[2023] KEHC 25059 (KLR)

Commissioner of Domestic Taxes v Airtel Networks Kenya Limited (Income Tax Appeal E062 of 2022) [2023] KEHC 25059 (KLR) (Commercial and Tax) (10 November 2023) (Judgment)

Neutral citation: [2023] KEHC 25059 (KLR)

Republic of Kenya

In the High Court at Nairobi (Milimani Commercial Courts Commercial and Tax Division)

Commercial and Tax

Income Tax Appeal E062 of 2022

A Mabeya, J

November 10, 2023

Between

Commissioner of Domestic Taxes

Appellant

and

Airtel Networks Kenya Limited

Respondent

Judgment

1. In a letter dated 9/10/2018, the appellant informed the respondent of his intention to audit its affairs for the years 2013 to 2017. The audit was postponed upon the request of the respondent since the respondent was in the middle of a custom audit by the Commissioner of Customs and Border Control.

2. The audit was subsequently conducted between March and May 2019. In a letter dated 4/6/2019, the appellant made a demand on the respondent for taxes which the respondent objected to. After some engagements, the assessment was adjusted which the respondent still objected to. Subsequently, the appellant confirmed part of the assessment in his objection decision dated 31/3/2021 for a sum of Kshs. 791,207,007/13.

3. Being aggrieved by the appellant’s decision, the respondent lodged an appeal at the Tax Appeals Tribunal (“the Tribunal”) and the appeal was allowed in a judgment delivered on 14/4/2022. Dissatisfied with that decision, the appellant has lodged this appeal vide a memorandum of appeal dated 2/6/2022. The grounds of appeal can be summarized into 2 as follows: -a.That the Tribunal erred in holding that no proof had been given by the appellant to justify the assessment beyond the statutory five-year limit.b.That the Tribunal erred in failing to hold that the appellant had discharged his burden when he requested for more documents.

4. The respondent opposed the appeal vide its statement of facts dated 5/10/2022. It was the respondent’s case that the appellant had not discharged his burden of proof as to why the assessment was done beyond the five-year statutory period. According to the respondent, the returns for the month of December were filed on 20/1/2015 and therefore the appellant could only be allowed to raise an amended assessment up to 20th January 2020 with respect to VAT, 8/1/2020 with respect to PAYE and 20/1/2020 on withholding Tax.

5. That the appellant had admitted in his objection decision dated 31/3/2021 that the tax assessments were issued beyond the five-year statutory time limit. That the delay was caused by the appellant who failed to respond to the respondent for a period of one year. It was the respondent’s case that it could only retain documents for a period of five years and in this case, documents for the year 2013 to 2018 and 2014 to 2019. That despite the time limit the respondent still availed the documents.

6. The appeal was canvassed by way of written submissions which I have considered.

7. The appellant submitted that the respondent was under a duty of care to participate in the audit process by providing documents and any information sought by the appellant. That the respondent did not discharge the burden of providing further documents. It was the appellant’s submissions that the respondent had a duty to ensure that the 2013 to 2017 documents were ready on or before 23rd October 2018. The appellant also stated that the respondent was required to FastTrack the audit process. That there was willful neglect on the part of the respondent by failing to provide complete records in time.

8. On the other hand, the respondent submitted that the appellant was bound by the strict timelines of the Tax Procedures Act. That therefore, the Tribunal did not err in holding that the appellant did not meet the requirements of section 31 of the Tax Procedures Act. That the appellant had introduced the issue of duty of care at the submissions stage as the same had not been canvassed at the Tribunal.

9. Finally, that the taxpayer could not owe a duty of care to a public body. That the appellant has the power to issue an estimated assessment within the proper timeline.

10. I have considered the record, the response and the written submissions. The dispute between the parties is with respect to the additional assessment by the appellant made pursuant to section 31 of the Tax Procedures Act.

11. The gist of the appellant’s case is that the delay for issuing the assessment outside the statutory period of 5 years was caused by the respondent. According to the appellant, the respondent had willfully failed to provide the documents necessary for the audit in good time and therefore responsible for the delay.

12. On its part, the respondent contended that it was well aware of the documents needed for the audit process and had played its part to ensure that section 59 of the Tax Procedures Act was complied with. On whether the respondent committed gross or willful neglect, evasion or fraud, the respondent submitted that the appellant failed to discharge his burden to show that the respondent was guilty of the things accused of.

13. Section 31of the Tax Procedures Act (“the Act”) gives the appellant the power to issue amended assessments. Section 31(4) thereof provides: -“(4)The Commissioner may amend an assessment—a.in the case of gross or willful neglect, evasion, or fraud by, or on behalf of, the taxpayer, at any time; orb.in any other case, within five years of—i.for a self-assessment, the date that the self-assessment taxpayer submitted the self-assessment return to which the self-assessment relates; orii.for any other assessment, the date the Commissioner notified the taxpayer of the assessment.”

14. On interpretation of tax statutes, the courts have held that the same should be given strict interpretation with no room for intendment. In Republic vs. Commissioner of Domestic Taxes Large Tax Payer’s Office Ex-Parte Barclays Bank of Kenya LTD [2012] eKLR, the court held: -“The approach to this case is that stated in the oft cited case of Cape Brandy Syndicate v Inland Revenue Commissioners [1920] 1 KB 64 as applied in T.M. Bell v Commissioner of Income Tax [1960] EALR 224 where Roland J. stated, “ …in a taxing Act, one has to look at what is clearly said. There is no room for intendment as to a tax. Nothing is to be read in, nothing it to be implied. One can only look fairly at the language used… If a person sought to be taxed comes within the letter of the law he must be taxed, however great the hardship may appear to the judicial mind to be. On the other hand, if the Crown, seeking to recover the tax, cannot bring the subject within the letter of the law, the subject is free, however apparently within the spirit of the law the case might otherwise appear to be.” As this case concerns the interpretation of the Income Tax Act, I am also guided by the dictum of Lord Simonds in Russell v Scott [1948] 2 ALL ER 5 where he stated, “My Lords, there is a maxim of income tax law which, though it may sometimes be overstressed yet ought not to be forgotten. It is that the subject is not to be taxed unless the words of the taxing statute unambiguously impose the tax upon him” adopted in Stanbic Bank Kenya Limited v Kenya Revenue Authority CA Civil Appeal No. 77 of 2008 (Unreported) [2009] eKLR per Nyamu JA (See also Jafferali Alibhai v Commissioner of Income Tax [1961] EA 610, Kanjee Naranjee v Income Tax Commissioner [1964] EA 257). Any tax imposed on a subject is dictated by the terms of legislation and taxing authority must satisfy itself that the transaction fits within the definition of the statute. In Adamson v Attorney General (1933) AC 257 at p 275 it was held that, “The section is one that imposes a tax upon the subject, and it is well settled that in such cases it is incumbent on the Crown to establish that its claim comes within the very words used, and if there is any doubt or ambiguity this defect-if it be in view of the Crown a defect can only be remedied by legislation.”

15. In this regard, under section 31(4) of the Tax Procedures Act, an amendment outside the 5 year period can only be permitted if there is evidence of willful neglect, evasion, or fraud by or on behalf of the tax payer. In its judgment, the Tribunal found that the appellant had the burden of proving that the respondent was grossly or willful negligent. The Tribunal further held that gross or willful negligence relate to substantive tax dispute and not procedural issues.

16. In tax matters the onus of proving that an assessment is wrong always lies with the tax payer. The justification therefor is that the taxpayer has possession of the documents or evidence for proving or disproving a tax liability.

17. The legal position is that, all assessments ought to be made within 5 years except when there is evidence of gross or willful neglect, evasion or fraud on the part of the tax payer. This also goes hand in hand with the provisions of section 23 of the Tax Procedures Act which requires a tax payer to retain documents for the same period. The implication is that, after 5years, since no assessment can be made, the taxpayer is absolved of his burden of maintaining such records.

18. From the evidence on record, the appellant demanded documents from the respondent but the latter delayed in producing the same. However, the appellant was not bound to halt his audit and render his decision on the ground that he was awaiting the production of those documents. He would have made his assessment and left the respondent to object with appropriate documentation.

19. On what amounts to gross or willful neglect, it would be instances where there is prove of an intentional gross deviation of what is reasonably accepted on the part of the tax payer. The respondent produced the requested documents but there was period of delay on the part of the appellant that is unexplained despite knowing that he was bound by the strict timelines of section 31(4) of the Tax Act.

20. As to the submission that the respondent owed a duty of care, I accept the respondent’s objection that the same was neither pleaded nor canvassed before the Tribunal. The same cannot be allowed to raised for the first time on appeal. This Court is only required to pronounce itself on matters that have been placed before the Tribunal and the latter has pronounced itself on the same or has failed to do so.

21. In view of the foregoing, the Court finds that the Tribunal did not err in finding that the appellant did not sufficiently demonstrate that he had discharged his burden of proving that he was justified to render his assessment outside the statutory prescribed time limit.

22. Accordingly, the Court finds no merit in the appeal and the same is dismissed with costs. The judgment of the Tribunal delivered on 14/4/2022 is hereby upheld.It is so decreed.

DATED AND DELIVERED AT NAIROBI THIS 10TH DAY OF NOVEMBER, 2023. A. MABEYA, FCI ArbJUDGE