Genesis and Background of the Case

This appeal was filed by Diamond Trust Bank Tanzania Ltd (DTB) against the Tanzania Revenue Authority (TRA) following unfavorable decisions by both the Tax Revenue Appeals Board and the Tax Revenue Appeals Tribunal. The dispute concerned DTB’s claimed deductions for interest in suspense and written-off loans for the income years 2012, 2013, and 2014. The TRA’s audit disallowed these deductions, leading to tax assessments totaling over TZS 18.5 billion.

TRA argued that DTB failed to comply with statutory requirements under the Income Tax Act, 2004 (ITA 2004) and the Bank of Tanzania (BOT) Risk Asset Management Regulations, 2008. The Tribunal ruled in favor of the TRA, prompting DTB to appeal to the Court of Appeal on grounds of misapplication of the law and disregard of banking regulations.

Background of the Case – Key Points

1. Audit and Assessment: TRA conducted a tax audit for 2012–2014 and issued tax assessments including disallowed bad debts and taxed interest in suspense.
2. Amounts Disputed:
   • 2012: TZS 15.5B assessed; TZS 4.66B payable
   • 2013: TZS 19.96B assessed; TZS 5.98B payable
   • 2014: TZS 26.2B assessed; TZS 7.86B payable
3. Interest in Suspense: TRA required taxation on an accrual basis, while DTB argued for treatment on a cash basis under BOT rules.
4. Loan Write-Offs: TRA required proof of irrecoverability and Board approval; DTB argued this was not mandatory for pre-2014 years.

Appellant’s Submissions (DTB)

1. Interest Not Deductible Until Paid: Cited BOT Regulation 30(2) mandating interest on non-performing loans be placed in suspense and reversed.
2. Accrual vs. Cash Basis: Argued that Section 25(5) of ITA 2004 and BOT rules harmonize accrual-based accounting with cash-based tax treatment for suspense interest.
3. Loan Write-Off Compliance: Maintained it had followed BOT’s Regulation 19(c) procedures for writing off loans.
4. No Board Resolution Required: Contended that board resolutions for write-offs were not a legal prerequisite under ITA.
5. Pre-2014 Standard Applied Retrospectively: Criticized Tribunal for applying post-2014 standards retroactively to 2012–2014 assessments.
6. Lack of Itemized Evidence Guidelines: Noted that the law does not enumerate required recovery efforts or evidence.

Respondent’s Submissions (TRA)

1. Accrual Accounting Obligations: Asserted that Section 23(1)-(2) requires interest be recognized when receivable, not when collected.
2. BOT Rules Do Not Supersede ITA: Emphasized that BOT regulations guide financial reporting but cannot override tax statutes.
3. Proof of Write-Offs Required: Stressed that under Section 39(d) of ITA, DTB had to prove loans were absolutely uncollectable.
4. No Evidence of Recovery Measures: Alleged DTB failed to provide proof such as Board resolutions, account entries, or legal recovery steps.
5. Prior Case Precedents: Cited rulings in Access Bank and National Bank of Commerce cases affirming similar interpretations of Sections 23 and 39.
6. Burden of Proof on Taxpayer: Argued that under Section 18(2) of the Tax Revenue Appeals Tribunal Act, DTB bore the burden to disprove the assessment.

Court of Appeal Decision – Key Points

1. Interest in Suspense is Taxable: Held that DTB’s recognized interest qualifies as taxable under Section 23(2) since it was accrued and recorded as an entitlement.
2. BOT Guidelines Don’t Override ITA: Found that BOT Regulation 30(2) does not supersede the accrual obligations under ITA for tax purposes.
3. Loan Write-Off Requires Evidence: Affirmed that under Section 39(d), DTB had to show all recovery steps were taken and that loans were uncollectable.
4. Proof Deficiencies Noted: Found no Board resolutions or recovery documentation had been provided; DTB did not meet evidentiary thresholds.
5. Court Cannot Overturn Its Own Decisions: Declined invitation to depart from prior rulings in NBC, Access Bank, and KCB Tanzania cases.
6. Appeal Dismissed: Found no error in the Tribunal’s ruling and upheld the tax assessments.
7. Costs Awarded: DTB to bear costs of the appeal.

Judgement Date: 28 February 2025, delivered by Justices Kerefu, Fikirini, and Masoud.