Brief Facts:
The Applicant was the owner of premises situated in Plot 85, Buganda Road. She used to rent out the said premises. She purchased the property at UGX 60,000,000 and acquired a lease from the Uganda Land Commission at UGX 25,000,000. On June 19th, 2019, the Applicant purportedly sold the above premises to one Innocent Mugisha for USD 550,000, and a balance of USD 42,628 was outstanding. The Respondent issued an assessment of UGX 99,226,576 as capital gains tax on disposal of property and rental income tax, hence the Application before the Tribunal.
Tax Appeals Tribunal Decision:
- Once a residential premise is rented out, it becomes a commercial building for purposes of taxation under the Income Tax Act. Converting land from residential to commercial use may result in a capital gain as the value of the land used increases.
- A taxpayer is treated as having disposed of an asset when the asset has been sold, exchanged, redeemed, or distributed by the taxpayer.
- A transfer can be one of physical possession or an interest. On the sale of property, before a transfer is registered, the purchaser acquires an equitable interest.
- The intention of the legislature was not that a transfer or sale of property should include or be limited to the registration of the purchaser on the certificate of title.
- There are bibanja holders, bona fide occupants, and owners of other unregistered interests in Uganda; therefore, if the Income Tax Act required purchasers to be registered as proprietors on certificates of title, capital gains tax would not be levied on the sale of bibanjas and other unregistered interests.
The Applicant was thus held liable to pay income tax on the capital gain of UGX 88,419,280.
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