IN THE SUPERIOR COURT OF JUDICATURE

IN THE SUPREME COURT

ACCRA

CORAM: WOOD (MRS.), CJ (PRESIDING)

DOTSE, JSC

YEBOAH, JSC

GBADEGBE, JSC

AKOTO-BAMFO (MRS.), JSC

CIVIL APPEAL
NO. J4/16/2010
16TH MARCH, 2011

MULTICHOICE GHANA LTD …. PLAINTIFF/RESPONDENT/APPELLANT

VERSUS

THE COMMISSIONER, INTERNAL

REVENUE SERVICE …. DEFENDANT/APPELLANT/RESPONDENT

__________________________________________________________

JUDGMENT
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

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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
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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 interest earned on the
subscription fees and deducting all allowable heads of expenses wholly
incurred in its main line television business to declare the net losses.

The respondent commissioner, as the tax administrator, took exception

to the methodology adopted by the appellant company to reckon net
losses. He was of the opinion that although the appellant was engaged
in two separate, but in some way interrelated lines of business, namely,
pay television and interest income using revenue from the television
business, the company was nevertheless not entitled in law to aggregate
the two incomes, reckon it as their assessable income, and then deduct
expenses exclusively incurred from its television business from it. He
took the position that the law allows the deduction of expenses only if
they wholly or directly relate to the production of the particular income
under consideration, and further that it was clearly wrong for the two
incomes to be grossed up to determine the company’s assessable
income. He thus rejected the appellants’ method of assessment,
assessed tax from the two separate sources independently of each other
and plainly disallowed the deduction of expenses of the company’s core
business, that is, the pay television business from the interest income.

The appellants disputed the assessment and commenced proceedings in

the High Court to challenge its legality for the period 1994-99 and prayed
further that these be set aside on the main ground that the disputed
assessments had the effect of wrongfully taxing the interest income
separately.

The trial court found for the appellants, basing its decision on the
principal ground that the interest income is not severable from profits
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and loss accounts of the appellant company’s core business operations
for the period in question. Their Lordships of the Court of Appeal upheld
the trial court’s finding that, notwithstanding that the company keeps
two sources of income, the sections 4 and 5 of SMCD 5 permit the
deduction of the company’s main line business expenses from the
interest income. In spite of these positive primary findings however,
their Lordships nevertheless expressly reversed the final decision on the
company’s tax liability, setting the stage for this appeal.

Two additional grounds A and B were tagged on to the original ground

that their Lordships were “in error in holding that that the income in
question was taxable.” The additional ground A, which in any event is not
in substance different from the original ground, impugns the decision of
the Court of Appeal as not being supportable in law. The second
additional ground B, namely that “the holding of by the court of Appeal
that “the appeal succeeds in part is not comprehensible” does not, in my
view, constitute a valid ground of appeal. It appears to have been
provoked by the appellate court’s reversal of the order of the trial court
and the conclusion that the appeal succeeds in part. I do appreciate the
appellants concerns and his specific reference to the final conclusion on
the outcome of the appeal. More disturbingly, from the records for the
day judgment was delivered; the court, per its order, gave the
respondent more than they won. Instead of the partial success, the court
order read:

“The appeal is allowed. The order made by the trial court in respect of
the interest is hereby set aside.”

In any event, notwithstanding the apparent inconsistency or

contradiction in the judgment, and final orders of the court, I do not think
the appeal ground B as formulated, is permissible under the rules or even
at all necessary. Under the Supreme Court Rules, 1996, CI 16, rule (4),
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grounds of appeal are expected to be set out concisely, and without
argument or narrative. More importantly, by rule (5), aside from the well
known and oft used umbrella ground of appeal- the judgment is against
the weight of evidence- a ground of appeal which is vague, or general in
terms, or fails to disclose a reasonable ground of appeal is not permitted.

A ground of appeal which questions the comprehensibility of a finding of

law or fact, a ruling or decision cannot, in my opinion, constitute a valid
ground of appeal in terms of the rule (4) of the CI 16, and ought properly
to be struck out under rule (5) of the CI 16. I would have thought that in
those cases, where a party’s only complaint is that it finds an order or a
decision incomprehensible, unless the rules of court expressly prohibits,
and I know not of any such rule, that the proper procedure would be to
seek clarification or directions from the court which issued the order or
decision complained of, by invoking its inherent jurisdiction. On the
other hand, as in this instant case, where there are other substantial
grounds on which the decision of the court may be questioned, then it is
difficult to see the utility of such a ground as a separate and distinct
ground of appeal, since the success of the others would necessarily
impact the final orders of the court, including the impugned order, that
is the alleged incomprehensible order. In other words, the success of
those other grounds will lead automatically to a correction of all
contradictions and inconsistencies, and thus perfect the grand
conclusion of whether the appeal succeeds or fails.

This appeal will therefore be examined in the light of the original ground
and additional ground A, both of which in any event, also fail to identify
concisely but with specificity, the errors of law complained of.

At the trial, three primary issues that the court thought were of critical
importance is whether the appellant company operated two separate
business lines, run two separate sources of income and therefore
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“entitled to deduct expenses wholly, exclusively and necessarily incurred
in its Television business, as a source of income from another source of
income, namely interest income.” The trial court found that while it is
true that the company had two separate sources of income, indeed the
interest income formed only a fractional portion of the “full amount of
income” of the company. The trial judge thus reasoned that on the
peculiar facts of the case, “the interests it earned from its savings at a
Commercial Bank are declared not capable of being severable from the
profit and loss of accounts of the plaintiffs company from 1994 to 1999.”
The learned trial judge thus concluded: “The plaintiff’s (sic) investments
it made by investing sums of its money into savings account with a
commercial bank for which it earned some interests were “required for
the purposes of” the plaintiffs (sic) company and the interest it earned
from the investment must be brought into the profit and loss account of
the company.”

It was on these bases that the trial court declared the corporate tax
liability imposed on the appellants a complete nullity.

Their Lordships of the Court of Appeal rightly affirmed the finding that
the appellants had two sources of income. In actuality, given the state of
the pleadings, that fact was never in dispute. Thus, the real and indeed
only matter in controversy between the parties and indeed as was rightly
pointed out by the appellate court was, “whether or not upon a true and
proper interpretation of section 4, 4A, 5 and 11 (1) of SMCD 5 as
amended the plaintiff is entitled to deduct the company’s expenses
wholly exclusively and necessarily incurred in its television business as a
source of income from another source of income namely; interest
income.”

Their Lordships cast the issue thus:

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“Whether it would be legal for it to deduct any losses or expenses
incurred from the Television business from the (sic) interest income
earned from that source.”

The court answered this question in the negative and set aside the tax
liability imposed by the respondent commissioner. The learned justices
based their final conclusion on three critical findings. First, that the law
only allows for the deduction of expenses which a Company has wholly,
exclusively and necessarily incurred “in the production of the income”.
Second, that as urged by the appellant company, all the moneys
generating the interest income were derived from the Television
business. Third, notwithstanding that it keeps two sources of income,
that all expenses incurred in generating that income qualify as money
expended in the their mainline business activity, namely, the pay
television business .

The court proceeded further to provide details of what is allowable

under sections 4 and 5. They are:

“(1) That all outgoings and expenses wholly, exclusively and necessarily
incurred by the Company (MULTICHOICE GHANA LTD) during the period,
being 1994-1999 can be legally deducted from the interest income if only
that company can prove that it wholly exclusively and necessarily
incurred them in the production of that income (namely the interest).”

From the state of the pleadings, these questions still remain the core
issues. I have been compelled to emphasise this fact for one simple
reason, and it is this. Appellant counsel was compelled in his reply, to
provide answers to a question which plainly never arose for
consideration and was introduced for the first time in the respondent’s
written statement. Counsel submitted:

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“In this case we are concerned in identifying the revenues that would
constitute the income not the deductibles…It is not the appellant’s
contention that interest earned on the deposits into the saving accounts
be deducted in computing the assessable income. On the contrary, it is
the appellant’s case that its interest income be added as revenue or
income in computing the assessable income.”

This line of argument was undoubtedly provoked by the respondent’s

contention that: “whatever monies were deposited in the interest
yielding account could not be included in determining appellants
assessable income since the invested monies did not constitute
outgoings or expenses incurred in the production of the income as
provided for in section 4 of SMCD Income Tax Decree 1975 (SMCD 5)…”

Respondent Counsel contended further that the SMCD 5 “draws a

distinction between interest earned as an income …and interest paid on
loans which is an allowable expenses or outgoing.” The latter, but not
the former, they maintain is deductible, provided it meets the
requirement of s.4 of SMCD 5. Interest on the investment income, they
argue, is not an expense or an expenditure item on the company’s
operation, and cannot therefore be a deductible expense.

I am in entire agreement with appellant counsel that in this case “we are
concerned with identifying the revenues that would constitute the
income not the deductibles.” In other words, the central issue is what
constitutes assessable income for the purposes of taxation. Is it made up
of only the subscription fees or additionally the income interest? As
already noted, respondent’s contention marks a noticeable shift from
their original stand. The appellants, as plaintiffs, had pleaded:

“ 3 Under sections 4,10,and 11 of the Income Tax Decree 1975 (SMCD 5)

the defendant was empowered to levy tax on the plaintiffs aggregate

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income from subscriptions received to its pay television programmes
and interests accruing on such subscriptions deposited in the bank.”

The appellants unreservedly admitted the correctness of the appellants

stated position. They averred as per the paragraphs 3, 10 and 11 of their
statement of defence:

“3 Paragraph 3 of the statement of claim is admitted.

10 Defendant says that it is the aggregated income from the two lines of
business activities of the plaintiff as shown in paragraph 8 of statement
of the statement of Defence which were taxed as required by section 11
(1) of the income Tax Decree of 1975, SMCD5.

11 Plaintiff’s averment contained in paragraph 5 of the statement of

claim that defendant insists on taxing its sources of income separately is
denied. The incomes from the two sources of the plaintiff were in fact
aggregated and taxed according to law.”

These plain admissions under paragraph 11 actually reflect the correct

position of the law. The s1 ss2 of SMCD 5 provides for the taxation of
income accruing in, derived from, brought into, or received in respect of
gains or profits from any business, interest or discount. I think that under
the 11(1) of SMCD 5, it is the aggregate income of a corporate body, the
assessable income, and which income could be derivable from two or
more sources, as in this instant case, that is subject to tax. The s11 (1)
provides:

“Except in the case of any income of an employee derived from his

employment and except as otherwise provided by this section, the
income of any person for each year of assessment from each source of
his income (hereinafter referred to as “assessable income”) shall be the
full amount of his income from each source for the year immediately

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preceding the year of assessment, notwithstanding that he may have
ceased to possess any such source or that any such source may have
ceased to produce income.”

My conclusion has been dictated by the strict constructionist approach

to the interpretation of statutes reserved for fiscal legislation. The
general principle is that tax statutes are to be construed strictly.
Viscount Simon LC in the Privy Council case of Canadian Eagle Oil
Company Limited and The King [1946 AC 119 at 140] relied on Rowlatt
J’s formulation of the rule in Cape Brandy Syndicate v IRC [1921 1KB 64,
71]. He observed: “In the words of the late Rowlatt J whose outstanding
knowledge of this subject was coupled with a happy conciseness of
phrase, “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 tax. Nothing is to be read in, nothing is to
be implied. One can only look fairly at the language used.”

I am not disposed to straining the words of SMCD5 to conclude, as

argued by the respondent that, on the facts, the two incomes, so in
extrinsically linked cannot be grossed to constitute the company’s
assessable income. It bears emphasis that as in this instant case, where
the interest income of a company not another (separate and distinct
entity, but the same company) accrued in the course of their business; it
constitutes part of the company’s revenue and consequently, at law,
forms part of its assessable income. Apply these principles to the s.1 ss
(1) and 11 of SMCD5, and the conclusion I arrive at is that upon a true
and proper construction, the respondents argument must fail.

The final question is whether the appellant company is entitled to deduct

expenses wholly and exclusively and necessarily incurred in its television
business from the interest income. Differently stated, could all outgoings
and expenses wholly and exclusively and necessarily incurred by the
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plaintiff during 1994-1999 in respect of its pay television, be legally
deducted from the aggregated or assessable income and a fortiori the
interest income. The answer to this would settle the legal arguments
proffered by the two sides in respect of the two grounds of appeal.

The respondent contends that by the provisions of the s. 1 (2), 4 and 5

of SMCD 5 the expenditure of the pay television cannot be deductible
from the interest income. They read:

“4 For the purpose of ascertaining the income of any person other than
an employee, for any period from any source chargeable with tax under
this Decree there shall be deducted all outgoings and expenses wholly
and exclusively incurred during that period by such person in the
production of the income…”

Having read particularly the s. 4 of SMCD5, I endorse the findings and

conclusions on this issue, arrived at by the trial court and the reasons in
support thereof, and which findings were indeed affirmed by the
appellate court. The interest income is not severable from the company’s
profit and loss accounts and must be brought into it. Since this income,
which I have demonstrated constitutes part of the appellant company’s
assessable income, were drawn from the pay television, it stands to
reason, that the company’s outgoings and expenses incurred in
generating the entire pay television business, qualifies as allowable
expenses and consequently, by virtue of s.4 of SMCD5, can be subsumed
under and is indeed deductible from the interest income.

I wholly affirm the decision of the trial court. I set aside the judgment of
the court below and substitute in its place the judgment of the trial court.

[SGD] G. T. WOOD [MRS.]

CHIEF JUSTICE
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 [SGD] J. V. M DOTSE
JUSTICE OF THE SUPREME COURT

[SGD] ANIN YEBOAH

JUSTICE OF THE SUPREME COURT

[SGD] N. S. GBADEGBE
JUSTICE OF THE SUPREME COURT

[SGD] V. AKOTO-BAMFO [MRS.]

JUSTICE OF THE SUPREME COURT

COUNSEL:

KOFI OHENE ABANKWAH FOR THE RESPONDANT.

KWAMI ADOBOR FOR THE APPELLANT

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