The Commercial Bank of Africa Ltd. v. The Commissioner of Income tax Mis. Civ. App. Nos. 16 & 17-D-69; 8/4/70; Georges C. J.

The Commercial Bank of Africa Ltd. v. The Commissioner of Income tax Mis. Civ. App. Nos. 16 & 17-D-69; 8/4/70; Georges C. J.

The appellant company now in voluntary liquidation was wholly owned subsidiary of a company incorporated in Geneva and carried on business in Dar es Salaam as Bankers. Between 1961 and 1965, the appellant company incurred operational losses and as a result received grants from the parent company totaling Shs. 3,086,500/-. The Commissioner-General sought to tax these sums on the basis that they were trading receipts. The company contended that the sums were capital grants made in order to protect the capital position of the company and therefore – not liable to tax.

            Held: (1) “The fact that the payments may have been made for that purpose does not mean that they were capital payments. Capital could be preserved by providing a subsidy to meet current trading losses and this; it appears to me, is what was done in this case.” (2) “The parent company could have purchased more shares in the subsidiary thus replenishing the capital and making up for the trading losses which had to be met from it. There is no indication that they did this. It seems hardly appropriate in the absence of any evidence to speculate upon a possible arrangement which could have been made which would have avoided the incidence of tax and then conclude that that was indeed the arrangement which had been made……….

On the facts there was an annual grant made- not obligatory in cause – to meet the trading loss. It was a subsidy – though a voluntary one.” (3) “The applicant in the first four years of trading when no profits had been made lost nearly Shs. 3,000,000/- more than the minimum capital it would have needed to be granted registration. Unless it had received the subsidies continued trading might have been impossible as the Registrar might well have thought that the interests of depositors would be jeopardised. The subsidies enabled the appellant company to maintain their trading solvency. In British Commonwealth International News-film Agency Ltd. v. Moheny 40 Tax cases 550, a relationship existed not basically dissimilar from the relationship in this case. The appellant company had been set up in North, 1957 by the Rank Organization Ltd and the British Broadcusting Corporation for the purpose of providing a news- film service. The parties agreed to pay half the deficit of the appellant company until the year 1964-5. Rank Organization paid its half of the deficit to the appellant company having deducted the appropriate amount for tax. The appellant company sought to recover the tax deducted. The Special Commissioners disallowed the Company’s claim finding that the sum paid to the company was trading receipt. This was upheld on appeal. The appellant company receiving the subsidy in that case was a subsidiary of the company granting the subsidy. The parent company held 50% of its shares not 100%. But the difference in the percentage of ownership does not seem to me to affect the principle involved.” (4) “That the payments were voluntary and not made under any legal compulsion appears to be irrelevant once their exact nature has been determined.” (5) Appeals dismissed.