Makerere University Retirement Benefits Scheme Limited v Uganda Revenue Authority Another (Application 17 of 2021)

Observed later treatment

No later-treatment classification is recorded for this judgment.

Citator coverage is limited to judgments in the Wakilii corpus and source-matched treatment records. Absence of a signal is not an assertion that the case remains good law.

Holding

The Tribunal held that land acquired for sale in the ordinary course of a real estate business constitutes trading stock, not a business asset, and therefore does not attract withholding tax under section 118B(2) of the Income Tax Act. The Tribunal distinguished between business assets (owned by the business and recorded on the balance sheet) and stock in trade (inventory for sale in the ordinary course of business). Since the 2nd respondent sold the land as trading stock, the applicant was not obliged to withhold tax. The assessment was set aside.

Outcome

Withholding tax assessment set aside; 1st respondent ordered to refund 30% of the tax in dispute deposited by the applicant

Facts

In September 2019, the applicant, a retirement benefits scheme, purchased 50 acres of land from the 2nd respondent, a real estate company, for Shs. 10,000,000,000. The applicant did not withhold tax under section 118(2) of the Income Tax Act, believing the property was not a business asset but trading stock. On 13 December 2019, the 1st respondent issued a withholding tax assessment of Shs. 600,000,000 (6% of the purchase price). The applicant objected on 16 December 2020, but the objection was disallowed. The 2nd respondent represented that its principal business was buying and selling real estate and that the land sold was stock in trade. The 1st respondent did not investigate the 2nd respondent's affairs before issuing the assessment.

Issues

1. Whether the applicant is liable to pay the withholding tax assessed of Shs. 600,000,000?
2. Whether the land purchased by the applicant from the 2nd respondent constituted a business asset or trading stock under the Income Tax Act?
3. What remedies are available to the parties?

Orders

• Application allowed with costs to the applicant and 2nd respondent.
• The 1st respondent is ordered to refund 30% of the tax in dispute deposited by the applicant.
• The withholding tax assessment of Shs. 600,000,000 is set aside.

Rules and key headnotes

Legislation cited (19)

• Income Tax Act s.118(2)
• Income Tax Act s.118B(2)
• Income Tax Act s.124
• Income Tax Act s.2(h)
• Income Tax Act s.2(ttt)
• Income Tax Act s.18(c)
• Income Tax Act s.18(4)
• Income Tax Act s.46(2)
• Income Tax Act s.128
• Income Tax Act s.127(2)(b)
• Income Tax Act s.123
• Income Tax Act s.2(g)
• Income Tax Act s.10(a)
• Income Tax Act s.11(a)
• Income Tax Act s.2(yy)
• Income Tax Act s.2(hhh)
• Income Tax Act Third Schedule Part VIII
• Evidence Act Cap 6 s.114
• Land Act s.59

Cases cited (11)

• Luwaluwa Investments v Uganda Revenue Authority (Application No. 39 of 2021)
• Pan African Insurance Company (U) Ltd v International Air Transport Association (HCCS No. 667 of 2003)
• Luwaluwa Investments Limited v Uganda Revenue Authority (HCCA No. 43 of 2022)
• Heritage Oil and Gas Ltd v Uganda Revenue Authority (Application No. 26 of 2010)
• Comfort Homes (U) Ltd v Uganda Revenue Authority (Application No. 66 of 2020)
• Vivo Energy Uganda Limited v Uganda Revenue Authority (Application No. 29 of 2017)
• Niranjan Chandra v Commissioner of Income Tax 1963 49 ITR 177
• Uganda Revenue Authority v Kajura (SCCA No. 9 of 2015)
• Cape Brandy Syndicate v Inland Revenue Commissioners [1920] 1 KB 64
• Uganda Revenue Authority v Kajura (SCCA No. 9 of 2015)
• Crane Bank v Uganda Revenue Authority (HCT-00-CA-18-2010)

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