Kageruka v Uganda Revenue Authority (Application 232 of 2022) [2023] UGTAT 56 (20 March 2023)

Full Case Text

# THE REPUBLIC OF UGANDA IN THE TAX APPEALS TRIBUNAL OF UGANDA AT KAMPALA APPLICATION NO. 232 OF 2022

## **KAGERUKA DAVID (TRADDING AS FRAMERA ENTERPRISES) ..... APPLICANT VERSUS**

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UGANDA REVENUE AUTHORITY ....................................

## BEFORE: DR. ASA MUGENYI, MR. GEORGE MUGERWA, MS. CHRISTINE KATWE.

#### **RULING**

This ruling is in respect of a preliminary objection raised by the respondent that the application is time barred.

The respondent issued the applicant with additional income tax and Value Added Tax (VAT) assessments totaling to Shs. 2,390,131,744 for the period of July 2012 to June 2018 as follows, income tax of Shs. 1,962,485,033 and VAT of Shs. 427,646,711. On 20th June 2018, the respondent issued an agency notice of Shs. 2,390,485,744. On 27th June 2018, the applicant objected to the assessments. On 14th February 2019, the respondent issued objection decisions disallowing the applicant's objections. On 5th October 2022, the applicant lodged this application in the Tax Appeals Tribunal. The respondent raised a preliminary objection that this application is filed out of time.

### **Issues**

- 1. Whether this application is time barred? - 2. What remedies are available for the parties?

The applicant was represented by Mr. Sydney Ojwee while the respondent by Mr. Kenan Aruho.

The respondent submitted that this application is time barred, having been filed over four (4) years after an agency notice issued in June 2018. It contended that $S.16(1)(c)$ of the Tax Appeals Tribunal Act provides that an application to the Tribunal for review of a tax decision shall be made within 30 days of being served with notice of the decision. It cited Cable Corporation (U) Ltd v Uganda Revenue Authority HCCA 1 of 2011. The respondent contended that there was no agency notice still subsisting. It lapsed after the expiry of 180 days from the date of its placement in June 2018. The agency notice clearly states it is valid for 180 days. It was never renewed. The respondent submitted that the applicant is merely using the purported subsisting agency notice as a ploy to extend time within which to file its application out of time.

The respondent submitted that an agency notice is not a taxation decision, and the tribunal does not have the jurisdiction to handle it. Such an application should have been lodged before the High Court under judicial review within three months from the date of the decision. This was never done and the same is barred by the law of limitation.

In reply, the applicant submitted that on 22nd May 2018, it received a VAT assessment of Shs. 427,646,711 for the period January 2018 to December 2019 and an additional assessment of income tax of Shs. 1,962,485,033 for the period July 2011 to June 2018. On 20th June 2018, without giving the applicant the 45 working days under the law to respond, the respondent issued an agency notice of Shs. 2,390,485,744. As a result of the agency notice, the respondent seized US\$. 25,500 from the applicant's account.

The applicant submitted that on 27th June 2018, it lodged an objection to the assessment. The applicant was never served with an objection decision and subsequently he notified the respondent of its election. That despite the notice of its election, the respondent to date continues to hold the applicant's money illegally.

The applicant submitted that the issuance of the agency notice before the lapse of 45 days was unlawful. It cited S. 24(1) of the Tax Procedure Code Act which provides that a person who is dissatisfied with a $\text{tax}$ decision may lodge an objection with the

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Commissioner within forty-five (45) days after receiving the notice of the tax decision. The applicant further cited Justice David K. Wangutusi in *Housing Finance Bank Ltd v* Commissioner General URA (Hccs No. 259 of 2014) where he stated that S. 99 of the Income Tax Act provides that a taxpayer dissatisfied with an assessment may lodge an objection to the assessment with the Commissioner within 45 days after service of the notice of assessment. He submitted that a taxpayer on being notified of an assessment is insulated from the issuance of an agency notice until the expiration of 45 days. In this case the respondent issued both the assessment notice and the agency notice on the same day in complete disregard of the procedure under the tax laws. Such an Agency Notice cannot be allowed to stand. The applicant cited Babibaasa Frank v The Commissioner General URA HCCS 434 of 2011, where the Defendant served the Plaintiff with a tax assessment and soon thereafter served him with an agency notice. The court held that the plaintiff whistle blower was still entitled to the 45-day window period within which to object to the assessment. It vacated the agency notice. The applicant submitted it was never given an opportunity to object to the assessment. This is because after just a period of thirteen days, an agency notice was issued and the applicant's money, US\$ 25,500 was taken. He submitted that the agency notice issued by the respondent on 20th June 2018 to Barclays Bank against him was issued illegally and the money seized was also obtained illegally.

The applicant submitted that his application is not time barred. S. 1(K) of the Tax Appeals Tribunal Act defines a taxation decision as "Any assessment, determination, decision or notice." It submitted that the continued holding of the applicant's money illegally is a decision. He submitted that an illegality can be brought to court at any time and this Tribunal should not condone an illegality. It cited *Makula International Ltd v His Eminence* Cardinal Nsubuga & Anor. (1982) HCB 11 where it was stated that "A court of law cannot sanction what is illegal, and illegality once brought to the attention of court overrides all questions of pleading, including any admission made thereon". He also cited *Mpandi* Ivan v Prism Trading and Construction Co Ltd (Civil Suit No 230 of 2013) where a defendant continued to retain the plaintiff's motor vehicle illegally. Justice Christopher Madrama overruled a defendant's preliminary point of law on limitation on ground that the

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continued illegal act of holding the Plaintiff's motor vehicle was continuous tort. The applicant submitted that it is not in dispute that an agency notice was issued illegally and further that the respondent's action of retaining the applicant's money is a continuous act which should not be defeated by limitation. The applicant submitted that this application is within time.

The applicant submitted that it was entitled to general damages. It cited Acire *v. May Ann Engom [1992] IV KALR 143* where the court held that "In awarding general damages, regard has to be had to loss and injury the defendant and all other circumstances of the case. It also prayed for exemplary/punitive damages due to flagrant disregard of procedure while issuing the agency notice". He also cited URA v Wanume David *Kitamirike* Civil Appeal 43 of 2010 where it was stated that "Punitive damages focus on the defendant's misconduct and not injury suffered. He prayed for interest. He cited Kakubhai *Mohanlal v Wan'd Telecom Uganda* HCCS 224 of 2011, where the court held that "A just and reasonable interest rate, in my view, is one that would keep the awarded amount cushioned against the ever-rising inflation and drastic depreciation of the currency".

In rejoinder, the respondent submitted that there has never been any application for review of the objection decision of 14th February 2018. The applicant has never discharged its liability. The respondent submitted that it is trite law that there cannot be an election where an objection decision has been issued. The objection decision was issued on 14th February 2019. The applicant purported to elect on 15th February 2019, after the decision was made and issued to him. The purported election had no legal effect. In any event, the objection in respect of which the objection decision was made was lodged on 28th November 2018. 90 days from then would be 26th February 2018. Accordingly, the respondent was still within the 90 days within which a decision is mandated to be issued. This application is barred by the law of limitation and ought to be dismissed with costs to the respondent.

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The respondent submitted that the applicant admits that the agency notice was lifted. Without any subsisting agency notice, the applicant has no cause of action. It submitted that the agency notice was in respect of taxes that have remained outstanding for long. By the time the agency notice was issued, there was no dispute. The respondent reiterated that the applicant is merely using the agency notice as a ploy to extend time within which to file its application way out of time.

In respect to remedies, the respondent submitted that its preliminary objection was on time limits, the applicant went on a totally different tangent and raised issues not covered by the objection. Its prayers about damages, interest and costs should be disregarded by the Tribunal.

Having read submissions of both parties, this is the ruling of the tribunal:

The respondent raised a preliminary objection that this application was filed out of time. It issued the applicant additional income tax and VAT assessments totaling to Shs. 2,390,131,744 for the period July 2011 to June 2018. The applicant objected to the said assessments. The respondent contended that on 14th February 2019, it issued objection decisions. On 5th October 2022, the applicant lodged this application.

The law relating to preliminary objection is provided for under O. 6 Rule. 28 of the Civil Procedure Rules which reads that.

"Any party shall be entitled to raise by his or her pleadings any point of law, and any point so raised shall be disposed of by the court at or after the hearing; except that by consent of the parties, or by order of court on the application of either party, a point of law may be set down for hearing and disposed of at any time before the hearing".

In Mukisa Biscuit Manufacturing Company Limited v West End Distributors Ltd [1969] EA 696, Sir Charles Newbold stated that.

"A preliminary objection consists of a point of law which has been pleaded or which arises by clear implication out of pleadings and which if argued as a preliminary point may dispose of the suit".

In *Yaya v Obur and Others* Civil Appeal 81 of 2018 [2020] the court stated that:

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"It is always in the interest of justice to hear such objections on dispositive points of law at the earliest so as to save time and costs and to avoid a trial in nullity. Court has discretion to dispose of the preliminary objection immediately or defer its ruling until after hearing the whole case such a deferment may be made where it is necessary to hear some or the entire evidence to enable the Court to decide whether the objection raised is dispositive of the suit or not".

The preliminary objection has to be disposed of immediately as it may dispose of the case.

The respondent contended that the application by the applicant is time barred. In *Uganda* Revenue Authority v Uganda Consolidated Properties Limited, Civil Appeal 31 Of 2000 the Court of Appeal held that "Timelines set by statutes are matters of substantive law and not mere technicalities and must be strictly complied with".

S. 25(1) of the Tax Procedures Code Act provides that "A person dissatisfied with an objection decision may, within 30 days after being served with a notice of objection, lodge an application with the Tax Appeals Tribunal for review of the objection decision". S.16(1)(c) of the Tax Appeals Tribunal Act provides that "An application to the Tribunal for review of a tax decision shall be made within 30 days of being served with notice of the decision". The thirty (30) days period are mandatory and should be complied with. If the taxpayer is not vigilant enough to file his or her application before the 30 days expire, then it is to his or her detriment. Under S. 16(2) of the Tax Appeals Tribunal Act an applicant may seek leave from the tribunal to file this application out of time.

The applicant contends that it objected on 27th June 2018. The respondent did not respond. He wrote on 15th February 2019 electing to treat the objection as having been accepted. S. 24(6) of the Tax Procedure Code Act provides that.

- (6) The Commissioner shall serve notice of an objection decision on the person objecting within ninety days from the date of the receipt of the objection. - (7) Subject to subsection (9), where an objection decision has not been served within the time specified under subsection (6), the person objecting may, by notice in writing to

the Commissioner, elect to treat the Commissioner as having made a decision to allow the objection.

- (8) Where a person makes an election under subsection (7), the person is treated as having been served with notice of the objection decision on the date the person's election is lodged with the Commissioner. - (9) The time limit for making an objection decision is waived where a review of a taxpayer's records is necessary for settlement of the objection and the taxpayer is notified. - (10) Where the Commissioner reviews the taxpayer records under subsection (9), the Commissioner shall within the time specified in subsection (6) notify the taxpayer of the review"

A perusal of the respondent's statement of reasons show that the applicant was served several assessments in June 2018. He purportedly objected on 18th June 2018. The respondent requested for documents from the applicant in January and February 2019. This was outside the 90-day period for the respondent to make objection decisions. From 12th to 14th February 2019, the respondent issued objection decisions. Some objections were allowed while others were not. However, it seems by the time the applicant attempted to elect, objection decisions was issued. It is not clear whether the applicant was aware of the objection decisions.

The applicant filed an application. However, what is important to note is that the applicant did not file an application for review of the objection decision. The application by the applicant was in respect of an agency notice issued on 20th June 2018. In his application, the applicant puts the nature of taxation as omission to lift the agency notice. Therefore, that is where the grievance of the applicant is. Agency notices are provided for in S. 31(2) of the Tax Procedure Code Act which reads.

> "2) Where this Section applies to a taxpayer, the Commissioner may, by notice in writing, require a person who—

(a) owes or may subsequently owe money to the taxpayer;

(b) holds or may subsequently hold money, for or on account of, the taxpayer;

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(d) has authority from some other person to pay money to the taxpayer, to pay the amount specified in the notice to the Commissioner, being an amount that shall not exceed the amount of the unpaid tax or the amount that the Commissioner believes will not be paid by the taxpayer by the due date."

It is apparent that by the time the agency notices were issued, on 20th June 2018, the applicant's time to file an objection had not expired as it had been served assessments in the same month. In Housing Finance Bank Ltd v Commissioner General URA HCCS 259 of 2014 [2017], the court stated that,

"The foregoing means that the taxpayer on being notified of the assessment is insulated from the issuance of an Agency Notice until the expiration of 45 days. Unfortunately, it has become common for the tax body to issue the assessment notice simultaneously with the Agency Notice. This deprives the taxpayer of the chance to object to the assessment."

In Babibaasa Frank v The Commissioner General URA HCCS No. 434 of 2011, the defendant served the plaintiff with a tax assessment and soon thereafter served him with an agency notice. The court held that the Plaintiff whistle blower was still entitled to the 45-day window period within which to object to the assessment. It vacated the agency notice. The Court said.

"In the instant case the Defendant issued both the assessment notice and the Agency Notice on the same day in complete disregard of the procedure as provided for in the tax laws. Such an Agency Notice cannot be allowed to stand."

The agency notice was issued around 20th June 2018. So, when should the applicant have filed its application? If the agency notice was issued before the time to file an objection had expired, the applicant still ought to have filed its application within the time to challenge the agency notice. That is 30 days from the date its was issued, so as to stay the execution pending determination of its objection. This was not done. The applicant filed its application in 2022.

The applicant submitted that the respondent removed US\$ 25,500 from his account by the agency notice. However, the said seizure must have occurred at the time of the

agency notice, i.e., around 20th June 2018. The seizure of the said monies would be outside the prescribed time to file an application before the Tribunal.

The agency notice clearly states that it shall remain in force for 180 days. Both parties do not dispute that agency notices expire after 180 days from the day it was issued. If we are to go by their admission, by the time the applicant filed this application on 5th October 2022, the agency notice had expired. The applicant would not have a cause of action against the respondent. Furthermore, an agency notice is issued in an execution process. It is not a taxation decision giving the taxpayer right to appeal to the Tribunal. In Umar Asuman v. Olila Moses HCCR No. 1/2006 Musota J. observed that:

"Jurisdiction of courts is a creature of statute and a judicial officer worth the name must keep abreast with developments in our laws and ensure jurisdiction... for... It is trite law that where a suit is filed in a court without jurisdiction, it is a non-existent suit. Whatever is decided in such a suit amounts to no decision."

Since the agency notice is not a taxation decision, the Tribunal does not have jurisdiction to entertain the matter.

If the applicant had decided to treat the respondent as having elected to allow his objection, he can challenge the respondent's refusal to allow his election. This does not seem to be the case. In any case, time would begin to run from the date the respondent refused to allow his election, which is not stated. $\cdot^{\ast} \cdot$

The applicant contends that despite the agency notice having expired, it still stands. It cited Makula International Ltd v His Eminence Cardinal Nsubuga & Another [1982] HCB 111, where it was held that: "A court of law cannot sanction what is illegal and an illegality once brought to the attention of the court overrides all questions of pleading including admissions made thereof." He argued that the perpetual operation of the agency notice is an illegality. He argued that the agency notice is illegal and cannot be allowed to stand. The respondent admitted that the agency notice expired after 180 days. The Tribunal wishes to clearly state that if the said agency notice still stands or is in operation, it is invalid. It expired long time ago and should be ignored.

Coming back to the preliminary objection of the respondent that this application is time barred. The Tribunal states that, if the applicant received the objection decisions i.e., from 12th to 14th February 2019, he ought to have filed an application within 30 days from the receipt thereof. However, it is possible that the applicant did not receive the objection decision. He is deemed to have elected on 15th February 2019. The respondent is deemed to have refused to accept the election on 15th February 2019, that is the day on the stamp acknowledging receipt. The applicant had 30 days in which to apply for the refusal to accept the election. Filing this matter on 5th October 2022, shows that the applicant slept on his rights. For over 4 years, the applicant allowed the refusal to accept the election and an agency notice he is aggrieved about to stand. It seems he was not affected by the refusal to accept his election and the operation of the agency notice as no more monies were removed from his account. The law helps the vigilant and not the indolent. The Tribunal wonders whether this application was a disguise by the applicant to challenge the tax liability of Shs. 2,390,131,744 which arose in June 2018. If so, his application would still be out of time.

Taking all the above consideration this application challenging the omission to lift the agency notice is time barred. As already stated, the agency notice, if still in operation is invalid. The preliminary objection by the respondent is sustained. The main application is dismissed with costs to the respondent.

Dated at Kampala this $20$ m

day of

2023.

DR. ASA MUGENYI **CHAIRMAN**

MR. GEORGE MUGERWA **MEMBER**

In Araka tine

**MS. CHRISTINE KATWE MEMBER**