PERSEUS MINING GHANA LTD vs. THE COMMISSIONER GENERAL [2022]DLHC11433

Date	2022-02-08
Suit No.	SUIT NO: CM/TAX/0515/2021
Citation No.	[2022]DLHC11433

HIS LORDSHIP JUSTICE JUSTIN KOFI DORGU

DR. ABDALLAH ALI NAKYEA WITH BENEDICT ASARE AND NANA DR. AFFUL GYAMENA FOR THE APPLICANT

MOHAMMED IBRAHIM WITH JOSEPH OWUSU AND CEPHAS ODARTEY FOR THE RESPONDENT

[2022]DLHC11433
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													<main id="main" class="content" style="min-height: 60rem" >PERSEUS MINING GHANA LTD<o:p></o:p>(APPELLANT)<o:p></o:p>vs.<o:p></o:p>THE COMMISSIONER GENERAL<o:p></o:p>(RESPONDENT)<o:p></o:p>[HIGH COURT, ACCRA]<o:p></o:p><div style="border-top: none; border-right: none; border-left: none; border-image: initial; border-bottom-width: 1.5pt; border-bottom-color: windowtext; padding: 0cm 0cm 1pt;">

<p class="MsoNormal" align="center" style="margin-bottom:0cm;margin-bottom:.0001pt;
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padding:0cm;mso-padding-alt:0cm 0cm 1.0pt 0cm">SUIT
NO: CM/TAX/0515/2021&nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp;DATE:
8TH FEBRUARY, 2022<o:p></o:p>

</div>COUNSEL:<o:p></o:p>DR. ABDALLAH ALI NAKYEA WITH BENEDICT ASARE AND NANA
DR. AFFUL GYAMENA FOR THE APPLICANT<o:p></o:p><div style="border-top: none; border-right: none; border-left: none; border-image: initial; border-bottom-width: 1.5pt; border-bottom-color: windowtext; padding: 0cm 0cm 1pt;">

MOHAMMED IBRAHIM
WITH JOSEPH OWUSU AND CEPHAS ODARTEY FOR THE RESPONDENT<o:p></o:p>

</div>CORAM:<o:p></o:p>HIS LORDSHIP JUSTICE JUSTIN KOFI DORGU<o:p></o:p><div style="border-top-width: 1.5pt; border-top-color: windowtext; border-left: none; border-bottom-width: 1.5pt; border-bottom-color: windowtext; border-right: none; padding: 1pt 0cm;">

<p class="MsoNormal" align="center" style="margin-bottom:0cm;margin-bottom:.0001pt;
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mso-border-bottom-alt:solid windowtext 1.5pt;padding:0cm;mso-padding-alt:1.0pt 0cm 1.0pt 0cm">JUDGMENT
(REASONS)<o:p></o:p>

</div>&nbsp;From
my evaluation of the submissions on the appeal, I hold that the Applicant to
me, has been unable to show that the prices of gold were so erratic and showed
a consistent downward trend to the extent that, it would be prudent to hedge
with a lower price than the prevailing market price. This is moreso when gold
is not one of the known commodities that has the tendency to fall drastically
and for a considerable period.<o:p></o:p>Since
the audit revealed a loss of income which cannot be rationalized to make
economic sense and for the fact that the Applicant was unable to debunk the
assertion of the report that the hedged price was fixed or dictated by or
negotiated by the Applicant's parent company which imports the principle of
related transactions especially as they differed considerably from what was
prevailing on open market as exhibited in Exhibits GRA 4, 4A and 4B which could
reasonably be taken as arm's length transactions or prices, I hold the view on
that point that the Respondent was right to re-characterise this transaction as
it did since the net effect of the forward sales contract reduced the taxable
income of the Respondent leading to a tax liability to the Respondents.<o:p></o:p>On
that note, it is right for the Respondent to treat the forward sales contracts
or hedging arrangements as a tax avoidance mechanism and to invoke Section 34
of Act 896, the Income Tax Act, 2015.<o:p></o:p>Again,
there is no abuse of use of discretionary power by the Respondent as canvassed
by the Applicant. By the Applicant's own assertion, there were several meetings
and correspondences with the Respondents since the objection was raised and the
Respondent has shown that it had sufficient reason to treat the transaction of
forward sales contract suspicious and its economic unreasonableness was
sufficient basis for the Respondent to exercise his discretion of re
characterisation.<o:p></o:p>To
me, ratification of the agreement is immaterial since the main mining lease
agreement was ratified. I do not think that engaging in the sale of the product
of the lease agreement also required a separate ratification.<o:p></o:p>On ground
3, I again agree with the Respondent that the Applicants used two different
standards in the payment of royalties to their third party company, Franco
Nevada Corporation and that used in computing the royalties due the government
of Ghana.<o:p></o:p>In
the former case, the Applicant could not debunk the accusation that they used
the spot gold prices whilst they used the contract price for the Government of
Ghana. The question that arises is, why that discrepancy if not for purposes of
related trading? The Respondent supported their position with Exhibits GRA 7
and GRA 7A. The explanation offered by the Respondent that they did that on the
basis of sanctity of contract does not convince me. If a party contracts at
contract price (fixed) then all calculations ought to be based on this contract
price which to the Respondent, is fair to them. Why then with the same
transaction as to royalty payments, a higher price will be used for your
trading partner and a lower price which to you is the reasonable contractual price
be used when calculating the same royalty payments to the government who is not
your trading pa1tner?<o:p></o:p>On
the ground of whether or not losses occasioned by the Applicant entering into
forward sale contracts or hedging was an investment loss and so deductible from
investment income has been answered sufficiently by the Respondent, these
deductions are not tax deductible and so having been deducted from the business
income before arriving at the chargeable income of the Applicants, occasioned a
tax liability and the only remedy is to disallow same which the Respondent did.
Had the hedging inured to the benefit of the Respondent, will same not have
been good income for the Applicants? Why then should the loss incurred from an
irrational business decision be deducted before arriving at the chargeable
income?<o:p></o:p>Reference
is made to Resolution IO (2) of the Revenue Regulations, 2001 (L.I. 1675) which
states "A loss incurred from a business shall not be set off against or
deducted from an income from an investment and a loss incurred from an
investment shall not be set off or deducted from an income from a
business."<o:p></o:p>Again,
by Section 9 of Act 896, any expense that is deductible ought to be an expense
that is wholly exclusively and necessarily incurred in the generation of the
income. I agree with the Respondent that assuming without admitting that the
hedging or forward sales contracts engaged in was for purposes of generating
income for the business, in this pa1ticular case, it cannot be said to be a
reasonable and necessary expense especially as I stated earlier on that the
Respondent failed to prove that prices of gold at the time on the world market
were erratic and plummeting for a considerable period.<o:p></o:p>