[2023] KETAT 999 (KLR)

Lenolkulal v Commissioner of Domestic Taxes (Tribunal Appeal 809 of 2022) [2023] KETAT 999 (KLR) (15 September 2023) (Judgment)

Neutral citation: [2023] KETAT 999 (KLR)

Republic of Kenya

In the Tax Appeal Tribunal

Tribunal Appeal 809 of 2022

Grace Mukuha, Chair, G Ogaga, T Vikiru, Jephthah Njagi & E Komolo, Members

September 15, 2023

Between

Moses Kasaine Lenolkulal

Appellant

and

Commissioner Of Domestic Taxes

Respondent

Judgment

Background 1. The Appellant is a male adult and resident individual taxpayer in Kenya for purposes of domestic taxes.

2. The Respondent is a principal officer appointed under Section 13 of the Kenya Revenue Authority Act, 1995. Under Section 5 (1) of the Act, the Kenya Revenue Authority is an agency of the Government for the collection and receipt of all tax revenue. Further, under Section 5(2) of the Act with respect to the performance of its functions under subsection (1), the Authority is mandated to administer and enforce all provisions of the written laws as set out in Part 1 & 2 of the First Schedule to the Act for the purposes of assessing, collecting and accounting for all revenues in accordance with those laws.

3. The Respondent issued additional assessment to the Appellant for rental income tax for the year 2015 on 13th February 2018 for Kshs. 741,860. 17 inclusive of penalty and interest.

4. The Appellant lodged an objection to the additional assessment on 19th December 2018.

5. The Respondent confirmed the additional assessment on 15th March 2019.

6. The Appellant, aggrieved by the said confirmation of assessment, filed a Notice of Appeal on 3rd August 2022.

The Appeal 7. The Appellant filed a Memorandum of Appeal dated 3rd August 2022 raising the following grounds:-a.That the Respondent’s station manager in Nakuru office occasioned the raising of additional tax under Income Tax Act (Cap.470) for the year 2015, and issued a confirmation notice for additional tax assessment for Kshs. 617,273. 00. b.That the action of the Respondent to reject the objection raised by the Appellant and to confirm the tax under dispute on 31st March, 2019, is wrong, repugnant to natural justice and against the Income Tax Act (Cap. 470) as one cannot demand tax from income not earned.c.That additional assessed tax subject to this Appeal is an estimated income and therefore excessive and punitive.d.That the additional assessed tax ought to be amended in accordance with the actual income of the Appellant.e.That the Appellant has disputed the additional tax and made an application to the Tribunal to have the matter arbitrated by the ADR Committee.f.That the Appellant has attached all necessary documentary evidence to support his prayers and to confirm that the additional tax assessment is excessive, punitive and unreasonable as it has been determined using incomplete records and assumptions.

Appellant’s Case 8. The Appellant’s case is premised on the following documents as filed the Appellant’s Statement of Facts filed on 3rd August, 2022 and annexures thereto.

9. The Appellant averred that he disputed additional tax raised against him by the Respondent as inaccurate, excessive, punitive and erroneous as it was based on estimated income, which did not take into account expenses wholly and exclusively incurred to generate the said income. The Appellant stated that he had produced supporting documentary evidence.

10. The Appellant averred that although he is a regular taxpayer, he felt incriminated by the Respondent’s staff, who in their endeavour to collect tax, subjected him to irregular audit, which did not follow taxation charter or protocol expected, and hence cannot be regarded as conclusive.

11. The Appellant averred that the additional tax confirmed by the Respondent was incorrect, excessive and punitive, as it was based on estimated income, rather than actual income earned during the year under review.

12. That the estimated incomed used to compute additional income apparently failed to recognise actual business expenses that were wholly and exclusively incurred to generate the said income.

13. That the Respondent’s staff were not proactive in forestalling dispute and failed to respond to questions raised. That in this regard, the Appellant averred that the dispute could have been amicably resolved through ADR.

14. The Appellant further averred that he was willing to pay any tax that was properly determined and had done so in the past, and more specifically to any tax that may arise from the determination of the Tribunal.

15. That the documentary evidence attached confirm that the Appellant disclosed his income and paid taxes.

Appellant’s Prayers 16. On the face of the records, it can be deduced that the Appellant sough the following orders from the Tribunal: -a.The Appeal be allowed.b.The Appeal be referred to ADR.

Respondent’s Case 17. The Respondent’s case is premised on the following documents:a.The Respondent’s Statement of Facts dated 31st August, 2022 and filed 1st September 2022. b.The Respondent’s Written Submissions dated 8th March, 2023 and filed on 9th March 2023.

18. The Respondent averred that it conducted an assessment on the Appellant for income tax year 2015. The assessment emanated from an application by the Appellant for tax compliance certificate, and that compliance check uncovered that the Appellant had rental income that he had not declared for tax purposes.

19. That upon further investigations, the Respondent obtained a list of properties owned by the Appellant and rent earned per property.

20. That the properties included Oryx Building for which the Appellant earned rental income of Kshs. 4,549,440. 00 per annum, a plot opposite Maralal Police Station for which the Appellant earned Kshs. 480,000. 00 per annum, and Oryx Guest House for which the Appellant earned Kshs. 118,800. 00 per annum.

21. That the Appellant was registered for VAT and has been filing returns to account for VAT. The Respondent averred that commercial rent is subject to VAT as stipulated under Section 5 of the VATAct 2013.

22. That in the year 2015, the Appellant declared VAT totaling Kshs. 5,266,381. 00.

23. That the Appellant also declared income from various sources as per his annual return.

24. That the Appellant, however, under-declared rental income with respect to the year 2015 as compared to VAT turnover and also as per the property listings. That as a result, additional assessment on rental income was issued on 13th February 2018 for Ksh. 741, 860. 17. 00 inclusive of penalty and interest.

Respondent’s Prayers 25. The Respondent prays to the Tribunal for orders that: -a.The tax assessment of Kshs. 741,860. 17 was correctly issued.b.The Appeal be dismissed with costs.

Issues for Determination 26. The Tribunal, upon reading the pleadings and written submissions together with supporting authorities filed by the Appellant and the Respondent identified the following two issues for determination: -a.Whether the Appeal is Valid.b.Whether the Respondent erred in issuing and confirming additional income tax assessment.

Analysys and Findings a. Whether the Appeal is Valid. 27. The Tribunal notes that both parties agree on the chronology of events and dates leading to the additional assessment conducted by the Respondent, objection to assessment by the Appellant and confirmation of assessment by the Appellant. Indeed, both the Appellant and the Respondent annexed the same documents.

28. The Tribunal further takes judicial notice that the Appellant did not participate in the proceedings or file written submissions.

29. The Appellant’s Notice of Appeal on record was filed on 3rd August 2022.

30. The Respondent submitted that it confirmed additional assessment on 15th March, 2019.

31. The Respondent further submitted that the Appeal was filed out of time and without leave of the Tribunal and is therefore incompetent.

32. The Tribunal notes that the applicable law for invoking its jurisdiction is Section 13 of the Tax Appeals Tribunal Act (No. 40 of 2013) and Section 51(12) of the Tax Procedures Act (No. 29 of 2013).

33. Section 13 (1) (b) and (3) The Tax Appeals Tribunal Act specifically stipulate the process and timelines for filing a competent appeal as follows:“13(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.(2)………………..(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).”

34. Section 51 (12) of the 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 Tribunal noted that the Appellant did not participate in the proceedings and did not file any written submissions. The averments and submissions of the Respondent on process and timelines are therefore unchallenged.

36. However, it is apparent on the face records of both the Appellant and the Respondent before the Tribunal that the confirmation of assessment notice by the Respondent was issued on 15th March, 2019, and that the Notice of Appeal was filed on 3rd August 2022. This is a period of over three years and, barring any explanation, offends provisions of section 13(1)(b) of the Tax Appeals Tribunal Act and Section 51 (12) of the Tax Procedures Act.

37. The Tribunal takes note of the fact that there was no application on the record filed by the Appellant as mandatorily envisaged under Section 13 (3) of the Tax Appeals Tribunal Act.

38. The Tribunal relies on the Court’s holding in Nicholas Kiptoo Arap Korir Salat v IEBC & 6 Others [2013] eKLR where the court stated as thus;“This Court, indeed all courts, must never provide succor and cover to parties who exhibit scant respect for rules and timelines. Those rules and timelines serve to make the process of judicial adjudication and determination fair, just, certain and even-handed. Courts cannot aid in the bending or circumventing of rules and a shifting of goal posts for, while it may seem to aid one side, it unfairly harms the innocent party who strives to abide by the rules. I apprehend that it is in the even-handed and dispassionate application of rules that courts give assurance that there is a clear method in the manner in which things are done so that outcomes can be anticipated with a measure of confidence, certainty and clarity where issues of rules and their application are concerned…”

39. After looking at the statutes and the above case law the Tribunal finds that the Appeal as presently filed is not valid.

b. Whether the Respondent erred in issuing and confirming additional income tax assessment. 40. The Tribunal having determined that the Appeal before it is not valid, it follows that the second issue for determination was rendered moot.

Final Decision 41. The upshot of the above finding is that the Appeal 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.

42. It is so ordered.

DATED AND DELIVERED AT NAIROBI THIS 15TH DAY OF SEPTEMBER, 2023GRACE MUKUHACHAIRPERSONGLORIA OGAGAMEMBERTIMOTHY VIKIRUMEMBERJEPHTHAH NJAGIMEMBERDR. ERICK KOMOLOMEMBER