[2024] KETAT 1467 (KLR)

Grace Lesage t/a House of Linen v Commissioner for Domestic Taxes (Tax Appeal E983 of 2024) [2024] KETAT 1467 (KLR) (11 October 2024) (Ruling)

Neutral citation: [2024] KETAT 1467 (KLR)

Republic of Kenya

In the Tax Appeal Tribunal

Tax Appeal E983 of 2024

RM Mutuma, D.K Ngala, M Makau, T Vikiru & Jephthah Njagi, Members

October 11, 2024

Between

Grace Lesage t/a House of Linen

Applicant

and

Commissioner for Domestic Taxes

Respondent

Ruling

Background 1. The Applicant moved the Tribunal vide a Notice of Motion application dated 3rd September ,2024 and filed or 4th September, 2024 under certificate of urgency that is supported by an Affidavit sworn on 3rd September by Grace Lesage seeking the following Orders that;a.Spentb.That this Honourable court be pleased to grant an order of stay of execution of the agency notice dated 29th August 2024 pending the hearing and determination of this application and Appeal.c.That the Honourable court be pleased to set aside the agency notice dated 29th August 2024 pending the hearing and determination of this application and the Appeal.d.That costs of this application be in the cause.

2. The Application is premised on the grounds, that;a.The Respondent has served I & M Bank with agency notice dated 29th August 2024 for the sum of Kshs. 3,382, 364. 00;b.The I & M Bank has already frozen the Applicant’s account making it hard for the Applicant to do a transaction in order to settle the purported amount;c.The issuance of the agency to enforce recovery of the disputed taxes effectively denies the Applicant opportunity to be heard on its position that the tax as assessed by the Respondent was erroneous and excessive;d.The agency notices by the Respondent emasculates and disparages the due process of the law and is an abuse of administrative justice;e.The agency notice is already effected by the I & M Bank thus making it hard for the Applicant to file notice of objection over an already predetermined action since the injury is already suffered and it is only this Tribunal that can intervene;f.It is the interest of justice for this Honourable Tribunal to stay the execution of the agency notice pending the hearing and determination of this application; and,g.It is otherwise just and equitable in the circumstances of the case that the orders sought herein are granted.

3. The Respondent upon being served with the instant Application filed its grounds of opposition to the application dated and filed on 11th September 2024, which response raised the following grounds that:a.The Applicant’s application runs afoul of Section 18 of the Tax Appeals Tribunal Act;b.There is no appealable decision capable of being appealed per Section 3 of the Tax Procedures Act;c.The Appeal is premature as there is no Objection Decision;d.The disposition of the said application and grant of the orders will automatically distinguish the Appeal at hand;e.The application is an abuse of the court process; and,f.The Application be dismissed with costs.

Parties Submissions 4. The Applicant/Appellant in its written submissions dated and filed on 26th September 2024 raised two issues for determination which are: Whether the Applicant has met the criteria for the grant of the order of temporary injunction pending the hearing and determination of the Appeal and who would bear the cost of the Appeal.

5. The Applicant submitted that its accounts were frozen by virtue of the Respondent’s agency notice dated 29th August 2024 where the Respondent had given specific instructions for the accounts to be frozen. It submitted further that it stood to suffer irreparable injury if an order of temporary injunctions was not granted and the balance of convenience tilting in its power.

6. It was the Applicant’s submission that as a general rule, costs follow events therefore prayed that the costs be awarded to her since the application was merited.

7. The Applicant relied on the following authorities in buttressing her argumenti.Giella versus Cassman Brown (1973) EA 358;ii.Nguruman Limited versus Jan Bonde Nielson & 2 others CA No.77 of 2012 [2014] eKLR;iii.Mrao Ltd Versus First American Bank of Kenya Ltd [2003] eKLR;iv.Pius Kipchirchir Kogo vs Frank Kimeli Tenas [2018] eKLR;v.Paul Gitonga Wanjau vs Gathuthis Tea Factory company Ltd & 2 others [2014] eKLR; and,vi.Amir Suleiman vs Amboseli Resort Ltd [2004] eKLR.

8. In the Respondent’s written submissions dated 19th September, 2024, it submitted that the Applicant’s application does not merit the grant of stay orders against the enforcement of the agency notices issued as the law on grant of injunctions is well settled in the jurisdiction and that the Applicant’s issues as raised in the application do not meet the threshold for grant of an injunction.

9. The Respondent also relied on the case of Giella vs. Cassman Brown & Co. Ltd (1973) EA 358 where the court in guiding on the principles of granting injunctions expressed itself in the following terms;“Firstly, an applicant must show a prima facie case with a probability of success, Secondly, an interlocutory injunction will not normally be granted unless the applicant must otherwise suffer irreparable injury which would not adequately be compensated by an award of damages. Thirdly, if the court is in doubt, it will decide an application on the balance of convenience”

10. On whether there is a prima facie case with a probability of success, the Respondent submitted that the Applicant’s case as it stood did not meet the threshold as the Applicant has approached the Tribunal without exhausting the administrative process as laid out under Section 51 (1) and (2) of the Tax Procedures Act which the Applicant has not presented any evidence. As such the jurisdiction of the Tribunal to determine this application is questioned.

11. The Respondent submitted that the Appellant’s argument that it is hard to file an objection is a misnomer as the Applicant has an avenue to file an objection even out of time as provided under Section 51 (6) of the Tax Procedures Act which the Appellant failed to take advantage of hence did not file an objection. The Respondent submitted further that a closer perusal of the Applicant’s Memorandum of Appeal reveals that the grounds upon which the Appeal is based are issues which the Respondent has not been able to determine at the objection stage.

12. It was the Respondent’s submission that the issuance of the injunction on the Applicant will conclusively determine her Appeal as the orders sought in her Appeal are similar to those sought by the Application. The Respondent relied on the case of Mrao Ltd vs. First American Bank of Kenya Ltd & 2 others (2003) KLR 123 where the Court pronounced itself on what prima facie entails. It therefore submitted that based on the guidance and through the evidence provided by the Applicant, the Tribunal, directing itself to the facts and law cannot conclude that there exists a right which has been infringed by the Respondent.

13. The Respondent submitted that the Applicant is also guilty of failure of disclosure of material information concerning the status and background of the matter and how the dispute at hand arose. Further, that in its Appeal, the Applicant is seeking the Tribunal to order parties to have an ADR mechanism on how the repayment shall be done and does not challenge the taxes and is open to a repayment plan, yet the same Applicant has moved the Tribunal seeking to be shielded from paying the amounts.

14. It was the Respondent’s submission that the Applicant in this matter is seeking to pay taxes as per her own terms and has just brought this application to buy time and block the Respondent from collecting taxes, an action which flies in the face of Article 201 (b) (i) of the Constitution of Kenya. It submitted therefore that the Applicant’s application has failed to demonstrate the existence of a prima facie case and granting the injunction would be tantamount to the Tribunal rewriting Section 51 (1) and (2) of the Tax Procedures Act.

15. On whether the Applicant shall suffer irreparable loss, the Respondent submitted that the Applicant has failed to show the irreparable injury that she is likely to suffer that would be adequately be compensated by damages. The Respondent submitted further that it seeks taxes of Kshs. 3,382364. 00 and that should the Applicant succeed in her Appeal, the Respondent will be in a position to refund the money to the Applicant as provided by law.

16. On the issue of balance of convenience, the Respondent submitted that the same lies with the Respondent as it had not breached the Applicant’s rights and in fact the Agency notice was issued in strict compliance with Section 42 (14) of the Tax Procedures Act. Further that the Applicant has not objected to or challenged the validity of the assessments issued by the Respondent informing the issuance of the agency notices.

17. The Respondent submitted in conclusion that the Applicants application falls below the standards required for the granting of an injunction as the same falls short of the principals required for an application for injunction to succeed.

Analysis and Findings 18. In its Application, the Applicant sought orders for the Tribunal to issue an order of stay of execution of the agency notice issued by the Respondents on 29thAugust 2024 pending the final determination of this application and the Appeal.

19. The Tribunal jurisdiction to entertain an application of this nature is hitched under the provisions of Section 18 of the Tax Appeals Tribunal Act, which provides;“Where an appeal against a tax decision has been filed under this Act, the Tribunal may make an order staying or otherwise affecting the operation or implementation of the decision under review as it considers appropriate for the purposes of securing the effectiveness of the proceeding and determination of the appeal”

20. The principles to be considered in determining whether to grant or refuse a stay of execution pending the hearing and determination of an Appeal were enunciated in the case Butt vs. Rent Restriction Tribunal (1979) eKLR wherein the Court of Appeal stated as follows:“(a)The power of the court to grant or refuse an application for a stay or refuse an application for stay of execution is discretionary and the discretion should be exercised in such a way as not to prevent an appeal.(b)Secondly, the general principle in granting or refusing a stay is if there is no other overwhelming hindrance a stay must be granted so that an appeal may not be rendered nugatory should the appeal court reverse the judge’s discretion.(c)Thirdly, a judge should not refuse a stay if there are good grounds for granting it merely because, in his opinion, a better remedy may become available to the applicant at the end of the proceedings.(d)Finally, the court in exercising its discretion whether or not to grant or refuse an application for stay will consider the special circumstances and its unique requirements.”

21. The Tribunal noted that the Respondent issued agency notices on the Applicant’s bank accounts on 29th August 2024 for Kshs. 3,382,364. 00 in enforcement of the assessments.

22. The Tribunal further notes that the Applicant filed an Appeal on 4th September, 2024 wherein she is raising the same issues as those raised in this Application. As cited in the case of Butt vs. Rent Restriction Tribunal (Supra), the general principle in granting or refusing a stay is if there is no other overwhelming hindrance, and that a stay must be granted so that an Appeal may not be rendered nugatory should the Appeal court reverse the judge’s discretion.

23. It is the Tribunal’s considered view that there exists no overwhelming hindrances in the making of the orders prayed. Further, on account of the Appellant’s institution of the Appeal, which is yet to be heard and determined and in the interest of justice, it would be prudent for the Tribunal to issue the order for the purposes of securing the effectiveness of the proceeding and determination of the Appeal on its own merit.

24. Additionally, The Tribunal also notes that the Respondent will not suffer any prejudice or substantial loss if the application is allowed as it has recourse to defend its case based on merit at the Appeal.

25. Consequently, the Tribunal finds the Applicant’s application dated 3rd September 2024 to be merited.

Disposition 26. Based on the foregoing analysis, the Tribunal finds the application to be meritorious and accordingly proceeds to make the following Orders.a.The Application be and is hereby allowed;b.The Respondents agency notice issued on 29th August 2024 be and are hereby unconditionally lifted; and,c.No orders as to costs.

27. Orders accordingly

DATED AND DELIVERED AT NAIROBI THIS 11TH DAY OF OCTOBER 2024ROBERT M. MUTUMA - CHAIRMANDELILAH K. NGALA - MEMBERMUTISO MAKAU - MEMBERDR. TIMOTHY B. VIKIRU - MEMBERJEPHTHAH NJAGI - MEMBER