[2024] KETAT 1294 (KLR)

Banki Kuu Pension Scheme 2012 Registered Trustees v Commissioner of Domestic Taxes (Tax Appeal E754 of 2023) [2024] KETAT 1294 (KLR) (Civ) (30 August 2024) (Judgment)

Neutral citation: [2024] KETAT 1294 (KLR)

Republic of Kenya

In the Tax Appeal Tribunal

Civil

Tax Appeal E754 of 2023

CA Muga, Chair, BK Terer, D.K Ngala, GA Kashindi & SS Ololchike, Members

August 30, 2024

Between

Banki Kuu Pension Scheme 2012 Registered Trustees

Appellant

and

Commissioner of Domestic Taxes

Respondent

Judgment

1. The Appellant, is a defined contribution pension scheme that was established by the Central Bank of Kenya on 1st October 2012 pursuant to a circular by the Treasury No. 18/2010. It is governed by a Trust Deed and is registered with the Retirement Benefits Authority. Its principal activity is to provide pension and other periodical benefits to staff of the Central Bank of Kenya upon retirement and relief for the dependents of its deceased members.

2. The Respondent is a principal officer appointed under Section 13 of the Kenya Revenue Authority Act, CAP 469 of Kenya’s Laws. Under Section 5 (1) of the Act, the Kenya Revenue Authority is an agency of the Government for the collection and receipt of all tax revenue. Further, under Section 5(2) of the Act with respect to the performance of its functions under subsection (1), the Authority is mandated to administer and enforce all provisions of the written laws as set out in Part 1 and 2 of the First Schedule to the Act for the purposes of assessing, collecting and accounting for all revenues in accordance with those laws.

3. The Respondent conducted investigations into the tax affairs of the Appellant with a view of establishing whether the Appellant was tax compliant for the tax period in respect of July 2018 – June 2020. The process was initiated by an electronic mail sometime in March, 2021.

4. Upon providing various documents requested by the Respondent, both parties had meetings and exchanged correspondence in a bid to resolve the audit issues. The Respondent then proceeded to issue an assessment letter on 27th June, 2023 through which a tax amount of Kshs. 240,865,260. 00 was demanded.

5. On 25th July, 2023, the Appellant objected to the assessment and the Respondent rendered its objection decision dated 22nd September, 2022[sic]. The Respondent later clarified that there was a typographical error and that the date of its objection decision was 22nd September, 2023.

6. Aggrieved by the Respondent's objection decision, the Appellant lodged its its notice of appeal dated 19th October 2023 on even date.

The Appeal 7. The Appeal as contained in the Memorandum of Appeal dated 2nd November, 2023 and is premised on the following grounds:i.The Respondent erred in law and fact by demanding corporate taxes on exempt income from a pension scheme contrary to provisions of the Income Tax Act, CAP 470 of Kenya’s Laws (hereinafter “ITA”).ii.The Respondent erred in law in raising its assessment by diverging from strict interpretation of the tax statutes thus seeking to double tax the Appellant.iii.The Respondent erred in law by failing to adhere to the principle of legitimate expectation by raising an assessment on corporate taxes that was contrary to the position it had taken in its earlier refund decision for the income years of 2013 and 2014. iv.The Respondent erred in law and fact by failing to recognize that the tax law limiting the tax-exempt amount for a registered pension scheme has not been enacted.v.The Respondent’s tax assessment was excessive as it did not take into consideration taxes paid at the point of withdrawal of funds from the pension fund.vi.With regard to withholding taxes, the Respondent erred in law and fact by subjecting services to withholding taxes that do not qualify as professional and management services, thereby erroneously arriving at the wrong conclusion that the Appellant did not remit withholding tax.

The Appellant’s Case 8. The Appellant set out its case in the statement of facts dated 2nd November, 2023 together with the witness statement of Mr. Andrew Lentoijoni dated 7th February, 2024 and filed on 8th February 2024. The said witness statement was admitted as evidence in chief by the Tribunal on 27th March, 2024. The witness statement was a reiteration of the Appellant’s statement of facts and will not be re-hashed by the Tribunal. The Appellant stated as follows:

9. The Appellant is one scheme “a registered pension scheme” and during the investigation by the Respondent it was requested for the following documents to ascertain the its tax position:i.Trust Deedii.Actuarial reportsiii.Financial Statementsiv.List of Membersv.Employees Payrollvi.Rental Income Schedulesvii.Rental invoices/contracts/lease agreementsviii.Trial Balancesix.General Ledgersx.Schedules of contributors who have left in the periodxi.Schedules of contributions by members/ employerxii.Bank statements/ cheque counterfoils

10. Upon completion of the investigations an assessment was issued and on 18th October, 2023, after the objection decision was issued, the Appellant paid principal taxes amounting to Kshs. 198,396. 00 which it had conceded to in respect of VAT on imported services, before lodging its Appeal at the Tribunal.

11. The Appellant outlined and analysed each of its grounds and more specifically with regard to corporate taxes it stated as follows:I. The Respondent erred in law and fact by demanding corporate taxes on exempt income from a pension scheme contrary to the provisions of the ITA.

12. The Respondent in its assessment claimed that upon perusal of the income tax returns filed and other availed information, in its determination on whether the correct declarations were made and taxes payable remitted as required under the ITA, the Appellant does not pay corporation tax since all the incomes have been declared as exempt.

13. The Respondent in its objection decision alleged that exempt income for pension schemes is the investment from the registered amount contributed not exceeding KShs. 240,000. 00 for each employee in each year as guided by Section 22 and 22A (1) and (4) of the ITA. Thus, the investment income earned from the excess pension is taxable on the pension scheme in the year earned and not the individual employee upon leaving the scheme.

14. Section 3 of the ITA brings to charge the income of a person, whether resident or non-resident, which is accrued in or derived from Kenya. A person, for purposes of this section, refers to both natural and incorporated persons.

15. The forms of income subject to tax under Section 3 of the ITA are listed and include business income as well as dividends or interest. The Appellant asserted that assuming a no-exemption status, the income generated by the Appellant, would be liable to income tax as it meets the criterion of income accrued in or derived from Kenya, and falls within the purview of the income categories listed under section 3 (2) of the ITA:“Section 3(2) of the ITA states as follows: 2. Subject to this Act, income upon which tax is chargeable under this Act is income in respect of-

a.gains or profits fromi.any business, for whatever period of time carried on;ii.any employment or services rendered;iii.any right granted to any other person for use or occupation of property;b.dividends or interest;c.(i) a pension, charge or annuity; andii.any withdrawals from, or payments out of, a registered pension fund or a registered provident fund or a registered individual retirement fund; andiii.any withdrawals from a registered home ownership savings plan;”

16. The above not-withstanding, Section 13 of the ITA provides for certain incomes that are exempt from tax. Section 13 (1) of the ITA states as follows:“(1)Notwithstanding anything in Part II, the income specified in Part I of the First Schedule which accrued in or was derived from Kenya shall be exempt from tax to the extent so specified.”

17. Further, Part I of the First Schedule to the ITA outlines the income accrued in, derived from or received in Kenya which is exempt from tax. Paragraphs 12, 13, 14 and 15 of Part I of the First Schedule to the ITA exempts from income tax the incomes of a registered pension scheme, registered trust scheme, registered pension fund, and registered provident fund respectively.

18. The Appellant stated that more specifically, the paragraphs provide as follows:“Income accrued in, derived from or received in Kenya which is exempt from tax:………………. 12. The income of a registered pension scheme.

13. The income of a registered trust scheme.

14. The income of a registered pension fund.

15. The income of a registered provident fund.”

19. The Appellant stated that it was registered with the Respondent with effect from 1st October 2012 and that it had been issued with an Income Tax Exemption Certificate indicating that the investment income of the Appellant is exempt from income tax with effect from 1st October 2012.

20. The Appellant is therefore exempted from income tax pursuant to paragraph 12 of the ITA. The exemption provision does not make a distinction between the income attributable to the allowable pension contributions nor the income attributable to excess pension contributions contrary to the Respondent’s aversions.

21. The Appellant averred that there was no requirement for tax purposes to segregate the income of a registered pension scheme into what is attributable to the allowable pension contributions or what is attributable to the excess pension contributions. The Appellant operates “a registered pension scheme” whose income is exempt from tax.

22. The exemption in the First Schedule to the ITA covers the total income of the pension scheme. The determination of whether the contributions used in the generation of the income were taxed would thus not be expected to alter the exemption status of the income of a registered pension scheme. The Respondent’s interpretation of Section 22A(2) of the ITA on defined contribution schemes was erroneous. Sections 22A (1) and (2) provide as follows;“(1)Notwithstanding section 16(2)(d) and (e), the deduction in respect of contributions of an employee in a year shall be limited to the lesser of-a.the sum of the contributions made by the employee to registered funds in the year; orb.thirty percent of the employee's pensionable income in the year; orc.two hundred and forty thousand shillings (or, where contributions are made to registered funds of the employer in respect of a part year of service of the member, twenty thousand shillings per month of service).2. Notwithstanding section 16(2)(d) and (e), the deduction in respect of the contributions made by an employer in a year under defined contribution provisions of registered funds shall be limited to the sum of the deductible contributions of the employer in the year under defined contribution provisions of registered funds on behalf of members of the funds:Provided that, in respect of each member, the sum of the deductible contributions of an employer in a year under the defined contribution provisions of registered funds on behalf of a member of a registered fund means the amount by which the lesser of -a.the sum of the contributions in the year made by the employer on behalf of the member under defined contribution provisions of registered funds (including contributions made out of surplus funds as required under section 22(6)); and by the member to registered funds of the employer;b.thirty per cent of the member's pensionable income from the employer; orc.two hundred and forty thousand shillings (or, where contributions are made to registered funds of the employer in respect of a part year of service of the member, twenty thousand shillings per month of service), exceeds the deductible contributions made by the member in the year to registered funds of the employer under subsection (1).”

23. The Appellant averred that it was because, the provisions of Section 22A (1) and (2) deal purely with the taxation of the pension contributions in excess of Kshs. 240,000. 00 on the contributors which is the amount that is tax deductible on the employer and the employee and limits this amount to Kshs. 240,000. 00 per annum as opposed to the taxation of the pension schemes into which the contributions are made.

24. In this regard, Section 22A (1) and (2) of the ITA does not envisage the taxation of the pension scheme itself but rather the taxation of the pension contributors.

25. In the case of withdrawals of pension from a registered pension scheme, the tax-free limit is specifically provided and the amounts over and above this tax-free limit are taxed as per the provisions of Section 35(3)(e) on deduction of tax from certain income of the ITA and at rates provided by paragraph 5(d) of the Third Schedule to the ITA. Specifically, the Section 35 (3) (e) states as follows:“(3)Subject to subsection (3A) a person shall, upon payment of an amount to a person resident or having a permanent establishment in Kenya in respect of -…..(e) a pension or a lump sum commuted or withdrawn from a registered pension fund or a lump sum out of a registered provident fund in excess of the tax-exempt amounts specified in section 8(4) and (5), or any amount paid out of a registered individual retirement fund, or a benefit paid out of the National Social Security Fund in excess of the tax exempt amount specified in section 8(5)”

26. Additionally, the Appellant stated that paragraph 5 (d) of the Third Schedule to the ITA outlines the following rates:“5. The resident withholding tax rates shall bed)(i)in respect of a payment of a pension or any withdrawal made after the expiry of fifteen years from the date of joining the fund, or on the attainment of the age of fifty years, or upon earlier retirement on the grounds of ill health or infirmity of body and mind, from a registered pension fund, registered provident fund, the National Social Security Fund or a registered individual retirement fund, in excess of the tax free amounts specified under section 8(4) and 8(5) in any one year,Rate in each shillingOn the first KSh. 400,000 10%On the next KSh. 400,000 15%On the next KSh. 400,000 20%On the next KSh. 400,000 25%On all income above 30%KSh. 1,600,000 of the amounts in excess of the tax-free amount provided that the tax so deducted shall be final;ii.in respect of a withdrawal before the expiry of fifteen years from the date of joining the fund, made from a registered pension fund, registered provident fund, the National Social Security Fund or a registered individual retirement fund in excess of the tax-free amounts specified under section 8(4) and 8(5) in any one year,Rate in each shillingOn the first KSh.288,000. . 10%On the next KSh.100,000. 25%Above KSh. 388,000. 30%iii.in respect of surplus funds withdrawn by or refunded to an employer in respect of registered pension or registered provident funds, thirty per cent of the gross sum payable;”

27. The Appellant stated that it had at all times paid taxes at the point of withdrawal including taxes arising from investment income from excess pension. It further stated that to subject the same income to corporation tax would not only be against the provisions of the ITA but would amount to double taxation.

II. The Respondent has erred in law in raising its assessment by diverging from strict interpretation of tax statutes and thus seeking to double tax the Appellant. 28. The Respondent demanded corporation taxes on the basis that the investment income earned by the Appellant from excess pension is taxable on the pension scheme in the year earned and not the individual employee upon withdrawing pension from the scheme. The Respondent erred in its interpretation as Section 3 (2) (c) of the ITA states as follows:“(2)Subject to this Act, income upon which tax is chargeable under this Act is income in respect of (c) (i) a pension, charge or annuity; and(ii)any withdrawals from, or payments out of a registered pension fund or a registered provident fund or a registered individual retirement fund;”

29. Section 3 (2) (ii) of the ITA provides strictly that tax is chargeable upon withdrawals or payments out of the registered scheme, not the investment income earned by the scheme. Article 210 (1) of the Constitution of Kenya, 2010 (hereinafter “the Constitution”) is categorical that any charge or demand for tax has to be made on the basis of express statutory provisions. There is also a settled legal principle that tax statutes must be interpreted restrictively as alluded to by the Court in the case of Keroche Industries Limited v Kenya Revenue Authority & 5 Others [2007] 2 KLR 240 as follows:“taxation can only be done on clear words and cannot be on intendment. Linked to this is that a penalty must be imposed in clear words. Finally, even where the inclination of the legislature is not clear or where there are two or more possible meanings, the inclination of the court should be against a construction or interpretation which imposes a burden, tax or duty on the subject”

30. The Appellant’s view was that the court is emphatic that unless expressly provided for in tax legislation, no taxes can be charged or demanded by the revenue authority, and further, in any event, where the words of the legislature may be unclear, the interpretation ought not to be the one that imposes a burden on the taxpayer. The interpretation ought to be the one that favours the taxpayer in such a case. In the circumstances, it was not open in law for the Respondent to purport to demand corporation tax from the investment income which is explicitly exempt from tax under Paragraph 12 of Part I of the First Schedule to the ITA.

31. In addition, tax on income arising from the investments of the scheme is charged or paid at the point of withdrawal of funds from the pension scheme by the pensioners pursuant to section 35(3)(e) of the ITA at rates provided in paragraph 5(d) of the third schedule to the ITA. This fact, according to the Appellant, was not disputed by the Respondent and it was the fact that when members of the Appellant withdraw their pension from the fund, they are taxed according to the provisions of the ITA. To subject the same income to corporation tax would not only be against the provisions of the ITA but would amount to double taxation. This is because, the income that the Respondent is assessing for corporate tax is the same income that is subjected to tax at the point of withdrawal.

III. The Respondent erred in law by failing to adhere to the principle of legitimate expectation by raising an assessment on corporation taxes that was contrary to the position it had taken in its earlier refund decision for the income years of 2013 and 2014. 32. In a letter dated 28th May 2018 which was a follow up to a letter dated 2nd August 2016, the Appellant applied for a refund of corporate taxes that were paid in error for the years of income for 2013 and 2014 amounting to KShs. 360,317. 00 and KShs. 5,094,440. 00 respectively. The Appellant in its application informed the Respondent that it paid corporate tax in error given its income is exempt from income tax in accordance with Paragraph 12 of Part I of the First Schedule to the ITA. The Respondent responded on 27th February 2017 and requested the Appellant to claim the refund of corporate tax paid in error by filing income tax returns for the affected period online.

33. Following various meetings and explanations provided to the Respondent, the Respondent refunded the Tax Approval Orders and Disbursement Orders for the income years of 2013 and 2014 respectively. By granting the refund of corporate tax, this raised a legitimate expectation that the income earned by the Appellant is tax exempt. By raising an assessment and demanding taxes from the Appellant, the Respondent violated the its legitimate expectation.

34. The Respondent’s decision to depart from the position that it intimated to the Appellant was therefore contrary to the Appellant’s legitimate expectation. According to De Smith, Woolf & Amp; Jowell “Judicial Review of Administrative Action” 6th Edn, Sweet & amp; Maxwell page 609 quoted in Republic v Kenya Authority Ex-Parte; Cosmos Limited [2016] Eklr:“A legitimate expectation arises where a person responsible for taking a decision has induced in someone a reasonable expectation that he will receive or retain a benefit of advantage. It is a basic principle of fairness that legitimate expectations ought not to be thwarted. The protection of legitimate expectations is at the root of the constitutional principle of the rule of law, which requires predictability and certainty in government’s dealings with the public.”

35. In determining the existence of legitimate expectation, the court in Republic v Principal Secretary, Ministry of Mining Ex-parte Airbus Helicopters Southern Africa (PTY) Ltd [2017] eKLR cited R (Bibi) v Newham London Borough Council [2001] EWCA Civ 607 [2002] 1 WLR 237 at [19] to hold that existence of legitimate expectation involves the following questions:“In all legitimate expectation cases, whether substantive or procedural, three practical questions rise, the first question is to what has the public authority, whether by practice or by promise, committed itself to; the second is whether the authority has acted or proposes to act unlawfully in relation to its commitment; the third is what the court should do.”

36. The Appellant asserted that by previously refunding the corporate tax paid in error and thereby confirming that the Appellant’s income is indeed exempt, the Respondent made a representation that it is now bound to keep. The Appellant further averred that the representations made by the Respondent were actually the correct and lawful position, and the Respondent could not reinvent its position to suit its intention to collect tax that was not due.

37. The Appellant stated that the Respondent had by its utterances in writing given the Appellant an enforceable legitimate expectation that all its income is exempt from corporate tax. The Appellant prayed that the objection decisionn would be set aside as the Respondent had diverged from the correct position where there was no change of law or circumstances to warrant the tax demand.

IV. The Respondent erred in law and fact by failing to recognise the tax law limited the tax- exempt amount for a registered pension scheme has not been enacted. 38. The Appellant submitted that the provisions of Paragraph 12 of the First Schedule to the ITA do not contain the provision limiting the amount of exempt income for a registered pension scheme. This provision is only included in the draft Income Tax Bill, 2018 which is yet to be enacted. Particularly, Paragraph 7 of the First Schedule to the draft Income Tax Bill, 2018 provides as follows:“The income of a registered pension scheme registered trust scheme, registered pension fund, registered provident fund and registered individual retirement fund is exempt from tax.provided that this paragraph shall apply only to that income in respect of contribution into the scheme as specified under section 32 above.”

39. Section 32 (1) of the Income Tax Bill, draft Act 2018 which is yet to be enacted provides as follows:“Deduction in respect of contributions to registered pension or provident funds, where the deduction in respect of contributions of an employee in a year shall be the actual amount of contributions or two hundred forty thousand shillings or whichever is lower.”

40. The Appellant stated that the Respondent had no basis for assessing corporate tax on its income as there is no existing law providing for this taxation.

V. The Respondent’s corporate tax assessment is excessive as it did not take into consideration taxes paid at the point of withdrawal of funds from the pension fund. 41. The Appellant stated that if at all the corporate taxes demanded by the Respondent are due and payable, the Respondent’s tax assessment and confirmation in its objection decision was excessive as it did not consider the taxes paid on withdrawals from the pension scheme.

42. The Respondent did not dispute that tax has been paid by the Appellant. The issue in contention according to the Respondent is the point of payment of this tax. The Appellant accounts for tax at the point of withdrawal from the it in accordance with the provisions of Section 3 (2) (c), Section 8 and Paragraph 5 (d) of the Third Schedule to the ITA.

43. The Appellant already paid to the Respondent a total of taxes amounting to Kshs. 11,803,567. 00 for the years 2017 to 2021. These taxes were paid to the Respondent at the point when the members of the scheme withdrew their contributions from the scheme. Additionally, the Respondent did not dispute that these taxes were paid and received at the time that members of the scheme were making withdrawals and not contributions.

44. The Respondent’s objection decision and assessment indicated that tax should be accounted for in the year earned and not when the individual employee leaves or withdraws from the scheme which was erroneous. However, the Respondent in its calculation of the tax liability did not consider the taxes already paid by the Appellant to the Respondent on the members withdrawal from it. To subject the same income to corporation tax would not only be against the provisions of the ITA but would amount to double taxation of members’ income.

VI. The Respondent erred in law and fact by subjecting services to withholding taxes that do not qualify as management or professional services, thereby erroneously finding that the Appellant did not remit withholding tax 45. The Respondent sought to demand withholding taxes on various maintenance services provided to the Appellant amounting to Kshs. 149,674. 00. The Appellant submitted that the services offered by the service providers highlighted by the Respondent did not fall under the ambit of Section 10 of the ITA which provides as follows:“(1)For the purposes of this Act, where a resident person or a person having a permanent establishment in Kenya makes a payment to any other person in respect of-a.a management or professional fee or training fee;………………………………..the amount thereof shall be deemed to be income which accrued in or was derived from Kenya:

46. Section 2 of the ITA defines “management or professional fees” as follows:“a payment made to a person, other than a payment made to an employee by his employer, as consideration for managerial, technical, agency, contractual, professional or consultancy services however calculated.”

47. The Appellant stated that from the description of the services which are standard maintenance procedures on lifts and cleaning services offered to the Appellant as evidenced by the sample invoices that it adduced as evidence, the services were maintenance supply services on various equipment that are provided to the Appellant, and not professional or management services. This was on the basis that: the services are not managerial in nature as they don't relate to management;

the services are not professional in nature as maintenance services are not included in the list of professions in the Fifth Schedule to the ITA;

the services are not consultancy as they do not relate to payment for acting in an advisory capacity or providing services on a consultancy basis;

the services are not agency as the provider was not acting on behalf of the Appellant;

the services are not contractual fees as they relate to generator maintenance services, lift services and cleaning and gardening service; and

such services would not be deemed as technical as special skills are not required.

48. The Appellant was of the view that the Respondent had misinterpreted section 2 of the ITA as the description provided for in section 2 of the ITA did not constitute the services. The basis of the Appellant’s assertion was that the services were standard maintenance services, gardening and cleaning services.

49. The Appellant further stated, in addition that “professional services” were not defined in the ITA but that the Fifth Schedule to the ITA provided a schedule of professions and qualifications and the activities of standard maintenance services, gardening and cleaning services were not amongst those listed in the Fifth Schedule to the ITA and could not therefore qualify as a professional service. The Appellant adduced as evidence copies of the invoices illustrating the professional services.

50. The Appellant referred to Article 12A of the UN Model Tax Convention on the definition of “Fees for Technical services” which was similar to the definition of “management or professional fees” under section 2 of the ITA as it encompassed, managerial, technical and consultancy services. The Appellant stated that Article 12A of the UN Model Tax Convention provides as follows:“1. Fees for technical services arising in a Contracting State and paid to a resident of the other Contracting State may be taxed in that other State.”…………………“3. The Term ‘fees for technical services” as used in this Articles means any payment in consideration for any service of a managerial, technical or consultancy nature, unless the payment is made: (a) to an employee of the person making the payment; (b) for teaching in an educational institution or for teaching by an educational institution; or (c) by an individual for services for the personal use of an individual.”

51. Fees for technical services, according to the Appellant are defined to mean payments for services “of a managerial, technical or consultancy nature”. The Commentary to Article 12A of the UN Model Tax Treaty provides as follows on the fundamental concept of fees for technical services:‘Given the ordinary meanings of the terms “managerial,” “technical” and “consultancy”, the fundamental concept underlying the definition of fees for technical services is that the services must involve the application by the service provider of specialized knowledge, skill, or expertise on behalf of a client or the transfer of knowledge, skill, or expertise to the client .. (Emphasis added)”.

52. Paragraphs 63-66 of the Commentaries further define “management”, “technical” and “consultancy” as follows:“Management” involves the application of knowledge, skill or expertise in the control or administration of the conduct of a commercial enterprise or organisation. Thus, if the control or management of an enterprise is contracted out to a person other than directors, officers, or employees, the same would be deemed to be a management service.”“The ordinary meaning of the term “technical” involves the application of specialised knowledge, skill or expertise with respect to a particular art, science, profession or occupation”.“The ordinary meaning of consultancy involves the provisions of advice or services of a specialized nature.”

53. The Appellant stated that in summary, the Commentaries suggest as follows:a.Managerial services involve services relating to how a business is to be run;b.Technical services require technical skills or knowledge in relation to a particular technical field i.e.; art, science, or profession; andc.Consultancy services require the provision of advice, which arguably involves human interaction.

54. The Appellant stated that the services that it had outlined including cleaning, gardening and lift maintenance do not constitute any managerial, technical or consultancy services and thus the Appellant had no obligation to withhold any amounts.

55. The Appellant asserted that without prejudice to its preceding statements, the Respondent ought not to charge withholding tax on the gross amount as the gross amount included an amount that did not constitute “management or professional fee” but was goods and spare parts necessary for the maintenance works as demonstrated by the invoices it had adduced as evidence.

56. The invoices showed that the Appellant had received basic services for maintenance work, cleaning and gardening. The Appellant’s position was guided by the provisions of section 2 of the ITA which defines “management or professional fees” to only consist of fees for services. Costs for the use of goods and spare parts did not constitute management or professional fees but are costs of goods. The Respondent ought to have distinguished between costs for the maintenance services and the cost of individual items as clearly indicated in the invoices and agreements between the Appellant and the service providers. To illustrate the above, the Appellant adduced as evidence a sample Agreement for the provision of Maintenance and Service to lifts between Starlink Diesel Sales and Services - Banki Kuu Pension Scheme 2012.

57. The decision by the Respondent to assess withholding taxes on cost of goods was contrary to the decision in Two Lakes Packing vCommissioner of Domestic Taxes TAT Appeal No. 420 of 2021, where the Tribunal when interpreting the provisions of section 35(3)(f) of the ITA held as follows:“The Tribunal was of the view that the Respondent could not rely on the word “gross” appearing in Paragraph 5 of the Third Schedule of the ITA to bring to charge an item which was clearly not subject to withholding tax. The Tribunal did not read any tax avoidance scheme in the itemization of the invoices, to separate the taxable from the non-taxable.”

58. The Appellant asserted that taxation must be based on clear provisions of the law. It relied on the case of Republic v Commissioner of Domestic Taxes large Taxpayers office Ex parte Barclays Bank of Kenya Limited (2012) eKLR where the court held as follows:“39. …….the duty of the respondent in assessing tax is to identify transactions or payments that attract tax liability especially where there are objections to such categorisation. Section 35(1)(a) of the Income Tax Act identifies specific types of payments that attract tax, the respondent is obligated by law to state with clarity its claim and state how the transaction falls within the terms of the statute. The respondent cannot exercise its duty like a trawler in the deep seas expecting all the fish by casting its net wide. The respondent’s decision in this respect falls below this standard and the transaction caught by the decision cannot be said to fall within the statutory definition of the tax.”

59. The Appellant finalized its statement of facts by stating that since the invoices were for maintenance services and not professional fees the payments could not be subjected to withholding tax.

60. The Appellant made the following prayers to the Tribunal:a.That the Respondent’s objection decision dated 22nd September, 2023 relating to corporate income tax be set aside in its entirety;b.That the Respondent’s objection decision dated 22nd September 2023 relating to withholding taxes as demanded by the Respondent be set aside in its entirety;c.That the costs of and incidental to this Appeal be awarded to the Appellant; andd.Any other orders that the Tribunal may deem fit.

Respondent’s Case 61. The Respondent’s case was as set out in its statement of facts dated 29th November, 2023 and filed on 30th November, 2023 and the witness statement of Ms. Linet Ojiambo dated 1st March, 2024 and filed on 6th March, 2024 which was admitted as evidence in chief by the Tribunal on 27th March, 2024. The witness statement of Ms. Ojiambo was a reiteration of the Respondent’s statement of facts in which it stated as follows:

62. The Respondent averred that the Appellant was registered by it on 18th March 2013 and was granted an Income Tax Exemption Certificate on 19th August 2013. The Respondent stated that it conducted tax investigations into the tax affairs of the Appellant with a view of establishing whether the Appellant was tax compliant for the tax period years 2018 to 2022.

63. The Respondent averred that it took notice of the fact that the Appellant did not pay corporation tax since all the incomes were declared as exempt and the Appellant claimed that exempt income for the registered amount contributed not exceeding Kshs. 240,000. 00 for each employee in each year as guided by section 22 of the ITA.

64. The Respondent averred that the investment income earned from the excess pension is taxable on the pension scheme in the year earned and not on the individual employee upon leaving the scheme. The Respondent averred that the Appellant is registered with the Retirement Benefits Authority and has an exemption certificate issued by the Respondent. The exemption certificate exempts it from Income Tax. Dividend and interest payable to the Appellant should be paid gross without deduction of income tax.

65. The Respondent averred that the contributions exceeding the tax limits provided by Section 22A are not exempt thus their investments are not tax exempt. The contributions above tax limit ought to be accounted for separately and the taxes thereon be paid promptly pursuant to the law.

66. The Respondent averred that it reviewed the Appellant's withholding income tax returns for the tax period July 2018 to June 2022 to determine whether the Appellant had declared and paid the correct taxes. The Respondent noted that the Appellant consumed the services of professionals during the years under review and payments were not subjected to withholding income tax.

67. The Respondent averred that the Appellant is an appointed Withholding VAT agent under Section 42A of the Tax Procedures Act, CAP 469B of the Laws of Kenya (hereinafter “TPA”) and a review of the filed returns revealed unpaid principal taxes of Kshs 47,594. 00. The Respondent reviewed the Appellant's documents and noted that reverse VAT on imported services was not remitted, assessments for corporation tax, withholding income tax, withholding VAT and VAT on imported services amounting to principal of Kshs 183,687,956. 00. The Appellant objected to the additional tax assessments.

68. The Respondent averred that the Appellant contended that the services subjected by the Respondent to withholding income tax did not qualify as management or professional services pursuant to the definition in section 2 of the ITA.The Respondent requested invoices relating to the services and the Appellant’s contractual agreements with the service providers. The Respondent reviewed the invoices provided and noted that the services related to repair, maintenance and overhaul of generator, maintenance of lifts and cleaning services. The Respondent averred that the services fall under technical, contractual and professional services and are therefore subject to withholding income tax.

69. The Respondent averred that following deletion of Section 35(6) of the ITA through changes introduced by Section 9 of the Finance Act 2016 and reintroduced the same under Section 39A of the TPA, in November 2019 the assessment relating to the period 1st July 2016 to November 2019 was excluded in the assessments.

70. The Respondent averred that the Appellant contended that the Respondent had issued the assessment on VAT on imported services outside the statutory 5 years and upon review the Respondent vacated the assessments for January 2017 to April 2018.

71. The Respondent averred that with regards to the three invoices for Crown Agents Ltd in respect of the dates 20th September, 2018 and 20th October, 2018 the Appellant contended that the same had not been correctly accounted for VAT purposes. The Appellant contended that it was ready to pay VAT under the accurate VAT percentage, The VAT applicable rate was 16%.

72. The Respondent stated that the Appeal evoked the following issues for determination:(i)Whether the objection decision dated 22nd September, 2022 were[sic] proper in law?(ii)Whether the Appeal herein should be allowed?

73. The Respondent stated that section 24 of the TPA allows a taxpayer to file returns but further provides that the Commissioner is not bound by the information provided therein and can assess the tax liability based on any other available information. Section 77 of the ITA and Section 31 of the TPA allow the Respondent to issue additional assessments where a taxpayer has been assessed for a lesser amount based on any additional available information and to the best of its judgement.

74. The Respondent averred that the contributions exceeding the tax limits provided for under Section 22A of the ITA are not tax exempt and therefore their investment income is taxable. The Respondent first that the contribution above the tax limit ought to be accounted for separately and the taxes thereon paid promptly in accordance with the law. The Respondent also averred that the withholding income tax charged on services related to repair, maintenance and overhaul of generator, maintenance of lifts and cleaning services which are technical, contractual and professional services and therefore are management or professional fee subject to withholding income tax.

75. The Respondent averred that in line with the deletion of Section 35 (6) of the ITA through changes introduced by Section 9 of the Finance Act 2016 and reintroduced under Section 39A in the TPA the withholding income tax assessments for the tax period 1st July, 2016 to November 2019 were dropped.

76. The Respondent averred that the VAT on imported services charged for the tax period months January 20l7 to April 2018 which were outside the 5-year statutory timelines were dropped. The Respondent stated that for the 3 invoices for Crown Agent’s Limited dated 20th September 2018 and 20th October 2018 respectively, where VAT had not been correctly accounted for the Appellant was ready to pay the correct VAT which was calculated at 16%.

77. The Respondent averred that it is empowered under section 31 of the TPA to issue additional tax assessments based on available information and its best judgement. The Respondent finally averred that the objection decision dated 22nd September, 2022 [sic] was proper in law based on the information available to it.

78. The Respondent prayed that the Tribunal would find that the objection decision dated 22nd September, 2022[sic] would be upheld and that the Appeal would be dismissed with costs to it.

Parties’ Submissions 79. On 27th March, 2024 the Tribunal directed both parties to file and serve on each other their respective written submissions on or before 10th April, 2024. The Appellant’s written submissions dated 18th April, 2024 were filed on 19th April, 2024 and the same have been expunged from the record. The Respondent’s written submissions dated 9th April, 2024 and filed on the same date will be analysed by the Tribunal though it will not rehash the submissions of the Respondent where there was a reiteration of its statement of facts.

80. The Respondent submitted as follows regarding the two issues it had identified for determination:

(a) Whether the objection decision dated 22nd September, 2022 [sic] is proper in law? 81. The Respondent submitted that the contributions exceeding the tax limits provided for under Section 22A of the ITA are not tax exempt thus their investment income is taxable. Section 22A (1) of the ITA provides as follows:“Notwithstanding section 16(2)(d) and (e), the deduction in respect of contributions of an employee in a year shall be limited to the lesser of -a.the sum of the contributions made by the employee to registered funds in the year, orb.thirty per cent of the employee's pensionable income in the year; orc.two hundred and forty thousand shillings (or, where contributions are made to registered funds of the employer in respect of a part year of service of the member, twenty thousand shillings per month of service)."

82. The Respondent averred that the contributions above the tax limit should be accounted for separately and the taxes thereon paid promptly as provided by the law. Section 2 of the ITA defines pension fund as follows:“pension fund" means a fund for payment of pensions or other similar benefits to employees on retirement, or to the dependants of employees on the death of those employees and "registered pension fund" means one which has been registered with the Commissioner in such manner as may be prescribed”Whilst pensionable income is defined as follows:"pensionable income" means—(a)in relation to a member of a registered pension or provident fund or of an individual eligible to contribute to a registered individual retirement fund, the employment income specified in section 3(2)(a)(ii) subjected to deduction of tax under section 37;(b)in the case of an individual eligible to contribute to a registered individual retirement fund, the gains or profits from business subject to tax under section 3(2)(a)(i) earned as the sole proprietor or as a partner of the business:Provided that where a loss from business is realized the loss shall be deemed to be zero.”Registered fund means:"registered fund" means a registered pension fund or a registered provident fund

83. Section 3 of the ITA provides as follows regarding chargeable income:“Subject to this Act, income upon which tax is chargeable under this Act is income in respect of -d.gains or profits from -i.a business, for whatever period of time carried on;ii.employment or services renderediii.a right granted to another person for use or occupation of property;e.dividends or interest;f.(i) a pension, charge or annuity; andi.any withdrawal from, or payments out of, a registered pension fund, or a registered provident fund or a registered individual retirement fund; and any withdrawals from registered home ownership savings plan."

84. The Respondent averred that the contributions made above the tax limit provided under Section 22A of the ITA should be accounted for separately and taxes on investments thereon paid. The Respondent further averred that the investment income earned from the excess pension is taxable on the pension scheme in the year earned and not on the individual employee upon leaving the scheme.

85. The Respondent submitted that the withholding income tax from the tax period November 2019 was charged on services related to repair, maintenance and overhaul of generator, maintenance of lifts and cleaning services which are technical, contractual and professional services thus are management or professional fee subject to withholding income tax.

86. The Respondent submitted that the Appellant availed invoices and agreements for services on repair, maintenance and overhaul of generator and maintenance of lifts and cleaning services. The Respondent submitted that the services fall under management or professional services under section 2 of the ITA; and for which the Appellant ought to have charged a withholding tax as provided for under Section 10 and 35 of the ITA.

87. Section 2 of the ITA defines management or professional fees as follows;“management or professional fee" means a payment made to a person, other than a payment made to an employee by his employer, as consideration for managerial, technical, agency, contractual, professional or consultancy services however calculated"

88. Section 10 of the ITA provides as follows:“For the purposes of this Act, where a resident person or a person having a permanent establishment in Kenya makes a payment to any other person in respect of-g.a management or professional fee or training fee;the amount thereof shall be deemed to be income which accrued in or was derived from Kenya:"whilst section 35 (3) (I) of the ITA provides as follows:''A person shall, upon payment of an amount to a person resident or having a permanent establishment in Kenya in respect of -management or professional fee or training fees the aggregate value of which is twenty-four thousand shillings or more in a month." Provided that for the purposes of this paragraph, contractual fee within the meaning of "management or professional fee" shall mean payment for work done in respect of building, civil or engineering works which is chargeable to tax, deduct therefrom tax at the appropriate resident withholding tax."

89. The Court of Appeal in Kenya Revenue Authority & another v Republic (Ex parte) Kenya Nut Company Limited [2020] eKLR explained withholding income tax as follows:“Because this appeal relates to withholding tax as a type of income tax, it is necessary to state at this early stage that it is specifically governed by sections 10 and 35 of the Income Tax Act and the Income Tax (Withholding Tax Rules) 2001; and to explain that it is a tax that is chargeable on, among others, interest, dividends, royalties, management or professional fees, commissions, pension or retirement annuity, creating an obligation on the tax payer, whether resident or non-resident, lo deduct and remit the tax on eligible income which accrued in or was derived from Kenya."

(ii) Whether the Appeal herein is merited? 90. The Respondent submitted that Section 56 of the TPA places the burden of proof upon the Appellant as follows:“(1)In any proceedings under this Part, the burden shall be on the taxpayer to prove that a tax decision is incorrect.”An appeal to the High Court or to the Court of Appeal shall be on a question of law only.(2)In an appeal by a taxpayer to the Tribunal, High Court or Court of Appeal in relation to an appealable decision, the taxpayer shall rely only on the grounds stated in the objection to which the decision relates unless the Tribunal or Court allows the person to add new grounds."

91. In Kenya Revenue Authority v Man Diesel & Turbo Se, Kenya [2021] eKLR.“Placing the burden of proof in tax cases on the tax payer reflects the unique nature of the tax system. This is evidentrom the three-fold justifications for placing the burden on the taxpayer'. These are: - (a) the presumption of correctness; (b) the government's need for revenue' and, (c) the taxpayer's possession of evidence. The taxpayer's burden of proof comprises two parts:- establishing. with evidence. the underlying {acts on which the law is to operate (and in this regard. the standard of (proof to which each fact must be proved is relevant) ;( and - that the operation of the law when applied to those facts establishes that the assessment is excessive or erroneous.As was held in George v Federal Commissioner of Taxation, [17] "the burden lies upon the taxpayer of establishing affirmatively that the amount of taxable income for which he has been assessed exceeds the actual taxable income which he has derived during the year o[income" and that "...in order to carry that burden he must necessarily exclude bv his proof all sources of income except those which he admits. His case must be that he did not derive from am, source taxable income to the amount of the assessment." However, the manner in which a taxpayer can discharge the burden varies with circumstances."

92. Section 107 (1) of the Evidence Act Cap, 80 of Kenya’s Laws (hereinafter “Evidence Act”) further provides that: "Whoever desires any court to give judgment as to any legal right or liability dependent on the existence of facts which he asserts must prove that those facts exist."

93. The Respondent humbly submitted that it applied its best judgement based on the information before it and it is now upon the Appellant to prove that the assessments were excessive or wrong.

94. The Respondent further submitted that what constituted the Commissioner's best judgment was been dealt with extensively in the Commissioner for Her Majesty's Revenue and Customs TC/2017/02292 Saima Khalid Appellant Vs the Commissioners for Her Majesty's Respondents Revenue & Customs at paragraph 29 therein where the Tribunal set out the following requirements for a decision to be to the best of HMRC's judgment as follows:“...the very use of the word 'judgment' makes it clear that the commissioners are required to exercise their powers in such a way that they make a value judgment on the material which is before them...Secondly, clearly there must be some material before the commissioners on which they can base their judgment. If there is no material at all it would be impossible to form a judgment as to what tax is due.Thirdly, it should be recognised, particularly bearing in mind the primary obligation, to which I have made reference, of the taxpayer to make a return himself, that the commissioners should not be required to do the work of the taxpayer in order to form a conclusion as to the amount of tax which, to the best of their judgment, is due. In the very nature of things frequently the relevant information will be readily available to the taxpayer, but it will be very difficult for the commissioners to obtain that information without carrying out exhaustive investigations. In my view, the use of the words 'best of their judgment' does not envisage the burden being placed on the commissioners of carrying out exhaustive investigations. What the words 'best of their judgment' envisage. in mu view. is that the commissioners will fairly consider all material placed before them and. on that material. come to a decision which is one which is reasonable and not arbitrary as to the amount of tax which is due. As long as there is some material on which the commissioners can reasonably act then they are not required to carry out investigations which may or may not result in -further material being placed before them."

Issues For Determination 95. The Tribunal having carefully considered the parties’ pleadings, documentation and submissions identified the following two issues for determination:(a)Whether the income of the Appellant that was attributable to excess pension contribution was subject to corporate tax.b.Whether withholding tax was deductible on payments made to the providers of gardening, cleaning and maintenance services.

Analysis And Findings 96. The Tribunal will proceed to analyse the issues that it has identified for determination as outlined hereinunder:

(a) Whether the income of the Appellant that was attributable to excess pension fund contribution was subject to corporate tax.PARA 97. The Tribunal notes that the Appellant conceded to the Respondent’s assessment on withholding vat and VAT on imported services. This Appeal is therefore properly before it as the undisputed taxes were paid. Accordingly, the disputed tax was that in relation to the corporate tax applied on the income of the Appellant. 98. The Tribunal also notes the Appellant’s argument in its pleadings and during the hearing that its income was exempt from corporate tax. The Respondent on the other hand contended that corporate tax was due and payable on the income of the Appellant. During the hearing, the Appellant’s witness confirmed that there were those who had made excess contributions to the scheme.

99. The Tribunal is of the view the ITA provides for the taxation or lack thereof of the Appellant’s income and its members contributions. Most importantly, the Tribunal notes that pursuant to the income tax exemption certificate issued by the Respondent to the Appellant on 19th August, 2013, its income is exempt and the dividend and interest income earned by the Appellant is paid to it without deduction of withholding tax.

100. The Tribunal notes that the ITA does not define the meaning of the term ‘pension’ and therefore it relied on the definition outlined in the 10th Edition of the 10th Edition of the Oxford Advanced Learners Dictionary which defines a pension as follows:“an amount of money paid regularly by a government or company to someone who has retired from work”

101. The Tribunal notes the following provisions of section 3 of the ITA which charges tax on pensions:“3. Charge of tax(1)Subject to, and in accordance with, this Act, a tax to be known as income tax shall be charged for each year of income upon all the income of a person, whether resident or non-resident, which accrued in or was derived from Kenya.(2)Subject to this Act, income upon which tax is chargeable under this Act is income in respect of—(a)gains or profits from—(i)………………………….(ii)……………………………………….;(iii)………………………………………….(b)………………………………………..(c)(i) a pension, charge or annuity; and(ii)any withdrawals from, or payments out of, a registered pension fund or a registered provident fund or a registered individual retirement fund; and(iii)any withdrawals from a registered home ownership savings.”

102. The Tribunal’s view is that in view of the foregoing provisions of the ITA, pensions and withdrawals from registered pensions are chargeable to income tax. Pursuant to the following provisions of section 15 of the ITA, the following deductions are allowed against the income of a person:“15. Deductions allowed(1)For the purpose of ascertaining the total income of any person for a year of income there shall, subject to section 16 of this Act, be deducted all expenditure incurred in such year of income which is expenditure wholly and exclusively incurred by him in the production of that income, and where under section 27 of this Act any income of an accounting period ending on some day other than the last day of such year of income is, for the purpose of ascertaining total income for any year of income, taken to be income for any year of income, then such expenditure incurred during such period shall be treated as having been incurred during such year of income.(2)Without prejudice to sub-section (1) of this section, in computing for a year of income the gains or profits chargeable to tax under section 3(2)(a) of this Act, the following amounts shall be deducted:(a)………………………….(o)any sum contributed in such year of income by an employer to a national provident fund or other retirement benefits scheme established for employees throughout Kenya by the provisions of any written law;”“16. Deductions not allowed(1)Save as otherwise expressly provided, for the purposes of ascertaining the total income of a person for any year of income, no deduction shall be allowed in respect of—(a)any expenditure or loss which is not wholly and exclusively incurred by him in the production of the income;(b)any capital expenditure, or any loss, diminution or exhaustion of capital.(2)Notwithstanding any other provision of this Act, no deduction shall be allowed in respect of—(a)……….(d)any sums contributed to a registered or unregistered pension, saving, or provident scheme or fund, except as provided in section 15(2)(o), or any sum paid to another person as a pension;(e)a premium paid under an annuity contract;”….

103. The Tribunal notes the provisions of section 22A of the ITA which provides as follows at sections 1 and 2:“22A. Deductions in respect of contributions to registered pension or provident funds(1)Notwithstanding section 16 (2) (d) and (e), the deduction in respect of contributions of an employee in a year shall be limited to the lesser of—(a)the sum of the contributions made by the employee to registered funds in the year; or(b)thirty per cent of the employee’s pensionable income in the year; or(c)two hundred and forty thousand shillings (or, where contributions are made to registered funds of the employer in respect of a part year of service of the member, twenty thousand shillings per month of service).(2)Notwithstanding section 16 (2) (d) and (e), the deduction in respect of the contributions made by an employer in a year under defined contribution provisions of registered funds shall be limited to the sum of the deductible contributions of the employer in the year under defined contribution provisions of registered funds on behalf of members of the funds:Provided that, in respect of each member, the sum of the deductible contributions of an employer in a year under the defined contribution provisions of registered funds on behalf of a member of a registered fund means the amount by which the lesser of—(a)the sum of the contributions in the year made by the employer on behalf of the member under defined contribution provisions of registered funds including contributions made out of surplus funds as required under section 22 (6); and by the member to registered funds of the employer;(b)thirty per cent of the member’s pensionable income from the employer; or(c)two hundred and forty thousand shillings (or, where contributions are made to registered funds of the employer in respect of a part year of service of the member, twenty thousand shillings per month of service) exceeds the deductible contributions made by the member in the year to registered funds of the employer under subsection (1).”

104. The Tribunal further notes that the foregoing provisions of the ITA outline how pension contributions are taxed. The minimum allowable deduction is Kshs. 240,000. 00 per annum or Kshs. 20,000. 00 for each month in respect to each employee as anchored in the provisions of section 22A of the ITA.

105. The Tribunal notes the assertions of the Respondent that upon review of the Appellant’s records, it noted that a number of its members had made excess contributions to it. Accordingly, contributions by its members in some instances were in excess of Kshs. 240,000. 00 allowable deduction per annum as required by law. The Appellant did not provide the list of its members and their respective contributions in this regard and therefore the assertion of the Respondent that there were contributions by its members, in excess of the minimum deductible amount allowed by the ITA of Kshs. 240,000. 00 per annum was unchallenged. The Tribunal therefore infers that some of the members of the Appellant made “excess contributions”, or in other words, some of the members contributed amounts that were more than the allowable deductible limit of Kshs. 240,000. 00 per annum.

106. The issue at hand is whether the income earned by the Appellant from dividends, interest or other investments that was attributable or as a result of the excess pension contribution of its respective members, was subject to corporate tax on the Appellant. The Tribunal having established that exemption certificate exempted both the Appellant’s income from tax and also that the dividends and interest it earned were exempt from withholding tax deduction at source, will now delve into establishing whether the Appellant’s income that was attributable to excess pension contributions was subject to corporate tax.

107. In order to establish this fact, the Tribunal relies on the provisions of section 13 and Paragraph I of the First Schedule to the ITA which provide as follows:“(1)Notwithstanding anything in Part II, the income specified in Part I of the First Schedule which accrued in or was derived from Kenya shall be exempt from tax to the extent so specified.”“first ScheduleExemptionsPart I - Income Accrued In, Derived From OrReceived In Kenya Which Is Exempt From Tax15. …………..12. The income of a registered pension scheme.13. The income of a registered trust scheme.14. The income of a registered pension fund.15. The income of a registered provident fund………”

108. The Tribunal cites the case Cape Brandy Syndicate v I.R Commissioner (CA 1921 12 TC 358 [1921] 2KB 403) where the Judge expressed the common law position on interpretation of a taxing statute by holding as follows:“…in a taxing Act one has to look at what is clearly said. There is no room for any intendment. There is no equity about a tax. There is no presumption as to a tax. Nothing is to be read in, nothing is to be implied. One can only look fairly at the language used”.

109. The Tribunal places reliance on the rules set in the cited case and is of the view that the provisions of paragraph 16 of part I of the First Schedule to the ITA and the preceding section 13 of the ITA exempt income earned from a registered pension scheme. The Tribunal has sighted a letter to the Appellant by the Respondent dated 19th August, 2013 wherein it was notified of its registration as a pension scheme.

110. The Tribunal notes that the letter dated 19th August, 2013 from the Respondent, addressed to the Appellant referred to “Ernst and Young Provident Fund” as having been registered. This error was not raised by either party and as such it is the view of the Tribunal that it was a typographical error because the Respondent admitted, in its statement of facts, that the Appellant was registered. There is therefore no dispute about the fact that the Appellant’s was duly registered by the Respondent. The Tribunal can therefore conclude from the Appellant’s pleadings and documents and the pleadings of the Respondent, that the Appellant was a registered pension scheme.

111. Pursuant to the rules established regarding interpretation of tax statutes in the cited case of Cape Brandy Syndicate v I.R Commissioner (CA 1921 12 TC 358 [1921] 2KB 403), the view of the Tribunal is that the Appellant was duly registered and that therefore its income, was exempt from tax pursuant to section 13 of the ITA read in tandem with paragraph 16, Part 1 of the First Schedule to the ITA. The ITA does not have a proviso or any other section requiring the income of the Appellant to be pro-rated so as to determine the income attributable to the excess contributions by its members and that attributable to members’ contributions that meet the threshold set out in section 22A (1) and (2) of the ITA.

112. The Tribunal is of the further view that the Respondent issued and refunded taxes that were paid in error on 11th and 14th September, 2018 and when the Appellant received the refund, it had a legitimate expectation that the Respondent was in agreement hat its income was exempt. In this regard, the Tribunal cites Communications Commission of Kenya & Others v Royal Media Services and Others [2014] eKLR in which the Supreme Court of Kenya set out the tests for successful invocation of ‘legitimate expectation’ as follows:“i.there must be an express, clear and unambiguous promise given by a public authority; [emphasis]ii.the expectation itself must be reasonable;iii.the representation must be one which it was competent and lawful for the decision-maker to make; andiv.there cannot be a legitimate expectation against clear provisions of the law or the Constitution. [emphasis]..”

113. The finding of the Tribunal is that the ITA provides that the Appellant’s income is exempt from tax and therefore its expectation that it’s income would be treated by the Respondent as tax exempt were legitimate. Furthermore, the Respondent registered the Appellant and then issued it with an income tax exemption certificate in accordance with the provisions of ITA, the existing tax statute on income tax. The Appellant therefore had a legitimate expectation that its income would be treated as exempt by the Respondent.

114. In view of the foregoing, the Tribunal finds that the income of the Appellant that was attributable to excess pension contribution was not subject to corporate tax.

(b) Whether withholding tax was deductible on payments made to the providers of gardening, cleaning and maintenance services. 115. The Tribunal notes that the Appellant hired various entities, one to maintain the lifts in its building, another to maintain the generator and some to carry out cleaning services and another, gardening services. The Appellant argued that the services carried out by the entities were not subject to withholding tax. In a bid to buttress its position, the Appellant outlined the provisions of the ITA as well as the UN Model Tax Convention Commentaries in a bid to elucidate the meaning of the term “management and professional fees” and why the services referred to it were not, in its view “management and professional fees”.

116. The Tribunal notes the argument of the Appellant that the services were not of a management or professional nature within the meaning provided pursuant to section 2 of the ITA which provides as follows:“management or professional fee" means any payment made to any person, other than a payment made to an employee by his employer, as consideration for any managerial, technical, agency, contractual, professional or consultancy services however calculated”

117. The view of the Tribunal is that the payments for the services were covered by the definition of “management and professional fees” pursuant to section 2 of the ITA since the services offered were of a technical nature. Paragraphs 63 to 66 of the UN Model Tax Convention Commentary to article 12A as outlined by the Appellant provides as follows regarding the ordinary meaning of the term “technical”:“the ordinary meaning of the term technical” involves the application of specialised knowledge skill or expertise with respect to a particular art, science, profession or occupation”.

118. According to the 10th Edition of the Oxford Advanced Learners Dictionary, the term “occupation” means: “a job or profession”.

119. The Tribunal views the services provided to the Appellant as having been of a technical nature and those who provided those services had the special skills of gardening, cleaning, maintaining lifts or maintaining the generator. These were all occupations or jobs each of which required the person performing the tasks of having the specific skills in that area of service provision. The Tribunal is of the firm view that the services, which the Appellant averred, were not of a technical nature, were technical services. The Appellant paid the respective service providers a labour charge as well as for certain items (hereinafter “consumables”) which the service provider would use in performing its services.

120. The Tribunal sighted and reviewed the invoices which were adduced as evidenced and noted that whereas some were itemized, others were not. The Tribunal notes that in calculating the amount from which tax was to be withheld, the Respondent ought to have excluded the consumables. The Tribunal notes that in order to maintain the generator, the service provider, Messrs. Starlink Diesel Sales listed in the Agreement between it and the Appellant, which the Appellant adduced as evidence, the consumables such as oil filters and fuel filters among other consumables and that its monthly labour charge was Kshs. 8,500. 00.

121. The Tribunal cites the case of Two Lakes Packaging Services Limited v Commissioner of domestic Services [TAT Appeal No. 402 of 2021] [supra] where it was held a follows:“The Tribunal was of the view that the Respondent could not rely on the word “gross” appearing in Paragraph 5 of the Third Schedule of the ITA to bring to charge an item which was clearly not subject to withholding tax. The Tribunal did not read any tax avoidance scheme in the itemization of the invoices, to separate the taxable from the non-taxable.”

122. The Tribunal is of the view that the Respondent ought to have itemised the invoices so to analyse the payments into the labour charge (hereinafter “technical fees”) and consumables. The Tribunal is of the view that withholding tax would be deductible against the technical fee as long as the conditions set out in the following provisions of section 35 (3) (f) of the ITA are met:“management or professional fee or training fee, the aggregate value of which is twenty-four thousand shillings or more in a month”.

123. The Tribunal’s finding is that the Respondent could only have considered the deduction of withholding tax on the amount attributable to the technical fee. The Tribunal is of the further view that technical fees less than Kshs 24,000. 00 in a month, are not subject to withholding tax pursuant to section 35 (3) (f) of the ITA.

124. In view of the foregoing, the Tribunal finds that withholding tax was deductible on the technical fee of the payments made to the providers of gardening, cleaning and maintenance services in so far as the technical fee did not exceed Kshs. 24,000. 00 per month,

Final Decision 125. The upshot of the foregoing is that the Appeal partially succeeds and the Tribunal accordingly proceeds to make the following Orders:a.The Appeal be and is hereby partially allowed.b.The Respondent’s objection decision dated 22nd September, 2022 [sic] be and is hereby varied as follows:i.The assessment in relation to corporation tax be and is hereby expunged.ii.The Respondent to review the assessment in the next 60 days in respect of withholding tax on payments made to the providers of gardening cleaning and maintenance services to determine the correct taxes, if any, due and payable.c.Each party to bear its own costs.

126. It is so Ordered.

DATED AND DELIVERED AT NAIROBI THIS 30TH DAY OF AUGUST, 2024. .............................................CHRISTINE A. MUGACHAIRPERSON..............................................BONIFACE K. TERER DELILAH K. NGALAMEMBER MEMBER..............................................GEORGE KASHINDI OLOLCHIKE S. SPENCERMEMBER MEMBER