[2024] KETAT 1030 (KLR)

Mountain View General Contractors Limited v Commissioner of Domestic Taxes (Miscellaneous Application E022 of 2024) [2024] KETAT 1030 (KLR) (5 July 2024) (Ruling)

Neutral citation: [2024] KETAT 1030 (KLR)

Republic of Kenya

In the Tax Appeal Tribunal

Miscellaneous Application E022 of 2024

E.N Wafula, Chair, E Ng'ang'a, EN Njeru, M Makau & AK Kiprotich, Members

July 5, 2024

Between

Mountain View General Contractors Limited

Applicant

and

Commissioner of Domestic Taxes

Respondent

Ruling

1. The Applicant lodged an application under Sections 12 and 13 (3) of the Tax Appeals Tribunal Act, 2015 and Rule 10(4) of the Tax Appeals Tribunal (Procedure) Rules, 2015) dated 20th day of February 2024 and filed on 20th March 2024 seeking for the following Orders:a.That the Applicant be granted leave to file Memorandum of Appeal and the supporting documents out of time.b.That the Honourable Tribunal be at liberty to make such orders as it deems necessary in the circumstances.

2. The application is based on the following grounds:a.That the Applicant was served with the Respondent’s rejection of the Applicant’s Objection application on 17th of February 2017. b.That the Applicant delayed to file an appeal challenging the rejected part of the Applicant’s Objection application beyond the 30 days’ statutory period within which an appeal against the decision of the Respondent should be lodged.c.That when the Applicant received the Respondent's decision on the Applicant’s Objection application, the main Director Fatembai Mohammed Kassin was indisposed, having suffered chronic kidney disease (chronic glomerulonephritis) with hypertension. Additionally, she also suffered from haemoglobin disorder with chronic anaemia cardio a condition she has been sufferings since the 2008. d.That upon the doctor’s review, the Director of the Applicant was placed under long-term therapy with steroids and other immunosuppressant therapy.e.That on the 2nd of August, the main Director passed on. At this point, the Tribunal notes that the Applicant did not state the year that this director passed on. Further, for record purposes, the Applicant filed form CR12 that attests the Directors and shareholding in the Applicant’s company and a Certificate of Death indicating that Kheroon Mohamed Kassam one of the Applicant’s directors passed on 17th July 2014. f.That the rest of the directors were not actively involved in running the day to day business activities of the Company. That it took time for them to be able to retrieve and compile the requisite documents to supply to the Respondent to support the objections lodged at the time.g.That at the time of hearing of the appeal against the Respondent’s Objection decision, the Applicant will demonstrate that the Applicant has a strong appeal with an overwhelmingly high likelihood of success as the tax demanded arises from errors of the Applicant’s Accountant.h.That the Applicant has not deliberately delayed in lodging the Appeal as the delay was caused by the unforeseeable circumstances beyond the Applicant’s control and ill health.i.That the Applicant will suffer extreme prejudice if this application is not granted as it will be deprived a chance to challenge the Respondent’s decision to erroneously impose an additional tax obligation on it as well as be deprived of the right to be heard and present its case.

3. In response to the application, the Respondent filed Grounds of Opposition dated 3rd April 2024 and filed on the even date. The grounds of opposition are as follows:a.That the application is incompetent, bad in law, fatally defective and is an abuse of this Honourable Tribunal’s process.b.That no credible reason has been advanced by the Applicant to warrant extension of time to file appeal as provided at Section 13(4) of the Tax Appeals Tribunal Act.c.That an application of this nature requires an Applicant to prove his/her absence from Kenya, sickness or other reasonable cause.d.That equity aids the vigilant and not the indolent. The Applicant ought to have acted swiftly to preserve its rights. It is guilty of laches.e.That the application is an afterthought and a delay tactic by the Applicant meant to delay the conclusion of the matter, which holds substantial Government revenue.f.That the taxes demanded herein became due on confirmation of the assessments which now continue to accrue interest and penalties as provided under the various tax laws as there is no valid Appeal before the Tribunal thus the Applicant ought to pay 50% on account to show commitment in the matter/for the Tribunal to consider granting the orders sought.g.The Applicant has not demonstrated it deserves favourable discretion of this Honourable Tribunal and the application should be dismissed with costs to the Respondent.

4. The Respondent relied on its written submissions dated 9th day of April 2024 and filed on the even date. The Respondent submitted that the Applicant herein was thus issued with an Invalidation decision on 17th February 2017, for failure to provide documentary evidence in support of the objection VAT pursuant to Section 51 (3) of the TPA. The Respondent submitted that this decision was regularly issued pursuant to Section 51 (4) of the Tax Procedures Act. The Tribunal notes at this stage that this decision is not on record.

5. The Respondent submitted that the Applicant lodged its application to extend time on 20th February 2024, over 6 years after the statutorily prescribed time for lodging an appeal contrary to the provisions of Section 13(1) (b) of the Tax Appeals Tribunal Act. That this delay is not only inordinate but it has also not been satisfactorily explained.

6. The Respondent relied on the case of Utalii Transport Company Limited & 3 Others Vs. Nic Bank Limited & Another [2014] eKLR wherein the court held as follows:“Whereas there is no precise measure of what amounts to inordinate delay, and whereas what amounts to inordinate delay will differ from case to case depending on the circumstances of each case; the subject matter of the case; the nature of the case; the explanation given for the delay; and so on and so forth. Nevertheless, inordinate delay should not be difficult to ascertain once it occurs; the litmus test being that it should be an amount of delay which leads the Court to an inescapable conclusion that it is inordinate and therefore, inexcusable. On applying Court’s mind on the delay, caution is advised for Courts not to take the word ‘inordinate’ in its dictionary meaning, but in the sense of excessive as compared to normality.”

7. Further, the Respondent cited the case of Nicholas Kiptoo Arap Korir Salat v_ Independent Electoral and Boundaries Commission & 7 Others (2014) eKLR to argue that the instant application does not satisfy the requirements therein.

8. In response to the Applicant’s case that the delay was occasioned by illness and subsequent death of one of its Directors, the Respondent submitted that the Applicant failed to demonstrate that the remaining Directors were incapable of running the operations of the company. The Respondent also submitted that the Applicant failed to demonstrate the efforts that the remaining Directors made to follow up on the Appeal. The Respondent also submitted that ignorance of the law is not a defense for noncompliance.

9. Apart from the foregoing, the Respondent submitted that the Applicant is a company and a separate legal entity from its director and operations ought not to stop because a director is unwell.

10. The Respondent further submitted that granting leave to file the Appeal after such an inordinate period will be prejudicial to the Respondent since the taxes have been outstanding since the year 2017 and the Applicant has failed to give reasonable cause for delay in filing the application herein.

11. Finally, in urging the Tribunal to dismiss the application, the Respondent cited the case of Valley Drillers & General Contractor's Ltd v TheCommissioner of Domestic Tax Misc. Appl. No. 175 of 2022 in which the Honourable Tribunal held that without a valid objection the Applicant has no basis for bringing its Appeal before the Tribunal.

Analysis and Findings 12. The power to expand time for filing an appeal is donated by Section 13(3) of the Tax Appeals Tribunal Act, which provides that:-“The Tribunal may, upon application in writing, extend the time for filing the Notice of Appeal and for submitting the documents referred to in subsection (2)”.

13. Further, Section 13(4) of the Tax Appeals Tribunal Act provides that:-“An extension under subsection (3) may be granted owing to absence from Kenya, or sickness, or other reasonable cause that may have prevented the applicant from filing the notice of appeal or submitting the documents within the specified period.”

14. Apart from the provisions of the aforementioned Act, Rule 10 of the Tax Appeals Tribunal (Procedure) Rules reiterates the foregoing statutory provision in the following terms:-“(3)The Tribunal may grant the extension of time if it is satisfied that the Applicant was unable to submit the documents in time for the following reasons –(a)Absence from Kenya;(b)Sickness; or(c)Any other reasonable cause.”

15. From the provisions of Section 13 (3) of the Act and Rule 10 of the Tax Appeals Tribunal (Procedure) Rules, the power to extend time is discretionary and not a right to be granted to the Applicant. The Supreme Court in Nicholas Kiptoo Arap Korir Salat v Independent Electoral and Boundaries Commission & 7 others [2014] e KLR set out general considerations to guide the court in exercising its discretion in cases of this nature. It guided as follows: -“i.Extension of time is not a right of a party. It is an equitable remedy that is only available to a deserving party at the discretion of the court;ii.A party who seeks for extension of time has the burden of laying a basis to the satisfaction of the court;iii.Whether the court should exercise the discretion to extend time, is a consideration to be made on a case-to-case basis;iv.Whether there is a reasonable reason for the delay. The delay should be explained to the satisfaction of the court;v.Whether there will be any prejudice suffered by the respondents if the extension is granted;vi.Whether the application has been brought without undue delay; andvi.Whether in certain cases, like election petitions, public interest should be a consideration for extending time."

16. Apart from the foregoing, the court in Leo Sila Mutiso vs Rose Hellen Wangari Mwangi, Civil Application Nai. 251 of 1997 held as follows in determining whether to enlarge time:- “It is now settled that the decision whether to extend the time for appealing is essentially discretionary. It is also well stated that in general the matters which this court takes into account in deciding whether to grant an extension of time are, first the length of the delay, secondly the reasons for the delay, thirdly (possibly) the chances of the appeal succeeding if the application is granted and fourthly the degree of prejudice to the respondent if the application is granted.”

17. Further, the court in Wasike v Swala [1984] KLR 591 provided the hierarchy of the factors to consider when it stated that:-“an applicant must now show, in descending scale of importance, the following factors: -a)That there is merit in his appeal.b)That the extension of time to institute and/or file the appeal will not cause undue prejudice to the Respondent; andc)That the delay has not been inordinate.”

18. This Tribunal is therefore guided by the provisions of Section 13 (4) of the Tax Appeals Tribunal Act, and principles as set in Nicholas Kiptoo Arap Korir Salat v Independent Electoral and Boundaries Commission & 7 others [2014] e KLR, Leo Sila Mutiso vs Rose Hellen Wangari Mwangi, Civil Application Nai. 251 of 1997 and Wasike v Swala [1984] KLR 591. These principles are analysed below.

a Whether there is a reasonable cause for the delay 19. Examination of the Applicant’s pleadings reveals that the Applicant is seeking leave under Section 13(4) of the Tax Appeals Act as read together with Rule 10 (3)(b) of the Tax Appeals Tribunal (Procedure) Rules.

20. The Applicant stated that the main Director Fatembai Mohammed Kassin was indisposed, having suffered chronic kidney disease (chronic glomerulonephritis) with hypertension. Additionally, that she also suffered from haemoglobin disorder with chronic anaemia cardio a condition she has been sufferings since the 2008. The Applicant did not adduce medical records to confirm that the Director, Fatembai Mohammed Kassin, had been or was ill all along.

21. The only medical record that the Applicant filed is a letter from Prof. Joshua K. Kayima dated 30th May 2023, which attests that one of the Applicant’s director, Kheroon Mohamed Kassam was not medically fit to carry on with gainful employment. The Applicant also adduced a Certificate of Death indicating that the said Kheroon Mohamed Kassam passed on 17th July 2014. The consequence of production of this Certificate of Death is that it renders Prof. Joshua K. Kayima’s medical report of no value to this application for the reason the Respondent’s invalidation decision was issued on 17th February 2017 after the demise of the said director, Kheroon Mohamed Kassam.

22. Be as it may, the demise or incapacitation of a director or shareholder does not mean that a company ceases to operate. This is so because a company is a separate legal entity from its directors or shareholders. This is not a new principle as it has been in existence as early as 1800s. In Salomon v Salomon & Co Ltd [1896] UKHL 1 [1897] AC 22 the house of Lords held that a limited liability company is separate and distinct entity from its shareholders.

23. The Applicant also argued that the rest of the directors were not actively involved in running the day to day business activities of the Company and that it took time for them to be able to retrieve and compile the requisite documents to supply to the Respondent. The Applicant also provided in evidence a CR12, which indicated that the company has four representatives including the deceased director. One wonders what these representatives were doing that they delayed to deal with the Respondent’s assessments. The CR12 also indicated that the Applicant had a secretary yet things went the way they did.

24. In Abdul Aziz Ngoma vs. Mungai Mathayo [1976] Kenya LR 61, 62, the court stated as follows with regards to ‘sufficient reason’:-“We would like to state once again that this Court’s discretion to extend time under rule 4 only comes into existence after ‘sufficient reason’ for extending time has been established and it is only then that other considerations such as the absence of any prejudice and the prospects or otherwise of success in the appeal can be considered.”

25. Further, the court in National Union of Mineworkers v Council for Mineral Technology[1998] ZALAC 22 at paragraph 10, held as follows: -“…There is a further principle which is applied and that is that without a reasonable and acceptable explanation for the delay, the prospects of success are immaterial, and without prospects of success, no matter how good the explanation for the delay, an application for condonation should be refused.”

26. Under the circumstances, the Tribunal finds that the Applicant has not demonstrated existence of reasonable cause for the delay.

b. Whether the delay is inordinate 27. In applications such as this, the delay is excusable if there are valid reasons. The High Court in Joseph Odide Walome v David Mbadi Akello [2022] eKLR, stated that: ‘Where a party is aggrieved and wishes to pursue an appeal, it would be fair to exercise discretion in his favour and especially where the delay in filing the appeal is not inordinate or even if the delay is inordinate, it is explained to the satisfaction of the court and the adverse party will not be prejudiced in any way.’

28. The Tribunal notes that the application herein relates to rejection of the Applicant’s Objection application of 17th February 2017 yet the Applicant is seeking leave to file an appeal in 2024. It is the Tribunal’s view that this delay was not explained to the satisfaction of the Tribunal and is thus deemed inordinate.

c. Whether there is merit in his appeal 29. This Tribunal has an obligation to find out whether the matter under dispute is frivolous or whether there are material facts that deserve to be heard by the Tribunal. In the case of Samuel Mwaura Muthumbi v Josephine Wanjiru Ngungi & Another (2018) eKLR the court stated as follows:“Looking at the draft Memorandum of Appeal filed, I am unable to say that the intended Appeal is arguable. Of course, all the Applicants have to show at this stage is arguability- not high probability of success. At this point the Applicant is not required to persuade the Appellate court that the intended or filed appeal has a high probability of success. All one is required to demonstrate is the arguability of the Appeal, a demonstration that the Applicant has plausible grounds of either facts or law to overturn the original verdict. The Applicants have easily met that standard. I believe that the Applicant has discharged this burden.”

30. The court in Stanley Kangethe Kinyanjui Vs Tony Keter & others (2013) eKLR had the following to say about arguabilty of appeal;“On whether the appeal is arguable, it is sufficient if a single bonafide ground of appeal is raised, an arguable appeal is not one which must necessarily succeed, but one which ought to be argued fully before the court: one which is not frivolous.”

31. Based on the foregoing case laws, the Tribunal must be satisfied that the intended appeal is arguable and not its likelihood of success. The Applicant did not file a draft Memorandum of Appeal nor a Statement of Facts. Therefore, the Tribunal had nothing to examine.

32. Under the circumstances, the Tribunal is of the view that there is nothing to demonstrate that the intended appeal is arguable.

d. Whether the Respondent will be prejudiced if time is enlarged 33. Apart from the above factors, the Tribunal has to evaluate whether the Respondent will suffer irreparable prejudice if the application is granted. In Patrick Maina Mwangi v Waweru Peter [2015] eKLR the Court quoted the finding in United Arab Emirates v Abdel Ghafar & Others 1995 IR LR 243 and stated as follows:-“a plaintiff should not in the ordinary way be denied an adjudication of his claim on its merits because of a procedural default, unless the default causes prejudice to his opponent for which an award of cost cannot compensate.”

34. Whereas the Respondent stated that the taxes have been outstanding since 2017 and that allowance of this application would be prejudicial to it, this is not accurate. Why did the Respondent take this long to recover the taxes? The Tribunal finds that allowing this application cannot be prejudicial to the Respondent.

35. Apart from the above analysis, the Applicant did not file the tax decision it complained about and which was to form the substrum of the intended appeal. It is the Tribunal’s view that this application was an abuse of the Tribunal’s process.

36. Based on the foregoing analysis, the Tribunal is not persuaded to grant leave to the Applicant to file the intended appeal.

Disposition 37. In the circumstances, the Tribunal proceeds to make the following Orders:-i.The Application be and is hereby dismissed; andii.No orders as to costs.

38. It is so ordered.

DATED AND DELIVERED AT NAIROBI THIS 5TH DAY OF JULY, 2024ERIC NYONGESA WAFULA - CHAIRMANEUNICE NG’ANG’A - MEMBERELISHAH N. NJERU - MEMBERMUTISO MAKAU - MEMBERABRAHAM K. KIPROTICH - MEMBER