Nicoz Diamond Insurance Limited V Zimbabwe Revenue Authority

### Preamble
1
HH 585-25
HCH 4023-24
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NICOZ DIAMOND INSURANCE LIMITED

Versus

ZIMBABWE REVENUE AUTHORITY

HIGH COURT OF ZIMBABWE

DUBE-BANDA J

HARARE 12 March 2025 & 1 October 2025

Application for a declaratur

M. Tshuma for the applicant

S. Bhebhe for the respondent

DUBE-BANDA J:

[1] The applicant is a duly registered company in terms of the laws of Zimbabwe, which provides insurance services. The respondent is an administrative authority established in terms of the Revenue Authority Act [Chapter 23:11], tasked inter alia with the administration and collection of revenues in terms of the Income Tax Act [Chapter 23:06]; the Value Added Tax Act [Chapter 23:12]; and the Finance Act [Chapter 23:04]. The applicant is a taxpayer from whom the respondent collects income tax.

[2] The applicant seeks a declaratory order to the effect that the additional assessments issued by the respondent are unlawful and ultra vires its powers. The order sought is couched in the following terms:

The additional assessments issued on the applicant by the respondent on the 7th of May 2024 be and are hereby declared invalid and set aside.

Costs of this application shall be borne by the respondent.

[3] The application is opposed.

The factual background

[4] The factual background of this matter is the following. From 2023 to 2024, the respondent investigated the applicant’s tax affairs for the period running from 1 January 2020 to 31 August 2020. The respondent contends that it discovered that the applicant received foreign currency income in respect of gross premiums underwritten from January 2020 to December 2021. It is further contended that it was noted that the applicant did not account for the correct income tax in foreign currency for the period running from 1 January to 31 December 2021. The following are the observations the respondent contends it made; that the applicant had improperly deducted canteen expenses from its income, thereby reducing the amount of taxable income for the year 2020; that the applicant did not pay provisional tax in foreign currency on the due dates in 2020. As at 31 August 2021, the applicant had paid tax in foreign currency in the sum of US$164,325.44. It is contended that for 2021, the applicant had improperly claimed depreciation costs on the right of use of assets as a deduction and this was disallowed. It had paid its provisional tax in foreign currency, but at the end of the year, the respondent noted that less tax had been paid for each quarter than was due. The respondent further contends that the payment of less tax than was due showed that there was an amount of taxable income in foreign currency that was not subjected to tax in foreign currency, which would trigger the invocation of s 47 of the Income Tax Act. The respondent contends that as a result of its observations, i.e., of the non-subjection of amounts of foreign currency taxable income to tax in foreign currency, additional notices of assessments were supposed to be issued to the applicant in terms of s 47 as read with 51 of the Income Tax Act in order for the applicant to comply with the requirements of s 4A of the Finance Act. On 28 March 2024, the respondent issued notices of assessment number 5267 and 5268 for what it considered the unpaid foreign currency taxes of US$82,495.37 and US$139,369.50 for 2020 and 2021, respectively. The respondent wrote a letter to the applicant explaining the reasons for the assessments.

[5] In a letter dated 5 April 2024, the applicant requested the respondent to align exchange rates used in the calculation of foreign currency tax due. The respondent noted that the applicant was charged more tax than was due and adjusted the assessments by reducing the applicant’s tax liability. Adjusted notices of assessments were issued on 7 May 2024. The adjusted notices of assessment number Di203052024002204 for US$40,175.86 and Di207052024000843 for US$136,446.80 reduced the applicant’s tax liability.

[6] On 5 June 2024, the applicant objected to the assessment, and the objection was disallowed in full on 16 August 2024.  In summary, the applicant’s case is that on 7 May 2024, pursuant to a tax audit conducted for the period 1 January 2020 to 31 August 2023, the respondent issued additional assessments for unpaid income tax. The applicant contends that both the form and content of the assessment are incorrect, and in addition, that the respondent had no authority to issue the assessments in question. The applicant contends that assessments must state the provision on which they have been issued. It is contended that the assessments subject to this matter do not indicate the provision in terms of which they have been issued and are unlawful in terms of the law.

[7] It is further contended that while s 47 of the Income Tax Act empowers the respondent to issue additional assessments, such additional assessments are issued in circumstances where inter alia an assessment has been made on a taxpayer, and it is later considered that an amount of taxable income which should have been charged to tax has not been charged or an amount which should have been taken into account, was not taken into account. It was averred that the assessments issued were for a period when the applicant had an obligation to file a single return, because the obligation to file two tax returns was introduced in the Finance Act (No. 8) of 2022, and did not have a retrospective effect. It was further averred that, as there was no foreign currency assessment to adjust, the respondent had no basis to issue an additional foreign currency assessment. It is on this background that the applicant launched this application seeking an order quoted above.

[8] In its heads of argument, the respondent raised a preliminary objection that this matter should be referred to the Special Court for Income Tax Appeals. At the commencement of the hearing, this objection was abandoned.

[9] I now turn to the issues for determination.

Assessment v notice of assessment

[10] The first issue for determination is whether the relief sought is incompetent. This issue must be dealt with in limine. This is so because it does not require the court to consider the merits of the matter. In this regard, the respondent’s contention is that the relief sought in this application is incompetent, in that what was issued on 7 May 2024 are not assessments but notices of assessment. However, the applicant seeks that the additional assessments issued on the applicant by the respondent on the 7th of May 2024 be declared invalid and set aside. The substance of this submission is that an assessment is an administrative process undertaken by the respondent. If the applicant seeks to challenge that administrative process, this must be pleaded in the founding affidavit. It was submitted that what was issued on 7 May 2024 are notices of assessment, and to the extent that the applicant is seeking an order setting aside the assessment, as opposed to the notice of assessment that was issued to it, the relief sought is incompetent. On the other hand, the applicant submitted that there is no distinction between a notice of assessment and an assessment. It was stated that a notice of assessment and an assessment are both documents, and a court will set aside an assessment that does not contain the requirements of the Act.

[11] In determining this issue, it is imperative to start with the reading of s 51(1) of the Income Tax Act. This provision empowers the Commissioner to make an assessment, and an assessment is defined in s 2 of the Act as “the determination by the Commissioner –(a) of any amount upon which any tax leviable under this Act is chargeable; or (b) of the credits to which a person is entitled in terms of the Charging Act; or (c) of any assessed loss ranking for deduction; and includes a self-assessment in terms of s 37A.” In Bailey v Commissioner for Inland Revenue 1933 AD 204 at 226, the court said:

“And assessment as defined means the process of determining the amount on which tax is chargeable, the determination of the taxable amount, or the loss as it may be …” My emphasis.

[12] In R v Deputy FC of T, ex parte Hooper [1926] HCA 37 CLR 368 stated thus:

“An ‘assessment’ is not a piece of paper; it is an official act or operation; it is the Commissioner’s ascertainment, on consideration of all relevant circumstances, including sometimes his own opinion, of the amount of tax chargeable to a given taxpayer.”

[13] In summary, therefore, in the reading of s 2 of the Income Tax Act, an assessment means inter alia the process of ascertaining the amount which tax is chargeable. It is in terms of s 51(2) that the Commissioner issues a notice of assessment and the amount of tax payable and is given to the taxpayer assessed. In addition, s 51(3) provides that the notice of assessment shall inform the taxpayer of his or her procedural rights, i.e., that any objection to the assessment must be sent to the Commissioner within thirty days of the date of such notice.

[14] My understanding of the scheme of s 51 of the Income Tax Act is that it provides first the process of assessment, and second the issuance of a notice of assessment to the taxpayer. These are two distinct and stand-alone processes. The notice of assessment is the medium through which an assessment outcome is communicated to the taxpayer. See JK Motors v Zimbabwe Revenue Authority HH-336/23. The applicant’s contention that both an assessment and a notice of assessment are documents cannot be correct. The applicant placed reliance on Nestle v ZIMRA SC 148/21. This case is not authority for the proposition that there is no distinction between a notice of assessment and an assessment. An assessment is prepared in terms of s 51(1), while a notice of assessment is prepared in terms of s 51(2).

[15] The applicant’s case is clearly stated in paragraph 11 of the founding affidavit; he avers that: “this is an application for a declaratory order to the effect that the assessments issued on the applicant by the respondent are unlawful and ultra vires the powers of the respondent.” There is no mention of a notice of assessment; the mention of it appears for the first time in the answering affidavit. It is trite that an application stands or falls on its founding affidavit. See Muchini v Adams & Ors SC 47/13 at p 4. Therefore, whatever attempts are made in the answering affidavit to refer to the notices of assessment are inconsequential.

[16] It is apparent that the applicant is conflating the process of assessment and the notice of assessment. The notice of assessment and the assessment are two distinct incidents. The applicant’s case is predicated on the alleged unlawfulness of the assessments. An assessment is an administrative process, as opposed to a notice of assessment, which is a document. As stated above, a notice of assessment is the medium through which an assessment outcome is communicated to the taxpayer. My thinking is that a litigant aggrieved by the assessment, i.e., the process itself, cannot challenge such process through a declaratur, but a review. It is so because in a review, the focus is on the process, and the way in which the decision-maker came to the challenged decision.  In Zvomatsayi & Ors v Chitekwe No & Anor 2019 (3) ZLR 990 (H) at 996 B-C, the court stated thus:

“A wrong procedure was used in this application. Litigants must take note that it is significant to use the correct procedure in applications placed before the court. If it is a declaratur, it must comply with the jurisdictional requirements of such an application, and the draft order must show that indeed it is a declaratur. If it is an application for review, it must show whether it is anchored on constitutional grounds, common law grounds, or the provisions of s 27 of the High Court Act. …… This procedure of filing an application for review and calling it a declaratur is incompetent and must not be done.”

[17] The applicant seeks that the additional assessments issued on the applicant by the respondent in May 2024 be declared invalid and set aside. The relief sought is incompetent. In that it targets the assessment, not the notice of assessment. The relief sought is incompetent; no matter the merits, it cannot be granted by this court.  In the circumstances, there will be no useful purpose in determining the merits of this matter. In other words, a court cannot determine the merits of the matter when the relief sought itself is incompetent. I take the view that a court cannot restructure an outright incompetent order to make it competent. This would be making a case for the litigant. See Chiwenga v Mubaiwa 2020 (1) ZLR 1360 (S) at 1368 B-C.  This is not elevating form over substance; it is the reaffirmation of the position that a court cannot deal with the merits of an application whose relief sought is incompetent. The respondent sought that this application be dismissed at this stage. I do not agree. My view is that a dismissal is merits-based, implying that the court has considered the merits of the matter and found that a case has not been made for the relief sought. This is not the case in casu. I have not considered the merits. I can only strike off the matter from the roll.

[18] There remains to be considered the question of costs. No good grounds exist for a departure from the general rule that costs follow the event. The respondent is clearly entitled to its costs.

In the result, I make the following order:

This application is struck off the roll with costs because the relief sought is incompetent.

DUBE –BANDA J

Atherstone & Cook, applicant’s legal practitioners

ZIMRA Legal Services Division, respondent’s legal practitioners