[2024] KETAT 760 (KLR)

Abiya v Commissioner of Domestic Taxes (Appeal E093 of 2023) [2024] KETAT 760 (KLR) (9 May 2024) (Judgment)

Neutral citation: [2024] KETAT 760 (KLR)

Republic of Kenya

In the Tax Appeal Tribunal

Appeal E093 of 2023

Grace Mukuha, Chair, G Ogaga & Jephthah Njagi, Members

May 9, 2024

Between

Peter Horrace Abiya

Appellant

and

Commissioner Of Domestic Taxes

Respondent

Judgment

Background 1. The Appellant is a registered taxpayer.

2. The Respondent is a principal officer appointed under Section 13 of the Kenya Revenue Authority Act, Cap 469 of the laws of Kenya (KRA Act). Under Section 5 (1) of the Act, KRA is an agency of the Government for the collection and receipt of all revenue. For the performance of its function under Subsection (1), the Authority is mandated under Section 5(2) of the Act to administer and enforce all provisions of the written laws as set out in Parts I and II of the First Schedule to the KRA Act to assess, collect, and account for all revenues under those laws.

3. The Respondent raised an additional assessment via iTax for the period 1st January 2015 to 31st December 2016 on 31st May 2018 to which the Appellant objected on 9th December 2022.

4. Subsequently, the Respondent issued its objection decision on 9th February 2023.

5. Dissatisfied with the Respondent’s objection decision, the Appellant lodged his Notice of Appeal dated and filed on 7th March 2023.

The Appeal 6. The grounds of the Appeal are outlined in the Amended Memorandum of Appeal dated and filed on 21st March 2023 and as summarized hereunder:a.That the Respondent erred by not considering the costs incurred in the generation of the income and instead charged tax on the whole income in breach of Section 15 of Income Tax Act Cap 470 Laws of Kenya.b.That in the absence of documents of support, the expenses by precedence the Respondent ought to consider market mark up.c.That the Respondent did not carry a comparative study of similar business to establish the average gross margin for such an activity, by this be in compliance with Section 3 of Income Tax Cap 470. d.That we hold that the market mark up for such consultancy is around 10% of the gross pay.

The Appellant’s Case 7. The Appellant’s case was set out in his:-a.Statements of Facts dated and filed on 21st March 2023. b.Written submissions dated and filed on 2nd November 2023.

7. The Appellant averred that he incurred costs in the process of generating income and such costs qualify as deductions to determine income tax payable as per Income Tax Act.

7. That the market comparative gross margin is in the range of 10% for consultancy services.

7. The Appellant stated that the Respondent failed to account for such cost as incurred in the determination of the taxable income.

7. The Appellant submitted that he was in the year 2015 appointed as a media and public relations officer for the National Drought Management Authorityvia contract number NDMA/KRDP/MPRO/2014-2015 ,the service contract was funded by the European Union and all the emoluments were paid by such funds.

12. The Appellant contended that he had worked for the Government of Kenya earlier and drew a salary paid by the Government of Kenya where the amounts paid were subjected to all relevant statutory deduction and taxes.

12. He further submitted that the contract offered had a fixed contract value of Kshs 3 Million (Clause 3) and had other conditions as stipulated in the contract of service. As per the contract of service on of the job description was to "Representing the NDMA in National and International Trade Fairs for Nairobi, Nakuru and Kisumu "this covered under clause 10 of Job description. This activity involves travelling, accommodation, meals and other related expenses. That all these expenses were to be paid within the contract amounts.

12. The Appellant further submitted that it is a legitimate expectation that no incomes are generated in a vacuum, which in the Appellant’s view is the reason the drafters of Cap 470 laws of Kenya spent great emphasis on of Section 15 of the Act.

12. The Appellant cited the case of "Collins Kipyator Ruto vs Commissioner of Domestic Taxes TAT NO 695 of 2021” in which the Tribunal observed that the Respondent in absence of the supporting document allowed 40% of the underdeclared income as allowable costs in line with Section 15 of Income Tax. That the Tribunal did not see the need to disturb the action, thus means it’s not unlawful.

12. The Appellant held that the documents sought are way out of the period as envisaged by provision of Section 23 (c) of Tax Procedures Act No 29 of 2015 which provides that, "A person shall (c) "Subject to subsection (3) retain the documents for a period of five years from the end of the reporting to which it relates."

Appellant’s prayers 17. The Appellant prayed that the Tribunal:a.Orders the Respondent to conduct a comparative study to establish average gross margin for consultants in drought management.b.Orders the Respondent to review the tax payable in light of the average gross margin.c.Sets aside the Respondent's decision confirming the additional assessment on 9th February 2023.

Respondent’s Case 18. In response to the Appeal, the Respondent presented its;a.Statement of Facts dated and filed on 19th April 2023. b.Written submissions dated 2nd October 2023 and filed on 4th October 2023.

18. The Respondent stated that on 31st May 2018, it undertook an Income tax return review of the Appellant for the period ranging 1st January 2015 to 31st December 2016.

18. That on 31st May 2018, the Appellant was issued with an assessment order for Income tax for the period commencing 1st January 2015 to 31st December 2016 for Kshs. 1,157,874. 22 based on hanging withholding income tax certificates, being for payment from consultancy services rendered to Kenya Rural Development Asal Dm.

18. The Respondent averred that the basis of the assessment was hinged on Section 31 of the Tax Procedures Act which gives the Respondent leeway to issue additional assessments based on the available information and best of judgement. Further, that the Appellant lodged late notices of objection wherein the Respondent acknowledged the objection applications dated 9th December 2022.

22. The Respondent posited that upon receipt of the said notices of objection, vide a letter dated 14th December 2022 it wrote to the Appellant directing him to validate his notice of objection so as to comply with the provisions of Section 51(3) of the Tax Procedures Act 2015. That particularly, the Appellant was required to provide reasons for late objection and furnish statutory required documents in support of the objection failure to which his objection would be invalidated.

22. The Respondent avowed that in the absence of any action from the Appellant, the Respondent proceeded to issue an objection decision dated 9th February 2023.

22. The Respondent averred that the Appellant lodged the notice of objection beyond the statutory prescribed timelines; four (4) years and six (6) months late. That the period within which a notice of objection should be lodged is prescribed under the provisions of Section 51(2) of the TPA which states thus:“A taxpayer who disputes a tax decision may lodge a notice of objection to the decision, in writing, with the Commissioner within thirty days of being notified of the decision.”

22. The Respondent further submitted that the above notwithstanding, the Appellant can make an application to the Commissioner for extension of time within which to lodge a notice of objection. That the Appellant must demonstrate the reasons that occasioned such delay.

22. That in the circumstances, the Respondent averred that the Appellant alleged that he was not able to lodge the objection within the statutory timelines on account of “sickness” and “other reasonable cause”. Despite the foregoing, that the Appellant did not adduce any evidence; for instance medical report in support of this assertion.

22. The Respondent argued that the Appellant further averred a lapse on the part of the accountant to factor in the right amounts and declare appropriate expense heads contrary to Section 16(8) of the Tax Procedures Act which states:“This section does not relieve a taxpayer from performing any obligation imposed on a taxpayer under a tax law that the tax representative of the taxpayer has failed to perform.”

28. The Respondent relied on the provisions of Section 109 of the Evidence Act which provides thus:“The burden of proof as to any particular fact lies on the person who wishes the court to believe in its existence, unless it is provided by any law that the proof of that fact shall lie on any particular person."

28. The Respondent noted that the Appellant herein had not satisfied the criteria set out under the provisions of Section 51 (7) of the Tax Procedures Act.

28. The Respondent places reliance on the provisions of Section 51(3) of the Tax Procedures Act 2015 which provides thus:“(3)A notice of objection shall be treated as validly lodged by a Appellant under subsection (2) if-a.the notice of objection states precisely the grounds of objection, the amendments required to be made to correct the decision, and the reasons for the amendments; andb.in relation to an objection to an assessment, the Appellant has paid the entire amount of tax due under the assessment that is not in disputec.all the relevant documents relating to the objection have been submitted.”

31. The Respondent stated that save for the late notice of objection and the grounds for objection, no other document was adduced in support of the late objection application lodged by the Appellant.

32. The Respondent averred that the Appellant was issued with the assessment based on the undeclared sales arising from hanging/unutilized withholding certificates at 5% being payment from consultancy services rendered.

32. Further, the Respondent argued that the Appellant did not declare the income and the Respondent taxed the gross income at individual graduated rates applicable for the periods 2015 and 2016 giving rise to tax payable of Kshs. 616,132. 00 and Kshs. 391,132. 00 for the periods 2015 and 2016, respectively, inclusive of penalty and interest.

32. The Respondent submitted and relied on the case of Far East Connection Limited –Vs-Commissioner of Domestic Taxes which the Tribunal held that:“….the Appellant having failed to disclose any reasonable cause that could have possibly preventing it in lodging the notice of objection within the statutory timelines, the Respondent cannot be conceivably faulted in any manner for disallowing the application for lodging a late notice of objection…..”

Respondent’s Prayers 35. The Respondent prayed that this Tribunal do find: -a.That the objection decision dated 9th February 2023 is valid and ought to be upheld.b.That this Appeal lacks merit and should be dismissed with costs to the Respondent.

Issue for Determination 36. The Tribunal has carefully studied the parties' pleadings and submissions and is of the respectful view that the issue that calls for its determination is as hereunder:Whether the Respondent’s objection decision dated 9th February 2023 is valid

Analysis And Findings 37. The Appellant averred that he incurred costs in the process of generating income and such costs qualify as deductions to determine income tax payable as per the Income Tax Act.

37. The Appellant averred that the market comparative gross margin for the income of service providers in his industry is in the range of 10% for consultancy services.

37. The Appellant stated that the Respondent failed to account for such cost as incurred in the determination of the taxable income.

37. The Appellant submitted that he was in the year 2015 appointed as a Media and Public Relations Officer for the National Drought Management Authority via contract number NDMA/KRDP/MPRO/2014-2015, the service contract was funded by the European Union and all the emoluments were paid by such funds.

37. The Respondent averred that the Appellant lodged the notice of objection beyond the statutory prescribed timelines; four (4) years and six (6) months late. That the period within which a notice of objection should be lodged is prescribed under the provisions of Section 51(2) of the Tax Procedures Act.

37. The Respondent averred that the Appellant alleged that they were not able to lodge the objection within the statutory timelines on account of “sickness” and“other reasonable cause”. Despite the foregoing, that the Appellant did not adduce any evidence, for instance medical report in support of this assertion.

37. The Tribunal notes that the Appellant lodged its notice of objection on 9th December 2022 for assessments of the period dated 1st January 2015 to 31st December 2016 that were issued by the Respondent on 31st May 2018.

44. The notice of objection was subsequently invalidated by the objection decision dated 9th February 2022.

44. The Tribunal is persuaded that the Appellant did not discharge his burden of proof in justifying the late objection to the Respondent. Neither did the Appellant attempt to share any such evidence for late objection with the Tribunal.

44. Section 51 (2) of the TPA states that: -“A taxpayer who disputes a tax decision may lodge a notice of objection to the decision, in writing, with the Commissioner within thirty days of being notified of the decision.”

47. Further Section 51(7) provides remedy for late objections. It provides that: -“The Commissioner may allow an application for the extension of time to file a notice of objection if—a.the taxpayer was prevented from lodging the notice of objection within the period specified in subsection (2) because of an absence from Kenya, sickness or other reasonable cause; andb.the taxpayer did not unreasonably delay in lodging the notice of objection.”

48. The Tribunal is not convinced that the Appellant met the requirements of the provisions of Section 51(7) of the Tax Procedures Act. The Appellant has not demonstrated to the Tribunal that he presented to the Respondent evidence to justify extension of time. Such evidence was equally not presented to the Tribunal for its perusal and consideration.

48. In the circumstances the Tribunal finds that the Objection decision dated 9th February 2023 was validly issued.

Final Decision 50. The upshot of the foregoing is that the Appeal is not merited and the Tribunal proceeds to make the following Orders: -

a.The Appeal be and is hereby dismissed.b.The Respondent’s objection decision dated 9th February 2023 be and is hereby upheld.c.Each party bears its own costs. 50. It is so ordered.

DATED AND DELIVERED AT NAIROBI 9TH DAY OF MAY, 2024GRACE MUKUHA - CHAIRPERSONGLORIA A. OGAGA - MEMBERJEPHTHAH NJAGI - MEMBER