RRA vs. SKY HOTEL

# RRA vs. SKY HOTEL

- Source: Amategeko - Section: Decisions (Judgements) - Date: 2016-04-15 - Case/document no.: RCOMA 0062/13/CS - Collection: Supreme Court

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RRA vs. SKY HOTEL [Rwanda SUPREME COURT– RCOMA 0062/13/CS (Nyirinkwaya, P.J., Kayitesi and Mukandamage, J.) 15th April 2016] The law regulating the taxes – The audit on tax – Seizing the court against the decision of the Commissioner General – The taxpayer may not seize the court against the decision of the Commissioner General in case the audit on which it is based has been quashed – The Law No74/20008 of 31/12/2008 ammending and completing the Law No25/2005 on the tax procedures, article 7. The law regulating the tax –The prescription of the tax –The interruption of the prescription of the tax –The declaration of tax is made not later that 31/03 of the following year of the taxable period and the tax administration has the period of 3 years to make an audit on the tax but the prescription is interrupted by the note to the taxpayer notifying to him of the date for the audit – The law No 16/2005 of 18/08/2005 on direct income tax, article 12. The damages –The lawyer’s fee is provided to the claimant at all instance of the case if he/she referred to an davocate to plead for him and he/she has won the case but it has to be provided within the discretionary power of the court –Article 258 of CCBIII. Facts: The first audit has been done to SKY HOTEL and it has been charged to pay 185,899,566 Frw and appealed to the Commissioner General, this one accepted that it is quashed, and ordered for another audit respecting the laws on taxation. On 14/03/2011 notified to SKY HOTEL that the second audit would be carried out, and it bas been done, RRA has charged to him again the tax amounting to 403,031,048 Frw on the income tax, value added tax and tax on employment income for the 2004, 2005, 2006 and 2007. Then after SKY HOTEL appealed again to the Commissioner General saying that an audit carried out on it was illegal, the Commissioner General replied saying that its appeal was baseless, that it has to pay the whole tax as it has been charged. And therefore SKY HOTEL sued RRA before the Commercial High Court, claiming that that taxes should be waived, requesting to be given back the tax that has been paid before and their interests and the lawyer’s fee amonting to 6% of the tax it has been charged. RRA also raised an incidence for inadmissibility of the claim of SKY HOTEL arguing that it has lodged it in delay since it has not seized the court against the Commissioner General’s decision quashing the audit that has been carried out before. The court decided that the incidence was baseless and ordered that the tax of 403,031,048 Frw for 2004, 2005, 2006 and 2007 that has been charged to SKY HOTEL be waived due to the prescription. Then after, RRA also appealed to the Supreme Court arguing that the claim of SKY HOTEL would not have been admitted by the Commercial High Court since it has been lodged after 30 days provided for by the law. RRA says that another ground which made it to appeal is that the judge decided that the whole tax has prescribed due to the fact that the first audit has been quashed. RRA argues saying that the note it has writen to SKY HOTEL notifying that it will make the adjustment note was not the act of audit itself that there was instead another note that interrupted

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the prescription, it said that that note was still valid, it argues again that the fact that the Commissioner General has quashed the first audit, it does not mean that the note that interrupted the prescription has been quashed also. SKY HOTEL argued that if all activities of the audit are quashed, another note is prepared notifying another audit which follows. It argues that with regard to claim of SKY HOTEL that when the first audit was quashed there has been prepared another note notifying the second audit which means that the prescription of the first was not interrupted as RRA argues it that it has not to obliged to pay it. RRA says that the Commercial High Court has provided the lawyer’s fee with SKY HOTEL while it is the one which involved it within the court proceedings and it had to bear its consequences, whereas SKY HOTEL says that the judge committed no fault by providing it with the lawyer’s fees since it referred to the lawyer and it has won the case, in addition it claims the lawyer’s fee on the appeal level. Held: 1. The decision against which the taxpayer has seized the Commercial High Court is the one which has been taken by the Commissioner General regarding the tax of 403,031,048 Frw, which means that the taxpayer should not attack the decision which quashed the first audit while it has become final. 2. The period of 3 years for carrying out the audit starts to run from the date of the tax declaration, in case there is an “interruption” the period of three years for audit start again, thus the tax of 2004, 2005 and 2006 all has been prescribed on 21/12/2010 since the note that notified the audit for those years has been issued on 20/12/2007 and the taxpayer may not be held to pay it, therefore they have to be waived. 3. The lawyer’s fees are provided to the claimant at all levels of the court proceedings he/she seized if he/she has referred to the lawyer and has won the case but it is provided within the discretionary power of the court. Appeal has basis on some grounds; The tax for 2004, 2005 and 2006 that has been charged to SKY Hotel are waved since they have been prescribed The tax for 2007 that has been charge to SKY HOTEL has to be paid; The cross appeal has basis on some grounds; The court fees to RRA. Statutes and statutory instrument referred to: The Law No74/20008 of 31/12/2008 ammending and completing the Law No25/2005 on the tax procedures, article 7; The law No 16/2005 of 18/08/2005 on direct income tax, article 12. No case was referred to.

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Judgment I.BRIEF BACKGROUND OF THE CASE [1] SKY HOTEL has sued RRA before the Commercial High Court on 17/8/2012 saying that after carrying out the first audit, it has been charged to pay the tax amounting to 185,899,566 Frw and it appealed to the Commissioner General, within his decision of 5/2/2016 he quashed the audit for that tax and ordered that another audit should be carried out respecting the law regulating the taxation. On 14/3/2011, RRA notified again SKY HOTEL that it will be audited again on income tax, value added tax and the tax on employment income for 2004, 2005, 2006 and 2007, after that audit SKY HOTEL has been charged to pay tax amounting in total to 403,031,048 Frw. [2] On 25/05/2012, SKY HOTEL appealed again to the Commisioner General arguing that it has been audited for the second time which is illegal since this happen without having got back its documents that RRA has taken and that those it has got back do not correspond to the ones that have been seized, which made it to fail to prove to the auditors the exact calculations that should be the basis of taxa [3] tion. Within his decision of 19/07/2012, the Commissioner General replied deciding that its appeal was baseless, that it has to pay the whole tax as it has been charged. [4] SKY HOTEL seized the Commercial High Court claiming the taxes of 403,031,048 Frw to be waived for it, to be given back the money that it has paid before and its interests and the lawyer’s fees amounting to 6% of the taxes that has been charged to it. [5] RRA lodged an incidence for the inadmissibility of the claim of SKY HOTEL since it has lodged it in delay since it has not attacked the decision of the Commissioner General that quashed the first audit. The court decided the case on 05/06/2013, and decided that the incidence was baseless because the first audit has been quashed, that SKY HOTEL would not attack while it was not valid and it decided again that the claim of SKY HOTEL has basis on some grounds, it ordered that the tax of 403,031,048 Frw for 2004, 2005, 2006 and 2007 that has been charged to SKY HOTEL should be waived due to the prescription. [6] RRA appealed to the Supreme Court on 24/06/2013 arguing that the Commercial High Court would not have admitted the claim of SKY HOTEL which has been lodged after the period of 30 days that is provided for by the law no 25/2005 on the tax procedures, that the judge has decided that the whole tax has prescribed due to the fact that the first audit has been quashed by the decision of RRA which were connected to it as “note for adjustment“ of 20/12/2007 which have been quashed while it is not true, that even if there has been prescription of the tax, he would not have decided that even the tax of 2007 has prescribed, that the judge has provided the lawyer’s fees to SKY HOTEL while it is the one which involved RRA within baseless court proceedings. [7] The case has been publically heard on 08/03/2016, RRA represented by Me BYIRINGIRO BAJENI while SKY HOTEL was represented by Me TWILINGIYEMUNGU Joseph.

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II. LEGAL ISSUE OF THE CASE 1. To know whether SKY HOTEL has attacked the decision of the Commisioner General of 05/02/2010 while it has become final. [8] Me BYIRINGIRO BAJENI says that what the judge has explained that SKY HOTEL has attacked the decision of the Commissioner General of 19/07/2012 regarding the audit that has been carried out after that the irst one was quashed is not true, if you analyse the claim that SKY HOTEL has lodged to the Commercial High Court, you realise that it attacks the desion of Commissioner General of 05/02/2010 which has become final while SKY HOTEL has not attacked it within the period of 30 days provided for by the law1, that therefore the Commercial High Court would not have admitted its claim since it does not respect 30 days provided for by article 7 of The Law No74/20008 of 31/12/2008 ammending and completing the Law No25/2005 on the tax procedures. [9] Me TWILINGIYEMUNGU Joseph says that SKY HOTEL has not attacked the decision of 05/02/2010 which has been decided by the Commisioner General quashing the tax of 185,899,596 Frw, SKY HOTEL appealed requesting for that that tax should be waived and the Commissioner General accepted it, therefore it could not attack it while what it has requested has been allowed. He argues that SKY HOTEL has attacked rather the decision of 19/7/2016 taken by the Commissioner General which decided that the tax which has to be paid amounted to 403,031,048 Frw, its claim has been lodged on 16/08/2012 when 30 days haven’t expired. VIEW OF THE COURT [10] The article 7 of the Law No 74/20008 of 31/12/2008 ammending and completing the Law No25/2005 on the tax procedures which was in force when SKY HOTEL seized the court provides for that “the taxpayer who is aggrieved by the decision of the Commissioner General may make a judicial appeal. The appeal is brought before the competent authority within thirty (30) days after the receipt of the Commissioner General’s decision”. [11] It is evident that within the decision of 05/02/2016, the Commissioner General quashed the audit on tax that has been carried out to SKY HOTEL has decided that he has to be charged to pay the tax amounting to 185,899,566 Frw, and ordered to carry out another audit respecting the law on taxation. [12] The court realises that the decision that SKY HOTEL has attacked it before the Commercial Court is the decision which has been taken by the Commissioner General on 19/7/2012 relating to the tax2 which admitted it, it explained that3 SKY HOTEL would not attack the decision of the Commissioner General of 05/02/2010 while it quashed the first audit, it means that the claim that has been lodged on 17/8/2012 on the decision taken by the Commissioner 1 The Law No74/20008 of 31/12/2008 ammending and completing the Law No25/2005 on the tax procedures, article 7. 2 The tax of of 403,031,048 Frw [comprising of the income tax, the value added tax and the tax on employment income for 2004, 2005, 2006 and 2007]. 3 The paragraph 9 of the judgment nº RCOM 0226/12/HCC decided by the Commercial High Court on 05/06/2013.

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General on 19/7/2012 has respected the period of 30 dys, basing on the provisions of the article 7 of the above mentioned law. The appeal of RRA on that ground is baseless. 2. To know whether the tax of of 403,031,048 Frw comprising of the income tax, the value added tax and the tax on employment income for 2004, 2005, 2006 and 2007 has prescribed. [13] ME BYIRINGIRO BAJENI says that even if the adjustment note to the taxpayer preceeds the audit, but it is not the audit itself or the activity of the audit basing on the provisions of the article 27 of the law n⁰ 25/2005 of 04/12/2005 on the tax procedures. He explains that that note has been issued on 20/12/2007 has interrupted the prescription and it is still valid, that what the judge has decided that it has been also quashed due to the fact that the Commissioner General has quashed the first audit, is baseless. [14] He goes on saying that even if the court has been silent on it, RRA has proven to it that SKY HOTEL, on 31/08/2011 SKY HOTEL has rectified the tax declaration for 2006 and 2007 that it has made before, that from that time, when another audit on 19/7/2012, 3 years that are provided for within the the article 27 of the law n⁰ 25/2005 of 04/12/2005 mentioned above have not expired. [15] Me TWILINGIYEMUNGU argues that with regard to the audit and the investigation, the article 20 of the law n⁰ 25/2005 of 04/12/2005 on the tax procedures provides for the conditons to be fulfilled with RRA in case it starts an audit, which include informing in writing the taxpayer that he/she will be audited and the documents he/she has to present to the auditors, this note is called “the rectification note”, and it is the one which starts the audit, no audit may be carried out without having been issued to the taxpayer. [16] He argues that all the activities of the audit are quashed, even the rectification note is quashed too, and another note notifying another audit is made. He says it happened like that with regard to SKY HOTEL, that after quashing the first audit on 14/03/2011, another written notice has been made notifying that the second audit was to start, and that the note notifying the first audit should not reamain valid and RRA issued another one, which means that the first note did not interrupted the prescription as RRA argues it. [17] With regard to the tax of 2007, Me TWILINGIYEMUNGU says that he compromises with RRA that it has not prescribed, but that SKY HOTEL failed to defend itself with regard to it since RRA has seized its documents, and it has not to be held liable for it. VIEW OF THE COURT [18] Article 12 of the law n⁰ 16/2005 of 18/08/2005 on the direct income tax as it has been ammended up to date provides for that “an individual who receives taxable income prepares an annual tax declaration in accordance with procedures specified by the Commissioner General and he or she presents the declaration to the Tax Administration not later than 31st March of the following tax period”.

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[19] While article 27 of the Law No 74/20008 of 31/12/2008 ammending and completing the Law No25/2005 on the tax procedures provides for that the rectification note may be issued in a period of three (3) years, starting from the day of the filing of the tax declaration. The prescription is interrupted if the taxpayer has been informed to be audited, when there has been an affidavit thereof or by other deeds of acknowledgement by the taxpayer concerning the tax liabilities and all other provisions provided in the other laws”. [20] With regard to the interruption of the prescription, the Scholars in legal doctrines Christian de Lauzainghein et Marie- Hélène- Stauble de Lauzainghein within their book4 they also say that “the ground interrupting the prescription gives to the tax administration the same period as the interrupted one to investigate for the tax that has to be paid”. [21] The articles of the above mentioned law explain that the taxpayer declares the tax for any taxable year not later than 31 March of the following year (for the following taxable period), from that period the tax administration has the period of three years for auditing that tax, but the prescription of that period is interrupted by the note informing to the taxpayer the date on which the audit shall start or the rectification note, and if there is a ground interrupting it, that period starts again which is also approved with the Scholars in legal doctrines. [22] With regard to the taxes mentined within this case, it is understood that the declaration for the tax of 2004 should have been done not later that 31 March 2005, that of the tax of 2005 should have been done not later that 31 March 2006, that of the tax of 2006 should have been done not later that 31 March 2007, while that of the tax of 2007 should have been done not later that 31 March 2008. [23] With regard to the interruption of the prescription [24] With regard to this case, the court realises, basing on the note of 20/12/2007 which notified bout the audit of 2004, 2005, [in case this note for notification was considered as it remained with its validity with regard to the second audit], the tax of 2004, 2005 and that of 2006 all of them have bprescribed on 21/12/2010. [25] The court realises that even if they based on the note of 14/03/2011 of the notification of another audit as RRA proves it, the taxes mentioned above would have also prescribed before the notification of the audit on taxes be done, it proves that the tax 2004 has prescribed on 01/04/2008, the tax 2005 has prescribed on 01/04/2009, that of 2006 has prescribed on 21/12/2010. In addition if they based on 31/08/2011 on which SKY HOTEL argues that it give the rectified the tax declaration, it would have also prescribed even if this document is not within the file. [26] With regard to the tax of 2007, the court realises that, as the parties to the case agree on it, that tax has not prescribes since SKY HOTEL has made the tax declaration on 31/8/2011 which rectified the one it has made before, it would have prescribed on 31/8/2014. Even if SKY HOTEL argues that there has been the interruption of the period of the audit due to the the note 4 Christian de Lauzainghein et Marie- Hélène- Stauble de Lauzainghein, Droit Fiscal, Edition Dalloz, 14ème Edition 2009, page 332

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for the adjustment of the tax declaration, the court realises that it cannot be considered in case The audit has started on 19/7/2012, which gave the tax at issue of 403,031,048 Frw. [27] Whereas, with regard to the fact that SKY HOTEL may not be held responsible for the tax of 2007 since it failed to defend itself on it due to fact that RRA has seized its documents, the court realised that it cannot be considered in case it accepted that it has been given back its document and failed to prove that there were some that have not been given back. [28] Basing on the provisions of the law and the explanations give abaove, the court realises that the taxes of 2004, 2005 and 2006 have prescribed, they should have been charged to SKY HOTEL, and they are waived as the Commercial High Court has also realised it, whereas the tax of 2007 remains with its validity and SKY HOTEL has to pay it. 3. With regard to the lawyer’s fee [29] Me BYIRINGIRO BAJENI says that the Commercial High Court has provided SKY HOTEL with the lawyer’s fee amounting to 1,000,000 Frw while it has involved RRA in court proceedings, it would have therefore beared the effects of the court proceedings it has started. [30] Me TWILINGIYEMUNGU JOSEPH says that if the party fails within the case, he/she has to be condemned to pay the lawyer’s fee, thus the judge committed no fault. And he says that SKY HOTEL claims to be given the lawyer’s fee on the appeal level amounting to 2,000,000 Frw. VIEW OF THE COURT [31] The article 258 of CCB III provides for that “any act of the person that causes damage to another one, obliges the one whose fault, to repare it”. [32] The court realises that SKY HOTEL has referred to the lawyer and it won the case, the court realises that the Commercial High Court committed no fauld in providing with it the lawyer’s fee amounting to 1,000,000 Frw, but within its decision nowhere RRA has been condemned to pay it to SKY HOTEL, RRA has to be condemned to pay it. [33] Whereas, with regard to 2,000,000 Frw of the laywer’s fee that SKY HOTEL is claiming on this instance of the case, the court realises that it has to be provided since it has referred to the lawyer and it has won the case on some grounds, however, what it claims is to excessive, but within the discretionary power of the court, i provides with it 1,000,000 Frw basing on what is provided for by the article 258 of the CCB III mentioned above. III.THE DESION OF THE COURT [34] It decides that the appeal filed by RRA has basis on some grounds; [35] It decides that the tax for 2004, 2005 and 2006 that has been charged to SKY HOTEL by RRA has prescribed and it is waived;

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[36] It decides that the tax for 2007 that has been charged to SKY HOTEL has not prescribed and it has to pay it; [37] It decides that the cross appeal of SKY HOTEL has basis on some grounds; [38] It decides that the judgment nº RCOM 0226/12/HCC that has been decided by the Commercial High Court on 05/06/2013 is changed with regard the tax for 2007 and the lawyer’s fee; [39] It orders that SKY HOTEL has to pay the tax for 2007 that it has been charged to RRA; [40] It condemns RRA to pay to SKY HOTEL 2,000,000 Frw for the lawyer’s fee on both instances; [41] It condemns to RRA to pay 100,000 for the court fees.