Old Mutual Zimbabwe Limited v The Commissioner General of the Zimbabwe Revenue Authority & Anor

### Preamble
Judgment No. SC 74/18
1
Civil Appeal No. SC 132/16
REPORTABLE (67)
---------




REPORTABLE     (67)

OLD     MUTUAL    ZIMBABWE     LIMITED

v

(1) 	THE     COMMISSIONER     GENERAL     OF     THE     ZIMBABWE   REVENUE     AUTHORITY      (2)     ZIMBABWE     REVENUE          UTHORITY

SUPREME COURT OF ZIMBABWE

GOWORA JA, MAVANGIRA JA & BHUNU JA

HARARE, MAY 30, 2017 & NOVEMBER 22, 2018

AP de Bourbon SC, for the appellant

ET Matinenga, for the first and second respondents

GOWORA JA:  The appellant, “Old Mutual Zimbabwe” created a trust, whose purpose, as captured in the trust Recordal “was to promote the objectives of the Indigenisation Laws and to comply therewith, and as an incentive scheme for the employees of the Company and its subsidiaries.” The Minister of Youth Development, Indigenisation and Economic Empowerment, who was the authority responsible for administering the Indigenisation and Economic Empowerment Act [Chapter 14:33], gave his approval of the trust and confirmed that it complied with the legislation on Indigenisation and Economic Empowerment.

Once the trust was in place, on 9 May 2014, Old Mutual Zimbabwe awarded shares to its employees and its subsidiaries in line with certain provisions of the trust document. Thereafter it applied to first respondent, the (“Commissioner”), for an advance tax ruling on the treatment of the trust as well as the shares awarded to its employees in terms of the trust document. The advance tax ruling application was in relation to the treatment of the Capital Gains Tax liability of the employees as at the date of vesting of the shares. The ruling was required in view of the fact that the full value of the shares would constitute a portion of the employees’ gross income and consequently be subject to Pay As You Earn (PAYE). It was envisaged that the employees might have to sell shares equivalent to such tax liability to fund payment of Capital Gains Tax. What Old Mutual sought to secure was a ruling which would require that its employees be liable only for PAYE and not the Capital Gains Tax which would have ordinarily arisen if the shares were to be construed as the gross capital amount for the purposes of the Capital Gains Tax Act [Chapter 23:01].

On 24 June 2014 the Commissioner issued what he referred to as a binding private ruling in response to the application by Old Mutual. In the ruling, the Commissioner held that the full value of the shares would constitute part of the gross income and as such liable for PAYE in the month in which the offer of the shares was accepted by the respective employees. According to the Commissioner the acceptance was held to be in the year 2012 based on the information supplied by Old Mutual. Further, the ruling was to the effect that the sale of shares to fund the PAYE payable constituted gross capital amount which would be subject to capital gains tax as at the date of the sale of such shares. The Commissioner went on to hold that those employees who disposed of their shares would be required to obtain a capital gains tax clearance certificate to facilitate transfer and as such, such sale was liable to capital gains tax. In relation to the employees who elected to keep their shares, the transfer of the shares from the trust into their names would constitute a disposal for the purposes of capital gains tax and a tax clearance certificate would thus be necessary.

Old Mutual acknowledged receipt of the advance tax ruling in a letter dated 3 July 2014 alluding to a meeting that had been held between itself, two consultants and a team of officials representing the second respondent, (“ZIMRA”). In the letter Old Mutual sought to clarify the purpose behind the scheme which it said was to achieve two objectives, the first being to satisfy the requirements of the Indigenisation Plan and, the second being a vehicle for skills retention through a usufruct arrangement until the expiry of the restricted period attaching to the shares after which the employees would be in a position to receive the capital benefits from the scheme. In addition, Old Mutual stated that the purpose of the offer letter to the employees was to advise them of their eligibility to participate in the scheme and that the notification of their acceptance by those intending to participate was required to determine if the Group had allocated sufficient shares to meet the requirements of the Indigenisation Plan. Old Mutual then proceeded to set out the restrictions to which the share offer had been made subject. The first was that they would only be offered to employees subject to “good service” within the entire group during what was termed the restrictive period. The first restriction was related to vesting dates, commencing on 25 June 2012 ending on anniversaries of the same, being 25 June 2014, 25 June 2015 and 25 June 2016. According to the letter aforementioned, a third of the shares would vest in the employees successively on 25 June 2014, 25 June 2015 and 25 June 2016. Further the number of restricted shares which an employee was conditionally entitled to could be reduced in whole or part if the directors formed a reasonable opinion that the Group or any company within the Group was performing below expectations. The shares so limited only related to those which would not have been transferred to the employee.

Old Mutual also made reference to a letter dated 27 June 2014 in which an application had been submitted for approval of the scheme as an Approved Employee Share Ownership Trust (AESOT). It sought therefore the approval of such application, confirmation that no employee’s tax would be due upon approval of the trust and that if the employees were to be liable for tax, it should be due on the three vesting dates.

On 6 August 2014 the Commissioner responded to the letter by Old Mutual dated 3 July 2014. In its response, the Commissioner confirmed its decision of 28 July 2014 wherein he declined to grant approval of the scheme as an approved employee share ownership trust. He also confirmed its tax ruling of 24 June 2014 as binding. In addition, the request for a confirmation of the dates when the tax would be chargeable as at the vesting dates was denied. The Commissioner reiterated the view that both respondents were still of the view that such tax became payable as at the date of acceptance of the offer on 20 August 2012.

Thereafter the parties exchanged correspondence on the scheme, its dominant purpose, the tax exemption being sought on behalf of the employees and ancillary issues. Ultimately they failed to reach consensus resulting in the appellant approaching the High Court for relief in the following terms:

A declaratur to the effect that the OMZIL trust met all the requirements of an approved employee share ownership trust in terms of s 2 of the Income Tax Act.

A declaratur that it is the commissioner that considers whether or not the requirements of an approved employee share ownership trust were met.

The commissioner re-examine the OMZIL scheme for compliance as an approved employee share ownership trust and if not, to provide reasons in writing.

The High Court dismissed the application with costs. Old Mutual was aggrieved and has noted an appeal against the decision of the court a quo. It has nine grounds of appeal on the premise of which it seeks the following:

It is declared that the Notarial Deed of the Trust of OMZIL Indigenisation Employee Share Scheme executed on 5 June 2012 meets all the requirements of the term approved share ownership trust, as the term is set out in s 2 of the Income Tax Act [Chapter 23:06].

It is declared that the First Respondent shall consider whether or not any employee share ownership trust submitted to him meets the requirements of the term Approved Employment Share Ownership Trust, as the term is set out in s 2 of the Income Tax Act [Chapter 23:06].

The First Respondent shall re-examine the Notarial Deed of Trust of the OMZIL Indigenisation Employment Share Trust executed on 5 June 2012 and advise in writing within 10 days of the date of this order whether or not he is satisfied that the dominant effect or purpose of the Notarial Deed of Trust of the OMZIL Indigenisation Employee Share Trust as submitted to him will be accepted by the Second Respondent for the purposes of section 15(2)(jj) and paragraph 19 of the Third Schedule of the Income Tax Act [Chapter 23:06], and if he is not so satisfied to provide reasons in writing for that decision.

The Second Respondent shall pay the costs of this application

At the commencement of the hearing of the appeal, Mr De Bourbon moved for leave to supplement the record by the incorporation thereof of the Rules of the OMZIL trust which had been omitted from the record. There being no opposition from the two respondents, we granted the same by consent of the parties.

The appeal before this Court is predicated on the fiscal benefits for an approved employee share ownership trust. This is provided for in s 15 (2)(jj) of the Income Tax Act [Chapter 23:06] as read with para 19 of the Third Schedule to the Income Tax Act. Section 15 (2)(jj) provides:

“(2) The deductions allowed shall be—

(jj) an amount representing the fair value of any stock, shares, debentures, units or other interest paid or given by the taxpayer to an employee of the taxpayer or for the benefit of an employee of the taxpayer pursuant to an approved employee share ownership scheme or trust.”

In turn para 19 of the Third Schedule provides:

“19. An amount received by or accrued to or in favour of an employee participating in an approved employee share ownership trust from the sale to or redemption by the trust of any stock, shares, debentures, units or other interest of the employee in the scheme or trust of any stock, shares, debentures, units or other interest of the employee in the trust.”

The benefits related to above must needs pass one test, that is, whether or not they fall within the definition and requirements of an approved employee share ownership trust. Such trust as defined in s 2 of the Income Tax Act provides as follows:

“approved employee share ownership trust” means an arrangement embodied in a notarised trust deed which satisfies the Commissioner that its dominant purpose or effect is to enable employees of a company or group of companies to participate in or receive profits or income arising from the acquisition, holding, management or disposal of the stock, shares, debentures or any property, including money, of the company or group of companies concerned where—

(a) the stock, shares, debentures and any property, including money, are held in trust for the employees; and

(b) the arrangement has either or both of the following characteristics—

(i) the employees’ contributions, if any, and the profits and income out of which payments are to be made are pooled;

(ii) each employee has a right or interest, whether described as a unit or otherwise, in the stock, shares, debentures and any property, including money, held in trust for the employee, which may be acquired or disposed of under the arrangement”

The requirements of such scheme therefore, can be summarised as:

The scheme must be provided for in a notarised trust deed

It must satisfy the Commissioner that its dominant purpose or effect is to enable employees of a company or group of companies to participate in or receive profits or income

The stock, shares, debentures and any property, including money, are held in trust for the employees

either or both that;  the employees’ contributions, if any, and the profits and income out of which payments are to be made are pooled or each employee has a right or interest, whether described as a unit or otherwise, in the stock, shares, debentures and any property

THE DORMINANT PURPOSE OR EFFECT

The court a quo found correctly that the first requirement of being a notarised trust deed was met and that it was common cause as between the parties. This finding was accepted by all parties herein and need not detain the court.

In respect of the second requirement, the learned judge a quo found that the dominant purpose or effect was not to enable employees to share in the profits or income but to comply with the requirements of Indigenisation legislation. This finding was contrary to the parties’ concession as regards the dominant purpose and effect of the arrangement.

Arising from this finding, the Commissioner contends that the court a quo erred by rejecting the concession on the facts as between the parties as to the dominant purpose of the scheme. For his submission on this Mr de Bourbon sought to rely on the case of GN v JN 2017 (1) SA 342 (SCA) at para 35 for the proposition that it is impermissible for judicial officers to rely for their decisions on matters not put before them by litigants either in evidence or in oral or written submissions. To buttress the point, he also referred this Court to the case of Welkom Municipality v Masureik and Herman t/a Lotus Corporation & Anor 1997(3) SA 363 (SCA) at 371G-H.

Mr Matinenga, for the respondents, appeared inconsistent on this very vital point. Whereas in the written submission prepared and filed by him, he seemed to concur with the appellant in criticizing the learned judge in what he termed a failure on his part to alert the parties that it was not in acceptance of the concession, thus affording the parties an opportunity to persuade the court otherwise it appeared that orally he was in tandem with the court a quo in the finding it made regarding the concession. To muddle things even further, he then stated, in the heads of argument, that Mr Sinyoro who appeared for the respondents in the court a quo had no recollection regarding the making of what he refers to as an “out and out concession” in the manner contended by Old Mutual and as recorded by the court a quo in its judgment. He sought reliance on the case of Executive Hotel (Pvt) Ltd v Bennett NO 2007 (1) ZLR 343 (S) at 349 to state the principle of law that it is the court which has the final decision as to the propriety of a concession.

As rightly pointed out by the court a quo, the concession by the respondents themselves is evident in their correspondence with Old Mutual in the letter date stamped 30 July 2014. In that letter a representative of the Commissioner stated that the “arrangement had the effect of enabling employees to participate in or receive profits or incomes from the operations of the company.”  This fact was captured by the learned judge in the court a quo in the following passage:

“It was again common cause that in order to fulfil this requirement the Commissioner had to be satisfied that the dominant purpose or dominant effect of the trust was for employees to share in the profits or income of the company or its subsidiaries. The parties were agreed that this requirement was met. The concession was made in the letter of 28 July 2014 by the appropriate Commissioner and by Mr Sinyoro in his oral submissions. I however, hold a contrary view. It seems to me that the dominant purpose for forming the trust was not for the employees to share in the profits or income of the applicant. Rather, it was for the applicant to comply with the requirements of the indigenisation legislation. This was further confirmed by the inherent fear expressed by the applicant that the failure to recognise the trust as an AESOT jeopardised the approved indigenisation plan. Again, the expressed dominant result of the formation of the trust was to retain staff in the applicant and its subsidiaries by giving them a stake in the company. In my view, the sharing of profits was an aside that was inconsistent with the untrammelled power wielded by the directors of the applicant to reduce in whole or in part the entitlement of the eligible employees to trust shares during the entire restricted period if in their reasonable opinion the applicant or any of its subsidiaries performed below expectations. It is my further view that the provision of the restricted period in the trust deed was inconsistent with the dominant purpose or effect of sharing in the profits of the company. Despite the concession made by the respondents, I am not satisfied that the applicant established that the dominant purpose or effect of the trust was to enable the eligible employees to share in the income or profits of the applicant.”

Was the learned judge a quo correct, firstly in making a finding as to the dominant purpose of the trust contrary to the concession made by the respondents, and secondly, in finding that the dominant purpose or effect was not to benefit the employees but for Old Mutual to comply with the indigenisation legislation.

As to the first rung of the enquiry, before the court a quo, Old Mutual made reference to this concession in its founding affidavit and neither of the respondents made an effort to dispute the substance of that paragraph. The only objection taken related to the manner in which the deponent to the founding affidavit set out the affidavit. It is correct therefore that the parties did not address the court on this aspect. In my view, the record speaks for itself. In Welcom Municipality v Masurek & Herman t/a Lotus Corp (supra), the following dictum is made:

“…..I should add that whether or not South Africa did or did not fail to do so remains a question of fact upon which there was no evidence before the court a quo, and for reasons too obvious to require enumeration, the learned Judge was not entitled to enquire into this issue of fact after reserving judgment and without any reference to the parties, and then to decide it. Compare Kauesa v Minister of Home Affairs and Others 1996 (4) SA 965(Nms) at 973H-974C.”

In my view, Mr de Bourbon was quite correct in his submission.  However, his argument must be considered within the context of the dispute that was before the learned judge in the court a quo. The relief sought in the court a quo was a declaratur to the effect that the OMZIL scheme qualified as an approved employee share ownership trust in terms of s 2 of the Income Tax Act. Therefore the issue for consideration by the court a quo was whether the OMZIL scheme met the requirements prescribed by s 2 for an approved employee share ownership trust. To make that determination, the court had to apply its mind to the requirements of an approved employee share ownership. To that end the court was enjoined to construe s 2 of the Income Tax Act and apply it to the terms and conditions set out in the trust deed. There were no issues of fact requiring determination nor was any evidence required. The document was already before the court and the correspondence between the parties formed part of the record. The issue as to the purpose of the trust was a matter for construction of the document by the court a quo. Old Mutual invited the court a quo to do so fully aware of the concession made between itself and the respondents. To grant the relief sought, the court had to construe the section fully and see if all the requirements were met.

Further, although the section places the discretion to be satisfied as to the dominant purpose or effect on the Commissioner, the tax liable and due under the section is not paid to such Commissioner but to ZIMRA. Any tax in terms of the legislation is not due to ZIMRA but to the State in light of s 4 (1)(a) of the Revenue Authority Act [Chapter 23:11] which states that ZIMRA is an agent of the State in assessing, collecting and enforcing the payment of all revenues. The State cannot therefore be prejudiced in the taxation of sums due consequent to a concession which may be wrong in law.

Thus a concession that is wrong in law cannot bind a court. What this means is that a court is entirely within its rights to disregard a concession where it considers that such concession is wrong at law, especially so in issues where the prejudice does not affect the decision maker but the State. The court a quo could do so especially as regards the relief sought from it, if it could only be granted after considering whether the requirements of an approved employee share ownership trust had been met.

The next inquiry is whether the court a quo erred in its findings about the dominant purpose of the OMZIL plan.

The argument by Old Mutual is that the court a quo erred in finding that the dominant purpose or effect of the scheme was to comply with Indigenisation legislation. Mr de Bourbon submitted that it was common cause that Old Mutual established the OMZIL Indigenisation Share Trust with the intention of complying with the policy of the Government of Zimbabwe concerning indigenisation. Indigenisation legislation, he argued, is for the benefit of the employee and that it is with that in mind that the Income Tax Act provides an incentive for the establishment of such schemes as OMZIL in terms of s 15 (2)(jj) of the Income Tax Act as read with para 19 of the Third Schedule to that  Act. He argued further that to find the dominant purpose or effect, one looks not to the reason for such a scheme but to the effect of the arrangement.

Mr Matinenga contended that Old Mutual could have set up an approved employee share ownership trust from 2002 as the tax incentive was introduced in 2001 in the Income Tax Act. Instead it waited until after indigenisation legislation came into being in 2007 to set up an approved employee share ownership trust in 2008. He argued that this shows clearly that this scheme was for compliance with such legislation. He referred this Court to the correspondence between the parties and submitted that from the correspondence it was evident that Old Mutual was seeking to comply with Indigenisation legislation and nothing more. He further argued that it was only after 24 June 2014 that a formal application had been made ostensibly to comply with s 2 of the Income Tax Act. He referred this court to the letter of 3 July 2014 wherein the appellant wrote to the first respondent and explained the foundations of the scheme as:

To give effect to the approved Indigenisation Plan, the OMZIL Staff Share Scheme was designed with two key objectives. The first objective was to satisfy the requirements of the Indigenisation Plan by moving the shares out of the control of the foreign shareholder and into local control. The second objective was skills retention through a usufruct arrangement until such time as Restricted Periods were over, at which point the Employees would receive the capital benefit.

He also referred this Court to the case of Plant v Watt 2000 (4) SA 711 (C) at 720 for the proposition that in interpreting a trust deed, a court must look to the intention of the settler of the trust. He concluded by arguing that the non-activity of the appellant from 2000 militates against a finding that the dominant purpose fits into the requirements of s 2 of the Income Tax Act.

On his part, Mr de Bourbon sought leave to submit a note by the end of the week of this hearing on the Plant case after he had had regard to the case. He was of the view that a possibility existed the authority might not support the contention put forward by Mr Matinenga. Such note is yet to be filed. We had extended the same courtesy to Mr Matinenga to respond to the note but stated in no uncertain terms that he had no need to respond to Mr de Bourbon’s note on the case.

Mr de Bourbon queried the use of the expression “dominant intention” by Mr Matinenga. This is because in the parlance of the Income Tax Act, there is reference to the dominant purpose or effect and not intention. The Oxford Advanced Learner’s Dictionary, International Student’s Edition, New 8th Edition, 2010 defines purpose as “the intention, aim or function of something”. It defines intention as “what you intend or plan to do, your aim”. It recognises these two words as synonyms. The essence of both words is to interrogate the aim. The use by Mr Matinenga of the word “intention” did not allow him to gain any advantage against Mr de Bourbon who used the word “purpose”. It is, of course, neater to use the terms used in the Act.

In an article titled THE STATE OF UNCERTAINTY OCCASSIONED BY THE INTRODUCTION OF THE NEW VICTORIAN DUTIES GENERAL ANTI‐AVOIDANCE RULES, EU‐JIN TEO explained the use of the expression “purpose or effect” albeit in the context of tax avoidance as:

On one view, the use of the expression purpose or effect proceeds on the basis that there is a difference between the purpose and effect of a scheme. On this view, the purpose of the scheme looks to the actual driving force behind the scheme whereas the effect looks to the actual consequence, result or outcome of the scheme… The alternative to the view that there is a difference between the purpose and effect of a scheme is to treat purpose as an element in assessing the effect of a scheme. On this view, the determination of the effect of the impugned scheme requires an examination of the consequences of the scheme and the objective purpose of the scheme.

The second way of construing “purpose or effect” is in line with the interpretation of a trust deed as it factors in the express intention of the settlor. Section 2 makes use of the term “dominant purpose or effect”. The  word “dominant” in the context of “dominant purpose”,  was defined in its ordinary sense in the case of Federal Commissioner of Taxation v Spotless Services Ltd [1996] HCA 34; (1996) 186 CLR 404; (1996) 141 ALR 92; (1996) 71 ALJR 81 as meaning:

“The term ‘dominant’ means ‘ruling, prevailing, or most influential’.”

When one has regard to the foregoing, the question that remains for determination is what is the ruling or most influential purpose or effect of the OMZIL scheme. From a reading of s 2 a scheme must be set up with its dominant purpose or effect being to enable employees of a company or group of companies to participate in or receive profits or income. Such scheme would then accrue the tax benefits of an approved employee share ownership trust. This means the ruling and most influential purpose or effect of the scheme ought to be the enablement of employees of a company or group of companies to participate in or receive profits or income. It becomes necessary to examine the trust deed in order to determine what its dominant effect or purpose is.

THE SCHEME

The preamble to the notarial deed of trust for the OMZIL Indigenisation Employment Share Trust is couched as follows:

AND THE APPEARER DECLARED THAT WHEREAS:

OMZIL has established the Scheme as one element of its indigenisation implementation Plan in accordance with the Indigenisation Laws and to serve as an incentive scheme for employees and its Subsidiaries.

It is necessary for the purpose of the OMZIL Indigenisation Plan Employee Share Plan, which Plan forms part of the Scheme, to establish a trust and to vest the trustees of such trust with all such powers and authorities as are necessary to implement the terms of such Plan.

In turn, the RECORDAL to the trust deed states:

2.1	The Scheme has been established by OMZIL for the specific purpose of promoting the objectives of the Indigenisation Laws and in order to comply therewith, and as an incentive for employees of the Company and its Subsidiaries. The Scheme, in so far as it will be implemented by means of the Plan is regulated in terms of the Rules.

2.2	The Trust is established to facilitate the implementation of the Plan, and the Trustees are entrusted with responsibility for the ongoing management and control of the Trust.

In my view, there can be no better evidence of the dominant effect or purpose of the trust than that emerging from the preamble to the trust and the Recordal. The stated object and purpose of the trust under the OMZIL plan is the acquisition, holding and controlling of Scheme shares; the exercise of all membership rights in respect thereof subject to the plan Rules and the transfer of the Scheme shares to the eligible employees when they became entitled to them in line with the Rules.

It is common cause that the shares are subject to a restrictive period during which the beneficiaries thereto are not, in terms of the Rules, allowed to dispose of them in any manner whatsoever. It therefore stands to reason that during the period in question, the shares belong to the trust and not to the employees who are the intended beneficiaries under the trust.

Over and above the vesting of the shares in the trust during the restrictive period is the measure of control exercised by the directors to the trust. The directors are, according to the Rules, empowered to “reduce in whole or in part”, the number of shares awarded to a participant if they formulate a “reasonable opinion” in relation to any one of three scenarios;

the results or accounts or consolidated accounts of any company, business or undertaking in which the participant concerned was or is employed or for which he or she was directly or indirectly responsible (“Relevant Entity”) are found to have been materially incorrect or misleading;

the Relevant Entity subsequently makes a loss out of business written due to poor risk management;

the performance of the Relevant Entity upon which the directors relied in making their determination to grant an award offer to the participant award and/or the size of such award is found to have been materially misrepresented.

The court a quo made a similar observation about this power.  Where the directors reduce the number of restricted shares under any of the scenarios described above, the shares shall be forfeited in which event the ownership thereof will revert and vest in the Trustees. Essentially the employees can share profits under this scheme if the directors do not reduce the restricted shares. Their powers to the shares are subject to a restricted period and in the event of the three abovementioned scenarios, they may not have any shares or the shares may have been reduced in number.

The expressly stated objective of the plan was to comply with Indigenisation legislation. The stated purpose of the OMZIL plan was to comply with Indigenisation legislation. The question as to its effect must be construed firstly in relation to its stated purpose and to what the scheme in its substance does for the employees and how that accords with the requirements of s 2 of the Act.

The shares are the subject of a restricted period of three years which expired at three successive dates in respect of a third of the shares awarded to each participant. These dates would be the First Release Date, the Second Release Date and ultimately the Final Release Date. During the restricted period, the participant employee cannot sell, transfer, pledge, assign or dispose of their restricted shares or any interest therein. The shares are held by the trust subject to the relevant release dates.  The dominant purpose of the scheme as stated in the documents is to be in compliance with Indigenisation legislation, in my view. Firstly, this is the stated purpose of the plan and then the enabling of the employees to share in the profits. However, more fundamentally, the powers of the directors give credence to the prevailing and most influential purpose and effect of the OMZIL plan. Their ability to reduce or fully take away all the restricted shares in the circumstances stated above does not accord with a plan set up primarily for the sharing of profits of employees. They are not necessarily held in trust for the benefit of the employees. In addition there is no provision for the pooling of the profits or income to the extent that each employee has a right or interest, whether described as a unit or otherwise in the stock, shares or debentures.

One only needs to look at the most influential effect of the scheme in light of what compliance with indigenisation laws sought to achieve. On record is a letter declaring the OMZIL plan compliant with indigenisation and economic empowerment legislation, as is evident from this excerpt from the letter in question:

“c) The internal restructuring of OMZIL ownership is compliant with the Indigenisation 	and Economic Empowerment legislation as it gives effect to the share ownership 	acquisition by 	the indigenous players.”

The above excerpt emphasises and establishes that the effect of complying with indigenisation legislation grants share ownership to indigenous players. Therefore share ownership was a consequence of complying with indigenisation legislation for indigenous people. The definition of indigenous Zimbabwean as at the time the dispute arose and prior to its amendment in the Indigenisation and Empowerment Act [Chapter 14:33] in s 2 reads thus:

“Indigenous Zimbabwean” means any person who, before the 18th April, 1980, was disadvantaged by unfair discrimination on the grounds of his or her race, and any descendant of such person, and includes any company, association, syndicate or partnership of which indigenous Zimbabweans form the majority of the members or hold the controlling interest.”

The manner in which Old Mutual sought to argue that the scheme was in compliance with s 2 of the Act overlooks the very critical fact that the indigenization laws were meant to provide a platform where a particular sector of the citizenry would accrue a benefit. Under s 2 of the Act the scheme was meant to benefit the employee regardless of his or her ethnic background. The word “employee” in the context of s 2 is not subject to any qualification in the construction of the Income Tax Act where it refers to an “approved employee share ownership trust”. This is not meant to say that every AESOT which is necessarily set up for the dominant purpose of enabling employees to share in profits but is also in compliance with indigenization laws does not qualify under the Income Tax Act as an AESOT. The distinguishing feature is that of the dominant purpose or effect of such scheme.

As regards the OMZIL trust, whilst complying with indigenization legislation, it also had the effect of extending share ownership to indigenous persons, and therefore must be viewed in the context of its stated purpose. Further, not all the employees of Old Mutual are indigenous Zimbabweans for whom indigenization laws have been enacted. The tax incentive outside the concept of indigenization sought to encourage employee share ownership and sharing of profits without defining them as indigenous or otherwise.

I therefore do not find fault with the reasoning by the court a quo in finding that the dominant purpose was to comply with indigenization legislation. This is the stated purpose of the OMZIL plan. Beyond that, when one has regard to its operation, the powers of the directors in respect of the restricted shares does not sit well with the plan having the dominant purpose or effect of enabling the employees to share in the profits of the company. The dominant effect and purpose of the plan was achieved when the plan was found to be compliant with indigenization legislation. Its extension into an AESOT simply does not exist as the formulation of the Income Tax Act requires that the dominant purpose or effect be the sharing in the profits of the employees.

In casu, there was a more dominant purpose to the OMZIL plan and for that reason it could not fall into the definition of the Income Tax Act. This would be the end of the matter as the requirement as regards the dominant purpose or effect of the plan is one of the prerequisites in finding that a scheme is an approved employee share ownership trust. I will, however, deal with the issue of whether or not the shares were transferred to the trust for the sake of completeness.

WHETHER THE SHARES WERE HELD IN TRUST FOR THE EMPLOYEES

At the hearing, we questioned Mr de Bourbon if we were missing the proof of the vesting of the shares in the trust. His response was that the issue of such proof was raised by the court a quo and not the respondents. He alleged a misstatement in the reciting of the facts by the court a quo. He stated that the minutes of the meeting of 25 June 2014 between the parties had been produced in terms of the founding affidavit. The respondents did not take issue with them. He referred us to a letter from ZIMRA dated 24 June 2014 which was the tax ruling. The relevant portion of that letter stated that:

“The shares are currently housed in an employee share ownership trust.”

Old Mutual construed this as an admission of the fact of the shares being housed in a trust. Mr de Bourbon argued that this constituted an acknowledgment of the fact and there was no need for proof as it was common cause as between the parties. Mr Matinenga contended that the background in the tax ruling was merely ZIMRA recounting what Old Mutual had stated as being the factual position. He contended that one could therefore not say the parties were ad idem regarding the issue of the housing of the shares. He went on to argue that Old Mutual had failed to persuade the court a quo and it therefore meant it made the correct determination.

The housing of the shares in the trust is a factual inquiry. The court a quo in construing s 2 of the Income Tax Act therefore had the right to inquire into the requirement of the housing of the shares. It made no difference that the parties had agreed by the mere say so of Old Mutual that such vesting of the shares in the trust had taken place. That the shares must be housed in a trust is a legislative requirement. If parties concede on such requirement, their concession is based on their interpretation of what it means for such shares to be housed in a trust. Such concession does not oust an inquiry by a court such as the court a quo, which had to be satisfied that the shares were housed in a trust, or such housing.

In any event, although ZIMRA states the housing of such shares in a trust as a factual truth, I do not think it had intended that to be a strict acceptance of the fact. Even if it did, in light of the argument before this Court, I do not think ZIMRA had applied its mind to the issue of the factual housing of the shares in a trust. There is simply no proof of such vesting. This Court cannot accept a concession as the proof of the vesting of such shares, especially since the court a quo had to inquire into the requirements of an AESOT and it was not given proof of such housing of the shares in the trust. Old Mutual failed to prove such factual housing and it cannot hide behind an alleged concession to avoid proving such vesting.

For the above reasons, the appeal lacks merit and must fail.

Accordingly the appeal is dismissed with costs.

MAVANGIRA, JA				I agree

BHUNU, JA					I agree

Atherstone and Cook for the appellant

Sinyoro and Partners for the respondent