Civil Reference No. 7 of 2004
The appellant, Ophir Tanzania (Block 1) Limited, was audited by the Commissioner General, Tanzania Revenue Authority (CG-TRA) in March 2014 for income years 2010–2013. The audit revealed discrepancies between the appellant's imported services figures reported in VAT returns and those reported in withholding tax returns. After unsuccessful attempts to resolve the dispute, on 30 September 2014 the respondent issued a withholding tax certificate demanding TZS 18,368,593,534 in principal tax and interest, relating to payments made by the appellant to non-resident persons for services rendered offshore in 2010–2012. The appellant's appeal to the Tax Revenue Appeals Board (TRAB) was dismissed, as was its subsequent appeal to the Tax Revenue Appeals Tribunal (TRAT), which held that the services imported had a source in Tanzania regardless of where they were physically rendered, that the place of performance was not determinative of source, and that the appellant was obliged to withhold tax on payments to non-resident service providers whose services were utilized in Tanzania. The appellant then appealed to the Court of Appeal.
(1) Whether the TRAT erred in law in holding that, irrespective of the place of rendering services, payments made by the appellant (a Tanzanian resident) for services utilized in Tanzania are subject to withholding tax under sections 6(1)(b), 69(i)(ii) and 83(1)(b) of the Income Tax Act, 2004 (ITA). (2) Whether the TRAT erred in confirming the TRAB's decision that the appellant had an obligation to withhold tax on payments made to non-resident service providers for services rendered outside Tanzania but utilized within Tanzania.
The appellant, through Mr. Mukebezi, argued that the TRAT misconstrued sections 6(1)(b), 69(i)(ii) and 83(1)(b) of the ITA by focusing on the residence of the payer and the place of consumption of services rather than the place where services were actually rendered. He contended that the source rule under section 6(1)(b) taxes non-residents only to the extent income has a source in Tanzania, and that under section 69(i)(ii) the key determinant of source is where the service is rendered, not where it is utilized. He relied on dictionary definitions to argue that "render" means "perform," and that the distinction between services rendered "in" Tanzania versus "to" a resident of Tanzania is legally significant—only the former triggers withholding tax. He criticized the Court's earlier decision in Tullow Tanzania BV for equating "rendered" with "supplied"/"delivered" and for relying on BP Tanzania Limited (which concerned a different provision, section 69(e)) and Barrick Gold PLC (which involved a tax avoidance scheme, unlike the present case). He also invoked international tax law scholarship (Reuven Avi-Yonah) to argue that the place where the service provider is located should govern taxation of source, and urged the Court to follow its earlier decision in Pan African Energy Tanzania Limited instead of Tullow, ultimately asking the Court to depart from Tullow.
The respondent, through Ms. Achimpota, supported the TRAT's decision and its reliance on Tullow Tanzania BV, as followed in Shell Deep Water Tanzania BV and Aggreko International Projects Limited. She argued that the source of payment for services is where the payer resides, since the payer is the actual recipient/consumer of the services, and that as the appellant consumed and utilized the services in Tanzania for the purpose of earning income there, the payments had a Tanzanian source, triggering the withholding obligation under section 83(1)(b) read with section 6(1)(b) of the ITA. She contended that Tullow correctly interpreted "rendered" as synonymous with "supplied" or "delivered," correctly distinguished Pan African Energy Tanzania Limited (which had wrongly relied on Indian tax law that was not in pari materia with the ITA), and that international commentary could not override the Court's settled domestic interpretation. She urged the Court to dismiss the appeal.
The Court of Appeal dismissed the appeal with costs, holding that the TRAT correctly followed the Court's earlier binding decision in The Commissioner General, TRA v. Tullow Tanzania BV (and its progeny, Shell Deep Water Tanzania BV and Aggreko International Projects Limited), which established that: (i) reading sections 6(1)(b), 69(i)(ii) and 83(1)(b) of the ITA together, a payment to a non-resident is subject to withholding tax where the service is rendered in Tanzania and/or the payment has a source in Tanzania; (ii) the word "rendered" in section 69(i)(ii) is synonymous with "supplied" or "delivered"; and (iii) since the recipient of the service is the actual payer, the "source of payment" is where the payer resides—i.e., where the services are consumed or utilized for earning income. The Court found the facts of the present case materially similar to those in Tullow and held that Pan African Energy Tanzania Limited was correctly distinguished in Tullow because it wrongly relied on the Indian Income Tax Act (dealing with source of income) as if it were in pari materia with section 69 of the Tanzanian ITA (dealing with source of payment), when the two concepts are distinct. The Court declined the appellant's invitation to depart from Tullow, holding that a normal panel of the Court of Appeal has no jurisdiction to depart from a previous decision of the Court, however erroneous, and that such a departure could only be considered by a Full Bench following the procedure established in Abually Alibhai Aziz v. Bhatia Brothers Limited and Freeman Aikael Mbowe v. Alex Lema. Finding no patent error warranting such a course, and noting that the same argument had already been rejected in National Microfinance Bank Limited v. CG-TRA, the Court held both grounds of appeal without substance and confirmed the TRAT's decision upholding the appellant's withholding tax liability.
The judgment reaffirms and entrenches the interpretation of sections 6(1)(b), 69(i)(ii) and 83(1)(b) of the Income Tax Act, 2004 (as they stood before the 2016 and 2020 amendments) established in Tullow Tanzania BV v. CG-TRA, namely that the source of a payment for services is determined by where the payer resides and where the services are consumed/utilized to earn income, rather than by the physical place where the services were rendered by the non-resident. It confirms that this interpretation, distinguishing Pan African Energy Tanzania Limited (which had improperly relied on Indian tax law source-of-income concepts), represents settled law consistently applied across multiple Court of Appeal decisions (Tullow, Shell Deep Water Tanzania BV, Aggreko International Projects Limited, and National Microfinance Bank Limited). The decision also clarifies an important procedural point of Tanzanian appellate practice: an ordinary panel of the Court of Appeal lacks jurisdiction to depart from or overrule a prior decision of the Court, however erroneous it may be considered; such departure can only occur through a Full Bench process, following the precedent set in Abually Alibhai Aziz v. Bhatia Brothers Limited and Freeman Aikael Mbowe v. Alex Lema. This reinforces the doctrine of precedent and judicial hierarchy within the Tanzanian appellate system, particularly in tax law disputes concerning withholding tax obligations on payments to non-residents.
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