[2005] UGCA 94

## THE REPUBLIC OF UGANDA

+tL

## IN THE COURT OF APPEAL OF UGANDA AT KAMPALA

CORAM: HON. LADY JUSTICE L. E. M. MUKASA-KIKONYOGO, DCJ HON. MR. JUSTICE A. TWINOMUJUNI, JA HON. LADY JUSTICE C. N. B. KITUMBA, JA

# CIVIL APPEAL NO. 35 OF 2OO3

## SAM RUTEGA : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : :APPELLLANT

#### VERSUS

## UGANDA REVINUE AUTHORITY : : : : : : : : : : : : : : : : : RESPONDENT

20 (Appeal arising from the decision of the Honourable Mr. Justice Okumu Wengi of High Court Civil Appeal No. O5 of 2OO1)

## JUDGEMENT OF L. E. M. MUI{ASA-KIKONYOGO, DCJ

This is a second appeal lodged by Rutega Sam, hereafter to be referred to as the appellant. It is brought against the clismissal of his appeal, Civil App. No. 5 of 2OO1, from the Ruling and Award of The Tax Appeals Tribunal dated 15/0812OO1, by the

30 High Court.

The background of the appeal is briefly that from April 1996 to March 1998, the appellant was employed as Executive Director under a contract of service by The Private Sector Foundation (herein referred to as PSF). As Executive Director, the appellant was charged with the duty of running the affairs of PSF, act as Secretary of the Board and administer World Bank Funded Project (Private Sector Competitive Strategy Project). PSF has a Board which deals with matters of policy.

The appellant was reporting directly to the Board through the Chairman. All the staff were employed by PSF.

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On 10-06-99, URA, the respondent, demanded from the appellant payment of tax in the sum of 69,6051554 for the 10 years he worked with PSF together with interest. The appellant agreed to pay the tax but disputed the liability to pay interest. Following several meetings between the appellant and representatives of the respondent, the appellant's tax liability was finally assessed at shs 43,938,000/=. He was, however, advised to make an appeal to The Tax Appeals Tribunal against the interest which was due owing to late payment of the tax, clearly stating the reasons.

On 6lLO|2OOO the appellant received a letter requiring him to 20 pay interest of shs. 14,059,950 but he still disputed payment thereof. He, nevertheless, agreed in principle to pay the principal sum of the assessed tax but less interest. He saw no reason for penalizing him for the delay for which he was not responsible. It was argued on his behalf that as an employee of PSF, the employer as the withholding agent of the respondent should have deducted the principal sum and remitted it to the respondent. Clearly the delay to effect payment was attributed to PSF and not himself. Having struggled to pay PAYE dues personally, it was unfair for the 30 respondent to require him to pay the aforementioned interest in the circumstances of this case.

The contention of the respondent throughout the appeal starting with the proceedings before The Tax Appeals Tribunal has been that, as the appellant was employed as a consultant by PSF, he was liable to pay withholding tax. It was a term of his contract and by law to personally pay the tax. The delay 10 complained of by the appellant did not arise because all the assessment for the years 1996-1998 were made after his contract had ended. Since his appeal for waiver of interest was rejected, he was liable to pay interest.

By a majority of two to one, the appellant's appeal to the Tax Appeals Tribunal was dismissed, inter alia on the ground that the appellant for all intents and purposes was treated as a consultant rather than an employee. Further, The Tribunal ruled that the appellant was liable to pay interest of shs. 14. O59P5Ol=. The chairman of the Tribunal, however, gave a dissenting judgement. He allowed the appellant's appeal, because considering the circumstances of the appellant's case, the provisions of S. \37 of The Income Tax Act could not be equitably applied to the appellant. Aggrieved by the majority decision of the Tribunal the appellant lodged an appeal to the High Court. The memorandum of appeal contained four grounds, although the appeal was seeking only two declarations to the effect that:-

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(a) the appellant during his tenure with PSF was an employee within the meaning of Section 3 of The Income Tax Act.

# (bf that the appetlant was not liable to pay interest arising out of late payment within the meaning of Section 117 of The Income Tax Act

To come to the conclusion in this appeal, the learned judge of 10 the High Court had to determine whether the Tribunal made correct findings. The Main issue for him to consider was whether PSF was a withholding agent of URA, the respondent, and as such whether it should have withheld the appellant's assessed tax and remitted it to the respondent. In his judgement at page 125 of the record of proceedings the learned High Court judge had the following to say: -

> n The problem with this ccse is thqt the appellant contends thqt he should not be held liqble to pag the interest on the tax that he paid late. This could. nortnallg be the case. Tle argument bg the appellant thqt it should hqae rather been the responsibilitg of PS.t. (or its Chief Executiae for that matter) to withhold the tax would haue helped him if the interest wo,s on tlrc holding tqx. Howeuer, itt this the interest is on the tax itself. And the Corntnissioner General is not willing to uaiae it. I do not thereJore ft.nd reason to disagree with the decision oJ the Tribuno.l appealed against. I must tlrcrefore dismiss this appeal with costs".

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Once again, dissatisfied with the aforesaid decision, with leave of court, Dr. Byamugisha, counsel for the appellant on behalf of his client lodged this appeal to this court. It is based on the following four grounds.

- The learned judge erred in law in not considering and pronouncing on some of the grounds of the appeal. 10 1. - 2. The Learned judge erred in law in holding that

" Under the contract it was correct for the Tribunal to conclude that the appellant was a consultant and not an employee"

- 2A 3 The learned judge erred in law in not holding that it was the responsibility of Public Sector Foundation to with- hold the tax. - 4 The learned judge erred in law in holding that it was the personal responsibility of the appellant to pay interest.

It was proposed that this court grants orders that:-

- a) the decision of the High Court be set aside with costs to the appellant in that court and in The Tax Appeals Tribunal and - 30

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b) this appeal be allowed with costs to the appellant"

When the appeal was brought before this court for hearing the respondent which had been duly served with the hearing notice had no representation and no reason was given for the non attendance. On the application of Dr. Byamugisha, the appeal proceeded ex-parte.

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On ground 1 of the appeal, it was Dr. Byamugisha's submission that the learned judge of the High Court erred in law in not considering the grounds of the appeal as filed and argued and not even considering and pronouncing on some grounds of appeal. The criticism made of the learned judge by the learned counsel I think can only be justified in part. It is not correct to say that he did not consider any of the grounds of appeal against the decision of The Tax Appeals Tribunal. It is true he did not evaluate ground by ground but that per se did not cause a miscarriage of justice. The learned judge considered the two main issues in this appeal on which the appeal succeeds or fails namely whether the appellant was an employee or consultant of PSF and whether the appellant was liable to pay interest for the late payment of his principal tax.

With regard to the second ground as it was rightly pointed out by Dr. Byamugisha the main issue in this appeal is whether the appellant was an employee of PSF or a consultant as ruled by The Tax Appeals Tribunal. The learned judge in agreement 30 with the majority decision of the Tribunal stated in his judgement that

" It utould appear thqt sotne debqte went on beJore the tq.xo,tion decision Jrom which the appeal to the Tribunal arose. Howeuer it utould be cleqr thqt under the contract it was correct for the Tribunal to conclude that the appellant u)as a consultant qnd not an emplogee and q.lso dgree thdt Mr. Rutega was a consttltant, and indeed Mr. Rutega did pag the tox though belatedlg".

The trial judge based his decision on the interpretation of the contract of employment with PSF and the conduct of the appellant when he decided to pay the principal tax when he realized it had not been remitted by his employer PSF.

On perusal of the terms of the contract between the appellant and PSF and the evidence on record, the holding of the 20 Tribunal that the appellant was a consultant is hard to justify. In the agreement it was conceded by the respondent and even the Tribunal that the appellant was referred to as an employee throughout but after signing the contract they decided to calegorize him as a consultant.

It may be true the appellant referred to himself as a local consultant but that did not turn him into one if he was not. Moreover, the appellant explained horv he and his colleague came to be referred to as local consultants although they were 30 not. In cross-exarnination before the Tax Appeals Tribunal, at (page 65) the appellant testified that he and Mr. Lwanga had

o been appointed by PSF as their employees but in implementing World Bank Project, the World Bank preferred to refer to them as local consultants and that is why they referred the matter to the Ministry of Finance for clarification, which a,lso ruled that they were employees and not consultants. In my view both the learned judge and Tribunal should not have relied on the appellant's admission or acceptancy of being a consultant which he had satisfactorily explained away. The judge without giving a cogent reason concluded

## uI shall sto,nd bg ng decision that Mr. Rutega wa,s a consultant. He him.se\$ insisted thqt he wos q cotr'srtltanr.t"

I am unable to find evidence to persuade me to uphold that 20 view.

The Tribunal seems to have heavily relied on the decisions which were made at the subsequent meetings to the contract. The general rule is that verbal arguments cannot be applied to a contract to vary its written terms and conditions. My further observations reveal that both the counsel for the respondent and Tribunal seem to have heavily relied on the reference to the appellant's contract and consultancy contract, which as far as I am concerned are mere references. In my view they 30 would not override the terms and conditions of service agreed upon and signed by both parties.

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As far as I am concerned emphasis should be put on the actual relationship as described by the terms of the contract for example the appellant, was entitled to annual leave, sick leave, a vehicle, medical treatment and many things, which support Dr. Byamugisha's contention that he (the appellant) 10 was an employee but not a consultant.

As the evidence stands on record it does not show that the appellant was self-employed, but an employee of PSF. In any case as it was pointed out by one of the respondent's witnesses before the Tribuna-I, DWI, the test as to whether someone is an employee or consultant is a narrow one and depends on the degree of control of the parties. [n the instant case the appellant was finally controlled by PSF as for instance is illustrated by the fact that he could not get benefits from 20 outside and was not acting on his own as it is being claimed by the respondent. We have to confine ourselves to the contract but not go outside to seek opinion. Section 3 of Income Tax Act provides as follows

" Emplogee" means an individual engaged in employment" I respectfully differ from the majority decision of the Tribunal and judge of the High Court and hold that the appellant for all intent and purposes was an "em4tlogee" of PSF and not ^a consultant as they held. Ground 2 must succeed.

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Since grounds No. 3 and No. 4 overlap I propose, for convenience, to take them together. In view of the decision made on ground No. 2, these two must also succeed. Under Section ll7 of Income Tax Act every employer is required to withhold tax and remit it to URA, the respondent. Having 10 ruled that the appellant was an employee within the meaning of Section 3 of Income Tax Act, PSF should have withheld tax from the appellant and remitted it to the respondent. Failure by PSF to withhold the said tax led to charging of interest. To fulfill his obligation the appellant agreed to pay the tax, but not because he was a consultant.

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The interest disputed by the appellant arose from the late payment of the assessed tax and not a result of non-remitting of tax. I do not agree with the holdings of both the judge of the 20 High Court and Tribunal that as the appellant was ^a consultant was self employed and as such should have paid tax directly. I differ from the learned judge, in that payment of the principal tax in this case by the appellant was not evidence of admission of liability, in fact he should be given credit for that. When apparently he realized that his principal tax which he thought had been paid by his employer had not been remitted to the respondent, the appellant fulfilled his obligation and paid it. He cannot be faulted for the late payment. The delay was caused by the failure of PSF to 30 withhold and remit the appellant's principal tax to the respondent. In agreement with the holding of the chairman

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Mr. B. N. Kamugasha, the various meetings held between the parties notwithstanding, in the circumstances of this case Section 137 of the Income Tax Act would not be equitably applied. The appellant demonstrated diligence when he paid his tax once it was assessed and clearly established.

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On the evidence before court the appellant is not liable to pay interest as a penalty for late payment of the principal tax. Both grounds 3 and 4 will succeed. Since the three main grounds of the appeal namely 2, 3, and 4 succeeded, I would allow this appeal with costs in this court, High Court and Tax Appeals Tribunal. Further the judgements of the High Court and the majority judgement of The Tax Appeals Tribunal should be set aside.

20 Since my learned brother A. Twinomujuni, JA and learned sister C. N. B Kitumba, JA agree that this appeal must succeed, it is hereby allowed with the above proposed orders.

?5& aay \$fzoos Dated at Kampala this

### lt L. E. M.,ftui.nq^f xrKoNYo co HON. DEPUTV CHIIF JUSTICE

### THE REPUBLIC OF UGANDA

# o IN THE COURT OF APPEAL OF UGANDA AT KAMPALA

('ORAM: HON. LADY JUSTICE L. E. M. MUKASA-KIKONYOGO, DCJ. HON. MR. JUSTICE A. TWINOMUJUNI. JA. HON. LADY JUSTICE C. N. B. KITUMBA. JA.

# CNIL APPEAL NO.35 OF 2OO3

l0

.1( )

SAM IIIITE(;A APPELLANT

### VERSUS

I.i(;ANI)A REVEN I.,IE AT]TIIORITY RESPONDENT

lAppeal from the decision of the High Court of Uganda (Okumu Wengi, J.) dated 9.12.2002 in H(ICA No. 5/200t I

### ]0 . ITIDGN{ENT OF A. TWINOMUJUNI JA.

I have had the benefit of reading the judgment, in draft, of My Lord, the Hon. Justice L. E. M. Mukasa-Kikonyogo, DCJ. I agree with it and the orders proposed by Her Lordship. I have nothing useful to add.

&3-) Dated at Kampala this dav ofJune 2005.

l,ul ce0 ppeal.

### THE REPUBLIC OF UGANDA IN THE COURT OF APPEAL OF UGANDA AT KAMPALA

#### CORAM: HON. LADY JUSTICE L. E. M. MUKASA-KIKONYOGO, DCJ. HON. MR. JUSTICE A. TWINOMUJUNI, JA. HON. LADY JUSTICE C. N. B. KITUMBA, JA.

### **CIVIL APPEAL NO. 35 OF 2003**

#### SAM RUTEGA ::::::::::::::::::::::::::::::::::::

### VERSUS

### **UGANDA REVENUE AUTHORITY ::::::::::::::::::::::RESPONDENT**

[Appeal arising from the decision of the Honourable Mr. Justice Okumu-Wengi of High Court Civil Appeal No. 05 of 2001

### JUDGEMEN OF C. N. B. KITUMBA, JA.

I have the benefit of reading in draft the judgement of Mukasa-Kikonyogo, DCJ. I concur.

Dated at Kampala this $2.3$ day of $3.4$ and $3.2$ ....................................

Cres Clum<br>C. N. B. KITUMBA **JUSTICE OF APPEAL**

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