[2024] KETAT 1663 (KLR)

Karingithi v Commissioner of Domestic Taxes (Tax Appeal E354 of 2024) [2024] KETAT 1663 (KLR) (Commercial and Tax) (21 November 2024) (Judgment)

Neutral citation: [2024] KETAT 1663 (KLR)

Republic of Kenya

In the Tax Appeal Tribunal

Commercial and Tax

Tax Appeal E354 of 2024

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

November 21, 2024

Between

Bosco Kangeri Karingithi

Appellant

and

Commissioner of Domestic Taxes

Respondent

Judgment

Background 1. The Appellant is a registered Taxpayer and the owner of property Land Reference Number 14270/16; Title Number I.R.48878 (hereinafter ‘‘Property’’).

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. The Respondent registered a notification of charge on 22nd June 1995, against the Appellant’s Property. The notification of charge registered in June 1995 was on the basis of owed Income tax obligation of Kshs 300,000. 00

4. The Appellant wrote a letter dated 30th January 2024 inquiring on the said charge and requesting the Respondent to discharge the title on the basis that the Appellant had met their tax obligations. Vide a letter dated 31st January 2024, the Respondent requested the Appellant to provide evidence of payment of outstanding taxes amounting to Kshs 300,000. 00.

5. The Appellant disputed the tax demand and requested that the matter be placed before the alternative dispute resolution team for possible resolution through a letter dated 5th February 2024. In a subsequent letter dated 12th March 2024, the Appellant averred that the Respondent erroneously charged the said property in the year 1995 over alleged taxes due and that the Respondent breached the law in charging the property.

6. Consequently, the Respondent issued a decision on 15th March 2024 affirming the position it took in the letter dated 31st January 2024. The Appellant was aggrieved by this decision leading to filing this appeal vide its Notice of Appeal dated 21st March 2024 on 27th March 2024.

The Appeal 7. The Appellant lodged the memorandum of appeal dated 15th March 2024 and filed on 27th March 2024 raising the following grounds of appeal:a.That the Respondent erred in law and fact in registering a notification of charge on 22nd June, 1995, against the Appellant’s Property, when no taxes were owed the Appellant for the year 1995 and the years prior.b.That the Respondent erred in law and fact in finding that that the Appellant had a tax obligation of Kshs 300,000. 00 as at June 1995. c.That the Respondent erred in law and fact in neglecting and ignoring findings of its own iTax Legacy ledger system, which confirmed that the Appellant had no tax obligation for the years 1995 and the years prior, and as a result the Respondent arrived at an incorrect tax decision.d.The Respondent erred in law and fact in registering a notification of charge on 22nd June 1995, against the Appellant’s property, when no notice had been served upon the Appellant, as envisaged by Section 103(2) of the Income Tax Act, CAP 470 of the Laws of Kenya (hereinafter “TPA”) which was the applicable law at the time.e.The Respondent erred in law and fact in making a decision outside the established legal regime.

Appellant’s Case 8. The Appellant case was premised on its Statement of Facts dated 22nd March 2024 and filed on 27th March 2024. The Appellant’s written submissions dated 30th July 2024 and filed on 2nd August 2024 were adopted by the Tribunal on 11th September, 2024.

9. The Appellant stated that he is the lawful owner of the Property.

10. The Appellant stated that in January 2024, being desirous of disposing the Property, it carried out a search at the Lands Office and found out that a notification of charge has been registered by the Respondent against his Property.

11. Upon scrutinizing, the Appellant found out that the said notification of charge registered in 1995, was on the basis of a tax obligation which the Respondent stated of Kshs 300,000. 00.

12. The Appellant averred that he scrutinized his tax Ledger in the Respondent’s system, and discovered that there was no tax owing for the years 1995 and for all other prior years, which discovery prompted the Appellant to write a letter dated 30th January 2024, to the office of the Respondent inquiring on the same.

13. The Appellant stated that the Respondent communicated to the Appellant vide a letter dated 31st March 2024, wherein the Respondent asked the Appellant to provide evidence of payment of taxes amounting to Kshs. 300,000. 00 that was charged on 22nd June, 1995.

14. The Appellant averred that he responded through his advocates vide a letter dated 12th March 2024 wherein he reiterated that he had no tax obligation for the year 1995 and the years prior, and as such, there was no tax owed by him for the said period.

15. The Appellant stated that despite pursuing various intervention including holding a meeting with the officers of the Respondent in a bid to resolve the issue and to subsequently get the Respondent to discharge the property, the Respondent remained adamant in the decision to refuse to lift the charge as evidence by the latest communication dated 15th March 2024.

16. According to the Appellant, in the meeting held with the officers of the Respondent at the Respondent’s offices in a bid to seek clarification on the origin of the tax liability of Kshs 300,000. 00, the Appellant interrogated his i-Tax Legacy ledger to establish the source of the tax charged. Upon interrogation, the Appellant found no evidence in the electronic tax ledger of the tax amount owing.

17. The Appellant stated that the notification of charge by the Respondent was illegal as no notice was given to the Appellant prior to the Respondent’s action of charging the property as envisaged under the deleted Section 103(2) of the ITA which was the operational law at that time.

18. The Appellant maintained that the suit property was wrongfully charged as security for tax liabilities that were non-existent, and this made it difficult and impossible for the Appellant deal with the Property. The Appellant also asserted that there was no justification whatsoever for the Respondent charging the said Property in the year 1995 and as such the charge registered as the 7th entry on the Appellant’s title was wrong and infringed on the Appellant’s right to property.

19. The Appellant identified two issues for determination in its submissions. First, whether there was any tax liability owed by the Appellant for the year 1995 or the years prior; and second, whether the Respondent was legally justified to place a notification of charge on the Property.

20. On whether there was any tax liability owed by the Appellant for the year 1995 or the years prior, the Appellant maintained that there were no taxes owing for the year 1995 and the years prior, as evidenced by his i-Tax Legacy Ledger. The Appellant also submitted that he never neither received any assessment from the Respondent under legacy nor raised a self-assessment under i-Tax.

21. The Appellant further submitted that the Respondent did not substantiate the liability being recovered via the provisions of the deleted Section 103(2) of ITA and Section 40 of the Tax Procedures Act, CAP 469B of the Laws of Kenya (hereinafter “TPA”). The Appellant also submitted that the Respondent’s statement of facts dwelled on collection of tax ‘without touching on the disputed genuineness of the tax liability which is the issue of contention in this case.’

22. On whether the Respondent was legally justified to place a notification of charge on the suit property, the Appellant submitted that no notice was served upon the Appellant as envisaged under Section 103(2) of the ITA and that no evidence has been placed by the Respondent that it notified the Appellant of the placement of the charge. The Appellant also submitted that the Respondent failed to show what steps it took to recover the alleged outstanding tax from the Appellant prior to registration of the notification of charge.

23. The Appellant submitted that even if reliance was to be placed on Section 40 of the TPA, the Respondent erred in not complying with the provisions of Section 40(1) of the TPA which requires the Respondent to notify the taxpayer in writing within seven days from the notification to the Land Registrar of the placement of a caveat or charge. Therefore, the Appellant submitted that the notification of charge was registered unlawfully and illegally as there was no compliance with the law, and the charge was thus registered with the clear purpose of depriving the Appellant the use of his Property.

Appellant’s Prayers 24. The Appellant prayed for the following reliefs:a.That the Appeal be allowed and the decision made on the 15th March. 2024 be set aside;b.That the Respondent be ordered to discharge the notification of charge registered as entry No.7 against the Appellant’s property, registered on 22nd June 1995; andc.That the Respondent be ordered to pay costs of this Appeal.

Respondent’s Case 25. The Respondent in opposition of the appeal, filed its Statement of Facts dated on 5th June 2024 and filed on 7th June 2024. The Respondent also filed its written submissions dated 19th August 2024 on even date and the same were adopted by the Tribunal during the hearing on 11th September 2024.

26. The Respondent filed a Notice of Preliminary Objection dated 18th August 2024 and on 19th August 2024 wherein it raised the following objection:a.That the decision rendered on 15th March 2024 does not constitute an “appealable decision” as envisaged under section 3 of the TPA; andb.That the instant Appeal is premature noting that the Respondent had not issued any assessments, which would necessitate the issuance of an objection decision subject to Appeal.

27. The Respondent in its statement of facts stated that the provisions section 103 of the ITA (now deleted) that the Appellant sought to rely on is similar to the current Section 40 of the TPA.

28. The Respondent averred that in line with section 103 of the ITA (now deleted), it registered a notification of charge on 22nd June, 1995 against the Appellant's Property for non-payment of the taxes due to the Respondent, for the year 1995 and the years prior. The Respondent therefore, stated that its actions were based in law and not arbitrary and undertook to lift the charge upon payment of whole of the amount of the unpaid tax secured.

29. The Respondent averred that the Appellant did not discharge his burden of proof and its case was that despite it requesting the Appellant's P9 forms to ascertain his tax liability, the Appellant did not avail any of the documents. It also maintained that the burden of proof of payment lay with Appellant pursuant to Section 56(1) of the TPA.

30. The Respondent posited that the Appellant did not provide any evidence of payment of Kshs 300,000. 00. Consequently, the Respondent required the Appellant to make the payment or provide the payment evidence to enable the Respondent to lift the charge.

31. Contrary to the Appellant’s assertions, the Respondent averred that the Appellant's i-Tax ledger showed a liability of Kshs. 650,919. 00 in the year of income 2015 and a credit in the year of income 2017. According to the Respondent, the Appellant failed to provide the P9 forms to enable the Respondent ascertain tax liability. The Respondent therefore, maintained that it acted within the law.

32. In its submissions Respondent identified two issues for determination. Firstly, whether the decision contained in its letter dated 15th March 2024 constituted an appealable decision and second, whether the Respondent had a legal basis for issuing the notification of charge upon the Appellant’s Property.

33. On whether the decision contained in the letter dated 15th March 2024 constituted an appealable decision, the Respondent submitted that pursuant to the definition of ‘Appealable decision’ under Section 3 of the TPA, the decision that the Appellant appealed against was not an appealable decision because the decision falls within the category of “any other decision made under a tax law.”

34. It submitted that the Tribunal ought to employ the statutory interpretation rule of ejusdem generis which statutory construction that posits that wide words associated in the text with more limited words are taken to be restricted by implication to matters of the same character.

35. The Respondent further submitted that the impugned decision was not in the nature of an objection decision. The Respondent noted that no tax assessment was issued and no notice of objection had been lodged by the Appellant. The Respondent relied on the case of the Estate of the Late Sherbanu Hassanali Moledina v Commissioner of Domestic Taxes Tat No. 1215 of 2022 wherein the Tribunal held as follows:‘‘The Tribunal having reviewed the said letter dated 26th September 2022 finds that it was not an objection decision but was communication providing an explanation on the reasons for the caveat/charge. The letter was not a decision on any tax issue or dispute.’’

36. On whether the Respondent had a legal basis in issuing the notification of charge upon the Appellant’s property, the Respondent submitted that section 103 of the ITA (now deleted) is similar to the current section 40 of the TPA. The Respondent submitted that it registered a notification of charge against the Appellant's property in line with section 103 of the ITA (now deleted).

37. The Respondent submitted that its actions were based in law and were not arbitrary. The Respondent cited the case of Masek Ole Tinkoi & 3 Others v Kenya Grain Growers Limited & 2 Others [2018] eKLR wherein the Court held thus: “upshot of these provisions is that the suit property is currently used or enjoyed by the government of the Republic of Kenya as security for tax liabilities owing.’’

38. The Respondent submitted that the Appellant failed to provide any evidence of payment of Kshs 300,000. 00 that formed the basis of charging the property. The Respondent cited the case of Digital Box Limited v Commissioner of Investigations and Enforcement [2020] to submit that the Appellant has a duty to prove that the Respondent’s decision is incorrect but the Appellant herein failed to discharge his burden of proof.

Respondent’s prayers 39. The Respondent prayed that the Tribunal would be pleased to dismiss the appeal and find that the Respondent's decision dated 15th March, 2024 is proper in law and the same be upheld.

Preliminary Objection 40. The Tribunal’s view is that the dispensation of this Appeal rests on its determination on the Respondent’s Preliminary Objection dated 18th August, 2024 and filed on 19th August 2024 . One of the grounds in the Respondent’s Preliminary Objection was that the decision rendered on 15th March 2024 did not constitute an “appealable decision” as envisaged under Section 3 of the TPA. In effect, the Respondent questioned the jurisdiction of this Tribunal to entertain this Appeal. “Jurisdiction is everything and without it, a court ought to down its tools”, held Justice Nyarangi in the following case of Owners of Motor Vessel “Lilian S” V Caltex Oil (K) Limited (1989) eKLR:‘Jurisdiction is everything. Without it, a court has no power to make one more step. Where a court has no jurisdiction, there would be no basis for a continuation of proceedings pending other evidence. A court of law down tools in respect of the matter before it the moment it holds the opinion that it is without jurisdiction...’

41. The Tribunal’s view is that its jurisdiction is derived from the Constitution and Statutes. The Court in Owners of Motor Vessel “Lilian S” (Supra), also observed as follows:“By jurisdiction is meant the authority which a court as to decide matters that are litigated before it or to take cognisance of matters presented in a formal way for its decision. The limits of this authority are imposed by the statute, charter, or commission under which the court is constituted, and may be extended or restricted by the like means. If no restriction or limit is imposed the jurisdiction is said to be unlimited.’’

42. The jurisdiction of the Tribunal is limited. The first limitation is provided for under section 52(1) of the TPA where it is clear that the Tribunal only has the mandate to hear and determine appealable decisions. The said section provides as follows:‘‘(1)A person who is dissatisfied with an appealable decision may appeal the decision to the Tribunal in accordance with the provisions of the Tax Appeals Tribunal Act, 2013 (No. 40 of 2013).’’

43. The meaning of ‘appealable decision’ is provided for in law through the following provisions of Section 3(1) of the TPA:“An objection decision and any other decision made under a tax law other than—(a)A tax decision; or(b)A decision made in the course of making a tax decision.’’

44. The Tribunal examined the contents of the Respondent's letter dated 15th March 2024 and noted that the letter was neither an objection decision nor a tax decision made under another tax law. The said letter did not therefore constitute an appealable decision within the meaning of Section 3(1) TPA. The Respondent asserted it registered a notification of charge on 22nd June 1995, against the Appellant’s property under Section 103 of the ITA (now deleted). The said provision provided as follows:‘‘(1)Where a person being the owner of land or of buildings on land situated in Kenya, fails to make payment of tax due by him on or before the due date or fails to comply with a notice served on him under Section 98, the Commissioner may by notice in writing notify that person of his intention to apply to the Registrar of Lands for the land or buildings to be the subject of security for tax of an amount specified in the notice.(2)If a person on whom a notice has been served under this section fails to make payment of the whole of the amount of the tax specified in the notice within thirty days of the date of the service of the notice, the Commissioner may by notice in writing direct the Registrar of Lands that the land or building, to the extent of the interest of the person therein, be the subject of security for tax of a specified amount, and the Registrar shall, without fee, register the direction as if it were an instrument of mortgage over or charge on, as the case may be, the land or buildings and thereupon that registration shall, subject to any prior mortgage or charge, operate while it subsists in all respects as a legal mortgage over or charge on the land or building to secure the amount of the tax.(3)The Commissioner shall, upon the payment of the whole of the amount of the tax secured under subsection (2) by notice in writing to the Registrar of Lands, cancel the direction made under that subsection and the Registrar shall, without fee, record the cancellation and thereupon the direction shall cease to subsist.’’

45. The Tribunal is of the view that pursuant to the provisions of the deleted section 103 (3) of the ITA it is only the Respondent who can request the Registrar of Lands cancel the notification. Further, the finding of the Tribunal in the instant Appeal is that the letter from the Respondent dated 15th March, 2024 is neither an appealable decision, tax decision or any type of decision by the Respondent but merely a letter through which the Respondent communicated to the Appellant requesting that he settles the unpaid tax.

46. Consequently, the Tribunal allows the Respondent's Preliminary Objection.

Final Decision 47. The upshot to the foregoing is that the Appeal fails and accordingly the Tribunal makes the following Orders:a.Appeal be and is hereby struck out.b.Each party to bear its own cost.

48. It is so Ordered.

DATED AND DELIVERED AT NAIROBI ON THIS 21ST DAY OF NOVEMBER, 2024. CHRISTINE A. MUGA - CHAIRPERSONBONIFACE K. TERER - MEMBERELISHAH N. NJERU - MEMBEREUNICE N. NG’ANG’A -MEMBEROLOLCHIKE S. SPENCER - MEMBER