[2022] KEHC 10392 (KLR)

Commissioner of Domestic Taxes v Pevans East Africa Limited & 6 others (Tax Appeal E003 of 2019) [2022] KEHC 10392 (KLR) (Commercial and Tax) (13 May 2022) (Judgment)

Neutral citation: [2022] KEHC 10392 (KLR)

Republic of Kenya

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

Commercial and Tax

Tax Appeal E003 of 2019

DAS Majanja, J

May 13, 2022

Between

Commissioner of Domestic Taxes

Appellant

and

Pevans East Africa Limited

1st Respondent

Shop & Deliver Limited

2nd Respondent

Asian Betting & Gaming Enterprises Africa Limited

3rd Respondent

Acumen Communications Limited

4th Respondent

Nanovas International (K) Limited

5th Respondent

Premier Betting (K) Limited

6th Respondent

Gamcode Limited

7th Respondent

(Being an appeal against the judgment of the Tax Appeals Tribunal at Nairobi dated 6th November 2019 in Tax Appeal No. 304 of 2019 consolidated with Tax Appeal Nos. 141, 175, 198, 200, 265, 302 & 305 of 2019)

Judgment

Introduction and Background 1. Before the court for determination is an appeal by the appellant (“the Commissioner”) challenging the decision of the Tax Appeals Tribunal (“the Tribunal”) dated November 6, 2019 relating to the 1st respondent’s appeal which was consolidated with the appeals lodged by the other Respondents.

2. In its memorandum of appeal dated November 29, 2019, the Commissioner seeks to set aside the Tribunal’s decision resulting in upholding its own decision. The respondents oppose the appeal. The parties have filed written submissions supporting their respective positions.

3. The facts giving rise to this appeal are largely common ground and are a matter of record. The respondents are limited liability companies and at the material time were primarily engaged in the business of sport betting and licensed to do so under the Betting, Lotteries and Gaming Act (Chapter 131 of the Laws of Kenya). On diverse dates, the commissioner, demanded payments from the respondents being what it claimed was Withholding Tax (“WHT”) on winnings paid to punters for periods between 2018 and 2019.

4. The respondents objected to the commissioner’s demands. They disputed the formula or computation applied by the commissioner in determining the WHT by stating that it had erred in interpreting the term “winnings”. The commissioner disagreed and issued agency notices to the respondents’ bankers and mobile money service providers. Aggrieved by this action, the respondents filed appeals to the Tribunal. The Tribunal rendered its decision on the consolidated appeals on November 6, 2019 allowing the said appeals and setting aside the commissioner’s demands for payment of the said withholding tax.

5. The Tribunal framed several issues for determination in its decision. The first issue was whether the 1st respondent, as the appellant before the Tribunal, had locus standi to file the appeal. The Tribunal ruled in the affirmative. The next issue was whether the matter was res judicata in view of other cases where the appellant therein sought certain declarations in relation to whether winnings from betting, lotteries and gaming is income and therefore chargeable with income tax. The Tribunal concluded that the appeal was not res judicata. On the third issue as to what constitutes “winnings” under the Income Tax Act (Chapter 470 of the Laws of Kenya) (“the ITA”), the Tribunal concluded that winnings as stipulated in the ITA refers to pay-outs by the licensee but does not include amounts staked by the bettor.

6. The fourth issue was whether the commissioner erred in issuing demands for WHT against the respondents. The Tribunal held that the commissioner had no legal basis for demanding WHT as if it was tax due and payable by the respondent. the fifth issue was whether the commissioner’s demand for WHT and issuing of agency notices without issuing tax assessments against the Respondent was unprocedural and in breach of its constitutional rights. The Tribunal accepted that the although the commissioner had power to collect taxes without issuing an assessment in certain instances, in this case it concluded that the demand and notices were against the respondent’s procedural and constitutional rights. The last issue was whether the evidence tendered by the commissioner in its submissions during the proceedings was unprocedural and ought to be expunged. The Tribunal held that in the circumstances of the case, the evidence lacked any probative value.

7. The commissioner is dissatisfied with the aforesaid findings and appeals to this court. These issues framed and determined by the Tribunal formed the basis of the issues the commissioner framed for determination in this appeal and which the parties addressed. I will now proceed to consider each issue as framed.

Analysis and Determination 8. In determining this appeal, it is important to set out the jurisdiction of this court which is circumscribed by statute under section 56(2) of the Tax Procedures Act (“the TPA”) that “An appeal to the High Court or to the Court of Appeal shall be on a question of law only”. The Court of Appeal in John Munuve Mati v Returning Officer Mwingi North Constituency & 2othersNairobi Election Petition Appeal No. 5 of 2018 [2018] eKLR summarised what amounts to “matters of law” as follows:(38)[T]he interpretation or construction of the Constitution, statute or regulations made thereunder or their application to the sets of facts established by the trial Court. As far as facts are concerned, our engagement with them is limited to background and context and to satisfy ourselves, when the issue is raised, whether the conclusions of the trial judge are based on the evidence on record or whether they are so perverse that no reasonable tribunal would have arrived at them. We cannot be drawn into considerations of the credibility of witnesses or which witnesses are more believable than others; by law that is the province of the trial court.

9. Further, since the court is also being invited to interpret provisions of a tax statute, the now accepted principle in interpreting tax statutes is that the court interprets the statute strictly, leaving no room for intendment or implication. This view was summarised by Nyamu JA., in Stanbic Bank Kenya Limited v Kenya Revenue Authority CA Civil Appeal No. 77 of 2008 [2009] Eklr as follows:In my interpretation of the law, it is quite evident that I have not sought any assistance from outside a dictionary in ordinary use. Moreover, I have not strained the meaning of the words in order to achieve any particular result. I have simply adopted the ordinary meaning of the words used in the relevant tax statute. This is because as regards tax law the issue of intention or intendment does not arise. If there is any ambiguity, and I did not detect any in my analysis, the same must be construed in favour of the tax payer. In tax law, the converse is also true that if the meaning is clear, that tax is chargeable, the issue of what was intended is not the function of the court and where tax liability is expressed and located by law the courts must uphold the taxman’s position.

10. It is against these two principles that I now turn to consider the submissions and each of the issues.

Whether the Respondents’ have locus standi 11. The commissioner submitted before the Tribunal and this court that the respondents lacked the requisite locus standi to file the appeal because under Paragraph 7 of the Income Tax (Withholding Tax) Rules, 2001 the person who has the right of appeal to the Tribunal and the court on the question of determination of the rate or the sums to be deducted as WHT, is the payee, being the punter and not the payer, in this case the Respondents. The relevant provision states as follows:7. Dispute in calculation of withholding tax(1)If a person to whom payment is made under paragraph 6 is aggrieved by reason of the nature of a payment and the rate of withholding tax applied and is unable to reach an agreement with the payer—(a)the payer may inform the payee of his rights under this rule and shall, at the request of the payee furnish him with a written statement showing the manner in which the payer calculated the tax deducted;(b)the payee may give a notice of objection in writing to the Commissioner, but that notice shall be valid only if—(i)it states precisely the grounds of his objection;(ii)there is enclosed therewith the written statement furnished by the payer; and(iii)it is received by the Commissioner within thirty days of the date on which the statement from the payer under paragraph (a) was received by the payee.(2)On receipt of a notice of objection under this rule, the Commissioner shall consider the objection and, subject to and in accordance with these Rules, may amend the calculation or reject the objection.(3)The Commissioner shall notify the payer and the payee in writing of his decision on the objection and thereafter, on the occasion of making payment to the payee the calculation of the tax shall be in accordance with that decision.(4)Notwithstanding that a valid objection has been made, on the occasion of making a payment to the payee from which tax is to be deducted in accordance with these Rules, the amount of tax to be deducted shall be in accordance with the calculation made by the payer until the payor is notified by the Commissioner of his decision on the objection.(5)Any amount of tax in excess of the amount found to be payable upon calculation by the Commissioner under subrules (3) and (4) shall be refunded to the payee.

12. The Tribunal held, and the respondents were in agreement, that the said provision of therules are applicable where the punter is aggrieved by the WHT already deducted by the payer, being the Respondents whereas in the present case, it is therespondents who expressed the grievance in respect of the WHT and not the punter.

13. I am in agreement with this conclusion by the Tribunal and add that the said Rules deal with the relationship between a payer and payee and that the dispute resolution procedure provided in Paragraph 7 thereof is in respect of a dispute between a payer and payee on the amount paid after withholding tax is deducted. Essentially, it is the payee who is to approach the commissioner under the mechanism provided under Paragraph 7 if at all they dispute the payment made to them by the payer.

14. This was not the case herein as the punters, being the payees were not aggrieved by the WHT deducted by the respondents but rather, it was therespondents, as payers, who were aggrieved by the decision of the Commissioner to demand WHT from them which thecommissioner claimed ought to have been withheld and deducted from the punters. As stated in the introductory part, it is not in dispute that the Commissioner issued demands to the Respondents and agency notices to their bankers demanding the impugned taxes.

15. Further, I have little doubt that thecommissioner’s decision of demanding and issuing agency notices to the respondents’ bankers was an appealable decision to the Tribunal within the meaning and definition of an ‘appealable decision’ under section 3(1) of the TPA which provides that it is, “an objection decision and any other decision made under a tax law other than— (a) a tax decision; or (b) a decision made in the course of making a tax decision.”

16. In Krystalline Salt Limited v Kenya Revenue AuthorityNRB HC JR No. 359 of 2018 [2019] eKLR, Mativo J., upheld the argument that a decision made under any other tax law including the exercise of powers under section 42 of the TPA is an appealable decision and observed that, “The impugned notice (under section 42 of the TPA) falls under the above definition. To hold otherwise would amount to intellectual dishonesty given the clarity of the provision." I agree.

17. I therefore find and hold that the respondents were entitled to appeal against the decision leading to issuing of agency notices in accordance with section 52(1) of the TPA which provides that, “A person dissatisfied with an appealable decision may appeal the decision to the Tribunal in accordance with the provisions of the Tax Appeals Tribunal Act, 2013. ”. This provision is to be read with section 3(3) of the Tax Appeals Tribunal Act, 2013 (“the TATA”) which states that, “There is established a Tribunal known as the Tax Appeal Tribunal to hear appeals filed against any tax decision made by the Commissioner“. This ground of appeal that the Respondents lacked locus standi to file their respective appeals at the Tribunal lacks merit.

Res Judicata and Res Sub judice 18. As it did before the Tribunal, the commissioner submits that the matter before the Tribunal was res judicata. It refers to the case of George Lesaloi v Kenya Revenue Authority as consolidated with Bluejay Limited v Kenya Revenue AuthorityNRB Petition No. 9 and 10 of 2018 [2019] eKLR (‘’the George Lesaloi Case”) where it submits that the court was called upon to define “winnings” under section 2 of the ITA. It contends that this is the same issue that was before the Tribunal, hence the appeal was res judicata and not open to further litigation.

19. The Commissioner adds that the exact issues are the subject of litigation in Patrick Mwiti Mutuma v Kenya Revenue Authority & all Licensees by the Betting Control & Licensing Board KerugoyaPet. 1 of 2019 (“the Patrick Mwiti Mutuma Case”) and Benson Irungu v Pevans East Africa Limited, KRA CMCC No. 1662 of 2014 and the appeal therefrom NRB Appeal No. 210 of 2019 (“the Benson Irungu Case”) where all the parties herein are party hence this matter is res sub judice.

20. The respondents distinguished the said cases from the instant one by stating that the former neither defined nor resolved the issue of “winnings” and that this matter seeks the formula for computation of WHT on “winnings” which was not sought in any of the earlier cases. Although they admit that they were involved in those cases, they submit that their role was peripheral and that the issues raised and reliefs sought did not include the definition of “winnings” but rather whether withholding tax was indeed payable on winnings.

21. I do not think it is in dispute that res judicata is anchored in section 7 of the Civil Procedure Act (Chapter 21 of the Laws of Kenya). It provides that, ‘No court shall try any suit or issue in which the matter directly and substantially in issue has been directly and substantially in issue in a former suit between the same parties, or between parties under whom they or any of them can claim, litigating under the same title, in a court competent to try such subsequent suit or the suit in which such issue has been subsequently raised, and has been heard and finally decided by such Court.’ Thus the following elements must all be satisfied for the doctrine of res judicata to apply; the issue was directly and substantially in issue in the former suit; the former suit was between the same parties or parties under whom they or any of them claim; the parties were litigating under the same title; the issue was heard and finally determined in the former suit; and the court that previously heard and determined the issue was competent to try the suit in which the issue is raised (see Gichuki v Gichuki [1982] KLR 285, The Independent Electoral and Boundaries Commission v Maina Kiai and 5others NRB CA Civil Appeal No. 105 of 2017 [2017]eKLR).

22. As regards the doctrine of res sub judice, it is anchored under section 6 of the Civil Procedure Act which provides that, “no court shall proceed with the trial of any suit or proceeding in which the matter in issue is also directly and substantially in issue in a previously instituted suit or proceeding between the same parties, or between parties under whom they or any of them claim, litigating under the same title, where such suit or proceeding is pending in the same or any other court having jurisdiction in Kenya to grant the relief claimed”. In summary, the court is prohibited from proceeding with a matter where a similar matter involving the same parties and subject matter is pending before another court of competent jurisdiction (see Kenya National Commission on Human Rights v Attorney General; Independent Electoral & Boundaries Commission & 16 others (Interested Parties)SCK Adv. Ref. No. 1 of 2017 [2020] eKLR).

23. On the issue of res judicata, I have gone through the judgment delivered on August 8, 2019 in the George LesaloiCase where the 1st respondent was an interested party. In that case, the petitioners therein sought the following specific reliefs:(i)A declaration that winnings from betting, lotteries and/or gaming is not an income and therefore not subject to tax either under the Income Tax Act …………. or any other laws, within the intendment of article 40 of the Constitution of Kenya.(ii)A declaration that the amendment of section 2 of the Income Tax Act ………………….. defining “winnings” as taxable income, is unconstitutional within the intendment of articles 40 and 201 of the Constitution.(iii)An order of permanent injunction…to restrain the respondents …………. from collecting and/or purporting to collect, any monies defined as “winnings” under the Finance Act, No 38 of 2013, the Tax Laws (Amendment) Act, No 9 of 2018 and/or the Finance Act, No 10 of 2018 from the Petitioners herein and/or any other punter.(iv)An order of mandamus to compel the respondents to refund any taxes unconstitutionally collected as a result of the provisions of the Finance Act, No 38 of 2013, the Tax Laws (Amendment) Act, No 9 of 2018 and/or the Finance Act, No 10 of 2018. (v)An interpretation by the court of the term “winnings” as defined under section 2(b) of the Finance Act, 2018 for purposes of taxation.(vi)A declaration that the Petitioners’ fundamental rights and freedoms under Articles 27, 40 and 47 have been violated.(vii)A declaration that the actions of the Respondents are in violation of Articles 1, 2, 3, 10, 24, 27, 40, 48, 73, 93, 94, 95, and 201 of the Constitution of Kenya as well as the Fourth Schedule thereto.(viii)A declaration that the effective date of implementation of section 1(c) of the Finance Act, 2018 is 21st September 2018. (ix)A declaration that section 1(c) of the Finance Act, 2018 is retrospective and therefore unconstitutional in its entirety.

24. Further, the court framed the following issues for determination: The role of the Legislature in enactment of relevant tax laws, the “withholding tax” regime under the ITA, the definition of “winnings” under section 2 of the ITA, whether section 1(c) of the Finance Act, 2018 is retrospective, and if so, the effect thereof and alleged constitutional violations of the rights of the petitioners. Under the head of Definition of “Winnings” under section 2 of the ITA the court held as follows:20. The Petitioners have challenged the definition of “winnings” in section 2 of the Income Tax Act as amended by the Finance Act, 2018. The intention of the legislature in enacting the new definition was to widen the tax base. It is not for this court to determine if “winnings” from betting, etc should be taxed, or how such tax should be collected or administered. That is the province of the National Assembly.21. . I do not find any ambiguity or un-constitutionalism in the new definition of winnings at all. Any practical difficulty in collection of the withholding tax that may come to light will not amount to un-constitutionalism; it will be a matter be taken up with Kenya Revenue Authority for better management of the tax.

25. From the reliefs, issues and conclusion reached in the George Lesaloi Case, it is clear that the court declined the petitioners’ invitation to interpret the definition of “winnings” under section 2 of the ITA and did not interpret or conclusively determine the definition. For the doctrine of res judicata to apply, the subject issue must have been finally determined by the court in the previous suit. For this reason alone, I reject the Commissioner’s submission that this matter was res judicata the George Lesaloi Case. I therefore agree with the Tribunal’s conclusion.

26. On this matter being res sub judice the Patrick Mwiti Mutuma Case and Benson Irungu Case, I have gone through the former and I agree with the Tribunal that the Respondents were the interested parties named by the petitioner as being, “all licensees by the betting control & licensing board”. The petitioner was seeking, inter alia, declaratory reliefs that section 2 of the ITA was unconstitutional and that the said interested parties be restrained from deducting any taxes on winnings by any player. These reliefs are clearly different from what the Respondents were seeking before the Tribunal which included a definition of the term “winnings” that was not sought in the Patrick Mwiti Mutuma Case.

27. The same can also be said of the Benson Irungu Case, whose pleadings on record only indicate that the 1st Respondent is a defendant/respondent therein and there is no indication that the issues in the said suit and/or appeal were similar and also in issue as those before the Tribunal. Therefore, I also reject the Commissioner’s contention that this case was res sub judice the Patrick Mwiti Mutuma Case and the Benson Irungu Case.

28. Finally, and on this issue, I would point out that in this and related appeals, the Respondents are exercising their statutory right, that is, the right to appeal against a decision of the commissioner unlike in the other cases where the parties were seeking declarations. The right is clearly provided for under section 52(1) of the TPA as read with section 3(1) of TATA. This is an independent right flowing from the fact that the Commissioner had taken certain actions which the respondents wished to challenge hence the facts and subject matter is different and the issue of res judicata or res-subjudice would not apply, at least in this case.Definition of “winnings” in respect of betting, lotteries, and gaming.

29. This issue formed the crux of the parties’ dispute because they all took diametrically opposed positions as to what constituted “winnings” for purposes of WHT.

30. The Commissioner contended that “winnings” is what is received from games of chance without any reference to stakes and it is the payout from any game of chance. The Respondents take the view that “winnings” exclude the stake placed by the punter and thus meant that it was that which a punter gained, over and above the bet placed. Simply, the Commissioner defines winnings as the stake/”investment” together with the “profit” gained over and above the stake whereas the Respondents define it as just the “profit” gained minus the stake initially placed. The parties agree that resolution of the definition of “winnings” is important as it determines the amount that is to be charged to WHT.

31. The background of winnings from betting, lotteries, and gaming coming under the tax regime is common ground. Prior to July 2018, winnings from betting and gaming was not charged as income but all this changed when Parliament enacted the Tax Laws (Amendment) Act, 2018 that was assented to on 18th July 2018 with the provision on the amendment of the ITA bringing winnings to charge coming into operation on 1st July 2018. The ITA was amended by deleting section 2 the ITA, which at the time defined, “winnings” as per ‘the meaning assigned to it in the Betting Lotteries and Gaming Act’ and substituted therefor the definition that, “winnings” means “the positive difference between pay-outs made and stakes placed in each month, for each player, payable to punters by bookmakers licensed under the Betting, Lotteries and Gaming Act."

32. The Tax Law (Amendment) Act, 2018 further amended section 10(1) of the ITA by introducing Paragraph (f) which provided that “winnings” be considered as income from management or professional fees, royalties, interest and rents. It also amended sections 34 and 35 of the ITA to include “winnings” as income that is to be subjected to taxation and the tax rates prescribed therein. It further amended the Third Schedule, Head B, Paragraph 3, of the ITA and introduced subparagraph (i) which subparagraph imposed a twenty percent (20%) rate of taxation on winnings for both residents and non-residents. On September 25, 2018, the Finance Act, No. 10 of 2018, further amended section 2 of the ITA by now defining “winnings” to mean “winnings of any kind and a reference to the amount or the payment of winnings shall be construed accordingly”.

33. According to the Tribunal, the above definition sought to tax what was construed and/or recognized as a winning in the Betting, Lotteries and Gaming Act and that at no time prior to this case, did the legislature explicitly or implicitly intimate that winnings either in the ITA or in the Betting, Lotteries and Gaming Act should include stakes or have the same meaning as gross payout. That if the intention was to include stakes in the definition of winnings, the legislature would have expressly stated so. Thus, the Tribunal concluded that “winnings” as stipulated in the ITA refers to payouts by the licensee but does not include amounts staked by the bettor or punter.

34. I agree with the Tribunal’s conclusion. The ordinary meaning of ‘’winnings’’ does not assist the Commissioner’s position. According to The Concise Oxford English Dictionary(12th Ed.), “winnings’’ is defined as, ‘’money won especially by gambling.” Thus the ordinary meaning does not tell us whether the winning include the stake. In order to reach the conclusion that the ‘’winnings’’ includes the stake, the Tribunal and this court would have to imply something in the ordinary language that does not exist.

35. On the legal aspects of the matter, I hold that when the definition of winnings was first amended on July 18, 2018, it was clear and specific that “winnings” meant the amount gained by the punter over and above the amount staked. However, the September 21, 2018 amendment limited and generalized this definition leaving it open to interpretation by the Commissioner or taxpayer as to the amount payable. I have no doubt that the current definition of “winnings” under section 2 of the ITA is ambiguous. By stating that, “winnings of any kind and a reference to the amount or the payment of winnings shall be construed accordingly”. The “amount or payment of winnings” does not state or clarify whether that amount includes the stake. Further by stating that the reference shall be construed accordingly does not make any sense as it is not clear what the point of reference is. I am therefore in agreement with the Respondents that it does not state or set out what constitutes winnings and how to compute the “winnings”.

36. In the case of such ambiguity, then interpretation and resolution must be in the taxpayer’s favour. This position was fortified by the Court of Appeal in Commissioner of Domestic Taxes (Large Taxpayers Officers) v Barclays Bank of Kenya Ltd NRB CA Civil Appeal No. 195 of 2017 [2020] eKLR when it held that:There is no doubt in our minds that the decisions in Adamson v Attorney General [1933] AC 247, Cape Brandy Syndicate v. Inland Revenue Commissioners [1920] 1 KB 64, T. M. Bell v. Commissioner of Income Tax [1960] EA 224, Republic v. Commissioner of Income Tax ex parte SDV Transami [2005] eKLR and the first judgment represent a correct statement of the law, namely strict construction of tax legislation, so that the tax demand must fall within the terms of the statute without ambiguity. If there’s any ambiguity in the legislation, it is not to be rectified by considerations of intendment, but by amending the legislation. However, determination of whether there is clarity or ambiguity in the legislation or whether a tax demand is precise and within the terms of the legislation, is not an abstract or pedantic exercise. It must be based on the evidence and the circumstances of each case. We agree with the majority of this Court in Stanbic Bank Ltd v. Kenya Revenue Authority [2009] eKLR that meaning of words should not be strained so as to find ambiguity.

37. The fact of ambiguity is not idle as other tax statutes have sought to resolve it. The Excise Duty Act, 2015 imposes excise tax on betting services and when they were brought to charge through the Finance Act, 2019, the amendment therein was very explicit that “Excise duty on betting shall be twenty percent of the amount wagered or staked.”This buttresses the point that had Parliament intended to define “winnings” to include both the wager and the profit, nothing would have been easier than for it so state just like they did in the Tax Laws (Amendment) Act, 2018 and the Excise Duty Act, 2015.

38. It is clear that strictest interpretation that favours the taxpayer, in this case the Respondents in respect of the definition of “winnings” in that it is the payment made to the punter less the amount staked. It is this amount that is subject to tax and what the respondents are obligated to deduct and remit to the commissioner. I am therefore in agreement with the Tribunal’s conclusion on its definition of “winnings”.

The letter from the Betting Control Licencing Board (BCLB) Chair 39. The commissioner had faulted the Tribunal’s reliance on the letters by the chairperson of the BCLB to the Respondents on the position of the definition of “winnings”. I have already found that interpretation of the same is in favour of the respondents, therefore, it is now immaterial whether the Tribunal fully relied on these correspondences or not in its determination of the same. In any event, I find that these correspondences were opinions equivalent to those of experts that are not binding upon the court and only have a persuasive value. The Tribunal and the court are only bound by the strictures of statute and the cannons of interpretation as stated above.

Demand of withholding tax from the Respondents 40. The Commissioner submitted that it was entitled to demand withholding taxes from the Respondents as payers or agents that ought to have been withheld by them from the payouts made to punters and that it was not for the Commissioner to demand the same from the payees, being the punters. The commissioner relied on rule 10 of the Income Tax (Withholding Tax) Rules which provides that, “For the purpose of the recovery of tax which a person would have been liable to pay under rule 8 had he complied with the provisions of these rules, that person shall be deemed to have been appointed an agent of his payee under section 96 of the Act.”

41. As the Commissioner submitted, section 96 of the ITA was repealed by the TPA in 2015 hence I find that Rule 10 above was inapplicable to the Commissioner’s case. In as much as the Commissioner relied on section 42 of the TPA to submit that it claimed the said taxes from the respondents as agents of the punters, I note that the commissioner never relied on this provision in support of this position before the Tribunal and it definitely cannot be introduced at this stage.

42. I am in agreement with the Tribunal that prior to 2016, section 35(6) of the ITA provided that the commissioner could claim taxes from a payer who fails to make a deduction as though the taxes were due from them. However, the amendment introduced by the Finance Act, 2016 deleted the said section 35(6) of the ITA meaning that the Commissioner could no longer demand taxes not withheld from the person who should have withheld the same and that this position remained until the enactment of the Finance Act, 2019 came into force on November 7, 2019 when the previously deleted provisions of section 35(6) of the ITA were now reintroduced and reproduced as a new section 39A under the TPA.

43. Consequently, I therefore find and hold that during the subject years of 2018 and 2019, the Commissioner could not collect the WHT that ought to have been deducted by the Respondents from the punters and that all the Commissioner could do was seek the same from the punters directly.

Whether the Commissioner erred in issuing agency notices without issuing amended assessments to the Respondents 44. According to the commissioner, there was no procedural impropriety on its part by demanding for the short levied tax and issuing the agency notices therefore, the Tribunal erroneously made a finding that the commissioner had failed to issue the Respondents with an amended assessment for which they could object to the demands for short levied tax.

45. I have already found that the agency notices issued by the commissioner constituted an appealable decision by the Commissioner therefore there was nothing for the respondents to object to as the same was not a tax decision. All the respondents could do was appeal directly to the Tribunal which they rightly did.

46. I can only add that it was within the Commissioner’s powers to issue the said agency notices if it haboured a reasonable belief that the Respondents will not pay tax by the due date for payment and that it was not necessary under the said section 42(1) for the tax liability to be ascertained first (see Choppies Enterprises Limited v Commissioner of Domestic Taxes/Kenya Revenue Authority MLHCCC No. E095 of 2020 [2020] eKLR).

47. I find and hold that the commissioner did no err in issuing the said agency notices before determining the respondents’ tax liability. Further, the commissioner did not have to issue amended assessments to the respondents to enable them lodge their objections as the agency notices entitled the respondents to directly challenge the decision before the Tribunal.

Conclusion and Disposition 48. For the reasons I have set out above, I find that the commissioner’s appeal lacks merit. It is now dismissed.

DATED AND DELIVERED AT NAIROBI THIS 13TH DAY OF MAY 2022. D. S. MAJANJAJUDGECourt Assistant: Mr Michael OnyangoMr Ochieng, Advocate with him Mr Nyagah, Advocate instructed by the Kenya Revenue Authority for the Commissioner of Domestic Taxes.Ms Odari instructed by Iseme, Kamau and Maema Advocates for the 1st Respondent.Ms Macharia with her Mr Muhindi instructed by Anjarwalla & Khanna LLP Advocates for the 2nd Respondent.Ms Ouma instructed by Coulson Harney for the 7th Respondent.