[2023] KETAT 157 (KLR)

Mukuha & 4 others v Commissioner Legal Services & Board Coordination (Appeal 933 of 2022) [2023] KETAT 157 (KLR) (Civ) (10 March 2023) (Ruling)

Neutral citation: [2023] KETAT 157 (KLR)

Republic of Kenya

In the Tax Appeal Tribunal

Civil

Appeal 933 of 2022

E.N Wafula, Chair, AK Kiprotich & Cynthia B. Mayaka, Members

March 10, 2023

Between

David Kimani Mukuha

Applicant

and

Grace Wambui Mukuha

Appellant

and

Linet Wairimu Mukuha

1st Applicant

Simon Gachue

2nd Applicant

Gakinawa Family Investments

3rd Applicant

and

Commissioner Legal Services & Board Coordination

Respondent

Ruling

1. The intended 5th Appellant/Applicant vide in a Notice of Motion application dated and filed on September 19, 2022 sought for the following Orders:-a.That this application is admitted for hearing as a preliminary issue for determination on the Appeal lodged herein.b.That the Applicant’s Notice of objection dated June 21, 2022 is deemed to be allowed by operation of Section 51(11) of the Tax Procedures Act, 2015. c.That in the alternative to (b) above, the Applicant be deemed as a proper party in the Appeal herein and therefore time is enlarged for filing a Notice of Appeal and leave is granted to amend the Notice of Appeal to include the Applicant as the 5th Appellant in the Appeal.d.That the costs of this application be provided for.

2. The application which is supported by an Affidavit sworn by David Kimani Mukuha, the 1st Appellant and a Director of the Applicant, on the September 19, 2022 and a Further Affidavit sworn and filed on his part on the September 30, 2022 is premised on the following grounds:-a.That on May 27, 2022 the Respondent issued a Corporation tax assessment under Section 30 of the Tax Procedures Act which concluded that the central management and control of the Applicant was in Kenya and therefore the Applicant was tax resident in Kenya and the proceeds from the sale of shares transaction was subject to tax in Kenya.b.That on June 21, 2022 the Applicant lodged its notice of objection against the Respondent’s Corporation tax assessment aforesaid specifically challenging the Respondent’s findings that it was resident in Kenya.c.That the Respondent has todate not made an objection decision on the Applicant’s notice of objection within Sixty (60) days from the date that the Applicant lodged the Notice of objection dated June 21, 2022. d.That the statutory time period by which time the Respondent ought to have issued an objection decision on the applicant’s notice of objection dated June 21, 2022 has therefore lapsed and by dint of Section 51(11) of the Tax Procedures Act, 2015, the Applicant’s objection decision is allowed by operation of the law.e.That however, by an email dated August 18, 2022 the Respondent purported to indicate that its objection decision on the Applicant’s Notice of objection dated June 21, 2022 was contained in a separate objection decision issued on July 18, 2022. f.That the Respondent’s indication aforesaid is a factual and legal afterthought which does not lie. That it is a surreptitious attempt by the Respondent to circumvent or avoid the provisions of Section 51(11) of the Tax Procedures Act, 2015. g.That the objection decision of July 18, 2022 does not relate to the Applicant, interalia, for the following reasons:-i.It is addressed to the 1st to 4th Appellants herein and Naivas Kenya Limited, and not the Applicant;ii.It specifically makes reference to the objection applications dated June 3, 2022 and June 14, 2022 which challenged the appointment of Naivas Kenya Limited and the 1st to 4th Appellants as tax representatives of the Applicant in Kenya. No reference is made to the Applicant’s objection application dated June 21, 2022 which challenged the Respondent’s position on the Applicant’s tax residency.iii.That the Respondent’s decision was to the effect that Naivas Kenya Limited and its Directors (1st to 4th Appellants herein) were correctly appointed as tax representatives relating to the Applicant’s transactions and therefore the taxes were rightly demanded. That it did not mention the Applicant or make any finding on the issues raised in the Applicant’s notice of objection dated June 21, 2022. iv.That consequent upon the Respondent’s failure to issue an objection decision on the Applicant’s Notice of Objection dated June 21, 2022, it follows that the issue of appointment of the 1st to 4th Appellants as the Applicant’s tax representatives is moot.v.That the Respondent’s email of August 18, 2022 aforesaid was delivered at a time when the 1st to 4th Appellants had already filed a Notice of Appeal on 17th August, 2022 indicating their intention to lodge an appeal against the Respondent’s objection decision of August 18, 2022 which confirmed their appointment as tax representatives of the Applicant.vi.That unless this application is heard and determined as a preliminary issue on the Appeal, this Tribunal runs the risk of entertaining protracted proceedings which are otherwise extinguished by operation of law. That on the other hand and in the alternative, the Applicant’s appeal against the Respondent’s purported objection decision would be prejudiced by reason that there is not on record the Applicant’s Notice of Appeal against the Respondent’s purported objection decision in its Notice of objection dated June 21, 2022. vii.That in view of the foregoing, it is not only expedient but also reasonable and proportionate that the orders sought herein are granted.viii.That the Applicant’s legal and tax position is that it is a Mauritian entity and tax resident in Mauritius and not a registered taxpayer under Section 8 and 12(2) of the Kenyan Tax Procedures Act.ix.That the Applicant does not derive or accrue any income from Kenya and is therefore not required to register under any tax law in Kenya.

3. The Respondent in opposition to the application filed a Replying Affidavit sworn by Wambui Kimotho, an officer of the Respondent, on the September 22, 2022 and filed on the September 23, 2022 in which it stated as follows:-a.That the Applicant is a Mauritian entity and a tax resident in Mauritius.b.That the Applicant is not a registered taxpayer under Sections 8 and 12(2) of the Tax Procedures Act and therefore a non-entity and a stranger for the purposes of taxation within the Kenyan jurisdiction.c.That the Applicant has failed to appoint a tax representative contrary to Section 15(A)(1) of the TPA which requires non-resident person with no fixed place of business in Kenya and is required to register under a tax law to appoint a tax representative in Kenya in writing.d.That the Applicant lacks locus to lodge an objection in its own capacity in respect to the assessment raised in accordance with the Kenyan tax laws.e.That in the absence of an appointed tax representative the alleged objection lodged on June 21, 2022 is void ab initio.f.That as it stands the Applicant is yet to lodge its objection through its preferred appointed tax representative which in essence means that both the Appeal and application before this Tribunal is premature.g.That in the alternative, the notice of objection lodged by the tax representative (Naivas Limited) appointed by the Respondent on behalf of the Applicant in accordance with Section 15 of the TPA in which the 1st to 4th Appellants are directors was reviewed by the Respondent and the objection decision issued within the statutory timelines.h.That the tax representative (Naivas Limited) appointed by the Respondent on behalf of the Applicant has since objected and distanced itself from the appointment.i.That the actions by Naivas Limited which is pending determination before the Tribunal in essence leaves the Applicant without a tax representative to undertake any of its tax obligations including lodging an objection.j.That the objection decision (rejection of appointment) lodged by the tax representative (Naivas Limited) appointed by the Respondent on behalf of the Aplpicant is an issue and subject for determination before this Tribunal in TAT No 934 of 2022 Naivas Limited v The Commissioner Legal Services and Board Co-ordination.k.That the application raises weighty issues which cannot be canvassed and determined at the preliminary stage and will require interrogation through witnesses.l.That the application is a waste and an abuse of the court process since the issues raised in the application have been materially and substantively raised in a separate Appeal by Naivas Limited in the aforesaid TAT No 934 of 2022 and by the 1st to 4th Appellants in the main Appeal herein to wit TAT No 933 of 2022. m.That the alleged delay in issuing the objection decision is so intertwined with the main Appeal and the Appeal filed by Naivas Limited in a way that cannot be separated from the other.n.That the Respondent will have to bring in witnesses to explain the transaction that culminated to the application and Appeal herein.

Analysis and Findings 4. The parties in due compliance with the directions of the Tribunal to the effect that the application was to be canvassed by way of written submissions filed their separate Written submissions and the Tribunal has been appropriately guided thereby in arriving at the findings hereinafter.

5. A perusal of the Affidavits separately sworn both in support of the application and in opposition thereto clearly suggest that the parties are not in consensus as to the factual basis relating to the Applicant’s tax status in Kenya and of its capacity to engage with the Respondent as to the tax assessment raised as against it.

6. The Applicant has sought for the issue of its objection to the tax assessment raised against it being determined as a preliminary issue in the application. With the intricate contest between the parties as to the factual and legal issues relating to the notice of objection as lodged by the Applicant it is indisputable that the issues cannot be appropriately determined with finality at the instance of determination of the present application.

7. As to whether the Applicant’s prayer to have the issue of the notice of objection lodged on its part determined as a preliminary issue can be entertained, the Tribunal is guided by the decision of the Supreme Court in Independent Electoral & Boundaries Commission v Jane Cheperenger & 2 others [2015] eKLR when it cited with approval the finding in Aviation & Allied Workers Union Kenya v Kenya Airways Ltd & 3 others, Application No 50 of 2014 [2015]eKLR to the effect that:-“Thus a preliminary objection may only be raised on a “pure question of law” to discern such a point of law, the court has to be satisfied that there is no contest as to the facts. The facts are deemed agreed as they are prima facie presented in the pleadings on record.”

8. The Tribunal in the circumstances is unable to determine and make an appropriate finding on the legal effect of the alleged failure by the Respondent to address or respond to the Applicant’s notice of objection to its taxability in a transaction on transfer of shares.

9. The Respondent has intimated at Paragraph 23 of its Written submissions of it not being opposed to the Applicant being enjoined in the present Appeal as the 5th Appellant and more particularly of the Applicant being granted leave to file a Notice of Appeal out of time.

10. In the light of the Respondent’s foregoing restricted concession to the prayers sought by the Applicant the Tribunal is of the considered view that the ends of justice shall be better served with having the Applicant enjoined in the Appeal with a view of availing to both the parties an opportunity to have the weighty legal and factual issues relating to the Applicant’s taxability appropriately canvased and determined by the Tribunal with some measure of finality.

Disposition 11. On the basis of the foregoing analysis the orders that recommend themselves to this Tribunal are as follows:-a.The Applicant be and is hereby granted leave to file a Notice of Appeal in this Appeal and is accordingly enjoined as the 5th Appellant;b.The Appellants to file and serve an Amended Notice of Appeal within Seven(7) days of the date of delivery of this Ruling;c.The Appellants are hereby granted leave to appropriately amend the Memorandum of Appeal to include any grounds of appeal and to file a Supplementary Statement of Facts as relates to the 5th Appellant’s notice of objection.d.The Appellant to file and serve an Amended Memorandum of Appeal and a Supplementary Statement of Facts within Fourteen (14) days of the date of delivery of this Ruling.e.The Respondent be and is hereby granted a corresponding leave to file and serve a Supplementary Statement of Facts within Fourteen (14) days of the date of being served by the Appellant.

12. It is so ordered.

DATED AND DELIVERED AT NAIROBI ON THIS 10TH DAY OF MARCH, 2023…………………………ERIC N. WAFULA, CHAIRMAN.……………………………ABRAHAM KIPROTICH, MEMBER.……………………………CYNTHIA MAYAKA, MEMBER.