Wakilii

Bondo Tea Estate Limited v Uganda Revenue Authority (Application No TAT 65 of 2018)

Tribunal · [2021] UGTAT 6 · 2021 Application Granted AI-generated summary ↓ Download Pin to watchlist Add to matter
Jurisdiction
Uganda
Case Type
Application challenging income tax assessment adjustment and disallowance of assessed loss
Decision
Application allowed; URA's assessment adjustment set aside; assessed loss of UGX 135,628,522 recognized

Observed later treatment

No later-treatment classification is recorded for this judgment.

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Holding

The Tribunal held that URA failed to justify its adjustment of the transfer price between Bondo Tea Estates and its related party, Kijura Tea Company. The price of UGX 320 per kg was found to be at arm's length, having been set above the industry-agreed price of UGX 280 per kg. URA's field inspection was conducted 18 months after the relevant tax period, interviewed only five out-growers, failed to account for transport costs, and did not interview out-growers selling to Kijura Tea Company. The Tribunal allowed the application and recognized the assessed loss of UGX 135,628,522 admitted by URA during mediation.

Outcome

Application allowed; URA's assessment adjustment set aside; assessed loss of UGX 135,628,522 recognized

Facts

Bondo Tea Estates Ltd is an out-grower of tea which supplies green leaf to Kijura Tea Company Limited, its parent company and associate. In 2018, URA reviewed the applicant's income tax returns for the year ending 31 March 2017 and concluded that the applicant had under-declared sales by selling green leaf to Kijura at UGX 320 per kg, below what URA considered market price. URA conducted a field inspection on 12 September 2018, interviewing five out-growers who sold to other tea companies at prices ranging from UGX 500 to UGX 700 per kg. URA calculated an average price of UGX 510 per kg and assessed additional tax of UGX 544,409,110 (comprising UGX 174,409,650 principal tax, UGX 348,819,302 penalty, and UGX 20,929,158 interest). URA also disallowed an assessed loss of UGX 220,985,115 brought forward from the previous year. The applicant contended that its price was at arm's length, having been set above the industry-agreed price of UGX 280 per kg established at a stakeholders meeting in January 2015. The applicant argued that URA failed to account for transport costs and used prices from 18 months after the relevant tax period.

Issues

  1. Whether there was under-declaration of sales by the applicant to the respondent for the financial year ending 31st March 2017?
  2. Whether the average price adjustment by the respondent is in conformity with the law?
  3. Whether there was loss incurred by the applicant for the year ending 31st March 2017 which was not recognized by the respondent?

Orders

  • Application allowed with costs to the applicant.
  • The Tribunal found no under-declaration by the applicant of its sales of green leaf to Kijura Tea Company Limited for the financial year 2016/2017.
  • The average price adjustment by the respondent was not in conformity with the law.
  • The assessed loss of UGX 135,628,522 admitted by the respondent during mediation shall stand.
  • The applicant may avail the respondent with information showing the remaining loss of UGX 85,156,593 for verification.

Rules and key headnotes

Transfer Pricing — Arm's Length Principle — Related Party Transactions
Under section 90 of the Income Tax Act, the Commissioner may allocate income between associates to reflect chargeable income realized in an arm's length transaction. An arm's length transaction is one between parties conducted as if they were strangers with no conflict of interest. Where a taxpayer's transfer price to a related party is set above an industry-agreed price established by market stakeholders, and there is no evidence the price was artificially suppressed, the transaction is at arm's length.
Assessment — Best Information Available — Burden of Proof
Where the Commissioner relies on a field inspection to adjust a taxpayer's declared sales, the inspection must be conducted during or proximate to the relevant tax period, must be representative of the market, must account for cost variables such as transport, and must compare transactions with the same buyer. A field inspection conducted 18 months after the tax period, interviewing only five out-growers selling to different buyers, without accounting for transport costs or location variables, does not constitute sufficient justification for an assessment adjustment.
Transfer Pricing — Fair Market Value vs Arm's Length Value
The Income Tax Act provides for both fair market value and arm's length value methods. Fair market value applies where the price of a commodity is unknown, payment is made in kind, or goods are transferred for no consideration. Arm's length value applies to transactions between related parties and requires comparison with transactions between unrelated parties under the same conditions. Where related parties transact at a stated price for goods sold (not exchanged in kind), the arm's length principle applies, not fair market value.
Assessed Losses — Self-Assessment — Verification
Under section 20(2) of the Tax Procedures Code Act, where a taxpayer submits a self-assessment return declaring an assessed loss, the taxpayer is treated as having made an assessment of that loss. Under section 23(1)(a), the Commissioner may make an additional assessment to ensure the correct amount of assessed loss. Where the Commissioner admits during mediation that a declared loss has been verified and reduced to a specific amount, that admitted loss shall stand.

Legislation cited (16)

Cases cited (3)

  • UE Development India Pvt Ltd vs. DCIT in IT (TP) No. 1104/Bang/2011
  • Tembo Steels (U) Ltd v Uganda Revenue Authority (Civil Appeal No. 77 of 2011)
  • Lanyero v Okene & another (Civil Appeal No. 0029 of 2018)

Full judgment

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The original judgment as reported. Read the original PDF before relying on any passage.

Bondo Tea Estate Limited v Uganda Revenue Authority (Application No TAT 65 of 2018) 2021 UGTAT 6 (29 March 2021)
Source: this page presents Wakilii’s issue analysis and metadata for a publicly reported Ugandan judgment. Any AI-generated summary is marked as such. Judgment text is sourced from the Uganda Legal Information Institute (ulii.org). Wakilii is not affiliated with ULII.