[2022] KEHC 14526 (KLR)

Cool Collections Limited v Commissioner of Investigations and Enforcement (Income Tax Appeal E133 of 2021) [2022] KEHC 14526 (KLR) (Commercial and Tax) (13 October 2022) (Ruling)

Neutral citation: [2022] KEHC 14526 (KLR)

Republic of Kenya

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

Commercial and Tax

Income Tax Appeal E133 of 2021

WA Okwany, J

October 13, 2022

Between

Cool Collections Limited

Appellant

and

The Commissioner of Investigations and Enforcement

Respondent

Ruling

1. The appellant/applicant herein, Cool Collections Limited, filed the application dated July 9, 2021 seeking the following orders: -1. Spent.2. Spent.3. Thatpending the hearing and determination of this application, the enforcement of the Respondent's Assessments dated May 4, 2018 and May 9, 2018 and Objection Decisions dated August 3, 2018 and August 6, 2018, including the Respondent's Agency Notices dated July 29, 2021 be stayed.4. Thatpending the hearing and determination of the Appeal against the decision of the Taxi.Appeals Tribunal delivered on July 9, 2021 enforcement of the respondent’s Assessmentsa.dated May 4, 2018 and May 9, 2018 and Objection Decisions dated August 3, 2018 and August 6, 2018, including the Respondent's Agency Notices dated July 29, 2021 be stayed.5. Thatthis Honourable Court be pleased to grant the Appellant leave to produce additional evidence and admit such evidence namely:a.The Judgment and decree delivered in Petition Number 167 of 2018 Mohamed Ali t/a Top Model Apparels & 45 other v Kenya Revenueon November 12, 2020 during the pendency of the appeal before the TAT.b.Documents in support of the impugned transactions comprising bank statements, sales and purchase ledgers, RTGS confirmation slips, KRA Returns and KRA Assessment orders.6. Thatthe costs of and occasioned by this Application be costs in the Appeal.

2. The application is supported by the affidavit of the appellant’s Director Mr. Kalpesh Gosrani and is premised on the grounds that: -a.This Appeal relates to an aggregate amount of Kshs95,307,848. 00 comprising, principal Value Added Tax in the sum of Kshs33,t 50,556 as confirmed in the Respondent's Objection Decision dated 3 ta August, 2018 and K.shs.62,157 292, Corporation tax as confirmed in the Objection Decision dated August 6, 2018. b.The Appellant's Appeal against both Objection Decisions was dismissed by the Tax Appeal's Tribunal (the TAT”) on the July 9, 2021. c.The Appellant has since filed the present appeal before this Honourable Court against the whole of the TAT's decision.d.The Commissioner of Investigations and Enforcement, the Respondent herein, has already taken steps against the Appellant to recover the impugned taxes issuing agency notices dated July 29, 2021 against the Appellant's bankers, namely, Prime Bank Limited and Victoria Commercial Bank Ltd respectively, inter alia, requiting the immediate payment from each of them to it of the sum of Kshs95,307,848. 00 as agents for the Appellant.e.Unless service is excused in the first Instance and stay granted, this Application will be tendered nugatory as the Appellants said bankers, on the peril of the threats of adverse action by the Respondent, will pay out whatever money they are holding to the Appellant's credit as demanded by the Respondent.f.Even though it had been provided to them by the Appellant, its tax advisers failed to place before the TAT documents which were necessary for the determination of the appeal and still are so necessary, namely:i.The Judgment and decree delivered in Petition Number 167 of 2018 Mohamed Ali t/a Top Model Apparels & 45 other v Kenya Revenue Authority on November 12, 2020 during the pendency of the appeal before the TAT, ii.) Documents in support of the impugned transactions comprising bank statements, sales and purchase ledgers, RTGS confirmation slips, KRA returns and KRA assessment orders.

3. The respondent opposed the application through the replying affidavit of its advocate, Mr. Victor Adamba, who states that the application is fatally defective and that the orders sought therein untenable. He states that there are no positive orders capable of being executed and that the application does not meet the threshold for the granting of an order for stay of execution. He further states that no valid grounds have been presented for the introduction of additional evidence.

4. Parties canvassed the application by way of written submissions which I have considered. The main issue for determination is whether the applicant has made out a case for the granting of orders for stay of execution pending appeal and for the production of additional evidence on appeal.

5. The court’s powers to grant orders for stay of execution pending appeal are provided for under Order 42 Rule 6 of the Civil Procedure Rules which stipulates that: -(2)No order for stay of execution shall be made under subrule (1) unlessa.the court is satisfied that substantial loss may result to the applicant unless the order is made and that the application has been made without unreasonable delayb.such security as the court orders for the due performance of such decree or order as may ultimately be binding on him has been given by the applicant.

6. The applicant’s case was that the application meets the above conditions while the Respondent contested the application for stay on the basis that: -a.The Appellant has not demonstrated that it suffer substantial loss,b.It infringes upon matters of public interestc.There is risk of recovery of taxes by the Respondent.d.Appellant has not demonstrated difficulty in recovery of the taxese.The Appellant should pay 60% of the decretal tax sum.

7. The three main ingredients for an order of stay of execution are substantial loss, no unreasonable delay and provision of security.

Substantial Loss: 8. The applicant’s case was that it stands to suffer substantial loss as it is likely to shut down its business should the respondent be allowed to execute the decree which will entail the issuance of Agency Notices to all its bankers. The appellant added that as a result of the global Covid-19 pandemic, as is the case with numerous other businesses, it had seen a substantial decline in its sales and that its financial position is dire. It added that its accounts are overdrawn by Kshs 39,458,915. 55 as of June 30, 2021.

9. The respondent, on the other hand, submitted that it is a principle revenue collecting agency for the Government of Kenya capable of reimbursing the appellant should the appeal be successful.

10. I note that on August 17, 2021, this court considered and granted the prayer for stay of execution pending the inter partes hearing of this application. It is now over 1 year since the said interim orders of stay were granted. I find that in the circumstances of this case, it will serve the interest of justice to maintain the status quo in respect to the stay of execution orders pending the hearing of the appeal. I note that the appellant has demonstrated that it stands to suffer substantial loss in the nature of complete shutdown of its business should the execution be allowed to proceed. Total closure of a business would inevitably lead to massive job losses among other far reaching consequences that may not be remedied by monetary compensation.

11. On whether the application was filed without unreasonable delay, I note that the impugned judgment was rendered on July 9, 2021 and the instant application filed one month later on August 9, 2021. I find that there was no delay in the filing of the application.

12. On security for the due performance of the decree, I note that the applicant did not offer any such security and argued that it was not able to make any offer for security due to its dire financial position. The appellant cited the decision in Highlands Mineral Water Limited v Commissioner of Domestic Taxes [2020] eKLR where the court held that: -“The nature and extent of the security to be ordered by the court is dependent on the facts and circumstances of the case. In Bella Vista Restaurant Mombasa Limited v Kenya Revenue Authority MSA Pet. No. 44 of 2014 [2016] eKLR, the court recognized the financial difficulties of the petitioner and refused to order security on the ground that security must be backed by financial arrangements which would have led to closure of the petitioner’s business in view of the huge tax assessment. In Victrociset S.P.A. Kenya v Commissioner of Domestic Taxes NRB HC JR No. 28 of 2018 [2018] eKLR the court also granted an unconditional stay of execution after taking into consideration the financial difficulties the company faced. More recently in CMA CGM (K) Limited v Commissioner of Domestic Taxes NRB CA Civil Appl. No. 83 of 2020 [2020] eKLR, the Court of Appeal ordered the appellant to deposit Kshs 50,000,000. 00 in a joint account pending the appeal where the sum demanded as taxes was Kshs 299,130. 352. 00. ”

13. The appellant claimed its business is struggling and operating under the weight of bank overdrafts. The applicant has painted a very grim picture of its financial status which makes this court wonder if indeed the applicant is still a going concern or if it is on the verge of collapse. It was however not disputed that the appellant is still a going concern. No evidence was presented to show that the appellant is not on a growth trajectory. Be that as it may, I find that it will not be in the interest of justice to make an order for provision of security, for the outstanding taxes, if the order will result in the total shut down of the business. I however still find that the appellant ought to have made an offer for security for costs however minimal.

14. My finding is that the provision of security for the performance of a decree is a legal requirement which the applicant cannot run away from considering that the respondent already has a judgment in its favor.

15. The purpose for such security was well stated in the case of Arun C. Sharma v Ashsna Raikundalia t/a Raikundalia & Co. Advocates where the court stated that: -“The purpose of the security needed under Order 42 to guarantee the due performance of such decree or order as may ultimately be binding on the applicant. It is not to punish the judgment debtor…….civil process is quite different because in civil process the judgment is like a debt hence the applicants become and are judgment debtors in relation to the respondent. That is why any security given under Order 42 rule 6 of the Civil Procedure Rules acts as security for due performance of such decree or order as may ultimately be binding on the applicants. I presume the security must be one which can serve that purpose.”

16. Guided by the dictum in the above cited case and taking into account the appellant’s plea on its financial position, I find that the appellant should furnish security for the due performance of the decree in the nature of a bank guarantee in sum of Kshs 5,000,000.

Additional Evidence 17. The applicant explained that its tax advisers inadvertently failed to present the following crucial documents before the TAT: -a.The judgment and decree delivered in Petition Number 167 of 2018 Mohamed Ali t/a Top Model Apparels & 45 Others v Kenya Revenue Authority on November 12, 2020 during the pendency of the appeal before the TAT.b.Documents in support of the impugned transactions comprising the bank statements, sales and purchase ledgers, RTGS confirmation slips, KRA returns and KRA assessment orders.

18. It was the applicant’s case that due to the sheer volume of objections and thereafter appeals that were lodged at the same time, the said documents were inadvertently not produced before the Tribunal. The appellant argued that the mistake or failure to present the documents should not be visited on it. For this argument, the appellant cited the decision in the case ofPhilip Chemwolo & Another v Augustine Kubede[1982-88] 103 where the court held that: -“Blunders will continue to be made from time to time and it does not follow that because a mistake has been made that a party should suffer the penalty of not having his case heard on merit. I think the broad equity approach to this matter is that unless there is fraud or intention to overreach, there is no error of default that cannot be put right by payment of costs. The court has is often said exist for the purpose of deciding the rights of the parties and not the purpose of imposing discipline.”

19. Rule 15 of the Tax Appeals Tribunal (Appeals to the High Court) Rules, 2015grants the court the discretion to admit additional evidence as long as it considers it necessary. The said Rule stipulates that the court "may at the time of hearing of an appeal, admit other documentary or oral evidence not contained in the statement of facts of the appellant or respondent should it consider it necessary for determination of the appeal."

20. The applicant submitted that allowing the prayer for the production of additional evidence will not prejudice the respondent’s case as the respondent had time to review the said documents before it issued its Objection Decision.

21. On its part, the respondent argued that the power to admit evidence at the appeal stage should be exercised in a sparing, circumscribed manner and subject to certain conditions being satisfied. According to the respondent, the appellant had not satisfied the provisions of Rule 9 as read with Rule 15 of theTax Appeals Tribunal (Appeal to the High Court) Rules, as read with Order 42 rule 27 of the Civil Procedure Rules as it did not furnish any proof that the Tax Appeals Tribunal failed to admit this additional evidence on its request.

22. The Respondent submitted that Order 42 rule 27 of the Civil Procedure Rulesallows additional documentary or oral evidence at an appeal stage subject only if the same is limited to matters that aid in the judgement/determination in waiting and upon proof that the trial court refused to admit evidence which ought to have been admitted.

23. Order 42 rule 27 of theCivil Procedure Rules states that:-27. (1)The parties to an appeal shall not be entitled to produce additional evidence, whether oral or documentary, in the court to which the appeal is preferred; but if—a.he court from whose decree the appeal is preferred has refused to admit evidence which ought to have been admitted; orb.the court to which the appeal is preferred requires any document to be produced or any witness to be examined to enable it to pronounce judgment, or for any other substantial cause, the court to which the appeal is preferred may allow such evidence or document to be produced, or witness to be examined.(2)Wherever additional evidence is allowed to be produced by the court to which the Appeal is preferred the court shall record the reason for its admission.

24. The respondent submitted that the appellant has not given sufficient reasons why the evidence was not submitted before the Tribunal during the hearing and further, that the evidence does not meet threshold for the granting of the orders sought. For this argument, the appellant cited the Supreme Court decision in the case of Mohamed Abdi Mahamud v Ahmed Abdullahi Mohamad & 3 others; Ahmed Ali Muktar (Interested Party)[2019] eKLR where laid down the conditions under which additional evidence may be allowed as follows: -“We therefore lay down the governing principles on allowing additional evidence in appellate courts in Kenya as follows:a.the additional evidence must be directly relevant to the matter before the court and be in the interest of justice;b.it must be such that, if given, it would influence or impact upon the result of the verdict, although it need not be decisive;c.it is shown that it could not have been obtained with reasonable diligence for use at the trial, was not within the knowledge of, or could not have been produced at the time of the suit or petition by the party seeking to adduce the additional-evidence;- -d.Where the additional evidence sought to be adduced removes any vagueness or doubt over the case and has a direct bearing on the main issue in the suit;e.the evidence must be credible in the sense that it is capable of belief;f.the additional evidence must not be so voluminous making it difficult or impossible for the other party to respond effectively;g.whether a party would reasonably have been aware of and procured the further evidence in the course of trial is an essential consideration to ensure fairness and due process;h.where the additional evidence discloses a strong prima facie case of willful deception of the Court;i.The Court must be satisfied that the additional evidence is not utilized for the purpose of removing lacunae and filling gaps in evidence. The Court must find the further evidence needful.j.A party who has been unsuccessful at the trial must not seek to adduce additional evidence to, make a fresh case in appeal, fill up omissions or patch up the weak points in his/her case.k.The court will consider the proportionality and prejudice of allowing the additional evidence. This requires the court to assess the balance between the significance of the additional evidence, on the one hand, and the need for the swift conduct of litigation together with any prejudice that might arise from the additional evidence on the other".

25. In the present case, it was not disputed that the documents comprising the additional evidence that the appellant intends to produce before this court had already been presented to the respondent during the hearing of the objection proceedings and were, according to the appellant, inadvertently omitted from the documents filed before the Tribunal. It is therefore clear that the said documents are not entirely new to the respondent as they were part of the documents that the respondent considered before dismissing the appellant’s objection. In my humble view, the said documents are crucial to the just determination of this appeal as they are the primary accounting documents that have a direct bearing on the main issue in the suit.

Disposition 26. In conclusion, and for the reasons I have stated in this ruling, I find that the appellant has made out a case for the granting of the orders sought in the application dated August 9, 2021. Consequently, I allow the said application in the following terms:a.An order of stay be and is hereby issued staying execution of the judgment of the Tax Appeal Tribunal dated July 9, 2021 together with the Agency Notices dated July 29, 2021 pending the hearing and determination of this appeal or until further orders of the court.b.In consideration of the stay in (a) above, the appellant shall provide a Bank Guarantee pending the hearing and determination of the appeal from a reputable bank for Kshs 6,000,000. 00 within thirty (30) days from the date hereof. In default, stay shall stand discharged.c.The costs of this application shall be in the appeal.

DATED, SIGNED AND DELIVERED VIRTUALLY AT NAIROBI THIS 13TH DAY OF OCTOBER, 2022. W. A. OKWANYJUDGEIn the presence of: -Mr. Kandere for Appellant/Applicant.Ms Gico for Onyango for AppellantCourt Assistant- Sylvia