[2023] KETAT 504 (KLR)

Mutuvi v Commissioner of Domestic Taxes (Tax Appeal 370 of 2022) [2023] KETAT 504 (KLR) (Commercial and Tax) (18 August 2023) (Judgment)

Neutral citation: [2023] KETAT 504 (KLR)

Republic of Kenya

In the Tax Appeal Tribunal

Commercial and Tax

Tax Appeal 370 of 2022

E.N Wafula, Chair, Cynthia B. Mayaka, Grace Mukuha, Jephthah Njagi & AK Kiprotich, Members

August 18, 2023

Between

Mueni Mutuvi

Appellant

and

Commissioner Of Domestic Taxes

Respondent

Judgment

Background 1. The Appellant is a female adult of sound mind and a registered taxpayer with the Respondent, lives and works for a gain in the United States of America.

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 dispute in this Appeal arose when the Appellant registered a transfer in her favour of a property worth Kshs. 133,000,000. 00, the Respondent carried out an audit on the Appellant’s affairs to establish whether the funds utilized to purchase the property were taxable within the Republic of Kenya and whether the appropriate income tax had been remitted, from where the Respondent issued the Appellant with an additional assessment dated 28th October 2021 on income tax for the period January to December 2019 amounting to Kshs. 50,582,540. 44 relating to principal tax together with penalties and interest thereon.

4. The Appellant lodged its objection to the additional assessment on 1st February 2022.

5. The Respondent wrote to the Appellant on the 14th February 2022 acknowledging receipt of the objection however deemed it a late objection application and advised the Appellant that she had not provided reasons in compliance to Section 51 of the Tax Procedures Act.

6. The Respondent in the aforesaid correspondence requested the Appellant to provide information and/or documents as well as grounds in support of the late objection, affording the Appellant seven (7) days to comply.

7. The Respondent, upon the lapse of the period granted to the Appellant, wrote on a second occasion to the Appellant on the 21st of February 2022, granting her an extension of the period by a further seven (7) days to provide the documents and grounds for the late objection for the Respondent’s consideration.

8. The Respondent rendered its decision on 1st March 2022 declining the Appellant’s late notice of objection and confirming the assessment of Kshs. 39,828,772. 00 as the principal tax.

9. The Appellant being aggrieved by the Respondent’s decision, commenced the Appeal and filed the Notice of Appeal on the 30th March 2022.

The Appeal 10. The Appellant’s Memorandum of Appeal filed on the 12th April 2022 was based on the following grounds, that;a)The assessment assumed that monies used to purchase the property was from unknown sources. The Appellant attached the documents of proof that the property was purchased from monies from her income in the United States of America.b)The Respondent failed to vacate the assessed tax after the Appellant submitted notice of objection and supporting documentary evidence (herewith attached).c)The Respondent failed to effectively communicate with the Appellant and clarify facts on the ground before raising the additional assessment.

Appellant’s Case 11. The Appellant’s case is premised the hereinunder filed documents before the Tribunal;a)The Appellant’s Statement of Facts filed on the 12th April 2022 together with the documents attached thereto.b)The Appellant’s written submissions filed on the 8th February 2023 with additional documents attached thereto.

12. The Appellant stated that she is a taxpayer resident of Kenya under the Income Tax Act, however the Appellant lives and works in the United States of America.

13. The Appellant averred that she strictly adheres and follows the rules of the Kenya Revenue Authority.

14. The Appellant submitted that with reference to the CGT and Corporation tax, the Appellant purchased the property with her hard-earned money, which income was derived from the United States of America.

15. The Appellant averred that she made all material disclosures of the sources of funds to the Respondent and further asserted that the sources of funds were derived from her income in the diaspora and not any other sources.

16. The Appellant averred that Respondent posted an additional assessment on the Appellant’s iTax imposing a tax liability of Kshs. 39,828,772. 00, premised on the assertions that;a)The Appellant purchased a property from earnings that need to be taxed within Kenya territories.b)The Appellant did not declare income for the period 2019.

17. The Appellant submitted that she lodged her notice of objection on the 1st February 2022 against the tax assessment, which the Appellant deemed to be erroneous, excessive and not in good faith.

18. The Appellant further submitted that she purchased a property worth One Million Euros in Malindi and all transactions were handled between the buyer and seller at armslength.

19. The Appellant averred that the Respondent rejected the Appellant’s objection and made a tax demand of Kshs. 39,828,772. 00.

20. The Appellant averred that based on the Respondent’s decision of 1st March 2022, the Appellant lodged the Appeal on 30th March 2022 and on 12th April 2022 the Appellant filed her Memorandum of Appeal, Statement of Facts and documents attached thereto.

21. The Appellant in her Appeal to the Tribunal raised two (2) issues for determination before the Honourable Tribunal, which issues included:-a)Whether the Respondent was justified to treat monies used to purchase the property as income and charge income tax on the same.b)Whether the Respondent erred in demanding tax on income earned from Kenyan earning from a foreign country with double treaty and already taxed there.

22. The Appellant submitted that the Respondent made irrelevant considerations in arriving at the decision by failing to review the documents provided by the Appellant via email.

23. The Appellant invited the Tribunal to find that the Respondent wrongfully disregarded her valid objection letter. The Respondent alleged that the income which the Appellant earned in the United States should not be taxed for purchasing a property in her native Country.

24. The Appellant contended that the Respondent ignored the fact that Appellant who is a medical practitioner in the United States for over twenty(20) years has savings that would make her purchase the property in Malindi in her Country.

25. The Appellant asserted that the Respondent was not cooperative in handling the matter through the ADR. The Appellant averred that she provided all the documents. That the Respondent had to be reminded vide email by the Appellant’s tax agent and the ADR office but the Respondent ignored.

26. The Appellant submitted that she disputed the above position on the three grounds, namely;a.Medical practice is a highly paid profession and with the tax return of year 2020 shows that the Appellant could have saved money enough to purchase the property.b.The Respondent’s actions are an act of double taxation.c.All the monies transferred from United States to Italy and balance through the Lawyer in Malindi was legal and through the best secure financial system in the world.

27. The Appellant submitted that double taxation violates Constitutional and statutory provisions and occasions unfairness thereby contravening Article 20 (1) (b) (i) of the Constitution which imposes the duty upon the Respondent to ensure that the burden of taxation is shared fairly among the Citizens.

28. The Appellant further submitted that the Honourable Tribunal should come to her defense from the unwarranted humiliation, harassment and unlawful imposition of penal taxes. Noting that the Appellant still pays monthly rental taxes from the said property.

Appellant’s Prayer 29. Pursuant to the arguments and submissions advanced herein above, the Appellant prayed for this Tribunal, that;a.The assessment be dismissed with costs to the Appellant.

Respondent’s Case 30. The Respondent’s case is premised on the following documents;a)The Respondent’s Statement of Facts dated and filed on the 4th August 2022 together with the documents attached thereto.b)The Respondent’s written submissions dated on 24th January 2023 and filed on an even date.

31. The Respondent stated that the Appellant is an individual tax resident registered with a personal identification number.

32. The Respondent stated that a dispute arose when the Respondent received information relating to a land transaction that the Appellant had transferred property worth Kshs. 133,000,000. 00. The Respondent then set out to establish whether the money used to purchase the property was taxable in Kenya and whether the appropriate income tax, if any, had been accounted for.

33. The Respondent averred that it issued the Appellant with additional assessment on the 28th October 2021 for the period January to December 2019. The Respondent asserted that, it must be noted that the Appellant was a NIL-filer and therefore a transaction of Kshs. 133,000,000. 00 could not be justified against the self-assessed tax returns on iTax.

34. That the Respondent averred that the Appellant filed a late objection on the iTax system on the 1st February 2022 and did not provide any further information to justify the late objection.

35. The Respondent stated that it wrote to the Appellant on the 14th February 2022 advising the Appellant of the filing of late objection and her failure to provide reasons in compliance with Section 51 of the TPA.

36. The Respondent submitted that the Appellant was further advised by the Respondent to provide relevant documents and grounds in support of the late objection in order for the Respondent to make an objection decision, the Appellant was afforded a further period of seven (7) days.

37. The Respondent contended that upon the lapse of the seven (7) days, the Respondent on 21st February 2022 wrote to the Appellant affording her a further seven (7) days to be furnished with documents and/or information.

38. The Respondent stated that the Appellant did not provide any documents in support of the objection, consequently the Respondent issued a decision invalidating the objection and confirming the assessment in the sum of Kshs. 39,828,772. 00.

39. The Respondent established one issue for determination before the Tribunal, being;

Whether the Appellant lodged a valid objection 40. The Respondent in response to the Memorandum of Appeal and Statement of Facts, submitted that the Appellant failed to provide any supporting information to support the source of income. Furthermore, the Appellant failed to provide reasons and supporting documents for the late objection.

41. That the Respondent relied on Section 51 (3) of the TPA and further stated that the Appellant despite being granted ample time, failed to provide sufficient reasons and supporting documents for the late objection.

42. The Respondent further relied on Section 56 (1) of the TPA and stated that the Appellant failed to discharge her burden of proving that the Respondent’s assessment was incorrect by adducing the relevant documents requested. That as a result whereof, the Respondent asserted that it was unable to verify the objection and Respondent used the information and documents available and in its best judgement in arriving at the assessed amounts.

43. The Respondent further relied on Section 31 of the TPA which empowers the Commissioner to make assessments according to the information available to him.

44. The Respondent averred that where a taxpayer makes no objection to assessment issued by the Commissioner, the taxpayer is obligated to provide all the relevant documentation it relies on in making such objection. Having failed to provide the documents requested, the Respondent acted fairly, within the confines of the law, in assessing the Appellant’s tax obligations.

45. The Respondent further placed reliance on Section 24 (2) of the TPA and submitted that the absence of any additional information entitled the Respondent to fully rely on the information available.

46. The Respondent averred that the objection decision complied with Section 51 (10) of the Tax Procedures Act by including a statement of findings and providing the reasons for the decision arrived at. The reasons adduced in the Respondent’s objection decision outline why the late objection was rejected.

47. The Respondent submitted that the Appellant’s grounds for Appeal are not sufficient, from the facts of the case the Appellant did not provide evidence contrary to the basis of the Respondent’s assessment.

48. The Respondent submitted that at the hearing of the Appeal the Respondent shall adduce oral/or further evidence in support of the facts stated.

49. The Respondent relied on the following cases/authorities;a)Tumaini Distributors Company (K) Limited vs. Commissioner of Domestic Taxes [2020] eKLR.b)Mulherin vs. Commissioner of Taxation [2013] FCAFC 115. c)Commissioner of Domestic Services vs. Galaxy Tools Limited [2021] eKLR.d)Pearson vs. Belcher CH.M Inspector of Taxes.

Respondent’s Prayers 50. Pursuant to the arguments and submissions advanced herein above, the Respondent prayed for this Tribunal, to;a.Uphold the Respondent’s decision as proper and in conformity with the provisions of the law.b.Uphold the assessment of Kshs. 39,828,772. 00 and hold that the same is due and payable.c.Dismiss this Appeal with costs to the Respondent as the same is devoid of any merit.

Issues For Determination 51. The Tribunal upon the prudent consideration of the pleadings, Statements of Facts and submissions made by the parties respectively, was of the view that a single issue crystalizes for its determination, being Whether the Respondent’s decision invalidating and/or rejecting the late objection application was justified?

Analysis And Determination 52. The Tribunal, having identified the issues for its determination, proceeds to analyse them as hereunder.a)Whether the Respondent’s decision invalidating and/or rejecting the late objection application and rendering an objection decision was justified?

53. The Appeal before the Tribunal is hinged on the Appellant’s dissatisfaction with the Respondent’s decision of 1st March 2022 rejecting the late objection application to the additional assessment made on the 1st February 2022.

54. The Tribunal noted that the Respondent in its submissions referred to the decision of 1st March 2022 as an objection decision, however upon perusalof the decision attached to the Respondent’s Statement of Facts and marked as KRA 5, it was noted that the same was not an objection decision but rather a decision invalidating the objection decision.

55. The Tribunal notes that the decision of the Respondent of 1st March 2022 is an appealable decision, Section 52 (1) of the Tax Procedures Act, provides as follows with regard to the appeal of appealable decision;“52. Appeal of appealable decision to the Tribunal1. A person who is dissatisfied with an appealable decision may appeal the decision to the Tribunal in accordance with the provisions of the Tax Appeals Tribunal Act, 2013 (No. 40 of 2013).”

56. In the Tribunal’s view, an Appellant who lodges a late objection to the assessment is required to furnish the Respondent with the information and/or documents in support of the late objection.

57. Section 51 (6) and (7) of the TPA relating to applications for late objection, provides as follows:“(6)A taxpayer may apply in writing to the Commissioner for an extension of time to lodge a notice of objection.(7)The Commissioner shall consider and may allow an application under subsection (6) if –(a)The taxpayer was prevented from lodging the notice of objection within the period specified in subsection (2) because of absence from Kenya, Sickness or other reasonable cause; and(b)The taxpayer did not unreasonably delay in lodging the notice of objection”

58. The Tribunal noted from the above Section that the Appellant needed to demonstrate either or both grounds as set out under Section 51 (7) (a) and (b), the Appellant ought to have demonstrated to the Respondent how her residing and continued residing away from the Republic of Kenya for the period between the making of the decision and filing of the late objection impacted on her capacity to effectively attend to and address matters relating to her tax compliance and more particularly how that played out in the causation for the delay in timeous lodging of the notice of objection .

59. Further, the Tribunal noted that the assessment was made on the 28th November 2021 while late objection was lodged on 1st February 2022, the period in between being four (4) months. The Appellant has not from the information made available to the Tribunal addressed the cause for the delay in lodging the notice of objection outside the statutory timelines.

60. The Tribunal further notes that the Appeal as lodged by the Appellant was calculated at challenging the tax assessment as opposed to challenging the invalidation of the notice of objection.

61. The Tribunal in the circumstances finds that the Appellant has failed to discharge her burden in demonstrating in what manner the Respondent failed to exercise its discretion under Section 51(6) and (7) of the Tax Procedures Act by disallowing the late objection to the tax assessment. The decision to reject the late objection appears sound and merited.

Final Decision 62. The upshot of the foregoing is that the Appeal lacks merit and the Tribunal accordingly proceeds to make the following Orders;-a)The Appeal be and is hereby dismissed.b)The Respondent’s decision of invalidation of the notice of objection dated 1st March 2022 be and is hereby upheld.c)Each Party to bear its own costs.

63. It is so ordered.

DATED AND DELIVERED AT NAIROBI THIS 18TH DAY OF AUGUST, 2023. ERIC NYONGESA WAFULA............CHAIRMANCYNTHIA B. MAYAKA...............MEMBERGRACE MUKUHA........................MEMBERJEPHTHAH NJAGI.......................MEMBERABRAHAM K. KIPROTICH.......MEMBER