Kalungi Estates Limited v Uganda Revenue Authority (Civil Appeal 34 of 2025) [2025] UGCommC 80 (13 May 2025)

#### THE REPUBLIC OF UGANDA

# IN THE HIGH COURT OF UGANDA AT KAMPALA (COMMERCIAL DIVISION)

## **CIVIL APPEAL NO. 0034 OF 2025**

# (ARISING FROM TAX APPEALS TRIBUNAL MISC. APPLICATION NO. 10 OF $2025)$ (ALL ARISING FROM TAX APPEALS TRIBUNAL APPLICATION NO. 17 OF 2015)

KALUNGI ESTATES LIMITED ::::::::::::::::::::::::::::::::::::

#### **VERSUS**

UGANDA REVENUE AUTHORITY ::::::::::::::::::::::::::::::::::::

## (Before: Hon. Justice Patricia Mutesi)

## **JUDGMENT**

## **Background**

- This is an appeal from the Ruling and Orders of the Tax Appeals Tribunal $1.$ ("the Tribunal") in Miscellaneous Application No. 10 of 2025 (hereinafter "the injunction application") in which the Tribunal granted the Appellant a temporary injunction pending the hearing and disposal of Tax Appeals Tribunal Application No. 17 of 2025 ("the main application"). - In the main application, the Appellant is challenging a tax assessment of $\overline{2}$ . UGX 1,101,929,563 arising from the period 2015 – 2016 plus the several actions taken by the Respondent to collect the tax, including impounding of the Appellant's machinery and equipment. Before the main application could be heard, the Appellant filed the injunction application seeking a temporary injunction to restrain the Respondent from collecting the tax until after the final determination of the main application. The injunction application was heard and allowed but the Tribunal also made some other observations, findings and orders with which the Appellant is aggrieved, hence this appeal.

#### **The Appeal**

$3.$ The Appellant has appealed to this Court on the following 9 grounds:

- 1. The Tax Appeals Tribunal erred in law when it ruled on the merits of the main application when dealing with the application for a temporary injunction which was not in issue. - 2. The Honourable members of the Tax Appeals Tribunal erred in law when they misdirected themselves and granted a tax liability of UGX 1,101,929,563 arising out of the tax period *2015 – 2016 which is outside the tax limitation period.* - 3. The Honourable members of the Tax Appeals Tribunal erred in law by concluding that there was a re-audit on the Appellant for the period of $2015 - 2016$ which contravenes the terms of the Consent Agreement entered into between the parties. - 4. The Tax Appeals Tribunal erred in law when it ordered the *Appellant to pay taxes arising out of the defective warrant of* distress and illegal execution process. - 5. The Tax Appeals Tribunal erred in law when they ordered and directed the Respondent not to release the equipment belonging to the Appellant in violation of the law. - 6. The Tax Appeals Tribunal erred in law when they ruled that the Appellant had not paid the 30% taxes in issue as required by law. - 7. The Honourable members of the Tax Appeals Tribunal erred in law by failing to properly evaluate the evidence adduced by the Appellant showing that UGX 480,000,000 had already been paid in fulfilment of the 30% deposit requirement. - 8. The Honourable members of the Tax Appeals Tribunal erred in law by conditioning the grant of the temporary injunction on the payment of the disputed 2015 – 2016 tax liability, an issue pending in the main application rendering the main Application nugatory. - 9. The Honourable members of the Tax Appeals Tribunal erred in law by not reserving for trial the contested factual issue on *whether the UGX 480,000,000 relates to the 2015 – 2016* period or to the 2017 – 2022 period, resulting in a decision based on unevaluated evidence.

## **Representation and hearing**

At the hearing of the appeal, the Appellant was represented by Opwonya $\overline{4}$ . & Co. Advocates while the Respondent was represented by its Legal and Board Affairs Department. Counsel for the Appellant filed submissions to argue the appeal but counsel for the Respondent did not file, in spite of the Court's directions. Counsel for the Respondent also filed submissions which, though belatedly filed, have been considered in resolving the appeal in the interest of justice. I have also considered the laws and authorities cited and relied by counsel and all the other materials on record before deciding this appeal.

#### Duty of the High Court in tax appeals

- Section 27(2) of the Tax Appeals Tribunal Act ("the TAT Act") provides that 5. an appeal may be made to the High Court from a decision of the Tribunal on questions of law. In Uganda Revenue Authority v Tembo Steels Ltd, HCCA No. 9 of 2006, this Court held that the intention of the legislature in enacting that provision was to leave all the questions of fact, such as the accuracy of assessments, to tax professionals at the Respondent and at the Tribunal, and to reserve to this Court only points of law. As such, in appeals from the Tribunal, this Court entertains questions of law only. - The grounds of this appeal raise concerns relating to the propriety of the 6. Tribunal's observations, findings and orders in the injunction application. The gist of the appeal, as can be gathered from the record of appeal, is that the Tribunal erred in law when, in deciding the injunction application, it made observations, findings and orders that prematurely determined the main application before it could be heard. These are all questions of law that are appropriate for this Court's consideration and determination.

#### Determination of the appeal

The grant of temporary injunctions is an exercise of discretion. This calls 7. for a court or tribunal to make value judgments in assessing the considerations relevant to grant of temporary injunctions and in applying them to the facts before it. It goes without saying that that discretion must be exercised judiciously and in line with sound principles.

- 8. Unless discretion is exercised in a manner that is obviously perverse, an appellate court will be disinclined to interfere with the resultant decision. Ugandan courts have, as a matter of judicial policy, exercised considerable restraint in intervening in decisions characterized as involving the exercise of judicial discretion. (See Banco Arabe Espanol v Bank of Uganda, SCCA No. 8 of 1998.) - An appellate court will not interfere with an exercise of judicial discretion 9. unless there has been a failure to exercise the discretion, a failure to take into account a material consideration or an error in principle. In matters such as the present one, an appellate court should not interfere with the Tribunal's decision to grant a temporary injunction, unless it is satisfied that the Tribunal, in exercising its discretion, misdirected itself and arrived at a wrong decision. - 10. In the injunction application from which this appeal arises, counsel for the Respondent raised a preliminary objection arguing that the Appellant had not paid 30% of the disputed tax in dispute and that it should not have been heard. The Tribunal did not resolve the objection before dealing with the merits of the application. This, in my view, was wrong. The Tribunal ought to have pronounced itself on the preliminary objection before dealing with the merits of the injunction application since the Appellant's entitlement to be heard on the injunction application, and on the main application itself, rested on payment of the 30% deposit. - On considering the merits of the injunction application, the Tribunal was 11. satisfied that the Appellant had successfully made out a case for the grant of the injunction. However, when the Tribunal started considering what remedies were available to the parties, it made 8 observations touching on the merits of the main application. - 12. The Tribunal observed that the liability giving rise to dispute had arisen in 2019 when the Appellant had filed Application No. 70 of 2019. It observed that, after that application, the Respondent had re-audited the Appellant and maintained an earlier assessment. It observed that the Appellant had not challenged that re-audit and that the Respondent had rightly taken steps to collect the assessed tax by impounding the Appellant's machinery and equipment.

The Tribunal also observed that the Applicant had not paid the requisite 13. 30% of the disputed tax to sustain the main application. It held that the Applicant had claimed to have made a payment of UGX 440,000,000 but that that payment was for a subsequent liability arising from the 2017 -2022 period. It observed that the liability of UGX 1,101,929,563 has been outstanding since 2019 and that it is now almost 6 years since the tax was assessed. Finally, the Tribunal strangely observed that:

> "This is clearly a case in where a taxpayer bides their time in the *hope of frustrating the Revenue Authority's collection efforts."* Emphasis mine.

14. The Tribunal then concluded that:

> "Therefore, whilst this Tribunal acknowledges that the Applicant will suffer irreparable damage if his assets are auctioned and sold off, we are also mindful of the fact that the Respondent has a critical mandate to collect tax revenue. Yet, the role of this Tribunal is to maintain the delicate balance between the interests of tax payers and those of the Uganda Revenue Authority. In view of the above, *we make the following orders:*

- That a temporary injunction is hereby issued restraining the $(i)$ Respondent from impounding, auctioning, advertising or selling the Applicant's assets or dealing with them in any other manner. However, the Respondent should not release the assets to the Applicant until the Applicant has paid the full tax liability as indicated below. - $(ii)$ The Applicant is hereby ordered to pay the liability of Shs. 1,101,929,563 arising from the tax period 2015 – 2026, which the Respondent confirmed following the re-audit. This should be paid not later than 15 May 2025. This disposes of the preliminary objection. - $(iii)$ Each party shall bear their own costs." (Emphasis mine.) - 15. It is these latter observations, conclusions and orders that the Appellant is aggrieved with. Counsel for the Appellant argued that the Tribunal went beyond the scope of the injunction application and pre-judged the main

application. According to the record of appeal, the notice of motion in the injunction application only sought a temporary injunction and costs of the application. According to the record of proceedings of the Tribunal annexed to the same record of appeal, the only issue that was framed for determination by the Tribunal was:

# "whether the Applicant is entitled to the grant of a temporary" *injunction".*

It is, therefore, clear that the Tribunal travelled beyond the scope of the injunction application in making the impugned observations and ordering the Appellant to pay the entire tax liability by 15<sup>th</sup> May 2025.

- As already noted, a preliminary objection had been raised regarding the 16. alleged non-payment of 30% of the disputed tax. Instead of dealing with it conclusively before delving into the merits of the injunction application, the Tribunal appears to have reserved it for consideration at it the time of analysing what remedies were available to the parties after deciding the whether or not to issue the injunction. That objection, however, precedes not only the injunction application but the main application too. - Furthermore, even when the Tribunal eventually dealt with the objection, 17. its decision was problematic in 3 ways. First, while the Tribunal seems to have disposed of the objection, it appears to have remained unsure about the grounds on which that disposal was based. In the 6<sup>th</sup> observation at page 12 of its ruling, the Tribunal held that:

"Further, the Applicant claims to have paid 30% of the tax in dispute. However, that is not true. The Shs. 440 million that the Applicant paid was for a subsequent liability which they themselves indicated as undisputed. This is also corroborated by the fact that the amount of Shs. 480 million which the Applicant claims to have paid towards the 2015 – 2016 liability does not tally with the Shs. 440 million stated in their letter of 28 November 2024. We believe that this payment was made towards a subsequent liability, most likely arising from the 2017 – 2022 *period.*" (Emphasis mine.) This excerpt from the ruling shows that the Tribunal remained reluctant and guarded regarding the period in respect of which the Appellant had paid the earlier tax. In my considered view, if the Tribunal felt that it did not have adequate facts to decide the preliminary objection at that stage, it ought to have either set down the objection to be tried separately or reserved the determination of the objection until after the trial when all evidence would have been led. I am thus convinced that it was improper for the Tribunal to determine the preliminary objection without certainty of what period the Appellant's earlier payment had related to.

- 18. Secondly, the Tribunal's decision regarding the preliminary objection was evidently arbitrary. The Tribunal had made a finding that the Appellant had not paid the requisite 30% of the tax in dispute. The nexus between the objection and the need to pay 100% of the tax in dispute is not clear. What about the non-payment of the 30% necessitates the payment of 100%? The legal justification for the escalation remains a mystery but it is apparent that ordering a taxpayer to pay 100% of the tax in dispute even before hearing his/her tax appeal after finding that he/she did not pay the requisite 30% of that tax is harsh, punitive and arbitrary. - 19. Thirdly, the Tribunal's decision regarding the objection was undoubtedly ultra vires. The objection had been based on Section 15(1) of the TAT Act. That provision states that a taxpayer who has lodged a notice of objection to an assessment shall, before final resolution of the objection, pay 30% of the assessed tax in dispute or that part of the tax assessed which is not in dispute, whichever is greater. This is the statutory encapsulation of the pay now argue later principle that underlies the law governing tax appeals and objections. - 20. Even after finding that the Appellant had not paid the requisite 30% of the disputed tax as assessed, the most that the Tribunal could have ordered the Applicant to pay was 30%. There is no lawful justification whatsoever for the order to the Applicant to pay 100% of the tax in dispute to settle the objection even before the tax appeal is decided. The pay now argue later principle has to be applied in accordance with the relevant law. The cap is at 30% of the assessed tax in dispute and no more.

$\overline{7}$

- Accordingly, in ordering the Appellant to pay 100% of the entire disputed $21.$ tax by 15<sup>th</sup> May 2025 even before the main application is disposed of, the Tribunal contravened Section 15(1) of the TAT Act. That order was also in breach of the essence of the pay now argue later principle in tax disputes, which only requires prior payment of only part of a disputed debt, and not the whole debt, before the disposal of the dispute over that debt. Having found that 30% of the tax in dispute had not been paid, all the Tribunal could do was to deny the Appellant audience in the injunction application and in the main application until the 30% deposit was paid. - Additionally, the release of the Appellant's impounded property is in issue 22. in the main application which is yet to be heard and disposed of. This is an issue that had not arisen per se in the injunction application. Indeed, it is trite law that an injunction application is intended to preserve, and not to upset, the status quo of the subject matter of a case until a prescribed date. It is unusual for a court or a tribunal to make orders on how status quo of the subject matter can be altered before the main case is decided. It is, thus, abundantly clear to me that the Tribunal went beyond the scope of what it had been called to do in the injunction application in ordering that the Appellant had to pay 100% of the disputed tax as assessed by 15<sup>th</sup> May 2025 so that it gets back its assets. - Turning to the afore-mentioned observations that guided the Tribunal's $23.$ mind in issuing its final orders, I am in agreement with counsel for the Appellant that all those observations were un-called for and superfluous, save for those relating to the payment of the 30% deposit which had been put in issue by counsel for the Respondent's preliminary objection to the injunction application. To make matters worse, the observations had the unlawful effect of pre-determining the main application which prejudiced the Appellant's right to a fair hearing that is guaranteed under Articles 28 and 44(c) of the Constitution of the Republic of Uganda, 1995. - The observations, as referenced and quoted above, essentially concluded 24. the main application to such an extent that the Tribunal stated that "the liability of UGX 1,101,929,563 has been outstanding since 2019". It further stated that "this is clearly a case where a taxpayer bides their time in the hope of frustrating the Revenue Authority's collection efforts". I am not

sure what would be the purpose of a trial in the main application at this point if the Tribunal is already convinced that the disputed tax is actually outstanding and that the Appellant is simply attempting to frustrate the Respondent by objecting to the assessed tax.

- If these observations are allowed to stay on the record of the Tribunal, $25.$ there is a real likelihood that the hearing of the main application will be a pointless ritual only meant to rubberstamp the Tribunal's premeditation. - In the premises, ground 1 of the appeal succeeds as the Court has found 26. that the Tribunal erred in law when it effectively decided the merits of the main application while the deciding the injunction application. Ground 2 of the appeal succeeds to the extent that the Tribunal confirmed that the disputed tax of UGX 1,101,929,563 has actually been due and outstanding since 2019 yet this remains in issue in the main application. Grounds 3, 4 and 5 of the appeal also succeed since the Tribunal's findings complained of therein had not arisen for disposal in the injunction application and the Tribunal neither had the latitude to consider them nor to make conclusive pronouncements on them. - 27. Furthermore, grounds 6 and 7 of the appeal succeed because the Tribunal manifestly did not have all the facts and evidence that would have given it clarity on the matter of payment of the 30% deposit. Ground 8 of the appeal fails because the orders of the Tribunal reproduced above clearly show that the injunction was unconditional. What was made conditional was the return of the Appellant's assets which could only be done if the Appellant paid 100% of the disputed tax on or by 15<sup>th</sup> May 2025, although this Court has still found that the Tribunal did not have the latitude to make that order. Finally, ground 9 of the appeal fails because the Tribunal had the option of immediately trying the issue regarding the 30% deposit and receiving evidence on it before determining it, or reserving the issue for determination until after the trial of the main application. Therefore, the Tribunal cannot be faulted in law for not reserving that objection for resolution until after the trial of the main application.

## **Reliefs**

Section 27(3) of the TAT Act provides that: 28.

"The High Court shall hear and determine the appeal and shall make such order as it thinks appropriate by reason of its decision, including an order affirming or setting aside the decision of the tribunal or an order remitting the case to the tribunal for reconsideration.

This appeal has revealed that, in allowing the injunction application, the Tribunal made a number of superfluous and prejudicial observations and orders which, essentially, settled the merits of the main application that is yet to be heard and threatened the Appellant's right to a fair hearing. The appeal has shown that, while the Tribunal made a conclusive decision on the preliminary objection on the Appellant's payment of 30% of the tax in dispute, the Tribunal did not speak with certainty as to whether the Appellant's earlier payment was in respect of the tax period in issue or a subsequent period.

- 29. This Court, conscious of the restraint it has to exercise before interfering with decisions made in the Tribunal's quasi-judicial discretion, is satisfied that, in this case, the Tribunal misdirected itself in a substantial way to the prejudice of the Appellant's right to a fair hearing in the main application. The Court, thus, deems it fair, just, equitable and reasonable to intervene in the dispute. - 30. In the interest of salvaging and preserving the relevance of the pending main application before the Tribunal, this Court deems it fit to set aside the impugned 8 observations and the order directing the Appellant to pay 100% of the disputed tax so that the trial of the main application proceeds on a clean slate. The preliminary objection regarding the payment of the 30% deposit shall also be returned to the Tribunal for re-consideration with the direction that the Tribunal elects to either try it and determine it at once before hearing the main application or that it reserves the trial and determination of that objection until after the trial of the main application. Having substantially succeeded in the appeal, the Appellant shall be allowed to recover 75% of its costs in this appeal. - 31. Consequently, I make the following orders: - Ĭ. The appeal succeeds in substantial part.

- The observations, findings and orders of the Tribunal regarding the ii. remedies available to the parties in TAT Misc. Application No. 10 of 2025, as set out at pages $12 - 14$ of the said ruling are set aside, save for the findings and orders on the Applicant's entitlement to a temporary injunction and on the costs of that application. - The Tribunal is directed to reconsider the merits of the preliminary iii. objection raised by the Respondent in TAT Misc. Application No. 10 of 2025 in the manner prescribed in paragraph 30 of this ruling. - The temporary injunction issued in TAT Misc. Application No. 10 of iv. 2025 is maintained, subject to the reconsideration of the merits of the preliminary objection as prescribed in (iii) above. - The Appellant is awarded 75% of the costs of this appeal. v.

readenter

**Patricia Mutesi**

JUDGE

$(13/05/2025)$