[2025] KETAT 205 (KLR)

Fine Spinners Limited v Commissioner of Domestic Taxes (Tax Appeal E734 of 2024) [2025] KETAT 205 (KLR) (4 April 2025) (Judgment)

Neutral citation: [2025] KETAT 205 (KLR)

Republic of Kenya

In the Tax Appeal Tribunal

Tax Appeal E734 of 2024

CA Muga, Chair, BK Terer, EN Njeru, E Ng'ang'a & SS Ololchike, Members

April 4, 2025

Between

Fine Spinners Limited

Appellant

and

Commissioner of Domestic Taxes

Respondent

Judgment

Background 1. The Appellant is Kenyan company dealing in the manufacture of textiles.

2. The Respondent is a principal officer appointed under Section 13 of the Kenya Revenue Authority Act, CAP 469 of Kenya’s Laws (hereinafter “the Act”). Under Section 5 (1) of the Act, the Kenya Revenue Authority is an agency of the Government for the collection and receipt of all tax revenue. Further, under Section 5(2) of the Act with respect to the performance of its functions under subsection (1), the Authority is mandated to administer and enforce all provisions of the written laws as set out in Part 1 and 2 of the First Schedule to the Act for the purposes of assessing, collecting and accounting for all revenues in accordance with those laws.

3. On 23rd December 2022, the Appellant declared a self-assessment and made payment towards Capital Gains Tax (hereinafter “CGT”) at the rate of 5%. The CGT arose due to net gains from the sale of LR No. 209/20695 [Block 57/113] located in Nairobi, Industrial area (hereinafter “the Property”) to Laborex Limited at a price of USD 6,000,000. 00.

4. The Respondent analysed the Appellant's affairs with regards to the transfer and noted that the property was registered in favor of the transferee (Laborex Limited) in 2023 and since the stamp duty was paid on 10th July 2023, the Respondent deemed the transfer to have taken place on 10th July, 2023 and the applicable CGT rate was 15%.

5. During the review the Respondent also noted that the Appellant had underdeclared the exchange rate and therefore the Respondent decided to apply a conversion rate different from that which the Appellant had adopted in determining the purchase price in Kenyan currency.

6. Following verification of the Appellant's tax declarations, the Respondent issued its notice of tax assessments for CGT on transfer of property vide a letter dated 11th March 2024.

7. The Appellant on 27th March 2024 lodged its objection to the notice of assessment. Upon review of the Appellant's objection, the Respondent issued its objection decision dated 24th May 2024 confirming the CGT assessment of Kshs 77,797,617. 00 inclusive of interest.

8. Being dissatisfied with the Respondent's decision, the Appellant filed the instant Appeal vide notice of appeal dated and filed on 21st June 2024.

The Appeal 9. The Appellant filed its the Memorandum of Appeal dated 3rd July 2024 on even date wherein the Appellant raised the following grounds of Appeal:a.That Respondent erred in law and in fact by assessing and adopting the erroneous transfer value of the Property at Kshs 842,207,400. 00 instead of Kshs 720,000,000. 00 which was the actual and correct transfer value of the Property as at the time the Purchase Price was paid and CGT remitted by the Appellant.b.The Respondent erred in law and in fact by misapprehending the law and arriving at an erroneous conclusion that the tax point for CGT was the date when the Property was registered in favour of the Purchaser as opposed to the date when the property was disposed.c.The Respondent erred in law and in fact by failing to apply the legal meaning of the term "transfer for the purposes of payment of CGT as clearly defined in Paragraph 6(1)(a) of the Eighth Schedule to the Income Tax Act, CAP 470 of the Laws of Kenya (hereinafter “ITA”).d.The Respondent erred in law and in fact by applying the CGT rate of 15% in its re-computation of CGT on the sale of the Property which occurred in the year 2022 when the prevailing CGT rate was 5% of the capital gain.e.The Respondent erred in fact and in law by determining that CGT was paid late resulting in a demand for interest for late payment contrary to its own admission in its email of 18th January 2023 which acknowledged the receipt of the CGT paid by the Appellant and further lauded the Appellant for making the payment in good time.f.It was not open in law for the Respondent to arbitrarily and unfairly apply the foreign exchange rate Kshs 140. 37 against the USD while converting the Purchase Price into Kenya Shillings when in fact, the said Purchase Price was received by the Appellant and converted to Kenya Shillings at the time of payment of CGT on 23rd December 2023 when the exchange rate was Kshs 120 against the USD.g.The Respondent erred in law and in fact in disregarding the Government's own administrative inefficiencies and inordinate delay in registering the transfer of the Property and erroneously determining that existing law required it to issue the impugned Additional Assessment.h.The Respondent erred in law and in fact by demanding interest for the averred late payment of CGT notwithstanding the fact that the Appellant paid CGT in good time and the same was appreciated and lauded by the Respondent in its electronic mail of 18th January 2023. i.It was not open to the Respondent to disregard the documentation provided in support of the computation of the cost and purporting to reduce the adjusted costs of the property despite the fact the Appellant had already done so.j.The Respondent acted unreasonably and in bad faith by claiming that the sale for Value Added Tax purposes occurred in 2022 whereas for CGT the transfer occurred in July 2023.

Appellant’s Case 10. The Appellant lodged its statement of facts dated and filed on 3rd July 2024. The Appellant also filed written submissions dated 16th October 2024 and filed on the even date.

11. The Appellant stated that it has been the registered proprietor of LR. No 209/7966 which in June 2013 was subdivided into two parcels being LR No 209/20694 and LR No 209/20695. On 24th April 2014, the subdivision of LR No 209/7966 was approved and subsequently a subdivision certificate issued on 27th April 2017.

12. In May 2022 or thereabout, the Appellant commenced negotiations with Laborex Kenya Limited (the "Purchaser") with the view of selling the LR No 209/20695 (hereinafter referred as the "Property") to the Purchaser. The said negotiations culminated in a written agreement for the sale of the Property dated 14th November 2022 which was franked by the collector of stamp duty on 16th November 2022. In the Sale Agreement, the Appellant agreed among many other terms with the Purchaser to sell the Property for a purchase price of USD 6,000,000. 00 (the "Purchase Price") and the sale was to be completed within the next 120 days from 14th November 2022.

13. On 21st November 2022, the Appellant wrote a letter to the Ministry of Lands, Public Works, Housing and Urban Development (the "Ministry of Lands") informing it about the sale of the Property to the Purchaser and requesting the issuance and registration of title of the Property to the Purchaser. In the said letter the Appellant requested and stated the following:a.It had sold the Property to the Purchaser and was requesting the Ministry of Lands to expeditiously effect the transfer of the Property to the Purchaser.b.It had already applied and registered the Property on the “Ardhisasa” portal, and it was experiencing delays in the transfer of the Property due to the digital migration for the transaction of properties located in Nairobi.c.It needed help in expediting the transfer of the Property and issuance of the title to the Purchaser as the same was inordinately delayed.

14. The Ministry of Lands upon receiving the Appellant's letter dated 21st November 2022, responded through the letter dated 28th November 2022. In its letter dated 28th November 2022, the Ministry of Lands acknowledged that there was a system inordinate delay in concluding transfer transactions lodged vide the Ardhisasa portal. The Ministry of Lands promised to fast-track the transfer transaction, register the title and issue it to the Purchaser to ensure that the transfer of the Property was expeditiously concluded.

15. According to the Appellant, on 23rd December 2022, after receiving funds from the Purchaser, it computed and remitted CGT of Kshs. 26,000,000. 00 to the Respondent. The Respondent through its email of 18th January 2023 acknowledged the payment of the amount.

16. The Respondent on 13th July 2023, issued the Appellant with the notice to verify tax declaration and subsequently commenced the verification exercise of the CGT paid and declared by the Appellant.

17. On 14th November 2023, the Respondent sent its verification findings to the Appellant through a letter dated 14th November 2023 wherein the Respondent made the following observations and findings:a.That the Appellant paid CGT on 23rd December 2022 based on the value of the property being Kshs. 720,000,000. 00. The transfer value was supposed to be Kshs. 862,252,800. 00 and not as declared by the Appellant. The Respondent's newly assessed transfer value of the Property was based on the fact that the VAT return for the sale of the Property was filed on 14th August 2023 therefore the sale date was 14th August 2023, and the value of the transfer was as per the exchange rate of United State Dollars to Kenya Shillings on 14th August 2023. b.That it reviewed the documents availed by the Appellant and noted that the net adjusted costs claimed by the Appellant was Kshs. 200,000,000. 00 but the evidence produced only supported Kshs. 172,500,000. 00 as the cost of acquisition of the Property.c.That the applicable CGT rate was 15% and not 5% as applied by the Appellant. The Respondent further explained that the tax point for CGT is upon lodgement of transfer documents in favour of the transferee and the available documentation showed that the transfer was lodged on or after 23rd June 2023 being the instrument date for long-term lease upon which the stamp duty was paid by the transferee.d.That the correct calculation of CGT payable less the already paid amount by the Appellant was Kshs 77,462,920. 00 in addition to the interest of Kshs 3,873,146. 00 amounting to a total of Kshs 81,336,006. 00 as tax due.e.That the Appellant had the chance to provide a written response to the Verification Findings before 21st November 2023 failure to which, the Respondent would proceed to issue a notice of assessment.

18. By a letter dated 1st December 2023, the Appellant responded to the issues raised by the Respondent in the findings wherein the Appellant gave the history of the transaction in question as already elaborated above and further stated as follows:a.The transfer value of the Property was Kshs 720,000,000. 00 being the value of USD 6,000,000. 00 on 23rd December 2022 at a conversion rate of 1 USD= Kshs 120. The VAT return ought to have been declared in December 2022 but was declared in August 2023 when the USD exchange rate was at Kshs 143. 7088 to the USD thus the reason for declaring the transfer value of the property at Kshs 862,252,800. 00 for the purposes of VAT return. For the purposes of CGT, the transfer value of the Property was the Value of USD 6,000,000. 00 as at 23rd December 2022 when CGT was paid and therefore it was correctly declared as Kshs 720,000,000. 00. b.The tax point for CGT was upon transfer of the Property and the meaning of "transfer" as per Paragraph 6(1)(a) of the Eighth Schedule to the ITA is when property is sold, exchanged, conveyed or otherwise disposed of in any manner whatever (including by way of gift), whether or not for consideration. The Appellant stated that the Property was already sold, and the Purchase Price received before 23rd December 2022 therefore CGT was due and payable.c.The Appellant also stated that it lodged the transfer in November 2022 for registration and the delay of the same was occasioned by the Ministry of Lands, Public Works, Housing and Urban Development. Therefore, it is unfair to hold the Appellant liable for the acts and omissions which resulted in delay occasioned by the Government.d.The applicable CGT rate was 5% and not 15 % because the CGT was paid on 23rd December 2023 after selling the property and the applicable law then provided for CGT to be payable at a rate of 5% of the capital gain resulting from the sale of the Property.e.The Appellant also pointed out that the Respondent in its email dated 18th January 2023 had acknowledged that the payable CGT was remitted in good time.

19. Subsequently, the Respondent issued an assessment notice dated 27th February 2024 wherein the Respondent stated as follows:a.That it had ascertained that the Property was sold to the Purchaser and registered on 10th July 2023 when the stamp duty payment was made. The Purchase Price of USD 6,000,000. 00 was thus converted using the exchange rate on 10th July 2023 and the transfer value applied and adopted as Kshs 842,207,400. 00. b.The documents provided by the Appellant indicated that the cost of acquisition of the Property was Kshs 172,500,000. 00 and not Kshs 200,000,000. 00 as declared by the Appellant and therefore the variance of Kshs 27,500,000. 00 was disallowed in the computation of CGT.c.The Respondent had ascertained that the property was transferred to the Purchaser on 10th July 2023 and therefore the applicable CGT rate which came into effect from 1st January 2023 was 15% of the capital gain on the sale of the Property.d.That the tax due which the Appellant was expected to pay was Kshs 79,688,038. 00 inclusive of interest and exclusive of CGT already paid by the Appellant.

20. According to the Appellant, the Respondent issued an assessment order dated 11th March 2024 indicating the Appellant's tax liability as Kshs 74,456,110. 00 exclusive of interest payable by 10th April 2024. The Appellant, aggrieved by the assessment notice and the assessment order lodged its Notice of Objection on 27th March 2024. The Respondent then issued an objection decision dated 24th May 2024 wherein the Respondent partially accepted the Appellant's Notice of Objection by adjusting the incidental costs supported and recomputing capital gain principal tax payable as Kshs 72,585,689. 00. Dissatisfied with this Objection Decision, the Appellant filed this appeal.

21. In written submissions, the Appellant submitted that the Respondent erred in law by adopting erroneous Transfer Value of the Property contrary to the definition of transfer value under Paragraph 7(1)(a) of the Eighth Schedule to the ITA.

22. It also submitted that the Respondent erred in law in determining the tax point for the computation of CGT. It submitted that the definition of "transfer can only take the meaning ascribed to it by Paragraph 6(1)(a) of the Eighth Schedule to the ITA, which defines transfer to include a sale of the property. The Appellant submitted that the sale of the Property was concluded by executing the Sale Agreement and franking the same and subsequently receiving the payment of the Purchase Price on 23rd December 2022 when the CGT rate chargeable was at 5%.

23. In support of its case, the Appellant relied on the case of Dhanjalv Commissioner of Domestic Taxes (Appeal E619 of 2023) (2024] KETAT 1259 (KLR) (23 August 2024) (Judgment). It also cited the case of Cape Brandy Syndicate v Inland Revenue Commissioners (1921) 1 KB to argue that tax laws should be given strict interpretation.

24. It submitted that the Respondent’s claims that CGT was not paid in good time infringed on the legitimate expectation of the Appellant. In this regard, it cited the cases of Keroche Industries Limited v Kenya Revenue Authority & 5 others Nairobi [2007] eKLR and County Assemblies Forum v Attorney General & 3 others; Parliamentary Service Commission (Interested Party) (Petition 22 of 2017)12022] KESC 66 (KLR) to support its position on legitimate expectation.

25. Finally, it submitted that the delay by the Ministry of Lands in registration of the transfer documents cannot be visited upon the Appellant.

26. Consequently, the Appellant prayed for the following reliefs:a.That the Tribunal be pleased to set aside the Respondent's Objection Decision dated 24th May 2024;b.That the Tribunal be pleased to set aside the Respondent's assessment notice dated 27th February 2024, and assessment order number KRA202428203558 dated 11th March 2024;c.That the Tribunal be pleased to issue any further or other reliefs as may be just and expedient in the circumstances; andd.That the Costs of this Appeal be provided for.

Respondent’s Case 27. In response to the appeal, the Respondent filed its Statement of Facts dated 2nd August 2024 on even date. The Respondent lodged written submissions dated and filed on 29th August 2024

28. The Respondent addressed the appeal as follows:i.Whether the Respondent was proper in stating that the tax point for the purpose of CGT is upon registration of the title in favour of the purchaser.

29. Whereas the Appellant averred the Respondent erred by assessing and adopting the erroneous transfer value of the property at Kshs 842,207,400. 00 instead of Kshs 720,000,000 which was the actual and correct transfer value of the property as at the time the Purchase Price was paid and CGT remitted by the Appellant, the Respondent stated that the said allegations are erroneous. The Respondent cited the case of Law Society of Kenya v Kenya Revenue Authority & Another [2017] eKLR Appeal No 39 of 2017 wherein the High Court nullified Article 11A of the Eighth Schedule to the ITA and determined that the tax point for CGT is upon registration of the transfer instrument in favour of the transferee.

30. Paragraph 11A of the Eighth Schedule provides as follows:“11A.The due date for tax payable in respect of property transferred under this Part shall be on or before the date of application for transfer of the property is made at the relevant Lands Office.”

31. The Respondent asserted that the Court annulled the legality of paragraph 11A of the Eight Schedule in the administration of CGT and gave an explicit pronouncement on the tax point of CGT, which is upon registration of the transfer instrument in favour of the transferee. Consequently, the Respondent argued that the Appellant misdirected itself by relying on an unconstitutional provision in determining the tax point for capital gains tax since the court found Paragraph 11A of the 8th Schedule of the ITA to be inconsistent with Paragraph 6(1) (a) and that Paragraph 11A was therefore declared unconstitutional.

32. From the foregoing, the Respondent therefore stated that the tax point for CGT is upon registration of the Transfer instrument in favour of the purchaser at the Land registry.

33. The Respondent averred that it requested the Appellant to provide the transfer instrument drawn in favour of Laborex in order to ascertain when it was registered but the Appellant however failed to provide the same. In absence of the transfer deed, the Respondent relied on the payment of stamp duty dated 10th July 2023 to be the date of transfer as the same is paid at the time of transmission.

34. According to the Respondent, since the date of transfer was 10th July 2023, the Respondent also applied the prevailing exchange rates at the time of transfer which was Kshs 140. 37 against the USD. As such, the transfer value of USD 6,000,000 was adopted as Kshs 842,207,400.

ii. Whether the Respondent was proper in raising and confirming the additional Capital Gains Tax of Kshs 79,668,038. 00. 35. According to the Respondent, the Appellant availed supporting documentation for this cost in form of a Court of Appeal Ruling for Civil Application No. 72 of 1994, which detailed the cost of acquisition as Kshs 345,000,000. The Respondent stated that it used half of the amount indicated in the court ruling as the cost of acquisition attributable to LR 209/20695. This amounted to Kshs 172,500,000. 00 since the Appellant had subdivided the property into two portions and sold one portion to Laborex Kenya Limited.

36. The Respondent stated that the Appellant presented documents to support incidental [costs]. However, the Appellant only presented general ledger reports, and did not provide supporting proof of payments for the variance of Kshs 27,500,000. 00. The Respondent therefore, disallowed this amount.

37. In determining the CGT payable, the Respondent relied on Paragraph 4 of the Eighth Schedule to the ITA which provides that CGT is calculated by deducting the adjusted cost of the property, which includes the acquisition cost plus incidental costs or any enhancement costs incurred during acquisition of the property from the relevant transfer value.

38. It also asserted that it relied on paragraph 8 of the Eighth Schedule which provides that the adjusted cost of property is the amount incurred in the acquisition and where the property is a gift in part or whole. It also cited paragraph 9 of the schedule which provides that, “for purposes of paragraph 8, the amount of the consideration for the acquisition of the property shall be deemed to be equal to the market value of the property at the time of the acquisition or to the amount of consideration used in computing stamp duty payable on the transfer by which the property was acquired, whichever is the lesser.”

39. The Respondent averred that it relied on Section 3 of the ITA in charging tax on the transfer of the Appellant's property to Laborex Kenya. The Respondent raised additional CGT assessments at the rate of 15% as the transfer occurred after 10th July 2023 as evidenced by the stamp duty payment receipt.

40. The Respondent stated that the Kenyan tax system applies a self-assessment system where the taxpayer assesses itself in the approved form. However, despite it being a self-assessment system, the Respondent stated that under section 24(2) of the TPA, it is not bound by the taxpayer's self-assessment. The Respondent also stated that it is empowered by section 31 of the TPA to amend the original assessment based on the information available to it and to the best of its judgment.

41. The Respondent averred that it followed the lawful procedure in raising the capital gains tax assessments and confirming the taxes due upon verification of the supporting documents availed by the Appellant.

42. The Respondent further averred that the burden of proof according to Section 30 of the Tax Appeals Tribunal Act, CAP 469A of the Laws of Kenya (hereinafter “TATA”) and Section 56 of the Tax Procedures Act, CAP 469B of the Laws of Kenya (hereinafter “ TPA”) was on the Appellant to produce the evidence challenging the Respondent's decision to confirm the assessments. The Respondent maintained that the Appellant herein failed to discharge its burden of proof.

43. In its written submissions, the Respondent submitted that it did not err in determining the Appellant's CGT tax point for the subject transaction. It relied on Section 37 (2) of the Land Registration Act which prescribes the following:“(2)A transfer shall be completed by –a.Filing the instrument;b.Registration of the transferee as the proprietor of the land, lease or charge".

44. The Respondent also relied on Rupen Mulchand Haria v Commissioner of Domestic Taxes TAT No. E588 of 2023 where this Tribunal held the following:“The foregoing clarifies the meaning of the word transfer, which two ingredients are met, namely, application for transfer by filing of the instrument, and secondly the actual registration of the transferee as the new proprietor....requiring the transferor to puy CGT before the registration of the transfer essentially means that tax is payable before it has become legally due, which would be an illegality…."

45. The Respondent reiterated that the Appellant erroneously relied on Paragraph 11A of the Eighth Schedule to the ITA, which was declared unconstitutional in the case of Law Society of Kenya v Kenya Revenue Authority & another (2017) eKLR Appeal NO39 of 2017. The Respondent also relied on the case of Asvinv Commissioner of Domestic Taxes (Tax Appeal E517 of 2023) [2024].

46. Apart from the foregoing, the Respondent submitted that it not err in raising and confirming additional CGT of Kshs 79,668,038. 00. It asserted that section 31 of the TPA and section 73 (2) (b) of the ITA allows the Commissioner to use best judgement to assess a taxpayer where there is a reason to believe that a return filed is not true or correct.

47. The Respondent submitted that the Appellant failed to discharge burden of proof. It cited the Republic v KRA: Proto Energy Limited (2022) eKLR; and Alfred Kioko Muteti V Timothy Miheso & Another (2015) eKLR to support the position that the taxpayer must discharge burden of proof but in this case, the Appellant failed.

Issues for Determination 48. Having considered the parties’ pleadings documentation and submissions, the Tribunal puts forth the following issues for determination:a.Whether the tax point of CGT was 23rd December 2022 or 10th July 2023. b.Whether the Respondent erred in computing CGT at the rate of 15% instead 5%.c.Whether the Respondent applied the correct exchange rate on conversion of the purchase price from USD to Kshs.d.Whether the objection decision dated 24th May 2024 was justified.

Analysis and Findings 49. The Tribunal will proceed to analyse these issues hereinunder:a.Whether the tax point of CGT was 23rd December 2022 or 10th July 2023.

50. The Appellant’s case was that it entered into written agreement for the sale of the Property dated 14th November 2022 pursuant to which the agreed purchase price for the Property was USD 6,000,000. 00. The Appellant further stated that the Agreement was franked by the collector of stamp duty on 16th November 2022. On 23rd December 2022 the Appellant computed and remitted CGT of Kshs 26,000,000. 00 being 5% of the purchase price upon making adjustments.

51. The Respondent submitted that the Property was registered in favour of the purchaser in 2023 in view of the fact that the stamp duty payment was made on 10th July 2023. The further contrary view of the Respondent was that the Transfer was deemed to have taken place on 10th July, 2023 and that this affected the CGT rate which was amended by the 2022 Finance Act from 5 % to 15%. Accordingly, the Respondent was of the view that the transfer took place on 10th July, 2023 and the consequence was that the applicable CGT rate was 15%. The Respondent also noted that the Appellant had underdeclared the value of the transfer since the exchange rate on 14th August 2023 was 1 USD=Kshs 140. 37 as opposed to Kshs 120 per USD on 23rd December 2022. Therefore, the Respondent maintained that the correct conversion of the transfer value was Kshs 842,207,400. 00 instead of Kshs 720,000,000. 00

52. The issue in dispute is therefore whether the Appellant was justified in calculating and paying CGT on 23rd December 2022 upon sale of the parcel or whether the Respondent was justified in finding that CGT was deemed payable on 10th July 2023 upon registration of the transfer instrument in favour of the transferee.

53. Paragraph 2 of the Eighth Schedule to the ITA provides as follows:‘‘2. Taxation of gainsSubject to this Schedule, income in respect of which tax is chargeable under section 3(2)(f) is the whole of a gain which accrues to a company or an individual on or after 1st January, 2015 on the transfer of property situated in Kenya, whether or not the property was acquired before 1st January, 2015. ’’ 54. Paragraph 6 of the Eighth Schedule to the ITA (hereinafter referred to as ‘Eighth Schedule’) provides as follows:‘‘6. Meaning of transfer(1)Subject to this Schedule there is a transfer of property for the purposes of this Schedule—(a)where property is sold, [emphasis ours] exchanged, conveyed or otherwise disposed of in any manner whatever (including by way of gift), whether or not for consideration.’’

55. The finding of the Tribunal is that whilst paragraph 2 provides for the time when CGT becomes due which is on the transfer of property ,the meaning of “transfer” is clearly outlined under Paragraph 6 (1) (a) of the Eighth Schedule to the ITA.

56. The Tribunal notes that Paragraph 11A of the Eighth Schedule of the ITA does not apply because it was declared unconstitutional in the case Law Society of Kenya v The Kenya Revenue Authority and Another Petition No. 39 of 2017. Neither party can therefore place reliance on paragraph 11A of the Eighth Schedule to the ITA as it is in conflict with paragraphs 2 and 6 of the Eighth Schedule. The said paragraph 11A provided as follows:‘‘11A.The due date for tax payable in respect of property transferred under this Part shall be on or before the date of application for transfer of the property is made at the relevant Lands Office.’’

57. The Tribunal also finds that the Respondent cannot place reliance on another Act, namely the Land Registration Act, CAP 300 of the Laws of Kenya in order to establish the meaning of the term “transfer” since it is already interpreted by the provisions of paragraph 6 of the Eighth Schedule to the ITA.

58. The Tribunal notes that pursuant to the Agreement for Sale dated 14th November 2022, the purchase price of the property of USD 6,000,000. 00 was paid into an escrow account in the joint names of the Advocates to the parties in the Agreement for Sale. This arrangement is outlined in Clause 2 of the said Agreement for Sale. The funds were held on a stakeholder basis and accordingly, the Tribunal is of the view that the funds could not have exchanged hands between the parties earlier than the date of Completion which was 120 days [Clause 4 of the said Agreement for Sale].

59. The Tribunal finds that the said Agreement for sale clearly stipulated at Clause 2. 2, the circumstances under which the Appellant would have been considered to be entitled to the funds in the escrow account and this would only be upon registration of the Transfer and settlement of its debts with M Oriental Bank Limited and Diamond Trust Bank Limited. The said Clause in the Agreement stated as follows:“2Payment of the Purchase PricePARA 2. 1. 1The Purchaser shall pay the Deposit to an escrow account with M Oriental Bank Limited or Diamond Trust Bank Limited, in the joint names of the Parties' Advocates ("the Escrow Account") upon the execution of this Agreement for Sale, for the Parties' Advocates to hold on stakeholder basis pending completion. Before the payment of the Deposit is effected, the Parties' Advocates shall suitable undertakings (in an agreed format) on how to hold and release the Deposit in accordance with this Agreement.2. 2The Balance shall be paid to the Escrow Account on the Completion Date, and shall be held on stakeholder terms until successful registration of the Property in favour of the Purchaser,[emphasis ours] after which the same together with the Deposit and interest earned, shall first be applied towards settling the entire outstanding facilities owed by the Vendor to M Oriental Bank Limited and Diamond Trust Bank Limited ("the Chargees") and the remainder will be released to Vendor within three (3) days of full settlement of the facilities owed to the Chargees.”

60. The view of the Tribunal is that had the Appellant been entitled to the funds on 23rd December, 2022, then it ought to have adduced in evidence proof that the instrument of transfer was registered on or before 23rd December, 2022 and that it had therefore complied with all its obligations under the Agreement for Sale dated 14th November, 2022. It should be recalled that pursuant to the provisions of Section 56(1) of the TPA and Section 30 of the TATA, a taxpayer has the burden of demonstrating that the Respondent’s decision is incorrect or should have been made differently. The Court in Tumaini Distributors Company Ltd v Commissioner of Domestic Taxes (2020) held that the taxpayer has to demonstrate that the Respondent’s decision is incorrect.

61. Under the circumstances, the finding of the Tribunal is that the CGT tax point was neither 23rd December 2022 nor 10th July 2023 but that it was most certainly in 2023 when the provisions of Section 15 of the Finance Act, No. 22 of 2022 had taken effect.

b. Whether the Respondent erred in computing CGT at the rate of 15% instead 5%. 62. The Tribunal notes the Appellant’s submission that it paid CGT on 23rd December 2022 when the applicable CGT rate was 5% whilst the Respondent asserted that the applicable CGT rate was 15% since it deemed the transfer to have taken place on 10th July 2023.

63. Section 15 of the Finance Act No. 22 of 2022 increased the CGT rate from 5% to 15%. Pursuant to section 1 of the said Finance Act No. 22 of 2022, the new rate took effect on 1st January 2023. The Tribunal has already established that the transfer was deemed to have taken place in 2023, and this could be sometime after or on 10th July, 2023. In any case, the transaction took place after 1st January, 2023 when the provisions of Section 15 of the Finance Act No. 22 of 2022 took effect.

64. Consequently, the Tribunal finds that the Respondent did not err in applying the CGT rate of 15%.

c. Whether the Respondent applied the correct exchange rate on conversion of the purchase price from USD to Kshs. 65. The Tribunal notes that since the purchase price was denoted in United states dollars and it had to be converted to Kenyan currency ie; Kenya Shillings, a dispute arose with regard to the applicable conversion rate in the determination of the consideration for the transfer of the property [purchase price] for purposes of determining the transfer value in calculating CGT. The Appellant averred that when it paid CGT on 23rd December 2022 the value of Kenya shilling against the dollar was Kshs. 120 and that therefore upon conversion the purchase price was Kshs 720,000,000. 00 and this was the consideration value that was to be applied in determining the Transfer Value pursuant to the following provision of paragraph 7 (1) (a) of the Eighth Schedule to the ITA:‘‘Transfer value(1)Subject to this Schedule, the transfer value of property shall be computed by reference to such of the following amounts (if any) as are appropriate having regard to the manner of the transfer, namely—(a)the amount of or the value of the consideration for the transfer of the property.’’

66. The Tribunal notes the adamant view of the Respondent that the Appellant whilst filing VAT returns underdeclared the purchase price since the exchange rate on 14th August 2023 when the VAT return was filed was Kshs. 140. 37 to the USD. The Respondent asserted itself in stating that the basis on which the purchase price was to be converted to enable the calculation of the Transfer value was the exchange rate as at 14th August, 2023 and the basis for calculating the Transfer Value was therefore Kshs 842,207,400. 00 and not Kshs 720,000,000. 00.

67. The Tribunal examined the Appellant’s pleadings and noted that at paragraph 13 of the statement of facts, the Appellant stated as follows:“The transfer value of the Property was Kshs 720,000,000. 00 being the value of USD 6,000,000. 00 on 23rd December 2022 at a conversion rate of I USD=Kshs 120. The VAT return ought to have been declared in December 2022 but was declared in August 2023 when the USD exchange rate was at Kshs. 143. 7088 per USD thus the reason for declaring the transfer value of the property at Kshs 862,252,800. 00 for the purposes of VAT Return. For the purposes of CGT, the transfer value of the Property was the Value of USD 6,000,000. 00 as at 23rd December 2022 when CGT was paid and therefore it was correctly declared as Kshs 720,000,000. 00. ”

68. In view of the finding of the Tribunal that CGT is payable when property is transferred. The meaning of transfer is that as outlined at Paragraph 6 of the Eighth Schedule to the ITA. Accordingly, the Tribunal was unable to establish the exact date on which CGT become payable but based on its findings under its first issue for determination, the Tribunal’s view is that CGT became due when the Property was deemed to have been transferred pursuant to the provisions of the Agreement for Sale dated 14th November, 2022 as read in tandem with Paragraph 6 of the Eighth Schedule to the ITA.

69. The Tribunal having found that the CGT became due on the date the Sale was completed notes that in the instant Appeal, a reading of Clause 2 of the said Agreement for Sale dated 14th November, 2022 indicates that the Appellant became entitled to the funds when the transfer was registered. The Tribunal is not privy the exact date of registration since the Appellant did not adduce in evidence, the registered instrument of transfer. However, this could be sometime after 10th July, 2023. The applicable conversion rate from USD to Kshs. would be that when CGT became due which is the date when the instrument of transfer was registered.

70. Consequently, the Tribunal is inclined to find that the Respondent applied the correct exchange rate on conversion of the purchase price from USD to Kshs.

(d) Whether the objection decision dated 24th May 2024 was justified. 71. The Tribunal has reviewed the calculations together with the documentation filed by the Appellant in support of the calculations to determine the Transfer Value and adjusted cost and finds that the same were supported by ledgers and not actual receipts. Accordingly, the Appellant provided insufficient proof to support its computations contrary to the provisions of Section 56(1) of the TPA and Section 30 of the TATA. The Appellant failed to discharge its burden of proving that the decision by the Respondent dated 24th May, 2024 was incorrect.

72. Consequently, the Tribunal finds that the objection decision dated 24th May, 2024 was justified.

FINAL DECISION 73. The upshot to the foregoing is that the Tribunal finds and holds that the Appeal is fails and proceeds to make the following Orders:a.The Appeal be and is hereby dismissed.b.The Respondent’s objection decision dated 24th May 2024 be and is hereby upheld.c.Each party to bear its own cost.

74. It is so Ordered.

DATED AND DELIVERED AT NAIROBI ON THIS 4THDAY OF APRIL 2025. CHRISTINE A. MUGA - CHAIRPERSONBONIFACE K. TERER - MEMBERELISHAH N. NJERU - MEMBEREUNICE N. NG’ANG’A MEMBEROLOLCHIKE S. SPENCER - MEMBER