[2024] KETAT 1621 (KLR)

Kenya Tea Development Agency Farmers Company Limited v Commissioner of Domestic Taxes (Tribunal Appeal E039 of 2024) [2024] KETAT 1621 (KLR) (Commercial and Tax) (25 October 2024) (Judgment)

Neutral citation: [2024] KETAT 1621 (KLR)

Republic of Kenya

In the Tax Appeal Tribunal

Commercial and Tax

Tribunal Appeal E039 of 2024

E.N Wafula, Chair, G Ogaga, RO Oluoch, AK Kiprotich & Cynthia B. Mayaka, Members

October 25, 2024

Between

Kenya Tea Development Agency Farmers Company Limited

Appellant

and

Commissioner Of Domestic Taxes

Respondent

Judgment

Background 1. The Appellant is a company established in 1996 by small scale tea growers drawn from the tea growing areas of Kenya. It serves mainly as an investment vehicle for the farmers.

2. The Respondent is a principal officer appointed under Section 13 of the Kenya Revenue Authority Act, Cap 469 Laws of Kenya (KRA Act). Under Section 5 (1) of the Act, KRA is an agency of the Government for the collection and receipt of all revenue. For the performance of its function under Subsection (1), the Authority is mandated under Section 5(2) of the Act to administer and enforce all provisions of the written laws as set out in Parts I and II of the First Schedule to the KRA Act to assess, collect, and account for all revenues under those laws.

3. The Respondent conducted investigations on the affairs of the Appellant for the periods 2016 to 2019 and issued its preliminary investigations findings to the Appellant in a letter dated 31st December 2021.

4. Following subsequent correspondences between the Appellant and the Respondent, on 25th September 2023, the Respondent issued the Appellant with a notice of assessment, assessing the Appellant for Corporation tax on interest income for the years 2017/2018, 2018/2019 and 2021/2022.

5. The Appellant partially objected to the assessments on 18th October 2023 and requested the Respondent for a payment plan for the taxes conceded.

6. The Respondent issued an objection decision on 30th November 2023.

7. The Appellant, being dissatisfied with the Respondent’s objection decision, filed its Notice of Appeal dated 2nd January, 2024 on the 16th January 2024.

The Appeal 8. The Appeal is premised on the Memorandum of Appeal dated and filed on 16th January 2024 which raised the following grounds: -a.That the Respondent erred in law and in fact by making a determination that interest income earned by entities related to the Appellant was income due and taxable on the part of the Appellant.b.That the Respondent erred in law and in fact by failure to find that erroneous usage of the Appellant’s KRA PIN by third parties when filing their returns could not give rise to a tax liability.c.That the Respondent erred in law and in fact by failing to consider all the documents provided by the Appellant.d.That the Respondent erred in law by exercising its discretion illegally, capriciously and without due consideration of the provisions of Section 51(8) of the Tax Procedures Act.

Appellant’s Case 9. The Appellant’s case is premised on the Appellant’s Statement of Facts dated 15th January, 2024 and filed on 16th January 2024 and the documents attached to it.

10. The Appellant stated that it is incorporated as a company, rendering it separate and distinct, as a legal entity, from Kenya Tea Development Agency Holdings Ltd, the Kenya Tea Development Agency (Management Services) Limited ("KTDA(MS)L"), Kenya Tea Development Agency Foundation ("KTDA Foundation"), Kenya Tea Development Agency Power Company Limited ("KTDA PCL") and the over fifty individual tea factories that have a management agreement with KTDA for the processing and marketing of their tea.

11. The Appellant described itself as the main investment vehicle for small scale tea farmers in Kenya affiliated with the Kenya Tea Development Agency (Holdings) Limited tea factories.

12. The Appellant added that while it is primarily set up as an investment vehicle for farmers across a broad spectrum of the economy, it majorly focuses on property investment (making up ~ 82% of its portfolio) and landholding (making up ~17%). That the remainder of its investments are in the financial services market which comprise ~ 0. 26% of the total asset base of the company.

13. The Appellant reiterated that the main income and revenue generated by it is derived from investments. That there are no active economic activities pursued by the Appellant.

14. The Appellant contended that due to the similarity of the prefix ‘KTDA’ in the company’s and the various KTDA subsidiaries’ names, third parties and suppliers routinely confuse or erroneously use the details of one company interchangeably with another.

15. The Appellant stated that on 6th September 2021, the Respondent commenced an investigation on Kenya Tea Development Agency (Holdings) Limited, its subsidiaries and affiliated companies following the presidential directive on tea reforms via Executive Order No. 3 of 2021 and subsequent raids on the Appellant’s premises. That the notice was given orally and the Respondent requested information on 22nd November 2021 via email.

16. The Appellant averred that the investigations were primarily undertaken through desktop review of iTax filings and request for documentation from the Appellant. That this set the ground for accounting errors due to the inaccurate nature of the records relied on by the Respondent.

17. The Appellant further stated that on 26th January 2022, the Respondent communicated to it vide a letter dated 31st December 2021 that it had completed its tax investigations, and proceeded to issue preliminary investigations findings that the Respondent had found, among other findings, that there was a taxable variance between the interest as per accounts and the interest computed by the Respondent for the years 2017/2018 and 2018/2019.

18. That after further engagement between the parties, the Appellant on 21st November 2022 wrote to the Respondent with a breakdown of the source of the interest income that the Respondent had erroneously credited to the Appellant.

19. The Appellant stated that it informed the Respondent that the interest income had already been declared by various Kenya Tea Development Agency companies. That the Appellant had only erroneously claimed credit for the income.

20. The Appellant further stated that the correspondence on the interest income continued up to 1st February 2023 when the Respondent’s officers acknowledged receipt of the updated breakdown of the source of the interest income and the explanation that the income had already been declared by other KTDA entities and ought not be credited to the Appellant.

21. That on 25th September 2023, the Respondent proceeded to issue a notice of tax assessment for the years 2018 - 2022.

22. The Appellant stated that it was notable that the tax assessment was for the year 2018 - 2022 whereas the tax investigations had been carried out for the years 2016 - 2020. That the Respondent did not explain nor provide reasonable justification for the inclusion of 2021 and 2022 in the tax assessment, given that the two years were not part of the initial investigations.

23. The Appellant averred that the Respondent decided on the Appellant’s income based on a review of withholding tax certificates in iTax which indicated that over the period, various banks withheld taxes on interest income earned by the Appellant at 15% of the income value.

24. The Appellant further averred that its iTax ledger was updated with the assessments referenced as KRA202317512643, KRA202317512577 and KRA202219882589 all dated 22nd September 2023, and that the Respondent proceeded to demand the taxes deemed payable.

25. The Appellant stated that it lodged an objection in a letter dated 18th October 2023 on the grounds that the Respondent had used incorrect figures for the computation and secondly, that the interest income had not been understated.

26. According to the Appellant, the Respondent’s notional interest income of Kshs. 190,805,587. 00 that the Respondent derived from withholding tax credits of Kshs. 28,779,796. 00 in the years 2018 - 2022, was based on an erroneous computation due to the use of wrong values.

27. The Appellant averred that the error of fact made by Respondent was failure to note that the tax credits for the financial year 2018 were Kshs. 16,537,363. 00 and not the amount used in computation of Kshs. 26,852,226. 00 because the tax credit of Kshs. 10,314,863. 00 related to the 2017 financial year.

28. The Appellant stated that it conceded that it had erroneously received withholding tax credits of Kshs. 16,470,439. 00 in the year 2018, and that the error arose when banks erroneously used the Appellant’s PIN instead of the various KTDA managed factories to declare and pay taxes withheld on interest earned.

29. The Appellant averred that unaware of the erroneous crediting, it utilised the tax credits when filing annual returns, and further averred that the KRA system does not allow users to file returns without declaring any or all withholding tax credits that have been posted in the taxpayer’s ledger. The Appellant stated that it acknowledged the oversight and sought to pay the principal tax of Kshs. 16,088,878. 00 in six instalments since the error of commission had neither been procured, committed, sanctioned or otherwise been facilitated by it.

30. The Appellant claimed that upon noticing the error, it repeatedly engaged the various banks to reverse the credits but was unsuccessful.

31. The Appellant averred that on 1st December 2023, it received the Respondent’s objection decision vide a letter dated 30th November 2023, wherein the Respondent recomputed demanded taxes to Kshs. 33,386,073. 00 consequently rejecting the objection in its entirety and confirmed the principal taxes payable for the year 2018 - 2019 to be Kshs. 33,386,073. 00.

32. The Appellant averred that having admitted to some of the taxes demanded by the Respondent, it entered into an arrangement for payment of the conceded amounts in instalments. That the proposal was accepted by the Respondent and the first payment under the instalment plan has already been made.

33. The Appellant further averred that whereas it had proposed to settle part of the taxes demanded by the Respondent, the proposal was conditional on the Respondent considering the documents provided by the Appellant and determining the appropriate taxes that were due from the uncontested certificates.

34. The Appellant further averred that rather than accept the conditional offer by the Appellant, the Respondent unilaterally declined to review the documents, imposed additional taxes on the Appellant and issued an objection decision for a higher amount than the assessed or objected amount in utter breach of the fair administrative process that it was obliged to undertake.

35. That the Appellant was dissatisfied with the decision of the Respondent as communicated in the objection decision and appealed to the Tribunal.

36. The Appellant submitted that at the core of the Appeal is the mistake of fact and law committed by the Respondent in demanding taxes from the Appellant when such taxes are due and owing from third parties.

37. The Appellant referred to Sections 3, 10, and 35 of the Income Tax Act and the Income Tax (Withholding Tax) Rules, 2001 an averred that these provisions of the law impose income tax on the interest income of a person, not related third parties or subsidiaries.

38. The Appellant asserted that in the instant matter, it repeatedly provided documentation and information to the Respondent indicating the following:a.That there are numerous KTDA affiliated companies and subsidiaries that use the prefix KTDA in their name.b.That over the years, various companies associated with or related to KTDA have held or maintained interest earning accounts with various banks in the country. That such companies include the KTDA (Holdings) Limited, KTDA (MS) Limited and KTDA managed factories.c.That due to an error or mistake on the part of the various banks in which the interest earning accounts are maintained, the banks have routinely used the KRA PIN of KTDA Farmers Company Limited when filing returns for withholding taxes when declaring or paying interest income to those companies.d.That when the error was noted, the Appellant engaged the various banks to have the errors corrected. That such engagements have been fruitless.e.That as such, the Appellant’s iTax ledger contains numerous erroneous entries by third parties that indicate or otherwise seem to state that the Appellant was the beneficiary or payee of such interest income while that was not the case.

39. The Appellant averred that following the correspondence and meetings with the Respondent, it legitimately expected that the Respondent would correct the error in the iTax system as the error was neither occasioned nor sanctioned by the Appellant but by third parties.

40. The Appellant further claimed that the Respondent has declined or otherwise failed to correct the errors despite the same being flagged out by the Appellant. That instead, the Respondent used the annual income returns of the Appellant (that were correct and valid) and compared them with the erroneous withholding tax certificates issued by various third parties to the detriment of the Appellant.

41. The Appellant averred that even after the mistake or erroneous certificates were brought to the Respondent’s attention, the Respondent has refused, failed or otherwise declined to correct the error to the detriment of the Appellant.

42. The Appellant argued that by demanding the taxes from the Appellant, the Respondent has prima facie deemed the Appellant to be liable for the tax liability of third parties, contrary to Section 3 of the Income Tax Act.

43. The Appellant submitted that its sole obligation under Rules 2, 4 and 5 of the Income Tax (Withholding Tax) Rules, 2001 is limited to proving that it was not the beneficiary or recipient of the interest income.

44. The Appellant contended that the Respondent ought to have sought or engaged the individuals who made the payments to produce documents, per Rule 5 of the Income Tax (Withholding Tax) Rules that impose the duty to maintain records on the person making the payment. That Rule 8 enumerates the payment of withholding tax as it relates to the recipient of the interest income, not a third party.

45. The Appellant submitted that given that it was not the recipient of the interest income paid out by the banks, any comparison of its income tax returns and withholding tax returns was always going to show a variance. That the variance, however, does not give rise to a tax obligation as the taxpayer did not receive any benefit and indicated as much to the Respondent

46. The Appellant maintained that it was up to the Respondent to then engage the banks as the persons who issued the payment and made the erroneous PIN imputation to confirm from their records (under Rules 2, 4, 5 and 8) who the ultimate recipient or beneficiary of the interest income was and thereafter surcharge them for the taxes.

47. It was the Appellant’s submission that pursuant to Section 56(1) of the Tax Procedures Act and Section 107 of the Evidence Act, it was the duty of the taxpayer to demonstrate that the taxes demanded or sought by the Respondent were not due from them. That such duty is discharged when the taxpayer provides all records related to a transaction that they are required to maintain, as per Section 54 of the Income Tax Act and Section 23(1) of the Tax Procedures Act.

48. The Appellant further submitted that upon providing such documents, there is an obligation on the Respondent to review and consider all the relevant documents before making a determination on the matter. That failure to do so amounts to a breach of the legitimate expectation provided under the KRA Act that the administration of the tax code would be in a fair and impartial manner.

49. The Appellant submitted that the High Court in Commissioner of Investigations and Enforcement v Kidero (Income Tax Appeal E028 of 2020) [2022] KEHC 52 (KLR) noted that the duty to maintain records and provide documents to the Commissioner is dependent on the circumstances of the case as follows: -“Whether the taxpayer has provided sufficient evidence to meet the threshold of proof required to discharge its burden must of course depend on the nature of the subject or transaction and the circumstances of the case bearing in mind the aforesaid duty placed on the taxpayer to keep records.”

50. The Appellant asserted that in this case, it was not the beneficiary or recipient of the interest income. That as such, it could not prove a nugatory. That what the Appellant could, and did indeed prove, was that for the period under contestation it did not receive any monies related to the withholding tax certificates that were contested. That this was done by provision of the relevant bank account statements for the period.

51. The Appellant contended that upon providing its bank account statements and annual accounts, it had discharged the burden of proof that it was not the beneficiary of the interest income. That as such, the obligation was then on the Respondent to engage the person who issued the withholding tax certificates to determine the actual recipient of the interest income and thereafter charge them the relevant taxes.

52. The Appellant referred to Section 51 of the Tax Procedures Act and the holding in the case of Republic v Commissioner of Domestic Taxes Ex Parte Fleur Investments Limited [2020] eKLR to submit that the statutory powers of the Commissioner under Section 51(8) of the Tax Procedures Act are circumscribed by law to either allowing in whole or in part an objection or disallowing the objection. That the discretion under the provision does not extend to enhancing or otherwise varying the assessed amount upwards.

53. The Appellant averred that on 25th September 2023, the notice of tax assessment by the Respondent was for years 2017 and 2022 for an amount of Kshs. 26,483,670. 00 and Kshs. 381,561. 00 respectively. The Appellant further averred that the assessments were subsequently set aside by the Respondent who in the objection decision withdrew the 2017 assessment without any explanation or justification.

54. The Appellant asserted that the total amount of taxes demanded from it in the assessment was Kshs. 27,034,918. 00 whereas the objection decision issued a new, fresh assessment of Kshs. 33,386,073. 00. That the variance could not have reasonably been allowing part or the entirety of the objection notice as the Respondent issued fresh assessments for the years 2018 and 2019.

55. The Appellant, therefore, contended that the Respondent acted beyond the law as provided in Section 51(8) of the Tax Procedures Act by issuing an objection decision that was neither partly or wholly allowing the notice of objection. That by varying the tax demanded, the Respondent prima facie issued a new assessment without any legal basis or justification for the assessment.

Appellant’s prayers 56. The Appellant prayed for the following:a.That the Tribunal be pleased to set aside the entirety of the Respondent’s notice of assessment dated 25th September 2023. b.That the Tribunal be pleased to find and hold that the Appellant’s objection dated 18th October 2023 is allowed.c.That the Tribunal be pleased to set aside the Respondent’s objection decision dated 30th November 2023. d.That the Tribunal be pleased to issue any further orders or relief as may be just and expedient in the circumstances.e.That a declaration be issued that the Respondent in issuing an objection decision cannot enhance, increase or otherwise vary upwards the total amount of taxes levied per tax head on the taxpayer as per the notice of assessment.f.That the cost of the Appeal be borne by the Respondent.

Respondent’s Case 57. The Respondent’s case is premised on the Respondent’s Statement of Facts dated 15th February 2024 and filed on 16th February 2024.

58. The Respondent stated that it conducted investigations on the affairs of the Appellant for the periods of 2016 to 2019 seeking to establish whether the Appellant was compliant with the tax laws and to assess and collect unpaid taxes and recommend remedial measures for future compliance.

59. The Respondent averred that its investigations mainly centered on the review and analysis of bank statements and related data of the Appellant.

60. That the investigation revealed that the Appellant understated income declared in the income tax returns and under declared income for VAT purposes.

61. The Respondent stated that it communicated the findings of the investigations to the Appellant on 31st December 2021. That the Appellant was also informed that the preliminary findings constitute the following tax offences: -a.Failure to pay tax under Section 95 of the Tax Procedures Act.b.Fraud in relation to tax under Section 97 of the Tax Procedures Act.

62. The Respondent averred that it also reconciled interest income declared in the Appellant’s income tax returns and interest income as per withholding tax certificates of the Appellant as the withholdee which yielded undeclared incomes in the years 2017/2018, 2018/2019 and 2021/2022.

63. That on 25th September 2023, the Respondent issued additional assessments pursuant to Section 31 of the Tax Procedures Act for the period 2018 - 2022 demanding taxes of Kshs. 27,034,918. 00.

64. The Respondent stated that it considered the Appellant’s objection and issued an objection decision on 30th November 2023, confirming taxes of Kshs. 33,386,073. 00. That the Appellant lodged an appeal against the decision.

65. The Respondent averred that on 1st November 2023 it held a meeting with the Appellant in pursuit of understanding the nature of the interest income.

66. The Respondent reported that the Appellant had indicated that KTDA Holdings which included several factories and companies have been investing their funds through interest-bearing accounts domiciled at Diamond Trust Bank and NIC Bank. That by the end of the year the bank pays interest to the respective companies based on the amount invested.

67. The Respondent further reported that the Appellant also indicated that the bank is responsible for withholding tax on the interest income at the applicable rate of 15% and the dispute arose because the bank has been withholding tax on interest from the Appellant. In response to the Appellant’s assertions, the Respondent pleaded that the entities related to the Appellant are not exempted from paying income tax.

68. The Respondent asserted that the Appellant failed to avail documentation in support of the objection contrary to Section 59(1) of the Tax Procedures Act which provides that a taxpayer shall produce records when required to do so by the Commissioner.

69. Referring to Section 24 of the Tax Procedures Act, the Respondent stated that it provided the Appellant with multiple opportunities to be heard, which ultimately resulted in the objection decision.

70. The Respondent submitted that the Appellant has the burden of proving that the tax being demanded by the Commissioner is incorrect, and as such has the burden to support any objections raised with relevant documents that are requested for by the Commissioner.

71. The Respondent affirmed that its user interface has security features to safeguard against unauthorised entry and usage by unauthorised persons. That the user interface has pin/password to be entered and only a person who has the password can access the user interface. The Respondent further asserted that it is not possible for third parties to file returns from the taxpayer’s iTax user interface without a password.

72. The Respondent cited Section 51(8) of the Tax Procedures Act and submitted that it considered the taxpayer’s objection and issued the objection decision dated 30th November 2023.

73. The Respondent submitted that the objection decision satisfies the requirements as listed under Section 51(10) of the Tax Procedures Act as it gives the statement of findings, material facts and the reason for the decision. That the Respondent’s conduct is in adherence to the law and the resultant objection decision cannot be faulted.

74. The Respondent, in conclusion, pleaded that the allegations of the Appellant as laid out in its Memorandum of Appeal and Statement of Facts, unless where in agreement by the Respondent, are unfounded.

Respondent’s prayers 75. The Respondent prayed for the following: -a.That the Appellant’s Appeal be dismissed with costs.b.That the assessment raised by the Respondent amounting to Kshs. 33,386,073. 00 be confirmed.c.That the principal taxes and interest be found due and payable as per the objection decision rendered by the Respondent.

Issue For Determination 76. The Tribunal has considered the facts of the matter and the submissions made by the parties, and considers the issue for determination as follows:1. Whether the Respondent was justified in issuing the objection decision dated 23rd November 2023.

Analysis And Findings 77. The Tribunal analysed the issue that calls for its determination as hereunder, having reviewed all the pleadings, information and documents adduced by the Appellant and the Respondent concerning the impugned objection decision.

78. The Respondent conducted investigations on the affairs of the Appellant for the period 2016 to 2019 and issued its preliminary investigations findings to the Appellant in a letter dated 31st December 2021.

79. Following subsequent correspondences between the Appellant and the Respondent, on 25th September 2023, the Respondent issued the Appellant with a notice of assessment, assessing the Appellant Corporation tax on interest income for the years 2017/2018, 2018/2019 and 2021/2022.

80. The Appellant partially objected to the assessments on 18th October 2023 and requested the Respondent for a payment plan for the taxes conceded.

81. The Respondent issued an objection decision on 30th November 2023, which the Appellant appealed in the instant Appeal.

82. The Appellant argued that the Respondent acted beyond the law as provided in Section 51(8) of the Tax Procedures Act by issuing an objection decision that was neither partly nor wholly allowing the notice of objection. That by varying the tax demanded, the Respondent prima facie issued a new assessment without any legal basis or justification for the assessment.

83. The Tribunal reviewed the Appellant’s contention by comparing the additional Corporation tax assessments in the notice of assessment and the assessment confirmed in the objection decision. The Respondent had assessed the Appellant additional Corporation tax on interest income for the years 2018, 2019 and 2022 in its notice of assessment, and confirmed the assessment only for the years 2018 and 2019 in its objection decision.

84. The Tribunal notes that the Respondent reduced the computed 2018 undeclared interest income by Kshs. 68,765,753. 00 which the Appellant during the objection proved to the satisfaction of the Respondent that it related to interest income for the year 2017, effectively partially allowing the Appellant’s objection by reducing the tax assessment for 2018. The Tribunal further notes that the Respondent disallowed the objection against the 2019 additional assessment and vacated the 2022 additional assessment in its entirety, effectively partially allowing the Appellant’s objection.

85. The Tribunal, however, observes that in its objection decision, the Respondent failed to net off what it had previously labelled as ‘less WHT paid’ in the notice of assessment to establish the tax payable by the Appellant.

86. It is the Tribunal’s considered view that if indeed the Appellant has available WHT credits in the years assessed, should not be prejudiced by this omission by the Respondent, as the law in Section 39 of the Income Tax Act deems WHT credits as tax paid by the person chargeable with that tax and available for set off against the tax charged on the person.

87. Section 39(1) of the Income Tax Act provides as follows: -“(1)An amount of tax which–(a)has been deducted under section 17A (in respect of a person other than an individual), sections 35, 36 or 37;(b)has been borne by a trustee, executor or administrator in his capacity as such on an amount paid as income to a beneficiary; or(c)has been paid by a person under section 12A, shall be deemed to have been paid by the person chargeable with that tax; and shall be set off for the purposes of collection against the tax charged on that person for the year of income in respect of which it was deducted…”

88. The Tribunal, based on the aforementioned, finds that the Respondent complied with Section 51(8) of the Tax Procedures Act as the tax assessment was not uplifted in the objection decision as alleged by the Appellant.

89. The Tribunal further finds that the Respondent erred in failing to include the WHT paid when confirming the assessments and establishing the taxes payable in the objection decision.

90. The Appellant asserted that in this case, it was not the beneficiary or recipient of the interest income. That as such, it could not prove a nugatory. That what the Appellant could, and did indeed prove, was that for the period under contestation it did not receive any monies related to the withholding tax certificates that were contested. That this was done by provision of the relevant bank account statements for the period.

91. The Appellant contended that upon providing its bank account statements and annual accounts, it had discharged the burden of proof that it was not the beneficiary of the interest income. That as such, the obligation was then on the Respondent to engage the person who issued the WHT certificates to determine the actual recipient of the interest income and thereafter charge them the relevant taxes.

92. The Respondent, on the other hand, asserted that the Appellant failed to avail documentation in support of the objection contrary to Section 59(1) of the Tax Procedures Act.

93. One of the Appellant’s grounds of appeal was that the Respondent erred in law and in fact by failing to consider all the documents provided by the Appellant. The Appellant averred that the Respondent unilaterally declined to review the documents and imposed additional taxes on the Appellant.

94. The Tribunal analysed the Appellant’s assertion that the interest income on which the Respondent assessed Corporation tax was not its own income, but that of its related companies. Based on the arguments presented by the parties, the Tribunal considers the key issue in the present case to be the documentation to substantiate the Appellant’s claims.

95. Section 56(1) of the Tax Procedures Act and Section 30 of the Tax Appeals Tribunal Act place the burden of disproving the Commissioner upon the taxpayer. To satisfy this burden, a taxpayer ought to submit all the relevant evidentiary material in its possession.

96. Section 54A(1) of the Income Tax Act envisages that a person carrying on a business must keep certain records and documents which in the opinion of the Commissioner are adequate for computing tax. It provides as follows: -“A person carrying on a business shall keep records of all receipts and expenses, goods purchased and sold and accounts, books, deeds, contracts and vouchers which in the opinion of the Commissioner, are adequate for the purpose of computing tax.”

97. A person is also obligated to maintain and retain any document required under a tax law for a period of five years from the end of the reporting period to which it relates, as per Section 23(1) of the Tax Procedures Act so as to enable the person’s tax liability to be readily ascertained.

98. The Tribunal refers to the case of Commissioner of Domestic Taxes v Trical and Hard Limited (Tax Appeal E146 of 2020) [2022] KEHC 9927 (KLR) where the Court held as follows at paragraph 26 with regard to the evidential burden of a taxpayer: -“From the above, it is clear that the evidential burden of proof rests with the taxpayer to disprove the Commissioner and that once competent and relevant evidence is produced, then this burden now shifts to the Commissioner. I have emphasized and underlined ‘competence’ and ‘relevance’ because it is only evidence that meets these two tests that demolishes presumption of correctness and swings the burden to the Commissioner. This means that even if one avails evidence but then it is found that the same is incompetent or irrelevant, then the burden continues to remain with the tax payer.”

99. In the absence of relevant documentation to facilitate the assessment of a tax liability, the Respondent is empowered under Section 31(1) of the Tax Procedures Act to use its best judgment in making its tax assessment.

100. The Respondent doubted the Appellant’s assertion of the completeness of interest income as declared in the Appellant’s accounts and tax returns and issued Corporation tax assessments on variances that it determined from comparing the interest income values on Withholding tax (WHT) certificates in the Appellant’s tax ledger and the interest income values declared by the Appellant in its tax returns. The Appellant on the other hand contended the occurrence of the interest income, that the interest income did not pertain to it.

101. It is clear in law, under Section 3 of the Income Tax Act, that interest income is assessible to income tax. On whose hands the income is assessible is a question of fact that can only be determined upon the presentation of competent evidence. The occurrence and completeness of income are a question of fact and it was the onus of the Appellant, having denied that the interest income assessed pertained to it, to prove that the interest income it declared as assessible to it was completely declared.

102. The Tribunal perused all the documents that the Appellant provided in its Appeal and notes that the only written evidence that the Appellant presented was emails to Commercial Bank of Africa Limited and Diamond Trust Bank (DTB), both dated 27th September 2018 which stated as follows: -“… Attached below is withholding tax certificate for KTDA management services, the document shows that all tax withheld by your bank including the ones for factories were not aligned as per your instructions. Kindly provide us with details of specific deposits that constituted that amount for our review thus facilitating appropriate guidance for proper alignment. This will help us close outstanding issues with KRA on the same.”

103. The recipient of the email to Commercial Bank of Africa replied to the email on 27th September 2018, stating “Well received-will review and revert”. The recipient of the email to DTB Africa did not reply. The Appellant only sent the banks a reminder email on 9th November 2018, which was the last of the communication between the Appellant and the bank that the Appellant presented in its Appeal.

104. The Tribunal observes that the Appellant’s emails to the banks were one-sided and not conclusive. The Appellant in its pleadings also claimed that it repeatedly engaged the various banks to reverse the credits but was unsuccessful.

105. In addition, the Tribunal notes that while the Appellant claimed to have provided its bank account statements and annual accounts to the Respondent in support of its tax position, the Appellant failed to present these documents in its record of appeal for the Tribunal’s review.

106. Section 54(1) of the Income Tax Act obligates a person carrying on a business to keep records of, among other documents, all receipts, accounts and books which in the opinion of the Commissioner, are adequate for the purpose of computing tax. It is these records that the Tribunal can rely on in determining an appeal such as this against an assessment on interest income.

107. Presentation of such crucial source documents could have enabled the Tribunal to confirm the verity of the Appellant’s assertion that the Respondent erred in assessing tax on the Appellant on income that did not pertain to the Appellant.

108. Contrary to the Appellant’s perception that the Respondent required it to prove a nugatory position, the law in Section 56(1) of the Tax Procedures Act and Section 30 of the Tax Appeals Tribunal Act places upon the Appellant the obligation to prove that the Respondent’s assessment is incorrect or excessive, which should be supported by the relevant documentation that the taxpayer relied upon to prepare the amounts that it included in its tax returns and asserted as its tax position.

109. Based on the above-cited evidence that was analysed by the Tribunal, it is clear to the Tribunal that the Appellant made averments of its correct tax position, but failed to support the same with sufficient documentation.

110. The Tribunal observes that the Appellant expected the Tribunal to verify the completeness of its interest income using the inconclusive emails it submitted as evidence. The Appellant’s presentation of these emails as the only evidence was not just a manifestation of indolence on the part of the Appellant, but also of failure to discharge the burden of proof.

111. Due to the Appellant’s failure to discharge its burden of proof regarding the completeness of its interest income in the years assessed, the Tribunal finds that the Respondent was justified in issuing the additional corporation tax assessments for the years 2018 and 2019.

Final Decision 112. The upshot of the foregoing analysis is that the Tribunal finds that the Appeal is partially merited and accordingly proceeds to make the following Orders:a.The Appeal be and is hereby partially allowed.b.The Respondent’s objection decision dated 30th November 2023 be and is hereby varied in the following terms:i.The WHT paid that was recognised by the Respondent for the years 2018 and 2019 in its notice of assessment to be deducted from the confirmed assessments for the years 2018 and 2019 in the objection decision.ii.The Respondent is hereby directed to recompute the tax payable based on the Tribunal’s finding under Order b) (i) above within Thirty (30) days from the date of delivery of this Judgment.c.Each party to bear its own costs.

113. It is so ordered.

DATED AND DELIVERED AT NAIROBI THIS 25THDAY OF OCTOBER, 2024. ERIC NYONGESA WAFULA - CHAIRMANGLORIA A. OGAGA - MEMBERDR. RODNEY O. OLUOCH - MEMBERABRAHAM K. KIPROTICH - MEMBERCYNTHIA B. MAYAKA - MEMBER