‘THE REPUBLIC OF UGANDA IN THE TAX APPEALS TRIBUNAL OF UGANDA AT KAMPALA ;PLICATION NO. 66 of 20 APPLICANT COMFORT HOMES (U) LIMITED VERSUS UGANDA REVENUE AUTHORITY ....nnnvnsvneusneESPONDENT 'SEFORE: DR. ASA MUGENYI, MS. CHRISTINE KATWE, MR. SIRAJ ALI RULING ‘This ruling relates to an application challenging an assessment of Shs, 67,000,000 arising from the sale of and prior tothe enactment ofS. 1188(2) of the income Tax ‘Actand a payment that was made thereafter. The applicantis a company incorporated in Uganda, On 26% June 2019, the applicant purchased land comprised in Plot 2035, Block 221 and Block 221 Plat 2081 from one: Richard Magezi On 6M February 2020, the respondent raised a Withholding Tax (WHT) assessment of Shs. $7,000,000 agains the applicant for falue to withhold tax ‘0F 6% on the purchase price under S. 1185(2) ofthe Income Tax Act. The applicant ‘objected tothe assessment asserting thatthe land in question vas not a business asset under S. 1185(2) of the Income Tax Act. On S® June 2020, the respondent ‘issued an objection decision upholding the assessment The following issues were agreed upon for determination by the titunal 1, Whether the applicant i lable to pay the tax assessed? 2, What remedies are availabe? ‘The applicant was represented by Mr. Edward Balaba while the respondent by Mr, George Ssenyomo. This dispute relates to whether the land in dispute was a business asset under the Income Tax Act. I also reates tothe application of an amendmert ofthe law to a‘wansaction which took place before the law came into force but a payment was made ater. ‘The applicant's sole witness, Ms. Karungi Rhona Nansikombl ts legal officer tested {hat the price forthe land was Shs 900,000,000 payable in cash and non = cash forms, ‘She further testified that the payments were in instalments: the intial payment of Shs 200,000,000 was made on 24% tune 2019 (before the law took effect) and the second ‘one of Shs. $00,000,000 was on 22% August 2019 (ater the law took effect). Ms, ‘erungi testified that @ nor-casn payment in form of a three bedroomed apartment, valied at Shs 200,000,000, was given fo the seller as part of the purchase price. She {ested fuer that the land purchased was bare, unaccuped, covered by grass and hhad no developments nor activites thereon. ‘The respondent's frst witness Mr. Daniel Tul, an offcer in its Domestic Taxes Department testified that the cespondent received information thatthe applicant pald Richard Magezi Shs. 950,000,000. On 6% February 2020, the respondent raised WIHT assessment of Shs. 57,000,000 forthe period 1H October 2019 to 31% October 2018, against the applicant for failure to withhold tax of 6% on payment of Shs, {950,000,000 under S, 118B(2) of the Income Tax Act, On 10h March 2020, the ‘applicant objected to the assessment onthe ground that S. 11882) didnot apply since the land purchased was not a business asset. On 5 June 2020, the respondent made an objection decision asallowing the objection and upholding the assessment. The witness stated that some payments forthe purchase of the land were made afer 1! July 2018 when S. 118B(2) had come into force. He contended that WHT applied to Payments and not ransactons The respondent's second witness, Agnes Busigye, an officer in its Domestic Taxes Department testified that on 10h January 2020, the respondent requested the ‘applicant for information about its transaction with Mr. Richard Magezi. Upon the ‘applicant's failure to provide the information, the respondent raised a WHT ‘assessment of Shs. 57,000,000 being 6¥6 WHT on the pay to Me, Magezi. An ‘analysis of ax information by the respondent revealed that Mr. Magea was registered for employment and dealt in realestate. He purchased and sold several properties ‘and regulary fled annual income tax retums in which he accounted far asses, stock‘and sales but only deciared employment income as his only scurce of income, The witness testified tat Mr. Magez! had not declared the land that he had sold tothe ‘ppiant under assets or stock ‘Tre applicant submited that purchased land on 26% June 2018, beer the coming ino eflec of 8. 1188 (2) ofthe Income Tax (Amendment) Act, wich was on 1 July 2018, It submited that S. 14(1) of the Acts of Parliament Act states that the commencement of an Act shal be the date as provided in the Act It futher provides {het where a Act has retrospective eects commencement shal be the date from which tis deemed tobe given that effect. The applicant further submited that 8. 4 of the Income Tax (Amendment) Act 2019 stipulates that it shal cme into force on 1 ty 2018. No other commencement date is mentioned inthe Act The applicant contended thatthe Income Tax (Amendment) Act 2019 could not arplyrevospectively '0 affect a purchase of 26" June 2019, in absence of an express provision of law. It ted Crane Bank v Commissioner Generel Uganda Reveitue Author High Court (Ci Sut No, 0106 of 2008, whera it was held that a taxpayer could net benefit rom a {x deduction avalabe to private employers employing persons with isabiltes forthe Year of income where the tax deducton had been introduced by an Act of Parlament, which came in force afer the start ofthat taxpayer's year of income, The applcant contended that the rule on retrospective application of statutes, was not affected by ‘he applicant's payments after 1% July 2018 The applicant futher contended that he obligation to withhold tax shouldbe applied ‘onthe gross payment and not on instalments. itcted ATC Uganda Limited v Uganda ‘Revenue Autbonty Aplicaon No. 17 of 2018, where the tibunal hl that a payment {for WHT purposes, other than that imposed on interest under S. 47() ofthe Income ‘Tax Act, included amounts that are payable as defined in S. 2 (xx) of he Income Tax ‘Act The applicant submited that tis was confirmed by the High Court in Cooper ‘Motor Corporation (U) Lnited v Uganda Revenue Authonty Civil Appeal No. 82 of 2020 arising from TAT Application No, 67 of 2018. The applicant sutmited thatthe tment on 22% August 2019 after the Inca Tax (Amendment) Act 2019 had commenced on 1 July 2019 formed par of te gross payment which was payable on the purchase date of 26 June 2019,The applicant further contended that the tx assessed based onthe Chief Government Vales value of Shs. 950,000,000 fer stamp duy which is higher than the payment forthe Property of Shs, 800,000,000 was erroneous. The applicant contended that the WHT assessment ought to be computed by applying 6% othe purchase price of Shs, 800,000,000%n accordance wih Part Vl of the Third Schedule of the Income Tax Ac. ‘The applicant submitted that WHT applies on purchases ofa business, ora business asset under S. 1185(2) ofthe Income Tax Act. S. 2g) of the Income Tax Act defines ‘= business 1a Include. any Wade, profession, vocation of adventure inthe nature of rade, but does notinclude employment. The applicant ted Ranscnv Higgs [1974] 3 ‘AER 649 af O55 where it was stated thatthe word rade’... commonly used to denote operations of @ commercial character by wich the tader provides to Customers for reward on some kind of goods or services "The appcant submited ‘hat S. 2h) ofthe income Tax Act defines a ‘business asset’ to meen: “An ascot which is used or held teay fof use ina business, and includes any asset hel forsale in a business and any easel of partnership or company." ‘The applicant submitted further that under 8, 2(), the definition ofa business asset, where the seller isan individual (and nota partnership ot @ company), Is resicted to the flowing (@) An asset whichis used in business (©) An asset which is held ready for use ina business (6) Any asset held forsale in a business. ‘The applicant submited thatthe land it purchased was nota business. 2(t) because the salerwas not using the land ina business; he seller was not holding {he land ready foruse in a business; and the land purchased was net an asset held set under S for sale in a business ofthe seller. ‘5 to wheter the andi sue is usedin a business? cing Ranson v lags (supra), {he applicant submitted that for the land to qualify as an asset used in business, the seller of the land in question should, atthe time of sale, have been using the land in “operations of a commercial character, normaly involving the exchange of goods oF ‘services for reward. The applicant submited thatthe land was bare, unoccupied and had no developments or activites,‘The applicant submitted that to determine whether the land was held ready fr use in ‘@ business can only be determined by looking at the plans, aspirations and intentions of the seller. The applicant submited that the photographic evidence, Exhibit A3, shows thatthe land was not held ready for use in a business, ‘The applicant submited that as to whether the land was being held for sale in a business presupposed the seller ofthe land should be inthe business of seling land, ‘The applicant submited that the seller is engaged in hiring out heavy oil and gas ‘macrinery under the named Rich Flo located at Rich Flo House Nakawa. AW1 onfrmed that the salir of the land was nat inthe business of sling land and that ‘he land was not business asset ofthe ele, atthe time of sale. The spousal consent adduced indicated that that the land was nt held forsale in a business, ‘The applicant submitted further that there are two interpretations, thatthe land sold as elther a trading stock or a bushiees asst, or both which crested an ambiguity ‘The applicant submitted that it was tite law that an ambiguity ofthe law should be onstrued in favour ofthe tax taxpayer, as stated in Stanbic Bank (U) Lid & 7 Others v Uganda Revenue Authority HCCS 792 of 2008 and 170 of 2007 (consolidated) where the High Court stated that the law is fairly settled tha the ambiguity of th law shouldbe construed in favour of the taxpayer." ‘The applicant futher submited that Income derived by the seller of the land was ‘exempt under 8. 21(1(K) of the Income Tax Act and it should not withheld tax on income which ls exempted from tax. S.21(1)(4 of the Income Tax Act provides tat: “(1 Te folowing amounts are exempt om tax - (1 Any capital gain tha isnot ined in business income, other than capil ins onthe sae of shares in a private lint labilly company oF onthe sale of 8 commercial bung ‘The applicant submitted thatthe capital gains made by the seller from the disposal ‘as exempt from income tax. Therefor, itcannot withhold tax under S. 118(8)2) of the Income Tax Act |i reply, the respondent submited that the applicant made a purchase whichis subject to WHT under S, 1186 (2) ofthe Income Tax Act which provides that a resident person‘who purchases a business asset shal withhold tax at a rate specified in Part Vill of {he Third Schedule. Part Vill of te Third Schedule provides that the WHT rate for Purposes ofS. 1188(2) Is 6% ofthe gross payment. S.2 (xx) defines a payment to include ary amount pad or payable in cash orknd, and any other means of conferring value or benefit on a person. The respondent stated that some payments for the purchase ofthe land were made after 1* July 2019 when S. 1183(2) ofthe Income Tax Acthad come into free. Shs. 200,000,000 was paid on 26% Juno 2019 and She, 730,000,000 was paid after 1# July 2019. The respondent subnited that WHT is ‘piled 0 payments and not ansactons, The last payment of Shs 70,000,000 was made afte the law had come into force and is subject to WHT. The applicant had an blgation to witha tax of 6% onthe gross payment of Shs. 73,020,000 pai to Mr. Richard Magezi under S. 1188(2) The respondent submited that the land purchased by the applicant was not trading ‘stock for Mr. Richard Mages! but land held ead for use in is business. Exhibits R6 3nd R7 andthe testimony of RW2 Agnes Busigy® show that Richard Mageziegistered ‘several properties. He was registered for employment and had real estate in his tax Profle, He did not dectare the land he sold tothe applicant under essets nor stock. The respondent contended the activities of Mr. Richard Magezi amounted to a business ‘The respondent submited thatthe sale agreement, Exhibit A1, has a purchase price f Shs. $30,000,000 while the valuation of the Chiat Governments Eh AG had value Of Shs. 980,000,000; When the applicant fled to provide information onthe quest Of the respondent of 10" January 2020 the respondent obtained a vatiation from the Cie! Government Valuer. The respondent cited Gakow and Brothers Enterprises limited v Uganda Revenue Authonly Application Nos. 109 and 113 of 2019 where the ‘Tribunal held that “The law does not provide how the Commissioner may reach at what the corect ax a tax payer must pay. In Tembo Steels (U) ld v Uganda Rovenue Authonty Civil Appeal 77 of 2011 Justice Kakuru stated that ~The law dose not pcoty the methads the Commissoner General must use ‘Therelore, the Commissioner General isa erty to use any method of assessment ‘he or she considers desiabe or jusiabie on the basis of the best infomation valle to tim...”‘The respondent submited that because the applicant did not provide infarmation to it when requested it used the bet avallable information. Having perused the evidence and read the submissions of the partes, this the ruling ofthe tribunal ‘The lspute between the partes reales inter aa tothe question as to whether the ‘and purchased by the applicant was business asset under S.11€8(2) of the Income ax Act. S. 1185(2) provides; 'a resident person who purchases a business or ‘business asset shall withhold taxa arate specified in Part Vl ofthe Thid Schedule." Part Vl othe Third Schedule provides under Paragraph 3 - the withholding tax rate for purposes ofS. 1185,2) is 6% of te gross payment SS. 2{h) ofthe Income Tax Act defines a ‘businéss asset to mean: ‘an asset which is 39 includes any asset held forsale in a sed or held ready for use in a business, business and any asset of a partnership or a company. In constuing the term business asset’ as under S. 2h, it must be established, ether ') That te land in question was an asset which was being usedin a business, or 1) That the land in question was an asset held ready fo use ins busines, or ©) That the land in question was an absetheld for sale in a busiress, or 4) That the land in question was an asset of a partnership or a company. Itis notin dispute that the seler ofthe land in question, Mr. Richatd Magezi, is an individual therefore the question as to whether the land in question was an asset of a Partnership ora company does not avis. Itis observed that the common thread that runs through the defntcn ofa business ‘asset under. 2(h) above isthe term "business". For the land in question to amount to. business asset within the meaning of S. 1185(2) and S, 2() ofthe Income Tax ‘Ack the transaction between Mr. Magezi and the applicant shoud qualify as a business within the meaning of S. (6) of the Income Tax Act. The lerm “business hes been defined under 8, 2(g) of the Income Tax Act 10 include '.. any trade, Profession, vocation or adventure in the nature of trade, but does not include employment‘The tax profile of Mr. Magezi showed that his sources of income were employment {and rental income. His business activities included real estat, The respondent ortended thatthe land in question was sold as part of his business activites. The applicant onthe other hand contended that Mr. Magezi only had rental income. Mi. "Magezi was not called to testy as to whether his eal estate actvtes were liited to collecting rent or extended to buying and seling land. S. 18 of the Tax Appeals ‘Tribunal Act places the burden of roof on the applicant to show that an assessment Was excessive or he tax decision should have been made different t can therafore be fatal i the applicant does not show thatthe property purchased was nota business asset ofthe sel ‘The most contentious issue was whether S. 118(2)8 ofthe Income Tax Act applied to the sale ofthe land to the applicant. The applicant made two payments forthe land in ‘question. The inital payment of Shs. 200,000,000 was made on 24%.june 2019 before 8. 1188,2) ofthe Income Tax Amendment Act took effect and the second instalment ‘of Shs, 600,000,000 was made on 22% August 2019 alter the aw bok efect. While ‘he applicant argues tha the amendment apples to when the transaction took place, the respondent argues that it applies to when the payments were made. The amendments slntas to whether it applies fo transactions or payments. Where there is an ambiguity in the law it is decided In favour ofthe taxpayer. In Stanbic Bank (U) Ld & 7-others v Uganda Revenue Authorly HCS 782 of 2006 and 170 of 2007 (consolidated) the High Court stated that "the law i faiy settled thatthe ambiguty of ‘he law should be construed in favour of the taxpayer.” The appican should take the benef of doubt ofthe law in question, Befoe one is assessed fora tax labilty, the law imposing the iabity should be clear and unequivacal. The impestion should be ‘ear and precise. Furthermore without prejutice, S. 1188(2) of the Income Tax Act arovides that ‘a resident person who purchases a business or business asset shal withhold tax at a Fate specified in Part Vill of the Third Schedule’ Part Vill of the Th Schedule Provides that under Paragraph 3 - "the withholding tax rate for purposes ofS. 1 1862) 's 6% of the ‘gross payment. The word ‘payment is defined under S. (ex) ofthe Income Tax Act fo include “any amount pad or payable in cash or kine, and any ther ‘means of conferring valve or benefit on a person." In AON (U) dv Usanda Revenue‘Authorty MC 66 of 2000, Kiryabwire J. statod that “Its tite law that where the language ofthe statute is plain and unambiguous, the words of the Statute should be Biven unambiguous meaning." Payment under the Section includes what was paid and ‘Whats payable. Therefore, the payment by the applicant included he arnount paid on 26° June 2019 and the amount payable on 22% August 2019, even when the amount payable was paid after the coming into force of S. 1188(2) of the Income Tax ‘Amendment Acton 1# July 2018, Since the payment was effected before the coming into fore ofthe amendment WHT is not payable. We accordingly oder a follows 1 The applicants not lable to pay the tax assessed. 2. The respondent is ordered to refund the 30% ofthe tx in dispute, 3. The applicantis awarded costs ofthe application, Dated at Kampala this |A-ti. dayof June 2022. d becteliha oS — Ne DR. ASA MUGENY! MS. CHRISTINE KATWE INR. SIRAJ ALI ‘CHAIRMAN MEMBER EMBER