The Tax Appeals Tribunal has ruled in favour of electricity distributor Umeme in a case that pitted the utility against Uganda Revenue Authority (URA).
In a September 9 ruling, the tribunal said Umeme is entitled to depreciation and initial allowances for assets it has bought since 2005 for upgrading, maintaining and expanding the distribution network.
URA had argued that Umeme is not entitled to the allowances because its distribution concession was granted by the Uganda Electricity Distribution Company Limited (UEDCL).
While pronouncing itself on the case, though, the tribunal said when a duty to perform an act is placed by law or contract on a person, it is to be implied that the person required to perform the act is entitled to all the benefits and reliefs accorded by law or contract to persons performing such acts.
The tribunal said when a taxpayer is trying to claim his or her entitlement, URA should not shift goal posts by formulating conditions not provided for.
The tribunal also said where application of a law creates doubt, the taxpayer should be given the benefit of the doubt.
“Taking the above considerations, the tribunal finds this application [by Umeme] has merit. The first applicant is entitled to claim depreciation and initial allowances. The respondent will meet the costs of the first applicant,” the tribunal ruled.
UEDCL had been enjoined as the second applicant while URA was the respondent.
In 2012, Umeme Limited sought URA’s approval for the deductions on concessionary assets.
The power distributor anchored its appeal on Sections 22 and 27 of the Income Tax Act but URA objected and went ahead to raise an assessment of Shs6.6b for the period 2005 to 2009.
Umeme countered that the concession asset should be divided between operating lease and finance lease, and requested that the review be for the period December 2008 to December 2011.
URA accordingly reviewed the period and adjusted the tax payable to Shs4.1b and in July 2019, revised it to Shs66b
What the law says
Under section 27A of the Income Tax Act – a person who places an item of eligible property into service for the first time outside a radius of 50 kilometres from the boundaries of Kampala during a year of income is allowed a deduction for that year of the amount equal to 50 per cent of the cost base of the property at the time it was placed in service.