CW v COMMISSIONER OF TAXES 1988 (2) ZLR 27 (HC)

Flynote

Constitutional law — Constitution of Zimbabwe 1980 — ss 16 and 23 — D protection against compulsory acquisition of property and against discrimination — tax imposed on persons who had contested payments made for property compulsorily acquired — not a form of discrimination prohibited under s 23 — inadequate compensation under s 16(1)(c) — taxing persons who approach courts in order to determine rights not reasonably justifiable in a democratic society.

Revenue and public finance — Capital Gains Tax Act 1981 — proceeds of sale of shares in foreign companies — whether source of capital gain was in Zimbabwe.

Statutes — interpretation of — principles — retrospectivity — constitution — presumption of constitutionality — meaning — fiscal legislation — extent to which words can be read in or implied — Capital Gains Tax Act 1981 — s 10(7) — proviso thereto — constitutionality of.

Headnote

The appellant company had during the years 1971 to 1976 acquired shares in a number of South African companies. These shares were externalsecurities traded on the Zimbabwe Stock Exchange. In March 1984, trading on the Zimbabwe Stock Exchange in external securities was suspended and two weeks later an amendment was promulgated to the Exchange Control Regulations 1977 allowing the Reserve Bank of Zimbabwe to acquire compulsorily external securities. The appellant's external shares were acquired in this way and a sum of compensation offered. The appellant objected to the amount offered, on the grounds that it was inadequate because it did not compensate for the 30% premium which had to be paid on the Stock Exchange for such shares. However, following a test case in the Supreme Court, the appellant withdrew its summons claiming the extra 30%.

In 1984 an amendment was made to the Capital Gains Tax Act 1981, exempting from capital gains tax amounts received as compensation for shares compulsorily acquired under the Exchange Control Regulations; but in 1985 a further amendment was made to the Act, withdrawing the exemption in respect of holders of foreign securities who had contested the adequacy of the compensation payable. The appellant objected to the notice of assessment for capital gains tax issued in consequence of this legislation, and appealed to the High Court.

It was argued on the appellant's behalf that -

• (a) the source of the capital gain made on the sale of the shares was not in Zimbabwe;
• (b) the 1985 amendment to the Capital Gains Tax Act 1981 did not have retrospective effect;
• (c) the amendment was discriminatory and thus offended against s 23 D of the Constitution of Zimbabwe; and
• (d) the amendment effectively reduced the compensation received by the appellant and thus offended against s 16 of the Constitution; and the imposition of a tax on those persons who approached the courts to determine their constitutional rights, not being reasonably justifiable in a democratic society, could not be validated by the provisions of s 16(7).

Held, that the source of the proceeds received by a taxpayer from the sale of external shares had to be ascertained by determining the activities of the taxpayer and the place where it is carried on those activities. The appellant's investment transactions were all part of one Zimbabweanenterprise and each investment policy.

Held, further, that there is, in interpreting statutes, a general presumption against retroactivity, unless the statute so provides clearly or by necessary implication. This is all the more so in fiscal legislation. However, when the two amendments to the Capital Gains Tax 1981 were read as one with the principal Act, it was clear that the 1985 amendment had retroactive effect.

Held, further, that although there was no doubt that the amendment to the Capital Gains Tax Act 1981 had the effect of discriminating against persons who contested the payment made for their securities, this is not one of the forms of discrimination that is prohibited by s 23 of the Constitution, which prohibits discrimination on the basis of race, tribe, place of origin, political opinions, colour or creed.

Held, further, that a person alleging unconstitutionality must establish it; there is no onus on the State to show that particular legislation is reasonably justifiable in a democratic society. If legislation can be interpreted so as to fall within the meaning of the Constitution, the courts will assume that the legislature intended to act constitutionally and will uphold the legislation so interpreted. However, it could never have been intended that, once adequate compensation (as required by s 16(1)(c) of the Constitution) had been paid to a person whose property had been compulsorily acquired, the State could erode the compensation by taxing it. Nor could such a provision be justified under s 16(7) as being "reasonably justifiable in a democratic society", as it effectively penalized persons who sought to have their constitutional rights tested in the courts. The 1985 amendment to the Capital Gains Tax Act 1981 was therefore unconstitutional.