Ndeta v Kenya Revenue Authority (Tribunal Case E199 of 2025) [2026] KETAT 240 (KLR) (3 June 2026) (Judgment)

 REPUBLIC OF KENYA IN THE TRIBUNAL OF KENYA AT NAIROBI COUNTY COURT NAME: TAX APPEALS TRIBUNAL CASE NUMBER: TATC/E199/2025 BENSON SANDE NDETA 1st Appellant - Versus - Kenya Revenue Authority 1st Respondent JUDGMENT **BACKGROUND** 1. The Appellant is a Kenyan Architect and entrepreneur. 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 noted that during the period under review, the Appellant herein, served as a director of Seruji Limited, a private limited company incorporated in Mauritius. Seruji Limited's principal activity is holding investments. Seruji Limited is the majority shareholder of Savannah Cement Limited, a locally incorporated company engaged in the manufacture and sale of cement. The Appellant also served as a director for both Seruji Limited and Savannah Cement Limited during the period under review. 1. Information extracted from Seruji Limited's audited financial statements for the financial year ending December 2021 revealed the following: 1. On 10th June 2022, the Appellant transferred USD 14,417,000 worth of 18.5% redeemable cumulative preference shares in Baobab Holding to Barak Assets Recovery Limited. 2. The Appellant also advanced Seruji Limited a loan of USD 14,000,000. The loan was interest-free, unsecured, and had no fixed repayment terms. 3. Note 13 of the financial statements discloses further advances to Seruji Limited amounting to USD 1,978,741. 2. Based on the above, the Respondent found that the total amount advanced to Seruji Limited was USD 30,395,741 which was inconsistent with the income declarations submitted through the iTax income tax returns for the years 2013 to 2015. 3. On 7th August 2024 the Respondent issued the Appellant with a preliminary audit. Consequently, the Respondent issued notice of assessment dated 31st October 2024 for income tax resident individual and withholding tax amounting to Kshs 2,437,386,751 for the period 2019 to 2022. 4. Being aggrieved with the assessment the Appellant lodged an objection dated 18th November 2024. The Respondent then issued an Objection decision on 17th January 2025 wherein it fully confirmed the assessment. 5. The Appellant being dissatisfied with the Respondent’s decision, filed the instant Appeal through the notice of appeal dated 11th February 2025 and filed on the even date. # THE APPEAL 1. The Appellant lodged its Memorandum of appeal dated 25th February 2025 and filed on 28th February 2025 raising the following grounds of appeal: 2. That the Respondent erred in law and fact by confirming the assessment without considering the Appellant's grounds for the objection and documents provided in support of the objection and therefore, reaching an unfair determination. 1. That the Respondent erred in law and fact by disregarding all the shareholding agreements, share cessation agreements, term loan agreements, explanations and other documentation provided by the Appellant including the financial statements and audited accounts, and proceeded to confirm the erroneous Income Tax assessments. 2. That the Respondent erred in law and fact in failing to take into consideration the fact that the funds were from Barak fund SPC Limited and secured against the shareholding in Seruji Limited for onward transmission to Savannah Cement Limited and not an income/profit or gain to the Appellant for income tax declaration under Section 3 of the Income Tax Act Cap 470(ITA). 3. That the Respondent erred in law and fact by imposing tax upon the Appellant on a transaction involving a company restructuring and capital reorganization which is a non-taxable event. 4. That the Respondent erred in law and fact by charging Income Tax - Individual resident on advances received by the Appellant contrary to the provisions of Section 3(2) of the ITA. 5. That the Respondent erred in law and fact and violated the provisions of Section 15(1) of the ITA by failing to provide for expenses incurred wholly and exclusively in earning the interest income deemed before the determination of the taxable income for the period under review. 6. That the Respondent erred in law and fact by disregarding the express provisions of Sections 15 and 16 of the ITA which provide that all expenses incurred wholly and exclusively in the generation of income are tax deductible. 7. That the Respondent erred in law and fact in deeming that there was income interest earned by the Appellant and raising an assessment on deemed interest at the rate of 18.5% where no loan was advanced by the Appellant to warrant an assessment on deemed interest. 8. That the Respondent erred in law and fact in raising individual income assessment on the Appellant on a transaction between three legal corporate entities, i.e. Barak Fund SPC Limited, Seruji Limited & Savannah Cement thereby violating the principal of separate legal entities. # THE APPELLANT’S CASE 1. The Appellant filed his Statement of facts dated 25th February 2025 and filed on 28th February 2025 and his written submissions dated 22nd March filed on 30th March 2026 and supplementary statements of facts dated 7th February 2026 and filed on 11th February 2026. 2. The Appellant stated that the Respondent carried out a review of the Audited Accounts for Seruji Limited, a Holding Company incorporated in Mauritius, which owns majority shareholding (60%) in Savannah Cement Limited, after receiving data from the Mauritius Revenue Authority, pursuant to the cross-border Data sharing regulations. 3. That the Respondent noted that there were Shareholder Loans recorded in the Audited Financial Statements of Seruji Limited, attributable to the Appellant indicating that the Appellant held Preference Shares amounting to 14,417,000.00 and a loan from Shareholders amounting to 14,000,000.00. 4. According to the Appellant, the Respondent went further to carry out a review of the Appellant's Income Tax Returns to establish if the Appellant had declared the investment as income in the individual returns. 5. The Respondent then issued a letter of request for information under Section 59 of the Tax Procedures Act Cap 469B(TPA), dated 17th May 2024, where it notified the Appellant that information in its possession indicated that the Appellant had loaned monies to Seruji Limited, a company incorporated in Mauritius and that the funds loaned were inconsistent with the Tax Declarations as per the Self- Assessment returns filed by the Appellant. 6. That as per the referenced letter above, the Appellant was required to provide the following documents: copies of loan/share agreement; evidence of the source of income above which was channelled to the financial statements; copies of supporting bank statements; and verifiable justifications for failure to declare interest income in the income tax self-assessment returns, to support the above transaction. 7. That the Appellant wrote to the Respondent vide an email dated 24 th May 2024, acknowledging receipt of the email requesting for information and noting that he had ceased being a Director of Seruji Limited on 20th October 2022 and therefore did not have access to the requested information. 1. That on 27th May, 2024, the Respondent, wrote to the Appellant explaining that the issues and review and the information requested was purely in relation to the individual Tax Declarations and the only nexus between the Appellant and Seruji Limited was that of Shareholding. 2. That the Appellant wrote to the Respondent vide an email dated 3 rd June 2024, noting that his tax declarations were accurately submitted and that he would retrieve all the requested information and share with the Respondent. The Appellant further asked the Respondent to share with him supporting documents that had been relied upon as indicated in the request for information. 3. The Appellant averred that the Respondent replied via an email dated 3rd June 2024, and shared extracts from the Audited Financial Statements of Seruji Limited, received from Mauritius Revenue Authority, noting that it was the source and summary of the information relied upon. 4. The Appellant averred that it wrote to the Respondent vide an email of 3 rd June 2024, acknowledging receipt of the information referenced in Paragraph 11 above and noting that there was an entry of a shareholder into Seruji and that transaction necessitated the re-organization of the capital structure of the company. 5. That on 7 th August, 2024, the Respondent proceeded to issue a letter of preliminary audit findings dated 7th August 2023, in line with the provisions of Section 74(1)(c) of the TPA. In the letter of preliminary audit findings, the Respondent indicated that it intended to raise Additional assessments for taxes amounting to Kshs 2,756,557,683 for Income Tax Resident individual and WHT. 6. The Appellant averred that it wrote to the Respondent vide an email dated 20th August, 2024, informing the Respondent that due to placement of Savannah Cement Limited under Administration, it was difficult for him to retrieve the requested documents and share with the Respondent. The Appellant therefore requested for additional time to retrieve the requested documents. 7. That on 31 st October, 2024, the Respondent proceeded to raise Additional Assessments vide a demand notice dated 31st October, 2024, issued in accordance with the provisions of Section 74(1)(c) of the TPA. The Appellant stated that the Respondent further attached iTax generated assessments for the years 2019, 2020, 2021 and 2022 for the Appellant's records, raising Additional Assessments amounting to Kshs 2,437,386,751, including interest and penalties, for both Income Tax - Resident Individual and WHT. The Appellant then objected to the assessment. 1. The Appellant stated that he attached the following documents to support the grounds for the Objection: * Copies of Shareholding Agreements * Share Cession Agreements * Term Loan Agreement * Copies of Share Sale Agreements between Shareholders of Savannah * Cement Ltd & Seruji Limited * Copies OfCR12 for Savannah Cement Limited * Copies of Audited Accounts for Savannah Cement Limited Prior to the Restructuring Transaction & after the Restructuring Transaction * Bank Transfer Advices Showing the Disbursement and Movement of the Funds from Barak Fund to the Shareholders of Savannah Cement Limited, through the Escrow Account. 1. The Appellant stated that the Respondent then issued an Objection Decision dated 17th January 2025, confirming all the additional assessments in entirety without considering the information shared. # Failure by the respondent to consider material facts and documents presented during objection review contrary to article 47of the Constitution 1. In support of this issue, the Appellant stated that the Respondent erred in law and fact by confirming the assessment without considering the Appellant's grounds for the objection and documents provided in support of the objection, thereby reaching an unfair determination. 2. The Appellant stated that during the Objection Review process, the Appellant provided among other documents; shareholding agreements, share cessation agreements, term loan agreements, and audited financial statements. However, the Respondent disregarded all the documents and explanations provided and proceeded to confirm the erroneous income tax assessments. 3. The Appellant pointed out that under Section 51(10) of the Tax Procedures Act, Cap 469B(TPA), the Commissioner is required to consider the taxpayer's objection, including the documents and explanations provided, before making a determination. He stated that failure to consider relevant documents and explanations violates the taxpayer's right to fair administrative action as guaranteed under Article 47 of the Constitution of Kenya and the Fair Administrative Action Act, 2015. 4. He cited the case of ***R v Kenya Revenue Authority ExParte L.A.B International Kenya Ltd [2011] eKLR****,* the High Court held that a tax decision that disregards material evidence provided by the tax payer amounts to procedural unfairness and is therefore unlawful. He stated that the court emphasized that tax authorities must meaningfully engage with the documents submitted and give reasons for rejecting them. 5. The Appellant asserted that the Respondent failed to consider shareholding agreements, share cessation agreements, and term loan agreements, which were fundamental in determining tax liability. The Appellant averred that the Respondent acted unreasonably by confirming tax assessments without considering contractual agreements that influenced the taxpayer's financial structure. 6. Furthermore, he stated that the failure to examine loan agreements and shareholder transactions resulted in an erroneous tax assessment since the Respondent failed to analyze the economic substance of transactions before confirming the assessment. 7. The Appellant contended that the failure to consider key documents provided by the Appellant also violates the principles of natural justice. He pointed out that the Fair Administrative Action Act, 2015 mandates that any administrative decision be fair, reasonable, and justifiable in law. Therefore, the Appellant contended that ignoring relevant financial records while making an assessment is procedurally improper and breaches the taxpayer's right to fair treatment. 8. The Appellant maintained that by failing to consider the Appellant's financial statements and audited accounts, the Respondent acted arbitrarily and confirmed an erroneous tax liability. He contended that the Respondent cannot simply confirm an assessment without demonstrating that it has evaluated all relevant evidence as such actions amount to abuse of power and unfair administrative action. 9. The Appellant asserted that the Respondent violated Section 51(10) of the TPA, which mandates that objections be fairly evaluated; breached the principles of fair administrative action under Article 47 of the Constitution and the Fair Administrative Action Act, 2015; and acted arbitrary and unreasonable in its decision-making. # Failure to allow borrowing costs incurred by the appellant 1. The Appellant relied on Section 15(1) of the ITA which provides that in ascertaining the total taxable income of a person, deductions shall be allowed for all expenses incurred wholly and exclusively in the production of that income. It stated that the Respondent's failure to account for the Appellant's legitimate expenses contradicts this provision and results in an inaccurate assessment of taxable income. 2. According to the Appellant, the principle of taxation dictates that only net income, after deducting all necessary and justifiable expenses incurred in the production of income, should be subjected to tax. The Respondent's decision effectively taxes the Appellant on gross income rather than net income, which is contrary to well-established taxation principles. 3. The Appellant contended that by disallowing the deduction of the legitimate expenses, the Respondent subjected the Appellant to tax on income that was not actually earned as profit, thereby creating an unfair tax burden and unjust enrichment in favour of the Respondent. 4. The Appellant stated that the additional assessments are grossly exaggerated as the Respondent introduced an 18.5% interest rate on the deemed interest income, without consideration of the cost of the capital upon which the interest income has been deemed and the same should therefore be vacated in entirety. # Taxation of loans and advances 1. The Appellant contended that the Respondent erred in law and fact by subjecting the advances received by the Appellant to Income Tax-Individual Resident, in contravention of the provisions of Section 3(2) of the ITA. He averred that pursuant to the Provisions of Section 3 (2) of the ITA, income tax is chargeable upon gains/profits made from either business or gainful employment. 2. According to the Appellant, the advances do not constitute taxable income as defined under the Act, as they do not meet the threshold of gains or profits derived from business, employment, or investments. He asserted that the Respondent failed to distinguish between capital receipts and taxable income, thereby erroneously treating financial advances which are non-revenue transactions, as taxable earnings. 3. The Appellant averred that as per the term loan agreements, and shareholding agreements dated 15th September 2014, together with the bank statement extracts confirming disbursements of the funds, acquired funds from Barak Fund SPC Limited secured against shareholding in Seruji Limited for onward investment in Savannah Cement Limited. 1. He maintained that the Respondent therefore acted ultra vires by raising additional taxes for Income Tax -Residential Individual upon the money borrowed by the Appellant for onward investment and the same should therefore be vacated entirely. 2. The Appellant also stated that Respondent's assessment disregarded the fundamental principle that an advance is a temporary financial arrangement subject to repayment, and not an economic benefit that enhances the Appellant's financial position in manner contemplated under the charging provisions of the Act. Consequently, the assessment is legally untenable and should be set aside. 3. The Appellant through its supplementary statement of facts clarified the factual matrix surrounding the transactions mischaracterised by the Respondent, particularly those relating to: 1. The capital restructuring of Seruji Limited (Mauritius); 2. The Barak Fund financing arrangements; 3. The Quantum Global investment and exit transactions; and 4. The accounting treatment wrongly construed as taxable income. 4. The Appellant stated that the Respondent raised additional assessments amounting to Kshs 2,437,386,751 for the years 2019-2022 was premised on the Respondent's conclusion that funds reflected in Seruji Limited's financial records constituted undeclared income or benefits accruing to the Appellant. 5. The Taxpayer pointed out that the assessments were triggered by information obtained from the audited financial statements of Seruji Limited. The Respondent specifically alleged that Seruji Limited borrowed monies from the Appellant; that the loans were interest-free; and that it deemed interest income ought to be assessed on the Appellant. 6. The Taxpayer averred that Seruji Limited is a distinct legal entity incorporated in Mauritius and governed by Mauritian corporate law. He contended that the Share Register of Seruji Limited demonstrates that Seruji's shareholding underwent multiple lawful changes over time, involving several corporate investors. The Appellant stated that the Share Register unequivocally confirms that Seruji Limited was not synonymous with the Appellant and had other shareholders at different times, including: Barak Capital Limited, and Baobab Holding Ltd. 1. He maintained that the Respondent's assessments fundamentally disregard the doctrine of corporate separateness by treating Seruji Limited's liabilities and transactions as if they were personal dealings of the Appellant. 2. Contrary to the Respondent's assertions, the Appellant stated that the funds in question did not originate from the Appellant personally but from structured financing arrangements. 3. The Appellant stated that Seruji Limited secured an arm's length loan facility from Barak Fund SPC for acquisition of shareholding interests and that the commercial purpose of the Barak Loan was the acquisition of income generating assets (shares), not the conferment of any personal benefit upon the Appellant. 4. According to the Appellant, the funds were advanced to Seruji Limited; the funds were not paid to the Appellant; and that the Appellant did not enjoy beneficial use of the funds. Consequently, the Appellant argued that the Respondent's conclusion that Seruji Limited borrowed funds from the Appellant was factually incorrect. 5. The Appellant averred that Seruji Limited later underwent refinancing through Quantum Global, a venture capital investor. The Quantum Global investment comprised two legally distinct components that is, Equity Acquisition Component, and Preference Share Capital Injection. # Equity Acquisition Component 1. The Appellant stated that Quantum acquired shares from the Appellant in Seruji Limited which was a disposal of a capital asset. It stated that the accounting entry recognising a shareholder's loan did not represent income but reflected the transformation of equity value into a receivable. 2. The Appellant pointed out that it merely exchanged a capital asset (shares), and a chose in action (loan receivable). The Appellant asserted that no gain or profit crystallised at that stage. # Preference Share Capital Injection 1. The Appellant pointed out that the second component involved Quantum subscribing for preference share capital directly into Seruji Limited. He asserted that he was not the recipient of those funds. 1. According to the Appellant, the entirety of the Quantum funds was applied towards extinguishing Seruji Limited's pre-existing Barak Loan obligations and that no distributable benefit accrued to the Appellant. 2. The Appellant stated that the Respondent erroneously treated balance sheet reclassifications and capital account movements as taxable income. He stated that book keeping entries reflecting debt recognition cannot, in law, constitute "income" absent an actual realised gain. 3. The Appellant averred that transactions relied upon by the Respondent were capital restructuring events, investor entry/exit arrangements, and loan settlement mechanics. The Taxpayer asserted that none of these falls within the statutory definition of chargeable income. 4. According to the Appellant, the ADR Progress Report confirms the Respondent's position that the assessments arose from the belief that Seruji Limited borrowed funds from the Appellant. The Appellant stated that its representatives consistently clarified that funds were sourced from Barak Fund SPC, Seruji Limited was the borrower; and that the Appellant did not receive the funds as income. He stated that the Commissioner maintained the assessments despite absence of proof of any realised income. 5. He maintained that at no material time did the Appellant receive interest income, dividends, employment benefits, and any pecuniary gain capable of taxation. 6. The Taxpayer asserted that the transactions largely relate to foreign corporate dealings involving Seruji Limited (Mauritius). He contended that Kenyan income tax is chargeable only on income accrued in or derived from Kenya. 7. The Appellant stated that the Respondent has not demonstrated Kenyan source of income, receipt of income by the Appellant, and any nexus converting foreign capital events into Kenyan taxable income. 8. The Appellant submitted that the Respondent unlawfully raised and confirmed the additional assessments. He submitted that the Respondent erred in treating capital and corporate restructuring transactions as taxable income in the hands of the Appellant. 9. The Appellant submitted that the Respondent improperly pierced the corporate veil of Seruji Limited and attributed its transactions to the Appellant personally. The Taxpayer submitted that the deemed interest provisions under the ITA were not lawfully and correctly applied. 1. The Appellant submitted that he discharged the burden of proof under Section 56(1) of the TPA and that the assessments lack a valid factual and legal foundation and ought to be vacated. 2. In further support of his case, the Appellant relied on the following case laws: ## *Delmonte Kenya Limited v The Commissioner of Domestic* Taxes (2019) eKLR; * 1. ***Salomon v Salomon & Co Ltd [1897] AC 22;*** 2. ***Kellico Limited v Commissioner of Domestic Taxes (Tax Appeal 1371 of 2022) [2024] KETAT 714 (KLR);*** 3. ***Kolaba Enterprises Ltd v Shamsudin Hussein Varvani & Another [2014l eKLR;*** 4. ***Kenya Revemue Authority v Socabelec East Africa Limited; and*** 5. ***Commissioner of Investigations & Enforcement v Marylebone Properties Limited*** **Appellant’s Prayers** 1. The Appellant prayed for the following reliefs: 2. The Appeal be allowed; 3. This Honourable Tribunal forthwith withdraws and cancels the Objection Decision letter dated 17th January, 2025; 4. This Honourable Tribunal orders the Respondent to stay the enforcement of assessed taxes until the matter is conclusively determined; 5. Costs of the Appeal be provided; and 6. The Honourable Tribunal be pleased to issue any other orders favourable to the Appellant as it may deem just and expedient to issue. # THE RESPONDENT’S CASE 1. The Respondent’s case was premised on its Statement of facts dated and filed on 2nd April 2025 and its written submissions dated and filed 7th October 2025. 1. In response to the assertion that the Respondent erred in law and fact by confirming the assessment without considering the Appellant's objections and documents provided in support of the objection and therefore reaching an unfair determination, the Respondent stated that it thoroughly reviewed all grounds for objection and the supporting documents provided. Additionally, meetings were requested, and clarifications or missing documents were sought during engagements with the Appellant throughout the objection review process as evidenced on the email correspondences.' 2. The Respondent stated that during the objection review, the Appellant provided various documents, including loan agreements, share cessation, and shareholding agreements. However, these documents primarily related to Seruji Limited and other corporate entities, not the Appellant, who is the subject of the assessment. 3. The Respondent stated that the Assessment letter shows that Seruji Limited disclosed a loan from the Appellant in its financial statements, whereas the Appellant indicated that the loan was from Barak Fund SPC. The Respondent averred that this suggested that the Appellant advanced funds to Seruji Limited independently, separate from the loan provided by Barak Fund SPC. 4. The Respondent averred that the loan from Barak Fund SPC to Seruji Limited amounted to USD 15 million at a 15% nominal interest rate, with an additional 5% default rate, and was secured against shares held at Savannah. The Respondent stated that this loan was used to acquire shares in Wanho International Holdings Limited and Acme Wanji Investments Limited, the majority shareholders in Savannah. 5. The Respondent argued that Seruji Limited later advanced USD 10 million to Tron Enterprises Limited under a purchase and repurchase agreement. However, the Appellant failed to provide the Respondent with this agreement for review. The Respondent also averred that the agreement specified that once Tron received the USD 10 million, it would advance USD 5 million back to Seruji Limited for share purchases. 6. Further, the Respondent averred that shareholding structure of Seruji Limited has undergone multiple changes over time. It contended that from September 9, 2017, to June 10, 2022, the Appellant was the sole shareholder of Seruji Limited, contradicting any claims to the contrary. 7. The Respondent averred that Seruji Limited's financial statements disclose that the Appellant advanced USD 14 million as an interest-free, unsecured loan with no fixed repayment date, making it distinct from the structured loan from Barak Fund SPC. 1. In response to assertion that the Respondent erred in law and fact by imposing tax upon the Appellant on a transaction involving a company restructuring and capital re-organization which is a non-taxable event, the Respondent specified that the basis of the assessment was based on advances by the Appellant to Seruji Limited, a company incorporated in Mauritius. 2. The Respondent contended that the Appellant failed to discharge the burden of proving that these funds were not advanced by the Appellant himself despite the clear demonstration that as at the periods under assessments, the Appellant remained the sole shareholder in Seruji Limited. 3. The Respondent opined that on 9 th October 2015, Barak Capital Limited transferred 498 ordinary shares in Seruji to a third party, Baobab Holding Limited. 4. Further, the Respondent contended that the Appellant was unable to draw a nexus between the alleged loan agreements between Seruji Limited and Barak Fund SPC Limited and the Appellant's advances to Seruji Limited. It noted that on 15th September 2014, the Appellant and Barak Capital Limited executed a Shareholders' Agreement wherein the Appellant and Barak Capital Limited were to respectively hold 1% and 99% shareholding in Seruji Limited. 5. On the strength of the agreement, the Respondent averred that the Appellant waived any pre-emptive rights he had on the shares. As such, the subsequent transfer of the shares to the Appellant on 8th September 2017, was a clear manifestation that all the terms of the Shareholders Agreement were not flouted. The Respondent was of the view that any borrowings appearing in Seruji Limited's audited financial accounts during the assessed period was separate from the alleged initial borrowing. 6. The Respondent also noted that on 15 th September 2014, the Appellant executed a Guarantee Agreement with Barak Fund SPC Limited on behalf of Barak Structured Trade Finance Segregated Portfolio (registration No. 217 675). It averred that this was a demonstration of the Appellant's financial capacity which was not corroborated by his income tax declarations during the periods assessed. 7. In response to the assertion that the Respondent erred in law and fact and violated the provisions of Section 15(1) of the ITA by disallowing expenses incurred wholly and exclusively in earning the interest income deemed before the determination of the taxable income for the period under review, the Respondent noted that in the Appellant's submission during the objection review, the Respondent ought to have applied an interest rate of 15% in line with the term loan agreement between Seruji Limited and Barak Fund SPC. 1. The Respondent found that the term loan is between Seruji Limited and Barak Fund SPC whereas the loan charged interest by the Respondent relates to advances by the Appellant who did not provide any supporting documents to enable the Respondent determine the interest chargeable while taking into account the provisions of Section 15(1) and 16(1) of the ITA. 2. The Respondent argued that the matter was then subject to the provisions of Section 18(3) of the ITA in ensuring that the zero percent, 0%, interest rate is in line with the arm's length principle. 3. The Respondent maintained the rate of 18.5% was favourable to the Appellant seeing that in the Appellant own admission, Savannah defaulted on the loan after it went into administration which as a result makes the overall interest rate 20% i.e. 15% plus 5% for default. 4. The Respondent averred that the Notice of Assessment did not disallow any expenses, as claimed by the Appellant. Instead, the Respondent stated that the assessment was based on two key points: the undeclared income from loans advanced to Seruji Limited and the undeclared interest income related to the same loan. The Respondent maintained that at no point did the Respondent disallow any previously claimed expenses by the Appellant, contrary to Appellant’s assertion. 5. In response to the position that the Respondent erred in law and fact in deeming that there was income interest earned by the Appellant and raising an assessment on deemed interest at the rate of 18.5% where no loan was advanced by the Appellant to warrant an assessment on deemed interest, the Respondent stated that despite the loans advanced to Seruji Limited, the Appellant did not declare any interest income in his tax filings. 6. The Respondent contended that under Section 18(3) of the ITA, transactions between related parties must comply with the Arm's Length Principle (ALP), as outlined in Article 9 of the OECD Model Tax Convention and OECD Transfer Pricing Guidelines (2017). The Respondent also asserted that USD 14,417,000 of the loan was subject to an 18.5% interest rate, which was applied to determine the arm's length return on the total debt. 7. In response to the claim that the Respondent erred in law and fact in raising individual income assessment on the Appellant on a transaction between three legal corporate entities, i.e Barak Fund SPC Limited, Seruji Limited & Savannah Cement thereby violating the principal of separate legal entities, the Respondent averred that the Assessment Letter notes that Seruji Limited disclosed a loan from the Appellant in its financial statements, whereas the Appellant indicated that the loan was from Barak Fund SPC. According to the Respondent, this suggests that the Appellant advanced funds to Seruji Limited independently, separate from the loan provided by Barak Fund SPC. 1. The Respondent submitted that the Respondent lawfully raised and confirmed the assessment and that the Appellant failed to discharge his burden of proof. 2. In further support of its case, the Respondent cited the following case laws: ## *Commissioner of Domestic Taxes v Altech Stream (EA)* Limited (2021] eKLR; * 1. ***Commissioner of Domestic Taxes v Trical and Hard Limited (Tax Appeal El46 of 2020) [2022] KEl-HC9927 (KLR);*** 2. ***Monaco Engineering Limited v Commissioner of Domestic Taxes TAT Appeal No. 67/2017;*** 3. ***Osho Drappers Ltd v Commissioner of Domestic Taxes, TAT No. 159 of 2018;*** 4. ***Miao Yiy Commissioner of Investigations & Enforcement TAT NO. 441 of 2019;*** 5. ***Ritz Enterprises Limited v Commissioner of Investigations & Enforcement TAT No. 227 of 2018;*** 6. ***KRA V Man Diesel &Turbo Se, Kenya [2021] eKLR;*** 7. ***Janet Kaphiphe Ouma and another v Marie Stoppes International (Kenya) HCC No. 68 of 2007;*** 8. ***Dyer & Dyer Limited v Commissioner of Domestic Taxes TAT 139 of 2020;*** 9. ***Commissioner of Domestic Taxes v Metoxide Limited [2021]; and*** 10. ***Ken Iron and Steel Limited v Commissioner Investigations and Enforcement (2021); Commissioner of Domestic Services v Galaxy Tools Limited (2021) eKLR*** **Respondent’s prayers** 1. The Respondent prayed;- 2. That the Appeal be dismissed with costs, and 3. That the objection decision dated 17th January 2025 be upheld and confirmed tax be deemed due and payable. # ISSUES FOR DETERMINATION 1. The Tribunal has considered the parties’ pleadings and submissions, and has identified the following issues for determination: # Whether the Objection decision complies with the provisions of Section 49 and 51(10) of TPA; and 1. **Whether the Respondent erred in assessing the Appellant on alleged undeclared interest income.** **ANALYSIS AND FINDINGS** 1. Having identified the issues for determination, the Tribunal proceeds to analyse the same as hereunder: - # a. Whether the Objection decision complies with the provisions of Section 49 and 51(10) of TPA 1. The Respondent issued notice of assessment dated 31st October 2024 wherein it sought to recover Kshs 2,437,386,751 from the Appellant. It then issued Objection decision dated 17th January 2025 confirming the assessment fully. 2. The Tribunal examined the available Objection decision and the assessment in light of the provisions of the TPA and in particular, Section 49 of the TPA which provides as follows: ## *49. Statement of reasons* *Where the Commissioner has refused an application under a tax law, the notice of refusal shall include a statement of reasons for the refusal.* 1. Further, Section 51(10) of the TPA provide that: *(10) An objection decision shall include a statement of findings on the material facts and the reasons for the decision.* 1. The Tribunal examined the objection decision placed before it and noted that several pages of the decision were missing from the record, specifically pages 2 of 13, 4 of 13, 6 of 13, 8 of 13 and 12 of 13. Consequently, substantial portions containing the Respondent’s findings, analysis and computations were unavailable for scrutiny by the Tribunal 2. Section 51(10) of the Tax Procedures Act mandates that an objection decision shall contain findings on material facts and the reasons for the decision. The statutory obligation is not merely procedural in nature; it serves the substantive purpose of enabling a taxpayer understand the factual basis, legal foundation and computational methodology underlying the assessment. 3. In the present case, the objection decision failed to meet the threshold contemplated under Section 51(10) of the Tax Procedures Act. The Respondent confirmed assessments amounting to Kshs 2,437,386,751 without providing complete workings, applicable tax rates, foreign exchange rates, or a clear breakdown demonstrating how the impugned figures were arrived at. 4. The Tribunal notes that the impugned assessment arose from amounts denominated in United States Dollars, namely USD 14,417,000, USD 14,000,000 and USD 1,978,741. However, the Respondent did not disclose the applicable foreign exchange rates used in converting the said amounts into Kenya Shillings. It’s the Tribunals considered view that in tax assessments involving foreign currency transactions, the applicable exchange rates constitute a material component of the computation and must be expressly disclosed to enable verification of the assessment. 5. The Respondent further failed to provide the detailed workings referenced in the assessment and Objection decision. Whereas the assessment referred to appendices containing detailed computations, the same were not availed before the Tribunal. In absence of the workings, the Tribunal is unable to verify the accuracy of the principal tax, penalties and interest assessed. 6. The Tribunal further notes that the Respondent assessed the Appellant for the years 2019, 2020, 2021 and 2022 yet the Respondent did not clearly explain the factual basis upon which each yearly assessment arose. The Respondent did not demonstrate: 7. Fresh loans or advances were allegedly made in each respective year 1. Deemed interest accrued annually on a outstanding balance 2. Separate taxable vents crystalized in each year of income 3. Tax assessments must be capable of objective verification from the face of the Assessment and accompanying computations. A taxpayer is entitled to know with precision: 1. the legal basis of the assessment; 2. the applicable tax head; 3. the applicable tax rate; 4. the applicable exchange rate;e. the factual assumptions adopted by the Commissioner; andf. the computation methodology used in arriving at the final assessment. 5. In the instant case, the Respondent did not sufficiently demonstrate the statutory provisions and computational basis supporting the assessments. Although reference was made to Sections 7 and 35 of the Income Tax Act together with the Third Schedule thereto, the Respondent did not identify the precise charging provisions, applicable withholding tax rates or computation framework adopted in raising the assessments. 6. The Tribunal further observes that the assessments appear to conflate three distinct issues namely:a. alleged undeclared income;b. shareholder or related-party advances; andc. deemed interest on alleged interest-free loans. 7. Each of the foregoing heads raises separate legal and factual considerations under the Income Tax Act and required independent analysis and computation by the Respondent. The objection decision however did not sufficiently distinguish the legal basis and computational treatment applicable to each alleged tax liability. 8. In view of the foregoing deficiencies, the Tribunal finds that the Objection decision does not satisfy the requirements of Sections 49 and 51(10) of the Tax Procedures Act and consequently cannot be sustained in its present form. # b. Whether the Respondent erred in assessing the Appellant on alleged undeclared interest income 1. The Tribunal has carefully considered the Respondent’s position that the Appellant advanced interest-free loans to Seruji Limited and thereby derived undeclared interest income capable of assessment under the Income Tax Act. 2. The Tribunal examined the documentation produced by the parties including the loan agreements, shareholder agreements, audited financial statements and share acquisition documents relating to Seruji Limited, Barak Fund SPC Limited and Baobab Holdings Limited. 3. The evidence on record confirms that Barak Fund SPC Limited extended a USD 15,000,000 facility to Seruji Limited pursuant to the agreement dated 15th September 2014. Under the said agreement, the Appellant executed the agreement in the capacity of guarantor and not borrower. The primary borrower identified in the agreement remained Seruji Limited. 4. However, the Tribunal also notes that Seruji Limited’s audited financial statements subsequently reflected a shareholder loan attributable to the Appellant amounting to USD 14,000,000. The Appellant maintained that the funds originated from Barak Fund SPC Limited and constituted part of a broader corporate restructuring and financing arrangement. Nevertheless, the Appellant did not sufficiently reconcile:a. the variance between the USD 15,000,000 facility and the USD 14,000,000 reflected in Seruji’s accounts; andb. the basis upon which the loan came to be reflected in Seruji’s books as a shareholder loan attributable to the Appellant. 5. The Tribunal therefore finds that the Respondent was justified in seeking clarification regarding the nature, source and tax treatment of the impugned amounts. However, the mere appearance of a shareholder loan in a company’s financial statements does not, without further evidentiary analysis, automatically constitute taxable income in the hands of the shareholder. 6. The Respondent was required to demonstrate, through clear factual and legal analysis:a. that the Appellant advanced the funds in his personal capacity;b. that the funds constituted taxable income or generated taxable income under Section 3 of the Income Tax Act; andc. the statutory basis upon which deemed interest was imputable to the Appellant. 7. The Tribunal notes that the Respondent relied on Section 18(3) of the Income Tax Act in imputing arm’s length interest. However, the Respondent did not sufficiently demonstrate:a. the precise related-party relationship relied upon;b. the methodology used in arriving at the 18.5% interest rate;c. the comparable uncontrolled transactions used in determining the alleged arm’s length rate; ord. the computation framework applied in calculating the alleged deemed interest income. 1. The Tribunal further notes that the Respondent did not clearly distinguish between:a. capital restructuring transactions;b. shareholder equity transactions;c. loan financing arrangements; andd. taxable income accruing to the Appellant. 2. Whereas the Respondent asserted that the Appellant derived undeclared income, the Objection decision did not sufficiently demonstrate that the Appellant received realised gains, profits, interest or other taxable benefits chargeable under Section 3 of the Income Tax Act. 3. The Tribunal also examined the Respondent’s position regarding the alleged transfer of USD 14,417,000 worth of preference shares on 10th June 2022. However, the documentation produced before the Tribunal, particularly the share sale agreement relating to Baobab Holdings Limited, indicated that the relevant restructuring transactions may have occurred substantially earlier than alleged by the Respondent. 4. The Respondent did not provide sufficient documentary evidence establishing:a. the exact date of transfer;b. the consideration received by the Appellant;c. the tax character of the transaction; andd. the statutory basis upon which the same became chargeable to tax. 5. In the circumstances, the Tribunal finds that although the Respondent was entitled to interrogate the impugned transactions, the objection decision did not sufficiently analyse the transactions, apply the relevant statutory provisions, or demonstrate the computational basis of the assessments. 6. The Tribunal is therefore satisfied that the matter ought to be remitted back to the Respondent pursuant to Section 29(2)(c)(ii) of the Tax Appeals Tribunal Act for fresh reconsideration upon proper evaluation of the agreements, financial statements, transactional documents and applicable provisions of the Income Tax Act. # FINAL DECISION 1. Consequently, the Tribunal makes the following Orders: 1. The Objection decision dated 17th January 2025 be and is hereby set aside in its entirety for failure to comply with Section 49 and 51 (10) of the Tax Procedures Act; 2. Pursuant to Section 29(2)(c)(ii) of the Tax Appeals Tribunal Act (Cap. 469A), the matter is hereby remitted back to the Respondent for fresh reconsideration and issuance of a fresh Objection decision; * 1. In reconsidering the matter, the Respondent shall: 1. Clearly demonstrate separate workings in relation to USD 14,417,000 18.5% being the alleged redeemable cumulative preference shares; 2. Clearly demonstrate separate workings in relation to USD 14,000,000 being the alleged shareholder loan; 3. Clearly demonstrate separate workings in relation to USD 1,978,741 being the alleged further advances; 4. Specify the applicable statutory charging provisions relied upon under the Income Tax Act; 5. Specify the applicable tax heads, tax rates, penalty rates and interest rates applied; 6. Specify the applicable foreign exchange rates and dates of conversion adopted; 7. Clearly demonstrate the basis for assessment in each year of income namely 2019, 2020, 2021 and 2022; 8. Clearly demonstrate the legal and factual basis for invocation of Section 18 (3) of the income Tax Act; 9. Consider all agreements financial statements and supporting documents supplied by the Appellant; and 10. Accord the Appellant an opportunity to be heard before issuance of a fresh objection decision; 11. The impugned assessment shall remain unenforceable pending issuance of a fresh Objection decision; 12. The Respondent to issue the fresh Objection decision within sixty (60) days from the date of this Judgement; 13. Each party to bear its own cost. 1. It is so ordered. # DATED AND DELIVERED AT NAIROBI THIS 3RD DAY OF JUNE 2026 SIGNED BY/FOR: **★ TH E JUDICIAR Y O F KENY A ★** **HON. ROBERT MUGAMBI MUTUMA (CHAIRPERSON) HON. EUNICE NJERI NGANGA HON. BONIFACE KIBIY TERER DOMINIC KIPKEMOI RONO HON. BILLY GRAHAM OKUMU MIJUNGU** Tax Appeals Tribunal Tribunal Date: 2026-06-03 15:28:31