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    Musiime Katumbire Hillary
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    The Supreme Court of Uganda heard an appeal from Uganda Revenue Authority regarding taxation of compensation received by former employees of Dairy Corporation Ltd after they were made redundant due to privatization. The Court of Appeal had ruled the compensation was not taxable. The Supreme Court found the compensation was taxable income under the Income Tax Act as it was paid to redundant former employees as compensation for termination of employment. The Supreme Court allowed the appeal, set aside the Court of Appeal's judgment, and ordered each party to bear its own costs.

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    The Supreme Court of Uganda heard an appeal from Uganda Revenue Authority regarding taxation of compensation received by former employees of Dairy Corporation Ltd after they were made redundant due to privatization. The Court of Appeal had ruled the compensation was not taxable. The Supreme Court found the compensation was taxable income under the Income Tax Act as it was paid to redundant former employees as compensation for termination of employment. The Supreme Court allowed the appeal, set aside the Court of Appeal's judgment, and ordered each party to bear its own costs.

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    © All Rights Reserved
    Download as PDF, TXT or read online from Scribd
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    102 views8 pages

    Supreme Court Uganda 2017 63 - 2 PDF

    Uploaded by

    Musiime Katumbire Hillary
    The Supreme Court of Uganda heard an appeal from Uganda Revenue Authority regarding taxation of compensation received by former employees of Dairy Corporation Ltd after they were made redundant due to privatization. The Court of Appeal had ruled the compensation was not taxable. The Supreme Court found the compensation was taxable income under the Income Tax Act as it was paid to redundant former employees as compensation for termination of employment. The Supreme Court allowed the appeal, set aside the Court of Appeal's judgment, and ordered each party to bear its own costs.

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    of 8

    THE REPUBLIC OF UGANDA

    IN THE SUPREME COURT OF UGANDA


    AT KAMPALA.

    (CORAM: ARACH-AMOKO, NSHIMYE. OPIO AWERI, MWONDHA,


    TIBATEMWA JJSC)

    CIVIL APPEAL NO.09 OF 2015

    BETWEEN

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

    AND

    SIRAJE HASSAN KAJURA ::::::::::::::::::::::::::::RESPONDENT

    [Appeal against the judgment of Court of Appeal before Bossa, Kakuru


    and Kiryabwire, JJA. given on the 7th day of June of 2013]

    JUDGMENT OF A.S. NSHIMYE, A.G. JSC.

    I have had the benefit of reading the lead judgment of


    my brother, Hon Justice Opio Aweri JSC. I agree with his
    evaluation of the issues and conclusion.

    In his judgment, he sets out the background of the


    dispute all through from the High Court to the Court of
    Appeal, before it reached this Court. I need not to
    reproduce the same in detail.
    1
    However, for the sake of emphasis, the respondent and
    160 others whom I will refer to in the judgment as
    “respondents” who were the plaintiffs in the High Court,
    were retrenched employees of the then Dairy Corporation
    Ltd, which Government Privatized in 1991 under the
    Public Enterprises, Reform and Divestiture (PERD) Act
    Cap 98.

    The respondents lost their employment and income they


    were deriving or had accrued to them from the defunct
    Corporation. They were rendered redundant.

    Parliament, in the Public Enterprises Reform and


    Divestiture Act Section 21, obliged the Minister for
    Finance to make payment of compensation to employees
    who lost their jobs as a result of the Government’s policy
    decision to divesture its Enterprises, Diary Corporation
    Ltd having been one of them.

    Section 21 of the said Act provides:


    “The Minister responsible for finance should
    ensure that provision is made for payment of
    compensation to employees who are declared
    2
    redundant as a result of the restructuring or
    liquidation of public enterprises through the
    establishment and operation of redundancy
    account to be opened at a commercial bank
    approved by the Minister responsible for
    finance”. (Underlining is mine)

    The word “compensation” in the above section was not


    defined. However, by it’s literal meaning in the
    Dictionary it means, In the Black’s Law Dictionary 9th Ed
    Page 322
    “Compensation paid ……….. to an employed
    person especially one who has been laid off”.

    In my view, such money would put a retrenched


    employee in such a position he/she would have enjoyed,
    as if, he/she was on the job and earning within the ambit
    of the contract of employment which was terminated.

    In compliance with the above quoted section of the law,


    the respondents were each given a terminal
    retrenchment package. In the package, there was salary
    that was due and payable, salary in lieu of notice,
    3
    gratuity, long service award, transport home allowance
    and settlement allowance.

    Bearing in mind section 19(1) of the Income Tax Act, the


    appellant considered the items or lamp-sum constituting
    the retrenchment package, to be taxable income subject
    to exemptions. It collected tax totaling to Shs
    1,171,778,314 (One Billion one hundred and seventy
    one million seven hundred and seventy eighty thousand
    three hundred and fourteen) from the respondents,
    hence the dispute.

    It was the case for the respondent in the two Courts


    below that, the money received as retrenchment package
    was not taxable in accordance with the Income Tax Act.
    On the other hand, the case for the appellant was that
    the terminal benefits were not except under the law and
    therefore, they were taxable.

    Both the trial and appeal Courts upheld the submission of


    the respondents that their benefits were not taxable.

    4
    Being dissatisfied with both concurrent decisions of the
    Courts below, the appellant appealed to this court on
    three grounds namely:
    1. That the learned justices of the Court of
    Appeal erred in law and in fact when they
    held that the benefits received by the
    respondent are not taxable.

    2. That the learned justices of the Court of


    Appeal erred in law when they held that the
    character of the package given to the
    respondent was not such as those envisaged
    under the provision of the Income Tax Act.

    3. That the learned justices of the Court of


    Appeal erred in law when they held that the
    appellant unlawfully taxed the respondents
    on the payments they received.

    The consideration and disposal of the above three


    grounds of appeal boil to the issue whether, what the
    respondents received was employment income or
    compensation. It was certainly not the former because

    5
    they were redundant and not working at the time of
    receipt of the money.
    The appellant is mandated and empowered by both the
    Constitution Article 79(1) and the Income Tax Act Section
    4 (1) to levy tax on employment incomes of citizen.

    Equally Article 17 (1) (g) places an obligation on every


    citizen to pay taxes in accordance with laws made by
    Parliament.

    Section 19(1) (a) (b) (c) (d) (e) (f) (g) and (h) of the Act
    is clearly reproduced in the lead judgment. It spells out
    those incomes, compensations and other benefits that
    attract taxation. It is clear from the record and
    submission of both counsel that the money that was paid
    to the respondents and named “retrenchment
    package” was compensation within the meaning of
    Section 19 (1) (d) of Income Tax Act.
    It provides:
    19(1) d
    “Any amount derived as compensation for the
    termination of any contract of employment,
    within or not provision is made in the contract
    6
    of employment of such compensation or any
    among amount derived within communication
    of amounts due under any contract of
    employment”.

    Section 21 of the PERD Act (Supra) did not specifically


    exempt the compensation mentioned therein. It follows
    therefore, that the retrenchment package that was paid
    was compensation within the meaning of section 19(1)
    (d) of the Income Tax Act and was taxable because it
    was not exempted from tax.

    As court, however sympathetic we may be, the rules of


    interpretation of statutes prohibit us from adding or
    subtracting anything in a statute which was sealed by
    Parliament.

    I adopt and agree with the authorities of RV the judge


    of the city of London court [1892] 10B 273 and The
    Registered Trustees of Kampala institute vs
    Departed Asians property custodian board, SCCA
    No. 21/1993 which both Counsel relied on, on this
    point.
    7
    For that reason, I would agree with counsel for the
    appellant on the three grounds of appeal that their
    Lordships of the Court of Appeal and of the original court
    erred in law when they held that the retrenchment
    money was not taxable.

    I would concur with the lead judgment that the appeal be


    allowed and the judgment of the Court of Appeal be set
    aside.

    I would also order that each party bears its own costs

    Dated at Kampala, this ----20th ---- day of ---December--- 2017.

    A.S. NSHIMYE
    A.G. JUSTICE OF SUPREME COURT

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