The respondent’s second witness, Mr. Kajubi objected to the applicants’ entitlement to reinvestment relief. Mr. Kajubi stated that the respondent did not get any evidence of an involuntary disposal. In order for an involuntary disposal to take place, it must be done against one’s will. Tullow was willing to sell its interests. There was no evidence to show that Tullow was forced to sell the extra 16.67% of its interest. According to Mr. Kajubi, what was required to prove involuntary disposal would be a letter, a decree or something in writing. Secondly, the proceeds of involuntary disposal should be reinvested in an asset of a like kind. This should be done within one year of the disposal. He contended that the transaction was concluded in March 2012 and Tullow had not re-invested in an asset of a like kind.
Having read and listened to the evidence and perused the submissions, the Tribunal notes the following in respect to involuntary disposal. S. 54(1) (C) of the ITA reads that no gain or loss shall be taken into account in determining chargeable income in relation to an involuntary disposal of an asset to the extent to which the proceeds are reinvested in an asset of a like kind within one year of the disposal. As the respondent noted for S. 54 of the ITA to apply, the following conditions must be satisfied:
- There has to be an involuntary disposal,
- There has to be a reinvestment,
- The reinvestment must be in an asset of a like kind,
- The reinvestment must be made within one year of disposal.
In order to determine whether the applicants made an involuntary disposal one has to discern the intention of the Act. There is no definition of involuntary disposal under the ITA. However, the definition of the term can be obtained by using rules of statutory interpretation. Black’s Law Dictionary 9th Edition p. 539 defines a ‘disposition’ as “the act of transferring something to another’s care or possession, esp. by deed or will; the relinquishing of property. ‘Involuntary’ is defined (at p. 908) as “not resulting from a free and unrestrained choice; not subject to control by will.” Combining the said definitions, an involuntary disposal would arise out of one parting with the possession or transferring ownership of something resulting not out of his or her choice or free will. In URA V Bank of Baroda – India HCT-00-CC-CA-05-2005, the court noted that “This letter does not show that the shareholder had a free will to decide what time to float shares even having regard to market conditions.” Taking this into mind, as counsel for the applicants noted an involuntary disposal does not have to be done using force. A disposal to be involuntary does not need to involve coercion. The presence or absence of the element of free will or choice is an important ingredient in determining whether there has been an involuntary disposal.
In Woolwich Building Society V Commissioners of Inland Revenue 65 TC 265 where involuntary disposal was broadly interpreted, the court noted that: “It, is, in my view, necessary for the plaintiffs to do more than point to the provisions of the statute. They must show that the Crown by its servants was exercising, or threatening to exercise, powers under the statute in such a way as to constitute compulsion in law. A threat of proceedings for a pecuniary benefit does not make a payment thereafter involuntary; for the payer might have defended the proceedings and relied upon the unlawfulness of the demand (William Whiteley Ltd. v The King and Werrin v The Commonwealth). But a payment made under pressing necessity to avoid a seizure of goods, or to obtain the release of goods unlawfully detained, or to prevent some interference with or withholding of a legal right, is compelled and not voluntary and is recoverable in an action for money had and received.” A disposal may be a result out of a pressing necessity to prevent interference or enjoyment of one’s legal rights or ownership.
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