LCF Zimbabwe Ltd v ZIMRA (HH 227 of 2020; ITC 6 of 2016) [2020] ZWHHC 227 (13 March 2020)

LCF Zimbabwe Ltd v ZIMRA (HH 227 of 2020; ITC 6 of 2016) [2020] ZWHHC 227 (13 March 2020)

Master branding fees were not shown to be separately deductible from intellectual property fees due to indivisibility in agreements; only composite fees in certain years were deductible. Consumable spare parts were trading stock and not deductible. Quarry overburden removal was capital expenditure and not deductible...

Source-derived case information.

Citation
[2020] ZWHHC 227
Parties
Appellant: LFC Zimbabwe Ltd; Respondent: Zimbabwe Revenue Authority
Court
Harare High Court
Jurisdiction
Zimbabwe
Judgment Date
13 March 2020
Case Number
HH 227 of 2020 ; ITC 6 of 2016
Procedural Posture
Income Tax Appeal / Judgment After Full Hearing
Outcome
Appeal partially allowed and partially dismissed
Legal Topics
Income Tax, Deductibility of Expenditure, Penalties, Capital Allowances, Mining Taxation
Source Language
english
Tax Law Income Tax Deductibility of Expenditure Penalties Capital Allowances Mining Taxation

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Parties

LFC Zimbabwe Ltd

Appellant

Zimbabwe Revenue Authority

Respondent

Procedural Posture

Income Tax Appeal / Judgment After Full Hearing

Legal Issues

  1. 1 Whether master branding fees are deductible as expenditure incurred for the purposes of trade or in the production of income
  2. 2 Whether costs of consumable spare parts unutilised at year end are deductible or constitute trading stock
  3. 3 Whether quarry overburden removal costs are revenue or capital expenditure and deductible under the Income Tax Act

Ratio Decidendi

Master branding fees were not shown to be separately deductible from intellectual property fees due to indivisibility in agreements; only composite fees in certain years were deductible. Consumable spare parts were trading stock and not deductible. Quarry overburden removal was capital expenditure and not deductible as revenue or under mining allowances. Capital allowances for computer software were not allowable. The 60% penalty imposed was appropriate given the circumstances.

Court Disposition

Appeal partially allowed and partially dismissed

Orders

  • Manual notices of assessment for income tax for 2009-2013 set aside.
  • Commissioner to issue amended assessments for 2009-2013: allow deduction of master branding fees for 2009-2011, disallow for 2012-2013; disallow consumable spare parts deductions; disallow amortised quarry development cost for 2013; impose 60% penalty on unpaid principal tax for each year.