[2023] KETAT 1017 (KLR)

Kenya Tea Development Agency Staff Provident Fund v Commissioner of Legal Service & Board Cordination (Tax Appeal 1187 of 2022) [2023] KETAT 1017 (KLR) (8 September 2023) (Judgment)

Neutral citation: [2023] KETAT 1017 (KLR)

Republic of Kenya

In the Tax Appeal Tribunal

Tax Appeal 1187 of 2022

E.N Wafula, Chair, Cynthia B. Mayaka, Grace Mukuha, Jephthah Njagi & AK Kiprotich, Members

September 8, 2023

Between

Kenya Tea Development Agency Staff Provident Fund

Appellant

and

Commissioner of Legal Service & Board Cordination

Respondent

Judgment

Background 1. The Appellant is a limited liability company incorporated in Kenya whose core activity is a Provident Fund on behalf of employees of KTDA.

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 is an agency of the Government for the collection and receipt of all tax revenue. Further, under Section 5 (2) of the Act with respect to the performance of its functions under subsection (1), the Authority is mandated to administer and enforce all provisions of the written laws as set out in Part 1 & 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 Respondent carried out investigations on the Appellant’s tax affairs for the period July 2016 to July 2021, where the Respondent issued the Appellant with an additional assessment on income tax dated 14th June 2022.

4. The Appellant disputed the Respondent’s findings and lodged its notice of objection to the additional assessment on 6th July 2022.

5. The Respondent upon consideration of the Appellant’s objection to the additional assessment, issued an objection decision dated 30th August 2022.

6. The Appellant being aggrieved by the objection decision issued by the Respondent, lodged this Appeal, filing its Notice of Appeal on the 29th September 2022.

The Appeal 7. The Appellant’s Memorandum of Appeal filed on the 13th October 2022 is hinged on the following grounds, that;a.The Respondent erred in law and in fact by interpreting Section 22 A of the Income Tax Act as a basis for limiting the deductible contributions to schemes of the Appellant and as the basis for taxation of the incomes of registered pension and/or provident fund.b.The Respondent erred in law and in fact by asserting that the tax exemption certificates it had issued to the Appellants limited the exemption to the extent of the contribution limit provided in the trust deed schemes and rules.c.The Respondent erred in fact and in law by presuming that the exemption certificate issued when the trust deed schemes and rules are approved by the Commissioner imposed a statutory limitation on the contribution of members contrary to the provisions of the Income Tax (Retirement Benefits) Rules of 1994. d.The Respondent erred in law and in fact in presuming that Section 22 A of the Income Tax Act provided limits on what contributions are to be deducted in computing the taxable- income of both the employer and the employee; ande.The Respondent erred in fact and in law its interpretation of Section 3 (2) (c) and Section 8 (5) (c) (i) of the Income Tax Act as imposing a statutory limit on deductibility of withdrawals by an employee from a number of registered pension or provident fund sponsored by one employer contrary to the express provisions of the Income Tax Act under Section 3 (2) (c) and Section 8 (5) (c).f.That the Respondent erred in law and in fact by wrongly determining that the interest earned on two separate schemes were not tax exempt; andg.That the Respondent erred in law and in fact by construing that withholding tax had been understated.

Appellant’s Case 8. The Appellant’s case is premised on the herein under filed documents before the Tribunal;a.The Appellant’s Statement of Facts filed on the 13th October 2022 together with the documents attached thereto.b.The Appellant’s Written Submissions dated the 4th January 2023 and filed on the same date.

9. The Appellant stated that Kenya Tea Development Agency (Holdings) Limited is the primary stakeholder in the Kenyan tea sector that manages and coordinates the activities of over six hundred thousand small scale tea farmers and the operations of over six different subsidiary companies.

10. The Appellant stated that the KTDA Staff Provident Fund (herein after referred to as “the SPF”) was established in 1962 under an irrevocable Trust Deed to cater for the retirement needs of all the staff members of the then Kenya Tea Development Authority. That subsequently, the KTDA Retirement Benefits Scheme (herein after referred to as “the RBS”) was established in 1978 to cater for the retirement needs of the management level employees of the KTDA while the SPF remained to cater for the unionized staff members on fixed contract of less than two years.

11. The Appellant averred that on 31st August 2008, the SPF Trustees enacted new Trust Deed and Rules to govern the operations of the SPF, that the SPF primarily generates income through investment in stocks listed in the Nairobi Stock Exchange. Government Securities, Corporate bonds and short-term bank deposits.

12. The Appellant contended that on 3rd June 1987, SPF received a tax exemption from the Kenya Revenue Authority on dividends and interest earned and the thereafter the SPF was registered with the Retirement Benefits Authority as a Defined Contribution Scheme on the 3rd June 2005.

13. The Appellant further stated that the KTDA Retirement Benefit Scheme (hereinafter referred to as “the SRBS”) was established in 1978 to cater for the retirement needs of the management level employees of the KTDA, which was initially founded as a Guaranteed Fund under the Insurance Company of East Africa until 2003 when it was registered as a Segregated Fund under the Retirement Benefits Authority.

14. The Appellant stated that, currently the SRBS functions as a Defined Contribution Scheme and generates its income by investing in stocks listed in the Nairobi Securities Exchange, Government Securities, Corporate bonds and short-term bank deposits.

15. The Appellant stated that SRBS received a tax exemption on dividends and interests from the Kenya Revenue Authority on dividends and interest earned on the 17th March 2003.

16. The Appellant averred that the SRBS Trustees enacted a new Trust Deed and Rules to govern the operations of SRBS on the 31st August 2008.

17. It was the Appellant’s contention that both SPF and SRBS operate under the 2008 Trust Deed and Rules governing the respective schemes, further that both schemes were under one employer, the Kenya Tea Development Agency Limited, whom is the sponsor for the two schemes.

18. The Appellant stated that whereas SPF being the initial retirement scheme was issued with a KRA Personal Identification Number (PIN), the SRBS is yet to secure a KRA Personal Identification Number (PIN) and as such the incomes and taxes of the two schemes are dealt with in a consolidated manner under the SPF KRA PIN.

19. The Appellant submitted that it was issued with a notice of additional assessment for the tax period July 2016 to June 2021 totalling to Kshs. 73,042,306. 00 on the 14th June 2022.

20. The Appellant submitted that in the additional assessment, the Respondent took the view that the investment income earned by SPF and that of SRBS are partially exempt from income tax and that the investment income earned from the amounts contributed by an employee in excess of the tax allowable limit provided by Section 22 A (1) of the Income Tax Act is deemed to be from an unregistered fund and therefore is chargeable as per Section 3 (1) and Sections 8 (5) (f) of the ITA.

21. Further the Appellant submitted that the Respondent asserts that Withholding tax deducted from lump sums commuted from members who were both in SPF and SRBS for the period 2016 to 2021 was understated, based on the position by the Respondent that pensioners cannot receive exemption from two schemes under the same employer for the same year unless the pensionable services recommenced.

22. The Appellant stated that the Respondent further alleged that where a pensioner commutes lump sums from the two schemes, the payments should be taxed together on the assumption that the employer is one.

23. The Respondent proceeded to make the additional assessment, to which the Appellant objected to vide the objection date 6th July 2022, on the grounds, inter alia, that the SPF and SRBS schemes were registered with the Retirement Benefits Authority and with the Commissioner and are therefore exempt from tax.

24. The Appellant submitted that in its objection to the additional assessment, it advanced several arguments, including that Section 22 A of the ITA provided guidelines and could not form the basis of the Respondent to limit deductible contributions to schemes nor the basis for taxation of incomes of registered pension or provident fund, further that the Respondent erred in asserting that the tax exemption certificates limited the exemption to the extend of the contribution limit provided in the Trust Deed Schemes and Rules. Additionally, that SPF and SRBS are two separate schemes and any payments received from both schemes will be treated separately and tax-free limits will apply to each.

25. The Appellant submitted that the Respondent issued its objection decision on 30th August 2022, in so doing, the Respondent rejected the Appellant’s assertion that the SPF and SRBS are two separate schemes whose deductions, contributions and withdrawals ought to be treated separately and distinctively irrespective of the founder or sponsor being one and the same. That based on the above position the Respondent maintained the additional assessment.

26. That Appellant stated that being aggrieved by the Respondent’s objection decision of 30th August 2022, the Appellant presented this Appeal for the Tribunal’s consideration.

27. The Appellant further stated that its Appeal is premised on the position that the Respondent’s interpretation of the Income Tax Act and Income Tax (Retirement Benefits) Rules is a variance with the literal provisions of the law and prevailing jurisprudence on the strict and literal interpretation on tax statutes.

28. The Appellant proceeded to submit on the grounds as set out in its Memorandum of Appeal, which the Appellant outlined as;a.That the Respondent erred in law and in fact by wrongly determining that the interest earned on two separate schemes were not tax exempt.b.That the Respondent erred in law and fact by construing that Withholding tax had been understated.

29. The Appellant submitted on the above grounds as follows;

a. That the Respondent erred in law and in fact by wrongly determining that the interest earned on two separate schemes were not tax exempt. 30. The Appellant placed reliance on Section 2 of the ITA that defines “pension fund” and “provident fund”, and further on Section 13 of the ITA, Paragraphs 12, 14 and 15 of the 1st Schedule to the ITA, in buttressing the position that the SPF and SRBS fall within the meaning of registered schemes being registered with the RBA and that any registered pension scheme, registered pension fund and registered provident fund are exempt from income tax.

31. The Appellant stated that there was no qualification in law under the ITA and IT (Retirement Benefit Rules) 2004 that would render the registered schemes as unregistered schemes with taxable income.

32. The Appellant maintained that the statute merely state the income received from the dividends and interest are exempt, further that the certificates of exemptions do not limit the tax exemption to the dividends and interest earned from amounts from allowable limits contributions and that therefore it was not open for the Respondent to form an interpretation of the ITA and IT (Retirement Benefit Rules) inconsistent with the literal wording of the statute.

33. In asserting the position that the interests and dividend income earned by both schemes are not subject to tax, the Appellant hinged its confidence on the provisions of Paragraphs 12, 14 and 15 to the 1st Schedule to the ITA.

34. The Appellant noted that the Respondent defined unregistered contributions as the non-tax allowable pension contributions of a scheme member, which position the Appellant argued was incorrect to the extend that the scheme and the member were different persons for purposes of tax.

b. That the Respondent erred in law and fact by construing that Withholding tax had been understated. 35. The Appellant stated the Respondent disallowed the objection of the Appellant on the basis that withholding tax was understated based on the position that pensioners cannot receive exemption from two schemes.

36. That the Appellant holds the position that Section 8 (5) of the ITA does not make mention of exemption to be provided when as member receives payments from two different schemes and that the Section only gives the guidelines on the amounts to be exempted on lump sum amounts withdrawn from a registered provident fund and that the Section only refers to withdrawals from a registered fund and not from two or more funds from the same employer.

37. The Appellant submitted the SPF and SRBS are two separate schemes and any payments received from both schemes were to be treated separately and tax-free limits will apply to each as per the ITA.

38. The Appellant relied on the following case law;a.Civil Appeal 164 of 2013 Mount Kenya Bottlers Limited & 3 Others vs. The Honourable Attorney General & 3 Others.b.Civil Appeal 77 of 2008 Stanbic Bank Kenya Limited vs. Kenya Revenue Authority [2009] eKLR.c.Civil Appeal 29 of 2005 Commissioner of Income Tax vs. Pan African Paper Mills (E.A) Limited [2018] eKLR.d.Vestey vs. Inland Revenue Commissioners [1979] 3 ER at 984. e.Civil Appeal 311 of 2013 Kenya Revenue Authority vs, Republic (Exparte Fintel Ltd) [2019] eKLR.f.Inland Revenue Commissioners vs. Duke of Westminster [2019] A.C 1;[1] 19 TC 490. g.Russel vs. Scott. (1948) 2 ALL ER 5. h.Civil Appeal No. 195 of 2017 Commissioner of Domestic Taxes (Large Tax Payer Office) vs. Barclays Bank of Kenya Ltd [2020] eKLR.

Appellant’s Prayers 39. Following the arguments made the Appellant hereinabove, the Appellant made the following prayers;i.The Objection decision of the Respondent dated 30th August 2022 be set aside in its entirety;ii.The Appeal be allowed.iii.The Honourable Tribunal do issue any other order that appears just and reasonable.

Respondent’s Case 40. The Respondent’s case is premised on the herein under filed documents before the Tribunal;a.The Respondent’s Statement of Facts dated and filed on the 11th November 2022 together with the documents attached thereto.b.The Appellant’s Written Submissions dated the 24th January 2023 and filed on the same date.

41. The Respondent stated that it commenced investigations against the Appellant once it was noted that prior to October 2019, the scheme was computing the income chargeable to tax on investment income earned from the unregistered segment of the scheme as provided in the ITA and making relevant payments.

42. The Respondent averred upon conclusion of the investigations, which revealed for the period after October 2019, the scheme stopped remitting the tax on the investment income earned segment, consequently the Respondent issued a notice of additional assessment on 14th June 2022 for the tax period July 2016 to July 2021 totalling to Kshs. 73,042. 306. 00.

43. The Respondent averred that the Appellant filed an objection on 6th July 2022, consequently the Respondent made its objection decision on 30th August 2022.

44. The Respondent contended that whilst making the objection decision, it considered all the grounds raised in the notice of objection by the Appellant.

45. The Respondent in asserting that certain income are exempt from tax, relied on Section 13 (1) of the ITA, additionally Paragraphs 12, 14 & 15 of the 1st Schedule of the ITA has listed as exempt to income tax particular entities.

46. Further the Respondent referred to Section 22 A (1) if the ITA, which relates to deductions in respect of contributions to registered pension funds. That these legislative provisions also exempt registered pension funds and registered provident funds from income tax.

47. The Respondent stated that Trust Deeds by Schemes must meet the prescribed rules by the Commissioner, upon which the Commissioner grants the exemption certificate if the contributions by the members and the employees are within the limits provided by law.

48. The Respondent noted that the Trust Deeds referred back to the ITA with regards to contribution limits. In reiterating this position, the Respondent referred to Sections 22A and 3 (2) (c) of the ITA, additionally the income of such registered pension or provident funds is exempt from tax in First Schedule of the ITA.

49. The Respondent asserted that the contributions exceeding the tax limit are called unregistered or non-tax allowable contribution and that such unregistered contributions receive no special treatment and there is no relief on PAYE and the investment income on unregistered contributions is also taxed at corporate rates.

50. The Respondent averred that KTDA SPF is a registered scheme to the extend that it is registered with the Commissioner in such manner prescribed in the Income Tax Act and the Rules therein, further that the registration of the scheme’s Trust Deed which acknowledges the capping aggregate contributions per member in any specific year of income.

51. The Respondent stated that the registration is therefore limited to the registered funds and any excess is unregistered and taxable including the investment income thereon and a keen analysis of the taxation of pension benefits was noted to be inconsistent with the provisions of Income Tax Act.

52. The Respondent averred that the ground of Withholding tax for the period from July 2016 to June 2020, the operation was put to test as provided by the Income Tax Act, the scheme was noted to have deducted and remitted withholding on payments for professional, consultants and legal fees as required.

53. The Respondent noted that since the employer maintains two schemes, there are incidences where lump sums computed from a registered pension of fund, the first six hundred thousand shillings are allowed tax free twice in the same year irrespective that the same employee has received the lump sum from the same employer in the same year and that the employees pensionable service did not recommence.

54. Further the Respondent asserted that the burden of proof rests on the Appellant to prove the allegations therein and there being no proof, the Respondent was therefore justified in treating the said monies as taxable income.

55. The Respondent contended that the objection decision complied with Section 51 (10) of the Tax Procedures Act by including a statement of the findings and providing the reasons for the decision arrived at, which the Respondent contended were rightful and sufficient.

56. The Respondent stated that the confirmed assessment issued is proper in law and the same ought to be upheld.

57. The Respondent in fortifying its case relied on the following case law;a.Kenya Revenue Authority vs. Republic (Exparte Fintel Ltd) [2019] eKLR.b.Primarosa Flowers Limited vs. Commissioner of Domestic Taxes (2019) eKLR.c.Alfred Kioko Muteti vs Timothy Miheso & another [2015] eKLR.

Respondent’s Prayers 58. Pursuant to the arguments and submissions advanced herein above, the Respondent prayed for this Tribunal, that;a.That the Respondent’s objection decision confirming taxes for Withholding tax and Corporation tax amounting to Kshs. 73,042,306. 00 is proper and in conformity with the provisions of the law and the same should be upheld.b.That this Appeal be dismissed with costs to the Respondent as the same is without merit.

Issues for Determination 59. The Tribunal upon the careful consideration of the pleadings, documents and submissions made by the parties was of the view that the issues that recommend themselves for its determination are;a.Whether the Appellant is eligible to pay Income Tax, whilst holding tax exemption certificates.b.Whether the Respondent was justified in its assessment on WithHolding Tax.

Analysis And Determination 60. The Tribunal having ascertained the issues for determination, shall proceed to address the same as herein under;

a. Whether the Appellant is eligible to pay Income Tax, whilst holding tax exemption certificates. 61. The Appeal before the Tribunal is premised on the Appellant’s dissatisfaction with the Respondent’s objection decision made on the 30th August 2022.

62. The Tribunal notes that the Appellant herein Kenya Tea Development Agency Staff Provident Fund (referred to as “the SPF”), was established in 1962 through an irrevocable Trust Deed to cater for the retirement needs of all the staff members of KTDA.

63. The Tribunal further notes that subsequently, KTDA Retirement Benefit Scheme (referred to as “the SRBS”) was established in 1978 to cater for the retirement needs of management level employees of the KTDA. The Scheme was initially founded as Guaranteed Fund under the Insurance Company of East Africa until 2003.

64. The Tribunal observed that the Trust Deeds of the SPF and the SRBS, particularly under Clauses 11. 2 of the respective Trust Deeds, the Trustees of each Scheme were permitted to amend, alter, appeal, repeal, or formulate new rules subject to the provisions of the Retirement Benefits Act and its attendant Regulations.

65. In line with the above permissions granted to the Trustees of the two schemes, the Trustees of the SPF and the SRBS on the 31st August 2008 enacted new Trust Deeds to govern the operations of the SPF and the SRBS.

66. The Tribunal noted that both the SPF and the SRBS operate under the 2008 Trust Deeds and the Rules governing the respective schemes, both schemes are under one employer the KTDA as the sponsor thereof.

67. The Tribunal observed that the SPF had obtained a Personal Identification Number issued by the Kenya Revenue Authority thereby being duly registered with the Commissioner, while the SRBS had not yet secured a Personal Identification Number issued by the Kenya Revenue Authority.

68. It follows that all operations, in so far as income and taxation extends, of the two schemes (“the SPF” and “the SRBS”) were dealt with as consolidated under the KRA PIN of the SPF. Further, it was the Appellant’s assertion that the present Appeal is prosecuted for and on behalf of both the SPF and the SRBS schemes.

69. The Tribunal noted that the SPF and the SRBS primarily generate income through investment in stocks listed at the Nairobi Stock Exchange, Government Securities, Corporate bonds, and short-term bank deposits. Further, there was no evidence presented before the Tribunal that the Appellant is engaged in any other form investment or business, save what is stated herein above.

70. Section 2 of ITA in so far as the definition of the Appellant scheme extends, provides that;“Pension Fund" means any fund for the payment of pensions or other similar benefits to employees on retirement, or to the dependants of employees on the death of such employees; and"Registered pension fund" means one which has been registered with the Commissioner in such manner as may be prescribed;"Provident fund" includes any fund or scheme for the payment of lump sums and other similar benefits, to employees when they leave employment or to the dependants of employees on the death of those employees but does not include any national provident fund or national social security fund established by the Government; and"Registered “Provident Fund" means one which has been registered with the Commissioner in such manner as may be prescribed;

71. It is the Respondent’s assertion contained in the objection decision, that the SPF and the SRBS are registered with the Commissioner within the definitions as enumerated within the meaning of Section 2 of the ITA. It was also the Respondent’s admission and/or acknowledgement that the SPF and the SRBS had received distinct Tax Exemption Certificates from the Respondent.

72. The Tribunal noted that the SPF had received a Tax Exemption Certificate from the Commissioner of Income Tax, Kenya Revenue Authority being Serial No. 00462 issued on the 3rd June 1987, similarly the SRBS had received a Tax Exemption Certificate from the Commissioner of Income Tax, Kenya Revenue Authority being Serial No. 00073 issued on the 17th March 2003. The Tax Exemption Certificates issued to the Appellant, exempted the Appellant from all income generated from dividends and interests.

73. Further the Tax Exemption Certificates placed on record, revealed that the certificates had no capping as regards the period of validity or any amount limits of any taxes payable.

74. The Tribunal noted that the Appellant brought to the Respondent’s attention of the existence of the Tax Exemption Certificates of the SPF and the SRBS relating to Income Tax, the Respondent has not challenged the validity or regularity of the Tax Exemption Certificates.

75. There is no evidence availed to the Tribunal that the Tax Exemption Certificates were revoked, varied and/or withdrawn by the Commissioner of Income Tax as to invalidate the same.

76. The Tribunal is of the view that for the Commissioner of Income Tax to have issued the Tax Exemption Certificates to the Appellant or any taxpayer, such taxpayer is required to present his/her/its application and comply with such requirements that may be set out by the Commissioner or outlined in statute.

77. In this instance, it can only be, that the Appellant had made the requisite applications and complied with all the conditions outlined to warrant the Commissioner of Income Tax to issue the Appellant with the Tax Exemption Certificates on the 3rd June 1987 and 17th March 2003, respectively.

78. The Appellant upon being issued with the Tax Exemption Certificates for the SPF and the SRBS by the Commissioner of Income Tax, it follows that a legitimate expectation was created that the Respondent that no taxes accruing under Income tax and/or Corporate tx from the registered contributions and/or segments. Moreover, the Respondent had not imposed any conditions on the Tax Exemption Certificates, any of which the Respondent has demonstrated that the Appellant refused and/or neglected to comply with.

79. In the case of Communications Commission of Kenya & 5 others vs. Royal Media Services Limited & 5 others [2014] eKLR the Supreme Court of Kenya, regarding legitimate expectation stated that:-“Legitimate expectation would arise when a body, by representation or by past practice, has aroused an expectation that is within its power to fulfil. Therefore, for an expectation to be legitimate, it must be founded upon a promise or practice by public authority that is expected to fulfil the expectation."

80. The Tribunal embraces the view that the Appellant holds valid Tax Exemption Certificates for the SPF and the SRBS issued by the Commissioner of Income Tax, and under the prevailing circumstances the Appellant is exempted from payment of any income tax on all dividends and interest earned on the investments made in so far as the registered segment extends.

81. The Tribunal noted that the Respondent’s reliance of Sections 8 (5), 13 and 22 A of the ITA whilst making an assessment of income tax upon the Appellant. Section 8 (5) of the ITA provides that:-“8(5)Notwithstanding Section 3 (2) (c), the following sums shall, subject to such rules as the Commissioner may prescribe, be deemed to be income not chargeable to tax—(f)the total pensions and retirement annuities received by a resident individual from an unregistered pension or individual retirement fund or scheme –i.the contributions to which have not been allowed as a deduction under any other provisions of this Act; andii.the income thereof has been taxed.”

82. The Tribunal observed that whereas the Respondent asserted that all income made within the Republic of Kenya is subject to taxation in accordance with Section 3 (1) of the ITA, the Respondent also acknowledged that under the provisions of Section 13 (1) of the ITA certain income was exempt from tax.

83. Section 13 (1) of the ITA in relation to exemption of tax, provides that:-“13. Certain income exempt from tax, etc.1. Notwithstanding anything in Part II, the income specified in Part I of the First Schedule which accrues in or derived from Kenya shall be exempt from tax the extent so specified.”

84. Additionally, the provisions of Paragraphs 12, 14 & 15 of the First Schedule to the ITA lists certain corporate bodies or institution as exempt from income tax, which include;“12. The income of any registered pension scheme;14. The income of any registered trust scheme;15. The income of any registered pension fund;”

85. It is noteworthy that there was no dispute as between the Appellant and Respondent on the Schemes being exempted from income tax within the meaning of Section 13 (1) of the ITA and Paragraphs 12, 14 & 15 of the First Schedule to the ITA.

86. To this end, the Tribunal’s reading of Sections 8 (5) (f), 13 (1) of ITA and Paragraphs 12, 14 & 15 of the First Schedule to the ITA, is that the SPF and the SRBS were exempt from income tax by operation of the law in so far as the registered contributions and/or segments extend.

87. Further, the Respondent contented that income on the unregistered segment and/or contributions was not exempt to tax and that the same ought to have been subjected to tax within the meaning of Sections 3 (2) (c) and 22 A of the ITA.

88. The Tribunal noted that the Respondent took the position that there was irregular taxation on account of the employer maintaining two schemes and that there were incidences that some pensioners receiving lump sums twice in a year from the same employer and that the employee’s pensionable service did not recommence.

89. The Tribunal observed that the Appellant argued that by the employer maintaining two schemes is not prohibited in law, whilst the Respondent advanced arguments to the contrary.

90. The Tribunal noted that the schemes were two distinct schemes for tax purposes and were registered as such, which fact was admitted by the Respondent. It follows therefore, that such contributory or pension pay-out to the pensioners ought to be treated as two schemes distinct of each other.

91. The Tribunal further noted that whereas the Respondent acknowledges the provisions of Paragraphs 12, 14 & 15 of the First Schedule to the ITA are applicable to the SPF and the SRBS, the Respondent further contended that such exemptions from tax are subject to statutory limits as provided under Section 22A of the ITA, which provides as thus:-“Deductions in respect of contributions to registered pension or provident funds.1. Notwithstanding Section 16 (2) (d) and (e), the deduction in respect of contributions of an employee in a year shall be limited to the lesser of –a.The sum of the contributions made by the employee to registered funds in the year; orb.Thirty per cent of the employee’s pensionable income in the year; orc.Two hundred and forty thousand shillings (or, where contributions are made to registered fund of the employer in respect in respect of a part year of service of the member, twenty thousand shillings per month of service).”

92. It is noteworthy that the limits stipulated in the provisions of Section 22A of the ITA make reference to the contributions made by the employer for and on behalf of the member(s) or made by a member to any pension or registered fund. As observed the limits referred to therein are in the sum of either Kshs. 240,000. 00 per member per year of service or Kshs. 20,000. 00 per month of service. If such withdrawals are beyond the statutory limits the same are deemed as unregistered segments or non-tax allowable contributions and such unregistered segments are to be subjected to taxation.

93. The Tribunal noted that the Respondent in the objection decision, deemed that the Appellant earned income from an unregistered segment or non-tax allowable contributions and proceeded to define the same as herein;“an analysis of your operation of Income Tax was reviewed. It was noted that prior to October 2019 the scheme was computing the Income chargeable to tax on investment income earned from unregistered segment of the scheme as provided in the Income Tax Act and making the relevant payment”……..“……As clearly indicated in the above paragraph the Contributions exceeding the tax limit are called unregistered or non-tax allowable contributions. Unregistered contributions receive no special treatment there is no relief on PAYE (pay as you earn) and all investment income on unregistered contributions is also taxed at corporate rates.”

94. That it is the Tribunal’s position that it remains the Appellant’s duty or obligation to demonstrate that the Respondent’s position as alluded to herein above was incorrect. The Appellant ought to have presented such documentary evidence or information that there were no inconsistencies on the income earned or that the statutory limits had not been surpassed.

95. Section 30 of the Tax Appeals Tribunal Act, relating to burden of proof provides as follows:-“Burden of proofIn a proceeding before the Tribunal, the appellant has the burden of proving —(a)where an appeal relates to an assessment, that the assessment is excessive; or(b)in any other case, that the tax decision should not have been made or should have been made differently.”

96. The Tribunal’s position is that the Appellant has not discharged it burden of proof in this Appeal in demonstrating that the Respondent should not have made the assessment as prescribed under Section 30 of the TATA.

97. The Tribunal’s position is that the Appellant is exempt from income tax by dint of the law as well as the Tax Exemption Certificates on income earned by way of dividends or interests and subject to the statutory limits and/or the income accruing from the registered segment of the schemes.

98. The Tribunal having established that the Appellant held valid Tax Exemption Certificates for both the SPF and the SRBS in so far as income generated from dividends and interest extents, the Tribunal held the position that income from the unregistered segment ought to subjected to tax and therefore finds that the Respondent was justified in so far as assessment of Income Tax on the unregistered segments extents.

b). Whether the Respondent was justified in its assessment on WithHolding Tax. 99. The Respondent in its objection decision dated 30th August 2022, inter alia, confirmed the assessment on WHT relating to professional, consultants and legal fees.

100. The Tribunal observed from the Respondent’s submissions, that the Respondent submitted that the WHT had been understated by the Appellant for the period under review July 2016 to June 2020.

101. Further, the Tribunal noted from the Respondent’s submissions and objection decision that the Respondent admitted that the Appellant deducted and remitted the WHT as required by law. The Respondent, however, noted the taxation of the pension benefits was inconsistent with the provisions of the Income Tax Act.

102. Section 56 (1) of the TPA provides as follows with regard to burden of proof:-“In any proceedings under this Part, the burden shall be on the taxpayer to prove that a tax decision is incorrect.”

103. Further, Section 107 of the Evidence Act relating to burden of proof, provides that;“(1)Whoever desires any court to give judgment as to any legal right or liability dependent on the existence of facts which he asserts must prove that those facts exist.(2)When a person is bound to prove the existence of any fact it is said that the burden of proof lies on that person.”

104. Flowing from the foregoing, it therefore follows that the onus to prove that the objection decision was incorrect directly rests upon the Appellant. The Appellant upon receipt of the assertions by the Respondent that the tax assessed was due and payable, it was incumbent upon the Appellant to have proved that indeed no such payments were made beyond the permitted statutory limits in law and that no taxes had accrued or the assessment was wrong, the Appellant did not demonstrate the same and the burden of proof could not have shifted to the Respondent under the circumstances.

105. The Tribunal observes that the Appellant did not demonstrated in evidence, including, but not limited to, furnishing any documents such as an inventory and/or list of members and their respective withdrawals in support of its position that the Appellant did not exceed the statutory limits on contributions as provided in law.

106. The Appellant failed to discharge its burden of prove in accordance to Sections 56 (1) of the TPA and 107 of the Evidence Act.

107. The Tribunal therefore finds that the Respondent was justified in the assessment for the WHT.

Final Decision 108. The upshot of the foregoing 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 objection dated 30th August, 2022 be and is hereby upheld.c.Each party to bear its own costs.

109. It is so ordered.

DATED AND DELIVERED AT NAIROBI THIS 8TH DAY SEPTEMBER, 2023ERIC NYONGESA WAFULA...........CHAIRMANCYNTHIA B. MAYAKA................MEMBERGRACE MUKUHA.........................MEMBERJEPHTHAH NJAGI........................MEMBERGRACE MUKUHA........................MEMBER