[2023] KEHC 25384 (KLR)

Commissioner of Domestic Taxes v Reshman International Limited (Income Tax Appeal E027 of 2023) [2023] KEHC 25384 (KLR) (Commercial and Tax) (3 November 2023) (Judgment)

Neutral citation: [2023] KEHC 25384 (KLR)

Republic of Kenya

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

Commercial and Tax

Income Tax Appeal E027 of 2023

EC Mwita, J

November 3, 2023

Between

Commissioner of Domestic Taxes

Appellant

and

Reshman International Limited

Respondent

(Appeal against the Decision of the Tax Appeals Tribunal dated 17{{^th}} February 2023 in TAT Misc. Appl. No. 300 of 2022)

Judgment

1. The Commissioner of Domestic Taxes (the Commissioner) reviewed Value Added Tax (VAT) declarations for the year 2018 for Reshman International Limited (Reshman) to determine input VAT claim and compliance with its tax obligations. On 19th November 2019, the Commissioner issued two assessment notices disallowing input VAT claims for the period April and May 2018 and additional VAT assessment of Kshs. 20,507,886. 31.

2. Reshman objected to the assessments through a notice of objection dated 11th December 2019. Through an email dated 10th February 2020, the Commissioner requested for proof of purchases and records for payment to the suppliers against the disallowed invoices. On 4th March 2020, Reshman forwarded the documents requested.

3. The Commissioner reviewed the notice of objection, allowed Reshman’s objection on the tax assessment of Kshs. 6,005,355. 75 but confirmed the assessment of Kshs. 14,502,533. 76. On 13th August 2020, the Commissioner issued an objection decision which was said to have been sent to Reshman by email of the same date.

4. On 1st September 2022, the Commissioner issued an amended notice of assessment based its objection decision, also through email. Reshman claimed that it neither received the email forwarding the objection decision nor the objection decision of 13th August 2022. Reshman further claimed that it was only made aware of the objection decision of 13th August 2022 in September 2022, following a visit to the Commissioner’s offices.

5. Reshman maintained that it still did not receive the email despite making a formal request through letter dated 25th October 2020 to the Commissioner. Reshman then filed an application dated 2nd December 2022 before the TAT seeking extension of time to file the Notice of Appeal.

6. In a ruling dated 17th February 2023, the TAT allowed the application and granted leave to appeal out of time on being satisfied that there were reasonable grounds for allowing the application, including the fact that the application was brought without undue delay.

7. The Commissioner was dissatisfied and filed this appeal on the grounds that:1. the Tribunal erred in law and in fact in disregarding the provisions of section 13 (3)(4) of the Tax Appeals Tribunal Act, and applying a test other than that provided by statute in determining the application for leave to appeal out of time thus arrived at a wrong decision.2. the Tribunal erred in law and in fact in disregarding the Commissioner’s email communication of 13th August 2020, (annexe “KRA-2”) in the replying affidavit thereby making a wrong finding that there was no email communicating the Objection Decision of 13th August 2020. 3.the Tribunal erred in law and in fact in holding that the Commissioner issued the Objection Decision dated 13th August 2022 and thus the respondent is not guilty of laches having filed the application on 8th December 2022 thereby arrived at an incorrect decision.4. the Tribunal erred in taking into consideration facts which were not pleaded by the respondent in the pleadings thereby determining the application based on foreign facts and thus arriving at a wrong finding.5. the Tribunal erred in law and in fact in finding that the Commissioner will not suffer any prejudice in allowing the respondent’s application in disregard of the Commissioner’s pleadings.6. the Tribunal erred in law and in fact by inferring that the Commissioner did not issue and serve Objection Decision on the respondent within the timelines thereby making final and conclusive findings at a preliminary stage.

8. The Commissioner urged that the appeal be allowed with costs; the ruling of the TAT dated 17th February 2023 be set aside and Reshman’s application dated 2nd December 2022 be dismissed with costs.

Response 9. Reshman filed a statement of facts in opposition to the appeal and urged that the appeal be dismissed with costs.

10. This appeal was disposed of through written submissions with oral highlights.

Commissioner’s Submissions 11. The Commissioner argued that applicable provision for leave to appeal out of time is section 56(2) of the Tax Procedures Act, where the appeal is not on a tax decision. The Commissioner relied on Jackson Kaio Kivuva v Penina Wanjiru Muchene (Civil Appeal No. 15 of 2015) [2019] eKLR that this being a first appeal, the Court can hear and determine both questions of fact and law.

12. The Commissioner again relied on Festo Oyengo Obonyo v Miriam Namutibwa Oketch & 2 others (Kisumu Court of Appeal Civil Appeal No. 2 of 2016) [2019] eKLR, urging the Court to analyze and re-assess the evidence on record and reach an independent conclusion.

13. The Commissioner asserted that in its decision, the TAT did not consider the provisions of section 13(3) (4) of the Tax Appeals Tribunal Act, to determine whether there was reasonable cause for granting the extension. According to the Commissioner, the TAT disregarded the Commissioner’s email of 13th August 2020 forwarding the objection decision to Reshman, which was not challenged by Reshman despite its claim that it was not aware of the objection decision until 1st September 2022 when the Commissioner issued the amended notice of assessment.

14. The Commissioner argued that the TAT was wrong for holding that the objection decision was dated 13th August 2022, not 13th August 2020. The Commissioner posited that since the objection decision was issued on 13th August 2020, Reshman was required to file an appeal by 13th September 2020. The Commissioner took the view that the application for extension was filed on 8th December 2022, more than two years outside the statutory time and a delay of three months after Reshman allegedly learned of the objection decision on 1st September 2022.

15. The Commissioner relied on Union Insurance Co. of Kenya Ltd. v Ramzan Abdul Dhanji (Civil Application No. Nai. 179 of 1998) cited in Nginyanga Kavole v Mailu Gideon (HC Misc. Appl. No. 401 of 2018) [2019] eKLR, that if a party is given a reasonable opportunity to be heard and doesn’t utilize it, the only matter they can address afterward is why they chose not to utilize it.

16. The Commissioner also relied on Commissioner of Domestic Taxes v Mayfair Insurance Company Ltd (Income Tax Appeal No. 31 of 2017) [2017] eKLR, that a delay of nearly two and a half months was inordinate and Edward Kagwathi Katuku v Republic (Voi High Court Criminal Appeal No. 08 of 2020), [2022] eKLR, that if there was evidence led during the trial, but such evidence is not referred to in any way in the judgment, it is safe for a appellate court to find misdirection on the part of the trial court.

17. The Commissioner contended that Reshman introduced the question of the objection decision being time barred in its written submissions filed before the TAT on 13th January 2023 and replicated the same in its statement of facts.

18. The Commissioner asserted that the TAT imported its own facts not pleaded by either side, (at paragraph 2(c)-(v) of the impugned ruling). The Commissioner relied on Daniel Toroitich Arap Moi v Mwangi Stephen Muriithi & another (Civil Appeal No. 240 of 2011) [2014] eKLR, that written submissions are neither pleadings nor evidence.

19. The Commissioner further relied on David Sironga Ole Tukai v Francis Arap Muge & 2 others (Civil Appeal No. 76 of 2014) [2014] eKLR that a party cannot be allowed to raise a different case from that which it had pleaded without due amendment to its pleadings. A court is also bound by the pleadings of the parties and a decision given on a claim or defence not pleaded amounts to a determination made without hearing the parties and leads to denial of justice.Reshman’s submissions

20. Reshman argued that the TAT considered the application and correctly applied the principles under section 13(3) and (4) of the Tax Appeals Tribunal Act to find that there was reasonable cause to extend time to appeal. Reshman’s position is that a reasonable explanation was given for the delay in that it had not received the email of 13th August 2020 from the Commissioner forwarding the objection decision, leading it to assumed that its objection had been allowed.

21. Reshman contended that the Commissioner had not shown that the TAT wrongly exercised its discretion. Reshman relied on LSG Lufthansa Service Europa/Afrika GmBH & another v Eliab Muturi Mwangi (Practicing in the name and style of Muturi Mwangi & Associates Advocates) (Civil Appeal/ Application No. 274 of 2016) [2019] eKLR that the decision whether or not to extend time to appeal is discretionary.

22. Reshman further relied on Francis Lokadongoy Lokogy v Reuben Kiplagat Kiptarus (Civil Appeal No. 1 of 2019) [2020] eKLR, that an appellate court will only interfere with exercise of discretion if it was not supported by evidence or was premised on wrong principles of law.

23. Reshman urged the Court to disregard the questions of fact raised by the Commissioner. It relied on section 56(2) of the Tax Procedures Act which provides that appeals to this Court shall be on points of law only. Reshman cited Commissioner of Domestic Taxes v W. E. C. Lines (K) Limited (Tax Appeal E084 of 2020) [2022] eKLR, where the Court observed that an appeal limited to matters of law does not permit an appellate court to substitute the TAT’s decision with its own conclusions based on its own analysis and appreciation of the facts.

24. Reshman posited that the Commissioner will not suffer any prejudice if the appeal fails as it would still be able to collect taxes. On the other hand, it (Reshman) stands to suffer great loss as it has an arguable appeal before the TAT. Reshman stated that by seeking to set aside the TAT’s ruling, the Commissioner is blowing hot and cold since there is an active appeal before the TAT and active ADR engagements between the parties.Determination

25. This is an interlocutory appeal against the decision of the TAT extending time for filing an appeal out of time. The single issue for determination in this appeal is whether the TAT erred in extending time for filing an appeal from the Commissioner’s objection decision.

26. Section 13(3) of the Tax Tribunal Appeals Act provides that the Tribunal may, upon application in writing or through electronic means, extend the time for filing the notice of appeal and for submitting the documents referred to in subsection (2).

27. The documents mentioned in subsection (2) are: a memorandum of appeal; statements of facts; the appealable decision; and such other documents as may be necessary to enable the Tribunal to make a decision on the appeal.

28. Subsection (4) states that an extension under subsection (3) may be granted owing to absence from Kenya, or sickness, or other reasonable cause that may have prevented the applicant from filing the notice of appeal or submitting the documents within the specified period. Section 13 thus confers on the TAT unfettered discretion to extend time for filing appeal.

29. When exercising jurisdiction under section 13(3) the TAT exercises its discretion. In that regard, it is a settled principle of law that an appellate court will not interfere with the exercise of the trial court's discretion unless it is satisfied that the court, in exercising that discretion, misdirected itself in some matters and as a result arrived at a decision that was erroneous, or unless it is manifest from the case as a whole that the court has been clearly wrong in the exercise of judicial discretion and that as a result there has been an injustice (Mbogo & Another vs Shah, [1968] EA 93. )

30. In Patel v E.A. Cargo Handling Services Limited [1974] E.A. 75, the Court of Appeal held that when exercising discretion, there are no limits or restrictions on the judge ’s discretion. The main concern of the court is to do justice to the parties and the court will not impose condition on itself or fetter wide discretion given to it by the rules.

31. It is plain from section 13 of the the Act that the TAT had wide discretion to extend time. The TAT was only required to consider whether there was reasonable cause that may have prevented Reshman from filing the appeal.

32. I have read the impugned ruling by the TAT and I am satisfied that the TAT applied its mind on the facts that were before it as well as the law and satisfied itself that Reshman had met the threshold for extension of time to appeal.

33. In particular, the TAT observed stated that there was a question of timelines regarding the objection decision which had not been explained by the Commissioner. The TAT was further satisfied that the appeal was not frivolous and raised arguable issues. Further still, it was the TAT’s view that the Commissioner had not demonstrated the prejudice it would suffer if leave was granted.

34. This court must reiterate that the law is clear that the decision whether or not to extend time for appealing is essentially discretionary and the court has to consider the length of the delay, reason for the delay; perhaps chances of success of the intended appeal and generally the prejudice to be suffered if extension of time is granted. (Leo Sila Mutiso v Rose Hellen Wangare Mwangi (CVIL APPLICATIION No. NAI 255 of 1997)

35. The TAT having exercised its discretion in favour of extending time upon being satisfied that there were reasonable grounds for doing so, this court will not interfere with exercise of that discretion. In other words, the Commissioner has not shown that the TAT misdirected itself in some matters and as a result arrived at a decision that was erroneous, or that from the case as a whole the TAT was clearly wrong in the exercise of the judicial discretion and as a result, there had been an injustice.

36. There is the issue of whether the application for leave was to have been made under section 56 of the Tax Procedures Act or the Tax Appeals Tribunal Act. This is not a serious issue here. section 56 of the Tax Procedures Act deals with appeals and not the jurisdiction to extend time.

37. The section provides that in any proceedings under this Part, the burden is on the taxpayer to prove that a tax decision is incorrect; that an appeal to this Court or to the Court of Appeal is to be on a question of law only; and that in an appeal by a taxpayer to the Tribunal, High Court or Court of Appeal in relation to an appealable decision, the taxpayer is to rely only on the grounds stated in the objection to which the decision relates unless the Tribunal or Court allows the person to add new grounds.

38. That provision is clearly on a different issue unlike section 13 of the Tax Appeals Tribunal Act which specifically provides for jurisdiction to extend time for appeal.

39. Having considered the appeal, arguments by parties, the impugned ruling and the law, I find no merit in this appeal. It is declined and dismissed with no order as to costs.

DATED SIGNED AND DELIVERED AT NAIROBI THIS 3RD DAY OF NOVEMBER 2023E C MWITAJUDGE