[2023] KETAT 91 (KLR)

Kellico Limited v Commissioner of Domestic Taxes (Tribunal Appeal 1371 of 2022) [2023] KETAT 91 (KLR) (10 March 2023) (Ruling)

Neutral citation: [2023] KETAT 91 (KLR)

Republic of Kenya

In the Tax Appeals Tribunal

Tribunal Appeal 1371 of 2022

E.N Wafula, Chair, A.K Kiprotich & Cynthia B. Mayaka, Members

March 10, 2023

Between

Kellico Limited

Applicant

and

Commissioner of Domestic Taxes

Respondent

Ruling

1. The Applicant vide a Notice of Motion application dated November 14, 2022 filed under certificate of urgency on the same date and supported by an Affidavit sworn by Charles Mutura Waituka, a Director of the Appellant, sought for the following Orders:-i.Spentii.That the Appellant be granted an extension of time to file its appeal to the Tribunal in respect to the tax assessment dated April 3, 2020, December 9, 2020 and April 6, 2021 issued by the Respondent and consequent upon this extension the Notice of Appeal dated May 25, 2021 be deemed as duly filed and admitted into the record of the Tribunal out of time upon payment of the requisite filing fees.iii.That the Appellant be granted leave to file the documents set out under Section 13(2) of the Tax Appeals Tribunal Act out of time and time to serve the said documents be extended.iv.That pending the hearing and determination of this application, the Tribunal be pleased to issue an interim order of stay of execution, implementation and enforcement of Agency Notices dated December 9, 2020, April 3, 2020 and April 6, 2021 issued to the Appellant’s bankers and tenants demanding payment in the sum of Kshs 78,017,252. 00 to the Respondent.v.That pending the hearing and determination of this appeal, this Tribunal be pleased to issue an interim order of stay of execution, implementation and enforcement of the Agency Notices dated December 9, 2020, April 3, 2020 and April 6, 2021 and issued to the Appellant’s banks and tenants demanding payment in the sum of Kshs 56,975,369. 00 to the Respondent.vi.That pending the hearing and determination of the appeal, this Tribunal be pleased to stay the issuance by the Respondent of any further demands and Agency Notices or commencement by the Respondent of any further demands and Agency Notices or commencement by the Respondent of further enforcement proceedings in connection with payment of Kshs 78,017,252. 00. vii.That the Tribunal be pleased to find that the Tax Assessment dated April 3, 2020 claimed by the Respondent is erroneous and inaccurate and substitute the same with the correct tax assessment as claimed by the Applicant in the sum of Kshs 6,251,296. 00viii.That this Tribunal be pleased to grant any such other or further orders as it may deem just and expedient.ix.That costs of this application be in the cause.

2. The application is premised on the following grounds:-i.That on June 14, 2018, the Respondent issued the Appellant with an original Assessment Notice relating to Income Tax, Value Added Tax, Withholding Tax and Capital Gains Tax for the years 2014 to 2017 amongst others which Assessments concluded that the Appellant was tax compliant.ii.That on April 3, 2020 pursuant to its powers under Section 31 of the Tax Procedures Act, the Respondent issued the Appellant with an Amended Notice of Assessment covering Withholding Tax and Corporation Tax for the years 2015 to 2018 wherein the Respondent rejected various expenses raised by the Appellant which it had previously allowed.iii.That based on the Amended Assessment Notice, the Respondent issued an Agency Notice to the Appellant’s tenants Classic Mouldings Limited on December 9, 2020 demanding payment in the sum of Kshs 56,975,369. 00 from monies allegedly owed to the Appellant by the Tenant.iv.That on April 6, 2021, the Respondent subsequently issued an Agency Notice against the Appellant’s Director personal Mr Alex Chege Waituika’s account in Prime Bank Limited demanding payment of Kshs 56,975,369. 00 from monies purportedly held on behalf of the Director of the Appellant.v.That on May 24, 2021 the Appellant disputed the said assessments and challenged the tax decision by lodging a notice of objection to the Respondent on the grounds that it was excessive and punitive and contrary to the law.vi.That the amended assessment was issued on a misapprehension of the law for instance the Respondent denied the Appellant from claiming commercial building allowance whereas Section 15 of the Income Tax Act allows the Respondent to claim CBA as Capital expenditure incurred on the substantial renovation of the Appellant’s complex.vii.That the illegal agency notices by the Respondent have halted the business operations and the ability of the company to continue trading, exposing the Appellant to suits against them for failing to fulfill various contractual obligations.viii.That after issuance of the various agency notices the Appellant Company was unable to pursue the Appeal to the Tribunal owing to the fact that its board had at the material time a sole director and its then sole director was suffering from a chronic and terminal liver cirrhosis and thus being in this state of impaired health was unable to attend to the affairs of the Appellant Company effectively and lodge the Appeal in time.ix.That indeed the Appellant’s sole Director and principal shareholder had been ailing from acute liver related problems and the illness worsened in the period 2020 to 2021 which made the said former director unable to effectively to manage the affairs of the Appellant company due to frequent hospitalization and the said director Mr Alex Chege Waituika sadly succumbed to the illness on May 30, 2021. x.That following the demise of the said Appellant’s sole director, the estate of the deceased was constrained to hold matters in abeyance as by law required and apply for letters of administration of the estate of the sole director Mr Alex Chege Waituika which were issued by the High Court in Nairobi in High Court Succession Case No E178 of 2021 on March 29, 2022. xi.That following the issuance of the Grant of the estate of the then sole Director Mr Alex Chege Waituika, the Administrators of the Estate were only able to have the change on the company board effective November 10, 2022 wherein the Appellant’s Board was reconstituted to allow for the Appellant company to institute the Appeal.xii.That as such, due to the prolonged sickness of the then sole Director of the Appellant and his eventual demise, the Appellant was therefore unable to lodge its Notice of Appeal as well as other documents challenging the Tax Assessment within the stipulated period of time.xiii.That the Appellant has an arguable appeal with probability of success which will be rendered nugatory if the orders sought herein are not granted.xiv.That the Appellant should not be shut down the seat of justice on the basis of procedural technicalities, unforeseen events and matters not within its control leading to the failure to file an appeal within the timelines, which technicality can be cured by allowing it to file its notice of appeal out of time.xv.That the Appellant stands to suffer great financial prejudice if the application is not allowed and the Respondent proceeds to pursue payment on the basis of erroneous and illegal agency notices.xvi.That no prejudice will be occasioned to the Respondent if the orders sought herein are granted as it will still be at liberty to exercise its right and pursue payment of the sums demanded in compliance with the Tax Procedures Act should the Appellant not succeed in the appeal.xvii.That this Tribunal has power, and in the circumstances of this case, the obligation to stay the impugned Agency Notices so as to preserve the subject matter of the Appeal and ensure the effectiveness of the proceedings so that the appeal is not rendered nugatory.xviii.That the Appellant has filed this application without inordinate delay and has advanced justifiable reason for its failure to file the Notice of Appeal within time ant it’s the interest of justice and principles of fairness that this application is allowed.

3. The Respondent opposed the application through a Replying Affidavit sworn by Victor Mino, an officer of the Respondent, on November 25, 2022 and filed on the same date. The grounds of opposition as highlighted in the Affidavit were as follows:-i.That the Respondent carried out an audit for the period of January 1, 2014 to December 31, 2017 as per the letter dated June 14, 2018 and found the total inclusive of principal tax, penalties and interest to amount to Kshs 79,157. 00. ii.That the Respondent furnished the Appellant with a revised notice of assessment under Section 31 of the Tax Procedures Act as per the letter dated April 3, 2020 and summarized the tax due as a total of Kshs 78,089,727. 00. iii.That the Respondent conducted tax investigations on the Applicant and issued an assessment on December 9, 2020 and April 6, 2021 and declared the agents of the Applicant to pay taxes amounting to Kshs 56,975,369. 00. iv.That the Applicant objected to the Respondent’s assessment vide an objection letter dated May 24, 2021 on the grounds that the company had changed ownership in mid-2018, the death of the officer handling the cases from the audit firm, double interpretation of the law and that the assessment was excessive.v.That the duties of a director according to the Companies Act 17 of 2015 are not synonymous with the status of a shareholder.vi.That the Supporting affidavit states that it was under its own mandate to make the amended assessment and the taxes claimed were in order. Further to that, the assessment gave a detailed explanation for the reason of the owed tax.vii.That the date of the assessment was before the demise of the director.viii.That Immobiliare Mondiale Limited was still among the directors of the company as of September 29, 2020. ix.That the Appellant did not make any effort in relation to the filing of the record of Appeal.x.That CR12 of the company shows that Immobiliare Mondiale Limited was still among the directors of the company that they have not given any explanation on the same.xi.That the application as filed is incompetent, bad in law, fatally defective and is an abuse of this tribunal’s process.xii.That the Notice of Motion application discloses no reasonable cause of action and is totally unfounded and ought to be dismissed with costs to the Respondent.xiii.That the application is an afterthought and a delay tactic by the Applicant meant to delay the conclusion of the matter, which holds substantial Government revenue.xiv.That the Applicant has not demonstrated it deserves favorable discretion to this Tribunal and the application should be dismissed with costs to the Respondent.

4. In compliance with the directions of the Tribunal to the effect that the application was to be canvassed by way of written submissions, the Applicant filed its submissions on December 9, 2022 while the Respondent filed its submissions on December 1, 2022. The Tribunal has duly considered the written submissions in arriving at its determination in this Ruling.

Analysis and Findings 5. The Applicant’s application is primarily praying to the Tribunal for extension of time to file an appeal out of time.

6. The power to expand time for filing an Appeal is donated by Section 13(3) of the Tax Appeals Tribunal Act which provides that:“The Tribunal may, upon application in writing, extend the time for filing the Notice of Appeal and for submitting the documents referred to in subsection (2).”It is therefore a discretionary power and not a right to be granted to the Applicant.

7. In determining whether the expand time, courts have in the past considered a number of factors. These factors were discussed in Leo Sila Mutiso vs Rose Hellen Wangari Mwangi, Civil Application Nai 251 of 1997 where the judge held that:“It is now settled that the decision whether to extend the time for appealing is essentially discretionary. It is also well stated that in general the matters which this court takes into account in deciding whether to grant an extension of time are, first the length of the delay, secondly thereasons for the delay, thirdly (possibly) the chances of the appeal succeeding if the application is granted and fourthly the degree of prejudice to the respondent if the application is granted.”

8. The court in Wasike v Swala [1984] KLR 591 provided the hierarchy of the factors to consider when it stated that:“an applicant must now show, in descending scale of importance, the following factors: -a.That there is merit in his appeal.b.That the extension of time to institute and/or file the appeal will not cause undue prejudice to the respondent; andc.That the delay has not been inordinate.

9. The Tribunal, guided by the principles set out in Leo Sila Mutiso vs Rose Hellen Wangari Mwangi, Civil Application Nai 251 of 1997, Wasike V Swala [1984] KLR and Section 13 of the Tax Appeals Tribunal Act 2013 used the following criteria to consider the application:a.Whether there is a reasonable cause for the delay.b.The merits of the complained action.c.Whether there will be prejudice suffered by the Respondent if the extension is granted.

a. Whether there is a reasonable cause for the delay. 10. On the reasons behind the delay, the Tribunal noted that the Applicant cited illness. The Applicant had stated that its main director suffered acute liver related disease and the illness worsened in the period 2020 to 2021 which made the said former director unable to effectively to manage the affairs of the Appellant company due to frequent hospitalization. That the said director Mr Alex Chege Waituika sadly succumbed to the illness on May 30, 2021

11. That further, following the demise of the said Appellant’s sole director, the estate of the deceased was constrained to hold matters in abeyance as by law required and apply for letters of administration which were issued by the High Court in Nairobi in High Court Succession Case No E178 of 2021 on March 29, 2022.

12. The Respondent on its part stated that Immobiliare Mondiale Limited was still among the directors of the company as of 29th September, 2020 and that it has not given any explanation on the same.

13. The Tribunal noted from the documents in support of its averments, the Appellant had attached Court’s Letters of Administration which indicated that its former director Alex Chege Waituikia had indeed passed on May 30, 2021. Although the Respondent had indicated that there was another director, the Tribunal was persuaded by the evidence providedby the Applicant to prove that their main director was ill at the duration of the assessment and later sadly passed on.

14. Consequently, the Tribunal finds that there was a reasonable caused for the delay

b.Merits of the Complained action 15. The Tribunal considered whether the matter under dispute was frivolous to the extent that it would be a waste of the Tribunal time, or it was material to the extent that it deserved its day in the Tribunal.

16. The test is not whether the case is likely to succeed. Rather, it is whether the case is arguable. This was the finding in Samuel Mwaura Muthumbi V Josephine Wanjiru Ngungi & Another (2018) eKLR where the court stated that:-“Looking at the draft Memorandum of Appeal filed, I am unable to say that the intended Appeal is in arguable. Of course, all the Applicants have to show at this stage is arguability- not high probability of success. At this point the Applicant is not required to persuade the Appellate court that the intended or filed appeal has a high probability of success. All one is required to demonstrate is the arguability of the Appeal, a demonstration that the Appellant has plausible grounds of either facts or law to overturn the originalverdict. The Applicants have easily met that standard. I believe that the Applicant has discharged this burden.”

17. The Tribunal was further guided by the findings of the court in Kenya Commercial Bank Limited Vs Nicholas Ombija(2009) eKLR where it was held that:“An arguable appeal is not one which must necessarily succeed, but one which ought to be argued fully before the court.”

18. Similarly, in Kenya Commercial Bank Limited Vs Nicholas Obija (2009) eKLR it was stated that “an arguable appeal is not one which must necessarily succeed, but one which ought to be argued fully before the court” that was also the position held in Stanley Kangethe Kinyanjui Vs Tony Keter & others (2013) eKLR where the court held that “on whether the appeal is arguable, it is sufficient if a single bonafide ground of appeal is raised, .. an arguable appeal is not one which must necessarily succeed, but one which ought to be argued fully before the court: one which is not frivolous.”

19. The Tribunal noted that the Revised Notice of Assessment was issued on November 29, 2021 for the sum of Kshs 78,089,727. Looking at the draft Memorandum of Appeal by the Applicant, the Tribunal noted that the Applicant had raised nine grounds of Appeal that required rebuttal by the Respondent. Going by the standards set out in the Stanley Kangethe Kinyanjui Vs Tony Keter & others (2013) case the Tribunal finds that the Applicant had an arguable case which required to be canvassed and considered on its full merits.

c. Whether the Respondent will suffer prejudice if the extension is granted. 20. The courts have held that in considering whether to extend time, due regard must be given to whether the extension will prejudice the opponent. In determining this, the judge in Patrick Maina Mwangi v Waweru Peter[2015] eKLR quoted the finding in United Arab Emirates V Abdel Ghafar & Others 1995 IR LR 243 in finding that:-“…….a plaintiff should not in the ordinary way be denied an adjudication of his claim on its merits because of a procedural default, unless the default causes prejudice to his opponent for which an award of cost cannot compensate………”

21. The test, therefore, as set out in the case above is whether the Respondent will suffer irreparable prejudice if the application is granted.

22. The Applicant stated that it stands to suffer great financial prejudice if the application is not allowed and the Respondent proceeds to pursue payment on the basis of erroneous and illegal agency notices.

23. In the case at hand, the Respondent did not demonstrate how it would suffer irreparable prejudice that cannot be compensated by award of penalties and interest on the assessed taxes if an expansion of time were granted for the Appellant to file an appeal out of time.

24. It was the view of the Tribunal that the Appellant’s recourse to justice lies in an appeal to the Tribunal. Thus, the Appellant would suffer prejudice if it is not granted leave to file its appeal. In any event, the Respondent would still collect the taxes inclusive of penalties and interest should it be found to be due and payable.

25. The Tribunal therefore finds that the Respondent will not suffer prejudice if the extension is granted.

Disposition 26. Based on the foregoing, the Tribunal finds that the application is merited and proceeds to make the following Orders:i.Leave be and is hereby granted for the Appellant to file an appeal out of time.ii.The Notice of Appeal filed on May 25, 2021 and the Memorandum of Appeal and the Statement of Facts filed before the Tribunal on November 14, 2023 are hereby deemed as duly filed and served.iii.The Respondent to file its Statement of Facts within Thirty (30) days of the delivery of this Ruling.iv.No orders as to costs.

27. It is so ordered.

DATED AND DELIVERED AT NAIROBI THIS 10TH DAY OF MARCH, 2023. …………………………ERIC N WAFULA CHAIRMAN………………………ABRAHAM KIPROTICHMEMBERCYNTHIA MAYAKAMEMBER