The appellant mined and processed platinum group metals in Zimbabwe under a special mining lease issued in terms of the Mines and Minerals Act [Chapter 21:05]. In terms of the Income Tax Act [Chapter 23:06], holders of a special mining lease are subject to a corporate income tax rate of 15% against a general mining corporate tax rate of 25%. In addition, such holders are levied additional profits tax. The taxable income for a holder of a special mining lease is charged under s 22 of the Act, as read with the 22nd Schedule, while additional profits tax is charged in terms of s 33 of the Act and determined in accordance with the provisions of the 23rd Schedule.
The respondent assessed the appellant in July 2009 for additional profits tax for the period 2004 to 2009. The appellant included, as an allowable deduction, the aggregate of the allowable deductions attributable to the special mining lease area. It took the position that assessed losses were allowable deductions against both the income tax liability and the additional profits tax of a holder of a special mining lease. The respondent questioned the appellant on the double deduction of the cumulative assessed losses to June 2005 in both the income tax liability and additional profits tax liability, but passed the double deduction and assessed the appellant for additional profits tax in the amount of some US$23 million for the years 2004 to 2007. The appellant accepted liability and settled the amount in full in 2010. The respondent reassessed the appellant for additional profits tax, and revisited the deduction of the assessed tax losses incurred up to June 2005 in the computation of the 2006 additional profits tax. It issued amended assessments disallowing the deduction of assessed losses from the additional profits tax that had already been deducted from the gross income of the appellant. The effect was to increase the additional profits tax for the appellant by a further US$27 million from the amount previously accepted and paid. After an objection had been disallowed, the issue on appeal was whether or not the assessed loss incurred in the previous year was an “allowable deduction” for purposes of computing net cash receipts in terms of para 2(3)(a)(i) of the 23rd Schedule.
An assessed loss is the negative balance that accrues to the holder of a special mining lease after making all permissible deductions from the income attributed to the holder for the particular year of assessment. For income tax liability under s 22 of the Act, the holder is, by virtue of para 4(5) of the 22nd Schedule, allowed to deduct from the income of the current year any assessed loss incurred by him for the preceding year. The appellant argued that all the deductions allowed under the 22nd Schedule, except for the three that are expressly excluded under para 1(2) of the 23rd Schedule, are also deductible in the computation of net cash receipts under the 23rd Schedule. The respondent contended that the “allowable deductions” contemplated in para 2(3) and “a deduction allowable” envisaged by para 1(1) of the 23rd Schedule are both circumscribed by the deliberate use of the phrase “expenditure incurred”.
Held: the definition of assessed loss clearly demonstrates that it does not constitute expenditure incurred in the year of assessment concerned by the holder of the special mining lease. Rather, it represents a debit balance in the accounts of the holder of the previous year of assessment. The wording of para 2(3) of the 23rd Schedule was clear and unambiguous and did not require the application of the contra fiscum rule.
Section 15(4) of the Act prohibits double deduction of an assessed loss in the same year of assessment. In terms of para 4(5) of the 22nd Schedule, the section applies to such the holder of a special mining lease in calculating his income tax liability. The section is all encompassing and applies to all the provisions of the Act, whether they specifically incorporate it or not. It prohibits the double deduction of any allowable amount under more than one provision of the Act. Accordingly, the deduction of an assessed loss carried forward from the previous year of assessment is not an allowable deduction sanctioned by the provisions of para 2(3)(a)(i) of the 23rd Schedule.