Wakilii

Tame v Commissioner of Income Tax (Civil Appeal No. 10 of 1949)

East African Court of Appeal · [1949] EACA 9 · 1949 Appeal Dismissed AI-generated summary ↓ Download Pin to watchlist Add to matter
Jurisdiction
Uganda
Case Type
Appeal from decision of High Court of Tanganyika, which had allowed the Commissioner's appeal against a Local Committee decision reducing deemed dividend assessments
Decision
Appeal dismissed; assessments on deemed dividends at 60 per cent of undistributed profits confirmed

Observed later treatment

No later-treatment classification is recorded for this judgment.

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Holding

The Court of Appeal held that once the Commissioner of Income Tax properly exercised his discretion under section 21(1) to deem 60 per cent of undistributed profits as distributed dividends, the Local Committee could not reduce that percentage. The Committee's powers under section 61(4) were limited to questioning whether the Commissioner's discretion was properly exercised, not varying the statutory 60 per cent figure. The court also held that Objects and Reasons to a Bill cannot be used to interpret enacted legislation.

Outcome

Appeal dismissed; assessments on deemed dividends at 60 per cent of undistributed profits confirmed

Facts

The appellant was managing director and held 98 per cent of shares in a private company registered in Tanganyika. The company declared no dividends for accounting periods ending September 1944 and September 1945. The Commissioner of Income Tax assessed the appellant for approximately Sh. 358,000 in respect of deemed dividends representing 60 per cent of the company's undistributed profits under section 21(1) of the War Revenue (Income Tax) (Replacement) Ordinance 1940. The appellant appealed to the Local Committee, which reduced the deemed distribution to 25 per cent of 1943 profits and 40 per cent of 1944 profits, finding these percentages fair and reasonable. The Commissioner appealed to the High Court, which set aside the Local Committee's decision and restored the original assessments. The appellant then appealed to the Court of Appeal for Eastern Africa.

Issues

  1. Whether the Local Committee had power under section 61(4) to reduce the percentage of undistributed profits deemed to be distributed as dividends below the 60 per cent fixed by section 21(1).
  2. Whether the Commissioner's discretion under section 21(1) once properly exercised was capable of variation by the Local Committee.
  3. Whether the court could refer to the Objects and Reasons of a Bill to interpret an enacted statute.
  4. Whether orders under section 21 could only be made where non-distribution was attributable to tax avoidance.

Orders

  • Appeal dismissed.
  • Costs awarded to the respondent.

Rules and key headnotes

Tax Law — Income Tax — Deemed Dividends — Commissioner's Discretion under Section 21(1)
Where the Commissioner of Income Tax exercises his discretion under section 21(1) to deem undistributed profits as distributed dividends, he can only exercise that discretion in one way, namely by deeming 60 per cent of the undistributed profits to be distributed dividend. The percentage is fixed by statute and not variable.
Administrative Law — Appeals — Powers of Local Committee — Scope of Review
A Local Committee hearing an appeal under section 61 from the Commissioner's decision under section 21 may only question whether the Commissioner properly exercised his discretion, for example by examining whether he was wrong on the facts regarding profits kept back or failed to have regard to losses previously incurred or smallness of profits. The Committee cannot vary the statutory percentage of deemed distribution where the discretion was properly exercised.
Administrative Law — Appeals — Local Committee Powers under Section 61(4) — Limits on Power to Reduce Assessment
Although section 61(4) empowers a Local Committee to confirm, reduce, increase or annul an assessment, an assessment or part of an assessment resulting from the exercise of the Commissioner's discretion under section 21 is not capable of variation unless the Committee has grounds for holding that there was an improper exercise of that discretion.
Statutory Interpretation — Objects and Reasons — Inadmissibility as Aid to Construction
A court cannot look at the Objects and Reasons accompanying a Bill for the purpose of interpreting an enacted statute. The same reasons which exclude Parliamentary proceedings as aids to construction of British legislation apply equally to colonial statutes.
Statutory Interpretation — Deeming Provisions — Effect of 'Shall Be Deemed'
When the Legislature enacts that something shall be deemed to have been done and plainly indicates between what persons that statutory fiction is to be resorted to, the court is bound to treat the thing which shall be deemed to have been done as having been done and cannot go behind the plain language of the enactment.
Tax Law — Income Tax — Deemed Dividends — Deterrent Purpose of Section 21
Section 21 is designed to have a deterrent effect. It is a warning notice to private companies that if they choose to leave more than 40 per cent of their profits undistributed, the State may step in and if it does then 60 per cent of such profits will be deemed to have been distributed, even including that part which might reasonably have been retained for good business reasons.

Legislation cited (8)

  • Tanganyika War Revenue (Income Tax) (Replacement) Ordinance 1940 s.21(1)
  • Tanganyika War Revenue (Income Tax) (Replacement) Ordinance 1940 s.22(2)
  • Tanganyika War Revenue (Income Tax) (Replacement) Ordinance 1940 s.60
  • Tanganyika War Revenue (Income Tax) (Replacement) Ordinance 1940 s.61(1)
  • Tanganyika War Revenue (Income Tax) (Replacement) Ordinance 1940 s.61(4)
  • War Revenue (Income Tax) (Amendment) Ordinance 1943 s.5
  • Companies Ordinance 1931
  • United Kingdom Finance Act 1922 s.21

Cases cited (3)

  • Administrator General of Bengal v Prem Lail Mullick (1895) 22 Cal 788 (PC)
  • Brooks v Baker [1906] 1 KB 11
  • David Carlaw and Sons Ltd v Commissioner of Inland Revenue (1926) 11 TC 96

Full judgment

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

Tame v Commissioner of Income Tax (Civil Appeal No. 10 of 1949) [1949] EACA 9 (1 January 1949)
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.