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Crown Beverages Limited v Uganda Revenue Authority [2024] UGTAT 2

Tribunal · 2024 Application Granted AI-generated summary ↓ Download Pin to watchlist Add to matter
Jurisdiction
Uganda
Case Type
Application to the Tax Appeals Tribunal challenging VAT and income tax assessments issued by Uganda Revenue Authority
Decision
Application allowed; tax assessments set aside

Observed later treatment

No later-treatment classification is recorded for this judgment.

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Holding

The Tax Appeals Tribunal held that Crown Beverages Limited was entitled to claim income tax deductions for promotional sodas purchased from its distributor and to claim VAT input tax credit on those purchases. The promotional expenses were revenue expenditure incurred in the production of income, not gifts. The sodas purchased from the distributor constituted taxable supplies made for consideration as part of the distributor's business activities and were for use in the Applicant's business. The assessments issued by Uganda Revenue Authority were set aside.

Outcome

Application allowed; tax assessments set aside

Facts

Crown Beverages Limited manufactures and sells non-alcoholic soft drinks under the PepsiCo franchise. In April 2019, it launched the 'Tukonectinge' promotion where customers purchasing two glass bottles could win free sodas by finding codes under bottle crowns. Winning customers redeemed free sodas from distributors, including Lira Resort Enterprises Ltd. Lira Resort issued tax invoices to Crown Beverages for the promotional sodas at market price, and Crown Beverages paid by issuing credit memos offsetting amounts due from Lira Resort. Crown Beverages claimed VAT input credit and income tax deductions for these promotional sodas. In August 2021, Uganda Revenue Authority assessed Crown Beverages for UGX 9,305,665 in VAT and income tax, contending that the promotional sodas were gifts to final consumers for which Crown Beverages should have accounted for output VAT and could not claim income tax deductions. Crown Beverages objected, arguing the sodas were purchased from Lira Resort as part of legitimate promotional activities. URA disallowed the objection, leading to this application.

Issues

  1. Whether the Applicant is liable to pay the tax assessed?
  2. Whether for income tax purposes, the Applicant is entitled to claim a deduction for the costs incurred on their promotional activities?
  3. Whether the Applicant is entitled to the VAT input tax credit arising from the promotional sodas?

Orders

  • Application allowed with costs.
  • The taxes assessed by the Respondent are not payable by the Applicant.

Rules and key headnotes

Income Tax — Deductible Expenditure — Promotional Expenses
For income tax purposes, expenditure incurred by a taxpayer in purchasing promotional items from a third party distributor to boost sales constitutes revenue expenditure incurred in the production of income and is deductible under section 22(1)(a) of the Income Tax Act, provided the expenditure was incurred during the year of income and had the effect of diminishing the taxpayer's total assets.
Income Tax — Promotional Items — Distinction from Gifts
Promotional items distributed to customers on condition that they are winners of a promotion do not constitute gifts for income tax purposes, as they are not voluntary transfers made gratuitously without consideration but are given with the sole purpose of economic growth in sales and subject to conditions.
Income Tax — Burden of Proof — Production of Income
A taxpayer claiming a deduction for expenditure under section 22(1)(a) of the Income Tax Act is not required to adduce evidence proving that income was actually generated as a result of the specific expense; it is sufficient to prove that the expenditure was incurred in the production of income.
Value Added Tax — Input Tax Credit — Promotional Supplies
A taxable person is entitled to claim VAT input tax credit under section 28(1) of the VAT Act for promotional items purchased from a third party distributor at market price where the distributor is a taxable person, the supply constitutes a taxable supply made for consideration as part of the distributor's business activities, and the promotional items are for use in the business of the taxable person.
Value Added Tax — Taxable Supply — Payment by Credit Memo
A supply is made for consideration within the meaning of section 18(4) of the VAT Act where the supplier receives payment in the form of a credit memo offsetting amounts due from the supplier to the purchaser, as payment includes any amount paid or payable in cash or kind and any other means of conferring value or benefit on a person.
Value Added Tax — Promotional Items — No Obligation to Account for Output Tax
Where a manufacturer purchases promotional items from a distributor at market price and the distributor accounts for output VAT on that supply, the manufacturer is not required to account for output VAT when the promotional items are subsequently distributed to consumers, as the taxable supply is the supply from the distributor to the manufacturer, not from the manufacturer to the final consumer.

Legislation cited (10)

Cases cited (11)

  • Independent Publications v Uganda Revenue Authority (TAT Application No. 55 of 2018)
  • Warid Telecom Uganda Limited v Uganda Revenue Authority (Civil Appeal No. 24 of 2011)
  • Enviroserve (U) Ltd v Uganda Revenue Authority (TAT Application No. 24 of 2017)
  • East African Property Holdings (U) Ltd v Uganda Revenue Authority (Civil Suit No. 247 of 2013)
  • Target Well Uganda Ltd vs. Uganda Revenue Authority
  • Ntale v Uganda Revenue Authority (Civil Suit No. 303 of 2008)
  • Multiple CD Limited v Uganda Revenue Authority (TAT Application No. 61 of 2021)
  • Margaret Rwaheru Akiiki and 13945 Others v Uganda Revenue Authority (Civil Suit No. 117 of 2013)
  • Oram (Inspector of Taxes vs. Johnson (1980) 2 All ER 1
  • Ralli Estates Ltd vs. Commissioner of Income Tax 1961 1 EA 48 (PC)
  • Mallett v. Staveley Coaliand lron Co. Ltd. (3) (1928), 13 Tax Cas. 772

Full judgment

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

Crown Beverages Limited v Uganda Revenue Authority 2024 UGTAT 2 (23 August 2024)
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.