)
system makes it clear that, the deduction is on actual income earned. The
Appellant commends Section 81(1) and (3) of PITA as well as Paragraph 7 of
the Operation of PAYE Regulation 2002 in this regard.

The Appellant maintains that, in compliance with the above statutory

provisions, the Appellant has calculated the referenced employee's taxes
correctly and remitted same to the Respondent and further submitted documents
showing that the employees were not in the employment of the employer for the
12months period to warrant an annualization of the PAYE of the employees and
that, if the Respondent seeks to collect personal income tax on the income of the
four employees for the rest of 2017, it is for the Respondent to trace them to their
new employment, determine the income they earned in those new employment
and apply the tax. The Appellant argued that if these former employees of the
Appellant had gained new employment in 2017 and continued to reside in
Lagos, it is their new employers who would be liable to deduct and remit tax on
their income to the Respondent.

On issue four, the Appellant submits that, the Respondent's imposition of

interest and penalties on the alleged PAYE liability is contrary to the provisions
 T AX L AW R EPORT OF N IGERIA 2021 60TLRN 16

of the law and decided cases. The Appellant cited the Provisions of Section 74
PITA which he said was heavily relied upon by the Respondent, but which
according to him is not applicable in the instant case, since a critical look at the
provision will show that, it was made in reference to persons or body corporate,
put under obligation to remit tax under Sections 69,70,71 or 72 of PITA. That
the referenced sections are in respect of deduction of taxes on rent, royalty or
interest, dividend and directors' fees respectively, that the issue before the
Tribunal is in respect of PAYE. The Appellant maintained that there is no
complaint before the Tribunal in respect of deduction of taxes on rent, royalty or
interest, dividend and directors' fees which are covered by Sections 69, 70,71 or
72 of PITA for there to even be a need for the provision of Section 74 of PITA.

The Appellant states further that, the provisions of Paragraph 8 of the

Operation of PAYE Scheme Regulations relied upon by the Respondent is very
clear to the end, that what should be demanded is the tax due. That the above
provision is inapplicable and does not support the actions of the Respondent
because, the requirement for the powers of this provision to come into force is
where there is failure to remit tax. The Appellant argued that, a look at the
provision itself shows that what should be demanded for is the tax due. The
Appellant maintains that, Section 32 of the Federal Inland Revenue Service
Act (FIRSA) does not apply to the instant case, that the dispute is between
Lagos Internal Revenue Service (LIRS) and Citi Bank over PAYE, which
should be regulated by Lagos State Revenue Administration Law (LSRA) and
not the FIRSA, since according to the Appellant the payment of penalties and
interest is a question of administration and enforcement, and can only be
governed by the Respondent's enabling Law which is the LSRA. The Appellant
argued that even in the unlikely event that the Tribunal finds that the FIRSA is
applicable to the instant case, the provision of Paragraph 13(3) of the Fifth
Schedule of the FIRSA is still clear to justify the fact that, the assessment is not
yet final and conclusive and as such, there is no basis for penalties and interest.

Equally, the Appellant submits that, Section 82 FIRSA has laid down certain
fundamental rules which must be complied with and satisfied for the
Respondent to make a demand for penalties and interest, where in it is required
that, for the issue of penalty and interest to arise, it must first be established that
there was failure on the part of the Appellant to remit the deduction or properly
 C ITIBANK N IG . L TD . V . L SIRS 2021 60TLRN 17

account for such deduction. The Appellant said that, for the timeous objection to
the additional assessment and its subsequent appeal to the Tribunal, the
Appellant is not in default of its tax obligations to warrant the imposition of the
assessed accrued interest and penalties and that the position of the law that
interest and penalties are inapplicable where an assessment is contested which
assessment is yet to be final and remains inconclusive is seen in the provisions of
the Fifth Schedule of the FIRSA. The case of FIRS V. MOBITEL
(Unreported Appeal No. TAT/LZ/VAT/082/2014) is relied upon by the
Appellant in this regard.

The Appellant therefore urges this Tribunal, on the strength of the available
evidence, set aside the Respondent's Demand Notice and enter Judgement in
favour of the Appellant.

THE RESPONDENT

The Respondent, in response to issue one states that, generally, severance

payment is defined as ''a pay and benefit employees may be entitled to receive
when they leave employment at a company un-willfully or, an amount paid to an
employee on the early termination of a contract''. While compensation for loss of
office/employment covers payment for cancellation of contract and that
compensation for loss of employment is used interchangeably with severance
payment.

The Respondent states that, the essence of the provision for relief allowance
(Consolidated Relief Allowance) are available in tax laws to factor in cost
incurred by a taxpayer to cater for himself, unmarried children, spouses,
dependents, disabilities amongst others. So, according to the Respondent, the
reason for relief allowance is to lessen the tax burden on the taxpayer and not a
means to encourage payment of inadequate tax. The Respondent maintains that,
by the provisions of Section19(1) PITA, all income specified in the Third
Schedule are tax exempt and that Paragraph 26 of the Third Schedule to
PITA, provides that any compensation for loss of employment is tax exempt.
The Respondent maintains that, it is evident that “all income” listed in the Third
Schedule are tax exempt and this extends in the instant case to compensation for
 T AX L AW R EPORT OF N IGERIA 2021 60TLRN 18

loss of employment and so the Respondent said that the Appellant cannot seek to
benefit from a right that does not exist. In the instant case, the Appellant is like a
customer seeking for discount on goods offered as a gift to him without any price
tag or charges.

The Respondent maintains that, an income which has been expressly stated to be
tax exempt, is totally free from taxation and cannot for the purposes of enjoying
Consolidated Relief Allowance, be subsumed into the computation, since the
income is totally exempt by the express provision of statutes, and that it cannot
be included by the Appellant just for the purposes of reducing the tax obligation
imposed on it.

On issue two, the Respondent submits that, when attempting the interpretation
of a statutory provision, the intention of the legislature must be sought and where
the word used in the provisions of the statute are clear, simple and unambiguous,
they should be given their simple, natural and ordinary meaning. The case of
BASINCO MOTORS LTD V. WOERMANN LINE AND ANOR (2009)
LPELR- 756 is relied upon by the Respondent and that in the instant case, the
words of the provision of Section 19(1) and Paragraph 26 of the Third
Schedule to PITA clearly provides that all income listed in the Third Schedule
are tax exempt. The Respondent argued that this simple provision is what the
Respondent has applied by exempting the Appellant's staff income which is
product of compensation for loss of employment.

On issue three, it is the contention of the Respondent that, relocation allowance

is deemed as a reasonable expense and a reimbursement in the hands of the
employee and not as an income (it is believed that no profit is made from this
expense) and will not be taxed and as such, consolidated relief will not be
enjoyed on it. The Respondent relies on the provision of Section 4(3) of PITA in
supporting this position and that, Consolidated Relief Allowance would not be
granted to the Appellant on Relocation Allowance paid to its employee as it is
regarded as a reasonable expense and a reimbursement to the employee and not
an income.

On issue four, the Respondent submits that, penalty and interest become due on
tax if it is not paid/remitted within the time prescribed by law. That, this in
 C ITIBANK N IG . L TD . V . L SIRS 2021 60TLRN 19

accordance with Section 74(1) and 82 of PITA. That Section 82 of PITA is to

the effect that an employer is to be answerable for any tax deducted from the
emoluments paid to its employees and that failure to so account for the tax
deducted will attract penalty of 10% per annum plus interest. The Respondent
maintains further that, the prescribed time for remitting/paying PAYE tax is 10
days after the end of any month as provided in Paragraph 8 of the Operation of
PAYE Scheme Regulations. That, where an employer fails to remit its PAYE
tax fully and accurately within 10days after the end of any month, such an
employer shall immediately be liable to penalty and interest thereon. The
Respondent states further that, the time limited for the remittance of
Withholding Tax (WHT) is 30 days after deduction as stated in Section 74(1) of
PITA. The Respondent cites the cases of LAGOS STATE BOARD OF
INTERNAL REVENUE V. SHELL PETROLEUM DEVELOPMENT
COMPANY OF NIGERIA 6 ALL NTC and FEDERAL BOARD OF
INLAND REVENUE V. INTERGRATED DATA SERVICES LTD (2010)3
TLRN 1 in support of this position.

The Respondent maintains that, PAYE and WHT, like Value Added Tax (VAT)
are meant to be collected by individuals and companies and remitted to the tax
authorities within specified periods under applicable laws. That interest and
penalty will apply to both where they are not remitted to the tax authorities
within the period prescribed. The Respondent submits further that, this is the
only way, companies or taxable persons can be deterred “from engaging in
fraudulent practice e.g collecting PAYE/WHT and keeping or trading with it for
some time before remitting same”. The Respondent states further that, it is also
the way of ensuring companies carry out their obligation under applicable tax
laws to deduct and remit taxes.

Furthermore, the Respondent submits that, the contention of the Appellant that
penalty and interest will accrue only when an assessment is not objected to/
appealed against will amount to rewarding the taxpayer for not remitting the
taxes he collected or failed to collect on behalf of the Respondent in the year of
assessment. That, this defeats the purpose for which interest and penalty are
imposed. That what the Appellant is advocating is that, a taxpayer who has failed
to remit PAYE/WHT for 20 years can avoid interest and penalty for the 20 years
he failed to remit the tax merely by filing an objection and/or an appeal, even if at
 T AX L AW R EPORT OF N IGERIA 2021 60TLRN 20

the end of the day, he is found liable to pay the tax. That this definitely is not the
intention of the draftsman.

It is the submission of the Respondent that, Section 82 of PITA reinforces the

position that failure to deduct and account for the tax deducted will attract
penalty and interest. That from the provision, it would appear that two acts are
forbidden to wit: failure to make deductions and failure to account properly for
the amounts deducted. The Respondent states further that, under-deduction is
tantamount to failure to deduct as a law cannot be obeyed partially. That the
filing of an objection/appeal against a demand notice has no impact on penalty
and interest which accrued prior to the issuance of the demand notice. That the
position of the Appellant on the above arises from a failure of the Appellant to
appreciate the fact that liability for tax does not come into existence at the time
the objection/appeal is determined. That the established tax liability relates back
to and takes effect from the date/assessment period when the duty to pay/remit
such tax arose under the relevant tax law.

The Respondent states further that, the purpose of a tax objection/appeal process
is merely to provide a forum for both the taxpayer and the tax authority to
establish the validity of their claims as to the existence or non-existence of a tax
liability. That, where no tax liability is established at the end of the process, the
tax assessment will be set aside and no penalty and interest will arise. That if the
tax assessment or any portion thereof is established and not disputed i.e final and
conclusive, penalty and interest will accrue thereon from the date the tax ought
to have been paid/remitted. That, the Appellant has agreed that, it is liable to tax
in the sum entered as the consent judgement of the Tribunal and therefore,
should pay interest and penalty on the said amount, taking into consideration the
year of assessment, the said amount ought to have been paid.

The Respondent maintains that, the submission of the Appellant that, penalty
and interest will only start to run after an assessment has become final and
conclusive (i.e after a valid objection/appeal has been determined) is wrong and
clearly at variance with Section 32 of FIRSA. The Respondent states further
that, pursuant to Section 32 FIRSA, penalty and interest become due and
payable immediately the tax is not paid within the time prescribed by law. That
the issuance of a demand notice for the unpaid tax has no effect on penalty and
interest which had accrued prior to that date.
 C ITIBANK N IG . L TD . V . L SIRS 2021 60TLRN 21

In conclusion, the Respondent submits that, the Appellant is not entitled to

Consolidated Relief Allowance on severance payment and relocation allowance
and that the Appellant is liable to pay penalty and interest.

ANALYSIS

ISSUE 1

Whether the Appellant is liable to pay the alleged additional PAYE liability
in light of the Respondent's failure to apply the statutory Consolidated
Relief Allowance on the severance payments made to the Appellant's
employees, being a part of the employees' gross income.

The provision of Section 33(2) of the Personal Income Tax Act, defines Gross
Emoluments as wages, salaries, allowances (Including Benefits in Kind),
gratuities, superannuation and any other income derived solely by reason of
employment. The implication of this provision is that any income of whatever
description should be aggregated for the purpose of applying the Consolidated
Relief Allowance (CRA). However, it is the considered opinion of this
Honourable Tribunal, that statutorily exempted income, which by its definition,
are incomes clearly exempted by the wordings of a statute cannot and should not
be aggregated for the purpose of applying the Consolidated Relief Allowance.

A combined reading of the provisions of Section 19(1) of the Personal Income

Tax Act, 2004 as amended, which provides thus;

“There shall be exempt from the tax all incomes specified in the
Third Schedule to this Act”

And paragraph 26 of the said Third Schedule to the Personal Income Tax Act,
2004 as amended which specifically mention thus;

“Any compensation for loss of employment”

 T AX L AW R EPORT OF N IGERIA 2021 60TLRN 22

gives a clear indication that the said severance payment cannot be aggregated for
the purpose of applying the Consolidated Relief Allowance by the Applicant.
This is because the said allowance is expressly stated to be tax exempt and
therefore totally free from taxation and cannot for that reason enjoy the benefit
of the Consolidated Relief Allowance in its computation. The King's Bench in
England in the case of Cape Brandy Syndicate v Inland Commissioners
(1921) 1 KB 64 at 71 held;

“It simply means that in a taxing Act one has to look merely at
what is clearly said. There is no room for any intendment.
There is no equity about a tax. There is no presumption as to a
tax. Nothing is to be implied. One can only look at the
language used.”

In the case of Unipetrol Nig. Plc v Edo State Board of Internal Revenue
(2006) 4 SC (PT. 1) 41 the Supreme Court held that courts must give the words
and the language used their simple and ordinary meaning and not to venture
outside it by introducing extraneous matters that may lead to circumventing or
giving the provisions an entirely different interpretation to what the law maker
intended it to be.

ISSUE 2

Whether the Appellant is liable to pay the alleged additional PAYE liability in
light of the Respondent's failure to recognize and apply the statutory
Consolidated Relief Allowance on relocation allowance made by the Appellant
to its employee (Mr. Rasheed Omoniyi) being a part of his gross income.

The Respondent relied on the provision of Section 19(1) of the Personal Income
Tax Act 2011 as amended which states thus, “There shall be exempt from the tax
all that income specified in the Third Schedule to this Act.” In addition, the
Respondent also relied on paragraph 26 of the Third Schedule to PITA which
clearly provides that all incomes listed in the Third Schedule are tax exempt. The
Respondent therefore opted to rely on this provision to assess the income of the
Appellant's employee to tax. So, in computing the Consolidated Relief
 C ITIBANK N IG . L TD . V . L SIRS 2021 60TLRN 23

Allowance, the Respondent backed out all the exempted incomes from the Gross
Income before computing the CRA.

The Appellant on the other hand relied on the provision of Section 33(2) of the
Personal Income Tax Act which defines Gross Emoluments as wages, salaries,
allowances (Including Benefits in Kind), gratuities, superannuation and any
other incomes derived solely by reason of employment. In view of this, the
Appellant respectfully submit that the only interpretation that could be given to
Sections 33(1) and (2) of PITA is that the Consolidated Relief Allowance should
apply to any income derived by the Appellant's employees solely by reason of
employment. The dispute was caused by the lacuna in the law which both parties
took advantage of. This has clearly created some ambiguity in the application of
the two sections, and it is the considered view of this Honourable Tribunal that if
there are any doubts or ambiguity of any taxing provisions, the beneficial
construction will be in favour of the taxpayer rather than the Revenue
Authorities. According to Idris, J in Citi Bank v FIRS (2017) 30 TLRN 40;

"Where a literal interpretation of a tax statute is inappropriate

because the provisions to be construed are ambiguous or in
doubt, the tax statute must be constructed in favour of the
taxpayer."

In Aderawos Timber Trading Co. v. FBIR (1966) NCLR 416 at 422 the
Supreme Court held that if the State claims a tax under a statute, it must show
that the tax is imposed by clear and unambiguous words, and where the statute is
ambiguous, it must be construed in favour of the subject. The Court will not help
legislature or the Revenue fill omitted gaps.

Thus, the CA held in Ibrahim & Anor v. Kogi State Govt. & Ors(2002) 3 NWLR
(PT. 755) 502 at 522 that:

"A law which imposes pecuniary burden is under the rules of

interpretation subject to the rule of strict construction. All
charges upon the subject must be imposed by clear and
unambiguous language because in some degree they operate
as penalties. Thus, the subject is not to be taxed unless the
 T AX L AW R EPORT OF N IGERIA 2021 60TLRN 24

language of the statute clearly imposes the obligation: The

language of the statute must not be strained in order to tax a
transaction which had the legislation thought of it, would have
been covered by appropriate words.

The Federal High Court in Nigeria NLG v A.G. Federation (2018) 33 TLRN
9 at 18 held that;

“a statute which deprives the citizen of his rights must be

strictly constructed. Such statute must be construed
Fortussimo Contrapreferentes, that is strictly against the
acquiring authority but sympathetically in favour of the citizen
whose property rights are being acquired.”

It is also well settled that applying the provisions of the Finance Act 2020 which
came to address some of the ambiguities will constitute a retrospective
application of the Act, which is clearly frowned at by the apex courts in Nigeria.
In Eze & Ors v Governor of Abia State & Ors (2010) LPELR-4133 the Court
of Appeal held that;

“My humble view of the law is that by virtue of Section 6 (1) of

the Interpretation Act which is part of the Constitutional
provisions retrospectivity must not be implied into an Act to
affect vested rights unless expressly provided for in the
statute.”

In SPDC v Anaro & Ors (2015) LPELR-2475, the Supreme Court held that
there is a general presumption against retrospective legislation. It is presumed
that the legislature does not intend injustice or absurdity. Courts therefore lean
against giving certain statutes retrospective operations. Generally, statutes are
construed as operating only in cases or facts, which come into existence after the
statutes were passed unless retrospective effect is clearly intended.

In Ojokolobo v Alamu (1987) 3 NWLR (PT.61) 377 at 402, the court held that
it is a fundamental rule of Nigerian Law that no statute shall be construed to have
a retrospective operation unless such a construction appears very clearly in the
 C ITIBANK N IG . L TD . V . L SIRS 2021 60TLRN 25

terms of the Act or Law. In Egunjobi v FRN (2012) LPELR-15537, the

Supreme Court held, thus;

“… it is trite law that the courts frown at retrospective and

retroactive legislations.”

The Appellant is therefore not liable to pay the alleged additional PAYE liability
in respect of the relocation allowance made by the Appellant to Mr. Rasheed
Omoniyi.

ISSUE 3

Whether the Appellant is liable to pay the alleged additional PAYE liability
arising from the Respondent's erroneous annualisation of the incomes of
employees who spent less than 12 months in the Appellant's employment in the
2017 year of assessment.

It is the contention of the Appellant that the Personal Income Tax (PIT) is
payable on the actual income earned by the employees and not on fictitious or
assumed income of employees, for periods during which the four employees
were not working with the Appellant during the year of assessment. The
Appellant went further to state that the law imposing personal income tax on
employees, and imposing the obligation on the employers to withhold taxes at
source, on behalf of the tax authorities is well settled, that personal income tax is
to be deducted by the employers on monthly basis. That the statutory scheme
establishing the Pay As You Earn (PAYE) system makes it clear that, the
deduction is on actual income earned. The Appellant commends Section 81(1)
and (3) of PITA as well as Paragraph 7 of the Operation of PAYE Regulation
2002 in this regard.

However, the Consolidated Relief Allowance is granted on the income earned

per annum. So, if an employee did not stay in an organization for the year, the
allowance to be granted will be pro-rated for the period of service. In order to
determine this, the Tax Authority needs to annualize the income to put the
income earned and Consolidated Relief Allowance at the same level to know the
 T AX L AW R EPORT OF N IGERIA 2021 60TLRN 26

annual tax payable on the income earned. Thereafter the annual tax payable is
then divided by 12 to know the tax payable on monthly basis. Therefore, on the
basis of the relevant laws and the facts presented before this Honorable Tribunal,
we hold that the Appellant cannot be made to remit the PAYE of employees for
the months during which the employees were no more on the payroll of the
Appellant as during that period there was no income from which the PAYE was
to be deducted and remitted.

ISSUE 4.

Whether the Appellant is liable to pay interest and penalties.

PAYE is income tax to be paid to government by taxpayers (owners of the

income) through collecting agents (collecting institutions or employers). In this
arrangement the taxes are withheld or deducted from the income due to the
taxpayer that is, the employer who simply serve as a collecting agent for the
government. The taxes so collected are required to be remitted to the relevant tax
authority within specified time limit, in this case as required by Section 32(1) of
the FIRS Act, Section 74 of the PITA and Paragraph 8 of the Operation of PAYE
Scheme Regulations.

Penalties and Interest must be applied for delay or failure to remit the withheld or
deducted taxes by the withholding institution or the employer to the relevant tax
authority. This is because the sum withheld or deducted is regarded as a debt or
monies kept and/or retained for the relevant tax authority. This therefore means
that the unpaid tax liability becomes subject of penalty and interest when not
paid by the withholding institution or employer by the due date of the return.

By the provisions of Section 74 (1) of the PITA, WHT must be remitted within
30 days from the date the amount was deducted or the time the duty to deduct
arose. The prescribed time for remitting PAYE is 10 days after the end of any
month as provided in Paragraph 8 of the Operation of PAYE Scheme
Regulations. From a combined reading of the foregoing provisions, it will mean
that where the WHT or PAYE is not remitted within the time prescribed by
statute, penalty and interest becomes due and payable on the unremitted tax from
 C ITIBANK N IG . L TD . V . L SIRS 2021 60TLRN 27

the very moment the time prescribed by statute expires. It is pertinent to note that
Section 32 (1) (a) and (b) of the FIRS Act uses the word 'shall' which connotes
that the relevant tax authority has no discretion in imposing penalty and interest.
Once it is established that tax was not paid/remitted within the time prescribed
by law, the tax authority must impose penalty and interest on the taxpayer.
However, this can only be limited to the time within which the employees were
under the payroll of the employer. It is therefore the considered view of this
Honourable Tribunal, that liability of the Appellant with respect to interest and
penalty should be limited only to those amounts with respect to the PAYE that
was collected during the period that the said employees are on the payroll of the
Appellant and/or those of such PAYE which the Appellant were under the legal
obligation to collect and remit which was collected but never remitted.

In view of the foregoing, the Tribunal resolves as follows:

1. On issue one, the Tribunal resolves that the revised Demand Notice
served on the Appellant by the Respondent is legal and legitimate as it
in tandem with the relevant provisions of the laws.

2. On issue two, it is resolved by this Honourable Tribunal that, since the

dispute was caused by the lacuna in the law which both parties took
advantage of, the ambiguities and/or contradictions should be resolved
in favour of the Appellant and therefore the Respondent is hereby
directed to effect all the necessary adjustments accordingly.

3. On issue three, the Tribunal resolves that although the annualization of

the income of the affected staff is in order, the liability of the Appellant
should be limited only to the period that the said employees were within
the employment of the employer.

4. On issue four, the Appellant is liable to pay penalties and interest but
that should be restricted only to the period during which the PAYE was
not remitted on the due date prescribed by law and also to the limit of
the final liability after the revised assessment based on the Orders and
 C ITIBANK N IG . L TD . V . L SIRS 2021 60TLRN 28

directives of this Honourable Tribunal to the Respondent.