Wakilii

Registered Trustees of Free Masons v Uganda Revenue Authority (Application No TAT 51 of 2019)

Tribunal · [2021] UGTAT 20 · 2021 Application Granted AI-generated summary ↓ Download Pin to watchlist Add to matter
Jurisdiction
Uganda
Case Type
Application challenging capital gains tax assessment following disposal of property after URA issued a private ruling exempting the transaction from income tax
Decision
Assessment of Shs. 3,343,400,000 set aside

Observed later treatment

No later-treatment classification is recorded for this judgment.

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Holding

The Tribunal held that the Commissioner cannot issue a capital gains tax assessment while a private ruling exempting the transaction remains in force and unrevoked. The Commissioner must exercise his discretion under s.45(8) of the Tax Procedure Code Act to revoke a private ruling before issuing a contradictory assessment. The assessment was also wrongly computed as it applied 30% to the sale value without determining the actual gain by deducting the cost base as required by s.50 of the Income Tax Act.

Outcome

Assessment of Shs. 3,343,400,000 set aside

Facts

The applicants, registered trustees of Freemasons Hall, owned property at Plot 18 Nakasero Road, Kampala. On 5 February 2018, they applied for a private ruling on whether disposal of the property would attract income tax. On 28 March 2018, URA issued a private ruling stating the sale would be exempt from income tax. On 14 April 2018, the applicants sold the property to NSSF for Shs. 10,600,000,000. Subsequently, on 3 May 2019, URA issued an assessment of Shs. 3,343,400,000 as capital gains tax on the disposal. The applicants objected, arguing the private ruling was binding and had not been revoked. URA contended the applicants did not make full disclosure and that the property was a business asset based on a prior Tribunal ruling in TAT 20 of 2017.

Issues

  1. Whether the sale of the suit premises attracted capital gains tax?
  2. Whether the applicant is liable to pay Shs. 3,343,400,000?
  3. What remedies are available to the parties?

Orders

  • Application allowed.
  • Costs awarded to the applicants.

Rules and key headnotes

Private Rulings — Binding Effect — Requirement to Revoke Before Issuing Contradictory Assessment
Where a Commissioner has issued a private ruling under s.45 of the Tax Procedure Code Act and the taxpayer has made full and true disclosure and the transaction proceeded as described, the ruling is binding on the Commissioner. The Commissioner cannot issue an assessment contradicting the private ruling without first exercising his discretion under s.45(8) to revoke the ruling in whole or in part by written notice served on the taxpayer.
Interpretation of 'May' — Discretionary Power — Requirement to Exercise Discretion
The word 'may' in s.45(8) of the Tax Procedure Code Act connotes that the Commissioner is given discretion to revoke a private ruling if satisfied that there was no full and true disclosure or an error in interpretation of the law. The discretion must be exercised rationally and legally. If the Commissioner does not exercise his discretion to revoke the private ruling, it remains binding on him.
Capital Gains Tax — Computation — Requirement to Determine Actual Gain
Capital gains tax must be computed on the actual gain derived from disposal of an asset. Under s.50 of the Income Tax Act, any gain is the excess of consideration received over the cost base of the asset at the time of disposal. An assessment that applies the tax rate to the sale value without deducting the cost base is wrongly computed and amounts to a sales tax rather than capital gains tax.
Cost Base — Historical Acquisition Cost — Adjustment for Inflation and Exchange Rate
In computing the cost base of an asset acquired many years prior to disposal, the Commissioner ought to consider the acquisition value and adjust it for differences in foreign exchange rates and inflation index between the date of acquisition and the date of disposal, as well as incidental expenses of a capital nature incurred in acquiring the asset.
Preliminary Objections — Timing — Prejudice from Late Raising
While a preliminary objection can be raised at any time during trial, raising it at the end of the trial during submissions may deprive the Tribunal of the opportunity to ascertain what was actually agreed between the parties on the matter, particularly where correspondence suggests the parties were amenable to resolving the issue. A preliminary objection should be raised at an appropriate time to be considered appropriately.

Legislation cited (15)

Cases cited (16)

  • R v Commissioner of Inland Revenue ex parte MFK Underwriting Agencies [1989] BTC 561
  • Commissioner of Taxation v Brian John McMahon (1997) 79 FCR 127
  • Biira Udear Co. Ltd. v Commissioner General URA (HCCS No. 400 of 2015)
  • Salim Alibhai & others v Uganda Revenue Authority (HCMA No. 123 of 2020)
  • Mukisa Biscuit Manufacturing Co. Ltd. v West End Distributors Ltd. [1969] EA 696
  • Uganda Projects Implementation and Management Centre v Uganda Revenue Authority (Constitutional Petition No. 2 of 2009)
  • A Better Place Uganda Limited v Uganda Revenue Authority (Civil Appeal No. 37 of 2019)
  • Gordon Sentiba and others v Uganda Revenue Authority (Misc. Cause No. 35 of 2010)
  • Matrix-Securities Ltd. v IRC [1994] 1 All ER 769
  • IOOF Holdings Ltd. v FCT [2014] 224 FCR 535
  • Republic v Commissioner of Domestic Taxes ex parte Sony Holdings Limited (Misc. Civil Application No. 363 of 2018)
  • Registered Trustees of Freemasons Hall v URA (TAT Application No. 20 of 2017)
  • Robert Muhumuza v Uganda Revenue Authority (TAT Application No. 2 of 2015)
  • EABLI v URA (TAT Application No. 14 of 2017)
  • UBL v URA (TAT Application No. 38 of 2019)
  • Kansai Plascon v Uganda Revenue Authority (TAT Application No. 135 of 2020)

Full judgment

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

Registered Trustees of Free Masons v Uganda Revenue Authority (Application No TAT 51 of 2019) 2021 UGTAT 20 (29 July 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.