THE
REPUBLIC OF UGANDA
IN THE HIGH COURT OF UGANDA AT KAMPALA
HCT-00-CV-CS-0209 OF 2008
INTERNATIONAL
BIBLE STUDENTS ASSOCIATION:::::::: PLAINTIFF
VERSUS
UGANDA REVENUE
AUTHORITY::::::::::::::::::::::::::::::::::::::::DEFENDANT
BEFORE: THE
HON. LADY JUSTICE ELIZABETH MUSOKE
JUDGEMENT
Background
The plaintiff is the International Bible Students Association, a
religious association incorporated as a company limited by guarantee
and registered as a charity in the United Kingdom. It is also
registered in Uganda under Part X of the Companies Act. The
Plaintiff
is a legal entity used by Jehovah’s Witnesses to
accomplish its religious activities in Uganda and is the legal
structure for
Jehovah’s Witnesses in Uganda. The structure of
the Plaintiff is premised on spiritual direction being provided by an
ecclesiastical
Governing Body, the Worldwide Order of Special Full
time Servants of Jehovah’s Witnesses, hereinafter referred to
as ‘the
Order’, an unincorporated international
association of religious ministers who have made a vow of obedience
and poverty, and
a commitment to serve in a special full time
capacity. The Order routinely provides the Plaintiff with members of
the Order to assist
the Plaintiff in accomplishing the religious
activities of the Jehovah’s Witnesses in Uganda. These members
receive food,
shelter, and modest support from the plaintiff to cater
for personal necessities in the course of carrying out the
plaintiff’s
charitable and religious activities in Uganda. The
support provided to each of these members is USh. 170,000= per month
and USh.
576,000= per year.
The Defendant is the Uganda Revenue Authority, a statutory body
established under the Uganda Revenue Authority Act, Cap 196. It
is
principally charged with the collection of taxes in Uganda. In
January 2008, the Defendant made an internal ruling that the monetary
support given to members of the Order in Uganda for personal expenses
is taxable as employment income, specifically under Pay As
You Earn
(PAYE) income tax, because it believes that members of the Order are
“employees” within the meaning of the Income
Tax Act.
The plaintiff was dissatisfied with the above internal ruling, and
the parties agreed to refer the matter to court for
a declaration.
Hence the present suit.
The Plaintiff seeks a declaration that members of the Order who serve
in Uganda are not employees of the Plaintiff for purposes of
the
Income Tax Act, Cap 340, and therefore, are not liable to pay PAYE
income tax, and that, consequently, the Plaintiff is not under
obligation to deduct any such tax from the support provided to the
said members of the Order.
A joint Scheduling Memorandum was filed whereby the parties agreed to
the following issues:
1) Whether the plaintiff is a proper party to the suit.
2) Whether the members of the World wide Order of Special Full Time
Servants of Jehovah’s Witnesses serving in Uganda are employees
for purposes of the Income Tax Act, Cap 340 and therefore, liable to
pay income tax.
3) Whether the plaintiff is obliged to compute and deduct income tax
and specifically Pay As You Earn (PAYE) from the support it
gives to
the members of the Worldwide Order of Special Full Time Servants of
Jehovah’s witnesses.
4) Remedies available.
Parties were represented by Mr. Ernest Kalibala for the Plaintiff and
Mr. Edward Kitonsa for the defendant. The parties filed written
submissions.
Issue 1: Whether the Plaintiff is a proper party to the suit.
At the defence stage, the above issue was abandoned by the Defendant.
The plaintiff’s locus is, therefore, no longer in issue.
Issue 2: Whether the members of the Worldwide Order of Special
Fulltime Servants of Jehovah’s Witnesses serving in Uganda are
employees for purposes of the Income Tax Act, Cap 340, and therefore
liable to income tax.
Section 19(i) of the Income Tax Act Cap 340 provides that:
“Subject to this section, employment income means any
income derived by an employee from any employment and includes the
following
amounts whether of a revenue or capital nature, any wages,
salary, overtime pay, fees, commission, gratuity, bonus, or the
amount
of any travelling, entertainment, utilities, cost of living,
housing, medical, or other allowance”.
The definitions of “employee” and “employment”
under the Act have to be examined before one can determine
whether
the sums listed above qualify as employment income.
Section 2 (x), (y) and (z) of the Act define “employee”
“employer” and “employment” as follows:
(x) “Employee” means an individual engaged in
employment.
(y) “Employer” means a person who employs or
remunerates an employee.
(z) “Employment” means:
i) The position of an individual in the employment of another
person;
ii) A directorship of a company;
iii) A position entitling the holder to a fixed or
ascertainable remuneration; or
iv) The holding or acting in any public office.
It is common ground that sub-sections (ii) and (iv) do not apply to
the case at hand, as the members of the Order have not been stated
to
hold any directorship status, or public office. The Plaintiff
further submitted that sub-section (i) is circular and does not
provide any guidance on how to determine the existence of an
employer-employee relationship, and that the relationship between the
Plaintiff and members of the Order does not fit under sub-section
(iii). The Defendant submitted that legislative intent should
be
used to determine the meaning of sub-section (i) and that the
relationship between the Plaintiff and members of the Order fits
under both sub-sections (i) and (iii).
The Plaintiff contended that the court should disregard sub-section
(i), because it uses the term “employment” in its
own
definition. The Defendant relied on Explanatory Notes to the Income
Tax Bill of 1997, which Bill was later adopted by Parliament
in the
form of the Income Tax Act. The Explanatory Notes are the only
indication of the intended meaning of “employment”
in
sub-section (i). To support the Defendant’s reliance on the
Notes, the court was referred to EA Driedger on “Construction
of Statutes 2nd Edition (1983)
at 87 for the proposition that:
“to day there is only one principle of approach, the
words of an Act are read in their entire context and in their
grammatical and
ordinary sense harmoniously with the scheme of the
Act, the object of the Act, and the intention of Parliament”.
Accordingly, the Defendant submitted that the intention of Parliament
for purposes of the Income Tax Act was clearly evidenced in
the
Explanatory Notes to the Bill.
I agree with the Plaintiff that the authenticity of these Notes has
not been established. Be the above as it may, the Explanatory
Notes
state that the definition of “employment”
provided in sub-section (i) is intended to refer to the “ordinary
meaning of employment”. The Notes further outline
factors used to determine this ordinary meaning of employment, which
the Defendant asserts show
that the members of the Order are
employees. The Notes state inter alia, as follows:
“Paragraph (a) of the definition of employment provides
that the position of an individual in the employment of another
person is an
employment. This is intended to refer to the ordinary
meaning of employment and, therefore, existing judicial authorities
on whether
there is an employment relationship continue to be
relevant. An employment relationship as ordinarily understood does
not exist
where the individual is engaged on his or her own account
as an independent contractor. The determination of whether an
individual
is an employee or independent contractor involves looking
at a number of factors, including whether the hirer has the legal
right
to control the manner in which the work is performed and the
degree of integration of the activities of the person hired within
the
hirer’s business. In determining the degree of
integration, regard should be had to:
1) Whether the person hired is engaged on a continuous basis;
2) Where the services are performed particularly whether they
are performed at the hirer’s place of business.
3) Whether the hirer controls the timing and scheduling of the
work; and
4) Whether the hirer provides the working tools, plant and
other relevant facilities for the person hired to perform his or her
work”.
When examined closely, the above factors are meant to be used to
differentiate between an employee as ordinarily understood and an
independent contractor. Therefore, the use of these factors is not
appropriate for a determination of an employment relationship
in this
situation. Without any other indication of the intended meaning of
sub-section (i), beyond the ordinary meaning of employment,
sub-section (i) does not appear to have any application here, since
volunteers, which the members of the Order are, are not ordinarily
understood to be “employees” in the ordinary sense of
employment.
This leaves court with the determination as to whether the members of
the Order fit under the definition of “employment”
under
Section 2(z) (iii) of the Act which defines “employment”
as “a position entitling the holder to a fixed or ascertain
remuneration”. The parties chose to distinctly analyse the
elements constituting this definition: that is to say, “position”,
“entitlement”, and “fixed and
ascertainable remuneration”.
In his submissions, the Plaintiff relied on the definition of
“position” from the Oxford English Dictionary, which
defines
“position” as “rank or status;
high social standing; paid employment”. The Defense
asserted that there was no such definition in the Oxford English
Dictionary, and also asserted that “position”
is
synonymous with “arrangement” and that this is what was
envisioned by the enactors of the Income Tax Act. This court’s
reference to the definition of “position” in the
Oxford English Dictionary shows that the definition includes “high
rank or social standing; a job” as well as “a way
in which someone or something is arranged”.
From this definition, the Plaintiff argued that there is no
“position” as envisaged under the statute because in the
Plaintiff’s relationship with the members of the Order, there
is no employment. To support this, Plaintiff cited the following
facts: members do not apply for or choose their assignments; their
assignment may change at any time and holds no status; some members
are assigned to serve the other members by providing housekeeping and
other duties; preparing and serving meals, and caring for the
elderly
and infirm; and all members of the Order may be called upon to
perform any of the tasks required to sustain the Order or
to
accomplish its objectives. The Plaintiff argued that there are no
“positions” because, while members may have specific
tasks to perform, there are no general descriptions of their work, as
it varies depending on the needs of the Order.
The Defendant on the other hand, argued that the relationship between
the members of the Order and the Plaintiff fits under the definition
of “position” as an “arrangement” and
thus, satisfies the “position” requirement of the
statute.
The Defendant further relied on the application form (Page 9 thereof)
which the intending members fill for consideration to become
Bethel
family members in the Order (See Exhibit 9) which provides that “
……. if there is an opening for which we feel you
are qualified, we will advise you. Otherwise please DO NOT expect an
acknowledgement
of this application”. Further, the
same application form provides that the Branch Committee reserved the
right to determine if and when one’s
membership should
terminate.
From an ordinary reading of the application, particularly the clause
cited above, it appears that one would be admitted to the Order
if
there is an opening (a position) which is terminable, which one is
qualified to occupy when admitted to the Bethel family.
The court finds that although the duties the aspirants to membership
of the Order are “appointed” to perform are of a
volunteer nature, their secular work background and experience, apart
from their spiritual qualifications, are relevant in determining
where (positions) they are deemed fit to serve. In this sense,
therefore, they will be filling positions. The position element
is
thereby fulfilled.
The other element in the definition under sub-section (iii) is
“entitlement”. Black’s Law Dictionary defines
“entitlement” to mean “an absolute right to a
(usually monetary) benefit such as social security granted
immediately upon meeting a legal requirement”. Based on this
definition, the Plaintiff submitted that there is no entitlement
in
the relationship between the plaintiff and the members of the order,
the reason being that to become a member of the Order, one
had to
take a vow promising not to take part in any secular employment, and
to accept the modest material support provided. And
if the Plaintiff
decides to decrease the monetary support given to members of the
Order, the members have no right to make a lawful
demand for an
increased amount.
The Defense contended that to establish the true meaning of
“entitlement” calls for a further definition of an
“absolute
right”. According to Black’s
Dictionary, an “absolute right” is “a
right that belongs to every human being such as the right of personal
liberty; a natural right, an unqualified right; specifically
a right
that cannot be denied or curtailed except under specific conditions”.
The Defense contended that this is not the meaning of
“entitlement” intended under the Income Tax Act.
Instead, the Defense
provided an alternative definition from the
Oxford Advanced Learner’s Dictionary, 6th
Edition, which defines “entitlement” as “the
official right to have or do something; something that you have an
official right to do; the amount that you have the right
to receive”.
Based on this definition, the Defense asserted that members
of the Order are entitled to the monetary support provided by the
Plaintiff.
The defendant further submitted that from facts in Exhibit P.10 and
the plaint, the members of the Order are entitled upon becoming
part
of the Order, to monetary and other benefits which are ascertainable
and accordingly should be accordingly fall to be taxed.
The said
modest support is Shs. 170,000= monthly for personal necessities and
an annual amount of Shs. 576,000= for expenses such
as clothing or
emergencies. The defendant also relied on Clause 5(6) (c) of the
plaintiff’s Articles of Association which stated in reference
to benefits of trustees of the order, that “(c) the
accommodation, board, monetary and other benefits enjoyed by the
Trustees shall be of the same or similar standard
to that of the
other volunteers working fulltime with the charity”.
As far as “entitlement” to the said sums, the court finds
that in order for a person to be entitled to remuneration,
that
person must be able to make a legal claim to that remuneration should
it fail to be provided. In the case at hand, the disbursements
made
by the Plaintiff are not given in direct exchange for services
provided. This is indicated by the fact that members receive
the
same support regardless of the tasks they perform. As noted by the
Plaintiff, the statute states “fixed or ascertainable
remuneration”, which means payment for services, and not fixed
or ascertainable disbursements, such as social security. The
members
of the Order are not in a contractual relationship with the plaintiff
and therefore could not make a legal claim to the monetary
support
provided by the Plaintiff. This court finds that the members of the
Order are not entitled to the support they receive from
the Plaintiff
and thus, do not fit under section 2(z) (iii) of the Income Tax Act.
Having found as I have that the members of the Order do not fit
squarely within the four corners of sub-section (iii) of the
definition
of employment, the monetary support provided by the
Plaintiff to the members of the Order does not qualify as taxable
income.
Issue 3: Whether the Plaintiff is obliged to compute and deduct
income tax and specifically Pay As You Earn from the support it gives
to the members of the Worldwide Order of Special Fulltime Servants of
Jehovah’s Witness.
Income tax deductions, specifically PAYE, can only be deducted from
taxable income. Because of the court’s finding that the
relationship between the plaintiff and the members of the Order is
not an employment relationship and that the support provided is
not
taxable income, it is unnecessary to address the issue of whether the
Plaintiff must deduct PAYE.
The plaintiffs have made an alternative prayer under issue (iii) that
even if the court was to hold that there is employment income,
Section 19(2) of the Income Tax Act exempts some of the income from
being taxed as employment income. They singled out income spent
on
accommodation and travel expenses or meals and refreshment while
undertaking travel in the course of performing the duties of
membership in the Order.
The defence has submitted in response, and I entirely agree, that
there is no evidence to justify or prove the claim that the amounts
paid to the members of the Order fall under any of the exceptions
under Section 19(2) of the Act. The court has no basis for
considering
this alternative prayer which in any case is now a moot
point.
Issue 4: Remedies
The court hereby declares the following:
1) That the members of the Order assisting the Plaintiff in the
conduct of its activities are not employees of the Plaintiff and
therefore are not liable to pay As You Earn tax as calculated under
the Income Tax Act, Cap 340.
2) That the Plaintiff is not under any obligation to deduct any
income tax from the support provided to members of the Order as
outlines
in this judgement.
Elizabeth Musoke
JUDGE
29/06/2009
Judgement read in the presence of:
1) Mr. Earnest Kalibala for Plaintiff.
2) Mr. Habib Arike for Defendant
3) Imelda Naggayi, Court Clerk.
Court
Judgement read today 29/6/2009 at 4.15 p.m. in presence of all the
above.
Deputy Registrar
For: Elizabeth Musoke
JUDGE
29/06/2009