Principles of Tax Law – Barrister Michael O. Odo v. Ebonyi State Internal Revenue Service


Summary of principles of tax law espoused:

  1. A taxpayer who failed to disclose his income to a tax authority {in discharge of his duty under section 24(f) of the 1999 Constitution} will not be allowed to hide it from the Tribunal that he has appealed to even if the tax authority has failed to discharge the burden of proof of the assessments served on the taxpayer;
  2. Where the taxpayer has refused to disclose information on his income to a tax authority and the Tribunal, the Tribunal will invoke its statutory power to impose a reasonable BoJ on the taxpayer;
  3. The law does not permit a tax authority to use Best of Judgement and Additional Assessment principles as instruments of punishment on a taxpayer.
  4. The significance of a Tax Clearance Certificate (TCC) issued by a tax authority to a taxpayer, pursuant to section 85 PITA, is that, unless there is a statement to the contrary on the face of the TCC, the taxpayer has paid his tax fully or has no tax liability to discharge or tax is not due for payment. Thus, any subsequent assessment from the tax authority will be null and void. The only exception lies in arraignment of the taxpayer in court for giving false information in a TCC pursuant to section 85(7) PITA.


The Appellant is a legal practitioner and the principal partner of MENORTH SOLICITORS, a law firm with its office in Abakaliki in Ebonyi State. He is also resident in Abakaliki and, therefore, under the jurisdiction of the Respondent for income tax purposes. His law firm was registered by the Corporate Affairs Commission on 22nd January, 2013. While he claims to have been paying his Personal Income Tax since 2010 to the Respondent, he has not made remittances with respect to lawyers working in his firm because he was not remunerating them.

In his letter to the Respondent dated 15/9/2017, the Appellant stated as follows:

(a) That on 24/08/2017, the Respondent served him a Notice dated 23/8/2017 marked IT 28 (NOTICE UNDER SECTION 46 OF THE PERSONALINCOME TAX DECREE NO.104 OF 1993);
(b) On 28/8/2017, he appeared before the Officer-in-Charge of the Special Assessment Unit of the Respondent and presented his previous tax records including PIT payment receipts for 2010-2016, and his Tax Clearance Certificates for 2013 and 2015;
(c) After his interview by the officer, he paid his PIT for 2017 and was issued receipt and TCC for 2017;
(d) On 8/9/2017, the Respondent served the Appellant ADDITIONAL TAX ASSESSMENT requiring him to pay N2,500,000 (Two Million, Five Hundred Thousand Naira) as additional PIT for 2012-2017 years of assessment. The said letter was issued on behalf of the Special Assistant to the Governor on Internally Generated Revenue (IGR);
(e) On 11/9/2017, the Respondent served the Appellant a letter withdrawing the demand for additional assessment;
(f) On 15/9/2017, the Appellant catalogued his grievances alleging political persecution and threatened in writing to sue the Respondent.

By another letter from the Appellant to the Respondent dated 13/11/2017, the Appellant stated as follows:

(i) The Respondent served the Appellant an undated letter captioned Tax INVESTIGATION/AUDIT EXERCISE with Notices of Assessment for 2012-2016 each dated 13/10/2017;
(ii) The letter which was supposedly served on the Appellant on 23/10/17 required him to attend an interview at the Respondent’s office on 9/10/17;
(iii) The Appellant recounted his previous experience with the Respondent and further threatened to sue. Upon receipt of the Appellant’s objection of 13/11/2017, the Respondent replied the Appellant with a letter titled NOTIFICATION OF WITHDRAWAL, RE: REQUEST FOR TAX INVESTIGATION/AUDIT EXERCISE AND ASSESSMENT NOTICE dated 28/11/2017. By this letter, the Respondent admitted that the request for Tax Investigation/Audit Exercise and Assessment, Best of Judgement (BOJ) notice were issued in error.

The Respondent by a letter dated 25-03-2019 and titled TAX INVESTIGATION AND ASSESSMENT 2013-2019 invited the Appellant for interview with some listed documents.

A second letter from the Respondent to the Appellant of the same 25/3/19 and titled PAYMENT OF PAYAS YOU EARN (PAYE) TAX/RETURNS reminded the Appellant “as a corporate entity” to file his PAYE returns within 7 days. With respect to the Personal Income Tax of the Appellant, the Respondent issued him various BOJ assessments for 2014-2019 each dated 02-04-2019 and payable on or before 1-4-2019. The total sum requested from the Appellant was N50,001,200 (Fifty Million and One Thousand, Two Hundred Naira).

In relation to the letter of 25/3/19 wherein the Respondent demanded PAYE Returns from the Appellant, the Respondent on 4/4/19 pursuant to a letter with Ref. R424/HQ/19/Vol.1/36 demanded PAYE for 2010-2018 in the total sum of N1,782,000. On the same 4/4/2019, the Respondent issued another PAYE BOJ ASSESSMENT 2010-2018 YEARS OF ASSESSMENT for the sum of N4,544,100 to supersede the earlier letter on the same subject.

On 23/4/2019, the Appellant objected to the Notices served on him for PIT from 2014-2019 and for PAYE from 2010 to 2018. On 9th May, 2019, the Respondent wrote to the Appellant rejecting his objection, in other words giving him Notice of Refusal to Amend. The Appellant being dissatisfied with the response of the Respondent filed this appeal on 13th May, 2019.


  1. Whether Exhibits Michael 1(a-f) and 2b issued by the Respondent to the Appellant are valid in law
  2. Whether the Appellant and the Respondent are entitled to the reliefs


The Tribunal found no basis for the BOJ assessments served on the Appellant by the Respondent and that assuming the BOJ assessments had basis, the next issue was why the humongous incomes ascribed to the Appellant?

The Tribunal was of the view after having regards to Section 54 (2) & (3) and 55 (1) & (2) of Personal Income Tax Act 2011 as amended that it was not arguable that the Respondent has the power to assess based on BOJ and issue Additional Assessments in appropriate circumstances but it was expected not to act arbitrarily. The Tribunal made reference to the case of Saydoun Limited V. Edo State Board of Internal Revenue (2019) 41 TLRN 1, where the court held that the law places a duty on the relevant tax authority to act honestly and reasonably in making a best of judgment assessment, and the law will not allow the relevant tax authority to inflict any assessment on a taxpayer which tends to be of a punitive nature.

The Tribunal thus found that the BOJ assessments in Exhibit Michael 1 (Notices of Assessments issued by the Respondent to the Appellant dated 2nd April, 2020 covering the years 2014 – 2019) as punitive as well as not having basis and ought not to stand and therefore set them aside accordingly.

However, the Tribunal held that setting aside the BOJ assessments was not all on the matter, but that there was a duty placed upon the citizenry, including the Appellant, by Section 24(f) of the 1999 Constitution to declare his income honestly to appropriate tax authorities. The Appellant who alleged of being witch-hunted by the State Government had the duty to disclose his income honestly to the Respondent. In the event that he did not want to do so with the Respondent, he had another opportunity to do so while at the Tribunal.

The Tribunal stated that it expected the Appellant to come clean by disclosing his income through his processes at the Tribunal knowing that the Tribunal was impartial and would not witch-hunt him in any way. The Tribunal stated that it would not be fair to allow him to keep his income away both from the tax authority and the Tribunal.

The Tribunal therefore invoked its powers under Paragraph 15 (8) of the Fifth Schedule to the FIRS (Establishment) Act, 2007 applicable to this appeal pursuant to section 60 of PITA to assess the Appellant on a BOJ which the Tribunal considers reasonable.

The Tribunal integrated the ingredients as required to be considered by law before arriving at BOJ assessment as follows:

(i) identifiable evidence or basis for the assessment;
(ii) industry comparison;
(iii) ratio analysis of past trends;
(iv) volume of the business operation; and
(v) reasonableness of the assessment;

After computation in accordance with the relevant provisions of PITA including the rates in the Sixth Schedule, the Tribunal view the Appellant’s Personal Income Tax (PIT) for the three years to be as follows:
a. N72,000 for 2017,
b. N148,000 for 2018, and
c. N240,800 for 2019
yielding a total sum of N460,800. When the amounts he has already paid for those years being N25,200 for 2017, N25,200 for 2018 and N25,200 for 2019, are deducted, the Appellant will pay the sum of N385,200 (Three Hundred and Eighty Five Thousand, Two Hundred Naira) as full and final liquidation of his PIT for 2017, 2018 and 2019. Once he pays the sum, the Respondent should issue him a Tax Clearance Certificate to cover those years.

With regards to the second phase of the BOJ assessments involving PAYE, The Tribunal held that the position of the law is that an employer on a PAYE system is not subject to BOJ assessments. Reference was made to the decisions in Union Bank of Nig. PLC V. Anambra State Internal Revenue Service (Appeal No. TAT/SEZ/005/19) and Nigerian Breweries PLC V. Lagos State Internal Revenue Board (2002) 5 NWLR (Pt.759). In the latter case, the Court held:
“The only situation in which the Inland Revenue Board can use the “best of its judgement” approach to assess tax under the Pay As You Earn (PAYE) is provided for under the PAYE Regulation 29(2) and that is after having looked into the records of the employer, in the instant case, the appellant”.

Consequent upon the foregoing, the Tribunal set aside the BOJ assessment to the Appellant made on 4/4/2019.

The Tribunal examined Exhibit Michael 7C, which was the 2017 Tax Clearance Certificate issued to the Appellant by the Respondent giving him a clean bill of health for the 3 years preceding 2017: 2014, 2015 and 2016. Despite giving the Appellant the TCC, the Respondent subsequently served him best of judgement assessments for the same years of 2014, 2015 and 2016 for which he had been cleared in the TCC. The BoJ assessments were represented in Exhibits 1 (d-f) before the Tribunal.

It reasoned that under section 85 (1) of the Personal Income Tax, a tax authority that issues a TCC to a taxpayer has impliedly stated that:

  1. He has paid his tax fully; or
  2. He has no tax to pay; or
  3. His tax is not due for payment.

Under section 85(3)(d) PITA, the tax authority has an opportunity of indicating any outstanding PIT on a TCC, and where it fails to indicate so, it means that one of the three scenarios contained in section 85(1) PITA is applicable thereby leaving the Tribunal with the irresistible conclusion that the Appellant was not liable to pay additional income tax for 2014, 2015 and 2016.

Consequently, the Respondent is estopped on the authority of the Court of Appeal decision in Julius Berger Nig. PLC v. Almighty Projects Innovative Limited & Anor. (2008) LCN/1088 from blowing hot and cold by approbating and reprobating, as represented in the Latin maxim of quod approbo non reprobo. Obviously, the Best of Judgement assessments of 2014, 2015 and 2016 are of no consequence and are, therefore, set aside.

The Tribunal therefore made the following consequential orders:

(a) The Appellant should pay to the Respondent the sum of N385,200 (Three Hundred and Eighty-Five Thousand, Two hundred Naira) representing BOJ assessments for 2017, 2018 and 2019 within 60 days from the date of this judgement and the payment shall be full and final liquidation of his PIT for those years.

(b) Upon receipt of the sum of N385,200 (Three Hundred and Eighty Five Thousand, Two hundred Naira) from the Appellant, the Respondent shall issue to the Appellant Tax Clearance Certificate, to cover the years paid for, within 14 days counted from the date of payment.

(c) The Respondent should write the Appellant’s Law firm, Menorth Solicitors, to register under the PAYE Scheme, if he has employees, or ensure that all lawyers practicing under his supervision register with the Respondent as individual taxpayers within 30 days.


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