[2014] KEHC 7502 (KLR)

[2014] KEHC 7502 (KLR)

The court found that the appellant acted as an agent for non-resident ship owners, making payments from an account holding the principals' funds. Under the Income Tax Act, only payments made by a resident or a person with a permanent establishment in Kenya are deemed to accrue in or be derived from Kenya for purposes of withholding tax. Since the payments were made by non-resident principals through the appellant as agent, and the funds remained the property of the principals, the payments were not chargeable to income tax under Section 3(1) and Section 10. The obligation to deduct withholding tax arises only where the payment is chargeable to tax, which was not the case here. The agency...

Citation
[2014] KEHC 7502 (KLR)
Parties
Appellant: Motaku Shipping Agencies Limited; Respondent: The Commissioner of Income Tax
Court
High Court
Court Station
High Court at Mombasa
Jurisdiction
Kenya
Judgment Date
19 June 2014
Case Number
Civil Suit 60 of 2013
Procedural Posture
Income Tax Appeal / Judgment
Outcome
Appeal allowed. Decision of the Income Tax Committee-Mombasa set aside. Respondent's additional assessment of withholding tax annulled. Costs awarded to the appellant.
Legal Topics
Withholding Tax, Agency Relationship, Non Resident Taxation, Management Fees, Income Accrual, Tax Assessment
Source Language
English
Tax Law Commercial and Corporate Withholding Tax Agency Relationship Non Resident Taxation Management Fees Income Accrual Tax Assessment

Case Brief

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Parties

Motaku Shipping Agencies Limited

Appellant

The Commissioner of Income Tax

Respondent

Procedural Posture

Income Tax Appeal / Judgment

Legal Issues

  1. 1 Whether payments made by the appellant as agent for non-resident ship owners to Kenyan suppliers are subject to withholding tax under the Income Tax Act.
  2. 2 Whether the appellant was under a legal obligation to deduct and remit withholding tax on such payments.

Ratio Decidendi

The court found that the appellant acted as an agent for non-resident ship owners, making payments from an account holding the principals' funds. Under the Income Tax Act, only payments made by a resident or a person with a permanent establishment in Kenya are deemed to accrue in or be derived from Kenya for purposes of withholding tax. Since the payments were made by non-resident principals through the appellant as agent, and the funds remained the property of the principals, the payments were not chargeable to income tax under Section 3(1) and Section 10. The obligation to deduct withholding tax arises only where the payment is chargeable to tax, which was not the case here. The agency...

Court Disposition

Appeal allowed. Decision of the Income Tax Committee-Mombasa set aside. Respondent's additional assessment of withholding tax annulled. Costs awarded to the appellant.

Orders

  • The decision of the Income Tax Committee-Mombasa dated 8th April 2013 is set aside.
  • The respondent's additional assessment of withholding tax due from the appellant as particularized in Form 11H.O dated 9th April 2009 is annulled.