[2024] KETAT 719 (KLR)

Kobo 360 Limited v Commissioner of Legal Services and Board Coordination (Tax Appeal E106 of 2023) [2024] KETAT 719 (KLR) (17 May 2024) (Judgment)

Neutral citation: [2024] KETAT 719 (KLR)

Republic of Kenya

In the Tax Appeal Tribunal

Tax Appeal E106 of 2023

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

May 17, 2024

Between

Kobo 360 Limited

Appellant

and

Commissioner of Legal Services and Board Coordination

Respondent

Judgment

ARGUMENTS 1. The Appellant is a company duly incorporated within the Republic of Kenya and a registered taxpayer whose principal business activity is freight and storage.

2. The Respondent is a principal officer appointed pursuant to Section 13 of the Kenya Revenue Authority Act (KRA), Act No. 2 of 1995, and KRA is empowered to enforce and administer provisions of written laws set out in Section 5 as read together with the First Schedule of the KRA Act.

3. The Respondent conducted a desk review of the books, records, and accounts of the Appellant for the years of income 2019 and 2020.

4. On 3rd October 2022, the Respondent issued the Appellant with additional tax assessments for Corporate Income Tax ("CIT"), Pay as You Earn ("PAYE"), Withholding tax ("WHT") and Stamp Duty for the years of income 2019 and 2020 amounting to Kshs. 33,770,395 inclusive of penalties and interest.

5. On 2nd November 2022, the Appellant lodged a partial objection to the assessment.

6. On 6th December 2022 the Appellant and Respondent entered into a Payment Plan in respect to the tax not in dispute of Kshs. 12,285,892, comprising of Stamp Duty of Kshs 4,249,989. 00 and Withholding tax of Kshs 8,035,903. 00.

7. The Respondent issued the Appellant with an objection decision on 13th February 2023.

8. The Appellant, aggrieved with the Respondent’s objection decision, lodged this Appeal at the Tribunal on 14th March 2023.

The Appeal 9. The Appeal is premised on the following grounds as stated in the Appellant’s Memorandum of Appeal dated 27th March 2023 and filed on 28th March 2023. i.That the Respondent erred in law and fact by issuing an Objection decision out the statutory time-line of sixty (60) days from the date of receipt of the notice of objection as provided for under Section 51(11) of the Tax Procedures Act, 2015. ii.That the Respondent erred in law and fact by disallowing expenses which were not factored in the income tax returns of the Appellant.iii.That the Respondent erred in law by introducing an assessment relating to a variance between the turnover as per the audited financial statements and turnover as per the VAT returns in the objection decision, without giving the Appellant an opportunity to respond to the same at the objection stage.iv.That the Respondent erred in law and in fact by imposing PAYE on staff welfare expenses which are not taxable benefits on the employees, and which are allowable expenses for purposes of computing the taxable income of a company.

Appellant’s Case 10. The Appellant’s case is premised on the following documents before the Tribunal: -a.Its Statement of Facts filed on 28th March 2023b.Its Written Submissions dated 26th September 2022 and filed on 27th September 2023.

11. The Appellant averred that it filed its notice of objection on time and the Respondent was bound by the statute to respond to the objection within sixty (60) days as provided for by Section 51 (11) of the TPA which provides that:“The Commissioner shall make the objection decision within sixty days from the date of receipt of a valid notice of objection failure to which the objection shall be deemed to be allowed."

12. The Appellant submitted that the Appeal was filed on 2nd November 2022, the Respondent issued the objection decision on 13th February 2023, which is forty-two (42) days past the statutory timeline.

13. The Appellant relied on the case of Vivo Energy Kenya Limited v Commissioner of Customs & Border Control, Kenya Revenue Authority & another (2020) eKLR in which the Court categorically stated that:-“...the provisions of the TPA are clear that where the Commissioner fails to make a decision on an objection within sixty days, the objection shall be allowed..."

14. The Appellant further relied on the case of Republic vs. Commissioner of Domestic Taxes exparte Fleur lnvetsments Limited (2020) eKLR, where Mativo J. was categorical in stating as follows:“... There is nothing before me to show that the Respondent made an objection decision as the law requires. By virtue of the clear provisions of section 51(8) and (11) of the TPA, the Respondent is deemed to have allowed the applicant's objection. I find backing in Republic v Commissioner of Customs Services Ex-Parte Unilever Kenya Limited in which the court stated that if the Commissioner does not render a decision within the stipulated period, the objection is deemed as allowed by operation of the law. The Act requires that where the Commissioner has not made an objection decision within 60 days from the date the taxpayer lodged the notice of objection, the objection shall be allowed. This means that the issues that the taxpayer had raised in the notice of objection will be accepted. In case of a tax assessment, it will be vacated. On this ground alone, the applicant's application succeeds".

15. The Appellant averred that the trip costs the Respondent sought to disallow of Kshs. 81,833,253. 00 on the grounds that the cost of the trip did not match the income derived as per the income tax provisions were costs related to dummy tests done on the Company's IT system during inception and were not factored in the final cost of sales calculation.

16. The Appellant averred that the costs were neither included in the 2020 audited financial statements nor the Corporate tax returns as they were not actual costs relating to any sales.

17. The Appellant submitted that since the postings were dummy tests, the costs were posted with a different currency, that is, US Dollars instead of Kenya Shillings and vice-versa and hence the large disparity compared to the income.

18. The Appellant submitted that Section 15 of the Income Tax Act provides that:-“For the purpose of ascertaining the total income of any person for a year of income there shall ….. be deducted all expenditure incurred in such year of income”

19. The Appellant further submitted that the cost in question were subsequently removed from the ledgers by way of cancellation. That the file used by the Respondent to identify the outlier costs had not been updated to reflect the changes and that it had provided evidence to the Respondent showing that the trip costs were cancelled and that the cost was not factored in the final expense reported in the audited financial statements.

20. The Appellant averred that therefore, the Respondent erred in law and fact by disallowing a cost that was not included in the financial statements and tax returns of the Appellant.

21. The Appellant relied on the case of Kenya Revenue Authority v. Man Diesel & Turbo Se, Kenya [2021] eKLR where the High Court stated that:“...the commissioner's determinations of tax deficiencies are presumptively correct. Although the presumption created by the above provisions is not evidence in itself, the presumption remains until the taxpayer produces competent and relevant evidence to support his position if the taxpayer comes forward with such evidence, the presumption vanishes, and the case must be decided upon the evidence presented...".

22. The Appellant submitted that the assessment relating to the variance between the turnover as per the audited financial statements and sales declared in the VAT teturns was introduced in the Objection decision and was not canvassed by the parties at the objection stage.

23. The Appellant averred that the Respondent erred by imposing PAYE on staff welfare expenses which are not taxable benefits on employees.

24. The Appellant averred that the value of the variance identified by the Respondent between the audited financial statements and PAYE returns for the years 2019 and 2020 relates to staff welfare costs which were not taxable on the employees and are allowable expenses for Corporate tax purposes.

25. The Appellant further submitted that these expenses were not paid directly to the employees as benefits or allowances but rather they were Corporate costs incurred by the company to motivate the employees to improve productivity as provided for under Section 5(2)(a) of the Income Tax Act which states that;-“For the purposes of Section 3(2)(a)(ii), gains or profits, includes; wages, salary, leave pay, sick pay, payment in lieu of leave, fees, commission, bonus, gratuity, or subsistence, travelling, entertainment or other allowance received in respect of employment or services rendered and any amount so received in respect of employment or services rendered in a year of income after other than the year of income in which it is received shall be deemed to be income in respect of that year of income."

26. The Appellant submitted that Rule 2 of the Income Tax (P.A.Y.E) Rules further states as follows:“emoluments" means- gains or profits from employment or services rendered which are payable in money; and the value of housing provided by an employer ascertained under section 5 (3) of the Act; and the value of benefit or facility provided by the employer, where the total value exceeds three thousand shillings per month; and"

27. The Appellant relied on the case of Cape Brandy Syndicate v. I.R. Commissioners [1921] 1KB where Judge Rowlett stated that:“in a taxing Act one has to look at what is clearly said. There is no room for any intendment. There is no equity about a tax. There is no presumption as to a tax. Nothing is to be read in, nothing is to be implied. One can only look fairly at the language used”.

28. The Appellant further relied on the case of Scott v. Russell (Inspector of Taxes), [1948] 2 All ER Lord Simonds expressed as follows:“. .. there is a maxim in Income tax law which, though it may sometimes be over­ stressed, 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."

29. The Appellant averred that the Income Tax Act does not define a benefit, while the Black's law Dictionary defines it as an advantage or profit received. The Appellant therefore submitted that the staff costs do not fall within the definition of emoluments.

30. The Appellant submitted that Section 15 (1) of the Income Tax Act provides that;“For the purpose of ascertaining the total income of a person for a year of income there shall, subject to section 16, be deducted all expenditure incurred in that year of income which is expenditure wholly and exclusively incurred by him in the production of that income, and where under section 27 any income of an accounting period ending on some day other than the last day of that year of income is, for the purpose of ascertaining total income for a year of income, taken to be income for a year of income, then the expenditure incurred during that period shall be treated as having been incurred during that year of income.”

Appellant’s Prayers 31. The Appellant prayed this Tribunal that:i.The decision contained in the Respondent's letter dated 13th February 2023 demanding corporation income tax of KES 19,486,116 and PAYE of Kshs 2,384,548. 00 be vacated;ii.The Appeal to be allowed and,iii.The costs of and incidental to this Appeal be awarded to the Appellant.

Respondent’s Case 32. The Respondent’s case is premised on the following documents before the Tribunal: -a.Its Statement of Facts dated 24th April 2023 and filed on 26th April 2023. b.Its Written Submissions dated 28th September 2023 and filed on 2nd October 2023.

33. The Respondent averred that the Appellant lodged its notice of objection on 2nd November 2022, partially challenging the assessments, i.e., the Corporate income tax and PAYE assessments.

34. The Respondent submitted that the said notice of objection did not comply with the provisions of Section 51(3) (c) of the Tax Procedures Act, noting that all the relevant documents were not provided.

35. The Respondent submitted that Section 51 (3) of the Tax Procedures Act, 2015 provides that;“A notice of objection shall be treated as validly lodged by a taxpayer under subsection (2) if—a.the notice of objection states precisely the grounds of objection, the amendments required to be made to correct the decision, and the reason for the amendments;b.In relation to an objection to an assessment, the taxpayer has paid the entire amount of tax due under the assessment that is not in dispute.c.All the relevant documents relating to the objection have been submitted.”

36. The Respondent further submitted that Section 51(11) of the Tax Procedures Act provides that:-“The Commissioner shall make the objection decision within sixty days from the date of receipt of a valid notice of objection failure to which the objection shall be deemed to be allowed.”

37. The Respondent averred that the Appellant validated the notice of objection on 16th December 2022. The Respondent submitted that time, therefore, began to run on 16th December 2022. Hence, the issuance of an objection decision on rendered 13th February 2023, was within the prescribed statutory timelines.

38. The Respondent averred that during the return review analysis, it flagged two outlier trips, TP1055559 and TTP1058936, with an income of Kshs. 280,953/= and cost of Kshs. 82,110,158/=. The Respondent submitted that it established that the cost of the trips did not match the income as per the income tax provisions.

39. The Respondent opined that for an expense item to be allowed for tax purposes, it must have been expensed in the income statement to arrive at the profit or loss before tax. Therefore, it submitted that the above condition was not met and would thus be contra statute for the Respondent to disallow a non-existent expense item.

40. The Respondent submitted that Section 16 (1)(a)of the Income Tax Act provides that:“Save as otherwise expressly provided, for purposes of ascertaining the total income of a person for a year of income, no deduction shall be allowed in respect of –a.expenditure or loss which is not wholly and exclusively incurred by him in the production of the income;”

41. The Respondent relied on the case of Hancock v General Reversionary and Investment Company [6] for the holding that: -“...the proper test to apply is this; was the expenditure incurred in order to meet a continuing business demand, in which case it should be treated as an ordinary business expense and an admissible deduction or was it an expenditure incurred once and for all in which case it should be treated as capital outlay... "

42. The Respondent submitted that the Appellant included costs of trips that did not match the income as per the income tax provisions hence the costs failed to meet the criteria envisaged under Sections 15 & 16 of the Income Tax Act.

43. The Respondent further relied on the cases of: -a.Mars Logistics Limited v. Commissioner of Domestic Taxes [2021] eKLRb.Commissioner for Inland Revenue v Genn & Co (Pty) Ltd

44. The Respondent submitted that the assessment for Corporate income tax was issued on 3rd October 2022 and not vide the objection decision as the Appellant suggested.

45. The Respondent averred that Section 31(1) of Tax Procedures Act provides that;“Subject to this section the Commissioner may amend an assessment (referred to in this section as the "original assessment") by making alterations or additions from the available information and to the best of the Commissioner's judgment to the original assessment of a taxpayer for a reporting period."

46. The Respondent relied on the case of TAT Appeal No. 538 of 2021 Greenroad Kenya Limited V Commissioner Of Domestic Taxes, the Tribunal at paragraph 52 and 53 held that:-“The Tribunal's considered view is that the failure by the Appellant to avail the documents requested granted the Respondent the power to use its best judgement as provided for under Section 31(1) of Tax Procedures Act.”

47. The Respondent submitted that the comparison of turnover as per audited statements vis-a-vis as per the VAT returns only formed a basis of the assessment which the Appellant was fully aware about. Therefore, the Respondent averred that the Appellant had sufficient opportunity to challenge the assessment dated 3rd October 2022 and that the alleged additional assessment made vide the objection decision did not in any way affect the actual tax liability of the Appellant.

48. The Respondent relied on the case of Nick Kikalos and Helen Kikalos v. United States of America. No. 2:98 CV 618. 313 F. supp. 2d 876 (2003) wherein it was held that:“Courts routinely accord deference to the Commissioner in the reconstruction of a taxpayer's income noting that 'the Commissioner may use any reasonable method of calculation where the taxpayer fails to produce or maintain adequate records from which actual income may be ascertained. Other Circuits have stated that the "court must accept the Commissioner's method of reconstructing income so long as it is rationally…based in the ordinary case, the determination of taxable income by the Commissioner is presumptively correct.......”

49. The Respondent further relied on the case of Digital Box Ltd V Commissioner Of Investigation & Enforcement (2019) EKLR, the Tribunal held:“that in both instances, the Respondent is allowed to use any information that is available to it and use the best of his or her judgment in making the assessment. The Tax Procedures Act in granting the Respondent powers to assess taxpayers does not specify the methods that may be used instead the law provides that the best judgment must be exercised.”

50. The Respondent submitted that it identified variances between salaries in the audited statements vis-a-vis salaries as per the PAYE returns for the years 2019 and 2020. That it brought the variances to charge assessing PAYE of Kshs. 674,038. 00 and 1,710,511. 00 for 2019 and 2020, respectively.

51. The Respondent submitted that a meeting was held on 16th December 2022 by both parties where the Appellant was requested to provide the Respondent with further documents to explain the variance.

52. The Respondent further submitted that the reconciliation provided by the Appellant was not supported by any documentation to demonstrate the veracity of the computations hence it was a mere schedule with entries which could not discharge the requisite burden of proof, that it ought to have been supported by the relevant documentation.

53. The Respondent relied on Section 23(1) of the Tax Procedures Act which provides;“A person shall-a.Maintain any document required under a tax law, in either of the official languages;b.Maintain any document required under a tax law so as to enable the person's tax liability to be readily ascertained; andc.subject to subsection (3), retain the document for a period of five years from the end of the reporting period to which it relates or such shorter period as may be specified in a tax law.”

54. The Respondent further submitted that Section 59(1) of the Tax Procedures Act, requires the Appellant to produce supporting documents for examination. It provides that;“For the purposes of obtaining full information in respect of the tax liability of any person or class of persons, or for any other purposes relating to a tax law, the Commissioner or an authorized officer may require any person, by notice in writing to-a.produce for examination at such time and place as may be specified in the notice. any documents (including in electronic format) that are in the person's custody or under the person's control relating to the tax liability of any person;b.furnish information relating to the tax liability of any person in the manner and by the time as specified in the notice”

55. The Respondent relied on the case of TAT No. 70 of 2017 Afya XRay Centre vs Commissioner of Domestic Taxes where the Tribunal held that:“From the foregoing chain of events, it is our understanding that the Appellant failed in its duty in providing documents in order that a comprehensive analysis of its affairs is done. Accordingly the Respondent can hardly be faulted for raising the assessment in accordance with the availed documents..."

56. The Respondent averred that the assessment was issued based on the information and documents available to the Commissioner. Further, the Respondent submitted that the Appellant was instructed to avail certain documents vide the email dated 16th December 2022 which it failed to do.

57. The Respondent opined that the Appellant was duty bound to maintain the said documents so as to enable its tax liability to be readily ascertained as provided for in Section 59(1) of the Tax Procedures Act.

58. The Respondent relied on the case of Pearson Vs. Belcher CH.M Inspector of Taxes) Tax Cases Volume 3B referred to by Justice D.S. Majanja in PZ Cussons East Africa Limited Vs. Kenya Revenue Authority (2013) eKLR to the extent that: -“Where there is an additional assessment made by the Commissioner upon the Appellant; it is perfectly settled by cases such as Norman Vs. Galder 267C 293. that the onus is upon the Appellant to show that the assessment made upon him is excessive and incorrect and of course he has completely failed to do. That is sufficient to dispose of the appeal which I accordingly dismiss with costs."

Respondent’s Prayers 59. The Respondent prayed for the Tribunal to find:a.That the Respondent's decision dated 13th February 2023 be upheld.b.That this Appeal be dismissed with costs to the Respondent.

Issues for Determination 60. Having considered the pleadings and submissions of the parties and the documentation availed, the Tribunal is of the view that this Appeal raises the following issues for determination:a.Whether the Respondent’s Objection Decision was out of time.b.Whether the Respondent was justified in confirming the additional Corporate tax assessments on the Appellantc.Whether the Respondent was justified in confirming the additional PAYE tax assessments on the Appellant

Analysis and Findings 61. The Tribunal having identified the issues falling for determination proceeds to analyze the same as hereunder.

a. Whether the Respondent’s Objection Decision was out of time 62. The Appellant anchored its Appeal on the premise that the Respondent’s objection decision was out of time and that its notice of objection had been deemed allowed by operation of the law.

63. The Appellant submitted that it raised its notice of objection on 2nd November 2022 whereupon the Respondent issued an objection decision on 13th February 2023, 42 days past the statutory due date.

64. On its part, the Respondent stated that the notice of objection lodged by the Appellant on 2nd November 2022 did not comply with the provisions of Section 51(3)(c) of the TPA noting that all the relevant documents were not provided.

65. The Respondent contended that the Appellant validated its notice of objection on 16th December 2022 when it provided the required documents hence the objection decision of 13th February 2023 was within the 60 day statutory timelines as counted from the date of validation of the notice of objection.

66. Section 51(3) of the TPA states as follows with regard to a validly lodged notice of objection:“(3)A notice of objection shall be treated as validly lodged by a taxpayer under subsection (2) if—(a)the notice of objection states precisely the grounds of objection, the amendments required to be made to correct the decision, and the reasons for the amendments;(b)in relation to an objection to an assessment, the taxpayer has paid the entire amount of tax due under the assessment that is not in dispute or has applied for an extension of time to pay the tax not in dispute under section 33(1); and(c)all the relevant documents relating to the objection have been submitted.”

67. In order to determine the issue in dispute, the Tribunal needs to remind itself of the chronology of events and important dates in this dispute, which are as follows;i.Date of assessment 3rd October 2022ii.Date of Objection 2nd November 2022iii.Partial agreement and payment plan for taxes not in dispute 16th December 2022. iv.Request for additional information by Respondent on 16th December 2022v.Provision of additional information by Appellant on 16th December 2022vi.Objection decision date issued on 13th February 2023

68. It is evident from the parties’ submissions that they engaged in correspondence leading to the signing of a partial agreement and entered into a payment plan of the undisputed taxes on 16th December 2022. The Respondent has further attached copies of email correspondence showing that the Appellant upon request provided additional information on 16th December 2022.

69. It follows therefore that Section 51(3) (b)&(C) of the TPA was complied with by the Appellant on 16th December 2022 when the payment plan of the undisputed taxes was reached and additional information provided to the Respondent.

70. Section 51(11) of the TPA provides as follows with regard to the statutory timelines for the issuance of an objection decision:“(11)The Commissioner shall make the objection decision within sixty days from the date of receipt of a valid notice of objection failure to which the objection shall be deemed to be allowed.” (Emphasis added)

71. By interpretation of Section 51(11) above, in the instant case the sixty days began to count from 16th December 2022, the day when the notice of objection was validated meaning that the sixtieth day would have been on 14th February 2023.

72. In light of the above, the Tribunal finds that the Respondent’s objection decision rendered on 13th February 2023 was within the statutory timelines.

b. Whether the Respondent was justified in confirming the additional Corporate tax assessments on the Appellant 73. The Tribunal having determined that the Respondent’s decision was rendered within the statutory timelines now shifts its focus to the veracity of the additional tax assessments.

74. The Tribunal noted that the Appellant partially conceded to the Corporate income tax assessment particularly the portion relating to expected credit losses.

75. The additional Corporate tax assessment which remains in dispute is that relating to disallowed trip costs.

76. The Respondent submitted that it had flagged two outlier trips whose cost did not match the income as per the income tax provisions, that on this basis the related expenditure was disallowed for failure to meet the criteria envisaged under Sections 15 & 16 of the Income Tax Act.

77. The Appellant averred that the said costs were not actual costs relating to any sales as the postings were dummy tests and that the costs were posted with a different currency, that is, US Dollars instead of Kenya shillings and vice-versa hence the large disparity compared to the income.

78. The Appellant submitted further that the costs in question were subsequently removed from the ledgers by way of cancellation and that it had provided evidence to the Respondent showing that the trip costs were cancelled hence the said cost was not factored in the final expense reported in the audited financial statements.

79. The Respondent maintained that the Appellant had failed to show the closeness of the connection between the expenditure and income generated from the outlier trips and hence it would be contra statute for the Respondent to allow a non-existent expense.

80. Section 16 (1)(a)of the Income Tax Act provides as follows regarding allowable expenditure in computation of taxable income:“Save as otherwise expressly provided, for purposes of ascertaining the total income of a person for a year of income, no deduction shall be allowed in respect of – expenditure or loss which is not wholly and exclusively incurred by him in the production of the income;”

81. The Tribunal’s analysis of documents submitted by the Appellant showed that the Appellant provided copies of the entries showing that the two trips were cancelled, however the Tribunal did not sight any evidence to demonstrate that the said costs had been removed from the respective ledgers as the Appellant did not attach the respective ledgers.

82. The Appellant had also contended that the Respondent had introduced an assessment relating to turnover as per the audited financial statements and sales declared in the VAT returns in the objection decision and that the same was not canvassed by the parties at the objection stage.

83. On its part, the Respondent maintained that the assessment for Corporate tax was issued on 3rd October 2023 and that the objection decision only provided a table to show comparison of turnover as a basis of the assessment which the Appellant was fully aware of and had suffecient opportunity to challenge.

84. The Tribunal however noticed an error in the tax computation under Corporate tax in the objection decision where the Respondent erroneously computed 25% tax leading to a difference of Kshs. 2,598,149 between the principal tax assessed as per the assessment order and the principal tax assessment confirmed as per the objection decision. It is the Tribunal’s finding the amount as stated in the assessment order under Corporate tax of Kshs. 12,990,744. 00 under the corporate tax head is the principal tax in dispute.

85. Once the Respondent raises an assessment, the burden of proof falls on the Appellant to show that the assessment is excessive or incorrect. Section 56(1) of the TPA provides as follows on the burden of proof:“In any proceedings under this part, the burden of shall be on the taxpayer to prove that a tax decision is incorrect.”

86. The Tribunal has pronounced itself on burden of proof in numerous cases. In TAT Appeal No.55 of 2018 Boleyn International Ltd -vs- Commissioner Domestic Taxes, the Tribunal held that:“We find that the Appellant at all times bore the burden of proving that the Respondent’s decisions and investigations were wrong.”

87. The Tribunal finds that in this instance, the Appellant failed to discharge the burden of proof to show that the disallowed expenditure was indeed incurred wholly and exclusively in the production of income therefore the Respondent cannot be faulted for disallowing the expense relating to the outlier trips.

c. Whether the Respondent was justified in confirming the additional PAYE tax assessments on the Appellant 88. The Respondent submitted that it identified variances between salaries in the audited statements vis-a-vis salaries as per the PAYE returns for the years 2019 and 2020. That it brought the variances to charge assessing PAYE of Kshs. 674,038. 00 and 1,710,511. 00 for the years 2019 and 2020, respectively.

89. The Appellant averred that the value of the variance relates to staff welfare costs which were not taxable on the employees and are allowable expenses for Corporate tax purposes.

90. The Appellant further submitted that these expenses were not paid directly to the employees as benefits or allowances but rather they were corporate costs incurred by the company to motivate the employees. The Appellant relied on Section 5(2)(a) of the Income Tax Act and Rule 2 of the Income Tax (P.A.Y.E) Rules.

91. It was the Appellant’s position that the Income Tax Act does not define a benefit, while the Black's Law Dictionary defines it as an advantage or profit received. That therefore, the staff costs do not fall within the definition of emoluments.

92. The Appellant averred that it had provided the Respondent with a PAYE reconciliation schedule showing the breakdown of the staff cost expenses which comprised of staff retreat expenses and travel tickets.

93. The Respondent submitted that the Appellant only provided a reconciliation which was not supported by documentation to demonstrate the veracity of the computations hence the Appellant failed to discharge the burden of proof.

94. The Tribunal in its analysis of the material adduced by the Appellant sighted the PAYE reconciliation and ledger extracts for the specific staff welfare expenses.

95. The Tribunal is persuaded that the documents provided demonstrate that the variance was occasioned by staff expenses which are not emoluments hence they were not subject to PAYE.

96. The Tribunal is guided by the holding in the case of Kenya Revenue Authority v. Man Diesel & Turbo Se, Kenya [2021] eKLR where the High Court stated that:“...the commissioner's determinations of tax deficiencies are presumptively correct. Although the presumption created by the above provisions is not evidence in itself, the presumption remains until the taxpayer produces competent and relevant evidence to support his position if the taxpayer comes forward with such evidence, the presumption vanishes, and the case must be decided upon the evidence presented..".

97. The Tribunal therefore finds that the Appellant discharged its burden of proof by showing that the Respondent erred in imposing PAYE on staff welfare expenses which are not taxable.

Final Decision 98. The upshot of the foregoing analysis is that the Appeal partially succeeds and the Tribunal accordingly proceeds to make the following Orders:a.The Appeal be and is hereby partially allowed.b.The Respondent’s Objection decision dated 13th February 2023 be and is hereby varied as follows:i.Confirmation of assessment on principal Corporate tax of Kshs. 12,990,744. 00 is hereby upheldii.Additional assessment on PAYE tax head is hereby set aside.c.Each party to bear its own costs.

99. It is so ordered.

DATED AND DELIVERED AT NAIROBI THIS 17TH DAY OF MAY, 2024. ERIC NYONGESA WAFULA - CHAIRMANDR. RODNEY O. OLUOCH - MEMBERABRAHAM K. KIPROTICH MEMBER MEMBERCYNTHIA B. MAYAKA - MEMBERTIMOTHY B. VIKIRU - MEMBER