https://new.kenyalaw.org/akn/ke/judgment/ketat/2026/102

Kizingo Crest Ltd v Commissioner of Legal Services & Board Coordination (Tax Appeal E732 of 2025) [2026] KETAT 102 (KLR) (2 June 2026) (Judgment) Neutral citation: [2026] KETAT 102 (KLR) Republic of Kenya In the Tax Appeal Tribunal Tax Appeal E732 of 2025 RM Mutuma, Chair, JM Malla, G Ogaga & T Vikiru, Members June 2, 2026 Between Kizingo Crest Limited Applicant and Commissioner Of Legal Services & Board Coordination Respondent Judgment Background 1.The Appellant is a company registered in Kenya whose principal business is dealing in real estate property development and disposal. 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 carried out a review with respect to the Appellant’s Capital Gains Tax (CGT) obligation for the period 2023 whereupon it established that on 24th March 2014, the Appellant bought a property identified as Mombasa/Block XXIV/157 at a consideration of Kshs 250 million and later sold it on 10th July, 2023 for the same amount at a cost to cost consideration. 4.Consequently, the Respondent issued a default CGT assessment dated 25th July, 2024 based on the transfer value of the property wherein the Respondent assessed the payable tax as Kshs 42,324,000. 5.The Appellant lodged a late objection to the assessment on 3rd April, 2025 and the late objection was subsequently allowed on 17th April 2025. 6.The Respondent issued its Objection decision dated 11th June 2025 wherein it confirmed the taxes as assessed. 7.The Appellant being aggrieved by the Respondent’s Objection decision, filed notice of appeal on 10th July 2025. The Appeal 8.The Appellant lodged its amended memorandum of appeal dated and filed on 3rd September, 2025 wherein it raised the following grounds of appeal:a)That the Respondent erred in law in subjecting to CGT the transfer value of the property contrary to Section 4(1) of the 8th Schedule to the Income Tax Act Cap 470 (ITA).b)That the Respondent erred in law by imposing CGT on a transaction where no gain exists contrary to Section 4(1) of the ITA.c)That the Respondent erred in law and fact by imposing tax where no gain exists thereby violating the Appellant's right to legitimate expectation.d)That the Respondent erred in law and fact by failing to find that the Appellant had discharged its burden of proof demonstrating that the assessment as issued was erroneous and / or excessive and that no gain accrued capable of being subjected to CGT.e)That the Respondent erred in law by failing to appreciate that the burden of proof in tax disputes is a swinging pendulum and the same had shifted to the Respondent to corroborate what value the property ought to have been to justify the gain and CGT imposed.f)That the Respondent erred in law and in fact in introducing new issues in the objection decision that were not the basis of the assessment thereby denying the Appellant an opportunity to respond contrary to Article 47 of the Constitution as read together with Fair Administrative Action Act.g)That the Respondent erred in law & fact by failing to consider the nature of the transaction that occurred in relation to the subject property. The Respondent failed to establish the legality of the transaction and the nature of the parties that were involved and that by so doing, it arrived at an erroneous conclusion of subjecting the transfer value to Capital Gain Tax even when the assessed tax was not due. Therefore, the transaction in itself did not yield capital gain as the property in question was transferred at cost to cost and that no gain was realized by the Appellant. Therefore, the assessment should be set aside by this Honourable Tribunal.h)That the Respondent erred in law and facts by failing to consider the legal documents between the parties that were involved and how the property had been transferred from the original seller to the Appellant and how the same was transferred to Avian Residencies Limited. The Appellant states that based on the evidential legal documents, no capital gain had been earned by the Appellant.i)That the Respondent's decision to disregard the information, records and explanations rendered by the Appellant in defence of its grounds of objection, amounted to breach of law and lack of good-will in according the Appellant reasonable angle of justice it deserved. The Appellant averred that it was not properly treated by the Respondent in as far as inconsideration of its sufficient records and information availed to the Respondent is concerned. That the Appellant maintains proper books of accounts and records and the same were available for review by the Respondent on need basis. Appellant’s Case 9.The Appellant lodged its amended statement of facts dated 2nd September, 2025 and filed on 3rd September, 2025. 10.The Appellant stated that it was issued with the pre-assessment notice by the Respondent on 30th October 2023, highlighting findings of the review of the records in relation to the Capital Gain Tax obligation for the period 2023. The Appellant's auditor engaged the Respondent's team by sharing the relevant documents that aimed at addressing the queries that had been established. That the engagement continued for quite some time vide physical meetings and tele-conversations. That on 25th July 2024, the Respondent proceeded to issue default assessments on CGT. 11.According to the Appellant, in its assessment, the Respondent failed to acknowledge the true fact that the property had been transferred at cost to cost and that no gain had been made as a result of the transfer. 12.The Appellant asserted that all the relevant and necessary documents had been availed to the Respondent for consideration at the preassessment stage but none of them was considered during the time when the Respondent was issuing its assessment order. It added that the Respondent overlooked the legal provision in relation to CGT computation in its assessment and as a result subjected the Appellant to exorbitant tax assessment. 13.The Appellant maintained that the Respondent's assessment lacks any basis in law, it averred that the 8th schedule to the income tax act provides for computation of gains arising from transfer of property. That paragraph 4(1) of the 8th Schedule provides that the“gain which accrues to a person on the transfer of property is the amount by which the transfer value of the property exceeds the adjusted cost of the property." 14.The Appellant asserted that documents before the Tribunal invariably demonstrate that the Respondent does not dispute the transfer value of Kshs. 250 million upon which the Appellant disposed the subject property to one Avian Residences on 10th July, 2023. The Appellant also stated that the Respondent equally does not dispute the amount of consideration of acquisition of the property at Kshs 250 million. 15.According to the Appellant, based on the acquisition cost of the property and the transfer value, no gain at all accrued to the Appellant. It maintained that considering the adjusted cost, the Appellant was in a loss position. 16.The Appellant argued that contrary to the provisions of the ITA which provides that the CGT ought to be on the 'gain' accrued on the property subject to transfer, the Respondent has without any basis in law subjected to tax the transfer value of the property, rather than the gain, if any accruing from the transfer of the property. 17.Whereas the Respondent alleged that the Appellant accrued a gain on the property, the Appellant asserted that the Respondent failed to demonstrate what gain the appellant accrued on the property. The Appellant argued that the Respondent has not presented different value of the property that the transfer ought to have been based on. 18.The Appellant argued that the Respondent having acknowledged that the property was bought at Kshs 250 million and subsequently sold at 250 million, the Respondent failed to justify what gain the Appellant accrued on the property for it to be subjected to CGT. It argued that Subjecting transfer value to CGT is contrary to the law and without any basis. 19.It stated that at the objection decision, the Respondent alleged that the transaction falls under the provisions of Section 23 of the ITA. Conversely, the Appellant asserted that the assessment was never based on the provisions of Section 23 of the ITA and that the Respondent cannot seek to introduce the same at the objection decision stage. The Appellant added that the Respondent still faltered in its application of Section 23 of the ITA. 20.The Appellant averred that Section 23 of the ITA relates to transactions intended to defeat tax liability consequence of which the Respondent under takes adjustments on the value of the transaction and impose tax on the incremental value. 21.The Appellant stated that the burden therefore was on the Respondent to prove that the transaction undertaken by the Appellant was intended to avoid tax liability and further disclose the incremental value of the transaction upon which its adjustments are based on. 22.The Appellant pleaded that the Respondent has not made any adjustments on the value of the property with respect to the transaction undertaken by the Appellant. It pointed out that the Respondent used the same value that the Appellant relied on. It asserted that where there are no adjustments, no additional tax liability can accrue and Section 23 of the ITA cannot be relied on. 23.Regarding purchase and sale of property, the Appellant stated that on 24th March, 2013 it purchased the property identified as Mombasa/Block XXVI/157 from one Kanaiyalal Pandya and Subas Pandya at a consideration of Kshs. 250,000.000. 24.It stated that the purchase of the property was intended for the development of various residential units for onward sale to the buyers. Several purchasers had already invested in the proposed development and bought their units under the off-plan program. However, for over 10 years, the development of the units did not take off due to financial difficulties occasioned by death of its director Kanaiyalal Mohanlal Pandya and the liquidation of Imperial Bank, which was the Appellant's banker and which went under with the Appellant's huge deposits in its bank account. 25.It asserted that with this reality, the Appellant decided to source for strategic investors to enable it commence and complete the development proposed rental residential units. 26.It pleaded that it was at this juncture that Avian Residencies Limited, a strategic investor agreed to partner with the Appellant under a joint venture arrangement to ensure commencement and completion of the development of the residential units. It stated that as part of the agreement, the property was sold to Avian Residencies Limited at a cost of Kshs 250,000,000. 27.The Appellant stated that it did cooperate with the Respondent's team and availed sufficient evidential records in support of its objection. It averred that it did submit, among other documents and explanations, detailed purchase and transfer agreements to the Respondent as confessed by the Respondent itself vide email dated 28th May 2025. 28.According to the Appellant, from the availed evidential records, the Appellant's tax representative was readily available for further explanation and clarification in areas that the Respondent needed clarification. It added that its tax representative made several communications with the Respondent in the interest of resolving the matter but all bore no fruits. 29.It asserted that the Appellant failed to get justice before the Respondent due to the already made up mind in regards to the findings established at the preassessment stage and that no amount of conviction could be achieved to make it change its position. 30.It asserted that the prejudice conceived by the Respondent in handling the dispute at hand could not guarantee justice to the Appellant. It claimed that this was evident when the Respondent failed to consider the documents and explanations availed before issuing its objection decision. 31.The Appellant highlighted that in its objection decision, the Respondent claimed that the Appellant did not provide sufficient documents and evidence in support of its grounds of objection to warrant the variation from the assessment; a claim that was misconstrued after the Appellant availed its evidential records and explanations in necessitating amendments to the tax decision. 32.According to the Appellant, the reasons against which the Respondent upheld the assessment amounted to gross violation of the Appellant's right to justice and fair administration in the sense that none of the records, explanations and documents availed by the Appellant was considered in issuing the objection decision. 33.The Appellant averred that unless the Tribunal intervenes in defending it against the unjust and unfair advances by the Respondent, then it stands to suffer irreparable loss in terms of tax payment that shall be a result of unfair tax administration, intended to punish and harm the Appellant's business operations. Appellant’s Prayers 34.The Appellant prayed that the Tribunal:a.Be pleased to allow the Appellant's appeal and set aside the Respondent's objection decision dated 11th June, 2025;b.Be pleased to Order the Respondent to pay the costs of this Appeal;c.Be pleased to issue any other Order favorable to the Appellant as it may find just and expedient to issue.d.Refers the matter to Alternative Dispute Resolution panel (ADR) under Section 55 of the TPA to enable resolving the additional assessment issues. Respondent’s Case 35.The Respondent filed its statement of facts dated 6th August, 2025 wherein it stated that the Appellant has not sufficiently proved that the Respondent’s decision is incorrect as the documents requested were never provided or availed before the Tribunal and thus there is no basis of to interfere with the assessment issued. 36.In response to grounds 4- 9, the Respondent reiterates that the basis of the assessment was clear and reiterated in the objection decision and that the Appellant has not proven any incorrectness of the assessment. Respondent’s Prayers 37.Based on the foregoing, the Respondent prayed as follows:a.The Tribunal be pleased to uphold the objection decision as the same was proper as provided under the TPA and the taxes demanded therein are due and payable; andb.That the appeal be dismissed with costs to the Respondent as the same is without merit. Parties Written Submissions Appellant’s written submissions 38.The Appellant filed written submissions dated 27th February, 2026 and filed on the even date. It submitted that the Respondent erred in issuing and confirming CGT where there was no gain. 39.It cited the case of Nizaba International Trading Company Limited v Kenya Revenue Authority (2000] eKLR, where the High court held that failure to consider material facts presented by a party against whom an assessment had been raised amounts to an abuse of legislative provisions and such an assessment cannot be acted upon. 40.The Appellant relied on the case of Commissioner of Domestic Taxes v Trical and Hard Limited (Tax Appeal E146 of 2020) (2022) KEHC9927(KLR) to submit that where the taxpayer established a prima facie case, the burden shifts to the Commissioner. 41.The Appellant relied on the cases of Republic v Commissioner of Domestic Taxes Large Taxpayer's office exparte Barclays Bank of Kenya Ltd, (2012jeKLR; Cape Brandy Syndicate v Inland Revenue Commissioner (1921) 1 KB 64; and Kenya Revenue Authority v Republic ex-parte Fintel Ltd) NRB CA Civil Appeal No. 311 of 2013(2019) eKLR; to support the position that tax laws should be interpreted strictly and that the taxpayer should not pay excessive tax while the Respondent should not be denied to recover taxes that are due. Respondent’s written submissions 42.The Respondent filed written submissions dated 27th February, 2026 wherein it submitted that a default CGT assessment was issued to the Appellant on 25th July 2024 based on the transfer value of the property. 43.It cited the case of Cape Brandy Syndicate V Inland Revenue Commissioner (1921) 1 KB to support the position that when the language of a taxing statute is clear, if a person being assessed falls within the four corners of the statute, he is to be taxed; if not, no tax is to be levied. 44.The Respondent also relied on the case of Kenya Revenue Authority v Republic ex-parte Fintel Ltd NRBCA Civil Appeal No. 311 of 2013/2019) eKLR to submit that in construing Revenue Act it is vital to give a fair and reasonable construction to the language of the statute without leaning to one side or the other. Issue For Determination 45.The Tribunal identified the following issue for determination:Whether the Respondent's assessment of CGT on the transfer of the Appellant’s property was lawful and proper. Analysis And Findings 46.The Tribunal analysed the issue that calls for its determination as hereunder, having reviewed all the pleadings and submissions filed by the Parties concerning the impugned decision. 47.The Appellant’s case is that it bought the property in issue in 2013 at a cost of Kshs. 250,000,000 and that it sold it at Kshs. 250,000,000 in 2023. The Appellant asserted there was no gain, therefore, CGT was not applicable. 48.Conversely, the Respondent stated that it issued a default assessment on CGT on the basis that the Appellant did not declare CGT, that the Appellant did not give reasons why it sold the property at cost, and that when requested to provide documents, the Appellant failed to provide them. As such, the Respondent formed the view that the transaction was designed to avoid payment of CGT, therefore, the transaction fell under Section 23 of the Income Tax Act (ITA). 49.The Tribunal notes that CGT is underpinned by Section 3(2)(f) of the ITA, read in tandem with Paragraph 2 of the Eighth Schedule to the ITA. Section 3(2)(f) of the Act provides as follows:“3.(2) Subject to this Act, income upon which tax is chargeable under this Act is income in respect of—(f) gains accruing in the circumstances prescribed in, and computed in accordance with, the Eighth Schedule;” 50.Paragraph 2 of the Eighth Schedule to ITA provides that:“2. Taxation of gainsSubject to this Schedule, income in respect of which tax is chargeable under Section 3(2)(f) is the whole of a gain which accrues to a company or an individual on or after 1st January, 2015 on the transfer of property situated in Kenya, whether or not the property was acquired before 1st January, 2015” 51.The Paragraph 4 of the Eighth Schedule to ITA provides how capital gains are to be computed:“ 4.Computation of gains (1)The gain which accrues to a person on the transfer of any property is the amount by which the transfer value of the property exceeds the adjusted cost of the property.(2)Where, in computing the gain accruing to a person on the transfer of any property, it is found that the adjusted cost of the property exceeds the transfer value.” 52.The Tribunal notes that there is no dispute regarding the cost of acquisition of the property and the transfer value at which the property was sold. The Parties agree that the cost of acquisition as well as the transfer value was Kshs. 250,000,000. The question, therefore is whether the Respondent was justified in assessing CGT in light of these undisputed facts. 53.It is clear from the preceding paragraphs that CGT is chargeable on capital gains, which is the difference between the transfer value and the adjusted cost. 54.The Tribunal notes that the Respondent in Paragraph 7 of the Statement of Findings in the Objection decision acknowledged that the Appellant purchase the said property at Kshs. 250,000,000, and sold the property at Kshs. 250,000,000. Based on these undisputed facts, the Tribunal finds that there is no capital gain on this transaction. 55.While the Respondent questioned why the Appellant sold the property at cost, the Respondent did not justify why it proceeded to disallow the adjusted cost claimed by the Appellant despite having acknowledged the acquisition cost of the property to be Kshs. 250,000,000. 56.The Tribunal finds that the Respondent failed to exercise its best judgement in computing the default CGT assessment on the Appellant. The question of whether the Respondent exercised its best judgement has been dealt with by this Tribunal in Family Signature LTD vs The Commissioner of Investigations & Enforcement Nairobi [TAT No. 25 of 2016] where the Tribunal held as follows:-“When the Respondent is prompted to resort to an alternative method of determining the income and in assessing the tax liability of a taxpayer, it has the onerous responsibility to act reasonably by exercising best judgement informed by pragmatic and reasonable considerations that do not in any manner result in a ridiculously high income margin." 57.The Tribunal thus finds that the application of the CGT on the transfer value resulted in an incorrect assessment and is against clear provisions of the law. 58.In view of the foregoing, the Tribunal finds that the Respondent’s assessment of CGT on the transfer of the Appellant’s property was unlawful and improper. Final Determination 59.The upshot of the foregoing is that the Tribunal finds that the Appeal is merited. The Tribunal accordingly proceeds to issue the following Orders:a.The Appeal be and is hereby allowed.b.The Respondent’s Objection decision dated 11th June 2025 be and is hereby set aside.c.Each Party to bear its own costs. 60.It is so ordered. DATED AND DELIVERED AT NAIROBI THIS 2ND DAY OF JUNE 2026ROBERT M. MUTUMA - CHAIRMANJIMMY M. MALLA - MEMBERGLORIA A. OGAGA - MEMBERDR. TIMOTHY B. VIKIRU - MEMBER