[2022] KEHC 15980 (KLR)

Highland Resources Limited v Commissioner of Domestic Taxes (Income Tax Appeal E161 of 2021) [2022] KEHC 15980 (KLR) (Commercial and Tax) (2 December 2022) (Judgment)

Neutral citation: [2022] KEHC 15980 (KLR)

Republic of Kenya

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

Commercial and Tax

Income Tax Appeal E161 of 2021

A Mabeya, J

December 2, 2022

Between

Highland Resources Limited

Appellant

and

The Commissioner of Domestic Taxes

Respondent

(Being an appeal against the judgment of the Honourable members of the Tax appeals tribunal delivered on 23rd July 2021 in Tax appeals tribunal Appeal No 325 of 2020)

Judgment

1. The respondent noticed an inconsistency in an invoice declared by the appellant and one of the suppliers for the month of March 2018 in its itax system. Against this background, the respondent raised the assessment of the appellant’s liability at Kshs 919,061. 28. The appellant raised an objection in a letter dated December 9, 2019 and the objection decision was delivered vide a letter dated June 22, 2020 confirming the assessment on VAT.

2. Aggrieved by the objection decision, the appellant lodged an appeal at the Tax Appeals Tribunal ('the tribunal') which was dismissed on July 23, 2021. Being dissatisfied with that decision, the appellant has lodged an appeal to this court raising five grounds of appeal which may be summarized as follows: -a.That the tribunal made an error in failing to consider that the motor vehicle registration was in the private tax class as opposed to the commercial tax class.b.That the tribunal erred in not considering the evidence and the sworn statements adduced by the appellant.c.That the tribunal erred in in finding that the objection decision was within the timelines as espoused by section 51 of the Tax Procedures Act, 2015 ('the Act').

3. In response, the respondent filed a statement of facts dated December 3, 2021. He contended that the itax system had detected an inconsistency with the invoice raised by the appellant in the month of March 2020 upon which he notified the applicant and the supplier to have the same amended. That the type of car was found to be private passenger car and that was reason enough for the respondent to reject the invoice on the ground that it was incorrectly claimed.

4. The appeal was canvassed by way of written submissions which the court has considered.

5. The appellant submitted that it acquired a loan from the Gulf African Bank for the purpose of acquiring a pickup truck for business operations. That however, in registering the said vehicle, the bank registered the same under private class. It was the appellant’s submissions that the mistake in registration by the financier ought not to be visited upon it.

6. Counsel submitted that the appellant did not take part in the registration of the vehicle and the log book was left in the possession of the bank that the error was learnt of after the assessment. The appellant faulted the tribunal for failing to consider the evidence and the sworn statements at the hearing. It was the appellant’s submissions that the objection decision was time barred as it was given after 60 days.

7. The respondent submitted that there was no error in the tribunals finding upholding the respondent’s objection decision.

8. The first ground of appeal is that the tribunal made an error in failing to consider that the motor vehicle registration was in the private tax class as opposed to the commercial tax class. It was the appellant’s case that the error on the registration of the motor vehicle in the private tax class was occasioned by the bank and the bank’s mistake ought not to be visited upon the appellant.

9. In its decision, the tribunal stated that the certificate of registration demonstrated that the vehicle was registered under private tax class and it was incumbent upon the appellant to show more proof that indeed the vehicle was used for commercial purposes. The tribunal further held that section 12A of the Income Tax Act requires a commercial vehicle to be subjected to advance tax and the same was not paid by the appellant.

10. In the present case, it is not disputed that the appellant’s motor vehicle was classified as a private vehicle as opposed to a commercial vehicle which in turn would have an effect to the taxation dynamics. Section 30 of the Tax Appeals Tribunal Act. That section provides: -'In a proceeding before the tribunal, the appellant has the burden of proving—(a)where an appeal relates to an assessment, that the assessment is excessive; or(b)in any other case, that the tax decision should not have been made or should have been made differently.'

11. From the foregoing, it was upon the appellant to prove that firstly, the vehicle was for commercial purposes. It was not satisfactory, that a vehicle used for commercial purposes would remain registered as a private vehicle for all that long.

12. Accordingly, I find no error on the part of the tribunal. Its judgment was based on the evidence placed before it by the appellant. The tribunal’s view that more evidence ought to have been placed before it to show that the vehicle was indeed used for commercial purposes was sound. The court also finds that the law provides that commercial vehicles out to be subjected to advance tax.

13. In this regard, it is the court’s view that had the appellant complied with the taxation requirements pertaining the use of a commercial vehicle, then it would be plausible to hold that probably the error on registration was genuine. The certificate of registration confers ownership to a vehicle and any error in the registration of the same is something that should have been rectified at the earliest opportunity. In the court’s view, it was not enough to allege that there was an error in registration, but the effort taken to rectify the same ought to have been demonstrated.

14. The second ground is that the tribunal erred in not considering the evidence and the sworn statements adduced by the appellant. It was the appellant’s contention that the tribunal did not consider its evidence and sworn statements of the appellant.

15. Under section 107 of the Evidence Act, Cap 80, whoever desires the court to give judgment as to any legal right or liability ought to show that the facts exist. I have considered the record, I find that all the issues raised on the appellant’s memorandum of appeal were addressed by the tribunal in its determination.

16. Further, I note that failing to hold in favour of the appellant is not the same as having failed to consider its evidence. The tribunal considered all the evidence that was placed before it contrary to the accusation by the appellant. That ground is also rejected.

17. The third and final ground is that the tribunal erred in in finding that the objection decision was within the timelines as espoused by section 51 of the Act. The appellant’s contention was that the respondent took more than 60 days to give his objection decision. While addressing the same the tribunal observed that the appellant was in constant communication with the respondent and therefore the timeline started running from the day of the last correspondence.

18. From the record, the respondent raised its objection on December 9, 2019 and the objection decision was made on June 22, 2020. Section 51(11) of the Act provides:-'51(11) Where the commissioner has not made an objection decision within sixty days from the date that the taxpayer lodged a notice of the objection, the objection shall be allowed.

19. InRepublic v Commissioner of Domestic Taxes Ex Parte Fleur Investments Limited [2020] eKLR, the court observed thus: -'By virtue of the clear provisions of section 51(8) and (11) of the TPA, the respondent is deemed to have allowed the applicant’s objection. I find backing in Republic v Commissioner of Customs Services Ex-Parte Unilever Kenya Limited in which the court stated that if the Commissioner does not render a decision within the stipulated period, the objection is deemed as allowed by operation of the law. The Act requires that where the commissioner has not made an objection decision within 60 days from the date the tax payer lodged the notice of objection, the objection shall be allowed. This means that the issues that the tax payer had raised in the notice of objection will be accepted. In case of a tax assessment, it will be vacated. On this ground alone, the applicant’s application succeeds.'

20. From the record, it is clear that objection decision was made out of the statutory prescribed time of 60 days. I do not agree with the tribunal that time should have started running on the first day of the last correspondence. To the contrary, the time clearly started to run on the day the objection was served upon the commissioner. Failure of the commissioner to render his decision within 60 days meant that the notice of objection was upheld.

21. In Mount Kenya Bottlers Ltd & 3 others v Attorney General & 3 others [2019] eKLR, it was held of tax statutes: -'The above principles apply to general interpretation of statutes. However, when it comes to interpretation of tax legislation, the statute must be looked at using slightly different lenses. With regard to tax legislation, the language imposing the tax must receive a strict construction. Judge Rowlett in his decision in Cape Brandy Syndicate v IR Commissioners [1921] 1KB (cited by the appellants), expressed the common law position in this area when he stated;‘In a taxing Act one has to look at what is clearly said. There is no room for any intendment. There is no equity about a tax. There is no presumption as to a tax. Nothing is to be read in, nothing is to be implied. One can only look fairly at the language used'.

22. I note that no submissions or explanations have been made by the respondent with regard to this issue. Even if there was, it would not change the position. The objection decision was out of time. Period. The loss lies where it falls.

23. For this reason, I allow the appeal and the decision of the tribunal is hereby set aside together with the respondent’s objection decision dated June 22, 2020. The respondent shall bear the costs of the appeal.

It is so decreed.

DATED AND DELIVERED AT NAIROBI THIS 2ND DAY OF DECEMBER, 2022. A. MABEYA, FCIArbJUDGE