[2024] KETAT 330 (KLR)

Liberty Life Assurance Kenya Limited v Commissioner for Domestic Taxes (Appeal 1501 of 2022) [2024] KETAT 330 (KLR) (23 February 2024) (Judgment)

Neutral citation: [2024] KETAT 330 (KLR)

Republic of Kenya

In the Tax Appeal Tribunal

Appeal 1501 of 2022

E.N Wafula, Chair, D.K Ngala, CA Muga, GA Kashindi, AM Diriye & SS Ololchike, Members

February 23, 2024

Between

Liberty Life Assurance Kenya Limited

Appellant

and

Commissioner For Domestic Taxes

Respondent

Judgment

1. The Appellant is a limited liability company incorporated in Kenya under the Companies Act. The Appellant is licensed under the Insurance Act and regulated by the Insurance Regulatory Authority (IRA) to provide long term insurance services to the general public. The Appellant also offers investment contracts to customers with asset management solutions for their savings and retirement needs.

2. The Respondent is a principal officer appointed under Section 13 of the Kenya Revenue Authority Act, Cap 469 of laws of Kenya. 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. On 22nd November 2021, the Appellant, through its tax agents, applied through the Voluntary Tax Disclosure Program (VTDP) whereby it disclosed an underpayment of principal PAYE of Kshs. 5,365,320. 00. The Respondent acknowledged receipt of the same and officially replied on 23rd December 2021.

4. Consequently, the Respondent carried out an audit of the books, records and accounts of the Appellant for the 2016-2020 audit period in relation to Corporate tax and communicated the preliminary findings vide a letter dated 19th May 2022. The Appellant responded to the findings through a letter dated 16th June 2022.

5. On 2nd August 2022 vide a notice of assessment, the Respondent demanded taxes amounting to Kshs. 162,856,886. 00 being Corporate taxes for the January 2016 to December 2020 audit period.

6. On 1st September 2022 vide its notice of objection, the Appellant objected to the entire assessment. The objection was acknowledged by the Respondent on the same date.

7. On 8th September 2022 vide the i-Tax platform, the Respondent confirmed revised assessment of Corporate taxes amounting to Kshs. 218,704,193. 36 comprising principal tax, interest and penalties.

8. On 28th October 2022, the Respondent issued its objection decision confirming its assessment as issued on 2nd August 2022 of principal corporate tax liability of Kshs. 162,856,886. 00.

9. Aggrieved by the Respondent’s objection decision, the Appellant filed its Notice of Appeal at the Tribunal on 25th November 2022.

The Appeal 10. The Appeal was premised on the following grounds as laid-out in the Memorandum of Appeal dated 9th December 2022 and filed on even date:a.That the Respondent erred in law and fact by treating prior year adjustment of Kshs. 50,778,000. 00 as a benefit to shareholders and subjecting the adjustment to tax.b.That the Respondent erred in law and fact by claiming that the amounts of Kshs. 224,948,000. 00 adjusted in the years 2016 and 2017 as deferred tax on undistributed surplus was for the benefit of the shareholders hence subject to tax.c.That the Respondent erred in law and fact in finding that the Appellant overclaimed permitted management expenses.d.That Respondent erred in law by assessing tax for the year 2016 which is beyond the statutory limitations for tax assessments of five (5) years.

Appellant’s Case 11. The Appellant stated as follows in its Statement of Facts filed dated 9th December 2022 and filed on even date:

12. The Appellant averred that the Respondent erroneously concluded that adjustments made in the financial statements were transfers for the benefit of shareholders; whereas they were mere accounting adjustments made following internal comprehensive review of policyholder contracts in line with International Financial Reporting Standards (IFRS) 17 on insurance contracts which had established the need to reclassify Income builder contracts to insurance contracts and was to come in force by 1st January 2021. The effective date had been moved on 25th June 2020 to 1st January 2023 long after the Appellant had already made the adjustments.

13. The Appellant averred that the objective of IFRS 17 was to ensure that an insurance entity provides relevant information that faithfully represents those contracts. This information gives a basis for users of financial statements to assess the effect that insurance contracts have on the entity’s financial position, financial performance and cash flows.

14. The Appellant averred that in preparation for IFRS 17, it undertook a clean-up exercise in its operations, including how they were accounting for pension taxes which was done on cash basis while pension liabilities was based on accrual basis. That as a result in the year 2020 and in aligning to IFRS 17, the Appellant introduced the accrual concept for all pension taxes. As a result, the Appellant established that in the year 2020 it had paid Kshs. 72. 54 million in scheme taxes relating to 2019. Noting that this was a material figure, the Appellant agreed with its external auditors on the need to restate the 2019 financials in line with International Accounting Standard (IAS) 8 which provides that change in accounting policies during the year should be adjusted before finalization of the current year financial statements.

15. The Appellant stated that the restatement attracted a deferred tax amounting to Kshs. 21. 76 million which netted against the already paid taxes of Kshs. 72. 54 million resulted in a net effect of Kshs. 50. 78 million. This resulted in a reduced profit of 2019 financial year which corresponded to an exact increase in profit for the year 2020; and as demonstrated in the statement of changes in equity, there was no effect on the overall balances of retained earnings meaning therefore there was no additional benefit conferred to shareholders as a result of the adjustments.

16. It was the Appellant’s assertion that the Respondent ought to have reviewed the financial statements in totality when checking the movement for 2019 and 2020.

17. That contrary to Respondent’s claims in the objection decision that the tax point was where amounts left the statutory reserve, the Appellant asserted that in line with the Insurance Act, Cap 487 of the laws of Kenya (hereinafter ‘Insurance Act’) an actuary shall recommend for any amount to be moved from the life fund to the retained earnings for the benefit of shareholders and relied on Section 19(5) of the Income Tax Act Cap 470 of the laws of Kenya (hereinafter ‘ITA’) which provides as follows;“…The gains or profits for a year of income from the long-term insurance business of a resident insurance company, whether mutual or proprietary, shall be the sum of the following:i.The amount of actuarial surplus, as determined under the Insurance Act and recommended by the actuary to be transferred from the life fund for the benefit of shareholders.ii.Any other amounts transferred from the life fund for the benefit of shareholders; andiii.Thirty per centum of management expenses and commissions that are in excess of the maximum amounts allowed by the Insurance Act.”

18. It was the Appellant’s contention that ITA does not define what “for the benefit of the shareholder” but instead the only reasonable definition of the phrase was as provided for under Section 46(1)(b)(i) as read with Section 46(5) of the Insurance Act which states as follows:“…no part of the assets of a statutory fund shall, so long as the insurer carries on the class or classes of long-term insurance business in respect of which the fund was well established-be paid, applied or allocated as dividends or otherwise profits to shareholders or transferred to another statutory fund. However, “an insurer may, for the purposes of declaring or paying dividend to shareholders or a bonus to policyholders, utilize the surplus disclosed in the valuation balance sheet of a statutory fund set out in the actuary’s abstract relating to an investigation made in pursuance of Section 57 and accepted by the Commissioner, subject to the condition that the amount allocated or paid to the shareholders out of a statutory fund shall not exceed thirty percent of the surplus disclosed therein after making the necessary adjustments to the surplus.”

19. The Appellant was adamant the adjustment was a result of accounting adjustments necessitated by anticipated changes in financial standards not as a result of surplus, recommendation of an actuary and approved by the Commissioner of Insurance. On the Contrary, the Appellant stated that benefits to shareholders related to dividends or profits and that only amounts recommended for transfer by an actuary and approved by the Commissioner of Insurance qualified as benefits of shareholders.

20. The Appellant relied on the Court of Appeal case of Kenya Revenue Authority v Republic (ex-parte Fintel Ltd) NRB CA Civil Appeal No 311 of 2013[2019] eKLR where the court cited the dictum of Lord Atkinson in Inland Revenue Commissioner v Duke of Westminster [1936] AC 1 that;“It is well established that once bound, in constructing Revenue Acts, to give a fair and reasonable construction to their language without leaning to one side or the other, that no tax can be imposed on a subject by Act of Parliament without words in it clearly showing an intention to lay the burden upon him, that the words of a statute must be adhered to and that so-called equitable constructions of them are not permissible.”

21. To buttress its position, the Appellant cited the case of Russell v Scott [1948] 2 ALL ER where the court opined that:“There is a maxim of 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 on him.”

22. Similarly, the Appellant averred that amounts transferred from statutory reserve to deferred tax were as a result of accounting adjustments as per Institute of Certified Public Accountants of Kenya (ICPAK) Technical Guidelines 2014 not a transfer made for the benefit of shareholders. The said Guidelines were due to inconsistency in application of International Accounting Standard (hereinafter ‘IAS’) 12 in relation to recognition of deferred tax. That as a result, the Appellant accounted for retrospectively in line with IAS 8 in recognizing deferred income tax on the undistributed portion of life funds surplus; which was a departure from life assurance industry practice where statutory reserve included both the policyholders and associated tax.

23. The Appellant disputed the Respondent’s assertion that life fund was ring-fenced since Section 19(5) of ITA was clear that only transfers made for the benefit of shareholders were taxable where such transfers conferred a benefit on shareholders.

24. It was the Appellant’s contention that whereas Section 70 of Insurance Act, as read with Regulation 21 of the Insurance Regulations provided that insurers shall not incur management expenses above certain prescribed limits, investment expenses were not part of management expenses as envisioned in law.

25. It was the Appellant’s assertion that Form 59-5 of the Insurance Act provides a list of expenses permitted in computation of management expenses and that this does not include investment expenses but rather the same was included separately under the same form. Further, the Appellant averred that according to Form 70-1, computation of permitted expenditure was only based on core premium income and that investment income formed part of life fund not core premium income. The Appellant in buffering its position cited the case of Cape Brandy Syndicate vs Inland Revenue Commissioner [1921] where the court 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 tax. There is no presumption in tax. Nothing is to be implied. One can only look at the language used.”

26. The Appellant also averred that the Respondent acted ultra vires as it was statutorily barred from assessing tax for the year 2016 which was beyond the five-year limit set by law. The Appellant cited Section 31(4) of the Tax Procedures Act No. 29 of 2015 (hereinafter ‘TPA’) which provides that;“The Commissioner may amend and assessment-i.In the case of gross or wrongful neglect, evasion, or fraud by, or on behalf of, the taxpayer, at any time;ii.In any other case, within five years of-i.For a self-assessment, the date that the self-assessment taxpayer submitted the self-assessment return to which the self-assessment relates.”

27. The Appellant cited the following cases to firm up its position;i.Agricultural Training Board v Aylesbury Mushrooms Ltd [1972] All ER 280. ii.Ecobank Kenya Limited v The Commissioner of Domestic Taxes [2012] eKLR.iii.Katsram Limited v Commissioner of Domestic Taxes Tax Appeal No 182 of 2021.

Appellant’s Prayers 28. The Appellant’s prayers to the Tribunal were that:a.The Tribunal do allow the Appeal.b.The Tribunal vacates the Respondent’s objection decision of 28th October 2022 in its entirety with costs.

The Respondent’s Case 29. The Respondent responded to the Appellant’s Appeal through its Statement of Facts dated 23rd December 2022 and filed on even date.

30. The Respondent reiterated its position as stated in the objection decision.

31. It was the Respondent’s assertion that the decision to arrive at the confirmed assessments was justified and in conformity with the law as stipulated under Sections 51(3)(c), 56(1), 97 of the TPA as well as Section 17 of the VAT Act, No. 35 of 2013 (hereinafter ‘VAT Act’)

32. The Respondent asserted that adoption of IFRS 17 by the Appellant had no relationship with chargeability of tax as the review of 2020 financial statements, specifically statement of changes in equity for 2019 showed a prior year adjustment of Kshs. 50,778,000. 00 being transfer of from statutory reserve (life fund).

33. The Respondent was obstinate that statutory reserve was a ring-fenced account where funds were held for both policyholders and shareholders and any transfer from this account was chargeable to tax as per Section 19(5) of the ITA. Further, that in the Appellant’s case, tax matters were a sole responsibility of shareholders not policyholders.

34. The Respondent claimed that the tax point was where the amount left the statutory reserve for the benefit of shareholders and it was unnecessary for the Appellant to demonstrate or prove the destination of the amounts transferred. The Respondent stated that Section 19(5) of ITA provided for taxation of amounts recommended or transferred from life fund for the benefit of shareholders but not for amounts distributed for benefit of policyholders. It was the Respondent’s assertion that transfers from statutory reserve to pay current and future taxes for the benefit of shareholders was a benefit for shareholders chargeable to tax.

35. The Respondent averred that whereas Form 70-1 of Schedule of Insurance Act provide for maximum permitted expenditure for life insurance business, Form 59-5 provide for expenditure in form of management expenses and commissions/ brokerage on gross direct business. The Respondent stated that Form 54-5 indicates all assets and investments for the life fund, thus all income accrued from these assets and investment was not subject to tax but formed part of life fund for eventual determination of either a surplus or deficit when actuarial valuation is carried out.

36. It was the Respondent’s assertion that the self-assessment return was filed on 28th May 2017 whereas the amended assessment was raised on 28th August 202 which was within the five-year timelines provided under Section 31(6) of the TPA.

37. The Respondent stated that its decision and assessment was legally and procedurally issued and Appellant’s objection duly considered and objection decision rendered in accordance with the law.

Respondent’s Prayers 38. The Respondent prayed that the Tribunal:i.Dismiss the Appeal with costs; andii.Uphold the Respondent’s assessment and decision dated 28th October 2022.

Parties’ Written Submissions 39. In the Appellant’s written submissions dated and filed on 16th May 2023 it submitted on four issues as stated hereunder;i.Whether the prior year adjustments of Kshs. 50,778,000. 00 which did not lead to transfer for the benefit to shareholders is still taxable under Section 19 of the ITA.ii.Whether the amounts adjusted in the years 2017 and 2018 as deferred tax on undistributed surplus which did not lead to transfer for the benefit to shareholders is still taxable under Section 19 of ITA.iii.Whether the investments expenses not used in generating premiums form part of the management expenses.iv.Whether the Respondent’s assessment of tax for the year 2016 is valid, given that it exceeds the statutory limitations for tax assessment of five years.

40. In all the above-mentioned issues identified by the Appellant for determination, the Appellant restated, cited authorities and reiterated similar grounds as previously stated in its Statement of Facts. The Tribunal will therefore not rehash the issues as these were already outlined in the Appellant’s case under the said Statement of Facts.

41. The Respondent’s written submissions dated 19th June 2023 were filed on 21st June 2023. The Respondent submitted on a single issue for determination i.e.:Whether the Respondent’s objection decision and assessments raised should be upheld.

42. The Respondent placed reliance on Section 5 of the Insurance Act in defining the Appellant’s “long term insurance business” to include insurance business of all or any of the following classes:i.Life assurance.ii.Annuities.iii.Pension (personal pension or deposit administration).iv.Group life.v.Group credit.vi.Permanent health.vii.Investment.

43. It was the Respondent’s assertion that the Appellant life insurance business could not operate in the absence of either policyholders or shareholders both of whom had distinct roles/functions as well as liabilities with respect to the Appellant. That whereas policyholders took life insurance policies by paying premiums, shareholders were the investors who applied/invested the premiums and thus owed a fiduciary duty of care to policyholders by ensuring that the pooled funds(premiums) were diligently utilized.

44. The Respondent submitted that while the fund belonged to policyholders, shareholders took control of the fund by undertaking investments on their behalf; and that the Insurance Act provides inbuilt mechanisms to ensure accountability and ring-fenced to curtail inappropriate use by anyone. The Respondent cited the case of Kenindia Assurance Company Limited v Commissioner of Domestic Taxes [2020] eKLR wherein Justice Majanja concurred with the Respondent that the purpose of such a statutory fund as stipulated in Section 45(1) of the Insurance Act is to protect policyholders by ringfencing the policyholder’s funds from the vicissitudes of ordinary business. In buffering this position further, the Respondent cited Section 45 (1-8) of the Insurance Act.

45. It was the Respondent’s assertion that the Appellant’s life insurance business required an establishment of a distinct and separate statutory fund under an appropriate name consisting of all amounts received in respect incomes arising from various assets less outgoing. That incomes included net premiums, investments made whereas outgoing included claims paid to policyholders, tax provisions, management expenses paid during the year etc.

46. The Respondent submitted that the profit/ gain was determined in accordance with provisions of Insurance Act. It was the Respondent’s avowal that legally, these profits/gain originated directly from surplus as determined by an actuarial valuation at the end of every financial year and may as well be based on any amount that had been removed from the fund for shareholder’s benefit. The said surplus arose from deducting yearly liabilities including taxes paid in advance as well as tax provisions from the life fund. The Respondent cited the applicable provisions for tax purposes as Section 19(5) of the ITA which provide as follows;“The gains or profits for a year of income from the long-term insurance business of a resident insurance company, whether mutual or proprietary, shall be the sum of the following;a.The amount of actuarial surplus, as determined under the Insurance Act and recommended by the actuary to be transferred from the life fund for the benefit of shareholders;b.Any other amounts transferred from the life fund for the benefit of shareholders; andc.Thirty per centum of management expenses and commissions that are in excess of the maximum amounts allowed by the Insurance.”

47. The Respondent was adamant that amounts transferred from statutory fund for the benefit of shareholders were chargeable to Corporation tax since the amounts end up as dividends or any other form deemed fit for the benefit of shareholders. To firm up this position, the Respondent relied on Section 46(5) of the Insurance Act which provides follows;“Notwithstanding subsection (1), an insurer may, for the purposes of declaring or paying a dividend to shareholders or a bonus to policyholders, utilize the surplus disclosed in the valuation balance sheet of a statutory fund set out in the actuary’s abstract relating to an investigation made in pursuance of section 57 and accepted by the Commissioner, subject to the condition that the amount allocated or paid to the shareholders out of a statutory fund shall not exceed thirty percent of the surplus disclosed therein after making the necessary adjustments to the surplus.”

48. That from the foregoing and as read together with Section 3 of the ITA which is the anchoring provision on taxability of all income of a person, it was the Respondent’s assertion that tax liability for long-term insurance company was the sole responsibility of shareholders not policyholders thus the amounts transferred upon recommendation from the statutory fund for the benefit of shareholders were chargeable to tax. On the other hand, tax liability of a company could not be deducted from the life fund as these were essentially policyholders’ funds as this would be contrary to the law since tax responsibility for life insurance company’s lay with shareholders. The Respondent relied on Section 46(1) of the Insurance Act to buffer its position.

49. The Respondent submitted that the basis of Appellant’s assessment was demonstrated by the variances that were flagged by the Respondent in the opening and closing stock of the surplus for the years under review due to prior year adjustments made to actuarial reports after the close of financial year. The Respondent contradicted the Appellant’s reliance of Section 46(5) and 46(6) of the Insurance Act in the treatment of these adjustments stating that they shouldn’t have arisen in the first place had the Appellant applied the law because it deducted “taxes” and “deferred taxes” from the statutory fund instead of deducting the same from the recommended transfer amounts.

50. The Respondent asserted that contrary to Appellant’s averments, adjustments made in form of deferred tax provision was an unknown adjustment and not specifically provided for in law since deferred tax are future tax liabilities which are unrecognized as adjustment to surplus or life fund. That contrary to Appellant’s assertion that it made the provisions for deferred taxes as required by IAS and ICPAK’s Technical Guidance TG04/2014, the Respondent was adamant that statutes have primacy over set standards and guidelines and that Section 46(6) of the Insurance Act was precise and unambiguous on what ought to be adjusted from the surplus and did not include deferred tax. Therefore, this amount was taxable as provided for under Section 19(5)(b) of the ITA under “any other amount transferred from the life fund for the benefit of shareholders.”

51. The Respondent averred that whereas the amount recommended by the actuary to be transferred for the benefit of shareholders was not in question, the assessment sought to address the amounts transferred from life fund disguised as taxes paid and deferred tax liabilities. The Respondent distinguished the present Appeal from the Kenindia case (supra) by stating that the assessment therefrom was based on transfer made from statutory reserve as opposed to the present Appeal where transfer was made from life fund thus falls within the ambit of Section 19(5) of the ITA. The Respondent relied on the following cases to buttress its position:i.Republic vs Commissioner of Domestic Taxes Large Taxpayer’s Office ex-parte Barclays Bank of Kenya Ltd [2012] eKLR.ii.Cape Brandy Syndicate v Inland Revenue Commissioner (1921) 1KB 64. iii.Kenya Revenue Authority v Republic (ex-parte Fintel Ltd) NRB CA Civil Appeal No. 311 of 2013 [2019] eKLR.

Issues for Determination 52. The Tribunal having carefully considered the parties’ pleadings, documentation and Submissions notes that two issues call for determination as follows:i.Whether the Appellant’s prior year adjustments were valid and justified.ii.Whether the Respondent’s objection decision was justified.

Analysis and Determinationi.Whether the Appellant’s prior year adjustments were valid and justified.

53. The dispute herein arose from the Respondent’s audit of the Appellant’s books which had been preceded by Appellant’s voluntary disclosure of PAYE underpayment. The Respondent stated that its audit had flagged on variances between opening and closing stocks which had been occasioned by the Appellant’s restatement of its 2019 financial statements. 54. Whereas the Appellant was of the view that the restatement of the financials had set off and were mere accounting adjustments made following internal comprehensive review of policyholder contracts in line with IFRS 17 and ICPAK Technical Guidance; the Respondent was of the contrary view that the adjustments had indeed occasioned transfer of funds from life fund in disguise for the benefit of shareholders and were thus chargeable to tax in line with Section 19(5)of the ITA specifically transfers made with respect to prior year tax payments, deferred tax and management expenses.

55. The Respondent has neither controverted the Appellant’s assertion that the adjustments were mere accounting entries nor the Appellant’s claim on application of IFRS 17 and change over from cash accounting to accrual accounting. The Respondent has also not demonstrated how the adjustments were of benefit to shareholders or how the tax chargeable had been calculated, was it based on cash basis or accrual basis. The Tribunal relies on the locus classicus case of Cape Brandy Syndicate vs. Inland Revenue Commissioner [1921], where it was held that:“In a taxing Act one has to look merely at what is clearly stated. There is no room for any intendment. There is no equity about tax. There is no presumption as to tax. Nothing is to be read in, nothing is to be implied. One can only look fairly at the language used.”

56. It is the Tribunal view that the Appellant’s prior year adjustments were valid and justified in the circumstances.ii.Whether the Respondent’s objection decision was justified.

57. The Tribunal notes from the chronology of events that the Respondent’s objection decision arose from tax charged on the Appellant’s statutory fund transfers occasioned by restating of its 2019 financial statements. The Tribunal notes that Section 45 of the Insurance Act establishes a statutory fund as:“(i)…establish and maintain a statutory fund under an appropriate name in respect of the long-term insurance business carried on by him;ii.An insurer may establish and maintain a separate statutory fund under an appropriate name, in respect of any class or classes of his long-term insurance business…”

58. On the other hand, the Tribunal observes that the Insurance Act sets forth the legal parameters within which the Appellant is allowed to effect any transfers from a statutory fund. More specifically, Section 46(5) of the Insurance Act caps the surplus which can be transferred for the benefit of shareholders as follows:“…an insurer may, for the purposes of declaring or paying a dividend to shareholders or a bonus to policyholders, utilize the surplus disclosed in the valuation balance sheet of a statutory fund set out in the actuary’s abstract relating to an investigation made in pursuance of section 57 and accepted by the Commissioner, subject to the condition that the amount allocated or paid to the shareholders out of a statutory fund shall not exceed thirty per cent of the surplus disclosed therein after making the necessary adjustments to the surplus.”

59. Additionally, the Tribunal notes that Section 19 (5) (a) and (b) of ITA dictate how amounts are to be transferred and the tax arising therefrom as stated under the Section which provides as follows;“...a.The amount of actuarial surplus, as determined under the Insurance Act and recommended by the actuary to be transferred from the life fund for the benefit of shareholders;b.Any other amounts transferred from the life for the benefit of shareholders…”

60. From the foregoing, the Tribunal notes that two conditions must be met for the Appellant to be allowed to effect any transfers from a statutory fund i.e. the actuarial valuation and approval of the Commissioner of Insurance. Consequently, for tax to be levied upon the Appellant’s transfers, a benefit must accrue to shareholders. The perceived benefit to shareholders was not expressly demonstrated by the Respondent since the Appellant had discharged its burden when it demonstrated how the adjustments to the financials cancelled each other upon restating its books which had no beneficial effect upon shareholders.

61. The Tribunal is of the view that the Appellant’s argument that adjustments were effected in anticipation of the coming into force of IFRS 17 as well compliance with ICPAK Technical Guidance both of which are industry wide accounting changes remained uncontroverted by the Respondent. The Tribunal notes that the treatment of items in a financial statement are guided by standards including both IAS and IFRS. In this case, the guidance was in relation to IFRS which seek to bring clarity, uniformity and better interpretation of such financial statements.

62. The Tribunal finds that the Appellant indeed confirmed compliance with the particular standard, IFRS 17 accounting standards on insurance contracts, when preparing its financial statements and this was not challenged or addressed by the Respondent. The Respondent did not at all state the specific benefit that accrued to shareholders or the Appellant resulting from the accounting changes to the books; The Respondent merely made averments which were neither supported by any written law nor any other established standard practice. The Tribunal reiterates the Court’s holding in the case of Trust Bank Limited vs Paramount Universal Bank Limited & 2 others (2009) eKLR where it was held that;“…It is trite where a party fails to call evidence in support of its case that party fails to substantiate its pleadings.”

63. The Tribunal notes that the purpose of any established practice is to bring clarity in reporting financial statements. The Appellant ought not be punished for effecting accounting reporting changes in its financial statements.

64. The Tribunal further notes that the Respondent did not contest the Appellant’s assertion that the changes were mere accounting adjustments made following internal comprehensive review of policyholder contracts in line with IFRS 17 on insurance contracts which had established the need to reclassify Income builder contracts to insurance contracts and was to come in force by 1st January 2021.

65. The Tribunal agrees with the holding of the Court in the case of Alfred Kioko Muteti vs Timothy Miheso & Another (2015) eKLR that a party can only discharge its burden of proof upon adducing evidence. Merely making pleadings is not enough.

66. From the foregoing it is apparent that the Respondent’s objection decision was not justified.

Final Decision 67. The upshot of the foregoing is that the Appeal is merited and the Tribunal accordingly proceeds to make the following Orders:a.The Appeal be and is hereby allowed.b.The Respondent’s objection decision dated October 28, 2022 be and is hereby set aside.c.Each party to bear its own costs.

68. It is so ordered.

DATED AND DELIVERED AT NAIROBI ON THIS 23RD DAY OF FEBRUARY, 2024. ERIC NYONGESA WAFULACHAIRMANDELILAH K. NGALA CHRISTINE A. MUGAMEMBER MEMBERGEORGE KASHINDI MOHAMED A. DIRIYEMEMBER MEMBERSPENCER S. OLOLCHIKEMEMBER