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Musimtex Enterprises Limited v Uganda Revenue Authority (Application 79 of 2020)

Tribunal · [2023] UGTAT 44 · 2023 Application Dismissed AI-generated summary ↓ Download Pin to watchlist Add to matter
Jurisdiction
Uganda
Case Type
Application challenging an additional rental income tax assessment issued by Uganda Revenue Authority
Decision
Application dismissed with costs to the respondent

Observed later treatment

No later-treatment classification is recorded for this judgment.

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Holding

The Tribunal dismissed the application challenging an additional rental income tax assessment of Shs. 36,753,003. The Tribunal held that although the Income Tax (Rental Rates) Regulations did not apply to the property's location, the Commissioner was justified in issuing an assessment because the applicant failed to file tax returns and the rental arrangement with Radison Hotel Limited was not at arm's length. The applicant and tenant were associates under s.3 of the Income Tax Act, sharing a director and profit-sharing arrangements that went beyond a normal landlord-tenant relationship. The applicant failed to discharge its burden of proving the assessment was excessive.

Outcome

Application dismissed with costs to the respondent

Facts

Musimtex Enterprises Limited owned a building at Plot 87, Kyadondo Block 2 Bukesa along Hoima Road, Kampala, which it let to Radison Hotel Limited and Baguma Restaurant. Under a memorandum of understanding dated 10 October 2019, Radison Hotel Limited agreed to pay monthly rent of Shs. 3,000,000 for three floors (57 rooms) and 40% of residual profits. Baguma Restaurant paid Shs. 1,500,000 monthly for four rooms on the ground floor. On 24 November 2021, Uganda Revenue Authority issued an additional rental income tax assessment of Shs. 36,753,003 for the period 1 July 2019 to 30 June 2020, based on RippleNami data indicating undeclared rental income of Shs. 122,510,006 allegedly earned from Radison Hotel Limited. The applicant objected, contending it had declared all rental income of Shs. 24,000,000 from Radison Hotel Limited for the period November 2019 to June 2020. The applicant and Radison Hotel Limited shared a director. The applicant refused to facilitate a site visit during the assessment and objection process.

Issues

  1. Whether the applicant is liable to pay the tax assessed of Shs. 36,753,003.
  2. What remedies are available to the parties.

Orders

  • Application dismissed.
  • Costs awarded to the respondent.

Rules and key headnotes

Tax Law — Rental Income Tax — Application of Income Tax (Rental Rates) Regulations — Geographical Scope
The Income Tax (Rental Rates) Regulations 2020 apply only to properties located along roads, lanes or streets specified in the first column of Schedule 1 to the Regulations. Where a property is located on a road not specified in Schedule 1, the deemed rental rates in the Regulations do not apply.
Tax Law — Associates — Definition — Transactions Not at Arm's Length
Under s.3 of the Income Tax Act, persons are treated as associates where one acts in accordance with the directions, requests, suggestions or wishes of another, whether or not they are in a business relationship. A landlord-tenant relationship where the landlord shares in the tenant's profits and allows rent-free periods during losses, and where both entities share a director, constitutes an associate relationship not at arm's length.
Tax Law — Assessment Powers — Transactions Between Associates — Commissioner's Powers Under s.90
Under s.90 of the Income Tax Act, where a transaction is between associates, the Commissioner may distribute, apportion or allocate income, deductions or credits between the associates as is necessary to reflect the chargeable income that would have been realized in an arm's length transaction.
Tax Law — Burden of Proof — Excessive Assessment — Taxpayer's Duty to Adduce Evidence
Under s.26 of the Tax Procedures Code Act and s.18 of the Tax Appeals Tribunals Act, the burden is on the taxpayer to prove that an assessment is excessive or should not have been made. A taxpayer cannot discharge this burden by merely relying on loopholes in the revenue authority's case without adducing positive evidence to disprove the assessment.
Tax Law — Rental Income Assessment — Failure to File Returns — Commissioner's Powers
Under s.21(1) of the Tax Procedures Code Act, where a taxpayer fails to furnish a self-assessment return for a period as required under the law, the Commissioner may at any time make an assessment. The Commissioner is justified in issuing an assessment where the taxpayer has not filed tax returns.

Legislation cited (11)

Cases cited (2)

  • Steel Corporation of East Africa v URA
  • J.K Patel v Spear Motors Limited (Supreme Court Civil Appeal No. 4 of 1999)

Full judgment

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Musimtex Enterprises Limited v Uganda Revenue Authority (Application 79 of 2020) 2023 UGTAT 44 (24 November 2023)
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.