The Appellant had moved to the TAT seeking to overturn the Respondent’s corporation income tax (CIT) assessment relating to alleged underpayment of CIT for the period 2015 - 2018. The underpayment was as a result of the Appellant’s utilization of tax overpayments from 2014 in offsetting CIT liabilities in later years.

ISSUES FOR DETERMINATION

The issues for determination were whether:

i. The Appellant was entitled to tax credits as per s.42 of the TPA;

ii. It is justified for the Appellant to utilise the tax overpayment to offset tax liabilities in subsequent years; and

iii. The taxes confirmed by the Respondent via the Objection Decision (31 August 2020) were payable.

THE APPELLANTS GROUNDS OF APPEAL

a) It was the Respondent’s responsibility to design a Self-Assessment Return (SAR) template that would allow the Appellant to appropriately claim its tax credits arising from the overpayments. This forced the Appellant to claim the refund in the field designated for credits under “special arrangements” as per Section 42 of the ITA.

b) Section 47 of the Tax Procedures Act, Act No.29 of 2015 (TPA), is titled “Refund of overpaid tax”. This section should not be applicable where a taxpayer opts to utilize tax overpayments in offsetting future tax liability.

c) The use of the word “may” under section 47 is merely permissive or directory and not obligatory. This allows the Appellant freedom to either lodge an application for refund or not.

d) The Respondent’s longstanding practice of allowing taxpayers to automatically offset tax overpayments within the same tax head gave rise to a legitimate expectation. The longstanding practice can only be abrogated by an overriding change in law or other matters of inordinate public interest.

e) The Respondent was not justified in disallowing tax overpayments on a mere fact that they were declared in the wrong field of the return while it had failed to provide an alternative field where such overpayments could be declared.

The TAT dismissed the Appellant’s case, on the basis that

a) Section 42 of the ITA relates to credits arising from foreign tax payable in respect of income earned under special arrangements. The TAT agreed with the Respondent that it was incorrect for the Appellant to claim overpayments under Section 42.

b) Section 47 of the TPA was the only avenue available for the Appellant to utilize its overpayments. The TAT held that the Appellant cannot use the overpayment without going through the validation process set out under Section 47 of the TPA. The TAT concluded that offsetting a tax due from an overpayment of tax is not automatic and that the taxpayer must apply under Section 47 of the TPA for validation.

c) The taxes assessed as per the Respondent’s Objection Decision were due and payable.