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CAPITAL FINANCE CORPORATION
LTD
v
UGANDA REVENUE AUTHORITY
COURT OF
APPEAL OF UGANDA AT KAMPALA
COURT OF APPEAL CIVIL APPEAL NO. 43 OF
2000
(ON APPEAL FROM HIGH COURT CIVIL APPEAL NO.2 OF 2000)
BEFORE:
HON. MR. JUSTICE G.M. OKELLO,
JA.
HON. MR. JUSTICE A. TWINOMUJUNI, JA.
HON. LADY JUSTICE
C.N.B. KITUMBA, JA.
December 3, 2001
JUDGMENT
KITUMBA, JA: This is an appeal against the decision of the High
Court (the Judgment of the HON. MR. JUSTICE OKUMU WENGI dated May 18,
2000) in which the ruling of the Tax Appeals Tribunal was set aside.
Capital
Finance Corporation Limited, the appellant/cross respondent, was ordered to pay
shs. 42,000,000 taxes with interest thereon
from July 31, 1997 and costs of the
appeal.
The following are the facts, which led to this appeal. The
appellant/cross respondent, is a licensed credit institution and a holder
of a
Certificate of incentives granted by the Uganda Investment Authority under
Section 25 of the Investment Code exempting it from corporation tax,
withholding tax and taxes on dividends for a period of six years with effect
from September 1995.
The appellant/cross respondent provided professional
(management) consultancy services to Metropolitan Forex Bureau.
The
respondent/cross appellant sought to tax the fees earned by the appellant/cross
respondent from the consultancy contract. The
appellant resisted the taxation on
the ground that such income was not liable to taxation because it had a
certificate of incentives.
The appellant/cross respondent made an application to
the Tax Appeals Tribunal for review. The Tax Appeals Tribunal decided in favour
of the appellant/cross respondent. The respondent/cross appellant appealed to
the High Court on three grounds. Firstly, that the
Tribunal erred in law in
holding that the application was properly before it whereas it had been filed
out of time without leave
from the Tribunal. Secondly, that the tribunal
exercised its discretion contrary to the law and heard the application. Thirdly,
that
the tribunal misinterpreted section 2 of the Financial Institutions
Statute and came to the wrong conclusion.
The learned appellate Judge
ruled on the first two grounds that the application was properly before the Tax
Appeals Tribunal and that
the Tribunal dealt with it according to the law. On
the third ground he held that the appellant/cross respondent was not entitled
to
exemption from taxation for income obtained from the consultancy because the
certificate of incentives was issued to it as a credit
institution.
The
appellant being dissatisfied with the above decision has appealed to this court
on the following grounds:
"1. The learned judge erred in law in holding that there was insufficient evidence, and in particular that there was need for evidence of whether the appellant was a foreign investor.
2. That the learned judge erred in law and fact in holding that the business of the appellant was an unlawful activity.
3. That the learned judge erred in law and fact in holding that the certificate of incentives granted to the appellant was lost in the violation of section 23 of the Investment Code and that the certificate was granted in respect of credit Institution Business only.
4. That the learned judge erred in law in his interpretation of section 2 of the Financial Institutions statute and the provisions in respect of certificates of incentives granted under the Investment Code.
5. The learned judge erred in law in holding that allowing a certificate of incentives which covers a credit institution amounts to “institutionalised tax avoidance”.
The respondent filed a cross appeal on
the following grounds.
"1. That the Tax Appeals Tribunal No.3 before the tribunal was filed out of
time and without leave the Tribunal, contrary to the Tax
Appeals Tribunal Act
and Rules.
The respondent also filed two grounds for affirming the
decision of the High Court namely:
"1 That no valid taxation objection was made to assessment No. 31 within the meaning of Section 89 of the Income Tax Act.
"2 That there being no objection, the assessment was final and conclusive for
the purposes of the Income Tax Decree as provided by
section 93(1) Income Tax
Decree"
When this appeal came up for hearing on March 19, 2001 this
court expressed doubt whether it had jurisdiction to hear the appeal.
Counsel
for both parties were requested to address court on the issue of jurisdiction.
Both counsel applied for an adjournment to
the convenient session and it was
granted. The appeal was duly fixed during this session and both counsel filed
written submissions.
On the issue of jurisdiction learned counsel for the
respondent/cross appellant submitted that this court had no jurisdiction to
entertain
the appeal. He contended that there is no inherent appellate
jurisdiction as appellate jurisdiction is solely a creature of statute.
He
relied on Attorney General v Shah [1971] E.A. 50. He submitted
that the right of a second appeal to the Court of Appeal is provided under
Section 102 of the Income Tax Act. According to that section the appeal
can only be filed with leave of the Court of Appeal. However, no leave had been
obtained in
this case.
Counsel for the appellant/cross respondent
submitted that this court had jurisdiction. He argued that if the
respondent/cross appellant
was serious, he should have taken advantage of the
provisions of Rule 81 of the rules of this court to strike out the appeal as
being
incompetent.
It is this court which created doubts in the minds of
the parties about the issue of jurisdiction. It is therefore, necessary to clear
the matter.
Section 11 of the Judicature Statute provides:
"An appeal shall lie to the Court of Appeal from the decisions of the High Court prescribed by the Constitution I this statute or any other law."
Section 101 of the Income Tax Act 11/97 provides
as follows:
“101 (1) A tax payer dissatisfied with an objection decision may at the election of the tax payer
a) appeal the decision to the High court; or
b) apply for a review of the decision to a tax tribunal established by Parliament by law for the purpose of settling tax disputes in accordance with clause (3) of Article 152 of the Constitution.”
The Tax Appeals
Tribunal Act (No.12/97) is established in accordance with Article 152 of the
Constitution. Section 28 of the Tax Appeals
Tribunal Act provides a right of
appeal from the decisions of the Tax Appeals Tribunal to the High Court. The
taxpayer has two options
to challenge a taxation decision. According to section
101 (1) (a) of the Income Tax Act he may challenge the decision in the
High Court. It is only when he goes directly to the High Court that the
provisions of Section
102 of the Income Tax Act apply. The taxpayer must
apply for leave of the Court of Appeal to appeal against the High Court
decision.
It is clear, therefore, from the above provisions that this
court has the jurisdiction to entertain this appeal from the High Court
as the
appellant/cross respondent first challenged the taxation decision in the Tax
Appeals Tribunal.
The issues which are raised in this appeal that require
determination are two. The first one is whether the Tax Appeal Tribunal had
jurisdiction to review a tax decision, which was allegedly filed out of time.
The second issue is whether the appellant/cross respondent
was exempted from
taxation by virtue of the certificate of incentives.
Regarding the first
issue, learned counsel for the respondent/cross appellant repeated his
submissions before the Tax Appeals Tribunal
and the High Court. Counsel
contended that the Tax Appeals Tribunal did not have the jurisdiction to review
the taxation decision
which was made on October 28, 1998 and posted to the
appellants on December 15, 1998. The date of effective service was December
29,1998. The application for review had to be made not later than January 29,
1999. The Tax Appeals Tribunal had no jurisdiction
to entertain an application
for review, which was filed on May 10, 1999 when no application for extension of
time had been made.
Counsel for the appellant/cross respondent supported
the learned trial judge's finding that the tribunal had jurisdiction.
In
his judgment the learned trial Judge held that the inquiry to the tribunal by
the appellant/cross respondent was within six months))
was rightly treated by
the Tribunal as an application for extension of time. He also held that the
appellant/cross respondent letter
of March 5, 1999 and that of respondent/cross
appellant set off time running a fresh. As the letter of March 25, 1999 was
served
on the appellant/cross respondent on April 11, 1999. The application for
review filed on May 10, 1999 was within the period of 30
days provided by
section 17 (1) (c) of the Tax Appeals Tribunals Act. I agree with the
reasoning and the conclusion of the learned trial judge.
I now turn to
the second issue, which is whether the Capital Finance Corporation was exempted
from taxation by its Certificate of
Incentives. It was common ground that
appellant/cross respondent was authorised by the Bank of Uganda to be a Credit
Institution
in accordance with Section 2 of the Financial Institutions
Statute. The crux of the matter was whether the Certificate of Incentives
issued under Section 25 of the Investment Code exempted the
appellant/cross respondent from the taxes, which the respondent/cross appellant
wished to impose. The arguments of both
counsel during hearing in the Tax
Appeals Tribunal in the High Court and in this court centred on the wording of
the Certificates
of incentives Exhibit P.6 which reads as follows:
"Nature of
Business: Credit Institution"
Counsel for the appellant/cross respondent
argue that the certificate of incentives covered all activities of the
Corporation. He
relied on Section 2 of the Financial Institution Statute,
which defines Credit Institution as follows:
"Credit Institution" means any company licensed to carry out credit Institution business as its principal business."
"Credit Institution Business" means the business of accepting deposits of money from the public repaying after a fixed period or after notice and of employing such deposits wholly or partly by lending or any other means for the account and at the risk of the person accepting such deposits.
Learned counsel for respondent/cross appellant
supported the learned trial judge's finding that the appellant/cross
respondent's certificate
of Incentives was limited to its activities performed
as a credit institution. The business of financial management services were
not
covered and money obtained from that was taxable.
In his judgment the
learned trial judge criticised the appellant/cross respondent for failing to
produce evidence to prove whether
it was a foreign investor or not. He found
that the appellant/cross respondent in its application for tax review described
itself
as a financial institution. He held that credit institution was not
synonymous with financial institution.
The learned trial Judge
stated:
"It is clear from the above and it is this Court's view that the Incentives granted encompassed the perspective of the respondent as a Credit Institution and not a Banking Enterprise. In other words, the essence of the business enterprise and not merely the institution set up is what the incentive should address"
It is appreciated that the learned trial judge was
alive to section 14(1) of the Investment Code, which allows an investor
to engage in any type of business enterprise, subject to restrictions. However,
he did not address his mind
to the provisions of Section 23(1) of the
Investment Code which states:
“An investor in a business enterprise who commences operation after the coming into force of this Code shall qualify for incentives under this part if he satisfies three or more of the objectives specified in section 13”; -(underlining mine).
Section 13 of the same Statute provides
for appraisal of the investor's application as follows:
“13. The Authority shall in considering an application for an investment license under this Code, carry out an appraisal of the capacity of the proposed business enterprise to contribute to the following objectives: -
a) the generation of new earnings or savings of foreign exchange through exports, resource based import substitution or service activities;
b) the utilisation of local materials, supplies and services;
c) the creation of employment opportunities in Uganda;
d) the introduction of advanced technology or upgrading of indigenous technology;
e) the contribution to locally or regionally balanced socio-economic development; or
f) any other objectives that the Authority may consider relevant for achieving the objects of this code;”
My
understanding of the above Section leads me to agree with the submissions of
counsel for the appellant/cross respondent that the
certificate of incentives is
given to an investor for all its business. The financial consultancy business
was, therefore, not subject
to taxation. I find that the appeal has merit. The
cross appeal and the grounds for affirming the decision have no merit.
I
would allow the appeal and dismiss the cross appeal with costs to the
appellant/cross respondent here and in the court below.
TWINOMUJUNI, J.A: I have read in draft the Judgment of
my Lord, JUSTICE C.N.B. KITUMBA, JA. I agree with it and I have nothing useful
to add.
G.M. OKELLO, JA: I have read the proposed judgment of KITUMBA. JA and I fully agree. I have nothing useful to add. As TWINOMUJUNI, JA also agrees, the appeal is allowed on the terms proposed by KITUMBA, JA.
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