[2024] KETAT 483 (KLR)

Desert Runner Services Limited v Commissioner of Domestic Taxes (Miscellaneous Application E106 of 2023) [2024] KETAT 483 (KLR) (19 April 2024) (Ruling)

Neutral citation: [2024] KETAT 483 (KLR)

Republic of Kenya

In the Tax Appeal Tribunal

Miscellaneous Application E106 of 2023

E.N Wafula, Chair, EN Njeru, M Makau, E Ng'ang'a & AK Kiprotich, Members

April 19, 2024

Between

Desert Runner Services Limited

Applicant

and

Commissioner of Domestic Taxes

Respondent

Ruling

1. The application which was by way of a Notice of Motion dated 16th August 2023 and filed under a certificate of urgency on 17th August 2023 is supported by an Affidavit sworn by the Applicant‘s Director, Stephen Gakere Macharia, on the 16th August, 2023 sought for the following Orders:-a.Spentb.The Honourable Tribunal be pleased to extend the time within which to file its Notice of Appeal and all necessary documents.c.The Honourable Tribunal be pleased to admit the annexed Notice of Appeal and Memorandum of Appeal as having been lodged within time.d.The Honourable Tribunal be pleased to stay the Respondent’s demand notice pending the hearing and determination of this application and intended appeal.e.The Honourable Tribunal be pleased to make any other orders as it deems fit in the interest of justice.

2. The application is premised on the following grounds:-a.The sole director of the Applicant has been unwell with a condition that has seen him constantly in and out of hospital including the period in dispute hence the delay in filing the appeal.b.Upon invalidation Notice by the Respondent. The Applicant’s Tax Agent conducted an audit of the Applicant’s business records which took a while further delaying the filing of its appeal.c.In the intervening period, the Applicant’s Tax Agent engaged the Respondent in a bid to settle the dispute amicably hence further delaying the filing of its appeal.d.The Applicant maintains that they have filed the correct tax for every year in question and as such, they do not owe the Respondent any tax and the Applicant has evidence to prove that it is not in arrears of the demanded sum or at all which it craves an opportunity to prove before this honourable tribunal.

3. The Applicant in its written submissions dated 11th September 2023 and filed before the Tribunal on the even date stated as hereunder.

4. The Applicant submitted that its Director has been unwell during the period in dispute and that the Respondent has failed to disclose to this Honourable Tribunal that the reason for the Applicant to access the emails late was that the Applicant’s Director was unwell since the Respondent called the Applicant’s tax agent 2 days before its decision seeking supporting documents thus showing that the Applicant’s director was sick.

5. It contended that as per Section 51(7)(a) of the TPA, it has demonstrated that the Applicant’s Director has been sick during the entire period under review, a fact that the Respondent does not dispute.

6. The Applicant argued that it was guided by the cases of Nairobi TAT Misc. Appl No. 20 of 2022 Gamaag Agencies vs. Commissioner of Domestic Taxes(2022) and Nairobi TAT Misc Appl No. 141 of 2021 Alkamar Trading Company Limited v Commissioner of Domestic Taxes and submitted that it has an arguable appeal against the Respondent and seeks an opportunity to be heard on merit as the Respondent disallowed three main expenses which are car hire, repairs and fuel expenses which resulted to the additional tax liability against the Applicant.

7. It contended that it duly filed the correct tax returns on the iTax platform for the period in dispute and as such was not liable for any additional tax liability and that as such a dispute as whether the disallowed expenses are taxable profits or genuine expenses can only be determined by this Honourable Tribunal on merit.

8. It maintained that the disallowed sums giving rise to the additional taxes are genuine expenses and therefore not taxable and failure to grant orders sought will occasion the Applicant great prejudices as the Applicant will be condemned unheard and forced to pay additional taxes for sums expended as expenses and non-existent thus stalling its operations

9. It argued that whereas the law mandates the Respondent to collect taxes the same law also provides that taxes should be collected from profits and not expenses. It added that should the application succeed and the matter is determined on merit, in the event the Applicant is found liable, the Respondent will still be able to discharge its statutory mandate.

10. The Applicant maintained that the delay in filing the current application filed on 17th August 2023, almost two months after the Respondent’s decision was occasioned by the sickness of the Applicant’s director’s sickness who was responsible for addressing the issues raised by the Respondent which sickness is beyond human control.

11. It was the Applicant's argument that as a result of the director’s sickness, it took time to access the emails forwarding the Respondent’s additional tax assessment and even when he did, he was not in a position to make decisions relating to the tax issues raised by the Respondent within the statutory timelines as proven by the doctors' letters provided by the Applicant.

12. The Applicant further submitted that it has shown that the operations of its business were sub-contracted and operated directly by the Applicant’s director thus the Applicant’s director’s sickness only affected the administrative issues of the business hence the delay in addressing the tax issues adding that whereas the Respondent’s 14-days’ statutory timeline to make a decision on the Applicant’s Application for extension of time dated 7th June 2023 is not disputed, the Applicant’s doctor’s medical report dated 20th June 2023 was well within the 14 days period but the Respondent failed to consider the same as the Respondent had up to the 21st June 2023 to make its decision even though the Respondent spoke to the Applicant’s Agent on 16th June 2023 and 19th June 2023 requesting supporting documents.

13. It maintained that its supporting documents were within the 14-day period and ought to have been considered by the Respondent before making the decision which time was to expire on 21st June 2023.

14. It argued that the Respondent delivered its decision on 19th June 2023, two days before the expiry of the statutory period while requesting documentation on the same day which documents were provided on the date of the expiry of the timeline thus within the statutory timelines.

Response to the Application 15. The Respondent filed a Replying Affidavit sworn by Moses Ndirangu, an officer of the Respondent, on the 29th August, 2023 and filed on 31st August 2023 citing the following as the grounds for opposition:-a.That the Applicant was issued with additional income tax assessments dated 13th April 2023 for the period 2018 to 2021 totaling Kshs 15,892,012. b.That the Applicant, on 7th June 2023 did make an application to be allowed to file a late Objection stating that the reason for the late Objection was that it had accessed the email late.c.That due to the urgency of the matter, the Respondent made two phone calls to the taxpayers agent on 16th and 19th June 2023 via mobile number requesting the agent to provide documents in support of the late objections.d.That having failed to comply with the request to provide documentation in support of the late objection within the provided 14 days as provided for under Section 51(7A) of the Tax Procedures Act (TPA) the Respondent could not delve into the substantive matter even if the same was to be admitted.e.That the Applicant’s agent on 21st June 2023 replied to the rejection notice via email and again did not share the documents to support its grounds of objection.f.That on the same day, 21st June 2023, the Respondent replied to the taxpayer’s agent informing them of the reasons why it had to make a decision considering the statutory timeline of 14 days was fast approaching. The Respondent further indicated to the Applicant that if it was unhappy with the decision it ought to appeal to the Tribunal.g.That upon perusal of the Appellant’s documents attached to the application, the Respondent took note that the Applicant had not attached documents in line with Section 51(3) of the Tax Procedures Act that would warrant the Appeal to be admitted.h.That there exists no reasonable cause given by the Applicant seeking to extend time within which to file a Notice of Appeal.i.That in the application, the Applicant stated that it had received the notice late but contended that the Managing Director was sick.j.That in the email dated 20th June 2023, the Respondent indicated that if the Applicant was dissatisfied with the decision, it could appeal the same to the Tax Appeals Tribunal and it was therefore inherent upon the Applicant to do so without unreasonable delay.k.That since the decision to be appealed upon by the Applicant was the decision by the Commissioner rejecting its late objection the Applicant contended that it had instructed its tax agents to audit its books clearly indicating that the Applicants was in a position to file an appeal but chose not to do so.l.That subsequent to the Managing Director being unwell and on bed rest there was no vacuum in the leadership of the company and as such the Applicant had not shown how the business came to a halt as a result of the director’s absence since the company had continued to carry on its business and decisions were still made.m.That the Applicant cannot treat issues of taxation as secondary to the running of its business under the pretext that sickness only affected compliance with tax matters.n.That the Applicant has a duty to give satisfactory reasons for the delay to invoke the discretion of this Honourable Tribunal and clearly, the taxpayer’s agent was in direct communication with the Managing Director, and as such it was aware that an objection decision had been made.o.That the Applicant’s delay in complying with the statutory timelines within which to lodge the Objection to the Commissioner and an appeal to the Tribunal have been intentional to buy time and deny the Respondent the much-needed revenue.p.That the Respondent will suffer great prejudice if the Application is granted as this will delay the collection of taxes which is the main mandate of the Respondent, hence delayed services to all Kenyan Citizens.q.That the Applicant has not demonstrated in any way that it has an arguable appeal with any chances of success as it have not attached documents that can support their grounds of objection.r.The Applicant has not met the threshold for the court to exercise its discretion in granting leave to file an appeal out of time and as a result, the Respondent pleads with this Honourable Tribunal to dismiss this Application with costs to the Respondent.

16. The Respondent in its written submissions dated 11th September, 2023 submitted that the Applicant filed a late Objection on 7th June 2023, almost two months late after being informed of the Assessment Order by the Respondent on 13th April 2023.

17. It relied on Section 51(6) and (7) of the Tax Procedures Act and asserted that the Applicant’s late Objection was lodged without providing any known reasons as provided by the law which was that the Applicant received the email late.

18. It submitted that it non the less called the Applicant’s agent on 16th and 19th June 2023 seeking documentation before making a decision on the application for late Objection.

19. The Respondent submitted that it is under mandatory terms required to make a decision concerning late objections within fourteen days of the application per Section 51(7A) of the Tax Procedures Act.

20. It argued that the Applicant’s contention that the short notice within which it was expected to produce the documents was unreasonable cannot hold water as the Applicant is responsible for producing information in support of its late Objection.

21. The Respondent relied on Section 13(3) and (4) of the Tax Appeals Tribunal Act and the case of Income Tax Appeal No. 31 of 2017 Commissioner of Domestic Taxes v Mayfair Insurance Company Ltd (2017) eKLR and contended that extension is not an absolute right to the Applicant and in the instant case, the circumstances do not allow that the Applicant benefits from the Tribunal’s discretion under Section 13 of the Tax Appeals Tribunal Act.

22. It argued that the Applicant’s reliance on the reason that its Director was sick as the sole director of the company cannot be allowed since the absence of the said director did not result in a vacuum of leadership in the Company as the company continued to carry on business and business decisions concerning the Applicant’s continued to be made despite the director’s sickness with tax being the only business unable to be conducted by the Applicant conveniently.

23. It submitted that the Applicant alleged to have had challenges in filing its Objection vide its letter dated 13th August 2022 requesting the Respondent to allow its application for an extension of time to lodge a late objection.

24. It relied on the case of Mombasa County Government v Kenya Ferry Services & Another [2019]eKLR and asserted that there is no reasonable cause given by the Applicant seeking to extend the time within which to file an Appeal as the Applicant’s reasons are an afterthought intended to delay the Respondent from collecting the taxes due to it and therefore prejudicial to the Respondent.

25. It posited that in the email dated 20th June 2023 the Respondent’s officer clearly indicated that if the Applicant was dissatisfied with the decision, it could appeal to the Tax Appeals Tribunal without unreasonable delay.

26. It contended that the fact that the Applicant had instructed its agents to audit its books before filing the Appeal is a clear indication that the Applicant was in a position to file an appeal but chose not to, further resorting to instructing the audit of books.

27. It maintained that the Applicant has not shown any prejudice it would suffer if the orders sought are not granted and that it is the obligation of every citizen to pay taxes as and when they fall due.

Analysis and Findings 28. The Tribunal is enjoined to determine the length and reason for the delay when considering an application for the extension of time to appeal out of time. The power to extend time is discretionary and unfettered but the same must be exercised judiciously and it is not a right to be granted to the Applicant.

29. In determining whether to extend time, the Tribunal was guided by the decision in the case of Leo Sila Mutiso -vs- Rose Hellen Wangari Mwangi - Civil Application No. Nai. 255 of 1997 (unreported), where the Court expressed itself as thus:-“It is now well settled that the decision whether or not to extend the time for appealing is essentially discretionary. It is also well settled that in general the matters which this court takes into account in deciding whether to grant an extension of time are: first, the length of the delay; secondly, the reason for the delay; thirdly (possibly), the chances of the appeal succeeding if the application is granted; and, fourthly, the degree of prejudice to the respondent if the application is granted.”

30. The Tribunal, guided by the principles set out in John Kuria v Kelen Wahito, Nairobi Civil Application Nai 19 of 1983 April 10, [1984] where the court used the following criteria to consider the application.a.Whether there is a reasonable cause for the delayb.Whether the appeal is meritedc.Whether the application for extension has been brought without undue delayd.Whether there will be prejudice suffered by the Respondent if the extension is granted

a. Whether there is a reasonable cause for the delay? 31. In considering what constitutes a reasonable reason for the delay, the court in Paul Wanjohi Mathenge v Duncan Gichane Mathenge [2013] eKLR, held that:-“...it is clear that the discretion to extend time is indeed unfettered. It is incumbent upon the applicant to explain the reasons for delay in making the application for extension and whether there are any extenuating circumstances that can enable the Court to exercise its discretion in favour of the applicant.”

32. The Applicant contended that it could not file the Appeal because it was unable to access its email due to the sickness of its Managing Director.

33. The Respondent contended that the Applicant’s reliance on the reason that the Managing Director of the company was sick cannot be allowed since the absence of the said director did not result in a vacuum of leadership in the Company as the company continued to carry on business and business decisions concerning the Applicant’s affairs continued to be made despite the Managing Director’s sickness, that with tax being the only business the Applicant was conveniently unable to conduct.

34. The Tribunal notes that the Appellant attached a letter dated 20th June 2023 confirming that the Appellant’s director was treated on 13th May 2023 and given the relevant medication and sent home. There is also a letter from the doctor dated 10th August 2023 affirming that the Appellant has been under his care from 13th June 2023 to date.

35. The Tribunal further notes that whereas the Appellant’s Managing Director was sick from 13th June 2023 and the current application was filed on 16th August 2023, the Applicant was still in a position during the intervening time, to lodge a notice of objection dated 19th June 2023.

36. It is therefore evident that the Applicant was indeed in a position to cater to its tax matters despite the apparent sickness of its Managing Director. There was nothing keeping it from filing the instant application on time.

37. The Applicant has also not satisfactorily shown to the Tribunal how it was hindered from accessing its email and for how long it was unable to access the same. This is put into issue when it is evident that the Applicant had infact engaged a tax agent to lodge its late notice of objection and to pursue the tax dispute. Nothing is said of the default by the tax agent to pursue the appeal process subsequent to the Respondent issuing the decision rejecting the late objection.

38. It is therefore the Tribunal’s finding that the reason tendered by the Applicant has not been established to be a reasonable cause for the delay.

39. The Tribunal finds no reason to delve into an analysis of the remaining criteria given the finding above as doing so has been rendered moot.

Disposition 40. The Tribunal was in the circumstances not persuaded to exercise its discretion in favour of the Applicant.

41. The Tribunal accordingly makes the following Orders:-a.The application for the extension of time is hereby dismissed;b.No orders as to costs.

DATED AND DELIVERED AT NAIROBI THIS 19THDAY OF APRIL, 2024ERIC NYONGESA WAFULACHAIRMANELISHAH N. NJERU MUTISO MAKAUMEMBER MEMBEREUNICE N. NG’ANG’A ABRAHAM K. KIPROTICHMEMBER MEMBER