[2024] KETAT 714 (KLR)

Kellico Limited v Commissioner of Domestic Taxes (Tax Appeal 1371 of 2022) [2024] KETAT 714 (KLR) (24 May 2024) (Judgment)

Neutral citation: [2024] KETAT 714 (KLR)

Republic of Kenya

In the Tax Appeal Tribunal

Tax Appeal 1371 of 2022

RM Mutuma, Chair, M Makau, EN Njeru, B Gitari & AM Diriye, Members

May 24, 2024

Between

Kellico Limited

Appellant

and

Commissioner of Domestic Taxes

Respondent

Judgment

Background 1. The Appellant is a limited liability Company incorporated in Kenya and a registered taxpayer.

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 (the Authority) is an agency of the Government for the collection and receipt of all revenue. Further, under Section 5 (2) of the Act with respect to the performance of its function 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. The dispute in this Appeal arose when the Appellant was issued with a tax assessment notice by the Respondent on 14th June 2018 relating to Income tax, Value Added Tax, Withholding tax and Capital Gains Tax for the years of income 2014 to 2017.

4. On 3rd April 2020, the Respondent issued an amended notice of assessment covering Withholding tax and Corporation tax for the years of income 2015 to 2018.

5. The Respondent confirmed the amended notice on 20th April 2020 and subsequently on 9th December 2020 issued agency notices to Classic Mouldings Limited, a tenant of the Appellant. Further, the Respondent issued an agency notice against the personal account of the Appellant’s Director in Prime Bank Limited on 6th April 2021 demanding taxes in the sum of Kshs. 56,975,369. 00.

6. The Appellant disputed the Respondent’s amended assessments and challenged the tax decision by lodging a notice of objection dated 24th May 2021.

7. The Appellant being aggrieved by the amended assessment and agency notices issued by the Respondent, lodged this Appeal, filing its Notice of Appeal dated 25th May 2021 with leave of the Tribunal for file an Appeal out of time granted on 12th March 2023.

The Appeal 8. The Appellant’s Memorandum of Appeal dated and filed on 14th November 2022 is premised on the following grounds, that;a.The Respondent erred in law and fact by unlawfully and illegally denying the Appellant from claiming commercial building allowance of Kshs. 15,302,672. 00 for the period 2015 - 2018 whereas Section 15 of the Income Tax Act Cap 470, laws of Kenya, allows the Appellant to claim Commercial Building Allowance as capital expenditure incurred on the expansion and substantial renovation of the Appellant’s Complex on property LR. No. 209/14096 & L.R. No.209/14097, Nairobi.b.The Respondent erred in law and fact by disallowing permitted tax deductions of the Appellant in relation to expenses incurred for repairs and maintenance costs on its buildings LR. No. 209/14096 & L.R. No. 209/14097, interest on loans, wear and tear allowances in the aggregate sum of Kshs. 2,059,439. 00 for the years 2015 - 2018 contrary to Section 15 of the Income Tax Act.c.The Respondent erred in law and fact, misdirected itself by failing to distinguish that the Appellant’s director is a separate legal entity from the Appellant Company and the tax liabilities of the Appellant cannot be suo moto attached to the personal assets of the director.d.The Respondent erred in law by unilaterally lifting the corporate veil of the Appellant and directly issuing an Agency Notice against the personal bank account of the Appellant’s director held in Prime Bank Limited demanding the principal sum of Kshs. 59,975,369. 00 together with interest and penalties aggregating to Kshs. 78,017,252. 00. e.The Agency Notice issued against the personal bank account of the Appellant’s director similarly violated his right to fair administrative action stipulated under Article 47 of the Constitution of Kenya since he was bombarded and ambushed with notices without being afforded an opportunity to verify that the monies in his personal account were not held on behalf of the Appellant.f.The issuance of the Agency Notices infringes the Appellant’s Constitutional right under Article 40 of the Constitution as it amounts to deprivation of property since the Respondent seeks to unlawfully recover tax from the Appellant based on an erroneous interpretation of the law.g.The Agency Notices issued against the personal bank account of the Appellant’s director similarly violated his right to fair administrative action stipulated under the Fair Administrative Action Act No. 4 of 2015 and Article 47 of the Constitution of Kenya since he was ambushed with notices without being afforded an opportunity to verify if the monies in his personal account were held on behalf of the Appellant.h.The issuance of the Agency Notice against the Appellant and its Director is ultra vires the power and authority of the Respondent.i.The purported outstanding tax for the sum of Kshs. 78,017,252. 00 is illegal as it is based on an erroneous interpretation of the Income Tax Act and therefore null.

Appellant’s Case 9. The Appellant’s case is premised on its;a.Statement of Facts dated and filed on 14th November 2022 together with the documents attached thereto; and,b.Written Submissions dated 29th September 2023 and filed on 2nd October 2023.

10. The Appellant stated that it was issued with an assessment on the 14th June 2018 and pursuant to the provisions of Section 31 of the TPA was issued with an amended notice assessment on 3rd April 2020.

11. The Appellant contended that the Respondent upon issuance of the amended notice of assessment it further issued an agency notice to the Respondent’s tenant Classic Mouldings Limited on 9th December 2020. That further, on 6th April 2021 the Respondent issued an agency notice against the Appellant’s Director’s personal bank account in Prime Bank Limited for monies purported held on behalf of the Appellant in the sum of Kshs. 56,975,369. 00.

12. The Appellant stated that in challenging the Respondent’s assertion that it failed to lodge an Objection within the prescribed time frame, the Appellant contended that it lodged a notice of objection on 24th May 2021, through Messer’s Orwa and Company Associates in accordance with Section 51 of the Tax Procedure Act that delineates the procedure for taxpayers to dispute a tax decision by submitting a written Notice of Objection to the Commissioner within thirty days of being notified of the decision.

13. The Appellant averred that the agency notice amounted to an appealable decision on the basis of the decision made in the case of Krystalline Salt Limited vs. Kenya Revenue Authority [2019] eKLR.

14. The Appellant relied on Section 15 (1) of the Income Tax Act by arguing that the Act permits a taxpayer to deduct certain expenses from his assessable income before calculating the tax liability, if such expenses, were wholly and exclusively incurred in the generation of the income.

15. The Appellant asserted that the Respondent rejected its expenses without offering the basis for its variation as the Appellant had claimed the sum of Kshs. 13,216,345. 00 for the year of income 2015 on commercial building allowance while the Respondent rejected Kshs. 15,302,672. 00 for the years of income 2015 to 2018.

16. That the Appellant’s directors acquired Kellico Limited (the Appellant) and took out a facility from commercial banks and other sources to purchase shares and gain control and utilized the borrowed funds to offset loans that were in the books of accounts of the company and the same qualified to be charged as expenses.

17. The Appellant further contented that it secured a facility in the sum of Kshs. 1,200,000,000. 00 on the security of the Appellant’s company property situated on L.R Number 209/14096 & 209/14097 and it incurred expenses on loan interest in the sum of Kshs. 81,721,500. 00 and was therefore unlawful for the Respondent to assess and claim Kshs. 115,492,042. 00 from the Appellant.

18. The Appellant argued that it incurred expenses on wear and tear allowances as well as repairs and maintenances of the properties which the Respondent rejected and in so doing erred in law and fact.

19. The Appellant maintained that the Respondent’s action to issue agency notices on the personal bank account of the Appellant’s director was arbitrary and illegal as the Appellant and its directors are separate in law and neither can bear the tax liability of the other. Further, the Respondent’s action amounted to the Respondent lifting the corporate veil of its own motion and without an order of the Court.

20. The Appellant in its written submissions identified two issues for the Tribunal’s determination in the Appeal, namely;a.Does the Tribunal have the jurisdiction to determine the Appeal and make a finding of violation on the rights of the Appellant’s Director?b.Whether the grounds set in the Memorandum of Appeal dated 14th November 2023 are merited.

21. The Appellant pointed out a contradiction in the Respondent’s Preliminary Objection where the Respondent acknowledged the Appellant’s objection in its Statement of Facts, asserting the validity of the Objection decision and its issuance in accordance with the law.

22. That the Appellant argued that the jurisdiction of the Tribunal to adjudicate Appeals against tax decisions is conferred by Section 3 of the Tax Appeal Tribunal Act, granting it the authority to hear Appeals against decisions made by the Commissioner.

23. The Appellant further contended that Section 52 (1) of the Tax Procedures Act permits dissatisfied individuals to appeal decisions to the Tribunal. An ‘appealable decision’ encompasses Objection decisions and other decisions made under tax laws, excluding specific categories of decisions.

24. That the Appellant reiterated that an agency notice issued under Section 42 of the Tax Procedure Act is subject to challenge in the Tax Appeals Tribunal.

25. That the Appellant further cited the decision in Mwanzia vs. Rhodes (Constitutional Petition E115 of 2022) [2023] KEHC 2688 (KLR), which upheld the principle that Tribunals and statutory agencies possess jurisdiction to adjudicate matters concerning the violation of rights in disputes.

26. The Appellant submitted that it initially claimed Commercial Building Allowance (CBA) for the years 2015 and onwards, which was accepted in the initial assessment by the Respondent. However, in a revised assessment, the Respondent disallowed the CBA for the period 2016 - 2018, citing paragraph 6 A of the Second Schedule of the Income Tax Act, which stipulates that CBA is applicable only to buildings whose construction commenced on or after 1st January 2013.

27. The Appellant contended that it met the conditions outlined in the relevant schedule, arguing that the schedule did not specify the date of construction but rather focused on whether the capital expenditure claimed was incurred for the year of income commencing 1st January, 2013.

28. The Appellant referred to the case of Commissioner of Domestic Taxes vs. Sony Holdings Limited, where the High Court clarified the interpretation of the relevant provisions. The Court held that to qualify for CBA, three conditions must be satisfied: the taxpayer must incur capital expenditure on construction, the expenditure must be for the year commencing 1st January 2010, and the taxpayer must have provided certain infrastructure. The Court rejected the interpretation that only buildings completed and put to use after 1st January, 2010, qualified for the allowance, emphasizing that such an interpretation would distort the statute and go against established legal principles.

29. The Appellant submitted that the Respondent’s denial of the CBA was unlawful, as the Appellant’s claims remained consistent with the law, and it was entitled to the deduction as claimed.

30. The Appellant contended that the Respondent declined the loan interest expenses claimed by the Appellant for various reasons. Firstly, they cited the absence of supporting documents for the years 2015 - 2016, and secondly, they argued that the loans for the period 2017 - 2018 were borrowed by a different company, Investment House Limited. However, the Appellant provided account statements demonstrating loan repayments and argued that the loans were used for business purposes, specifically to enhance the value of its commercial complex, Kellico Complex.

31. That regarding the loan of One Billion Twenty Million Shillings (Kshs. 1,020,000,000. 00) obtained from Co-operative Bank of Kenya by the Appellant’s new Director on 23rd February 2018, the Appellant argued that a substantial portion of the borrowed funds was used to settle existing loans of the Appellant company, which qualifies the charges as expenses.

32. Additionally, the Appellant contested the Respondent’s allegation regarding stamp duty payment, providing evidence of payment for share transfer. It further argued that the loans were secured by the Appellant’s property, Kellico Complex, and provided documents such as a Deed of Assignment of Rental Income and bank deposit slips to demonstrate that rental income from the property was used to repay the loan.

33. The Appellant submitted that it contested the disallowance of wear and tear deductions, providing invoices and receipts as evidence of repair and maintenance costs incurred. It argued that the Respondent erred in disallowing these expenses despite the documentation being provided.

34. The Appellant submitted that the expenses were incurred for business purposes and are therefore deductible under Section 16 (2) (j) of the Income Tax Act.

35. The Appellant contended that the Directors and the company are distinct legal entities, citing the legal principle established in Salomon vs. Salomon & Co Ltd [1897] AC 22, which underscores the separate legal personality of a company from its directors or shareholders. The Appellant further referenced the case of Kolaba Enterprises Ltd vs. Shamsudin Hussein Varvani & Another [2014] eKLR, which reaffirmed the concept of separate corporate personality and emphasized that it can only be disregarded in exceptional circumstances, such as when the company is being used for fraudulent activities.

36. The Appellant placed reliance on the case of Stephen Kimathi Mutiso vs. Commissioner for Domestic Tax and Kenya Commercial Bank, Others [2013] eKLR, where the Tax Appeal Tribunal nullified an agency notice issued against a director’s personal account, affirming the distinction between the director and the company.

37. The Appellant maintained that the Respondent’s action in issuing agency notices without proper verification and without affording the Director an opportunity to explain the funds held in his account infringes upon his rights as enshrined in Article 47 (1) of the Constitution of Kenya and Section 4 of the Fair Administrative Action Act No. 4 of 2015, which mandates fair administrative procedures.

38. The Appellant submitted that the Respondent’s actions breached the duty of procedural fairness, as discussed in Silver Chain Limited vs. Commissioner of Income Tax & 3 Others [2016] eKLR, and as elaborated upon in Judicial Service Commission vs. Mbalu Mutava & Another [2015] eKLR by the Court of Appeal.

39. The Appellant argued that the architecture of tax laws mandates that taxpayers to be afforded the opportunity to consider tax claims and object if necessary.

40. The Appellant contended that the Respondent’s conclusion that the Appellant’s Director was an agent of the company lacks rational explanation. Further, the action of denying the Appellant’s deduction of capital expenses, despite supporting documentation, is irrational and in bad faith.

41. The Appellant emphasized that it is well-established that decisions made in violation of the law and rules of natural justice are nullities and should be quashed. The Tribunal cannot therefore legitimize agency notices based on unlawful demand notices by the Respondent and has the authority to intervene by quashing such notices.

42. That the Appellant submitted that it fulfilled its burden of proof under the Tax Procedure Act by establishing with evidence the underlying facts and demonstrating that the assessment by the Respondent is excessive and erroneous. The actual substantive liability computed by the Appellant significantly differs from the amount demanded by the Respondent.

43. The Appellant in fortifying its case relied on the following authorities;a.Krystalline Salt Limited vs. Kenya Revenue Authority [2019] eKLR.b.Mwanzia vs. Rhodes (Constitutional Petition E115 of 2022) [2023] KEHC 2688. c.Silver Chain Limited vs. Commissioner Income Tax & 3 Others [2016] eKLR.d.Kolabo Enterprises Limited vs. Shamsudin Hussein Varvani & Ano. [2014] eKLR.e.Stephen Kimanthi Mutiso vs. Commissioner of Domestic Tax and Kenya Commercial Bank.f.Jiang Nan Xiang vs. Cok Fas-St Company Limited [2018] eKLR.g.Commissioner of Domestic Taxes vs. Sony Holdings Limited [2021] eKLR.h.Judicial Service Commission vs. Mbalu Mutava & Ano. [2015] eKLR.i.Republic vs. Kenya Revenue Authority Ex parte Jaffer Mujtab Mohamed [2015] eKLR.

Appellant’s Prayers 44. The Appellant made the following prayers to the Tribunal, that;a.This Appeal be allowed and the tax demand for the sum of Kshs. 78,017,252. 00 for the period 2015 - 2018 and agency notices dated 3rd April 2020; 9th December 2020; and 6th April 2021 be set aside.b.A declaration the agency notice issued by the Respondent dated 6th April 2021 against the personal bank account of the Appellant’s Director at Prime Bank Limited and any other bank to settle the tax liabilities of the Appellant in the sum of Kshs. 56,975,369. 00 is unlawful, illegal, null and void and the same be lifted forthwith;c.A Declaration that the agency notice dated 3rd April 2020 and 9th December 2020 issued by the Respondent against the Appellant Company in the sum of Kshs. 78,017,252. 00 is unlawful, illegal, null and void and the same be lifted forthwith;d.The costs of the Appeal be awarded to the Appellant; and,e.Any other remedy that the Honourable Tribunal deems just and reasonable.

Respondent’s Case 45. The Respondent’s case is premised on its;a.Statement of Facts dated 6th March 2023 and filed on 6th April 2023 together with the documents attached thereto; and,b.Written submissions dated and filed on 23rd October 2023.

46. The Respondent stated that it issued the Appellant with an original tax assessment notice relating to Income tax; Value Added Tax; Withholding tax and Capital Gains Tax for the period 2014 to 2017 on 14th June 2018. Thereafter, on 3rd April 2020 pursuant to the provisions of Section 31 of the Tax Procedures Act, the Respondent amended its assessment of 14th June 2020, to which the Appellant objected to on 24th April 2020.

47. The Respondent averred that it reviewed the Appellant’s objection and deemed it invalid for failure to comply with the mandatory provisions of Section 51 (3) of the Tax Procedures Act, the Appellant’s Objection was not accompanied by documentation in support, subsequently the Respondent issued a notice of invalidation of the Objection on 24th September 2020.

48. That the Respondent in its Statement of Facts gave notice that it shall raise a preliminary objection on points of law grounded on the following, that;a.The Honourable Tribunal lacks jurisdiction to hear and determine the subject Appeal for contravening Sections 51 (1) (3) and (2) of the Tax Procedures Act, the Appellant failing to lodge an Objection against that tax decision under this Section before proceeding under any other written law within the prescribed statutory period.b.The application subsuming within the subject Appeal, is otherwise incompetent there being no substantive appealable decision as defined under Section 2 of the Tax Procedures Act.c.The subject Appeal and any application subsuming therein, is otherwise incompetent, misplaced and an abuse of the court process of this Honourable Tribunal.

49. That the Respondent emphasized that it is not bound by a taxpayer’s returns and may assess tax liability and amend the same using any other available information and best judgment, as per Sections 24 (2) and 31 (1) of the Tax Procedures Act, as well as Section 73 (2) (b) of the Income Tax Act.

50. Regarding disallowed deductions, the Respondent contended that the Appellant did not meet the criteria for Commercial Building allowance provided under Section 15 (2) (b) and 16 as read together with the Second Schedule Paragraph 6 A (1) of the Income Tax Act. It argued that the Appellant failed to provide evidence of providing necessary social infrastructure for the building.

51. The Respondent averred that it disputed the deduction of loan interest, asserting that there is no evidence the loan was used wholly and exclusively for income generation, as required by Section 15 (3) and Section 16 (2) of the Income Tax Act. The Respondent highlighted discrepancies in documentation and questioned the utilization of loans obtained by the directors for the company’s benefit.

52. In regard to repair and maintenance costs, the Respondent argued that the Appellant failed to provide sufficient evidence to support its claimed expenses, as required by the burden of proof in tax matters.

53. The Respondent avowed that the agency notices issued to the Appellant’s director were justified as the same were based on the belief that the Appellant was liable for unpaid taxes, and it referenced Section 42 (2) (b) and (c) of the Tax Procedures Act, emphasizing the authority to issue such notices.

54. The Respondent asserted that the Appellant’s claims for deductions do not meet statutory requirements, in order to justify their allowance. The Respondent cited relevant Sections of the Income Tax Act and present arguments based on legal principles and precedents, such as the burden of proof in tax disputes and the authority to issue agency notices.

Respondent’s Prayers 55. The Respondent prayed that the Honourable Tribunal finds;i.The Invalidation Notice dated 24th September 2020 proper and the same be upheld.ii.This Appeal be dismissed with costs.

56. The Respondent in its written submissions higlighted one issue for the Tribunal’s determination, namely;

a. Whether the Respondent’s charge to tax of the Appellant is erroneous or excessive. 57. The Respondent submitted that the Appellant was under duty by virtue of Section 51 (3) (c) of the Tax Procedures Act to provide all relevant documents in support of its Objection.

58. The Respondent further relied on Section 23 of the Tax Procedures Act and Section 43 of the Value Added Tax Act that mandates the Appellant to maintain documents for tax purposes and provide the same upon request by the Respondent.

59. The Respondent asserted that the onus to prove that the tax decision was erroneous and incorrect lied with the Appellant and relied on the case of Kenya Revenue Authotity vs. Man Diesel & Turbo Se, Kenya [2021] eKLR.

60. The Respondent submitted that the Appellant did not demonstrate that it satisfied all three conditions for commercial building allowability as set out in the case of Sony Holdings Limited vs. The Commissioner of Domestic Taxes. The Respondent further stated that the Appellant did not meet the third element in provision in its entirety and there was no evidence in support of expenditure towards social services.

61. The Respondent submitted that, whereas it was not in dispute that the Appellant took out a facility in the sum of Kshs. 1,020,000,000. 00, there was no evidence that the same was utilized wholly and exclusively in the generation of income as an expense, that the loan was utilized in ventures that generated income from the asset in question. The Respondent therefore submitted that, the loan was not an expense incurred in the production of income.

62. The Respondent submitted that the Appellant could not support its aurguments with documentation as to the purposes and utilization of the loan above stated.

63. The Respondent relied on the following case law;a.Kenya Revenue Authority vs. Man Diesel Se, Kenya [2021] eKLR.b.Pearson vs. Belcher CH.M Inspector of Taxes) Tax Cases Volume 38. c.Sony Holding Limited vs. The Commissioner of Domestic Taxes.d.Silver Chain Limited vs. Commissioner Income Tax & 3 Others [2016] eKLR.

Issues for Determination 56. The Tribunal upon the careful consideration of the pleadings, Statements of Facts and submissions made by the parties herein, was of the view that the issues that recommend themselves for its determination are;a.Whether the Appellant’s Appeal as lodged is valid; andb.Whether the Respondent’s Agency Notices were properly issued?c.Whether the notice of invalidation issued on 24th September 2020 was properly issued?

56. The Tribunal having identified the issues for determination proceeds to analyze the same as herein under;

a. Whether the Appellant’s Appeal as lodged is valid; 56. The Appellant lodged the instant Appeal vide the Notice of Appeal dated and filed on the 25th May 2021, leave of the Tribunal was thereafter granted on 12th March 2023 and the Appeal was deemed as properly filed and served.

57. In the aforesaid Notice of Appeal, it is worthy of note that the Appellant indicated that its Appeal was against the Respondent’s decision made on 3rd April 2020.

58. Similarly, the Tribunal notes from the Memorandum of Appeal, the Appellant’s Appeal was based against the Respondent’s decisions made on 3rd April 2020, 9th December 2020 and 6th April 2021 (herein after referred to as the “Agency Notices”).

59. The Respondent in opposition to the Appeal submitted that the Tribunal was not ceased of the requisite jurisdiction to entertain the instant Appeal, for the grounds that there was no appealable decision before it to make a determination.

60. The Tribunal has perused the record, the parties in their respective pleadings and submissions clearly pointed out the various decisions as follows;a.3rd April 2020 – Amended notice of assessment;b.9th December 2020 – Agency Notice to Classic Mouldings Limited, the Appellant’s tenant.c.6th April 2021 – Agency Notice to Prime Bank Limited relating to the personal bank account of the Appellant’s Director, one Alex Chege Waituka.

56. The test in Sections 3 and 52 (1) of the Tax Procedures Act is whether the above decisions constitute appealable decisions. Section 3 of the Tax Procedures Act, relating to an appealable decision, provides;“‘appealable decision’ means an objection decision and any other decision made under a tax law other than—(b)a tax decision; or(c)a decision made in the course of making a tax decision;

56. The Tribunal observes that on the 3rd April 2020 the Respondent issued an amended notice of assessment pursuant to the powers donated under Section 31 of the Tax Procedures Act, which covered Withholding tax and Corporation tax for the years 2015 to 2018. Following the issuance of the amended notice of assessment, the Appellant, if aggrieved ought to have objected to the same and if not paid the undisputed taxes.

57. The Tribunal notes that the Appellant objected to the amended assessments on 24th May 2021, though the Respondent indicated the date of the objection as 24th May 2020. Be that as it may, the Respondent submitted that it made a decision on 24th September 2020 invalidating the Appellant’s Objection.

58. The Tribunal observes that the Appellant has not presented before the Tribunal the decision of 24th September 2020 as is required under Section 13 (2) (c) of the Tax Appeals Tribunal Act nor has the Appellant made a rejoinder in its pleadings or submissions relating to the same.

59. It is the Tribunal’s position that the Respondent on 3rd April 2020 issued an amended assessment, which does not in any manner whatsoever constitute a tax decision and therefore an appealable decision as it qualifies to be a decision made in the course of making a tax decision. For the avoidance of doubt in the circumstances, the decision made on 24th September 2020 would have been the decision that constitutes an appealable decision.

60. The Appellant has not articulated its Appeal in any manner whatsoever as to be one against the decision of Invalidation of the objection issued on 24th September 2020.

61. The Tribunal therefore finds that the Respondent’s decision of 3rd April 2020 is not an appealable decision and the Tribunal’s jurisdiction cannot be invoked under the circumstances.

62. The Tribunal has reviewed the decisions made on 9th December 2020 and 6th April 2021 and noted that the same are agency notices, issued pursuant to the provisions of Section 42 of the Tax Procedures Act. The agency notices are enforcement measures available in law to the Respondent in recovery of taxes.

63. That it is settled law that an agency notice issued upon a taxpayer by the Respondent pursuant to the powers donated under Section 42 of the Tax Procedures Act is an appealable decision under Section 52 of the Tax Procedures Act.

64. The Tribunal is guided by the decision made in the case of Krystalline Salt Limited vs. Kenya Revenue Authority [2019] eKLR, in which the High Court held that“the decision to issue an Agency Notice is an appealable decision pursuant to Section 52 of the Tax Procedures Act.”

56. The Tribunal has sighted the agency notices dated 9th December 2020 and 6th April 2021 that have been placed on record together with the Memorandum of Appeal by the Appellant in compliance with the provisions of Section 13 (2) (c) of the Tax Procedures Act.

57. Consequently, the Tribunal finds that the Appellant did not have a valid Appeal before it as relates to the decision made on 3rd April 2020.

b. Whether the Respondent’s Agency Notices dated 9th December 2020 and 6th April 2021 were properly issued? 56. It was submitted that agency notices were issued on 9th December 2020 to Classic Mouldings Limited, a tenant to the Appellant, seeking from the said tenant to remit the sum of Kshs. 56,975,369. 00 as taxes, sums whereof were held for and on behalf of the taxpayer/Appellant.

57. Further, the Respondent issued an agency notice on 6th April 2021 to one Alex Chege Waituka a director of the Appellant to his personal Bank Account for recovery of Kshs. 56,975,369. 00, which the Appellant contended was unconstitutional.

58. The Respondent in its submissions, asserted that it was acting with in its mandate and took refuge under Section 42 (2) of the Tax Procedures Act.

59. From the foregoing, the Respondent issued its decision on the Appellant’s Objection on the 24th September 2020, from the record, the Appellant filed its Appeal on the 25th May 2021, while the agency notices were issued on the 9th December 2020 and 6th April 2021.

60. The Tribunal notes that there existed not action from the Appellant in the periods between 24th September 2020 and 25th May 2021 as to arrest the enforcement measures, of issuing agency notices, invoked by the Respondent. To this extend only, the Respondent acted within the law.

61. Section 42 (2) of the Tax Procedures Act, provides;“(2)The Commissioner may, in respect of the taxpayer and by notice in writing, require a person (referred to as the "an agent")—(a)who owes or may subsequently owe money to the taxpayer;(b)who holds or may subsequently hold money, for or on account of, the taxpayer;(c)who holds or may subsequently hold money on account of some other person for payment to the taxpayer; or(d)who has authority from some other person to pay money to the taxpayer, to pay the amount specified in the notice to the Commissioner, being an amount that shall not exceed the amount of the unpaid tax or the amount of tax that the Commissioner believes will not be paid by the taxpayer by the due date.”

56. The Respondent argued that the said Classic Mouldings Limited was the tenant of the Appellant, conversely the Appellant did not dispute these assertions. The Tribunal is alive to the fact that a tenant qualifies as one who hold funds on behalf of the landlord in form of rent during the subsistence of such tenancy.

57. The Respondent stated that it was well guided within the purview and meaning of Section 42 (2) (b) to issue the agency notices to the said tenant.

58. The Respondent was justified in holding that the Appellant’s tenant met scenario (b) of the four scenarios as provided by Section 42 (2) of the Tax Procedures Act, that the tenant holds or may subsequently hold money, for or on account of, the Appellant, subject to the interval of payment agreed upon as between the tenant and the Appellant.

59. The Tribunal finds that the Respondent was justified in issuing the agency notices dated 9th December 2020 the Appellant’s tenant.

60. However, the Tribunal notes that the agency notices dated 6th April 2021, were issued upon one Alex Chege Waituka a director of the Appellant on his personal bank account held with Prime Bank Limited on the premise that the said person held sums of money on behalf of the Appellant.

61. The Appellant’s position is that the Respondent’s actions infringed on the director’s rights, the law recognizes that the Appellant and its directors are separate even though the company is run by the Directors.

62. The fact that under the day to day operations of the company, the director or directors are the agents of the company for operational purposes, does not accord the directors the tax liabilities of the company. They exist separately and must be treated separately for tax purposes.

63. The Tribunal took note that at no point in these proceedings did the Director of the Appellant challenge the agency notices issued by the Respondent to his personal bank accounts. The Appellant cannot purport to advance the cause of its director in matters that infringe on a director’s personal rights and in his personal capacity.

64. The Tribunal observed that the Director of the Appellant did not demonstrate that the Respondent was incorrect to deem that the funds held in his personal account were held for and on behalf of the Appellant.

65. The Tribunal notes that the burden of proof in tax matters rests on the Appellant in accordance with the provisions of Section 56 (1) of the Tax Procedures Act as read together with Section 30 of the Tax Appeals Tribunal Act, neither the Appellant nor its Director has discharged the burden of proof.

66. Accordingly, it is the Tribunal’s view that the Director of the Appellant did not challenge the agency notice issued upon his personal bank account to demonstrate that the same was improperly issued and therefore illegal and unlawful.

67. Further, the Director of the Appellant did not demonstrate how the agency notice was in violation of his rights to fair administrative action under Article 47 of the Constitution of Kenya.

68. The Tribunal having held that the Director of the Appellant did not challenge the agency notice issued on his personal bank account, finds that the Respondent was justified to issue the agency notice dated 6th April 2021.

69. Consequently, the Appellant’s Appeal fails.

Final Decision 56. The upshot of the foregoing analysis is that the Appeal lacks merit and the Tribunal accordingly proceeds to make the following Orders;a.The Appeal be and is hereby dismissed.b.The Respondent’s decision issued on 3rd April 2020 be and is hereby upheld.c.The Respondent’s agency notices dated 9th December 2020 and 6th April, 2021 be and are hereby upheld.d.Each party to bear its own costs.

56. It is so ordered.

DATED AND DELIVERED AT NAIROBI THIS 24TH DAY OF MAY, 2024. ROBERT M. MUTUMA - CHAIRPERSONMUTISO MAKAU - MEMBERELISHAH N. NJERU - MEMBERBERNADETTE M. GITARI - MEMBERMOHAMED A. DIRIYE - MEMBER