Wakilii

Luwaluwa Investments Limited v Uganda Revenue Authority (Application 39 of 2021)

Tribunal · [2022] UGTAT 30 · 2022 Application Dismissed AI-generated summary ↓ Download Pin to watchlist Add to matter
Jurisdiction
Uganda
Case Type
Application challenging a withholding tax assessment arising from the purchase of mortgaged land at public auction
Decision
Application dismissed with costs

Observed later treatment

No later-treatment classification is recorded for this judgment.

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Holding

The Tribunal held that the applicant was liable to withhold tax at 6% on the purchase of mortgaged property under s.118B(2) of the Income Tax Act. The property purchased was a business asset (a hotel) and the applicant was a resident person who purchased it. The provision was clear and unambiguous, and did not conflict with exemptions for interest payments to financial institutions under s.117(2)(b). The application was dismissed with costs. A dissenting opinion held that s.117(2)(b) should prevail as a specific provision exempting financial institutions from withholding tax on interest.

Outcome

Application dismissed with costs

Facts

The applicant, a real estate and transport company, purchased five properties known as Afrique Suites at a public auction on 8 October 2020 for UGX 21,404,800,000. The properties had been mortgaged to Equity Bank by Simbamanyo Estates Limited, which defaulted on its loan obligations. The bank exercised its right of foreclosure and sold the properties. On 8 April 2021, the respondent issued a withholding tax assessment of UGX 965,700,000 against the applicant for failure to withhold 6% tax on the purchase. The applicant objected, arguing that the sale of mortgaged property did not attract withholding tax because the properties were not business assets of the bank and the bank was merely recovering principal and interest. The respondent disallowed the objection.

Issues

  1. Whether the applicant is liable to pay the withholding tax assessed on the purchase of mortgaged land.
  2. What remedies are available to the parties.

Orders

  • Application dismissed.
  • Costs awarded to the respondent.

Rules and key headnotes

Withholding Tax — Purchase of Business Assets — Scope of s.118B(2) Income Tax Act
A resident person who purchases a business asset must withhold tax at 6% under s.118B(2) of the Income Tax Act. The provision applies to all purchases of business assets regardless of whether the seller is the owner, and regardless of the circumstances of the sale, including sales of mortgaged property by financial institutions exercising foreclosure rights.
Statutory Interpretation — Business Asset — Definition and Application
A business asset under s.2(h) of the Income Tax Act is an asset used or held ready for use in a business, and includes any asset held for sale in a business and any asset of a partnership or company. A hotel property qualifies as a business asset. The Act does not require that the business asset belong to the seller; it is sufficient that the property purchased is a business asset.
Withholding Tax — No Conflict Between s.118B(2) and s.117(2)(b) Income Tax Act
Section 118B(2) of the Income Tax Act, which imposes withholding tax on the purchase of business assets, does not conflict with s.117(2)(b), which exempts financial institutions from withholding tax on interest payments. The purchase price paid for mortgaged property is not interest income. Section 117(2)(b) deals with business income (interest), while s.118B(2) deals with property income. The two provisions operate in different spheres and do not create ambiguity.
Statutory Interpretation — Taxing Statutes — Clarity and Literal Meaning
In interpreting a taxing statute, the court must look at what is clearly said. There is no room for intendment, no equity about tax, and nothing is to be implied. Words must be given their ordinary and literal meaning. Where the language of a taxation provision is clear and unambiguous, the court applies the literal rule and does not resort to other statutes or purposive interpretation.
Exemptions — Tax Exemptions Must Be Clear and Explicit
Tax exemptions are not to be presumed or inferred. A taxpayer claiming an exemption must point to a clear and explicit provision of law creating the exemption. The law does not look with favour on tax exemptions, and exemptions must be justified by words too plain to be mistaken and too categorical to be misinterpreted.
Mortgage — Foreclosure — Nature of Mortgagee's Rights
A mortgage is a security and does not operate as a transfer of any interest or right in the land from the mortgagor to the mortgagee under s.8(1) of the Mortgage Act. However, upon foreclosure and sale, the mortgagee may sell the property and apply the proceeds in accordance with s.30 of the Mortgage Act. The principle 'once a mortgage, always a mortgage' does not prevent the application of withholding tax on the purchase of foreclosed property.
Withholding Tax — Dissenting Opinion — Specific Provision Prevails Over General
Where two statutory provisions conflict, one specific and one general, the specific provision prevails as an implied exception to the general provision (generalia specialibus non derogant). Section 117(2)(b) of the Income Tax Act, which specifically exempts financial institutions from withholding tax on interest, should prevail over the general provision in s.118B(2) imposing withholding tax on the purchase of business assets. (Dissenting opinion of Mr. Siraj Ali)

Legislation cited (20)

Cases cited (14)

  • Kiyaga v Segujja and another (Civil Appeal No. 37 of 2010)
  • Hill v Smathers 173 NC 642, 92 SE 607, 609
  • Comfort Homes (U) Limited v Uganda Revenue Authority (Application No. 66 of 2020)
  • Uganda Revenue Authority v Uganda Tax Operators and Drivers Association (Civil Appeal No. 13 of 2015)
  • Lafarge Midwest Inc. v City of Detroit, State of Michigan Court of Appeals No. 289292
  • Crane Bank v Uganda Revenue Authority (HCT-00-CA-18-2010)
  • Heritage Oil and Gas Ltd. v Uganda Revenue Authority (Application No. 26 of 2010)
  • Uganda Revenue Authority v Kajura (Supreme Court Civil Appeal No. 9 of 2015)
  • Cape Brandy Syndicate v Inland Revenue Commissioners [1920] 1 KB 64
  • Bank of India (u) Ltd. v NC Beverages Ltd. and another (HCCS No. 0009 of 2021)
  • Manila North Tollways Corporation v Commissioner of Internal Revenue C.T.A ETB No. 812 of 2012
  • Farid Meghani v Uganda Revenue Authority (HCCA No. 6 of 2021)
  • Eisner v Macomber, 252 U.S 189 (1920)
  • Rodger v. United States 185 U.S. 83 (1902)

Full judgment

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Luwaluwa Investments Limited v Uganda Revenue Authority (Application 39 of 2021) 2022 UGTAT 30 (22 September 2022)
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.