An updated statement of expenses incurred by the applicants would have been reflected in the said accounts so as to enable the Tribunal properly calculate the gain. The Tribunal expected the applicants to submit an independent auditors’ special report on the expenses incurred in the absence of audited accounts. Article 5 of the PSAs for EA1, EA2 and EA3 makes provision for an advisory committee. Under Article 5.3.5, the Committee is supposed to ensure that the accounting of costs and expenses and maintenance of operating costs are made in accordance with the Agreement, accounting principles and procedures generally accepted in the international petroleum industry. The records of the said committee on expenses were not availed to tribunal. No reason was given as to this omission.
The Tribunal has powers to summon any witness and the applicants ought to have taken advantage of this. S. 18 of the TAT Act places the burden of proof on the applicants to prove that a taxation decision is excessive or should have been made differently. The applicants have not discharged the burden in respect of the exact expenses incurred by them. The Tribunal cannot rely on hypothetical figures to ascertain the expenses incurred by the applicants. The respondent presented to the Tribunal different figures from the applicants as regards the expenses incurred. It is not denied nor is it in dispute that the applicants incurred expenses. If the Tribunal were to ignore the figures that were presented by the respondent, a miscarriage of justice would be occasioned to the applicants.
The expenses or that portion that has been admitted by the respondent would not be added in the computation of the gain. The Tribunal will allow the figures presented by the respondent as expenses incurred by the applicants as admissions under Sections 16, 17 and 28 of the Evidence Act. The Tribunal will also take into consideration the figures presented by the applicants in exhibit A21, the financial statements ending 31st December 2012 of TUL. Those figures presented by the applicants that are the same as the respondent’s shall be considered in computing the gain. Also in respect of the expenses incurred by the applicants, the Tribunal notes that the respondent’s computation do not indicate whether the expenses computed were in proportion to the interests sold. The applicants sold 66.67% of their interests and therefore the expenses used in the computation should have been 66.67% of what was incurred. As prudent revenue collectors, the Tribunal will take it that, the respondent used this weighted costs approach in computation of the gain. That is the expenses incurred by the applicants corresponded to the interests sold in each block. (c) Gain by the applicants and the tax payable Having found that the applicants are liable to pay tax on the gain they obtained from the transfer of their interests in Blocks 1, 2 and 3A, the Tribunal now has to go into the mathematics of the tax due. The tribunal takes into consideration that the applicants sold pre-existing interests and interests acquired from Heritage. The Tribunal will also take into consideration that the income received was not in dispute. What was in dispute was the accounting method used and expenses incurred by the applicants.
The Tribunal has already discarded the LIFO method of accounting proposed by the applicants. This was because the said interests were intangible assets. One cannot treat intangible assets as if there are tangible assets. The respondent proposed the FIFO method of accounting which the Tribunal found inappropriate. In situations where a party cannot state with precision which interests were sold, the rules of equity and fairness have to be considered. The rules of equity demand that interests acquired at different times but sold at the same time should be divided proportionately. The Tribunal shall use the averaging method or equitable apportionment in computing the gain obtained by the applicants. This was applied in the case of John K. McNulty et al. v Commissioner of Internal Revenue (supra) which also involved immoveable property.
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