[2025] KETAT 161 (KLR)

Athi Water Works Development Agency v Commissioner of Legal Services and Board Coordination (Miscellaneous Application E061 of 2025) [2025] KETAT 161 (KLR) (28 February 2025) (Ruling)

Neutral citation: [2025] KETAT 161 (KLR)

Republic of Kenya

In the Tax Appeal Tribunal

Miscellaneous Application E061 of 2025

CA Muga, Chair, AK Kiprotich & T Vikiru, Members

February 28, 2025

Between

Athi Water Works Development Agency

Applicant

and

Commissioner of Legal Services And Board Coordination

Respondent

Ruling

1. The Applicant vide a Notice of Motion dated the 16th January, 2025, filed under Certificate of Urgency on 22nd January, 2025 and supported by an affidavit and further affidavit of Joseph Kamau the Chief Executive Officer of the Applicant sought for the following Orders from the Tribunal:i.Spent.ii.That the Tribunal be pleased to issue interim orders staying the enforcement of the taxes demanded by the Respondent through its agency notice dated 23rd December 2024 for an amount of Kshs. 567,718,172. 00 and/or any related notices pending the hearing and determination of this Application.iii.That the Tribunal be pleased to extend time within which the Applicant is to lodge its Appeal against the entire confirmed withholding income tax assessment issued by the Respondent on 22nd February 2022 amounting to Kshs. 668,718,171. 30. iv.That the draft Memorandum of Appeal, Statements of Facts and supporting documents attached hereto be deemed as duly lodged and served.v.That the Notice of Appeal attached hereto be deemed duly lodged and served.vi.That the Tribunal be pleased to issue interim orders staying the enforcement of the taxes demanded by the Respondent pending the hearing and determination of the Appeal.vii.That the Tribunal be pleased to issue any such orders as it deems just and expedient.viii.That the cost of this Application be in the cause.

2. The Application was premised on the following grounds:i.That the statutory time to lodge the appeal to the Tribunal had expired.ii.That the Applicant is a Government entity which does not generate revenue and is fully funded by the Exchequer through the Ministry of Water, Sanitation and Irrigation.iii.That the Applicant upon receipt of the objection decision dated 22nd April 2022 engaged the Respondent and was advised to lodge an application for abandonment of tax under Paragraph[sic] 37 of the Tax Procedures Act, CAP 469B of the Laws of Kenya (hereinafter “TPA”) which was done on 16th May 2022. iv.That a follow up letter on the application for abandonment was done by the Cabinet Secretary from the Ministry of Water to the Cabinet Secretary to The National Treasury and Planning on 18th July 2022 and there was no immediate response from the Cabinet Secretary to The National Treasury.v.That the application for abandonment of tax was declined by the Cabinet Secretary National Treasury through his letter dated 18th August 2023 without addressing the grounds of the application but only making reference to the repealed Paragraph [sic] 37 of the TPA following the operation of the Finance Act 2023. vi.That the delay in lodging the Appeal within the statutory period was due to circumstances out of control of the Applicant considering that the application for abandonment was determined by the Cabinet Secretary of The National Treasury on 18th August 2023 more than one year and three months from the date it was lodged.vii.That the assessment issued by the Respondent was erroneously based on the non-resident tax rate of 20% of the contractual payments made to the contractor who is a registered taxpayer in Kenya without considering that the correct withholding income tax rate was 3%.viii.That the withholding tax payable based on the correct withholding tax rate of 3% is Kshs. 39,951,810. 28 and not the Kshs. 668,718,171. 30 demanded by the Respondent.ix.That the withholding tax on payments made before the contractor was registered with the Respondent on 19th October 2016 was not payable and is erroneous pursuant to the Tribunal’s decided case of KENHA Versus the Commissioner of Domestic Taxes. That in the decided case it was ruled that the responsibility of accounting for withholding tax rests on the payer who in this case was the development partner and that the responsibility could not be transferred to the Appellant.x.That the Applicant had paid Kshs. 81,000,000. 00 which is more than the expected tax of Kshs. 39,951,810. 28 on the contractual payments made.xi.That the Respondent had already recovered all the tax due from the Applicant and there is no further tax payable.xii.That there will therefore not be any prejudice caused to the Respondent if the Application is granted.xiii.That despite the Applicant having paid more tax on the payments made to the Contractor, the Respondent has continuously paralyzed the operations of the Applicant by placing agency notices on the bank accounts of the Applicant.xiv.That the Applicant's similar case on withholding tax on direct payments is before the Office of the Attorney General for mediation following the directive issued by the Head of Public Service through the Circular dated 11th November 2019. xv.That the mechanism to withhold tax on direct payments was issued by the Cabinet Secretary to The National Treasury and Planning on 11th December 2019 and that it was not possible to withhold tax during the periods prior to the date of the circular. That the responsibility to withhold tax was on the development partner and not the Applicant and that the intended Appeal is therefore meritorious.xvi.That the Respondent deliberately ignored the directive of the Circular dated 11th November 2019, when issuing the Objection Decision.xvii.That the Contractor had demonstrated tax compliance by obtaining a Tax Compliance Certificate confirming that the tax which is the subject of the tax dispute was declared in the contractor's income tax returns and that the Respondent has already collected their taxes through self-assessment by the Contractor and through tax agency notices issued to the Applicant.xviii.That the Respondent had collected more than the fair share of its taxes and is not going to lose taxes if this Application is allowed.xix.That if the Application is not allowed, the Applicant will suffer irrecoverable loss since the withholding tax assessment was based on a non-resident tax rate of 20%, instead of the correct rate of 3% of the contractual payments made to the contractor and that the Applicant has overpaid the tax due by over Kshs. 39,000,000. 00. xx.That the extension of time to file the appeal will not cause undue prejudice to the Respondent and nor will it suffer tax loss if this application is allowed.xxi.That it is in the interest of justice and fair hearing that this application be allowed.

3. The Applicant in its further affidavit filed on 4th February 2025 avowed as follows:i.That upon confirmation of the assessment by the Respondent, the Applicant made an application for abandonment of the tax through the letter by the Permanent Secretary to the Commissioner General (CG) of the Kenya Revenue Authority (KRA) dated 18th July 2022. ii.That the Cabinet Secretary to the National Treasury and Planning declined the application for abandonment of the tax through his letter dated 18th August 2023 following the repeal of Paragraph 37[sic]of the TPA without addressing the grounds of the application.iii.That thereafter, upon the rejection of the request for abandonment, the Applicant had been engaging the Respondent with a view of settling the matter amicably in light of the Head of Public Service Circular Reference No. OP/CAB.1A issued on 11th November 2019 which called for immediate withdrawal of any court cases between state agencies arising from projects or programs funded through Government resources.iv.That despite the efforts made in resolving this matter amicably with the Respondent, which led to the Applicant paying Kshs. 81,000,000. 00 so far, which was way above the correct tax before penalties and interest of Kshs. 39,951,810. 28, the Respondent has continually issued tax demands and agency notices which have led to freezing of the agency's accounts from time to time.v.That the Applicant's accounts hold donor money and Government of Kenya Exchequer releases which are meant to execute projects in line with its mandate of providing water which is a social good. That the Applicant is therefore unable to execute its mandate as constitutionally provided.vi.That indeed the Applicant being a State Agency had provided a reasonable cause as to why it failed to file its Appeal within the stipulated time.vii.The Applicant reiterated that, the intended Appeal is arguable for reasons that the subject withholding tax on payments were made before the contractor was registered with Respondent on 19th October 2016 therefore was not payable and is erroneous. That indeed the Tribunal has pronounced itself over the matter.viii.That the Contractor who at the time the contract was awarded was a non- resident person, was registered with the Respondent and obtained a PIN certificate on 19th October 2016, a fact that the Applicant was not aware of at the date of lodging the notice of objection against the assessment and lodging the application for abandonment of the tax.ix.The Applicant further reiterated that the intended Appeal is arguable as the assessment issued by the Respondent was erroneously based on the non-resident rate of 20% of the contractual payments made to the Contractor who is a registered tax payer in Kenya without considering that the correct withholding tax is 3%.x.The Applicant urged the Tribunal to take cognizance of the fact that the Respondent had not responded to these facts in its Replying Affidavit.xi.That it is not true that if the Application is granted the Respondent will suffer great prejudice as the same will delay collection of taxes because the Applicant has already paid Ksh. 81,000,000. 00 as opposed to the correct tax amount of Kshs.39,951,810. 28 when the correct tax rate is applied.xii.That further and in any event, it is the Applicant who stands to suffer more as its operations are continually being paralysed following issuance of agency notices as reflected and acknowledged in the Respondent's electronic mail which was sent following issuance of the stay orders of the Tribunal.xiii.On grant of conditional stay as requested by the Respondent, the Applicant stated that allowing the application on this condition would not only be prejudicial but would also not be practical and would be against the interest of justice as the Applicant is a State Corporation relying on funding from Government.

Respondent’s Reply 4. The Respondent opposed the application through a Replying Affidavit sworn by Mr. Reuben Chesire, its officer, on 26th January, 2025. The grounds of opposition as highlighted in the Affidavit were as follows:i.That the Applicant had not at the very least provided a single reason for the inordinate delay of almost three years and to be precise 33 months contrary to the provisions of Section 13(4) of the Tax Appeals Tribunal Act, CAP 469A of the Laws of Kenya (hereinafter “TATA”) and Rule 10(2) and 10(3) of the Tax Appeals Tribunal (Procedure Rules) 2015 as to invoke the discretion of the Tribunal to grant the orders sought.ii.That the delay was unreasonable and not excusable on the grounds that the Applicant was aware of the decision as evidenced in the objection decision dated 22nd April 2022 which the Applicant annexed as part of its documents before this Tribunal.iii.That the assessment arose because the Applicant failed to deduct withholding tax on payments made to JV ACH - PUTMAN, A non-resident contractor engaged in the construction of Ithanga Water Supply Project at the rate of 20%.iv.That the Applicant was issued with assessment notice on 22nd February 2022. It added that the Applicant lodged an objection on 15th March 2022. v.That the Applicant after receiving the decision had 30 days to lodge an Appeal at the Tribunal if at all they were not satisfied with the Respondent's decision.vi.That the Applicant instead of exercising this right, proceeded with its business as usual until the time the Respondent commenced enforcement and collection of taxes due.vii.That the Respondent will suffer grave prejudice should the orders sought be granted, as the Applicant is likely to withdraw the funds in the accounts thereby defeating the enforcement process.viii.That the Tribunal does not issue orders in vain for the sake of just issuing orders.ix.That the Applicant made an attempt to mislead the Tribunal into believing that the delay in filing the Appeal was occasioned by delay by the National Treasury to Respond to their application for abandonment.x.That the Respondent maintained that be it as it may, the Cabinet Secretary of the National Treasury reverted on the rejection in August 2023. That therefore, what was the Applicant doing between August 2023 to date, more than 16 months had not been accounted for.xi.That the Applicant having handled various projects was familiar with the process of taxation and tax legislation and could not purport that they were not aware of the process that follows after an objection decision has been issued.xii.That in any event there was nothing stopping the Applicant from pursuing its Application at the National Treasury concurrently with the Appeal at the Tribunal.xiii.That the Applicant's failure to file an Appeal to contest the Objection Decision in essence allowed the Respondent to proceed with enforcement measures.xiv.That the Respondent invoked the said Section 42 of the TPA to recover tax liability from the Applicant.xv.That without prejudice to the foregoing it was the Respondent's position that its role is to collect taxes as and when they fall due, and the issuing of agency notices is a lawful step in the enforcement of taxes due.xvi.That issuing the said orders may inadvertently aid the Applicant in avoiding payment of taxes that have been lawfully assessed and demanded.xvii.That the Applicant had not complied with Section 13 of the TATA as it had not laid the basis for failure to file an appeal on time.xviii.That based on the facts stated above, there exists no reasonable cause given by the Applicant seeking to extend time within which to file a notice of appeal.xix.That the Applicant has a duty to give satisfactory reason of delay to invoke the discretion of the Tribunal.xx.That the Applicant’s delay in complying with the statutory timelines within which to lodge the objection to the Respondent and an appeal to the Tribunal had been intentional to buy time and deny the Respondent the much-needed revenue.xxi.That the Respondent will suffer great prejudice if the Application is granted as this will delay collection of taxes which is the main mandate of Respondent, hence delayed services to all Kenyan citizens.xxii.That the Applicant had not demonstrated in any way that it has an arguable appeal with any chances of success.xxiii.The Respondent further averred that it is a reputable government agency which if need be can pay damages should the Tribunal finally rule against it hence the Applicant should not be granted the orders seeking to lift the agency notices.xxiv.That further, the Applicant had shown wilful disregard to its commitment to pay taxes and therefore the Respondent ought to be allowed to safeguard the taxes as pursuant to the provisions of Section 42 of the TPA.xxv.That it is in the interest of the public to recover tax for the finance of expenditure in the growth and development of the nation, which is most important public duty for which the public must have an immense interest.xxvi.That if the Tribunal is inclined to exercise its discretion in favour of the Applicant and grant orders sought, that the stay should be conditional on the Applicant giving a bank guarantee of the full amount demanded or by depositing security for the full amount demanded before the Tribunal.xxvii.The Respondent prayed that the Application be dismissed with costs.

5. In compliance with the directions of the Tribunal regarding the canvassing of the Application by way of written submissions to be filed on or before 12th February 2025, the Applicant complied and filed its submissions on 12th February 2025 whilst the Respondent failed to comply by filing its submissions on 18th February 2025. Accordingly, the Respondent’s written submissions were not considered in the determination of this Application.

Analysis and Findings 6. The Tribunal is enjoined to determine the length and reason for the delay when considering an application for the extension of time to appeal out of time. The power to extend time is discretionary and unfettered but the same must be exercised judiciously and it is not a right to be granted to the Applicant.

7. In determining whether to extend time, the Tribunal was guided by the decision of the Court in Charles Karanja Kiiru v Charles Githinji Muigwa [2017] eKLR, where the learned Judge stated as follows:“It is trite that extension of time is not a right of a party. It is an equitable remedy that is only available to a deserving party, at the discretion of the Court.”

8. With regard to the criteria of the issues to be considered when granting an extension to file an appeal out of time, the Tribunal referred to the case of Odek, JJ. A in Edith Gichugu Koine vs. Stephen Njagi Thoithi [2014] eKLR, where the Court laid out the factors as follows:“Nevertheless, it ought to be guided by consideration of factors stated in many previous decisions of this Court including, but not limited to, the period of delay, the reasons for the delay, the degree of prejudice to the respondent if the application is granted, and whether the matter raises issues of public importance, amongst others...”

9. Further, in Sammy Mwangi Kiriethe and two others vs Kenya Commercial Bank Ltd [2020] eKLR, the court held as follows:“The Court considers the length of the delay; the reason for the delay; the chances of success of the intended appeal, and the degree of prejudice that would be occasioned to the respondent if the application is granted.”

10. The Tribunal, guided by the principles set out in John Kuria v Kelen Wahito, Nairobi Civil Application Nai 19 of 1983 April 10, 1984, referred to by the Judges in the case of Wasike V Swala [1984] KLR 591, Sammy Mwangi Kiriethe & 2 others v Kenya Commercial Bank Ltd (supra) and Section 13 of the Tax Appeals Tribunal Act, 2013 used the following criteria to consider the application:(a)Whether there is a reasonable cause for the delay?(b)Whether the appeal is merited?(c)Whether there will be prejudice suffered by the Respondent if the extension is granted?(a)Whether there is a reasonable cause for the delay

11. In considering what constitutes as a reasonable reason for delay, the court in Balwant Singh v Jagdish Singh & Others (Civil Appeal No.1166 of 2006), held as follows:“The test is whether or not a cause is sufficient to see whether it could have been avoided by the party by the exercise of due care and attention”.

12. The statutory timelines and provisions to file an appeal have been clearly outlined pursuant to the following provisions of Section 13 (3) of the TATA regarding the statutory timelines in commencing appeal process:“A notice of appeal to the Tribunal shall—(a)be in writing;(b)be submitted to the Tribunal within thirty days upon receipt of the decision of the Commissioner.(2)The appellant shall, within fourteen days from the date of filing the notice of appeal, submit enough copies, as may be advised by the Tribunal, of—(a)a memorandum of appeal;(b)statements of facts; and(c)the tax decision.”

13. A taxpayer who has not met the timelines as provided in the above provision of the law has a remedy as set out under the following provisions of Section 13(4) of the TATA which outlines the conditions that the taxpayer ought to meet to enable the Tribunal to exercise its discretion to extend time to appeal:“An extension under subsection (3) may be granted owing to absence from Kenya, or sickness, or other reasonable cause that may have prevented the applicant from giving notice of appeal within the specified period.”

14. With regard to the issue of the delay the Tribunal notes the Applicant’s submissions that upon receipt of the Objection Decision dated 22nd April 2022 it engaged the Respondent and was advised to lodge an application for abandonment of tax pursuant to the provisions of Section 37 of the TPA. The Application was lodged by the Applicant on 16th May 2022.

15. The Tribunal notes the submissions of the Applicant that its Application for abandonment of tax was declined by the Cabinet Secretary National Treasury through his letter dated 18th August 2023 without addressing the grounds of the application but only referring to the repealed Section 37 of the TPA following the operation of the Finance Act, 2023. The Applicant avowed that the delay in lodging the Appeal within the statutory period was due to circumstances out of control of the Applicant considering that the application for abandonment was determined by the Cabinet Secretary of The National Treasury on 18th August 2023 more than one year and three months from the date it was lodged.

16. The Tribunal also notes the further submissions by the Applicant that upon the rejection of the request for abandonment, it continued to engage with the Respondent with a view of settling the matter amicably in light of the Head of Public Service Circular Reference No. OP/CAB.1A issued on 11th November 2019 which called for immediate withdrawal of any court cases between state agencies arising from projects or programmes funded by through Government resources.

17. The Tribunal notes the opposition by the Respondent wherein it stated that the Applicant had not provided a single reason for the inordinate delay of almost three years or 33 months contrary to the provisions of Section 13(4) of the TATA and Rule 10(2) and 10(3) of the Tax Appeals Tribunal Procedure Rules, 2015 as to invoke the discretion of the Tribunal to grant the orders sought. The Respondent’s view was that the delay was unreasonable inexcusable on the grounds that the Applicant was aware of the decision as evidenced in the Objection Decision dated 22nd April 2022 which the Applicant had adduced in evidence before the Tribunal.

18. The view of the Tribunal is that it was not in dispute that the Applicant was served with the Objection Decision on 22nd April 2022. The Applicant in compliance with the tax statue ought to have filed its Notice of Appeal on or before 22nd May 2022. This Application was filed on 22nd January 2025; more than 2 years and 8 months late.

19. The Tribunal notes the explanation of the Applicant that there were engagements between it through its parent ministry and the National Treasury regarding abandonment of the tax and the same was concluded on 18th August, 2023 through a rejection of its request. Although this appears to be a plausible explanation, the Applicant has not explained the delay between August 2023 and the time it filed this Application. It is the view of the Tribunal that the filing of the instant Application was triggered by the Respondent’s enforcement measures.

20. The firm view of the Tribunal and based on its previous pronouncements in Applications such as the instant one, the exercise of its discretion as donated by the provisions of Section 13(4) of the TATA would require that the Applicant meets the conditions set out pursuant to the stated provisions which include; absence from Kenya, or sickness, or other reasonable cause.

21. In the instant case and pursuant to the findings as set out in the case of Balwant Singh v Jagdish Singh and Others ,Civil Appeal No.1166 of 2006, the Tribunal has not found any reasonable cause that can move it to exercise its discretion as provided by law. In addition, the Tribunal finds that the delay was inordinate.

22. In the circumstances the Tribunal finds that the Applicant’s delay was inordinate and that further, the Applicant did not explain any reasonable cause for the delay that would enable the Tribunal to vindicate its right to appeal against the Objection Decision by the Respondent.

23. The Tribunal is further persuaded by the decision in Abdul Aziz Ngoma vs. Mungai Mathayo [1976] Kenya LR 61, 62, where the court held as follows:“We would like to state once again that this Court’s discretion to extend time under rule 4 only comes into existence after ‘sufficient reason’ for extending time has been established and it is only then that other considerations such as the absence of any prejudice and the prospects or otherwise of success in the appeal can be considered.”

24. Having entered the above finding and being guided by the above case law, the Tribunal did not find it necessary to delve into the other issues for its determination as they were rendered moot.

Diposition 25. Based on the foregoing analysis, the Tribunal finds that the Application lacks merit and proceeds to make the following Orders:a.The Application be and is hereby dismissed.b.Each party to bear its own costs.

26. It is so Ordered.

DATED AND DELIVERED AT NAIROBI ON THIS 28TH DAY OF FEBRUARY, 2025. …………………………………………CHRISTINE A. MUGACHAIRPERSON…………………………………………ABRAHAM K. KIPROTICHMEMBER…………………………………………DR. TIMOTHY VIKIRUMEMBER