Amsar v. Rwanda Revenue Authority

# Amsar v. Rwanda Revenue Authority

- Source: Amategeko - Section: Decisions (Judgements) - Date: 2011-08-05 - Case/document no.: RCOM A 0056/10/CS - Collection: Supreme Court

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Amsar v. Rwanda Revenue Authority [Rwanda SUPREME COURT–2011SC –RCOM A 0056/10/CS (Mukanyundo, P.J., Havugiyaremye and Kayitesi R, J.) August 05, 2011] Tax Laws–determination of Corporate Income Tax–Based on the principle of independence of taxation, each year is taxed independently–Law n°16/2005 of 18/08/2005 2005 on direct taxes on income, article 2(7°) Tax Laws–Determining depreciation–The depreciation of a working tool is computed when it was used on direct purpose of what it was meant for–Law n° 8/97 of 26/6/1997 on Code of Direct Taxes on Different Profits and Professional Income, as modified and complemented to date, Art 10 (2º) ;( 5º). Facts: The Appellant was assessed on corporate Income tax of 2003 year and was subject to pay tax of 25.703.169 Rwfrs resulting to an assessment procedure without notice. He made appeal to the commissioner general and it was held that his appeal has merit in part, the tax charged was reduced to 1.372.044 Rwfrs, remained 24.331.125 Rwfrs The Appellant lodged appeal in The Commercial High Court Requesting the removal of tax charged during the year that he had suffered a loss valued at 31.862.937 Rwfrs, The Commercial High Court rules that the claim is without merit, the tax fixed by commissioner general in response to the appellant’s administrative complaints remains. The Appellant appealed against the ruling in The Supreme Court objecting that the court did not validate the debit note of 69.583.125 Rwfrs related to spare parts and different machines, refused it deducted from the taxable profits of 2003 year while he had paid that money to S, the court refused to deduct the depreciation of the “generator’’ which was used where Deputy Director General of the company resided for taxable business profit. The defendant allege that the Appellant’s grounds of appeal unfounded, because no tax year shall be mixed with another tax year. Thus, concerning the depreciation of the “generator’’ that was used at the residence of the Deputy Director General of the company cannot be deducted from Taxable Business profit, to be deducted it must have been used for direct purpose of, and in the normal course of the business, which never happened. Held: 1. The 69.583.838 Rwandan Francs which appears on debit note, provided by the appellant cannot be deducted from Taxable Business profit of 2003, because it was paid after that year, so the Principle of the independence of financial years shall be respected. 2. In order to deduct the depreciation of the generator from the taxable profit, that generator must have been used for the direct purpose of, and in the normal course of the business. If not, the depreciation of that generator cannot be taken as expenses related to the business for being deducted from taxable profits. Appeal without merit;

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The case appealed remains unchanged; The court fees charged to the appellant. Statutory instruments referred to: Law n° 8/97 of 26/6/1997 on Code of Direct Taxes on Different Profits and Professional Income, As modified and complemented to date, Article 10(2º) ;( 5º). Law n° 15/2004 of 12/6/2004 relating to evidence and it’s production, Article 35 paragraph 3. No Cases referred to: Judgement I.brief background of the case [1] AMSAR BURUNDI SA company, branch of Rwanda, was assessed on corporate Income tax (Impôt sur les Bénéfices des Sociétés) of 2003 year and was subject to pay tax of 25.703.169 Rwf resulting to an assessment procedure without notice (imposition d’office) . AMSAR made appeal to the commissioner general and it was held that his appeal has merit in part, the tax charged was reduced to 1.372.044 Rwf, remained 24.331.125 Rwf, AMSAR not satisfied by the decision, he lodged appeal in The Commercial High Court Requesting the removal of tax charged during the year that he had suffered a loss valued at 31.862.937 Rwf. [2] The Commercial High Court rules that AMSAR’s claim is without merit, that the tax fixed by commissioner general of Rwanda Revenue Authority in response to AMSAR’s administrative complaints remains. [3] Among the grounds relied on, to the fact that AMSAR had been charged using the assessment procedure without notice, the court found that, this was in accordance with the law and especially the article 19 paragraph one and article 24 of the Law n° 8/97 of 26/6/1997 on Code of Direct Taxes on Different Profits and Professional Income, concerning the fact that Rwanda Revenue Authority refused to deduct “the depreciation of the generator” from taxable profits, The Court found that money should not be deducted in these profits following what is provided in article 10 paragraph 1º of the Law stated above, regarding 69.583.858 Rwf which refers to the debit note, AMSAR requested that money to be deducted from taxable profits of the year which it was paid ,the court found AMSAR not providing any evidence on how that money was spent in 2003,notwithstanding that it recognized that it owe money to someone. [4] AMSAR appealed against the ruling in The Supreme Court objecting that the court did not validate the debit note of 69.583.125 Rwf related to spare parts and different machines, refused it deducted from the taxable profits of 2003 year while AMSAR had paid that money to SOBIMAC, the court refused to deduct “the depreciation of the generator” which was used where Deputy Director General of the company resided for taxable business profit.On Rwanda Revenue Authority’s side, it alleges that those grounds of appeal are baseless.

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[5] The case was heard on 30/06/201, AMSAR represented by Counsel MUNDERERE Léopold together with counsel MUGEMANA J.M.V and Rwanda Revenue Authorityrepresented by counsel GASANA Raoul A. II. THE LEGAL ISSUE TO BE EXAMINED IN THE CASE AND ITS ANALYSIS a. To know if 69.583.858 Rwf on the debit note nº 004/2003/MAT could be deducted from the taxable profits of 2003 year. [6] Counsel MUNDERERE Léopold who represents AMSAR alleges that AMSAR had paid that Money to SOBIMAC, but the fact it was at that moment that he had begun as he was supposed to fill many documents in order to start working in Rwanda and put it on 2004 year, also due to the fact he suffered losses while working and was paying a lot of money, he found that which appears on debit note should be recorded as having been used (expenses)in 2003. [7] Counsel GASANA Raoul A. who represents Rwanda Revenue Authority reminds the principle related to « the independence of financial years » which means that no fiscal year should be mixed with another. he explains that the money which appears on the debit note had not been paid in 2003, it is obvious that AMSAR was supposed to pay to someone ,that is why it should not be deducted from taxable profits for that year based on article 10 paragraph two, Law n° 8/97 of 26/6/1997 that regulated the Code of Direct Taxes on Different Profits and Professional Income [8] On invoice given by AMSAR requesting them to be considered as evidence that materials related to that money had been purchased and paid. he explains that they do not fulfill what the article 35 paragraph three of the Law nº 15/2004 of 12/6/2004 and specially in relation to copy of an original document which is not certified in conformity with the original document, furthermore some of them noted that the money therein was paid in 2005,other in 2006,therefore they cannot reduce the tax of 2003. [9] Counsel Mugemana also explains that this money was paid for materials that SOBIMAC had bought to ASTALDI company, afterwards,it sold to AMSAR by lending him money in order to facilitate their level of collaboration as related companies. [10] The article 10 of the Law nº8/97 of 26/06/1997 establishing the code of Direct Taxes on Different Profits and Professional Income, that was in force in 2003 provides that the profits is established after subtracting all expenses .it specifies that for the money to be equally to the expenses .with anything that increases assets to be deducted from taxable profits,The following conditions shall be fulfilled: 1º The money was used for the direct purpose of, or in the normal course of the business; 2º The money spent correspond to services decidedly of the business and has sufficient evidence showing the veracity of what is written in the books of accounts. 5º Have been recorded in compliance with governing laws,expenses paid for the purpose of services in the year are considered as an indisputable debt in description and in quantity.

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[11] In accordance of that article and especially in its the point(2) and (5), the court find that expenses of 69.583.858 Rwf noted on the debit note, provided by AMSAR cannot be deducted on taxable profits in 2003 year, as shown by that debit note,that money was not really paid in 2003,but was paid later. [12] The court again find that further evidences provided by AMSAR including invoice , except t also that those evidences are not in compliance of what article 35 paragraph three of the law nº 15/2004 of 12/6/2004 relating to evidence and it’s production, they also show that a portion of the money was paid in 2005 while the other was paid in 2006 Furthermore this was made for anothor reason,since it was for « reimbursement of the fees » insteand of paying those materials, hence the ground of appeal of AMSAR requesting the money on debit note be deducted from taxable profits earned in 2003 is baseless. b) To know if the depreciation of the generator which was used in the residence of the Deputy Director General can be deducted from taxable profits. [13] On this issue Counsel MUNDERERE find that there is no way ,Rwanda Revenue Authority would have accepted depreciation for some products and refuses for the generator on the grounds that it is not « business expense » he explains the problem of electricity experienced in 2003 some time the deputy directior general use to work in his office and also sometimes at his residence, Thus due the responsabilities of a person of that level, the money incureed for that generetor has to be considered as expense on the same level with others expenses incurred in relation to the business and therefore be deducted from taxable profits [14] Counsel GASANA Raoul allege that things are obvious in article 10 of the Law n° 8/97 of 26/6/1997 on Code of Direct Taxes on Different Profits and Professional Income, on its first point where it explains the scope of charges that deductible from taxable profits(charges déductibles/ deductible expenses from company tax),it shows in particular that the charges deducted are those incurred for the direct purpose of the business (dans l’intérèt direct de l’exploitation) adds on what we should look at, whereby RRA had based its decision on depreciable equipment, that is why ,depreciation of certains equimenets was accepted and refused for the “generator”which was used by the Deputy Director General of the campany as the article of the law explains about equipments which have «lien direct/direct interest» with the business and not what has “Indirect” connection as is the case of “generator”which was used at the residence of the deputy director general,now to separate those that have direct interest and those who do not have may be difficult. [15] The article 10 of the law nº8/97 of 26/06/1997 stated above that was in force in 2003 on its first point provides that, the profits is established after subtracting all expenses .for the money related to the expenses be deducted from profits, it must have been used for the direct purpose of, or in the normal course of the business; [16] Based on this article, The court finds that « generator »referred , although in general was used in to facilitate de deputy director general to fulfill its job descriptions ,The fact that it was used for others activities which may not be related to its job descriptions, this make the direct connection (lien direct)provided by the law not certain, therefore the depreciation for that generator cannot be deducted from taxable profits.

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[17] The court find that on the side of AMSAR, its representatives fall to shows what were allocated to its deputy director general as facilities in connection to its job including the use of the generator in particular. [18] Based on what has just been said, the court find that the depreciation of the generator cannot be considered as expenses related to the business for being deducted from taxable profits. therefore the appeal of AMSAR on this grounds is baseless. III.DECISION OF THE COURT [19] Decides to admit the appeal of AMSAR BURUNDI SA, branch of Rwanda ,which was legally introduced, but find it baseless. [20] Rules that the case RCOM 0115/09/HCC Ruled by Commercial High Court on 29/04/2010 remains in force; [21] Orders AMSAR BURUNDI SA, branch of Rwanda,to pay court fees of 23.300 Rwf,failure to do so in eight days it will be seized by force using the power of the state..