Lugeya Samuel and Another v Uganda Revenue Authority (Civil Appeal No 115 of 2012) [2019] UGCA 2122 (7 May 2019)

Full Case Text

| 5 | THE REPUBLIC OF UGANDA | |---|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------| | | IN THE COURT OF APPEAL OF UGANDA AT KAMPALA | | | CIVIL APPEAL NO 115 OF 2OL2 | | | I Btruze rn ARISING FROM THE JUDGMENT OF HON. MR. JUSTICE VINCENT ZEHU HCCS NO 0156 OF 2O1O DATEO 2OrH JUNE, 2012) | | | (CORAM: KAKURU, KIRYABWIRE, MADRAMA JJA) | | | 1. LUGEYA SAMUEL} 2. MUUNDWA HOMTDAS) . APPELLANTS | | | VERSUS | | | UGANDA REVENUE AUTHORITY} RESPONDENT | | | JUDGMENT OF COURT | | | is appeal arises from the judgment of the High Court honourable Mr Justice Vincent ZehurJkize. The plaintiffs sued in a representative capacity on their own behalf and on half of 903 former employees of Uganda Commercial Bank whose services were rminated in 1993 and 1994 on the basis that a tax known as "Pay as You Earn" (PAYE) s unlawfully deducted from their terminal benefits by the respondent authority. The intiffs had filed a suit in the High Court for recoveries of monies unlawfully and ongfully taxed under terminal benefits amounting to Uganda shillings 416,754,338/=, erest and costs. The plaintiff's actlon was dismissed with no order as to costs and ing aggrieved by the decision of the High Court lodged this appeal to the Court of peal on the following grounds: | | | 1. The learned trial Judge erred in law and in fact when he held that the respondent lawfully taxed PAYE from the appellant's terminal benefits. | | | 2. The learned trial Judge misdirected himself on the law relating to the taxation of terminal benefits thereby reaching a wrong conclusion that the respondent had lawfully taxed the appellant terminal benefits. | | | |

5 3. The learned trial Judge erred in law and fact when he failed to properly evaluate the evidence on record thereby arriving at a wrong conclusion that terminal benefits are taxable under the Income Tax Act.

t the hearing of the appeal learned counsel Ms Nakku Mwajuma appeared for the spondent but the respondent was not represented. She submitted that the parties ere served and accordingly prayed that the written submissions on record be accepted s the submissions of the parties. The matter proceeded by way of the written bmissions of the parties on record and judgment was reserved on notice

## lution of appeal

e have carefully considered the written submissions of the appellant's counsel essieurs C. Mukiibi Sentamu & company advocates which was filed on record on 3l't ly, 2018 as well as the submissions of the respondent's counsel that had been filed on cord on L5th August, 2018. The contention of the appellants is that the learned trial dge misdirected himself on the law relating to taxation of the terminal benefits and deed erred in law and fact when he held that the respondents lawfully taxed PAYE m the appellant's terminal benefits. This in our view is a point of law and the only s which are not in dispute are those facts relating to the taxation of the appellant's rminal benefits. There is therefore no need to reappraise the evidence other than to blish the background facts leading to the taxation of terminal benefits of the pellants.

e background facts are stated in the written submissions of the appellant's counsel d are that the appellant and 903 employees of Uganda Commercial Bank whose ices are terminated in 1993 and 1994 respectively were paid terminal benefits and respondent taxed off Uganda shillings 416,154,238/= as PAYE which the appellants imed was unlawfully and illegally taxed. Consequently the appellants on their own alf and on behalf of the others sued the respondent for recovery of the sum gedly unlawfully and wrongfully taxed as PAYE. At the hearing of the suit, the only eed issue for determination was whether the deduction of PAYE was unlawful. The ned trial Judge dismissed the appellant's suit hence the appeal

gist of the submissions of the appellant's counsel was that there was no evidence record that the Privatisation Unit of the Ministry of Finance and Economrc Planning at any one time an employer of the appellants. Uganda Commercial Bank was no re since it had been divested and could not make any more payments to the

- ppellants. The Privatisation Unit of the Ministry of Finance and Economic Planning was ot an employer of the appellants at the time and therefore could not withhold PAYE nder the provisions of section 116 of the Income Tax Act (lTA) that empowers mployers to withhold tax. Secondly, payment of the appellants was made by the rivatisation Unit "a third party", and there was no proof or anything on record at the earing that the Privatisation Unit made this payment under an arrangement with ganda Commercial Bank according to the requirements of section 19 (6) of the Income x Act. It followed that the trial Judge misdirected himself on the law and thus arrived a wrong decision. The appellant's counsel prayed that the appeal is allowed with costs the appellant. 5 - r her part Ms Nakku Mwajuma agreed with the facts and the issues stated by the pellant's counsel. She also argued grounds 1, 2 and 3 of the appeal simultaneously as ey address the same issue of law of whether the taxation of the appellant's terminal nefits was lawful. The Respondent's counsel submitted that the legal position on the xable nature of the terminal benefits was conclusively settled by Supreme Court in anda Revenue Authority v Siraje Hassan Kajura; SCCA No.9 of 2015 and we do - t need to reproduce the submissions herein.

e have carefully considered the submissions of counsel, the facts of the appeal as well the law. We have further considered the judgment on the same lssue by the Supreme urt in Uganda Revenue Authority v Siraje Hassan Kajura; SCCA No. 9 of 2015. We te that the point of law raised in this appeal was settled and this court similarly and ently determined the same points of law in a similar matter in Katureebe Eridad and nzala lvan v Uganda Revenue Authority; Civil Appeal No 55 of 2012 where we lowed the decision of the Supreme Court cited above. In Katureebe Eridad and nzala lvan v Uganda Revenue Authority (supra) grounds 1 and 2 of the appeal re the same as in the appellant's appeal in this appeal and were that

- 1. The learned trial Judge erred in law and in fact when he held that the Respondent lawfully taxed PAYE from the Appellant's Terminal Benefits. - 2. The learned trial Judge misdirected himself in the law relating to the taxation of Terminal Benefits thereby reaching a wrong conclusion that the Respondent had lawfully taxed the Appellants Termrnal Benefits.

The appeal was argued by learned Counsel Mr. Asaph Agaba of Messrs C. Mukiibi $\mathsf{S}$ Sentamu & Co. Advocates from the same firm which lodged the current appeal under donsideration. The decision of this court in Katureebe Eridad and Wanzala Ivan v **Uganda Revenue Authority; Civil Appeal No 55 of 2012** applies squarely to the points of law in this appeal and this is what we said in part:

> "We have carefully considered the statutory provisions applicable to taxation of employment income and particularly section 19 of the Income Tax Act as well as exempt income under section 21 of the Income Tax Act. We have further reviewed and revisited a decision of this court in **Uganda Revenue Authority v** Siraje Hassan Kajura; Civil Appeal No 26 of 2013 where this court held that retrenchment packages were not taxable under section 19 of the Income Tax Act. This decision was overturned by the Supreme Court in **Uganda Revenue** Authority v Hassan Kajura Supreme Court; Civil Appeal No 09 of 2015. We are therefore not bound to follow our earlier decision which is no longer good law. The Supreme Court whose decisions are binding on this court held that terminal benefits are taxable under Section 19 of the Income Tax Act under similar facts as in this appeal. We respectfully follow the decision of the Supreme Court and consider this appeal in light of that decision."

We considered the definition of employment income under section 19 of the Income Tax Act and noted that in light of the decision of the Supreme Court of Uganda in **Uganda Revenue Authority v Hassan Kajura** (supra), after considering sections 19 (1) (a) (b), (c) and (d) of the Income Tax Act, section 19 (1) is general enough to include any earnings of the employee by whatever name called so long as it is derived from the employment. Furthermore, we considered subsections (a) $-$ (d) of section 19 and held that P. A. Y. E on the terminal benefits was taxable income.

- With regard to the issue of whether Privatisation Unit was an employer of the appellants $3d$ we again adopt our judgment in Katureebe Eridad and Wanzala Ivan v Uganda Revenue Authority (Supra) that costs and expenses associated with termination of contracts of employment are paid from the divestiture account managed by the Privatisation Unit of the Ministry of Finance where proceeds of sale of shares have to be deposited and we said: - 35

$\theta$

$2b$

$2\frac{1}{2}$

"It follows that the costs of termination of employment could only be met by the Ministry of Finance from the sale of shares of British American Tobacco (U) Ltd.

For that reason the payment was not from a third party but by the Government of Uganda acting on behalf of the British American Tobacco Ltd when it was divesting itself from ownership thereof. The provisions cited by the Appellant's Counsel of section 19 (6) for the argument that the Privatisation Unit was not an employer of the Appellant and could not withhold tax is inapplicable. In any case the withholding of tax is a method for collecting income tax from employment income. The income tax can still be assessed and paid even where it was not erroneously withheld by the employer."

nally, we are bound by the de< ision of the Supreme Court where they held in Uganda enue Authority v Siraje Hassan Kajura SCCA No 9 of 2015 that retrenchment nefits received by the respondents by necessary implication fall squarely within the bit of section 19 (1) (a) of the ITA, at page 11 Opio Ruby Aweri, JSC held that:

"The key words in the definition of the term employment income envisaged in section 19 (1) (a) of the Income Tax Act have to be defined. The provision reads "any income derived by any employee from any employment." The term derive is defined by the Oxford Learners Dictionary to mean "arise or originate from" therefore for income to be termed as employment income, it has to originate or arise from an employer to the employee."

e Supreme Court considered all the subsections of section 19 of the ITA and ncluded that the respondents in that case who were employees of Messieurs Dairy rporation who lost their jobs due to privatisation of the employer company and were en packages in exchange of their jobs. The packages amounted to compensation. exempt from taxation and this did not include retrenchment packages. They cluded that retrenchment packages are taxable except the exempted portion of the kages which are expressly provided for. held that section 19 of the Income Tax Act provides for employment income which ts

are bound by the judgmr:nt of this court in Katureebe Eridad and Wanzala Ivan v nda Revenue Authority (supra) and the Supreme Court in Uganda Revenue hority v Siraje Hassan Kajura SCCA No 9 of 2015 and we accordingly apply it to facts and issue in this appeal and find that the Appellant's appeal lacks merit. We by dismiss it. On the question of r:osts, because the Supreme Court decision cited ve was made in Decr:mber 2071 after the appellant's appeal had been filed in tember 2012. Moreover, this court had earlier held that PAYE was not deductible W{

m retrenchment packages and the matter was not yet finally settled We according ly ismiss this appeal with no order as to costs.

Dated at Kampata ,r,"][y or v,y20L9

Kenneth Kakuru

Justice o p

Geoffrey Kiryabwire

Justice of Appeal

Christopher Madrama Izama

Justice of Appeal