[2024] KEHC 1567 (KLR)

AEE Power Limited v Commissioner, Domestic Taxes (Income Tax Appeal E165 of 2023) [2024] KEHC 1567 (KLR) (Commercial and Tax) (16 February 2024) (Ruling)

Neutral citation: [2024] KEHC 1567 (KLR)

Republic of Kenya

In the High Court at Nairobi (Milimani Commercial Courts)

Commercial and Tax

Income Tax Appeal E165 of 2023

FG Mugambi, J

February 16, 2024

Between

AEE Power Limited

Appellant

and

Commissioner, Domestic Taxes

Respondent

Ruling

Brief Facts 1. This ruling determines the application dated 16th October 2023, which is brought under section 3A of the Civil Procedure Act, 2010, Order 42 rule 6 and Order 51 rule 1 of the Civil Procedure Rules. The application seeks to stay the execution of the decision of the Tax Appeals Tribunal (TAT) as delivered on 13th October 2023 in TAT No. 709 of 2022 pending the hearing and determination of the appeal lodged in this Court. The application is supported by the affidavit and supplementary affidavit both sworn by Esther Majano, the Financial Controller of the applicant Company on 16th October and 16th November 2023 respectively. The applicant’s written submissions are dated 17th November 2023.

2. The application is opposed vide a replying affidavit sworn by Sheryl Sanya an officer of the respondent, on 2nd November 2023 and substantiated by written submissions dated 22nd November 2023.

3. The undisputed genesis of this appeal lies in the said TAT decision which confirmed a tax assessment of Kshs. 859,632,528/= with respect to Corporation tax and VAT for the period between 2017 to 2020, in favour of the respondent. Dissatisfied with the said decision, the applicant herein filed a Memorandum of Appeal dated 16th October 2023 against the whole of the decision and the present application.

Analysis 4. I have carefully considered the pleadings, submissions and authorities presented by the opposing parties in light of Order 42 rule 6(2) which provides that:“No order for stay of execution shall be made under sub-rule (1) unless:i.The Court is satisfied that substantial loss may result to the appellant unless the order is made and;ii.That the application has been made without unreasonable delay; andiii.Such security as the court orders for the due performance of such decree or order as may ultimately be binding on him has been given by the appellant.”

5. Additionally, I draw upon the case of Butt v Rent Restriction Tribunal, (1982) KLR 417 in which the considerations that a court ought to consider in considering an application of this nature were further enunciated by the Court of Appeal. The court provided the following further pointers:i.The power of the Court to grant or refuse an application for a stay of execution is a discretionary power. The discretion should be exercised in such a way as not to prevent an appeal.ii.The general principle in granting or refusing a stay is; if there is no other overwhelming hindrance, a stay must be granted so that an appeal may not be rendered nugatory should that appeal Court reverse the Judge’s discretion.iii.A Judge should not refuse a stay if there are good grounds for granting it merely because in his opinion, a better remedy may become available to the applicant at the end of the proceedings.iv.The Court in exercising its discretion whether to grant [or] refuse an application for stay will consider the special circumstances of the case and unique requirements. The special circumstances in this case were that there was a large amount of rent in dispute and the appellant had an undoubted right of appeal.v.The Court in exercising its powers under Order XLI rule 4 (2) (b) of the Civil Procedure Rules, can order security upon application by either party or on its own motion. Failure to put security for costs as ordered will cause the order for stay of execution to lapse.”

6. It is observed that the application herein was promptly filed on 16th October 2023, a mere three days after the Tribunal's decision delivered on the 13th October 2023.

7. The applicant is apprehensive that should the application not be allowed, the respondent might proceed with the enforcement of the judgment. This would in turn occasion significant financial detriment upon the company, especially given the magnitude of the tax assessment and the company's existing financial challenges. The applicant is further apprehensive about the potential difficulty of the respondent to reimburse any taxes found due to it in the event the appeal is successful.

8. The respondent refutes the claims made by the applicant and contends that the substantial taxes in dispute have been unpaid since the 20th of April, 2022, when the respondent issued its assessment. Furthermore, the respondent maintains that executing the Tribunal’s judgment will not render the intended appeal nugatory as against the appellant. Should the High Court decide in favor of the applicant, the respondent asserts that it possesses sufficient financial resources to reimburse the applicant.

9. It is now settled through judicial pronouncements that at this interlocutory stage, the court is only required to interrogate the pleadings, affidavits and submissions made by parties in order to determine whether there is an arguable case. An arguable case does not mean one that has to succeed on appeal, but one that raises serious questions to be presented at the appeal.

10. I have looked at the Memorandum of Appeal dated 16th October 2023. The issues that the applicant raises are not frivolous and it is desirable that the applicant is allowed to ventilate its appeal before this court to finality.

11. Regarding security, the applicant confirms that it is willing to furnish a reasonable security save that it is currently facing financial difficulties, noting that the applicant has yet another appeal against the respondent being ITA E 160 of 2023, with additional taxes being demanded by the respondent from the applicant.

12. The applicant contends that demanding security in both instances, while fully aware of the financial hardships it is currently facing, would only deepen the company's financial crisis to an unparalleled degree, potentially leading to its shutdown. This outcome would be detrimental not only to the applicant but also to the respondent, as it would hinder future tax collection opportunities.

13. Given these conditions, the applicant views the respondent's request for 60% of the tax amount as security to be excessive, as it would exacerbate the applicant's financial strain.

14. The respondent has not disputed the audited Financial Statements provided by the appellant, which were intended to demonstrate the company's financial difficulties. However, the court observes that these statements pertain solely to the year ending December 2020 and might not accurately represent the current financial status of the applicant company.

15. The applicant prays that the court does approve security amounting to Kshs. 10,000,000/= in the form of a comfort letter. To substantiate this request, the applicant has submitted a letter from AEE Power SA dated 16th November 2023, signed by its Financial Controller. From my perspective, optimal security should be easily convertible to cash or enforceable without significant complications, to allow the judgment creditor to swiftly and effectively obtain the due amount should the appeal fail.

16. In the present case, there are no financial documents to back AEE Power SA's commitment, particularly any proof of its financial robustness. Therefore, the court finds this type of security unsatisfactory under the given conditions.

17. Alternatively, the applicant prays that the court allows the applicant to utilize 20% of its withholding tax credits totaling Kshs. 110,550,613/= as determined by the Tribunal in TAT No. 709 of 2022 to be applied towards security in both ITA E165 of 2023 and ITA E160 of 2023.

18. I have looked at the impugned judgment in TAT No 709 of 2022. It is clear that the appeal filed by the applicant therein was dismissed in toto and the respondent’s objection decision of 13th June 2022 upheld, for Kshs. 859,632,528/=. In the circumstances the court is unable to comprehend the basis of the alleged resultant revenue arising from withholding tax credits as submitted by the applicant.

19. Finally, taking all these factors into account, I have considered the form and amount of security that would most appropriately balance the interests and conveniences of both parties, while the appeal is pending.

Determination 20. I hereby allow the application on condition that the applicant deposits the amount of Kshs. 50,000,000/= with the respondent and in addition provides the respondent with a bank guarantee from a reputable bank to the tune of Kshs. 100,000,000/= within the next 30 days. In the event the applicant does not comply with these orders, the stay orders shall stand vacated and the respondent shall be at liberty to execute the judgment and decree of the TAT. The costs of this application shall await the outcome of the appeal.

DATED, SIGNED AND DELIVERED IN NAIROBI THIS 16TH DAY OF FEBRUARY 2024. F. MUGAMBIJUDGE