[2024] KETAT 1359 (KLR)

Code For Africa Limited v Commissioner of Domestic Taxes (Tax Appeal E683 of 2023) [2024] KETAT 1359 (KLR) (20 September 2024) (Judgment)

Neutral citation: [2024] KETAT 1359 (KLR)

Republic of Kenya

In the Tax Appeal Tribunal

Tax Appeal E683 of 2023

RM Mutuma, Chair, T Vikiru, Jephthah Njagi, M Makau & D.K Ngala, Members

September 20, 2024

Between

Code For Africa Limited

Appellant

and

Commissioner Of Domestic Taxes

Respondent

Judgment

1. The Appellant is a non-governmental organisation duly incorporated and registered in Kenya under the Companies Act.

2. The Respondent is a principal officer appointed pursuant to Section 13 of the Kenya Revenue Authority Act (KRA), Act No. 2 of 1995, and KRA is empowered to enforce and administer provisions of written laws set out in Section 5 as read together with the First Schedule of the KRA Act.

3. On 31st March 2021, the Appellant made a manual application for Income Tax exemption as provided for under Section 13 (1) of the Income Tax Act and Paragraph 10 of the First Schedule to the Income Tax Act and followed it up with a further application dated 30th May 2022.

4. On 9th March 2023, the Respondent rejected the application on the basis that the Appellant’s objectives do not meet the requirements of Paragraph 10 of the 1st schedule to the Income Tax Act, the Appellant was requested to provide supporting documents that would proof that it met the set threshold.

5. On 3rd August 2023 the Appellant applied for a late objection against the Respondent’s decision.

6. On 16th August 2023, the Respondent issued a response to the objection advising the Appellant to lodge an Appeal against the rejection of its exemption application at the Tribunal in accordance with the TAT Act.

7. The Appellant lodged this Appeal at the Tribunal 8th September 2023 and filed on 16th October 2023.

The Appeal 8. The Appeal is premised on the following grounds as stated in the Appellant’s Memorandum of Appeal dated 9th October 2023 and filed on 16th October 2023:a.That the Respondent did not provide reasons for the refusal of the application as envisioned in Section 49 of the Tax Procedures Act 2015; and,b.That the Appellant meets the conditions of exemption outlined in Paragraph 10 of the 1st schedule to the Income Tax Act.

The Appellant’s Case 9. The Appellant’s case is premised on its;a.Statement of Facts dated 9th October 2023 and filed on 16th October 2023 together with the documents attached thereto; and,b.Written submissions dated 12th June 2024 and filed on 16th July 2024.

10. The Appellant submitted that Section 49 of the Tax Procedure Act provides that;“Where the Commissioner has refused an application under a tax law, the notice of refusal shall include a statement of reasons for the refusal.”

11. The Appellant averred that on 9th March 2023, the Respondent sent an email to the Appellant with its decision on the Appellant's application for tax exemption without specific reasons why it does not meet the requirements of Paragraph 10 of the First Schedule to the Income Tax Act.

12. The Appellant submitted that the failure to outline the reasons why the Respondent determined that the Appellant did not meet the requirements of Paragraph 10 of the First Schedule of the Income Tax Act violates the Appellant's rights to fair administrative action guaranteed by Article 47 of the Constitution and Section 4 (d) of the Fair Administrative Action Act, which provides that it is the duty of public officers to give reasons of their actions as part of the due process for administrative rights.

13. The Appellant relied on the case of Local Productions Kenya Ltd. vs. Commissioner of Domestic Taxes (Tax Appeal No. 50, 2017) eKLR that:“Section 49 of the Tax Procedures Act obliges the Kenya Revenue Authority to give a statement of reasons for refusal decisions. This is to be interpreted through the prism of the provisions of Article 47 of the Constitution, which is the pillar of the right to fair administrative action. In this regard, the Kenya Revenue Authority acted In violation of the right to fair administrative action contrary to Section 4 of the Fair Administrative Action Act which stipulates that every person has the right to be given written reasons if an administrative decision would affect them adversely.”

14. The Appellant further relied on the case of Joseph Murithi Ndirangu T/A Ndirangu Hardware vs. Commissioner of Domestic Taxes (Tax Appeal No. 202 of 2018), wherein the Tribunal held that Section 49 of the TPA imposes a mandatory duty on the Kenya Revenue Authority to provide a statement of reasons for tax decisions. The Tribunal further observed that the duty to give reasons for tax decisions is Interpreted through the lens of the right to fair, administrative action as enshrined under Article 17 of the Constitution.

15. The Appellant submitted further that Section 13 (1) of the Income Tax Act provides that:“13. (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.”

16. The Appellant submitted that it met the conditions for exemption outlined in paragraph 10 of the First Schedule to the income Tax Act which provides that:“Subject to section 26, the income of an institution, body of persons or Irrevocable trust, of a public character established solely for the purposes of the relief of e poverty the or distress of the public, or for the advancement of religion or education-a.established in Kenya; orb.whose regional headquarters is situated in Kenya, in so far as the Commissioner is satisfied that the income is to be expended either in Kenya or in circumstances in which the expenditure of that income is for the purposes which result in the benefit of the residents of Kenya...”

17. The Appellant submitted that it is a company limited by guarantee, duly registered in Kenya and has a public character, and its core objectives include:a.To engage in the work of relief and rehabilitation of poor and development services, support and supplies to such people in Kenya;b.To promote and sponsor charitable arrangements which are intended to promote or civic education, development and general alleviation of poverty and human suffering;c.To advance civic education through the use of technology and open data in order to afford citizens timely and unfettered access to actionable information to enable them informed decisions that strengthens civic engagement for improved public governance and accountability;d.To enhance civic education, general and vocational training in the country and the attainment of inclusive grassroots movements that support active citizenry and evidence-based public discourse;e.To promote democracy by becoming a catalyst to lower the political risk through providing platforms for well-informed citizens, civil organisations and the media; and,f.To provide practical civil education by means of lectures, seminars, workshops, and conferences. publications and sharing of civic information through print media and documentation.

18. The Appellant averred that its activities are public in nature as they are geared towards educating the public through the media and providing information on the air quality of Kenya, thus aimed at the advancement of civic education through the use of technology and open data, promoting democracy by becoming a catalyst to lower the political risk through providing platforms for well-informed citizens, civil organizations and media and at the provision of practical civil education by means of lectures, seminars, workshops, conferences, publications and sharing of civic information through print media and documentation.

19. The Appellant averred that it conducts a variety of programs that train and strengthen media houses and the media ecosystem across Kenya, with an aim to fight misinformation, improve journalists' reporting and provide citizens with access to accurate, actionable information.

20. The Appellant, further submitted that its training programs are free and aimed at and open to: print journalists, online journalists and radio journalists, where the areas of training include data journalism and fact-checking and in 2021 journalists from the following 14 radio stations were trained: Amani FM. Baliti FM, Bus Radio, Kefala Kiona FM, Ghetto FM, Koch FM, Mtaani Radio, Mwanedu FM, Pamoja FM, Radio Domus, Radio Shahidi, Ruben FM, Serian FM, and Wajir Community Radio, thus this supports the pillar of advancing education.

21. The Appellant averred that its activities in training journalists also include training in countering hate speech an submitted that it worked with the Office of the Commissioner on Human Rights on a project dubbed ‘Enhancing Early Warning & Prevention to Counter Hate Speech and Incitement’ ahead of the 2022 elections in Kenya.

22. The Appellant submitted that the project was implemented in partnership with the National Cohesion and Integration Commission (NCIC) with funding from the United Nations Peace-building Fund and it played an important role in supporting the national efforts to counter hate speech and promote a peaceful context for elections. This was done through a number of media houses such as Business Today, Mtaani Radio, The Star, Ruben FM and Sky FM.

23. Further, the Appellant submitted that its activities advance education through a fact-checking initiative called PesaCheck, that was founded in 2016 to fact-check financial statements and claims made by Kenyan politicians. The Appellant averred that it conducted the following activities which advance education to the public: fighting the effects of misinformation on the public through Pesa Check, educating journalists to improve reporting and fighting the effects of misinformation on the public through Pesa Check, thus providing education to the general public and thus falls within one of the pillars of Paragraph 10 of the First Schedule to the Income Tax Act.

24. The Appellant submitted that its programs are aligned in relation to the relief of poverty or distress of the public, where the program known as sensors AFRICA aims to combat pollution and pollution related illnesses and deaths by providing African-designed and assembled low-cost sensors to ordinary people and civic watchdogs (such as grassroots community groups and NGOs), while also working with government agencies to monitor the quality of real-time air in communities across Kenya and more widely across the continent.

25. The Appellant averred that it builds and places low-cost air sensors in homes, businesses and other public places that monitor the levels of air pollution, as well as changes in temperature and humidity. It submitted that this data is then collated online on the sensors website for the public, civil society organizations and government agencies so that they can then use this data to make informed decisions and policies in order to combat pollution and prevent pollution related illnesses and death, thus providing relief of poverty and distress to the public by providing crucial information which reduces illnesses and death.

26. The Appellant averred that it is funded by a range of international philanthropies, government and development agencies such as the Bill and Melinda Gates Foundation, Meta Journalism Project, the Deutsche Welle Akademie and the World Bank among others.

27. The Appellant averred that this information relating to the Appellant's activities was provided in the Appellant's initial written letter for exemption from income tax dated 31st March 2021. Thus, the Appellant submitted that it also filed a formal application dated 26th September 2022 where the Appellant clearly outlined these facts under the mission and nature of the organization’s operations as well as the key objectives of the organization, therefore, detailing the donations and grants it receives, as well as the expenses it incurs annually.

28. The Appellant submitted that it supplied the Respondent the following documents in its application for exemption from income tax:a.The Appellant's certificate of registration;b.A copy of its signed Constitution and a proper dissolution clause;c.An impact report and its supporting documents;d.An organizational structure and its supporting documents;e.A letter from a government official;f.Photographic evidence of programs and activities; and,g.Financial statements for the years 2018-2020 and general ledger.

29. The Appellant averred that these documents were provided to the Respondent in consideration of the Appellant's initial application for exemption from income tax. Further it submitted that the email correspondence between members of the parties herein, exchanged on various dates between 22nd November 2022 and 9th March 2023 are further evidence that the Appellant was co-operative with the Respondent and ensured that it provided all relevant records to support its application.

30. Therefore, the Appellant submitted that there was no basis for the Respondent to allege that the Appellant failed to cooperate with the Appellant and failed to supply relevant records that would have altered the Respondent’s decision to reject the application for exemption from income tax.

Appellant’s Prayers 31. The Appellant prays that:a.The Decision of the Respondent dated 9th March 2023 be set aside in its entirety;b.The appeal be allowed; and,c.This Tribunal do issue any other order that appears just and reasonable.

The Respondent’s Case 32. The Respondent’s case is premised on its;a.The Respondent’s Statement of Facts dated 16th November 2023 and filed on 17th November 2023 together with the document attached thereto; and,b.Written Submissions filed on 10th June 2024.

33. The Respondent averred that upon receipt of the application and consideration, it rejected the said application since the Appellant failed to meet the threshold as stated in paragraph 10 of 1st Schedule Income tax Act and the same was communicated to the Appellant. The paragraph provides:“…in so far as the Commissioner is satisfied that the income is to be expended either in Kenya or in circumstances in which the expenditure of that income is for purposes which result in the benefit of the residents of Kenya: Provided that any such income which consists of gains or profits from a business shall not be exempt from tax unless those gains or profits are applied solely to those purposes and either: -I. the business is carried on in the course of the actual execution of those purposes; produces competent and relevant evidence to support his position. If the taxpayer comes forward with such evidence, the presumption vanishes and the case must be decided upon the evidence presented, with the burden of proof on the taxpayer.”

34. The Respondent averred that the Appellant was uncooperative in the provision of relevant records and failed to respond to the request of documents hence no relevant documents or records were provided to support its objection. Therefore, the Respondent submitted that the assessments were made based on the only available information based on the best judgement by the Respondent.

35. The Respondent submitted that in fulfilling its mandate, it assessed the income in accordance to Section 73 of the Income Tax Act which provides that:“1. Save as otherwise provided, the Commissioner shall assess every person who has income chargeable to tax as expeditiously as possible after the expiry of the time allowed to such person under this Act for the delivery of a return of income.2. Where a person has delivered a return of income, the Commissioner may-b.if he has reasonable cause to believe that such return is not true and correct, determine, according to the best of his judgment, the amount of the income of that person and assess him accordingly.”

36. The Respondent relied on the case of Janet Kaphiphe Ouma and another vs. Marie Stopes International (Kenya). HCC No. 68 of 2001 that:“in this matter, apart from filing its statement of defence the defendant did not adduce any evidence in support of assertions made therein. The evidence of the 1st plaintiff and that of the witness remains uncontroverted and the statement in the defence therefore remains mere allegations. Sections 107 and 108 of the Evidence Act are clear that he who asserts or pleads must support the same by way of evidence.”

37. The Respondent averred that it was quite evident that the Appellant had failed to provide evidence to discredit the assertions by the Respondent and thus the same ought to be deemed correct and proper in law.

38. The Respondent further relied on the case of Osho Drappers Ltd vs. Commissioner of Domestic Taxes, TAT No. 159 of 2018, where it was held that;“the taxpayer has to produce documents to discharge its burden of proof.”

39. Further, the Respondent relied on Miao Yi vs.Commissioner of Investigations & Enforcement TAT No 441 of 2019 where this Tribunal asserted that:“the burden of proof squarely lay on the Appellant to disprove the Respondent’s tax assessment. Section 56 (1) of the TPA provides as follows: any proceedings under this Part, the burden shall be on the taxpayer to prove that a tax decision is incorrect". The Appellant has failed to demonstrate to the Tribunal's satisfaction that the money credited into his account was not income.”

40. The Respondent averred that the proper way prescribed by law for the Appellant to dispense its burden of proof is by production of documents, especially for books of accounts, but the Appellant failed to do so, thus not substantiating its claim. That with regard to record keeping, the TPA provides at Section 43 and Section 93 thus:“43Keeping of records;(1)Every registered person shall, for the purposes of this Act, keep in the course of his business, a full and true written record, whether in electronic form or otherwise, in English or Kiswahili of every transaction he makes and the record shall be kept in Kenya for a period of five years from the date of the last entry made therein.93. Failure to maintain documents(1)A person commits an offence if the person fails to keep, retain or maintain a document that may be required to be kept, retained or maintained in accordance with a tax law without reasonable excuse during a reporting period.”

41. The Respondent relied on the case of Kenya Revenue Authority vs. Man Diesel & Turbo Se, Kenya [2021] eKLR where the court further held that;“The uniqueness of tax laws is underscored by the fact that even where the constitutionality of such provisions has been challenged, courts have consistently held that placing the burden upon the taxpayer is not unconstitutional nor is it contrary to Parliament's intent, This is because there is a distinction between the legal burden of proof and the evidential burden of prove. These are two different concepts. The Evidence Act places the burden of proving the existence of any fact in issue on the party who asserts. The evidential burden exists in the form of a tactical onus to contradict, weaken or explain away the evidence that has been led. The latter form of burden may shift from one party to the other.”

42. The Respondent submitted that the court distinguished itself on the issue and stated;“Placing the burden of proof in tax cases on the taxpayer reflects the unique nature of the tax system. This is evident from 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 facts on which the law operates (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.”

43. The Respondent relied on the case of Dyer & Dyer Limited vs.Commissioner of Domestic Taxes TAT 139 of 2020, which this Tribunal held;“the Appellant woefully failed in adducing a scintilla of evidence demonstrating that the Commissioner erred in raising the additional assessment in dispute. All the Appellant has been perceived has are perceived notions and imputations of incorrectness of the assessment. This appreciably points to an underwhelming dispensation of the burden placed upon the Appellant in section 56 (1) of the TPA 2015”.

44. The Respondent further relied on the case of the case of Commissioner of Domestic Taxes vs. Metoxide Limited [2021] where the Court held that;“Section 56 (1) of the Tax Procedures Act provides that the taxpayer has the burden of proving that a tax decision is incorrect. It is common knowledge that the Kenyan system of taxation is based on self-assessment. The taxpayer assesses self and remits what he/she considers to be the tax due to the tax authorities. In this regard, the tax laws mandate the appellant to later assess the taxpayer in order to ascertain whether the tax remitted was proper or not. Ordinarily, the assessment is made years after the tax has fallen due and been paid or the economic activity or commercial transaction for which the tax arises has been undertaken. It is for this reason that the tax laws in this country shoulder the taxpayer with the burden of disproving the correctness of the appellant's tax decision.”

Respondent’s Prayers 45. The Respondent prays that this Honorable Tribunal finds:a.That the Respondent’s Rejection Decision be upheld as it was proper in law; and,b.That the Appeal herein be dismissed with cost to the Respondent.

Issue for Determination 46. The Tribunal upon due consideration of the pleadings, documents and the written submissions filed on the part of both parties was of the view that the only issue that crystalized for its determination was;Whether the Respondent erred in its rejection of the Appellant’s application for exemption.

Analysis and Determination 47. The Tribunal having appropriately ascertained the issue that fell for its determination proceed to make an analysis on the issue as hereinafter.

48. The Appellant averred that it made applications to the Respondent for exemption from Income Tax as provided for under Section 13 (1) of the Income Tax Act and paragraph 10 of the First schedule to the Income Tax Act on 30th March 2021 and 30th May 2022. That the Respondent rejected the application on 9th March 2023 on the basis that the Appellant’s objectives did not meet the statutory requirements for such exemption.

49. The Appellant objected to the Respondent’s decision on 3rd August 2023 whereupon the Respondent vide a letter dated 26th August 2023 advised it to lodge an Appeal at the Tribunal.

50. The Appellant averred that the Respondent in its decision to reject the application for exemption from income tax did not provide reasons contrary Section 49 of the TPA and Article 47 of the Fair Administrative Actions Act which provide for the duty to give reasons.

51. The Appellant asserted that it meets the conditions of exemption outlined in paragraph 10 of the First Schedule to the Income Tax Act and that it had provided supporting documents to the Respondent to prove its assertion.

52. The Respondent on its part submitted that the Appellant failed to provide documents in support of its application even after it had been afforded several opportunities to provide the requisite information. The Respondent relied on Section 43(1) of the TPA on keeping of records, Section 59 (1) of the TPA on production of records to the commissioner and Section 56 (1) of the TPA on the burden of proof.

53. The Tribunal in its analysis of the Appellants record of Appeal noted that the Appellant did not attach any document in support of its averment that it had provided the requisite records to the Respondent, it only listed the documents supposedly provided to the Respondent that in itself is not proof that the same were indeed supplied to the Respondent. The Appellant also failed to provide the said documents at this Appeal as required by Section 30 of the TAT Act to proof that it was indeed eligible for exemption.

54. Whereas the Appellant submitted that there was email correspondence between the parties herein, exchanged on various dates between 22nd November 2022 and 9th March 2023 being further evidence that it had provided the requisite information. The Tribunal noted that the Appellant did not attach copies of the said correspondences for the Tribunal’s appreciation.

55. In the absence of supporting documents, the Appellants assertions remained mere averments, the provision of documents as evidence in an Appeal at the Tribunal is well stated under Section 30 of the TAT Act which provides thus:“In a proceeding before the Tribunal, the appellant has the burden of proving-Where an appeal relates to an assessment, that the assessment is excessive; orIn any other case, that the tax decision should not have been made or should have been made differently.”

56. Additionally, the Tribunal found it appropriate to rely on the provisions of Section 107 of the Evidence Act which 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.”

57. The court in Alfred Kioko Muteti vs. Timothy Miheso & another [2015] eKLR held that a party can only discharge its burden upon adducing evidence. Merely making pleadings is not enough., the court stated that;“Thus, the burden of proof lies on the party who would fail if no evidence at all were given by either party…. Pleadings are not evidence, and it is not enough to plead particulars of negligence and make no attempt in one’s testimony in court to demonstrate by way of evidence how the accident occurred and how the 1st defendant was to blame for the said accident. It is trite law that he who alleges must prove and that burden does not shift to the adverse party even if the case proceeds by way of formal proof and or undefended.”

58. Similarly, in the case of Boleyn International Ltd vs. Commissioner of Investigations and Enforcement, Nairobi TAT Appeal no.55 of 2018, the Tribunal held that;“We find that the Appellant’s at all times bore the burden of proving that the Respondent’s decisions and investigations were wrong. The tribunal is guided by the provisions of Section 56 (1) of the TPA, 2015 which states: “In any proceedings under this part, the burden shall be on the taxpayer to prove that a tax decision is incorrect.”

59. Further the Tribunal finds the following paragraph from Pierson vs. Belder (H.M. Inspector of Taxes) (1956-1960) 38 TC 387 to be persuasive;“but the matter may be disposed of, I think even more shortly in this way: there is an assessment made by the additional Commissioner upon the Appellant; it is perfectly clearly settled by cases such as in the case of Norman V Golder 26 T.C, 293, that the onus is upon the Appellant to show that the assessment made upon him is excessive or incorrect; and of course he has completely failed to do so. That is sufficient to dispose of the Appeal, which is accordingly dismissed with costs”

60. Consequently, the Tribunal finds that the Appellant failed to discharge the burden of proof placed upon it in demonstrating that the Respondent erred its rejection of the Appellant’s application for exemption.

Final Decision 61. Based on the foregoing analysis the Tribunal determined that the Appeal is not merited. The Orders that accordingly recommend themselves are as follows: -a.The Appeal be and is hereby dismissed.b.The Objection Decision dated 9th March 2023 be and is hereby upheld.c.Each party to bear its own costs.

62. It is so ordered.

DATED AND DELIVERED AT NAIROBI THIS 20TH DAY OF SEPTEMBER 2024. ROBERT MUTUMA MUGAMBI - CHAIRMANDR. TIMOTHY B. VIKIRU - MEMBERJEPHTHAH NJAGI - MEMBERMUTISO MAKAU - MEMBERDELILAH K. NGALA - MEMBER