[2025] KETAT 187 (KLR)

Edge Worth Properties Limited v Commissioner of Legal Services and Board Coordination (Tribunal Appeal E993 of 2024) [2025] KETAT 187 (KLR) (28 February 2025) (Judgment)

Neutral citation: [2025] KETAT 187 (KLR)

Republic of Kenya

In the Tax Appeal Tribunal

Tribunal Appeal E993 of 2024

E.N Wafula, Chair, G Ogaga, RO Oluoch, AK Kiprotich & Cynthia B. Mayaka, Members

February 28, 2025

Between

Edge Worth Properties Limited

Appellant

and

Commissioner of Legal Services and Board Coordination

Respondent

Judgment

Background 1. The Appellant is a limited liability company incorporated in Kenya whose principal business is the sale of construction materials from natural resources extracted from land that it owns.

2. The Respondent is a principal officer appointed under Section 13 of the Kenya Revenue Authority Act, Cap 469 Laws of Kenya (KRA Act). Under Section 5 (1) of the Act, KRA is an agency of the Government for the collection and receipt of all revenue. For the performance of its function under Subsection (1), the Authority is mandated under Section 5(2) of the Act to administer and enforce all provisions of the written laws as set out in Parts I and II of the First Schedule to the KRA Act to assess, collect, and account for all revenues under those laws.

3. In a letter dated 7th September 2023, the Respondent issued the Appellant with a notice of intent to carry out an audit on its operations for the period 2018 to 2022 and issued a pre-assessment notice on 14th December 2023.

4. The Respondent issued additional assessments for the years 2018-2022 on 30th April 2024, which the Appellant objected to on 30th May 2024.

5. The Respondent issued an Objection decision on 25th July 2024 partially allowing the Appellant’s Objection.

6. The Appellant, being dissatisfied with the Respondent’s Objection decision, filed its Notice of Appeal dated 23rd August 2024.

The Appeal 7. The Appeal is premised on the Memorandum of Appeal dated 5th September 2024 and filed on 6th September 2024 which raised the following grounds: -a.That the Respondent erred in fact and in law in confirming an assessment that relates to the years of income 2018 to 2022, for which period the Respondent had already audited and issued an assessment, thus resulting in a double assessment.b.That the Respondent erred in law and in fact in failing to address the Appellant’s ground of objection in its Objection notice that there was a prior assessment that related to the same period and the same tax issues.c.That the Respondent erred in fact and in law in finding that the costs incurred by the Appellant in the year of income 2022 in levelling land after excavation of construction materials was not allowable against the Appellant’s business income under Section 15(7) of the Income Tax Act, Chapter 469 of the Laws of Kenya (, for the reason that the Appellant’s intention was to plant hay.d.That the Respondent erred in law and in fact in disallowing input VAT incurred by the Appellant in levelling the land after the excavation of construction materials on the basis that the Appellant had an intention to plant hay, which according to the Respondent is an exempt supply under Paragraph 43 of the Value Added Tax Act, Chapter 476 of the Laws of Kenya.e.That the Respondent erred in law and in fact in failing to consider the documentation and explanations provided by the Appellant which demonstrated that the Appellant issued shareholder loans and paid dividends to its beneficial shareholder, Enke Investments Limited (Enke Investments), a company incorporated in Kenya.f.That the Respondent erred in law and in fact in demanding PAYE on fringe benefit based on its erroneous finding that the Appellant issued interest free shareholder loans to its director (Rose Wamaitha Ng’ote) and not its shareholder, Enke Investments.g.That the Respondent erred in fact and in law in demanding Withholding tax on the dividend paid by the Appellant to its sole beneficial shareholder, Enke Investments.

Appellant’s Case 8. The Appellant’s case is premised on the following documents filed before the Tribunal:a.The Appellant’s Statement of Facts dated 5th September 2024 and filed on 6th September 2024 and the documents attached to it; andb.Its Written Submissions dated and filed on 22nd November 2024.

9. The Appellant stated that it is a subsidiary of Enke Investments Limited (Enke Investments), a company incorporated in Kenya. That Enke Investments recognizes the Appellant as a wholly owned subsidiary in its financial statements.

10. The Appellant further stated that currently, Rose Wamaitha Ng’ote (Rose) holds all the issued ordinary shares in the Appellant in trust for Enke Investments. The Appellant also stated that it had attached the declarations of trust that Rose held shares in the Appellant in trust for Enke Investments, the share transfer form dated 26th March 2021 transferring shares from Ropat Trust to Rose, and the CR12s before and after the transfer of shares by Ropat Trust to Rose.

11. The Appellant asserted that on 8th February 2023, it received a letter from the Respondent’s Investigations and Enforcement Department notifying the Appellant of an investigation for the period between year 2017 to year 2022 (the notice of investigation). That the letter stated that the audit would cover all the tax heads relevant to the Appellant, that is Corporate tax, Value Added Tax (VAT), Withholding tax (WHT) and Pay As You Earn (PAYE).

12. That on 21st February 2023, the Appellant provided documentation and information as requested by the Respondent pursuant to the notice of investigation, and held subsequent discussions with the Respondent, including a site visit of the Appellant’s operations.

13. The Appellant stated that on 18th April 2023, the Respondent through its Investigations and Enforcement Department issued a letter to the Appellant titled “Notice of Tax Assessment” which stated that further to the notice of investigation dated 8th February 2023, the Respondent had concluded the investigations into the Appellant and had made its findings.

14. That despite the Respondent stating that it had concluded its investigations relating to the period between year 2017 to year 2022, on 23rd August 2023, the Respondent through its Domestic Taxes Department issued a letter to the Appellant titled “Request for Information under Section 59 of the Tax Procedures Act 2015” notifying the Appellant of its intention to conduct an audit of the operations of the Appellant for the period between January 2019 to December 2022 for all the tax heads.

15. That barely a month later on 4th September 2023, the Appellant received a letter from the Respondent through its Domestic Taxes Department stating that the Respondent sought to review the Appellant’s tax returns with respect to all the tax heads for the period January 2021 to October 2023 (Notice of Intention to Review).

16. That shortly thereafter, on 7th September 2023 the Appellant received another letter from the Respondent through its Domestic Taxes Department notifying the Appellant of the intention by the Respondent to conduct an audit (notice of intention to audit) covering Corporation tax, VAT, Wthholding tax and PAYE for the years of income 2018 to 2023.

17. That on 14th December 2023, the Respondent through the Domestic Taxes Department issued the Appellant with a pre-assessment notice for Corporation tax, Withholding tax, PAYE and VAT for the period 2018 to 2022 (the Pre-Assessment).

18. The Appellant stated that this was followed by an assessment dated 30th April 2024, which, aggrieved by the decision, it lodged a notice of objection through a letter dated 30th May 2024.

19. The Appellant stated that it appealed the Respondent’s Objection decision which was issued on 25th July 2024, partially allowing its Objection and confirming principal taxes amounting to Kshs. 249,205,152. 00 plus penalties and interest. It analysed its issues for determination as follows:

i. That the Respondent assessed the same period twice contrary to the law. 20. The Appellant stated that on 18th April 2023, the Respondent wrote to the Appellant and stated that it had concluded the audit of the Appellant on Corporation tax, WHT, and VAT and its findings were that the Appellant was liable to pay a sum of Kshs. 191,913,136. 00 as balance of tax and such a sum was payable not later than 30th April 2023.

21. That despite the initial tax assessment of 18th April 2023 that covered the years of income 2017 to 2022, the Respondent on 30th April 2024 proceeded to issue the assessment that covered the year of income 2010 and the years of income 2018 to 2022.

22. The Appellant stated that it raised the issue in the notice of objection, however, in issuing the Objection decision, the Respondent did not make a finding on the issue.

23. The Appellant averred that the Respondent has never given reasons as to why it issued two assessments covering the same period and the same tax heads and issues raised and why there were such significant differences in the results of the audits considering that the Respondent reviewed the same documents.

24. The Appellant submitted that this Honourable Tribunal has already ruled that the Respondent cannot issue multiple assessments relating to the same period and the same tax heads referring to the holding in the case of MahanLimited v Commissioner of Domestic Taxes Appeal Number 487 of 2021, where the Commissioner in that matter conducted an initial audit assessment on the appellant, which resulted in a final figure of tax due and which the appellant duly paid.

25. That the appellant in that case later received a new assessment notice for the same period of income, which the appellant appealed against. That the Tribunal in that matter, ruled in favour of the appellant, and held that the Respondent’s decision to retract its own decision after the appellant had relied on the same was unconstitutional, unreasonable and a violation of the Appellant’s right to fair administrative action and right to legitimate expectation.

26. The Appellant also referred to the case of Kenya Revenue Authority & 2 others v Darasa Investments Limited [2018] eKLR, where the the Court of Appeal laid down the definition of legitimate expectation as follows: -“Legitimate expectation refers to the principle of a good administrative fairness that, if a public authority leads a person or body to expect that the public authority will, in the future, continue to act in a way either in which it has regularly (or even always) acted in the past or on the basis of a past promise or statement which represents how it proposes to act, then prima facie, the public authority should not, without an overriding reason in the public interest, resale from that representation and unilaterally cancel the expectation of the person or body that the state of affairs will continue.”

27. The Appellant referred to the Supreme Court judgment in the case of Kenya Revenue Authority v Export Trading Company Limited (Petition 20 of 2020) [2022] KESC 31 (KLR) submitting that it equally lays down the emerging principles of legitimate expectation by providing for the following rules:a.there must be an express, clear and unambiguous promise given by a public authority;b.the expectation itself must be reasonable;c.the representation must be one which it was competent and lawful for the decision-maker to make; andd.there cannot be a legitimate expectation against clear provisions of the law or the Constitution.

28. The Appellant asserted that the assessment is barred in law, fatally defective and an abuse of the Respondent’s power and should be vacated in its entirety.

ii. That the Respondent has wrongfully held that the costs incurred by the Appellant in the year of income 2022 for levelling land should be deferred and only allowed against future potential farming income. 29. The Appellant stated that its principal activities are the excavation and sale of construction materials. That in the year 2021, the Appellant entered into an agreement with a purchaser, Cale Infrastructure, pursuant to which Cale Infrastructure would extract sand and aggregate from the land owned by the Appellant, and that the land would be used as a borrow pit, backfill ground and dump site for construction materials. That it entered into another agreement with Cale Infrastructure on similar terms in the year 2022.

30. The Appellant explained that the excavation, backfilling and the use of the land as a dumpsite resulted in the need to level the land since it was dangerous for the land to be left in its then current state due to the deep pits and heaps of soil and other material.

31. That, therefore, immediately following the conclusion of the contract with Cale Infrastructure, the Appellant contracted Trax Kenya Limited to level the ground.

32. The Appellant argued that the levelling of the ground is part and parcel of the business of anyone involved in the extraction of materials from earth. That to this end, the Appellant noted that due to this widely accepted fact, persons engaged in the sale of construction materials typically take note of such costs and price their materials to consider the fact that there will be a need to level the ground once excavation of the materials is completed.

33. The Appellant narrated that during the levelling of the land, different ideas were explored as to what to do with the land once it was levelled, and one of the ideas that was floated was that the land be utilized for the purposes of growing hay.

34. That notwithstanding the fact that planting of hay may have been an idea that came up, that was not the purpose as to why the levelling of land was undertaken. That rather, the levelling of the land was a necessity since it was dangerous to leave the land in its then state.

35. The Appellant submitted that the mandate to conserve the environment is provided for under the “Polluter pays principle”. That the polluter pays principle requires that those who pollute the environment are responsible for the costs of cleaning up the damage, compensating victims, and restoring the environment. It cited Section 2 of the Environmental Management and Coordination Act of Kenya which defines the principle as follows:“Polluter pays principle means: That the cost of cleaning up any element of the environment damaged by pollution, compensating victims of pollution, cost of beneficial uses lost as a result of an act of pollution and other costs that are connected with or incidental to the foregoing, is to be paid or borne by the person convicted of pollution under this Act or any other applicable law.”

36. The Appellant further submitted that the principle was provided for in the case of Harrold v. Commissioner of Internal Revenue, 192 F.2d 1002 (4 Cir. 1951), where in this matter, the taxpayers were partners doing business under the official firm name of Cromling Harrold and were engaged in the mining of coal from leased lands by the strip-mining method. That the mining activities were conducted in the state of West Virginia, which required it to restore and replace the land in compliance with the provisions of pertinent laws of West Virginia. That in the case’s determination, the taxpayer was permitted by the court to deduct from its gross income the cost of backfilling of the land.

37. That to further buttress its assertion that the point that the levelling of the land was not driven by the need to plant hay, the Appellant asserted that no hay has ever been planted even after the levelling of the land, and attached the financial statements for the year of income 2022 and 2023 that prove that:a.no farming income has been realized by the Appellant; andb.that no expenses have been incurred in relation to the planting of the hay.

38. The Appellant asserted that there would only have been a need for the Appellant to defer the cost and claim it against agricultural income if the cost was incurred in preparation for the planting of hay. That to the contrary, the levelling of the ground after excavation had been concluded was necessary whether or not hay was to be planted.

39. The Appellant further asserted that no cost was incurred in anticipation of the generation of farming income and therefore the Appellant could not defer the cost and claim it against non-existent farming income.

40. The Appellant cited Section 15(1) of the Income Tax Act as follows: -“For the purpose of ascertaining the total income of a person for a year of income there shall, subject to section 16, be deducted all expenditure incurred in that year of income which is expenditure wholly and exclusively incurred by him in the production of that income, and where under section 27 any income of an accounting period ending on some day other than the last day of that year of income is, for the purpose of ascertaining total income for a year of income, taken to be income for a year of income, then the expenditure incurred during that period shall be treated as having been incurred during that year of income.”

41. The Appellant submitted that there is no further legislative guidance on Section 15(1) of the Income Tax Act. That authoritative guidance for establishing whether an expense is allowable is available from both local and foreign cases. That in the High Court case of Commissioner of Domestic Taxes v Kenya Maltings Limited [2013] eKLR, the Court held as follows: -“the balance of profits or gains of trade is struck by settling against the receipts of all expenditure incidental to trade which is necessary to earn them, and by applying, in computation, the ordinary principles of commercial trading...the proper test to apply is this; was the expenditure incurred in order to meet a continuing business demand, in which case it should be treated as an ordinary business expense and an admissible deduction or was it an expenditure incurred once and for all in which case it should be treated as capital outlay...It is imperative that the real reason of the expenses be looked at to determine whether the same amounted to capital expenditure or expenses wholly or exclusively incurred for the production of income.”

42. The Appellant maintained that the Respondent’s act of confirming the assessment is erroneous and intended to unfairly deny the Appellant a deduction of an expense already incurred under the guise that such an expense is to be deducted against potential farming income which may never be earned.

iii. That the Respondent has wrongfully disallowed input VAT of Kshs. 44,728,319 incurred in levelling the land in 2022 on the basis that it was not incurred in the making of taxable supplies. 43. The Appellant reiterated that the Respondent in its Objection decision disallowed the input VAT it claimed on the basis that the input VAT was incurred in the furtherance of farming hay, which is an exempt supply.

44. The Appellant asserted that this is erroneous since the need to level the land was a direct consequence of the supply of the construction materials.

45. The Appellant stated that it levelled the land following the conclusion of the contract with Cale Infrastructure. That the levelling of the land was a necessary expense incurred in the generation of the income, being, the supply of construction materials. That it is not disputed that the supply of construction materials is a taxable supply.

46. The Appellant contended that while there may have been an idea of what activities to be undertaken after the land was levelled, such ideas were not the reason as to why the land was levelled since the overwhelming reason was that the land could not be left in its then current state.

47. The Appellant further argued that, be that as it may, the growing of hay is not an exempt supply pursuant to Paragraph 43 of the First Schedule to the VAT Act. That accordingly, the Respondent disallowing the Appellant’s input VAT on the basis that such input VAT was incurred in the farming of hay is erroneous because the Respondent has ignored the fact that:a.the Appellant was required to level the ground as a direct result of the activities related to the sale of construction materials, andb.that there have been no active steps taken since 2022 to indicate that the Appellant has been or will be engaged in the farming of hay.

iv. That the Respondent has wrongfully held that interest free loans were granted to Rose and therefore PAYE was applicable on a fringe benefit. 48. The Appellant stated that the Respondent alleged that Rose had an outstanding interest free loan owed by her to the Appellant and that the benefit arising therefrom is subject to PAYE as a fringe benefit.

49. The Appellant averred that Fringe Benefit Tax only applies where a loan is advanced to an individual by virtue of their position as a director. That Section 12B(1) of the Income Tax Act provides as follows: -“Notwithstanding any other provision of this Act, a tax to be known as fringe benefit tax shall be payable commencing on the 12 June, 1998 by every employer in respect of a loan provided at an interest rate lower than the market interest rate, to an individual who is a director or an employee or is a relative of a director or an employee, by virtue of his position as director or his employment or the employment of the person to whom he is related.”

50. The Appellant further averred that the term fringe benefit is not defined in the Income Tax Act and referred to The Cambridge Dictionary stating that it defines the term “fringe benefit” to mean “an extra thing that is given to you by your employer in addition to your pay.”

51. The Appellant argued that fringe benefit is therefore an additional employment benefit. That for the Fringe Benefit Tax to rightfully apply to the interest free loans, it would be on the basis that the interest free loans were provided to Rose on account of her employment.

52. The Appellant averred that in this instance, the loans were actually provided for the benefit of Enke Investments and were declared as shareholders’ loans by the Appellant in its financial statements.

53. That since the Appellant had sufficient liquidity, Enke Investments, the sole beneficial shareholder, would often request for the Appellant to make payments to third parties on its behalf, and the Appellant would then record such amounts as owing by Enke Investments in the shareholder loan account of the Appellant.

54. The Appellant asserted that all the necessary documents to support the amounts recorded in the shareholder loan account were provided to the Respondent. That these included:a.requests by Enke Investments for the Appellant to make payments on behalf of Enke Investments;b.the proof of payment of the amount; andc.the underlying supporting documents.

55. The Appellant insisted that it is not factually correct for the Respondent to assert that any shareholder loans were issued to Rose because it is clear that the loans were issued to Enke Investments.

56. That further, the fringe benefit assessment is erroneous since it does not consider the fact that the loans could not have been issued to Rose since a majority of the loans were issued before the year 2021 when Rose became a nominee director.

57. The Appellant stated that it is noteworthy that when it declared dividends for the year of income 2022, Enke Investments wrote to the Appellant and asked it to utilise the money to settle the shareholder loans that Enke Investments owed the Appellant. That this would not have been the case if Enke Investments did not owe any money to the Appellant.

58. The Appellant stated that it is surprising for the Respondent to state that it could only rely on the official search despite the overwhelming evidence made available to it. The Appellant submitted that the High Court has held that in tax disputes, the duty of the taxpayer is to establish a prima facie case and the duty of the Respondent is to analyze the evidence provided and determine on preponderance of probabilities, what is more likely to be the position.

59. That in this case, the Appellant has provided overwhelming evidence to prove that the loans were provided to its shareholder, Enke Investments and not its director, Rose. That there is therefore no basis whatsoever for the Respondent to assess PAYE on the fringe benefit.

v. That the Respondent has wrongfully demanded WHT on the dividend paid by the Appellant to Enke Investments. 60. That Appellant stated that in the year of income 2022, it declared dividends worth Kshs. 1 Billion payable to its sole shareholder, Enke Investments. That through a letter dated 20th December 2022, Enke Investments authorised the Appellant to utilise the dividends to repay the loans that Enke Investments owed to the Appellant and to hold any remainder of the dividends pending further instructions from Enke Investments.

61. The Appellant averred that Enke Investments has held shares in the Appellant through nominees who execute declaration of trust. That the nominee shareholders were remunerated on an annual basis for their role as a nominee shareholder.

62. The Appellant asserted that dividends received by a resident company that “directly or indirectly” holds more than twelve and one-half percent (12. 5%) of the voting power of the company paying the dividends are deemed not to be income chargeable to tax pursuant to Section 7(2) of the Income Tax Act. That the Section provides as follows:-“Notwithstanding section 3 (2) (b), a dividend received by a resident company other than a dividend received by a company which controls, directly or indirectly, less than twelve and one-half per cent of the voting power of the company paying the dividend, shall be deemed not to be income chargeable to tax.”

63. The Appellant submitted that from a reading of the provision, the Income Tax Act recognizes the fact that the company receiving the dividend does not have to directly hold the shareholding in the company paying the dividend.

64. The Appellant stated that in this case, Enke Investments, a Kenyan company, indirectly holds more than 12. 5% of the voting power of the Appellant through its nominee shareholder Rose. That accordingly, the Appellant was not required to deduct WHT on the dividends paid by the Appellant to Enke Investments.

65. It was the Appellant’s assertion that in instances where a recipient is a nominee, reference has to be made to the beneficial owner to determine the manner in which such income should be taxed. That this is also the case with nominee accounts in the financial services sector, the taxation of any amounts paid to the nominees is based on the beneficial shareholder and not the nominee.

66. The Appellant stated that it is surprising that the Respondent confirmed the WHT assessment despite the overwhelming evidence that was provided by the Appellant to prove that the dividends were payable to Enke Investments.

67. The Appellant submitted that the failure of the Respondent to consider the material facts attached in the Appellant’s bundle of documents has been criticized by the High Court in the case of Nizaba International Trading Company Limited v Kenya Revenue Authority [2000] eKLR, where it was held that failure to consider material facts presented by a party against whom an assessment had been raised amounted to an abuse of legislative provisions and therefore such an assessment had to be set aside.

68. The Appellant submitted that the Respondent is attempting to mislead the Tribunal by referring to BOF1 forms which are provided for under the Beneficial Ownership Regulations 2020. That the Beneficial Ownership Regulations 2020 require the disclosure of ultimate beneficial owners and are intended to combat secrecy. That the Income Tax Act does not refer to the BOF1 form in any instances. The Appellant added that the Income Tax Act only contemplates a situation where there are two companies, and one receives dividends from the other in which it holds more than 12. 5% shareholding either directly or indirectly.

69. The Appellant asserted that for purposes of the Beneficial Ownership Regulations 2020, a beneficial owner can only be natural person and the reason for this is well understood. That if the Respondent’s reasoning is extrapolated then no dividends paid by a local company to another resident company that holds 12. 5% would ever be exempt from WHT since even in such instances, the ultimate beneficial owners of the recipient companies would be individuals.

70. The Appellant maintained that the assessment by the Respondent is erroneous and should be vacated as the dividends were paid to Enke Investments which owns at least 12. 5% of the shareholding in the Appellant.

Appellant’s prayers 71. The Appellant prayed that the Tribunal finds that:a.The assessment as issued relates to the same period that the Respondent had already issued the initial tax assessment, and accordingly, the assessment was issued contrary to the law and is therefore null and void;b.The expenses incurred by the Appellant in the year of income 2022 in levelling land were allowable against the Appellant’s business income.c.The input VAT incurred in levelling the land in the year of income 2022 was incurred in the making of taxable supplies and is therefore allowable.d.The Appellant issued shareholder loans to its beneficial shareholder, Enke Investments, and therefore PAYE on fringe benefit is not due.e.The dividends paid by the Appellant are not subject to Withholding tax.f.The Objection decision dated 25th July 2024 and the demand for principal tax amounting to Kshs. 249,205,153. 00 be hereby set aside and as a consequence thereof the penalties and interest demanded by the Respondent be hereby set aside.g.Awards costs of the Appeal to the Appellant.

Respondent’s Case 72. The Respondent’s case is premised on the following documents:a.The Respondent’s Statement of Facts dated and filed on 9th October 2024 and the documents attached thereto; andb.Its Written Submissions dated and filed on 29th November 2024.

73. The Respondent stated that on 7th September 2023, it issued the Appellant with a notice of intent to carry out an audit on the Appellant’s operations for the period 2018 to 2022 and issued the Appellant with a pre-assessment notice for the years 2018 to 2022 on 14th December 2023 having finalised its audit review process.

74. That on 30th April 2024, the Respondent issued additional assessments for the years of income 2018-2022 which the Appellant objected to 30th May 2024.

75. The Respondent stated that having considered all the information and explanations provided proceeded to issue its Objection decision on 25th July 2024, partially confirming the assessments, which the Appellant, being dissatisfied with, has now preferred an appeal as against the same.

76. The Respondent replied to the grounds of Appeal as follows:

i. Whether the Respondent erred in fact and law in confirming an assessment that relates to the years of income 2018 to 2022, for which period the Respondent had already audited and issued an assessment therefore resulting in a double assessment. 77. The Respondent averred that the Appellant objected to an additional assessment issued on 30th April 2024. That as such, that is what invokes the jurisdiction of this Honourable Tribunal.

78. That the Appellant at paragraph 25 of its Statement of Facts avers that the Respondent’s assessment is bad in law, fatally defective, and an abuse of power. That however, the Appellant has failed to demonstrate how the two assessments are similar.

79. The Respondent referred to Section 56 of the Tax Procedures Act which places the burden of proof on the taxpayer to prove that the assessments raised by the Respondent are the same and amount to double taxation.

ii. Whether the Respondent erred in law and in fact in failing to address the Appellant’s ground of objection in its objection notice that the was a prior assessment that related to the same period and the same tax issues. 80. The Respondent stated that it was bound to respond to merits of the tax decision in accordance with Section 51(5) of Tax Procedures Act which reads:-“Where the tax decision to which a notice of objection relates is an amended assessment, the taxpayer may only object to the alterations and additions made to the original assessment.”

81. That the notice issued by the Respondent’s investigations Departments was not objected to by the Appellant neither was it captured in its Notice of Appeal hence is not subject to this current Appeal. That as such, the Tribunal lacks jurisdiction on the notice issued by the Respondent’s Investigations department.

iii. Whether the Respondent erred in disallowing costs incurred in levelling of the land and vegetation clearance. 82. The Respondent averred that it is the Appellant who stated in paragraph 3. 25 of it notice of Objection that there was intention to cultivate hay as follows:“The above notwithstanding, and without prejudice to the foregoing, the supply of hay is not a VAT exempt supply pursuant to the VAT Act. Accordingly, any input VAT incurred for the supply of hay would be deductible.”

83. That this was clearly communicated to the taxpayer under paragraph 25 of the Objection decision which cited the below extract from the Appellant’s documents:ii)Costs incurred to level and clear vegetation – KES 279,551,999- In the contract signed with Cale Infrastructure, the terms included the use of the land whre they had excavated as a pit/backfilling ground and dumpsite for construction materials.- Upon completion of the contract Edge Worth engaged Trax Kenya Limited to level the land and clear vegetation at a cost of KES 279,551,999 given that Edge Worth needed to use the land for growing hay.- We attach images labeled Annex B 1,2,3,4 and 5 as Appendix 3 taken on a visit with KRA Investigations and Enforcement Department (“IED”) on the area after Trax Kenya Limited had carried out the leveling and vegetation clearing.- The clearing of vegetation and leveling was not a capital transacton as it was not bound to improve the value of the land.

84. The Respondent averred that it is the Appellant who wrote in a letter dated 21st December and in paragraph 22 of the same stated they intended to grow hay and that that is why the levelling was done.

85. That however, even though the Appellant decided to abandon hay farming for whatever reason after the cost was already incurred (sunk cost), the same cannot be claimed against business income in determining taxable income as Section 15(7) of the Income Tax Act prohibits the same.

86. The Respondent averred that the Appellant can claim the same in determining its total net profit in accordance with accounting principles, however when it comes to what is taxable, the cost of levelling is a non-allowable expenditure.

87. The Respondent submitted that it is a well-established doctrine that business profits are not the same as taxable profits. That in arriving at the latter, one has to allow and disallow expenses as specified in Sections 15 and 16 of the Income Tax Act. That for this case the levelling expense fell under Section 15(1) read together with Section 15(7) of the Income Tax Act.

88. That from the foregoing, it is clear that the extraction of natural resources contract had ended, and revenue already earned/generated. That furthermore, the backfilling of the land was immaterial to the Appellant’s income since it was not an expense used in the generation of income and the Appellant would have still earned income even if the land had not have been backfilled.

89. The Respondent contended that the Appellant’s attempt to now state that the costs were for rehabilitation long after the income had been earned is clearly an afterthought. The Respondent submitted that it is a case of approbation and reprobation which is frowned upon by the Court, and it is a case of shifting position making the whole pleadings unreliable as was stated by Mativo J. in Redington Kenya EPZ Ltd v Kenya Revenue Authority & Commissioner of Custom Services [2017] KEHC 8575 (KLR) wherein he stated that: -“If at all, the intention was to impose conditions, then the Respondents could have stated so in clear terms in the said letter. The evident change of reasons and shifting positions leaves this court with serious doubts on the position taken by the petitioner which to Me is unreliable.”

90. The Respondent concluded that based on the above, the excavation cost can only be deducted in line with Section 15(7) of the Income Tax Act against the specified source of income (farming). That the expenditure was thus deferred for tax purposes and can only claimed against future farming income.

91. The Respondent affirmed that the cost was not disallowed on the basis that it is of capital nature, but because the levelling was done to aid in the generation of future income of hay farming. That as such, it relates to farming income, which is a separate and specified source of income. That the costs relating to farming income can only be allowed/claimed against the same type of income in accordance with Section 15(7) of the Income Tax Act which the Appellant cited as follows: -“Notwithstanding anything contained in this Act.a)The gains or profits denied from any one of the seven sources of income respectively specified in paragraph (e) of this subsection (and in this subjection called "specified sources") shall be computed separately from the gains or profits of that person derived from any other of the specified sources and separately from any other income of that persons…b)…c)The subparagraphs of paragraph (e) of this section shall be construed so as to be mutually exclusive;d)…e)the specified sources of income are-(i)………(iv)agricultural, pastoral, horticultural, forestry or similar activities not facing within subparagraphs (i) and (ii) of this paragraph.(v)other sources of income chargeable to tax under Section 3 (2)(a) not falling within subparagraph (i) (ii) (iii) or (iv) of this paragraph.”iv.Whether the Respondent erred in disallowing input VAT in relation to levelling of land and clearance of vegetation for hay farming.

92. The Respondent stated that it took into consideration all the documentation provided by the Appellant.

93. The Respondent stated that the Appellant’s position in the response to the pre-assessment was that the cost was incurred to prepare the land for hay farming. The Respondent referred the Tribunal to paragraph 22 of the letter of 21st December 2023 where it claimed that the Appellant stated it intended to grow hay and that is why the levelling and clearing of vegetation was done.

94. The Respondent argued that the Tribunal cannot be made to ignore the reason previously advanced for a new argument in pleadings. That averments in pleadings are not evidence and no decision should be formed on them. The Respondent referred to the following two cases to support its argument.a.Francis Otile vs. Uganda Motors Kampala HCCS No. 210 of 1989; andb.CMC Aviation Ltd. vs. Cruisair Ltd. (No. 1) [1978] KLR 103; [1976-80] 1 KLR 835.

95. The Respondent averred that it therefore follows that the Tribunal should consider the cost as cost incurred in the preparation of the land for hay farming as supported by Appellant’s own documents. That as per Paragraph 43 of the First Schedule to the VAT Tax Act, the supply of hay is exempt as follows: -“Materials, waste, residues and by-products, whether or not in the form of pellets, and preparations of a kind used in animal feeding of tariff numbers 1213. 00. 00, 1214. 10. 00, 2308. 00. 00, 2309. 10. 00, 2309. 90. 10, 2309. 90. 90, 2302. 10. 00, 2302. 30. 00, 2303. 20. 00, 2303. 30. 00, 2304. 00. 00, 2306. 10. 00, 2306. 20. 00, 2306. 30. 00, 2306. 41. 00, 2306. 49. 00, 2306. 50. 00, 2306. 60. 00, 2306. 90. 00, 2835. 25. 00 and 2835. 26. 00. ” (Respondent’s emphasis)

96. The Respondent argued that having established that the supply of hay which is animal feed is exempt, the Appellant’s cost, having been incurred in the supply of an exempt good, means that no input tax is allowable as against the same according to Section 17(1) of the VAT Act which states that: -“(1)Subject to the provisions of this Act and the regulations, input tax on a taxable supply to, or importation made by, a registered person may, at the end of the tax period in which the supply or importation occurred, be deducted by the registered person in a return for the period, subject to the exceptions provided under this section, from the tax payable by the person on supplies by him in that tax period, but only to the extent that the supply or importation was acquired to make taxable supplies.”

iv. Whether the Respondent erred in demanding PAYE- fringe benefit on interest-free loan issued to the shareholder. 97. The Respondent averred that it conducted a search at the Company registry and established that Enke Investment Limited was not registered as one of the Appellant’s shareholders.

98. That more succinctly, the CR12 lodged by the Appellant at the Company registry revealed that the Appellant only had one shareholder who is Rose Wamaitha.

99. The Respondent further averred that there was no actual movement in cash between Enke Investments and the Appellant as the ledger provided would show amounts being paid to other entities and later that the dividend declared of Kshs. 1 billion cancelled the debt.

100. The Respondent averred that it could not rely on the trust agreement provided by the Appellant since the CR12, B0F1, and the Share Certificate are the only public documents that can authenticate ownership.

101. That therefore, the Respondent disallowed the Appellant’s Objection because a trust agreement cannot supersede the CR12 and therefore the Appellant has not demonstrated Enke Investment as the shareholder.

102. The Respondent stated that for the years of income 2018 to 2021, the Appellant advanced interest free loans to its shareholder and reported this as shareholder loans in the financial statements.

103. That the Respondent examined the Appellant’s CR12 and noted that the company had a sole shareholder and director (Rose Wamaitha). That as such, the Appellant advanced the loan at an interest free rate to a sole shareholder who was also the director.

104. The Respondent averred that it applied its best judgement in line with Section 31 of the Tax Procedures Act and raised additional PAYE-Fringe Benefit as per Section 12B(1) of the Income Tax Act.

105. The Respondent reiterated that the Appellant avers that the shares registered under Rose were being held in trust of Enke Investments; that however, the Respondent states that the CR12 is prima facie evidence that Rose Wamaitha is the sole shareholder and director and the trust deed does not negate that fact.

106. The Respondent stated that the deed relied on by the Appellant is not conclusive proof of ownership or change of ownership, hence could not rely on the same.

107. The Respondent averred that besides the CR12, it examined the Appellant’s ledgers and noted that there was no actual cash movement between Enke Investments and the Appellant.

iv. Whether the Respondent erred in demanding WHT on dividend paid by the Appellant to shareholders. 108. The Respondent stated that for the year of income 2022, the Appellant declared dividends worth Kshs. 1 Billion payable to Enke Investments. That instead Enke Investments requested that part of the Kshs. 1 Billion be utilised to repay the loan owed by it to the Appellant.

109. The Respondent referred to Section 7(2) of the Income Tax Act which states:-“Notwithstanding section 3(2)(b), a dividend received by a resident company other than a dividend received by a company which controls, directly, indirectly, less than twelve and one half-percent of the voting power of the company paying the dividend, shall be deemed not to be income chargeable to tax”

110. The Respondent asserted that the CR12 in this case shows that Rose Wamaitha is the only shareholder and director thus the Appellant ought to have paid WHT at 5% on Enke Investment’s dividend.

111. The Respondent reiterated that the Appellant at paragraph 58 of its Statement of Facts avers that Enke Investment holds 12. 5% of the shares as a beneficial owner. That however, the Appellant has failed to submit the BOF1 form lodged at the Company registry as proof of the same in line with Beneficial Ownership Regulations of 2020.

112. The Respondent further referred to Section 23 of the Tax Procedures Act which provides as follows: -“A person shall— (a) maintain any document required under a tax law, in either of the official languages; (b) maintain any document required under a tax law so as to enable the person's tax liability to be readily ascertained; and (c) subject to subsection (3), retain the document for a period of five years from the end of the reporting period to which it relates or such shorter period as may be specified in a tax law.”

113. The Respondent submitted that for tax purposes, Section 9 of the Tax Procedures Act provides that a company has to notify the Commissioner within 30 days of any change in nominee ownership. That the provision states that: -“9. Every person carrying on a business shall, within thirty days of the occurrence of a change, notify the Commissioner of any changes—(a)in the place of business, trading name and registered address;(b)in the case of—(i)an incorporated person, of the persons with share-holding of ten per cent or more of the issued share capital;(ii)a nominee ownership, to disclose the beneficial owner of the shareholding;(iii)a trust, the full identity and address details of trustees and beneficiaries of the trust whether the entity is carrying out business or not;(iv)a partnership, the identity and address of all partners; or(v)cessation or sale of the business, all relevant information regarding liquidation or details of ownership.”

114. The Respondent further argued that under Section 93A of the Companies Act and the Companies (Beneficial Ownership Information) Regulations, the Appellant had a legal obligation to disclose the ultimate beneficial owner who is a natural person. It cited Section 93A(3) of the Companies Act as follows: -“(3)A company shall lodge with the Registrar a copy of its register of beneficial owners, within thirty days after completing its preparation.”

115. That Regulation 2 defines the beneficial owner to mean the natural person who ultimately owns or controls a legal person or arrangements or the natural person on whose behalf a transaction is conducted, and includes those persons who exercise ultimate effective control over a legal person or arrangement.

116. The Regulation 3 provides that: -“For the purpose of these Regulations, a beneficial owner of a company shall be a natural person who meets any of the following conditions whether individually or jointly in relation to the company—(a)holds at least ten percent of the issued shares in the company either directly or indirectly;(b)exercises at least ten percent of the voting rights in the company either directly or indirectly;(c)holds a right to, directly or indirectly, appoint or remove a majority of the members of the board of directors;”

117. The Respondent also cited Section 56(1) of the Tax Procedures Act which provides that: -“(1)In any proceedings under this Part, the burden shall be on the taxpayer to prove that a tax decision is incorrect.”

118. The Respondent concluded that from the foregoing, it is evident that it was correct in its Objection decision and that its assessments were properly issued in line with Section 31 of the Tax Procedures Act, 2015.

Respondent’s prayers 119. The Respondent prayed that the Tribunal: -a.Upholds the Objection decision dated 25th July 2024. b.Dismisses this Appeal with costs to the Respondent as the same is without merit.

Issues for Determination 120. The Tribunal has considered the facts of the matter and the submissions made by the Parties, and considers the issues for determination as follows:a.Whether the Respondent violated the law in issuing the assessment dated 30th April 2024. b.Whether the Respondent was justified in disallowing the cost of levelling land and clearing vegetation and issuing a Corporation tax assessment.c.Whether the Respondent was justified in disallowing the input tax on the cost of levelling land and clearing vegetation and issuing a Value Added Tax (VAT) assessment.d.Whether the Respondent was justified in issuing the Withholding tax (WHT) assessment on dividends paid to shareholders.e.Whether the Respondent was justified in issuing the Fringe Benefit Tax (FBT) assessment on loans to shareholders.

Analysis and Findings 121. The Tribunal has analysed the issues that call for its determination as hereunder, having reviewed all the pleadings, information and documents adduced by the Appellant and the Respondent concerning the impugned Objection decision.

a. Whether the Respondent violated the law in issuing the assessment dated 30th April 2024. 122. The Appellant stated that on 18th April 2023, the Respondent wrote to it and stated that it had concluded the audit of the Appellant on Corporation tax, WHT, and VAT and its findings were that the Appellant was liable to pay a sum of Kshs. 191,913,136. 00.

123. The Appellant further stated that despite the assessment of 18th April 2023 that covered the years of income 2017 to 2022, the Respondent on 30th April 2024 proceeded to issue the assessment that covered the years of income 2010 and 2018 to 2022.

124. The Appellant asserted that it raised the issue in its Objection, however, the Respondent did not make a finding on the issue in its Objection decision. The Appellant argued that the Respondent’s issuance of the additional assessment dated 30th April 2024 is in violation of its right to fair administrative action and right to legitimate expectation, is barred in law, fatally defective and an abuse of the Respondent’s power.

125. On the other hand, the Respondent argued that the Appellant objected to an additional assessment issued on 30th April 2024 and not the earlier assessment issued by its Investigations Department. That as such, the decision associated with the assessment issued on 30th April 2024 is what invokes the jurisdiction of this Honourable Tribunal.

126. The Respondent further argued that the earlier assessment issued by its Investigations Department on 18th April 2023 was not captured in the Appellant’s Notice of Appeal hence is not subject to this current Appeal and as such, the Tribunal lacks jurisdiction on the notice issued by the Respondent’s Investigations department.

127. The Tribunal considered the Parties’ arguments on the issue in reference to the Tax Procedures Act and the Tax Appeals Tribunal Act The Tribunal to determine whether the Respondent violated that law in issuing the assessment dated 30th April 2024.

128. The Tribunal notes that Respondent issued the assessment dated 30th April 2024, which is the subject of this Appeal, pursuant to Section 31 of the Tax Procedures Act. In order to persuade the Tribunal that the Respondent violated the law in issuing the assessment dated 30th April 2024, the Appellant had to provide evidence to support its claims that the Respondent had contravened the provisions of Section 31 of the Tax Procedures Act.

129. After reviewing the Appellant’s arguments and supporting documentation, the Tribunal concluded that the Appellant failed to prove that the Respondent had violated any of the provisions of Section 31 of the Tax Procedures Act in issuing the assessment dated 30th April 2024.

130. The Tribunal notes that the Appellant merely referred it to an assessment dated 18th April 2023 which has nothing to do with the assessment at issue in this Appeal, and into which the Tribunal shall not delve as the issues raised in that assessment are not before the Tribunal for determination.

131. The Tribunal finds that the Appellant appealed against the Objection decision dated 25th July 2024, which confirmed part of the assessment dated 30th April 2024, as confirmed by the Notice of Appeal dated 23rd August 2024 and the Memorandum of Appeal dated 5th September 2024. It is the issues raised in the assessment dated 30th April 2024 that the Tribunal has jurisdiction to determine.

132. Based on the foregoing, the Tribunal finds that the Respondent did not violate the law in issuing the assessment dated 30th April 2024, as empowered under Section 31 of the Tax Procedures Act.

b. Whether the Respondent was justified in disallowing the cost of levelling land and clearing vegetation and issuing a Corporation tax assessment. 133. In July 2022 and August 2022, the Appellant incurred costs amounting to Kshs. 279,551,999. 00 paid to Trax Kenya Limited for levelling land and clearing vegetation from the land that had prior to the levelling and clearing, been excavated by the Appellant’s customer, Cale Infrastructure Construction Company Limited in material purchases contracts covering the period of 1st January 2021 to 31st May 2022.

134. The Appellant stated in its response to the Respondent’s pre-assessment notice in a letter dated 21st December 2023 that the purpose for levelling the land and clearing vegetation was that it needed to use the land for growing hay, and that deducting the costs was allowable under Section 15(2)(l) of the Income Tax Act.

135. In its Objection, the Appellant claimed that it incurred the cost for the following reasons in compliance with Section 15(1) of the Income Tax Act as the costs were incidental to the business carried out by the Appellant, being the excavation and sale of construction materials:a.That rehabilitating and restoring the land was to comply with the law.b.That planting of hay could have been a secondary reason once the land was restored, but that the company has not planted hay.

136. The Respondent averred that it is the Appellant who stated that there was intention to cultivate hay. The Respondent argued that even though the Appellant decided to abandon hay farming for whatever reason after the cost was already incurred (sunk cost), the same cannot be claimed against business income in determining taxable income, as Section 15(1) and read together with Section 15(7) of the Income Tax Act prohibits the same.

137. The Respondent further argued that the extraction of natural resources contract had ended, and revenue already earned/generated. That the backfilling of the land was immaterial to the Appellant’s income since it was not an expense used in the generation of income and the Appellant would have still earned income even if the land had not have been backfilled.

138. The Respondent affirmed that the cost was not disallowed on the basis that it is of capital nature, but because the levelling was done to aid in the generation of future income of hay farming, which is a separate and specified source of income (farming income). That the costs relating to farming income can only be allowed/claimed against the same type of income in accordance with Section 15(7) of the Income Tax Act.

139. The Respondent further contended that the Appellant’s attempt to now state that the costs were for rehabilitation long after the income had been earned is an afterthought and shifting of position making the whole pleadings unreliable.

140. The Tribunal reviewed the facts of the case and established that the following facts are undisputed by both Parties, that:a.The costs of levelling land and clearing vegetation were incurred in July 2022 and August 2022 after the term of the materials purchases contracts which generated the Appellant’s business income had concluded.b.The Appellant has as at the time of this Appeal not planted hay on the land.c.The Appellant has as at the time of this Appeal not generated any income from the land subsequent to the leveling of land and clearing of vegetation.

141. Having established these common undisputed facts, the Tribunal sought to determine if the Respondent was justified in disallowing the costs of levelling land and clearing vegetation against the business income of the Appellant.

142. The Tribunal refers to Section 15(1) of the Income Tax Act which provides generally for deductions allowed in ascertainment of taxable income. It provides as follows: -“For the purpose of ascertaining the total income of any person for a year of income there shall, subject to section 16 of this Act, be deducted all expenditure incurred in such year of income which is expenditure wholly and exclusively incurred by him in the production of that income...”

143. Section 15(2) of the Income Tax Act enumerates other costs that shall be deducted in ascertainment of taxable income: -“Without prejudice to sub-section (1) of this section, in computing for a year of income the gains or profits chargeable to tax under section 3(2)(a) of this Act, the following amounts shall be deducted…:”

144. According to Section 15(1) of the Income Tax Act, a deduction of expenditure for purposes of ascertaining the total income of any person for a year of income shall meet the following threshold: -a.That the expenditure was incurred in such year of income; andb.That the expenditure was wholly and exclusively incurred by him in the production of that income.

145. As established above, the Appellant incurred the land rehabilitation and restoration costs, being levelling land and clearing vegetation in July 2022 and August 2022 after the business income-earning contract of Cale Infrastructure Limited has ceased. Therefore, based on this fact alone, the Tribunal finds that the costs were not deductible under Section 15(1) of the Income Tax Act against the Appellant’s business income.

146. The Tribunal observes that the Appellant also failed to substantiate its claim of deductibility of the cost of levelling land and clearing vegetation under Section 15(1) and 15(2) of the Income Tax Act or any other provision of the Income Tax Act, with competent evidence and that it failed to disprove the Respondent’s decision to disallow the costs against its business income for the year 2022.

147. Consequently, the Tribunal finds that the Respondent was justified in disallowing the cost of levelling land and clearing vegetation deducted in the year of income 2022, and in assessing Corporation tax on the disallowed amount.

c. Whether the Respondent was justified in disallowing the input tax on the cost of levelling land and clearing vegetation and issuing a Value Added Tax (VAT) assessment. 148. The Tribunal has significantly described the transaction assessed under Corporation tax in issue (b) above and wishes not to rehash the details here.

149. The Appellant disputed the VAT assessment and stated that the need to level the land was a direct consequence of the supply of the construction materials upon the conclusion of the contract with Cale Infrastructure. That the levelling of the land was a necessary expense incurred in the generation of the income, being, the supply of construction materials which is a taxable supply.

150. The Respondent maintained that the Appellant stated that it intended to grow hay and that is why the levelling and clearing of vegetation was done, and that since according to it, supply of hay is animal feed of tariff code 1214. 10. 00 thus is exempt from VAT under Paragraph 43 of Section A of Part I of the First Schedule to the VAT Act, the cost of levelling land and clearing vegetation was incurred in the preparation of the land for hay farming, meaning that no input tax is allowable against the same according to Section 17(1) of the VAT Act.

151. The Tribunal, having established that the Appellant incurred the cost of levelling land and clearing vegetation in July 2022 and August 2022 without generating any income from making supplies subsequent to the land rehabilitation and restoration activities, is left to determine whether the Appellant substantiated its claim that it was allowed under the VAT Act to deduct the input tax incurred on the costs.

152. The Tribunal notes that, contrary to the Respondent’s insistence that the Appellant incurred the land restoration costs to plant hay in the future, the Appellant’s future income from the land is still speculative and is still not yet determined. The Tribunal notes that the Appellant’s future income generating activity could result in the making of taxable supplies or exempt supplies, and the Respondent is currently not in a position to impute the outcome.

153. Section 17(1) of the VAT Act provides as follows regarding deduction of input tax: -“17. (1)Subject to the provisions of this Act and the regulations, input tax on a taxable supply to, or importation made by, a registered person may, at the end of the tax period in which the supply or importation occurred, be deducted by the registered person in a return for the period, subject to the exceptions provided under this section, from the tax payable by the person on supplies by him in that tax period, but only to the extent that the supply or importation was acquired to make taxable supplies.”

154. The parameters within which the right by a registered person to deduct input VAT are given in the proviso to Section 17(2) of the VAT Act as follows: -“(2)If, at the time when a deduction for input tax would otherwise be allowable under subsection (1)—(a)the person does not hold the documentation referred to in subsection (3), and(b)the registered supplier has not declared the sales invoice in a return, the deduction for input tax shall not be allowed until the first tax period in which the person holds such documentation:Provided that the input tax shall be allowable for a deduction within six months after the end of the tax period in which the supply or importation occurred.”

155. The Tribunal is further guided by the decision in Tax Appeal No. E026 of 2020 Highlands Mineral Water Limited v Commissioner of Domestic Taxes where Majanja J. at paragraph 39 held that: -“39. I therefore find and hold that section 17(1) and (2) of the VAT Act, permits the taxpayer to claim input tax at any time provided the claim falls within 6 months from period which the supply or importation occurred notwithstanding that the VAT Return is filed late. In other words, the fact of late filing does not preclude a taxpayer from claiming input VAT and that this claim ought to be allowed as long as Return is filed and claimed within six months from the date of supply or importation.”

156. It is the Tribunal’s observation that the Parties concur that the Appellant claimed input VAT on the cost of levelling land and clearing vegetation in the year 2022. Having established that the Appellant has not grown hay or yet generated any income subsequent to the land restoration activities, it follows that the Respondent disallowing the input tax on the basis that the Appellant incurred the cost in preparation for making an exempt supply is speculative as no exempt supply has been made by the Appellant.

157. The Tribunal is of the considered view that according to Section 17(1) of the VAT Act, should the Appellant generate income from making taxable supplies from the restored land in the future, it would be allowed to deduct input tax against VAT it would charge.

158. Section 17(2) of VAT Act, as interpreted by the Majanja J. in the Highlands case (supra), provides that allowability of input tax is a time-bound exercise and is enabled by claiming the deduction in a VAT return. It follows, therefore, that if the Respondent disallows the input tax, the Appellant would be prejudiced should it make taxable supplies from the restored land in the future, since the disallowance would deprive the Appellant of a legal opportunity to claim the input tax in future as the timeframe of six months after the invoice dates would have already elapsed.

159. The Tribunal therefore finds that the Respondent was not justified in disallowing the input tax incurred on the cost of levelling land and clearing vegetation deducted in the year 2022.

d. Whether the Respondent was justified in issuing the Withholding tax (WHT) tax assessment on dividends paid to shareholders. 160. The Respondent assessed WHT at 5% on dividends of Kshs. 1 Billion that the Appellant claimed to be payable to Enke Investments on the basis of Section 7(2) of the Income Tax Act. The Respondent asserted that the Appellant’s CR12 shows that Rose Wamaitha is the Appellant’s only shareholder and director, thus the Appellant ought to have paid WHT at 5% on Enke Investment’s dividend.

161. The Appellant did not deduct WHT on the year 2022 dividends of Kshs. 1 Billion and defended its position by stating that the dividends were payable to its beneficial sole shareholder, Enke Investments. It argued that Enke Investments is a Kenyan company that indirectly holds more than 12. 5% of the voting power of the Appellant through its nominee shareholder, Rose Wamaitha, therefore, as per Section 7(2) of the Income Tax Act, it was not required to deduct WHT on the dividends on the basis that where a recipient of dividends is a nominee, reference has to be made to the beneficial owner to determine the manner in which such income should be taxed.

162. The Respondent was not persuaded by the Appellant’s claim that the dividends are not subject to tax, and asserted that the Appellant:a.Failed to submit the BOF1 form lodged at the Company registry as proof of the same in line with Beneficial Ownership Regulations of 2020. b.Failed to notify the Commissioner within 30 days of any change in nominee ownership as per Section 9 of the Tax Procedures Act.c.Had a legal obligation to disclose the ultimate beneficial owner who is a natural person under Section 93A of the Companies Act and the Companies (Beneficial Ownership Information) Regulations.

163. The Tribunal analysed the evidence before it to establish whether the Appellant substantiated its assertion that Enke Investments was the beneficial owner of 100% of its shares as opposed to Rose Wamaitha who the Appellant claimed to be a nominee shareholder. To determine this, the Tribunal referred to the Companies Act which provides for the regulation of companies.

164. Second, the Tribunal sought to determine the tax treatment of the dividends distributed in 2022 by the Appellant.

165. The Tribunal notes that the Appellant adduced the following documents in support of its position:a.A letter from the director of Enke Investments Ltd to the Appellant’s director dated 20th December 2022 authorising the Appellant’s director to utilise the Kshs. 1 Billion dividends due to it to settle the advances made on behalf of Enke Investments Ltd and hold any balance due to Enke Investments Ltd awaiting advise on its utilization.b.A general ledger account of dividend payable showing an entry dated 27th December 2022 of year 2022 dividend declaration of Kshs. 1 Billion applied in the settlement of shareholders’ advances.c.A resolution of the board of directors of the Appellant referenced MIN 22/2023 DIVIDEND resolving to approve the payment of a dividend of Kshs. 1 Billion for the year ended 31st December 2022. d.A schedule of payments to shareholders and Micro Nominees Ltd, Northlands Ltd, Hydrouniverse Trading Co. Ltd, Coulson and Harney, Linkways Ltd, KPLC Thika Collection Ac, Enke Management Ltd, Syndicate Nominees Ltd, and others made on behalf of shareholders from the year 2009 to 2022, and a schedule explaining the listed payments.e.The Appellant’s bank statements mapped to the schedule of payments made to shareholders and Micro Nominees Ltd, Northlands Ltd, Hydrouniverse Trading Co. Ltd, Coulson and Harney, Linkways Ltd, KPLC Thika Collection Ac, Enke Management Ltd, Syndicate Nominees Ltd, and others on behalf of shareholders.f.Various letters from the director of Enke Investments Ltd to the Appellant issued on various dated in 2010 to 2022 authorising the Appellant to make payments to Micro Nominees Ltd, Northlands Ltd, Hydrouniverse Trading Co. Ltd, Coulson and Harney, Linkways Ltd, KPLC Thika Collection Ac, Enke Management Ltd, Syndicate Nominees Ltd, and others on behalf of Enke Investments Limited and to charge the shareholders account.g.Letters from the Appellant to its bank and Kaplan and Stratton Advocates instructing them to transfer funds to various companies.h.The Appellant’s audited accounts for the years 2022 and 2023 with a disclosure that Enke Investments Limited, incorporated in Kenya, is the ultimate parent and controlling party of the Appellant.i.The audited accounts of Enke Investments Limited for the year 2022 with a disclosure that the Appellant is a subsidiary of Enke Investments Limited by virtue of 100% shareholding in the Appellant.j.Invoice from Africa Registrars dated 24th June 2020 for acting as a nominee shareholder and nominee director for the Appellant for the year 2019. k.A signed declaration of trust dated 26th March 2021 prepared by Rose Wamaitha to the Appellant declaring that the 2,000 ordinary shares of Kshs. 20 par value, fully paid, registered in the name of Rose Wamaitha in the register of members of the Appellant is held by Rose Wamaitha as a nominee for Enke Investments Limited and that Rose Wamaitha has no beneficial interest whatsoever in the said share. Rose Wamaitha therein stated that she has executed an instrument of transfer of the share in blank and authorised the Appellant to fill in and complete the same as an when it may think fit. The declaration of trust was stamped by the Collector of Stamps.l.A share transfer form for the Appellant dated 26th March 2021 describing the consideration as nominee to nominee for transfer of 1,000 ordinary shares of Kshs. 20 each from Ropat Trust Company Limited to Rose Wamaitha stamped by the Collector of Stamps on 21st September 2021. m.A share transfer form for the Appellant dated 26th March 2021 describing the consideration as nominee to nominee for transfer of 1,000 ordinary shares of Kshs. 20 each from Ropat Nominees Limited to Rose Wamaitha stamped by the Collector of Stamps on 21st September 2021. n.CR12 issued by the Registrar of Companies presenting the details of records relating to the Appellant held at the Companies Registry as at 19th September 2021 showing that the only two shareholders, Ropat Nominees Limited held 1,000 of 2,000 ordinary shares of Kshs. 50 each and Ropat Trust Company Limited held 1,000 of 2,000 ordinary shares of Kshs. 50 each.o.CR12 issued by the Registrar of Companies presenting the details of records relating to the Appellant held at the Companies Registry as at 13th October 2023 showing that only one shareholder, Rose Wamaitha, held 3,000 of 3,000 ordinary shares of Kshs. 20 each.p.Invoice from Gateway Consultants Limited dated 29th June 2022 for acting as a nominee shareholder and nominee director for the Appellant for the year 2021. q.The Appellant’s bank statements showing payments to Gateway Consultants for nominee services and payment of stamp duty for the share transfer forms.r.A signed declaration of trust dated 20th September 2022 prepared by Rose Wamaitha to the Appellant declaring that the 1,000 ordinary shares of Kshs. 20 par value, fully paid, registered in the name of Rose Wamaitha in the register of members of the Appellant is held by Rose Wamaitha as a nominee for Enke Investments Limited and that Rose Wamaitha has no beneficial interest whatsoever in the said share. Rose Wamaitha therein stated that she has executed an instrument of transfer of the share in blank and authorised the Appellant to fill in and complete the same as an when it may think fit. The declaration of trust was stamped by the Collector of Stamps.

166. The Tribunal observes that effective from 15th September 2023, the Anti-Money Laundering and Combating of Terrorism Financing Laws (Amendment) Act, 2023 amended Section 3 of the Companies Act by introducing the meaning of the terms “nominator” and “nominee shareholder” as follows: -““nominator” means an individual, group of individuals or legal person that issues instructions directly or indirectly to a nominee to act on their behalf in the capacity of a director or a shareholder.“nominee shareholder” means a shareholder who exercises the associated voting rights according to the instructions of the nominator or receives dividends on behalf of the nominator.”

167. The Anti-Money Laundering and Combating of Terrorism Financing Laws (Amendment) Act, 2023 also amended Section 93 of the Companies Act which enumerates the details that a register of members must be contain as follows: -“93. Company to keep register of members(1)Every company shall keep a register of its members.(2)A company shall enter in its register of members—(a)the names and addresses of the members including information on whether the member is a nominee shareholder;(b)the date on which each person was registered as a member or a nominee shareholder; and(c)deleted by Act No. 12 of 2019, Sch.;(d)the date on which any person ceased to be a member or a nominee shareholder.”(8)A company shall lodge with the Registrar a copy of its register of members within thirty days after completing its preparation.”

168. Regulation 4A of the Companies (Beneficial Ownership Information) Regulations provides as follows regarding disclosure of nominee shareholding: -“4A. (1)A person, whether formally or informally, acting as a nominee shareholder or a nominee director shall disclose to the company their status as a nominee and provide the particulars of the nominator within the prescribed timelines under the Act.(2)The company shall upon validating, reviewing and verifying the nominee status, note the nominees in its register of nominees.(3)The company shall submit a copy of its register of members or register of directors with the Registrar as provided for under the Act.(4)The Registrar shall put an asterisk to the names of directors or shareholders who are nominee directors or shareholders, appearing in the register of members or register of directors.(5)The company shall—(a)where a nominator is a natural person, enter the particulars of the nominator in the register of beneficial owners; or(b)where a nominator is a legal person, enter the particulars of the beneficial owners of the legal person in the register of the beneficial owners, and submit a copy of the register of beneficial owners and any change to it, in accordance with the provisions of the Act and these Regulations.(6)A nominee who falsely declares or fails to disclose the nominator commits an offence and shall be liable, on conviction, to the penalty provided under section 872 of the Act.(7)For purposes of this regulation “informally” means, without any form of written legal contract such as based on loose forms of control where a family member, friend, employee or associate stands in for the nominator, who can be the beneficial owner.”

169. Section 9 of the Tax Procedures Act provides the mandatory requirement for a person carrying on a business to notify the Commissioner of changes:-“9. Every person carrying on a business shall, within thirty days of the occurrence of a change, notify the Commissioner of any changes—(a)in the place of business, trading name and registered address;(b)in the case of—(i)an incorporated person, of the persons with share-holding of ten per cent or more of the issued share capital;(ii)a nominee ownership, to disclose the beneficial owner of the shareholding;(iii)a trust, the full identity and address details of trustees and beneficiaries of the trust whether the entity is carrying out business or not;(iv)a partnership, the identity and address of all partners; or(v)cessation or sale of the business, all relevant information regarding liquidation or details of ownership.”

170. Having reviewed the totality of evidence presented by the Appellant, the Tribunal notes that the documents that the Appellant presented to prove nominee shareholding of Rose Wamaitha for Enke Investments Limited from the year 2021 included the two declarations of trust prepared by Rose Wamaitha to the Appellant dated 26th March 2021 and 20th September 2022.

171. The declarations of trust presented by the Appellant, in the Tribunal’s view, are legally binding documents and the instruments were duly executed and charged stamp duty by the Government of Kenya. In addition, the Respondent has not legally challenged validity of the instruments.

172. Further, in this case, the Tribunal finds that the declarations of trust complied with Regulation 4A(1) of the Companies (Beneficial Ownership Information) Regulations as the document formally made a:a.Disclosure of the nominee shareholder status of Rose Wamaitha.b.Disclosure of the particulars of the nominator, Enke Investments Limited.c.Disclosure that Rose Wamaitha has no beneficial interest in the shares of the Appellant.

173. The Tribunal, however, notes that the Appellant omitted to present the following documents required by law, and others which would have further anchored its assertion:a.Notification to the Respondent of nominee ownership and disclosure of beneficial ownership as per Section 9 of the Tax Procedures Act.b.Register of members indicating which member is a nominee shareholder as per Section 93(2) of the Companies Act, which requirement became operational on 15th September 2023. c.Register of beneficial owners with the particulars of the beneficial owners of Rose Wamaitha’s nominator, Enke Investments Limited which is a legal person, according to Regulation 4A(5)(b) of the Companies (Beneficial Ownership Information) Regulations, which requirement was introduced by Legal Notice No. 162 of 2023 dated 19th October 2023.

174. According to the Tribunal’s observation, the obligations for disclosing nominee shareholdings under the Companies Act only became operative in September/October 2023, which was after the 2022 assessment period.

175. In Hickman Motors Ltd. v. Canada, [1997] 2 S.C.R. 336, the Court stated the following regarding presentation of evidence by a taxpayer: -“The taxpayer's initial onus of "demolishing" the Minister's exact assumptions is met where the appellant makes out at least prima facie case... Where the Minister's assumptions have been "demolished by the appellant, "the onus .... shifts to the Minister to rebut the prima facie case" made out by the appellant and to prove the assumptions ... The law is settled that unchallenged and uncontradicted evidence "demolishes" the Minister's assumptions; ...Where the burden has shifted to the Minister, and the Minister adduces no evidence whatsoever, the taxpayer is entitled to succeed; and even if the evidence contained ''gaps in logic, chronology, and substance", the taxpayer's appeal will be allowed if the Minister fails to present any evidence as to the source of income.”

176. Although the Appellant’s evidence was less than complete, the Tribunal finds that the Appellant established a prima facie case by sufficiently demonstrating Rose Wamaitha’s nominee shareholding for shares held on behalf of Enke Investments Limited. The Appellant presented source documents, that is, the deeds of trust, which would have been the foundation for any notifications or registers it omitted to provide to lodge with the Commissioner and the Registrar of Companies. Accordingly, the Tribunal finds that the Appellant discharged its burden of proof under Section 56(1) of the Tax Procedures Act and Section 30 of the Tax Appeal Tribunal Act.

177. The Tribunal, having established that the 100% of the shares of the Appellant that Rose Wamaitha holds are held on behalf of Enke Investments Limited, finds and holds that Enke Investments Limited was the owner of the dividends of Kshs. 1 Billion declared by the Appellant in the year 2022.

178. The tax treatment of dividends received by a resident company with direct or indirect control of 12. 5% or more of the voting power of a company paying a dividend is provided in Section 7(2) of the Income Tax Act as follows: -“(2)Notwithstanding section 3(2)(b), a dividend received by a resident company, other than a dividend received by a company which controls directly or indirectly less than twelve and one-half per cent of the voting power of the company paying the dividend, shall be deemed not to be income chargeable to tax.”

179. Since Enke Investments Limited indirectly controls 100% of the voting power of the Appellant through its nominee shareholder, Rose Wamaitha, the dividends it received are not income chargeable to tax according to Section 7(2) of the Income Tax Act.

180. Consequently, the Tribunal finds that the Respondent erred in assessing WHT on dividends declared by the Appellant in the year 2022.

e. Whether the Respondent was justified in issuing the Fringe Benefit Tax assessment on loans to shareholders. 181. The Respondent assessed Fringe Benefit Tax as per Section 12B(1) of the Income Tax Act on the amounts reported as shareholder loans in the Appellant’s audited financial statements for the years 2018 to 2022. The Respondent averred that it established that Enke Investments Limited was not registered as one of the Appellant’s shareholders in the CR12 and that instead the Appellant only had one shareholder, Rose Wamaitha, who was also the director. That as such, the Appellant advanced the interest free loans to Rose Wamaitha.

182. The Respondent averred that it could not rely on the trust agreement provided by the Appellant as it is not conclusive proof of ownership or change of ownership since the CR12, B0F1, and the Share Certificate are the only public documents that can authenticate ownership. The Respondent concluded that the Appellant has not demonstrated Enke Investments Limited as the shareholder.

183. The Appellant disputed the assessment and argued as follows:a.That the loans were provided for the benefit of Enke Investments since the Appellant had sufficient liquidity. That Enke Investments, the sole beneficial shareholder, would often request for the Appellant to make payments to third parties on its behalf, and the Appellant would then record such amounts as owing by Enke Investments in the Appellant’s shareholder loan account.b.That all the necessary documents to support the amounts recorded in the shareholder loan account were provided to the Respondent.c.That the Fringe Benefit Tax assessment is erroneous since it does not consider the fact that the loans could not have been issued to Rose since a majority of the loans were issued before the year 2021 when Rose became a nominee director.d.That when the Appellant declared dividends for the year of income 2022, Enke Investments wrote to the Appellant and asked it to utilise the money to settle the shareholder loans that Enke Investments Limited owed the Appellant. That this would not have been the case if Enke Investments Limited did not owe any money to the Appellant.

184. The Tribunal analysed the timeline between the date of assessment and when the Respondent is allowed under Section 31 of Tax Procedures Act, cited below, to issue an assessment, as follows: -“(4)The Commissioner may amend an assessment—(a)in the case of gross or wilful neglect, evasion, or fraud by, or on behalf of, the taxpayer, at any time; or(b)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; or(ii)for any other assessment, the date the Commissioner notified the taxpayer of the assessment.”

185. According to Section 31(4)(a) of the Tax Procedures Act, the Respondent may only issue an assessment beyond the five years where the Respondent can prove gross or wilful neglect, evasion, or fraud by, or on behalf of, the taxpayer.

186. The Tribunal has examined the Parties’ pleadings and notes that the issues under Section 31(4)(a) of the Tax Procedures Act regarding gross or wilful neglect, evasion or fraud on the part of the Appellant were neither pleaded, transacted and or proved by the Respondent.

187. The Tribunal reiterates its holding in a similar matter TAT Appeal No. 411 of 2021, City Gas East Africa v Commissioner of Investigations and Enforcement where Tribunal held that the Respondent erred in assessing the Appellant for a period beyond five years when there was no evidence of wilful neglect or fraud.

188. The Respondent’s assessment was dated 30th April 2024, meaning that the earliest period that it could assess Fringe Benefit Tax was April 2019.

189. Based on the foregoing, the Tribunal finds that the Respondent’s assessment of Fringe Benefit Tax for the year 2018 was illegal and the same was not justified.

190. For the Fringe Benefit Tax assessments for the years 2019 to 2022, the Tribunal referred to Section 12B of the Income Tax Act which provides for the imposition of Fringe Benefit Tax as follows: -“12B.(1)Notwithstanding any other provision of this Act, a tax to be known as fringe benefit tax shall be payable commencing on the 12th June, 1998 by every employer in respect of a loan provided at an interest rate lower than the market interest rate, to an individual who is a director or an employee or is a relative of director or an employee, by virtue of his position as director or his employment or the employment of the person to whom he is related:Provided that the fringe benefit tax shall not apply to loans advanced on or before 11th June, 1998.

191. The Appellant attached the following documents to support its assertion that it did not provide a loan to Rose Wamaitha, its director:a.A letter from the director of Enke Investments Ltd to the Appellant’s director dated 20th December 2022 authorising the Appellant’s director to utilise the Kshs. 1 Billion dividends due to it to settle the advances made on behalf of Enke Investments Ltd and hold any balance due to Enke Investments Ltd awaiting advise on its utilization.b.A general ledger account of dividend payable showing an entry dated 27th December 2022 of year 2022 dividend declaration of Kshs. 1 Billion applied in the settlement of shareholders’ advances.c.A resolution of the board of directors of the Appellant referenced MIN 22/2023 DIVIDEND resolving to approve the payment of a dividend of Kshs. 1 Billion for the year ended 31st December 2022. d.A schedule of payments to shareholders and Micro Nominees Ltd, Northlands Ltd, Hydrouniverse Trading Co. Ltd, Coulson and Harney, Linkways Ltd, KPLC Thika Collection Ac, Enke Management Ltd, Syndicate Nominees Ltd, and others made on behalf of shareholders from the year 2009 to 2022, and a schedule explaining the listed payments.e.The Appellant’s bank statements mapped to the schedule of payments made to shareholders and Micro Nominees Ltd, Northlands Ltd, Hydrouniverse Trading Co. Ltd, Coulson and Harney, Linkways Ltd, KPLC Thika Collection Ac, Enke Management Ltd, Syndicate Nominees Ltd, and others on behalf of shareholders.f.Various letters from the director of Enke Investments Ltd to the Appellant issued on various dated in 2010 to 2022 authorising the Appellant to make payments to Micro Nominees Ltd, Northlands Ltd, Hydrouniverse Trading Co. Ltd, Coulson and Harney, Linkways Ltd, KPLC Thika Collection Ac, Enke Management Ltd, Syndicate Nominees Ltd, and others on behalf of Enke Investments Limited and to charge the shareholders account.g.Letters from the Appellant to its bank and Kaplan and Stratton Advocates instructing them to transfer funds to various companies.h.The Appellant’s audited accounts for the years 2022 and 2023 with a disclosure that Enke Investments Limited, incorporated in Kenya, is the ultimate parent and controlling party of the Appellant.i.The audited accounts of Enke Investments Limited for the year 2022 with a disclosure that the Appellant is a subsidiary of Enke Investments Limited by virtue of 100% shareholding in the Appellant.j.Invoice from Africa Registrars dated 24th June 2020 for acting as a nominee shareholder and nominee director for the Appellant for the year 2019. k.A signed declaration of trust dated 26th March 2021 prepared by Rose Wamaitha to the Appellant declaring that the 2,000 ordinary shares of Kshs. 20 par value, fully paid, registered in the name of Rose Wamaitha in the register of members of the Appellant is held by Rose Wamaitha as a nominee for Enke Investments Limited and that Rose Wamaitha has no beneficial interest whatsoever in the said share. Rose Wamaitha therein stated that she has executed an instrument of transfer of the share in blank and authorised the Appellant to fill in and complete the same as an when it may think fit. The declaration of trust was stamped by the Collector of Stamps.l.A share transfer form for the Appellant dated 26th March 2021 describing the consideration as nominee to nominee for transfer of 1,000 ordinary shares of Kshs. 20 each from Ropat Trust Company Limited to Rose Wamaitha stamped by the Collector of Stamps on 21st September 2021. m.A share transfer form for the Appellant dated 26th March 2021 describing the consideration as nominee to nominee for transfer of 1,000 ordinary shares of Kshs. 20 each from Ropat Nominees Limited to Rose Wamaitha stamped by the Collector of Stamps on 21st September 2021. n.CR12 issued by the Registrar of Companies presenting the details of records relating to the Appellant held at the Companies Registry as at 19th September 2021 showing that the only two shareholders, Ropat Nominees Limited held 1,000 of 2,000 ordinary shares of Kshs. 50 each and Ropat Trust Company Limited held 1,000 of 2,000 ordinary shares of Kshs. 50 each.o.CR12 issued by the Registrar of Companies presenting the details of records relating to the Appellant held at the Companies Registry as at 13th October 2023 showing that only one shareholder, Rose Wamaitha, held 3,000 of 3,000 ordinary shares of Kshs. 20 each.p.Invoice from Gateway Consultants Limited dated 29th June 2022 for acting as a nominee shareholder and nominee director for the Appellant for the year 2021. q.The Appellant’s bank statements showing payments to Gateway Consultants for nominee services and payment of stamp duty for the share transfer forms.r.A signed declaration of trust dated 20th September 2022 prepared by Rose Wamaitha to the Appellant declaring that the 1,000 ordinary shares of Kshs. 20 par value, fully paid, registered in the name of Rose Wamaitha in the register of members of the Appellant is held by Rose Wamaitha as a nominee for Enke Investments Limited and that Rose Wamaitha has no beneficial interest whatsoever in the said share. Rose Wamaitha therein stated that she has executed an instrument of transfer of the share in blank and authorised the Appellant to fill in and complete the same as an when it may think fit. The declaration of trust was stamped by the Collector of Stamps.

192. The Tribunal, having established that Rose Wamaitha’s was a nominee shareholder for shares held on behalf of Enke Investments Limited under the WHT in issue (d) above, will not rehash the analysis of this finding.

193. The Tribunal further notes from the Appellant’s evidence that the Appellant presented the shareholder’s account which was the basis of the shareholder account balances in the audited financial statements for the years 2018 to 2022. The Appellant further provided proof that it was under the instructions of Enke Investments Limited, the Appellant’s shareholder, to settle payments on its behalf which would then be accounted for as advances and recorded as shareholder loans.

194. The Appellant also presented bank statements which showed that the payments were made to the various entities as instructed by the Appellant’s shareholder, Enke Investments Limited. The Tribunal further observes that to settle the advances to it by the Appellant, Enke Investments Limited instructed the Appellant to offset the advances with the dividends declared to it in the year 2022.

195. Based on the above observations, the Tribunal finds that the Appellant sufficiently demonstrated that Enke Investments Limited was the recipient of the shareholder loans in question, and that the recipient of the loans was not Rose Wamaitha as alleged by the Respondent.

196. The following conditions must be met for Fringe Benefit Tax to apply:a.There is a loan provided by an employer;b.The loan is provided at an interest rate lower than the market interest rate; andc.The loan is provided to an individual who is:i.A directorii.An employeeiii.A relative of a directoriv.A relative of an employeed.The loan is provided to the individual by virtue of his position as director or his employment or the employment of the person to whom he is related.

197. The Tribunal finds and holds that Fringe Benefit Tax does not apply to the shareholder loans to Enke Investments Limited on the basis that Enke Investments Limited is a company and not an individual. The Tribunal therefore finds that Respondent’s assessment of Fringe Benefit Tax on loans to a company violated Section 12B of the Income Tax Act.

198. Drawing from the aforementioned, the Tribunal concludes that the Respondent erred in assessing Fringe Benefit Tax in the years 2018, 2019, 2020, 2021 and 2022.

Final Decision 199. The upshot of the above analysis is that the Tribunal finds that the Appeal is partially merited and accordingly proceeds to make the following Orders:a.The Appeal be and is hereby partially allowed.b.The Respondent’s Objection decision dated 25th July 2024 be and is hereby varied in the following terms:-i.The Corporation tax assessment for the year 2022 be and is hereby upheld.ii.The Value Added Tax (VAT) assessment for the year 2022 be and is hereby set aside.iii.The Withholding tax (WHT) assessment for the year 2022 be and is hereby set aside.iv.The Fringe Benefit Tax (FBT) assessments for the years 2018, 2019, 2020, 2021 and 2022 be and are hereby set aside.c.The Respondent is hereby directed to recompute the tax assessments based on the Tribunal’s findings under Orders b) (i), (ii), (iii) and (iv) above within 30 days from the date of delivery of this Judgment.d.Each party to bear its own costs.

200. It is so ordered.

DATED AND DELIVERED AT NAIROBI THIS 28TH DAY OF FEBRUARY, 2025. ERIC NYONGESA WAFULA - CHAIRMANGLORIA A. OGAGA - MEMBERDR. RODNEY O. OLUOCH - MEMBERABRAHAM K. KIPROTICH - MEMBERCYNTHIA B. MAYAKA - MEMBER