[2024] KETAT 1432 (KLR)

Kithome & another v Commissioner of Domestic Taxes (Tribunal Appeal E143 of 2024) [2024] KETAT 1432 (KLR) (27 September 2024) (Judgment)

Neutral citation: [2024] KETAT 1432 (KLR)

Republic of Kenya

In the Tax Appeal Tribunal

Tribunal Appeal E143 of 2024

CA Muga, Chair, BK Terer, EN Njeru, E Ng'ang'a & SS Ololchike, Members

September 27, 2024

Between

Joshua Wambua Kithome

1st Appellant

Interior Syndicate Suppliers Limited

2nd Appellant

and

Commissioner of Domestic Taxes

Respondent

Judgment

Background 1. The 1st Appellant is an individual and a director of the 2nd Appellant. Prior to dissolution, the 2nd Appellant was a Limited Liability Company.

2. The Respondent is a principal officer appointed under Section 13 of the Kenya Revenue Authority Act, CAP 469 of Kenya’s Laws. 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 and 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 Respondent in the year 2019 undertook investigations into the 2nd Appellant's business affairs which resulted in issuance of a notices of Tax Assessments dated 15th November 2019. In response to the said assessments, the 2nd Appellant duly filed its Notices of Objection all dated the 9th January 2020.

4. Upon consideration of the objection, the Respondent issued its objection decision vide a letter dated 12th April 2023. Aggrieved by the decision, the Appellant lodged a Notice of Appeal dated 6th December 2023 on 2nd February 2024.

The Appeal 5. The Appellant filed its Memorandum of Appeal on 2nd February 2024 raising the following grounds:i.That the objection decision by the Respondent was made well after the sixty (60) day period granted by law had already lapsed.ii.That the Appellants' objection dated 9th January 2020 to the Notices of Assessment are deemed to have been accepted by the Respondent by operation of law particularly where the Respondent failed to communicate its decision within sixty (60) days from the date of objection.iii.That the 2nd Appellant ceased operations in January 2021 and was subsequently dissolved vide the Kenya Gazette Notice No. 6483 of 19th May 2023. iv.That the Appellants did not receive the Respondent's objection decision as the Appellants addresses had been shut and/or none operational.v.That the Appellants had no way of being notified of the Respondent's objection decision as the 2nd Appellant had ceased operations.vi.The Respondent's action to demand Kshs 6,760,328. 84 from the 2nd Appellant is contrary to express provisions of law.vii.That the Respondent erred in law in demanding tax for the year 2018 as the said demand is excessive and the same is not based on law and/or any material facts that have been provided by the Appellant.viii.That the Respondent erred in law and fact by breaching the legitimate expectations of the Appellant by failing to afford it a fair hearing as per the provisions of the Fair Administrative Actions Act, CAP 7L of the Laws of Kenya (hereinafter “FAAA”).ix.That the Respondent erred in Law and in fact in ignoring the evidence, explanations and supporting documentations provided by the Appellant and proceeding to issue its decision dated 12th April 2023.

Appellant’s Case 6. In support of the appeal, the Appellant relied on its statement of facts dated 24th January 2024 and filed on 10th June 2024 in which the Appellant stated that the Respondent in the year 2019 undertook investigations into the 2nd Appellant’s business affairs which resulted in issuance of a notices of Tax Assessments dated 15th November 2019. The said assessments concerned the 2nd Appellant’s accounts and business transactions for the period starting 1st January 2018 to 31st December 2018.

7. In response to the said assessments, the 2nd Appellant filed its notices of objection dated the 9th January 2020 which were duly acknowledged through i-tax portal. Upon receipt of the 2nd Appellant’s notices of objection, the Respondent demanded additional documentation in support of our objection to the notices of assessment.

8. The 1st Appellant being the then Director of the 2nd Appellant, alleged that he personally visited the Respondent’s offices situated in Machakos town and availed the original documentary evidence to the Respondent’s aforesaid office which documents were duly received.

9. The 1st Appellant averred that the Respondent did not act within the statutory period of sixty (60) days which lapsed on the 9th March 2020 without the Respondent rendering its decision on the 2nd Appellant’s notices of objection. The 1st Appellant also averred that it is only until the 12th April 2023 that the Respondent made its objection decision vide the letter dated 12th April 2023 which decision was made about 1,129 days past the prescribed period.

10. The 1st Appellant contended that the said objection decision was never communicated to any of the Appellants herein or the company representatives and the Respondent did not endeavour to serve the Appellants with the same.

11. The Appellants alleged that at the time the Respondent’s rendered its decision, the 2nd Appellant business had already been closed down and all members of staff had already ceased being employees of the 2nd Appellant.

12. According to the Appellant, the Respondent further wrote to the 2nd Appellant on the 18th April 2023 seeking that the impugned tax amounts be paid immediately and in lieu thereof, a proposal as to a payment plan. The Appellants contended that the neither the Appellants herein nor their representatives received the said letter and again, the address appearing therein ceased being used by the 2nd Appellant. The Appellants further stated that all forms of communication that the 2nd Appellant utilized, including but not limited to email and postal addresses had already ceased being used and consequently, the Appellants could not be aware of the Respondent’s decision.

13. The 1st Appellant being the then Director of the 2nd Appellant, stated that he made an application to the Registrar of Companies to have the 2nd Appellant dissolved which application culminated to its listing in the Kenya Gazette Notice No. 6483 of 19th May 2023. He stated that the dissolution of the 2nd Appellant was done after all the creditors had been paid their dues and upon compliance with the requirements of the Registrar of Companies.

14. The Appellants relied on a letter dated 7th September 2023 from Business Registration Service (BRS) which confirmed the dissolution of the 2nd Appellant’s registration from 19th May 2023. Consequently, the Appellants argued that they could not have anticipated that the Respondent would make its decision after the 2nd Appellant had already been dissolved lawfully under Kenyan Laws.

15. The Appellants averred that the action to dissolve the 2nd Appellant were due to unavoidable circumstances beyond the control of the Appellants. Additionally, the 1st Appellant averred that the dissolution of 2nd Appellant was necessitated due to lack of business and its activities were no longer tenable.

16. The Appellants argued that the 2nd Appellant duly exercised its right to object to the Respondent’s Notices of Assessment and even availed the requisite documentation but the Respondent’s indolence on the matter has necessitated the filing of this instant Appeal.

17. The Appellant in its written submissions dated 10th June 2024 submitted that it objected to the assessments within the required timelines. The Appellants also submitted that the 1st Appellant personally visited the Respondent's Station in Machakos town and availed the additional documentation required by the Respondent in consideration of the 2nd Appellant's objection application.

18. The 2nd Appellant anticipated that the Respondent would render its decision within the sixty (60) days period granted by law under Section 51 (11) of the same Act. They submitted that said period lapsed on the 9th March 2020 and the 2nd Appellant did not receive any communication from the Respondent regarding objection application. The Appellants therefore, submitted that by virtue of Section 51(11) of the Tax Procedures Act CAP 469B Laws of Kenya (hereinafter “TPA”) the Appellant's objection to the Respondent's assessment is deemed to be allowed.

19. The Appellants also submitted that the 2nd Appellant's business operations ceased operations and the 2nd Appellant was officially dissolved on the 19th May 2023 vide the Kenya Gazette Notice No. 6483. The Appellants urged this Tribunal to take judicial notice of the fact that it takes a number of days for any matter to be officially gazetted and that the 2nd Appellant's dissolution was initiated way before the date of gazettement. Further, the Appellants argued that the 2nd Appellant was in the process of being dissolved by the time when the Respondent rendered its decision on the objection applications.

20. With regards to the Respondent's Preliminary Objection, the Appellants submitted that the preliminary objection appears to be misleading particularly looking at the grounds upon which the same was filed. The Appellant submitted that this instant Appeal was filed pursuant to orders issued by this Tribunal following the hearing of the miscellaneous application being TAT MISC. 184 OF 2023 Joshua Wambua & Interior Syndicate Ltd - VS - K.R.A. The said matter was determined on merit and the Appellants herein being granted leave to file the instant appeal.

21. Regarding the third ground relied by the Respondent in its Preliminary Objection, the Appellants submitted that Appeal documents were filed and served upon the Respondent. Further, they submitted that the Tribunal directed the parties herein to file their respective submissions after having confirmed the Appellant's documents to be properly on record. Consequently, the Appellant submitted that it is absurd that the Respondent would rely on ground numbered three (3) in light of the directions given by this Tribunal. Based on the foregoing submissions, the Appellants urged this Tribunal to disregard the Respondent's Preliminary Objection in its entirety as the same is baseless and unfounded.

Appellant’s Prayers 22. The Appellant prayed for the following reliefs:a.That the Respondent's notices of tax assessments dated 15th November 2019 and objection decision dated 12th April 2023 for the year of income 2018 be struck out in their entirety;b.That the Respondent's actions to demand additional taxes be declared arbitrary, unreasonable, unfair and contrary to the administration of justice and legitimate of the Appellant;c.That the Respondent, its employees, agents or other person purporting to act on its behalf be barred and/or estopped from demanding or taking any further steps towards enforcement or recovery of principal tax, penalties and interest on the Respondents' demand as stipulated above;d.The costs of the appeal; ande.Any other remedies that the Tribunal deems just and reasonable.

The Respondent’s Case 23. Upon perusing the record of proceedings, the Tribunal notes that the Respondent did not file statement of facts of written submissions despite the Tribunal directing the parties to file and serve pleadings. When this matter came up on the 17th July 2024, both parties were well represented and the Tribunal directed that the Respondent’s case would proceed on basis of its pleadings on record. The Respondent’s pleading on record is Preliminary Objection dated 19th April 2024 and filed on 10th June 2024. The Respondent raised the following grounds in its Preliminary Objection:a.That the Appellant's appeal offends section 52(1) of the TPA for failure to define the person dissatisfied with the appealable decision.b.That the Appellant's appeal is out of time and is in contradiction to Section 13(1) (b) & (3) of the Tax Appeals Tribunal Act, CAP 469A Laws of Kenya (hereinafter “TATA”) and Rule 3(1) (b) of the Tax Appeals Tribunal (Procedure) Rules, 2015 thus is defective.c.That the Appellant's appeal offends section 13(2) of the TATA.d.That the Appeal is therefore an abuse of the process of the Tribunal and a waste of resources.e.That the Appeal thus lacks merit and must fail.

Issues For Determination 24. The Tribunal, having considered the parties pleadings, the Preliminary Objection and Appellant’s submissions, puts forth the following issues for determination:i.Whether the Respondent’s Preliminary Objection dated 19th April 2024 and filed on 10th June 2024 is merited;ii.Whether the objection decision is statutorily time barred;iii.Whether the Respondent breached the Appellant’s legitimate expectations; andiv.Whether the Respondent’s objection decision was justified.

Analysis and Findings i. Whether the Respondent’s Preliminary Objection dated 19th April 2024 and filed on 10th June 2024 is merited 25. The first ground of the preliminary objection is that the Appellant's appeal offends Section 52(1) of the TPA for failure to define the person dissatisfied with the appealable decision. Section 52(1) of the TPA provides as follows:"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 (No. 40 of 2013)."

26. The Tribunal examined the assessments and the resultant objection decision and noted that the assessments and the objection decision were issued against the 2nd Appellant. The pleadings indicated that the 1st Appellant is a former director of the 2nd Appellant before the said company was dissolved. The Tribunal is of the view that there is no legal problem arising from parties to this appeal. The Appellants are well defined contrary to the Respondent’s assertions in the Preliminary Objection.

27. With regard to second ground of the Preliminary Objection, that the Appellant's appeal is out of time and is in contradiction to Section 13(1) (b) and (3) of the TATA and Rule 3(1) (b) of the Tax Appeals Tribunal (Procedure) Rules, 2015 and is thus defective; Section 13(1) (b) of the TATA provides as follows:‘‘13. Procedure for appeal(1)A notice of appeal to the Tribunal shall—(a)…(b)Be submitted to the Tribunal within thirty days upon receipt of the decision of the Commissioner.’’

28. The objection decision in issue is dated 12th April 2023 while the notice of appeal was filed on 2nd February 2024. The Respondent argued that the Appellants did not obtain leave to file the appeal out of time contrary to section 13 (3) of the TATA. In response to this issue, the Appellant submitted that this instant Appeal was filed pursuant to orders issued by this Tribunal following the hearing of the miscellaneous application being TAT MISC. 184 OF 2023 Joshua Wambua & Interior Syndicate Ltd - VS - K.R.A which was determined on merit and the Appellants herein being granted leave to file the instant appeal. Consequently, this ground is also unmerited.

29. The third ground raised in the Preliminary Objection is that the Appellant's appeal offends section 13(2) of the TATA which provides as follows:‘‘13(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 Tribunal, of—(a)A memorandum of appeal;(b)Statements of facts;(c)The appealable decision; and(d)Such other documents as may be necessary to enable the Tribunal to make a decision on the appeal.’’

30. The Respondent did not demonstrate how the Appellant's record of appeal offended section 13(2) of the TATA nor did the Tribunal identify any such offence.

31. Pursuant to the foregoing analysis, the Tribunal finds and holds that the Respondent’s Preliminary Objection dated 19th April 2024 and filed on 10th June 2024 is unmerited and is an abuse of the process of this Tribunal and is hereby dismissed.

ii. Whether the Objection Decision is statute time barred. 32. The Tribunal takes cognisance of the fact that other than the Preliminary Objection, the Respondent neither filed a statement of facts nor submissions. Therefore, the Tribunal did not have an opportunity to examine the Respondent’s case.

33. The Appellants stated and submitted that the Respondent issued an objection decision against outside the mandatory 60-day statutory timeline and therefore its objection decision is null and void. The Appellant also stated that it objected to the assessments on 9th January, 2020 but the Respondent issued its objection decision on 12th April 2023.

34. The applicable law to the assessment is Section 51(11) of the TPA as read with section 32 of the Finance Act, 2019. Section 51(11) of the TPA before its amendment provided as follows:‘‘51(11)The Commissioner shall make the objection decision within sixty days from the date of receipt of—(a)The notice of objection; or(b)Any further information the Commissioner may require from the taxpayer, Failure to which the objection shall be deemed to be allowed.’’

35. While interpreting section 51(11) of the TPA, the Court in Eastleigh Mall Limited v Commissioner of Investigations & Enforcement Income Tax Appeal No E068 of 2020, held as follows:‘‘It is clear from the forgoing that the provisions of section 51(11) of the Tax Procedures Act are mandatory. They are not cosmetic. Parliament in its wisdom knew that in matters tax, time is very crucial as those in commerce need to make informed decisions. If the Commissioner is allowed to exercise his discretion and stay ad-infinitum before issuing an objection decision, the tax payer would be unable to make crucial decisions and plan his/her business properly. The timelines set are mandatory and not a procedural technicality.’’

36. In Republic v Commissioner of Customs Services Ex-Parte Unilever Kenya Limited [2012] eKLR, the Court held that if the Commissioner does not render a decision within the stipulated period, the objection is deemed as allowed by operation of the law.

37. Consequently, the Tribunal finds and holds that the Respondent failed to adhere to the provisions of section 51(11) of the TPA. The objection decision was statutorily time barred and therefore the Appellant’s notice of objection stood allowed by operation of law.

38. Having established that the notice of objection stood allowed by operation of me, the Tribunal finds it moot to examine the remaining issues.

Final Decision 39. The upshot to the foregoing is that the Tribunal finds and holds that the Appeal succeeds and consequently makes the following Orders:a.The appeal be and is hereby allowed.b.The Respondent’s Preliminary Objection dated 19th April 2024 and filed on 10th June 2024 be and is hereby dismissed.c.the Respondent’s objection decision dated 12th April 2023 be and is hereby set aside.d.Each party to bear its own cost.

40. It is so Ordered.

DATED AND DELIVERED AT NAIROBI THIS 27TH DAY OF SEPTEMBER, 2024. CHRISTINE A. MUGA - CHAIRPERSONBONIFACE K. TERER - MEMBERELISHAH N. NJERU - MEMBEREUNICE N. NG’ANG’A - MEMBEROLOLCHIKE S. SPENCER - MEMBER