https://new.kenyalaw.org/akn/ke/judgment/ketat/2026/291

**REPUBLIC OF KENYA** **IN THE TAX APPEALS TRIBUNAL AT NAIROBI** **TAT CASE NO. 1323 OF 2025** **IMARIKA SAVINGS AND CREDIT** **COOPERATIVE SOCIETY LIMITED** …………………….……………………….**APPELLANT** **VERSUS** **COMMISSIONER OF DOMESTIC TAXES** ................................................. **RESPONDENT** **JUDGMENT** **BACKGROUND.** 1. The Appellant is a Savings and Credit Cooperative Organization (SACCO) registered under the Cooperative Societies Act Cap 490 Laws of Kenya and licensed by the Sacco Societies Regulatory Authority (SASRA) with a core business activity of providing financial services. 2. The Respondent is a principal officer appointed under Section 13 of the Kenya Revenue Authority Act, 1995. 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, concerning 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 Parts 1 & 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. Following a review of the Appellant’s declared income, the Respondent, on 27th June 2025, issued the Appellant with PAYE additional assessment of Kshs 202,415.31 and a corporation tax additional assessment of Kshs 591,982,443 on 4th August 2025, totaling Kshs 876,099,098. 4. On 29th August 2025, the Appellant objected to the assessments. 5. The Respondent rendered its objection decision dated 7th October 2025. 6. Aggrieved by the Respondent’s decision, it lodged its Notice of Appeal. **THE APPEAL** 1. The Appeal was anchored upon an Amended Memorandum of Appeal dated 12th March 2026, wherein the Appellant laid out the following grounds of appeal: 1. That the Respondent confirmed the assessments without due regard to all records, documents, explanations, and information provided and thereby failed to appreciate all issues presented and raised by the Appellant. 2. That the Respondent erred in law and fact by disqualifying the Appellant as a designated primary Co-operative Society in one lense and ignored several Acts and the supreme Constitution of Kenya (2010) as highlighted in the statement of facts. 3. The Respondent erred by subjecting tax interest income earned from members, in violation of the well-established doctrine of mutuality recognized in tax law, and the fact that the taxable income was derived from allowable business expenses as provided by the Income Tax Act. 4. That the Respondent’s actions undermined the doctrine of legitimate expectation and failed to meet the standards of fairness and administrative propriety required by public authorities. 5. The Respondent failed to consider the ambiguity and confusion arising from the various laws and, particularly, the absence of clear provisions on the classification of a society constituted as the Appellant’s membership. This omission disregarded the facts presented in the Statement of Facts, the by-laws, and the supremacy of the Constitution of Kenya and thus did not administer fair tax administration. 6. The Respondent failed to consider the provisions of Sections 16,17,14,5, 4, and 2 of the Cooperative Society Act, which recognizes non-individual members as bona fide members of the Appellant. 7. The Respondent disregarded the fact that the volume of business of the Appellant with its individual members over the years under review was minimal or remained below 2.5%. 8. That the Respondent failed to consider that the Appellant complied with all the requirements of Section 16 of the Cooperative Societies Act by registering by-laws that permit non-individuals as members of the Appellant, and that the said non-individuals are fully-fledged members of the Appellant. 9. That the Respondent disregarded the fact that the non-individual members are merely formations composed of the individual members of the Appellant. 10. The Respondent failed to consider the composition of membership of the Appellant, whereby over 97% are individual members and about 2% are the member CBOs formed in the strength of the Cooperative Societies Act, but proceeded to punish the extreme majority in the presence of diverse and contradictory laws against constitutional provisions on economic rights, thus unfairly administering tax justice. 11. The Respondent should have noted the many case laws, some of which are in the statement of facts, and which should have enabled them to determine the objections made by the Appellant positively in order to respect all the laws and the Constitution without ambiguity. 12. The Respondent's decision violates Articles 10, 27, 36, 40, and 47 of the Constitution of Kenya, 2010, by acting in a manner that is discriminatory, unreasonable, and inconsistent with fair administrative action. 13. The Respondent acted contrary to the provisions of Section 15 of the Income Tax Act by disallowing expenses that were incurred wholly and exclusively in the production of the taxable income. 14. The Respondent's tax computation is erroneous as it fails to factor in capital allowances on the Appellant's commercial buildings, which are allowable as per the Second Schedule of the Income Tax Act. 15. The Respondent erred by basing the tax assessment on the Appellant's trial balance rather than the finalised and approved financial statements, resulting in an arbitrary and erroneous computation of tax that contravenes the principles of fair administrative justice. 16. The Respondent confirmed the PAYE additional assessment without considering that the same had already been settled. 17. The Respondent ignored evidence of prior payments, computations, and credits arising from the Appellant’s prior returns and tax submissions, and even raised interests and penalties frozen by the Appellant’s compliance with the tax moratorium. 18. That the assessments, as contained in the notice of assessment dated 28th June 2025 and 4th August 2025 and confirmed in the objection decision dated 29th August 2025 and 7th October 2025 are far-reaching, unlawful, unjustifiable, and excessive in any event. **APPELLANT’S CASE** 1. The Appellant set out its case based on the following documents: 1. It’s Amended Statement of Facts dated 12th March 2026 and filed on the same date. 2. Its written submissions dated 12th June 2026. **On Primary society** 1. The Appellant stated that it is a savings and credit cooperative society (SACCO) registered by the Commissioner for Cooperative Development under the Cooperative Societies Act on 14th September 1974 as a primary cooperative society. 2. The Appellant stated that it currently has over 180,000 members, of which the members who are individuals (human beings) constitute the vast majority, ranging between 96.68% and 97.06% of the total membership during the relevant period (2020 to 2023). 3. That non-individual (in the sense of non-human) members, including Community-Based Organizations (CBOs) and other registered entities, accounted for 2.94% to 3.32% of the total membership in the relevant years. 4. That at the time of its registration in 1974, the Appellant consisted solely of human members. The Appellant has subsequently invited CBOs and other registered businesses within its jurisdiction to become members, in compliance with section 16 of the CSA. 5. The Appellant averred that the Respondent’s findings disqualifying it as a primary Sacco were evidently incorrect, as it did not read and apply the provisions of tax laws in conjunction with other laws, including the provisions of the Cooperative Societies Act (the Act) under which the Sacco is registered, the SASRA Act, and the Constitution. It supported the view with the case of ***Law Society of Kenya v. Attorney General & Another (2019).*** 6. The Appellant stated that the Respondent applied Section 19A (2) which does not consider the doctrine of mutuality in the taxation of Saccos as an established principle that distinguishes income earned from members. That the interest it earned should not be considered taxable income and is not taxed because it is mutual under the doctrine of mutuality, which recognizes: 7. Trading with self 8. Activities of the Appellant 9. Entities covered 10. Mutual income 11. That the Act classifies co-operative societies into three distinct categories - namely, Primary Co-operative Societies, Co-operative Unions, and Apex Societies. 12. It posited that when the Act is interpreted holistically and purposively, the definitions reveal that the principal basis for the classification of co-operative societies is the institutional composition of their membership, that is, whether a society is comprised of individual persons, primary co-operative societies, or national-level organizations. 13. That Section 5 of the Act does not qualify or limit the type of persons eligible to form a primary society, other than to require that they be "qualified for membership” under the Act. 14. That the term “persons” is employed generically and without restriction to natural persons, and the term “qualified for membership” means qualification under Sections 14 and 16 of the Act. 15. It averred that Section 16 of the Act explicitly empowers primary cooperative societies to expand their membership to CBO'S and churches, and others, which, in the case of the Appellant, is from formations of her members and constitutes 2%. 16. That further, Sections 26 and 27 of the Act confer wide discretion on co-operative societies to formulate by-laws governing their internal operations, including matters relating to qualifications for membership. That the restrictive definition of “primary co-operative society” under Section 2 of the Act is thus not only inconsistent with the operative provisions of the Act, but also introduces an arbitrary and unjustified constraint on the admission of juristic persons. 17. The Appellant averred that Section 2 of the Co-operative Societies Act, to exclude juristic persons from membership, is constitutionally impermissible. That such an interpretation violates the Constitution and, more specifically: 18. Article 27 (Right to equality and non-discrimination), 19. Article 36 (Freedom of association), 20. Article 40 - Right to property 21. Article 47 - Right to fair administrative action 22. It stated that the by-laws of the Appellant are in compliance with Section 16 of the Co-operative Societies Act, where membership is subject to authorization by the annual general meeting, which was duly granted. 23. The Appellant stated that the main issue to determine is whether the Appellant is a primary society under the CSA. 24. That a simple consideration of the definition of the three types of co-operative societies places the Appellant squarely within the definition of a primary society. It would, on the other hand, be absurd to categorize the Appellant under either of the other two categories. 25. That the Respondent’s error stems from the Respondent’s interpretation of the phrase “individual persons” as used in the definition of primary society under section 2 of the CSA. 26. That the Appellant can only be categorized as a primary society, considering the limited categories of co-operative societies provided for by the CSA, the membership of the Appellant, and the fact that it would be absurd to even imagine that the Appellant could fall into any of the other two categories of co-operative societies. 27. The Appellant posited that the Principle of Mutuality (or Doctrine of Mutuality), simply defined, is a legal and tax concept based on the premise that no person can trade with themselves. That it has been recognized by Kenyan courts in the context of SACCO taxation in *N****yeri Teachers Sacco v Commissioners of Domestic Taxes (2016) KEHC 133 (KLR).*** 28. That the Respondent disregarded this principle by disregarding the mutual nature of the Appellant’s operations and focusing solely on membership classification. It supported its position with the case of ***Invest & Grow Sacco v Commissioner of Domestic Taxes (Tax Appeal E024 of 2025) (2025) KETAT 316 (KLR) (27 November 2025) (Judgment)***. 29. It urged the Tribunal to abide by this precedent as guided in ***Jasbir Singh Rai & 3 others v Tarlochan Singh Rai Estate of & 4 others (2013) eKLR.*** 30. It also urged the Tribunal that any ambiguity in the interpretation of Section 19A of the ITA must be resolved in favour of the Appellant, as the taxpayer. It relied on the following authorities to support this position: * 1. ***Keroche Industries Limited v Kenya Revenue Authority & 5 others (2007) 2 KLR 240.*** 2. ***Kenya Bankers Association v Kenya Revenue Authority (2018) eKLR.*** 3. ***Republic v Commissioner of Domestic Taxes (Large Taxpayers Office) & another Ex Parte British American Tobacco Kenya Limited (2015) eKLR.*** 31. The Appellant took the position that, in fact, no ambiguity in the CSA regarding the definition or the treatment of the income of primary societies under section 19A (4) thereof. **Deductions** 1. The Appellant stated that the Respondent erred when: 2. It failed to comply with the provisions of Section 15 of the Income Tax Act, which provides that all expenditure incurred in a year of income, wholly and exclusively in the production of that income, shall be deductible in ascertaining the total income of the taxpayer. 3. It disallowed costs relating to public relations, which were incurred in marketing the Sacco activities to the public so that they could join. Such costs include hiring taxis, purchasing flowers, pots, and trees, funds relating to the expenses of the customer service week, expenses for decoration during festivities, among others. In some cases, these activities attract a per diem of Ks 2,000 per day per staff member. 1. It did not consider that the Act recognizes the role of co-operatives in addressing societal challenges, including poverty alleviation, education, health, and environmental sustainability. 2. It disallows legitimate expenses made to a registered charitable organization whose activities align with the purposes outlined in Sec 15(2)(w) of the Income Tax Act and Paragraph 10 of the First Schedule. 3. The Appellant stated that under the Act, a Sacco may distribute a return on members' investment in the capital formation of the said Sacco as dividends and bonuses, which are termed qualifying dividends, and which are withheld at 5% as per Head B 5(E) of the Income Tax Act. 4. That Paragraph 10 of the First Schedule to the Income Tax Act and paragraph 10 of the Income Tax (Charitable Organizations and Donations Exemption) Rules, 2024, allow for donations to charitable organizations, while the Second Schedule to the income tax act provides for capital allowances as allowable expenses. **PAYE** 1. The Appellant averred that the Respondent recomputed the PAYE tax liability by including amounts that are exempted by the Income Tax Act, including car allowances, honoraria, members' education, staff training, committee per diem allowances, such as subsistence and travel, delegates' travel allowances, and delegates' education and training, among others. 2. It stated that Income Tax Act Section 5(2)(a)(iii) provides for payments made to employees that are not subject to Pay As You Earn (PAYE), such as per diems and reimbursements for expenses already incurred in the performance of official duties. That the Respondent overlooked these provisions and erroneously subjected all payments made to employees to PAYE, thereby inflating the tax liability contrary to the law. 3. That the analysis of variance by the Respondent shows a variance of Kshs. 105,906,580 which attracts PAYE of Kshs. 29,687,875. That the Sacco had already paid Kshs. 19,559,509. 4. The Appellant concluded that the Respondent erred both by issuing the additional assessment dated 4th August 2025 and by confirming the assessment vide the objection decision dated 7th October 2025 by, *inter alia:* * 1. Failing to consider the Income Tax Act (470), the Cooperative Societies Act (490), the SASRA Act 2008, the Banking Act, and, in the lens of the supremacy of the Constitution of Kenya. 2. Ignoring the ambiguity brought about by the various Acts as stated herein and applying it to their convenience by only considering a single section of the laws that favours them, and further failed to apply the decisions in predetermined cases as a basis for their decision. 3. The Respondent did not apply fair administration of tax justice by ignoring the costs of funds, which wholly and exclusively facilitated the taxable business income that it taxed. Practically, without the deposits and the corresponding interest, there would be no income to subject to tax. 4. The Respondent erred by relying on amounts reflected in the trial balance, which are inconclusive and subject to year-end adjustments, to determine the tax liability, instead of using figures from the finalized financial statements that accurately represent the Appellant's financial position. 5. Disallowing expenses wholly and exclusively incurred by the Sacco in the generation of income. 6. Subjecting commissions received to excise duty. 7. Disregarding provisions of the Income Tax Act on PAYE and withholding tax. **Appellant’s Prayers** 1. The Appellant prays that the Tax Appeals Tribunal allows this appeal and orders that: - 1. The Respondent's objection decisions dated 29th August 2025 and 7th October 2025 and the assessments dated 28th June 2025 and 4th August 2025 be and are hereby set aside in their entirety. 2. Upholds the Appellant's objection that was lodged with the Respondent. 3. Awards the costs of this appeal to the Appellant. **RESPONDENT’S CASE.** 1. The Respondent’s case is premised on its Statement of Facts dated 16th January 2026 and its written submissions dated 15th June 2026. 2. The Respondent's contention is that the Appellant's Sacco is a primary designated society due to the composition of its membership, based on the provisions of Section 19A (7) of the Co-operative Societies Act, where a primary society is defined as follows; *"primary society" means a co-operative society registered under the Co-operatives Societies Act, the membership of which is restricted to individual persons.* 1. That on the other hand, Section 2 of the Income Tax Act defines an individual as follows: *"individual" means a natural person.* 2. Its view was that the two definitions leave no doubt that a designated primary society is one whose membership is strictly made up of natural persons. 3. It is asserted that: 4. Section 19A provides guidelines on the chargeability of the various types or classifications of SACCOs to Income Tax, with Sections 19A (1) (a) and (b) providing an exception to the societies that do not fall within the ambit of this section. 5. Sub-section 2 of Section 19A(A)(2) then outlines the manner in which the designated co-operative societies that are not designated as primary societies are to be taxed; 6. Subsection 3 of the same section then outlines the manner in which designated primary societies that do not carry on their business as credit and savings co-operative societies are to be taxed. 7. Subsection 4 of the same section outlines the manner in which designated primary societies that carry on the business of credit and savings co-operative societies are to be taxed. 8. The Respondent stated that the membership of the SACCO consists of churches, schools, and community-based organizations that, by all means, are not natural persons. 9. The Respondent asserted that the Appellant’s website indicated that it opened to corporates. That it is for this reason that it was determined that the SACCO’s income is to be taxed under Section 19A (2) and not under Section 19A (4) of the ITA, thereby leading to re-computation of the taxable income. 10. That this action was also in tandem with Article 210 of the Constitution and the legislative intent to differentiate between purely individual-member societies and those with a broader membership base. 11. The Respondent stated that the Appellant's notice of objection served on the Respondent recognized that Imarika Membership shall include individual members, community-based organizations, schools, churches, and other individual formations, and that the same have received approval across the board. 12. The Respondent further maintained that the Appellant failed to discharge its burden of proving that the Respondent's assessments were erroneous, contrary to Section 30 of the Tax Appeals Tribunal Act and Section 56 of the Tax Procedures Act. 13. That it was also important to note that the Appellant does not dispute or oppose the issue of the constitution of its membership. 14. The Respondent relied on the following cases to support its arguments: 15. **Cape Brandy Syndicate vs I.R.C 1KB 64** 16. ***TATC/E822/2024 BAT Co-operative Savings and Credit Society Limited***: 17. **Nairobi TAT No. 25 of 2016, Family Signature Limited v. The Commissioner of Investigations & Enforcement** 18. **Commissioner of Domestic Taxes v Trical and Hard Limited (Tax Appeal E146 of 2020) (2022) KEHC 9927 (KLR).** **Respondent’s Prayer** 1. The Respondent prays that this Tribunal: - 2. Upholds the Respondent's objection decision dated 7th October 2025, confirming the demand for Kshs. 876,099,098 (inclusive of interest and penalty). 3. Dismiss this Appeal with costs to the Respondent, as the same is without merit. **ISSUES FOR DETERMINATION** 1. The Tribunal having considered the parties’ pleadings, documentation, and submissions notes that four issues call for the Tribunal’s consideration and determination, i.e.; 1. ***Whether the Respondent was justified in classifying the Appellant as a primary designated cooperative society;*** 2. ***Whether the Respondent’s objection decision dated 7th October 2025 was justified.*** **ANALYSIS AND DETERMINATION** 1. The identified issues for determination shall be analyzed and determined sequentially as hereunder; 2. ***Whether the Respondent was justified in classifying the Appellant as a designated co-operative society.*** 3. The crux of this dispute is the disagreement between the parties on the interpretation of the term “primary society” and the subsequent characterization of the Appellant. Whereas the Appellant held the view that it is a primary society, the Respondent asserted that the Appellant is a designated co-operative society. 4. Section 19A (7) of the ITA defines a primary society and a designated co-operative society in the following terms: *‘primary society’ means a co-operative society registered under the Co-operative Societies Act (Cap. 490) the membership of which is restricted to individual persons.’* *‘designated co-operative society’ means a co-operative society registered under the Co-operative Societies Act (Cap. 490);”* 1. Primary and designated societies are taxed differently under sections 19A(2) and (4) which is expounded below: *“19A (2) In the case of every designated co-operative society, other than a designated primary society, the income on which tax shall be charged shall be its total income for the year of income, deducting therefrom an amount equal to the aggregate of bonuses and dividends declared for that year and distributed by it to its members in money or an order to pay money; but the deduction shall in no case exceed the total income of the society for that year of income.* *(3) …* *(4) In the case of a designated primary society which is registered and carries on business as a credit and savings co-operative society, its total income for any year of income shall, notwithstanding any other provisions of this Act, be deemed to be the aggregate of–* 1. *fifty per centum of its gross income from interest (other than interest from its members);* 2. *its gross income from any right granted for the use or occupation of any property, not being a royalty, ascertained in accordance with the provisions of this Act;* 3. *gains chargeable to tax under section 3(2)(f);* 4. *any other income (excluding royalties) chargeable to tax under this Act not falling within paragraph (a), (b) or (c) ascertained in accordance with the provisions of this Act.”* 5. The Appellant has admitted that its membership was composed of individual membership of about 97% and non-individual memberships of about 3%. 6. A strict reading of the law would impose the position that both Section 19A (2) and (4) of the ITA should be applicable to the Appellant because it would be unlawful and inequitable to subject individual members of the cooperative society to Section 19A (2) of the ITA, the same way that the corporate members of the Appellant should not be subject to Section 19A (4) of the ITA. This would be consistent with the settled principle that a party should only be taxed based on what the law provides, and that taxation should not be implied, crafted, or imputed based on equity or what is not inscribed in law. 7. This position aligns with the decision of the court in ***Keroche Industries Limited v. Kenya Revenue Authority & 5 others [2007] 2 KLR 240,*** where Justice Nyamu held that: *“Taxation can only be done on clear words and cannot be on intendment. Linked to this is that a penalty must be imposed in clear terms. Finally, even where the inclination of the legislature is not clear or where there are two or more possible meanings, the inclination of the court should be against a construction or interpretation that imposes a burden, tax, or duty on the subject.”* 1. Similarly, in ***Republic v. Kenya Revenue Authority & Another Ex-Parte Kenya Nut Company Limited [2014] eKLR,* the court held that it was its duty and that of parties to** assign the true meaning of words in any law but not to interpret the same to suit the unique circumstances of its case. 2. Based on the foregoing, the Tribunal finds that the Appellant is a mishmash of both designated primary and designated co-operative societies because of the mixed rank of individual and non-individual memberships in its ranks. This model of taxation is encapsulated under the mutuality principle; as was explained in [***Muramati District Tea Growers Sacco Society Ltd (Unaitas Sacco) v Kenya Revenue Authority [2015] KEHC 5055 (KLR)***](https://new.kenyalaw.org/akn/ke/judgment/kehc/2015/5055/eng%402015-03-23),where the Judge stated that: *“...the court found itself in agreement with the Respondent that it was not all income that was generated by a co-operative society that could be deemed to be for the mutual benefit of its members.”* 1. Similarly, in **Nyeri Teachers Sacco v. Commissioners of Domestic Taxes [2016] (Income Tax Appeal No. 6 of 2013) the court thus**; *“… a mutual society (such as a SACCO) may have commercial activities, and that income from those commercial activities is taxable.”* 1. It is thus settled that income from a mishmash entity like the Appellant is capable of being severed into two divisible parts, and that the correct interpretation of the law would be to ensure that the respective members of the society are exposed to taxation as required under Section 19A (2) and (4) of the ITA. 2. The path taken by the Respondent to subject the Appellant, irrespective of its mixed membership, to taxation under Section 19A(2) of the ITA was accordingly erroneous and unlawful, as it subjected the Appellant to payment of tax that was not due or payable by it, contrary to the dicta that had been adopted by the courts that a tax authority ought not to collect a penny more or a penny less than the tax owed, as stated in the case of **Republic v. Kenya Revenue Authority Ex parte Bata Shoe Company (Kenya) Limited [2014] eKLR** where the Court held as follows: “*Payment of tax is an obligation imposed by the law. It is not a voluntary activity. That being the case, a taxpayer is not obliged to pay a single coin more than is due to the taxman. The taxman, on the other hand, is entitled to collect up to the last coin that is due from a taxpayer.”* 1. See also the recent Tribunal case of ***Judgment TAT Appeal No. E812 of 2025,*** ***The County Government of Kiambu v. The Commissioner of Domestic Taxes,*** confirming the same position. 2. The finding of the Tribunal that a mixed membership cooperative society cannot be taxed strictly under Section 19A (2) of the ITA was recently affirmed by the Tribunal in ***Judgment- TAT Appeal No. E024 of 2025, Invest & Grow Sacco v. Commissioner of Domestic Taxes,*** where it held that: *“Flowing from the Tribunal’s finding is that the Appellant’s income derived from primary members should be taxed at the rates provided under Section 19A (4) of the ITA, whereas income derived from corporate membership should be brought to charge as provided under Section 19A (2) of the ITA.”* 1. The Tribunal sees no reason to depart from this position. 2. In conclusion, the Tribunal has noted its previous decision in ***Judgment – TAT No. E822 of 2024, BAT Co-Operative Savings and Credit Society Limited–Vs- Commissioner of Domestic Taxes***, where it held that a mixed cooperative society would be taxed under Section 19A (2) of the ITA. The Tribunal is of the view that it misapprehended and misinterpreted the meaning of a designated and primary society in that decision. Additionally, it also failed to appreciate that a strict reading of the law ought to have led it to the conclusion that a mixed membership society is capable of being severed into two, and each segment taxed under the correct provision of the ITA under sections 19A(2) for non-individual members and 19A(4) for individual members. 3. Accordingly, the Respondent acted in error in classifying the Appellant as a designated society and in encumbering individual members of the SACCO with tax that was not legally applicable to them under Section 19A(2) of the ITA. 4. Moreover, the High Court in the ***Nyer****i* ***case***has confirmed that the taxation of both individual and non-individual members is capable of being severed to ensure that each group of taxpayers is taxed as per the provisions of the law. To uphold and retain the BAT Case would amount to exposing members to taxation and erosion of the savings when the law is clear that they ought not to be taxed in the same manner as non-individual members. 5. The Respondent therefore fell into error when it reclassified the Appellant as a designated co-operative society and thereafter proceeded to tax it as such under Section 19A (2) of the ITA, when the Appellant was actually a mix of a primary co-operative society and a designated co-operative society. 6. ***Whether the Respondent’s objection decision dated 7th October 2025 was justified.*** 7. On PAYE, the record shows that this payment was settled, as evidenced by the payment slip provided as Appendix 10 and dated 30th June 2025. 8. The Respondent did not also raise the issue of PAYE in its pleadings and submissions. Under those circumstances, the only tax head left for the determination of the Tribunal is the corporation tax assessment. 9. The corporation tax and PAYE that arose from the Respondent’s decision was pegged on the premise that the applicable law was Section 19A (2) of the ITA. 10. Having found that Respondent fell into error when it reclassified the Appellant as a designated co-operative society and thereafter proceeded to tax it as such under Section 19A(2) of the ITA, when the Appellant was actually a mix of a primary co-operative society and a designated co-operative society, it follows that the tax premise upon which the Appellant was taxed and an objection decision issued thereof was erroneous. 11. The Respondent ought to have been more judicious when carrying out the assessment by taking into consideration the fact that the Appellant had two different income streams, each with its distinct membership, requiring separate tax treatment, as opposed to a blanket assessment, which was detrimental to the majority of individual primary members, standing at about 97% of the entire membership. 12. On this finding, the Tribunal is guided by its decision in ***Invest and Grow***, where it held that: *“...the well-established principle of mutuality in SACCOs provides that, whereas certain expenses are deducted from the entire mutual income of the SACCO, other expenses are not subject to this treatment.” Analogously, income derived from different categories of membership should be taxed separately as in the present Appeal.”* 1. Based on this finding and the foregoing analysis by the Tribunal, it is clear that the Appellant applied the wrong law and methodology in its disallowance of expenses and its demand for both corporation tax from the Appellant. 2. Moreover, having found that the assessment of corporation tax against the Appellant arose from the Respondent’s misapplication of the law, it follows that the ‘fruits of the poisonous tree’ cannot have any validity to sustain an assessment that is drawn from the same tree or any of its branches. 3. From the foregoing, the Tribunal finds and holds that the Respondent’s Objection Decision dated 7th October 2025 was not justified in the circumstances. 4. Consequently, for the reasons aforesaid, the Tribunal finds and holds that the appeal is meritorious and shall proceed to make the following Orders: 5. The appeal be and is hereby upheld. 6. The objection decision dated 7th October 2025 be and is hereby set aside. 7. The Respondent is at liberty to re-compute corporation tax only for non-individual members, as per the composition of the membership of the Appellant. 8. Each party shall bear its costs. 9. It is so ordered. **DATED and DELIVERED at NAIROBI this ……7th .….... day of ………August....… 2026** **..........................……………………….** **DR. RODNEY ODHIAMBO OLUOCH** **CHAIRPERSON** **.…..….……………………. ..….……………………….** **CYNTHIA B. MAYAKA DR. ERICK KOMOLO** **MEMBER MEMBER** **………………………………** **ABDULLAHI DIRIYE** **MEMBER**