Wakilii

UMEME Ltd Anor v Commissioner General Uganda Revenue Authority (Application No 40 of 2018)

Tribunal · [2020] UGTAT 13 · 2020 Application Granted AI-generated summary ↓ Download Pin to watchlist Add to matter
Jurisdiction
Uganda
Case Type
Application to determine which applicant is entitled to claim depreciation and initial allowances for assets under a concession agreement
Decision
Application granted in favour of the 1st applicant. The 1st applicant is entitled to claim depreciation and initial allowances for assets acquired under the concession agreement.

Observed later treatment

No later-treatment classification is recorded for this judgment.

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Holding

The Tribunal held that the 1st applicant (UMEME Limited) is entitled to claim depreciation and initial allowances under the Income Tax Act for assets it purchased and placed into service under the concession agreement. The Tribunal ruled that the Income Tax Act requires the person who uses the depreciable asset in the production of income and incurs expenditure to be entitled to the deductions, not necessarily the legal owner. The Tribunal rejected the application of IFRIC 12 and IPSAS 32 accounting standards where they conflict with the clear provisions of the Income Tax Act.

Outcome

Application granted in favour of the 1st applicant. The 1st applicant is entitled to claim depreciation and initial allowances for assets acquired under the concession agreement.

Facts

On 1 March 2005, UMEME Limited (1st applicant) and Uganda Electricity Distribution Company Limited (2nd applicant) entered a 20-year concession agreement for electricity supply and distribution. Under a Lease and Assignment Agreement, the 2nd applicant transferred electricity distribution network assets to the 1st applicant, granting possession but retaining ownership. The 1st applicant was licensed to use, maintain, and upgrade the assets. After March 2005, the 1st applicant purchased additional assets to upgrade and expand the distribution network. The 1st applicant claimed depreciation and initial allowances when computing its tax liability, which the Uganda Revenue Authority (respondent) rejected. The respondent assessed additional tax of Shs. 6,636,835,000 for 2005-2009, later revised to Shs. 66,115,136,000. The dispute centered on which applicant was entitled to claim the tax deductions for the assets acquired by the 1st applicant under the concession arrangement.

Issues

  1. Who is entitled to claim depreciation and initial allowances under the Income Tax Act in respect of assets acquired by the 1st applicant under a concession agreement?
  2. What remedies are available to the parties?

Orders

  • Application granted.
  • The 1st applicant is entitled to claim depreciation and initial allowances.
  • The respondent is directed to adjust the 2nd applicant's tax liability in line with the ruling as to depreciation and initial allowances, taking into consideration that they are an entitlement of the 1st applicant.
  • The respondent will meet the costs of the 1st applicant.
  • The 2nd applicant will meet its own costs.

Rules and key headnotes

Tax Law — Depreciation Allowances — Entitlement — Use of Asset versus Ownership
Under Section 27 of the Income Tax Act, a person who uses a depreciable asset in the production of income and incurs expenditure in acquiring the asset is entitled to claim depreciation allowance, regardless of whether that person holds legal title to the asset. The statute requires use of the asset in income production, not ownership.
Statutory Interpretation — Taxing Statutes — Literal Interpretation — No Room for Implication
In interpreting a taxing statute, words must be given their literal meaning. Nothing should be implied in and nothing should be implied out. There is no room for intendment and no equity about tax. One can only look fairly at the language used.
Tax Law — Accounting Standards — Application to Tax Matters — Subordination to Statute
International accounting standards such as IFRIC 12 and IPSAS 32 may be used in tax matters only if they are in harmony with the Income Tax Act. Where the Income Tax Act is clear, accounting standards cannot override its provisions. Tax liability is a creature of statute, not accounting convention.
Tax Law — Finance Lease — Definition — Inapplicability to Depreciation Allowances
Section 59 of the Income Tax Act, which defines finance leases, falls under Part VII dealing with miscellaneous rules for determining chargeable income and concerns the treatment of lessor income. It does not govern entitlement to depreciation allowances under Part II, which deals with deductions from gross income.
Tax Law — Initial Allowances — Entitlement — Person Who Places Asset into Service
Under Section 27A of the Income Tax Act, a person who places an item of eligible property into service for the first time outside a 50-kilometer radius from Kampala is entitled to initial allowance. The provision does not distinguish between lessor and lessee; entitlement depends on who actually places the asset into service.
Tax Law — Contractual Obligations — Tax Liability — Statutory Nature
Tax liability is a creature of statute and cannot be imposed or varied by contract. The exercise of statutory powers and duties cannot be fettered or overridden by agreement, estoppel, lapse of time, or similar circumstances. The tax authority must look to the tax-imposing Acts of Parliament, not to contracts between parties.
Contract Law — Concession Agreements — Tax Obligations — Deductions Follow Tax Liability
Where a concession agreement places the duty to pay taxes on one party, that party is entitled to all benefits and reliefs accorded by law to persons paying such taxes, including deductions for depreciation and initial allowances. A party required to pay tax under contract has a corresponding right to claim statutory deductions.

Legislation cited (22)

Cases cited (12)

  • Lupton v Cadogan Gardens Developments Ltd [1971] 3 All ER 460
  • Steel Corporation of East Africa Ltd v Uganda Revenue Authority (TAT Application No. 4 of 2008)
  • Mukwano Enterprises Ltd v Uganda Revenue Authority (TAT Application No. 6 of 2018)
  • Mukwano Industries Ltd v Uganda Revenue Authority (HCCS No. 1 of 2008)
  • Afgri Uganda Limited v Uganda Revenue Authority (TAT Application No. 18 of 2019)
  • Liquidators of Pursa (1954) 25 ITR 265 (SC)
  • Cape Brandy Syndicate v Inland Revenue Commissioners (1921) 1 KB 64
  • State of Punjab & others v Dhanjit Singh Sandhu Civil Appeal 5698-5699 of 2009
  • Rajasthan State Industrial Development and Investment Corporation and another v Diamond and Gem Development Corporation Ltd and another AIR 2013 SC
  • J.K.M Enterprises and Others v Uganda Revenue Authority (HCCS No. 599 of 2001)
  • Heritage Oil and Gas Limited v Uganda Revenue Authority (Civil Appeal No. 14 of 2011)
  • Kumi Orthopedic Centre v Uganda Revenue Authority (TAT Application No. 23 of 2018)

Full judgment

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

UMEME Ltd Anor v Commissioner General Uganda Revenue Authority (Application No 40 of 2018) 2020 UGTAT 13 (9 September 2020)
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.