[2024] KETAT 1031 (KLR)

Khaki v Commissioner of Domestic Taxes (Tax Appeal E472 of 2023) [2024] KETAT 1031 (KLR) (19 July 2024) (Judgment)

Neutral citation: [2024] KETAT 1031 (KLR)

Republic of Kenya

In the Tax Appeal Tribunal

Tax Appeal E472 of 2023

E.N Wafula, Chair, Cynthia B. Mayaka, RO Oluoch, T Vikiru & AK Kiprotich, Members

July 19, 2024

Between

Muslim Mohamed Khaki

Appellant

and

Commissioner of Domestic Taxes

Respondent

Judgment

Background 1. The Appellant is a partner in a bonded warehouse facility and a registered taxpayer.

2. The Respondent is a principal officer appointed under and in accordance with Section 13 of the Kenya Revenue Authority Act, and the authority is charged with the responsibility of among others, assessment, collection, accounting and the general administration of tax revenue on behalf of the Government of Kenya.

3. The Respondent issued assessments dated 10th February, 2023 and 15th February, 2023 respectively.

4. The Appellant lodged objections on iTax on 28th February, 2023 and an objection decision was subsequently issued by the Respondent on 17th November, 2020.

5. The Appellant being dissatisfied with the Respondent’s decision filed a Notice of Appeal on 14th August, 2023.

The Appeal 6. The Appeal is premised on the following grounds as stated in the Memorandum of Appeal filed on 14th August, 2023:i.The Respondent erred in law in issuing Income tax additional assessments for the three (3) years based on VAT additional assessments raised in the Partnership PIN. P000618919B without awaiting the result of the Appeal in the Partnership PIN. P000618919B.ii.That valid objections were lodged on 28th February, 2023 objecting to income tax additional assessment orders and objection acknowledgment receipt numbers KRA202302879670, KRA202302880183 and KRA202302880363 all dated 28th February, 2023 were issued.iii.That inspite of valid objections, the Respondent went ahead and confirmed the income tax additional assessments vide its letter dated 6th July 2023 disregarding the fact that the Appellant’s issues had been addressed in Partnership PIN P000618919B as per the Appellant’s letter dated 7th December, 2020.

Appellant’s Case 7. The Appellant’s case is premised on the following documents:i.The Appellant’s Statement of Facts dated and filed on 14th August, 2023 together with the documents attached thereto.ii.The Appellant’s written submissions dated 22nd February, 2024 and filed on 6th March, 2024.

8. That the Respondent issued the income tax additional assessments for the three years on 10th February, 2023 based on the Value Added Tax additional assessments issued in the Partnership PIN P000618919B where the Appellant is a partner.

9. That valid objection applications were lodged and objection acknowledgement receipt numbers KRA202302879670, KRA202302880183 and KRA202302880363 all dated 28th February, 2023 were issued.

10. The Appellant averred that on 6th July, 2023 a letter was written by the Respondent informing the Appellant that the confirmation of the assessments was issued but disregarded all the explanations, reconciliations and communications provided to the Respondent on 7th December, 2020 concerning the Partnership PIN. P000618919B.

11. That no further queries were raised as regards to income tax returns for the three (3) years in question hence the need to accept the income tax returns as they are.

Appellant’s Prayers 12. The Appellant prayed for orders that the Tribunal considers the facts stated and to order the Respondent to withdraw the Income tax additional assessments for the three (3) years.

Respondent’s Case 13. The Respondent’s case is premised on the following documents:i.The Respondent’s Statement of Facts dated 13th September, 2023 and filed on 14th September, 2023 together with the documents attached thereto.ii.The Respondent’s written submissions dated 12th March, 2024 and filed on 13th March, 2024.

14. That the Respondent reviewed and profiled the Appellant due to a sector analysis on the operation of bonded warehouses. That the Appellant is a partner at one such facility.

15. That the intelligence was based on allegations against the Appellant and his co-partners having made significant capital additions into the business from unexplained sources which could not be traced to their bank statements.

16. That in view of the allegations against the taxpayer, the Respondent carried out preliminary investigations into the affairs of the Appellant for the period 2015-2018 to confirm the veracity of the information received.

17. That consequently, the Respondent issued the Appellant with assessments dated 10th February, 2023 and 15th February, 2023, respectively.

18. The Respondent averred that on 24th February, 2023, the Appellant lodged notices of objection and was issued with objection application acknowledgment receipts on iTax.

19. That upon receipt of the said notices of objection, the Respondent requested the Appellant to validate his notice of objection so as to comply with the provisions of Section 51(3) of the Tax Procedures Act 2015. That particularly, the Appellant was required to provide statutory required documents in support of the objection failure to which his objection would be invalidated.

20. The Respondent stated that in the absence of satisfactory explanation from the Appellant, it proceeded to confirm the additional assessments as per the objection decision dated 17th November, 2020.

21. The Respondent identified the issues for determination to be as follows:i.Whether the Appellant discharged burden of proof as provided by law; andii.Whether the assessments are proper in law.

22. The Respondent posited that it at all material times indulged the Appellant and communicated summary of preliminary findings and explanations vide a letter dated 5th June, 2020 in which the tax issues were summarised as follows:i.There were significant amounts deposited into the Appellant's account as fixed deposits whose source could not be established.ii.The Appellant made significant drawings from the partnership's bank accounts and the same was not subjected to PAYE.iii.Significant variances were established between the expected income established through banking analysis and the income declared by the Appellant in his income tax returns.

23. That in particular, the Appellant was informed of the irregularities in his returns and accorded an opportunity to explain the variances noted in the returns.

24. The Respondent noted that the explanations and supporting documents adduced by the Appellant were insufficient and proceeded to issue the assessments as tabulated below:Income Tax 2015 2016 2017 2018 Total

PrincipalTax 0 8,935,962 9,332,780 8,586,195 26,854,937

Interest 0 7,059,409 6,246,262 4,581,778 17,887,449

TotalIncremental Liability 0 15,995,371 15,579,042 13,167,973 44,742,386

25. That whereas Section 24 of the Tax Procedure Act, 2015 allows a taxpayer to submit tax returns in the approved form and manner prescribed by the Respondent, the Respondent is not bound by the information provided therein and can assess for additional taxes based on any other available information and to the best of the Commissioner's judgement.

26. The Respondent stated that Section 59 of the TPA 2015 requires the Appellant to provide records to enable the Commissioner determine its tax liability. That the Appellant failed to avail all the necessary documents/records and thus it confirmed the additional assessments.

27. The Respondent further stated that pursuant to Section 56 of the TPA and Section 30 of the Tax Appeals Tribunal Act, the burden of proof lies on the Appellant to demonstrate that he has discharged his tax liability.

28. That this burden was never discharged as no satisfactory evidence of probative value was availed to the Respondent to enable it render a meritious decision in the circumstances.

29. The Respondent relied on the provisions of Section 109 of the Evidence Act which provides thus:“The burden of proof as to any particular fact lies on the person who wishes the court to believe in its existence, unless it is provided by any law that the proof of that fact shall lie on any particular person.”

30. The Respondent submitted that Section 3 of the Tax Appeals Tribunal Act as read with Section 52 of the TPA, defines an appealable decision as follows:“appealable decision to mean an Objection and any other decision made under a tax law other than a tax decision or decision made while making a tax decision”.

31. That Section 3 of the Tax Appeals Tribunal Act provides as follows;“There is established a Tribunal to be known as the Tax Appeals Tribunal to hear appeals filed against any tax decision made by the Commissioner.”

32. That Section 52 of the Tax Procedures Act 2015 provides as follows“(1)A person who is dissatisfied with an appealable decision may appeal the decision to the Tribunal in accordance with the provisions of the Tax Appeals Tribunal Act, 2013. ”

33. The Respondent submitted that the objection decision was issued on 17th November, 2020, and the Appellant had until 17th December, 2020 to file an appeal but failed to do so. That this was in contravention to Section 13(1) of the Tax Appeal Tribunal Act as read with Section 51(12)of Tax Procedure's Act which states as follows:“(1)A notice of appeal to the Tribunal shall-a.be in writing or through electronic means;b.be submitted to the Tribunal within thirty days upon receipt of the decision of the Commissioner.”

34. That Section 51(12) of Tax Procedures Act provides as follows:“A person who is dissatisfied with the decision of the Commissioner under subsection (11) may appeal to the Tribunal within thirty days after being notified of the decision.”

35. The Respondent submitted that the timelines set by the tax statutes are to be strictly adhered to as set out in Republic vs. Commissioner of Domestic Taxes Large Tax Payer's Office Ex-Parte Barclays Bank of Kenya Ltd [2012] eKLR, where the court held:“The approach to this case is that stated in the oft cited case of Cape Brandy Syndicate v Inland Revenue Commissioners [1920] 1 KB 64 as applied in T.M. Bell v Commissioner of Income Tax [1960] EALR 224 where Roland J. stated, “...in a taxing Act, one has to look at what is clearly said. There is no room for intendment as to a tax. Nothing is to be read in, nothing it to be implied. One can only look fairly at the language used...If a person sought to be taxed comes within the letter of the law he must be taxed, however great the hardship may appear to the judicial mind to be. On the other hand, if the Crown, seeking to recover the tax, cannot bring the subject within the letter of the law, the subject is free, however apparently within the spirit of the law the case might otherwise appear to be.” As this case concerns the interpretation of the Income Tax Act, I am also guided by the dictum of Lord Simonds in Russell v Scott [1948] 2 ALL ER 5 where he stated, “My Lords, there is a maxim of income tax law which, though it may sometimes be overstressed yet ought not to be forgotten. It is that the subject is not to be taxed unless the words of the taxing statute unambiguously impose the tax upon him" adopted in Stanbic Bank Kenya Limited v Kenya Revenue Authority CA Civil Appeal No. 77 of 2008 (Unreported) [2009] eKLR per Nyamu JA (See also Jafferali Alibhai v Commissioner of Income Tax [1961] EA 610, Kanjee Naranjee v Income Tax Commissioner [1964] EA 257). Any tax imposed on a subject is dictated by the terms of legislation and taxing authority must satisfy itself that the transaction fits within the definition of the statute. In Adamson v Attorney General (1933) AC 257 at p 275 it was held that, “The section is one that imposes a tax upon the subject, and it is well settled that in such cases it is incumbent on the Crown to establish that its claim comes within the very words used, and if there is any doubt or ambiguity this defect-if it be in view of the Crown a defect can only be remedied by legislation.”

36. The Respondent submitted that it issued the manual objection decision on 17th November, 2020 and had communicated the same to the Appellant and the Partnership, however the Appellant filed the Appeal on 14th August, 2023 (1. 000 days later).

37. The Respondent stated that the Appellant has also failed to seek leave to file an appeal out of time. That this is guided under Section 13(3) as read together with Section 13(4) of the Tax Appeals Tribunal Act.

38. The Respondent relied on the following cases to buttress its arguments:i.On the requirement to seek leave of the Court to file a ate Appeal - Evans Kiptoo v. Reinhard Omwonyo Omwoyo (2021) eKLRii.On filing a late Appeal without leave of the Court - Ramji Devji Vekaria v. Joseph Oyula, Eldoret Civil Appeal (Application) No. 154 of 2010iii.On the use of best judgment by the Commissioner - The Commissioner for Her Majesty's Revenue and Customs TC/2017/02292 Saima Khalid Appellant v. The Commissioners For Her Majesty's Respondents Revenue & Customsiv.On failure by the Appellant to avail documents - TAT Appeal No. 538 Of 2021 Greenroad Kenya Limited vs Commissioner Of Domestic Taxesv.On the use of best judgment/ reasonable methods by the Commissioner when a taxpayer fails to produce records - Nick Kikalos and Helen Kikalos v. United States of America, No. 2:98 CV 618. 313 F. supp. 2d 876 (2003)vi.Digital Box Ltd Vs Commissioner Of Investigation & Enforcement (2019) eKLR

Respondent’s Prayers 39. The Respondent prayed that this Tribunal considers the Appeal and finds as follows:i.That the objection decision dated 17th November, 2020 be upheld.ii.That this Appeal be dismissed with costs to the Respondent as the same lacks merit.

Issues For Determination 40. The Tribunal has considered the pleadings and submissions filed by both parties and is of the view that the issues for its determination are:i.Whether the Appeal before the Tribunal is validii.Whether the Respondent was justified in confirming its assessment

Analysis And Findings 41. The Tribunal having established the issues for its determination proceeds to analyse each of them separately as hereunder.

i.Whether the Appeal before the Tribunal is valid 42The Respondent averred that the Appellant filed a late appeal to the Tribunal. It further averred that it issued the manual objection decision on 17th November, 2020 and had communicated the same to the Appellant and the Partnership; however the Appellant filed the Appeal on 14th August, 2023 (1,000 days later).

43The Tribunal reviewed the parties’ pleadings and established the following chronological details:i.The Respondent issued assessments on 10th February, 2023 and 15th February, 2023, respectively.ii.The Appellant lodged objections to the assessments on 24th February, 2023. iii.The Respondent had issued an objection decision on 17th November, 2020 which, according to the Respondent’s pleadings, related to the current assessments.iv.The Appellant lodged its Notice of Appeal on 14th August, 2023.

44Further, from the chronology of events, as attached to the parties’ pleadings, it is clear to the Tribunal that there was earlier correspondence, between the parties, on the same tax issues in the year 2020 as follows:i.An objection decision dated 17th November, 2020 confirming a tax liability of Kshs. 279,424,528. 00ii.An objection decision dated 7th December, 2020 confirming a tax liability of Kshs. 279,424,528. 00.

45Section 13 of the Tax Appeals Tribunal Act provides as follows regarding filing of tax appeals:“(1)A notice of appeal to the Tribunal shall—(a)be in writing;(b)be submitted to the Tribunal within thirty days upon receipt of the decision of the Commissioner.(2)The appellant shall, within fourteen days from the date of filing the notice of appeal, submit enough copies, as may be advised by the clerk Tribunal, of—(a)a memorandum of appeal;(b)statements of facts; and(c)the tax decision.

46. The objection decision in this matter which was produced by both parties in evidence was dated 17th November 2020. Considering that the Appeal was filed on the 14th August 2023, it is clear that the Appeal was filed late by about 2 years and 9 months. On this premise alone the Appeal was late

47. Additionally, no evidence was presented before the Tribunal to show that the Appellant sought and obtained leave to file this Appeal out of time as is envisaged in Section 13(3) and (4) of the TAT Act which provide as follows:“(3)The Tribunal may, upon application in writing or through electronic means, extend the time for filing the notice of appeal and for submitting the documents referred to in subsection (2).(4)An extension under subsection (3) may be granted owing to absence from Kenya, or sickness, or other reasonable cause that may have prevented the applicant from filing the notice of appeal or submitting the documents within the specified period”

48. By using the word “shall”, Section 13 makes it mandatory that the Appellant shall, within fourteen days from the date of filing the Notice of Appeal, submit enough copies, as may be advised by the Clerk of the Tribunal, of a Memorandum of Appeal, Statement of Facts and the tax decision. Failure to do so is fatal and can only be cured by seeking, and obtaining, leave from the Tribunal to file the same outside the stipulated time period as provided for under Section 13(3) of the Tax Appeals Tribunal Act.

49. Whereas Sections 13(3) and (4) of the Tax Appeals Tribunal Act provided the Appellant with the avenue for seeking enlargement of time and thus regularizing the Appeal, this avenue was not exercised by the Appellant.

50. The Tribunal has on innumerable occasions emphasized the necessity of the parties to observe due process set by the law. The Tribunal relies on the case of W.E.C. Lines Ltd vs. The Commissioner of Domestic Taxes [TAT Case No. 247 of 2020] where it was held that:“Where there is a clear procedure for redress of any particular grievance prescribed by the constitution or an Act of Parliament, that procedure should be strictly followed. Accordingly, the special procedure provided by any law must be strictly adhered to since there are good reasons for such special procedures”.

51. As a result of the foregoing, and to the extent that the Appellant did not abide by the provisions of Section 13 of the Tax Appeals Tribunal Act by filing a late Appeal without seeking leave of the Tribunal to file the same, the Tribunal finds that the Appeal before it is invalid.

52. The Tribunal having determined that the Appeal is invalid did not deal with the other issue raised in the matter as it had been rendered moot.

Final Decision 53. The upshot of the foregoing is that the Appeal as filed is incompetent and unsustainable in law and the Tribunal accordingly proceeds to make the following Orders: -a.The Appeal be and is hereby struck out.b.Each Party to bear its own costs.

54. It is so ordered.

DATED AND DELIVERED AT NAIROBI THIS 19TH DAY OF JULY, 2024ERIC NYONGESA WAFULACHAIRMANCYNTHIA B. MAYAKA DR. RODNEY O. OLUOCHMEMBER MEMBERDR. TIMOTHY B. VIKIRU ABRAHAM K. KIPROTICHMEMBER MEMBER