[2024] KETAT 1315 (KLR)

Nairobi City County Government v Commissioner of Domestic Taxes (Miscellaneous Appeal E050 of 2024) [2024] KETAT 1315 (KLR) (Civ) (6 August 2024) (Ruling)

Neutral citation: [2024] KETAT 1315 (KLR)

Republic of Kenya

In the Tax Appeal Tribunal

Civil

Miscellaneous Appeal E050 of 2024

CA Muga, Chair, BK Terer, D.K Ngala, GA Kashindi & SS Ololchike, Members

August 6, 2024

Between

Nairobi City County Government

Appellant

and

Commissioner Of Domestic Taxes

Respondent

Ruling

1. The Appellant by way of a Notice of Motion dated 5th June, 2024 and filed on even date sought the following Orders:a.Spent.b.That pending the hearing and determination of this Application inter parties, a temporary order be issued staying and/or suspending the agency notices dated 24th May 2024 issued to National Bank of Kenya and/or any other bank and/or person requiring them to pay the sum of Kshs. 2,855,982,592. 00. c.That pending the hearing and determination of this application, the enforcement action commenced by the Respondent through agency notices dated 24th May 2024 issued to National Bank of Kenya and/or any other bank and/or person or any other enforcement action taken by the Respondent which the Applicant may have not been aware of at the time of making this application be stayed and the Respondent whether by itself, its officers, employees and/or agents, be stopped from taking any steps to collect any amount pursuant to the said agency notices.d.That pending the hearing and determination of this Application, the Applicant be granted full access of the funds in its Bank Accounts held with National Bank and/or any other bank.e.That the agency notices dated 24th May 2024 issued to National Bank of Kenya and any other agency notice issued on any of the Applicant's bankers and debtors, be lifted, vacated and/or set aside and the Respondent whether by itself, its officers, employees and/or agents, be stopped from taking any steps or other enforcement action pursuant to the agency notices dated 24th May 2024. f.That the costs of this Application be provided for.

2. The Application which was supported by an Affidavit sworn by the County Executive Committee Member of the Applicant, Mr. Charles Kerich on the 5th day of June, 2024 was premised on the following grounds:a.That the agency notices issued by the Respondent requiring National Bank of Kenya and other bankers of the Applicant to pay Kshs. 2,855,982,592. 00 were issued without compliance by the Respondent of relevant provisions of the Tax Procedures Act, CAP 469B of the Laws of Kenya (hereinafter “TPA”) which require the issuing of a tax assessment to the Applicant and allowing it to consider and be heard on the same including submitting relevant documents in support of the objection.b.That the Respondent issued agency notices relating to taxes for the period 2010-2020 which was against the tax laws which require that the Respondent makes assessment and/or require provision of documents for a period of up to five (5) years.c.That the agency notices were unlawful, unreasonable, unfair and in bad faith for reasons that they violated the provisions of section 42 of the TPA which only apply when a taxpayer is, or will be liable to pay a tax, the Applicant maintains that they were not liable to pay for the tax indicated in the agency notice for the following reasons:i.Prior to issuance of the agency notices, there was no written communication from the Respondent to the Applicant requesting payment of taxes amounting to Kshs. 2,855,982,592. 00 in violation of Section 4 (2) of the Fair Administrative Action Act, CAP 7L of Kenya’s Laws (hereinafter “FAAA”);(ii)Each of the agency notices issued to the Applicant's bankers incorrectly state that the Applicant owed tax of Kshs. 2,855,982,592. 00. (iv)The said alleged tax in the agency notice of 2,855,982,592. 00 was arrived at by the Respondent unprocedurally and unlawfully as there was no preceding assessment and demand notice to the Applicant.(v)The agency notices require the Applicant's bankers to make payment indefinitely in violation of Section 42 (5) of the TPA which requires a date to be specified.d.That the Applicant stood to suffer substantial loss and damage if the agency notices are not lifted including:(i)The loss of livelihood for the Applicant's over 16,000 employees should the Applicant’s bankers comply with the agency notices, as the Applicant will be unable to pay wages and salaries;(ii)Inability of the Applicant to meet its financial obligation to pay statutory duties, bills, suppliers and other outstanding and accruing payments including overdrafts and utilities which will lead to loss of reputation and may lead to actions against the Applicant including litigation and claims for interest.(iii)Reputational and creditworthiness damage, which would result from the belief that the Applicant is unable to pay taxes in the sum of Kshs. 2,855,982,592. 00;(iv)Loss of business by the Applicant as a result of reputational damage and inability to settle contractual obligations in the event that its funds are remitted by its Bankers to the Respondent as demanded in the agency notices;(iv)The loss of Kshs. 2,855,982,592. 00 if the Applicant's Bankers and business partner/debtor comply with the agency notices which sums the Applicant may never recover from the Respondent; and(v)Exposure to litigation from persons who have already rendered services and not received their payments.e.That the Respondent in a letter dated 8th May, 2024 issued a partial demand letter and the Applicant therefore had thirty (30) days, from the date of being notified of the decision, to challenge the said demand. The thirty (30) day period had not lapsed and the agency notices were therefore premature.f.That the Respondent in issuing the impugned agency notice acted in bad faith and maliciously as depicted vide a letter dated 27th May 2024, in which the Respondent subsequently demanded information on or before the 7th day of June 2024 thus creating confusion and uncertainty of the cause of action the Applicant was required to take.g.That the agency notices issued to Applicant’s bankers including the Central Bank of Kenya were further motivated by malice in that the Respondent and Applicant had been exchanging correspondence in an attempt to reconcile their accounts to ascertain the tax liability if any, on the side of the Applicant and the reconciliation process was ongoing.h.That in addition, the agency notices were issued on the Applicant’s bank accounts that hold development funds. Development funds are used purely for development purposes and cannot be used to pay and/or settle recurrent expenditures such as taxes which are not development related.i.That the Respondent’s agency notices were unlawful and illegal for being contrary to the procedure set by the TPA, which procedure prescribes the chronological steps to be followed by each party including an opportunity by the Applicant to challenge the Respondent’s decisions.

3. The Respondent opposed the Application through a Replying Affidavit dated and filed on 6th June, 2024, sworn by its officer, Judy Jeptoo Rono citing the following grounds for opposing the Application:a.That the principal admitted tax over the years was Kshs.1,320,599, 989. 00 which was revised to Kshs. 1,293,104, 666. 00 and the same was made up as follows:i.The amount of Kshs. 620,706,679. 00 related to the period June, 2010 to June, 2013;ii.The amount of Kshs. 2,919,859,190. 00 in relation to the period June 2013 to July, 2013 for which the Applicant made a payment of Kshs. 3,000,000. 00 resulting in an overpayment of Kshs. 80,404,810. 00;iii.The amount of Kshs. 2,677,966,125. 00 was in respect of the period July, 2017 to June, 2019 and the parties entered into a settlement agreement out of which the Applicant made a payment of Kshs. 2,000,000,000. 00 with a balance owing of Kshs. 677,966,125. 00; andiv.An amount of Kshs. 455,291,995. 00, also in respect of the period July, 2017 to June, 2019 and for which a payment of Kshs. 350,000,000. 00 was made, leaving a balance of Kshs. 102,291,995. 00. b.That the total due from the Applicant was Kshs. 1,320,599,989 which was revised to Kshs. 1,293,104,606. 00. c.That from the above the taxes are undisputed and the Tribunal lacks jurisdiction on the manner of collection of such taxes.d.That further, the issues were subject to various High Court litigation including JR NO. 322 of 2019: R v Kenya Revenue Authority ex-parte Nairobi County Government where the collection of Kshs. 3,000,000,000. 00 was found to be proper.e.That the Applicant presented a Miscellaneous Application when there was no Appeal and there was also no appealable decision on the issue.f.That the Tribunal’s jurisdiction could only be invoked through a Notice of Appeal as against an appealable decision and the same cannot be allowed.g.That the administrative action in this regard ought to have been sought at the proper court which is the High Court.h.That if Order (c) which the Applicant sought is granted and the Applicant is allowed to recover access to the accounts, the said amounts would not be recoverable as the Applicant does not honour any demands as will be demonstrated by the many years of attempts to recover the taxes.i.That the Applicant would only come to discuss issues when it could not access their accounts or when it was aware that the Accounts have money that can recovered;j.That the current agency notices were issued after all attempts to settle the taxes in relation to the amount failed including direct discussion between the top management of the Applicant, the Treasury and the Respondent.

Analysis And Findings 4. The purport of the orders being sought by the Applicant in its Main Application dated and filed on 5th June, 2024 was a stay of the enforcement of an agency notice dated 24th May, 2024 issued by the Respondent. The Respondent, thereafter, proceeded to enforce the agency notice on 6th June, 2024. Upon the discovery by the Applicant that the agency notice had been enforced the Applicant filed a further Application on 12th June, 2024 wherein it prayed to be granted leave to commence contempt of court proceedings against the Respondent’s officer.

5. The Respondent opposed the main Application on 6th June, 2024, the date of the hearing. The Respondent also opposed the second Application dated 12th June, 2024. On 20th June, 2024, the Respondent filed an Application dated 19th June, 2024 to summon the Governor of Nairobi City County Government (hereinafter “NCC”) and its Chief Financial Officer who had been present at a meeting on 5th June, 2024 where matters as outlined in a letter dated 6th June, 2024 had been agreed.

6. The Applicant opposed the said Application by the Respondent and made a further Application dated 25th June, 2024 and filed on 26th June, 2024 that the Application by the Respondent to summon the Governor and Chief Financial Officer of NCC ought to be struck out on the basis that the Respondent’s officer who had made an Affidavit to support the Application filed on 20th June, 2024 was unauthorised to do so. The Tribunal directed on 20th June, 2024 that submissions were to be filed in respect of all the Applications and Responses filed by the parties and the parties complied in all the instances as confirmed by the Tribunal on 27th June, 2024.

7. The Orders of the Tribunal are not mere recommendations but commands. The commands must be complied with and there are consequences for non-compliance. For these reasons, the Tribunal will first make a finding on the issue of whether there was contempt of its proceedings, by the Respondent following the directions that it issued on 6th June, 2024. Section 21 of the Tax Appeals Tribunal Act, CAP 469A of the Laws of Kenya (hereinafter “TATA”) provides as follows in this regard:“21. Contempt of Tribunal Any person who—(a)insults a member or an employee of the Tribunal in relation to the exercise of powers and functions under this Act; or(b)interrupts the proceedings of the Tribunal; or(c)creates a disturbance, or takes part in creating a disturbance in or near a place where the Tribunal is sitting; or(d)) does any other act or thing that would, if the Tribunal were a court of law, constitute a contempt of that court, [emphasis ours]commits an offence and shall be liable on conviction to a fine not exceeding five hundred thousand shillings or to imprisonment for a term not exceeding six months, or to both.”

8. The Tribunal therefore has jurisdiction to determine whether there was contempt of its proceedings, having given Orders on 6th June, 2024. The Tribunal relies on the holding in the High Court case of Samuel M. N. Mweru & Others v National Land Commission & 2 Others [2020] eklr where the principles in law that an Applicant must prove in order for “contempt of court proceedings” to succeed were established. The same are as outlined below:“(a)The terms of the order were clear and unambiguous and were binding on the defendant;(b)The defendant had knowledge of or proper notice of the terms of the order;(c)The defendant has acted in breach of the terms of the order; and(d)The defendant’s conduct was deliberate;”

9. The Tribunal directed a follows on 6th June, 2024:“a.lifting of the Agency Notice dated 24th May, 2024 up to 13th June, 2024;b.The Application dated 5th June, 2024 to be heard on 13thJune, 2024 before Panel 3;c.The Appellant to pay Kshs. 130 million to the Respondent by close of business on 7th June, 2024;d.That the parties to file all the necessary pleadings that they may desire on 6th June, 2024. ”

10. The Tribunal notes that on the same day, that it made Orders, that is to say, 6th June, 2024, the Respondent filed its grounds of opposition to the Main Application, dated 5th June, 2024. A letter dated 6th June, 2024 by the Respondent, instructing the Central Bank to remit funds from the Account of the Applicant to its account was attached as evidence.

11. The Tribunal has reviewed the letter dated 6th June, 2024 addressed to Governor of the Central Bank and copied to the Governor of the NCC. The letter was a record of a conversation on 5th June, 2024 between the Governor of NCC and the Respondent wherein the parties had agreed that NCC would pay the amount of Kshs. 350,000,000. 00 pending further negotiations on a payment plan for the balance of tax arrears. The Governor of Central bank was asked to facilitate remittance of the said amount to the Account of the Respondent and was also asked to lift the Agency Notice after the said remittance.

12. The Tribunal notes that the Respondent did not produce evidence of the acknowledgement of receipt of the said letter dated 6th June, 2024 by the Governor of Central Bank or the Applicant. However, the Tribunal can infer from the Applicant’s “contempt of court proceedings”, Application, dated 12th June, 2024, that the Governor of Central Bank received the letter and complied with the instructions of the Respondent on the said letter by remitting funds to the Respondent on 7th June 2024. The Tribunal also notes that in replying to and opposing the Application dated 12th June, 2024, the Respondent, through an Affidavit of its Officer, confirmed that indeed the agency notice dated 24th May, 2024 had been lifted indefinitely, following the remittance to it of Kshs. 350,000,000. 00.

13. The Tribunal having established the facts of the matter and reviewed the submissions of both parties filed in respect to the Application dated 12th June, 2024, will now delve into applying the tests as established in Samuel M. N. Mweru & Others V National Land Commission & 2 Others [2020] eklr [supra]. The first test requires the Tribunal to establish whether the terms of the Order were clear and unambiguous and were binding on the Respondent. On this test, the Tribunal finds that neither the Applicant nor the Respondent, in their respective submissions asserted or alleged that the terms of the Orders of the Tribunal as issued on 6th June, 2024 (hereinafter “the Orders”), were unclear or ambiguous and therefore the finding of the Tribunal is that the terms of the Orders were clear and unambiguous and binding on the Respondent. The same were also binding on the Applicant.

14. The next test that the Tribunal will apply is whether the Respondent had knowledge of or proper notice of the terms of the Orders. The view of the Tribunal is that in order to apply this test, it must first be satisfied that the Respondent had knowledge of or proper notice of the terms of the Order. The Tribunal is of the view that timing is key in this instance as it is important to note that based on the evidence provided, it is clear that the events happened simultaneously or concurrently. As the Orders were made, the agency notice was enforced.

15. The Applicant adduced as evidence, the bank statement for the NCC’s account with the Central Bank of Kenya. From a perusal of the document, the Tribunal notes that the instructions were given to the Central Bank to transfer the funds on 6th June, 2024. There is no time stamp on when the instructions were given. However, it is evident from the statement that the funds were transferred to the Respondent’s account on 7th June, 2024 and the Applicant obtained a copy of the Bank statement on 7th June, 2024 at 3. 49 pm.

16. The pertinent issue that must be addressed by the Tribunal is whether the Respondent could be said to have had either knowledge of or proper notice of the terms of the Order. On this test it can be inferred, and the Tribunal infers accordingly, that having knowledge of the terms of the Order requires the Respondent to have had proper notice of that Order. In other words, the Respondent cannot be said to have had knowledge of the Order if there was no proper notice of the Order.

17. Section 29 (5) and (6) of the TATA provide as follows regarding decisions of the Tribunal:“(5)The Tribunal shall cause a copy of its decision, including the reasons for the decision, to be served on each party to the proceeding.(6)Subject to subsection (5), a decision of a Tribunal shall come into operation on date the notice of the decision [emphasis ours] is given or on such other date as may be specified by the Tribunal in the notice.”

18. The provisions of the TATA as outlined in the preceding paragraph make it mandatory for the Tribunal to serve its decision on each party to the proceeding. Therefore, the Tribunal was compelled to serve its decision on each party to the proceeding. The Tribunal made its decision on 6th June, 2024. In view of the fact that it is compelled by the Law to serve its decision on each party, the Tribunal did so at 16. 44 pm through an electronic mail to the parties on 7th June, 2024. When therefore, did the Tribunal’s Orders come into operation? Did it’s Orders come into operation on 6th June 2024 or 7th June, 2024? Pursuant to Section 29 (6) of the TATA, the Tribunal’s view is that its decisions become operational on ‘date the notice of the decision is given’. In the instant Application, the finding of the Tribunal is that the date of the operation of the Order made on 6th June, 2024 was 7th June, 2024 at 16. 44 p.m. when the Order was served on the parties.

19. Having found that the Respondent had knowledge of or proper notice of the terms of the Order of the Tribunal on 7th June, 2024 at 16. 44 p.m., the Tribunal finds that the Respondent did not act in contempt of its Orders. The further finding of the Tribunal is that the fourth test on whether the Respondent’s conduct was deliberate is rendered moot since when the Respondent received the funds, it did not have knowledge of or proper notice of the Tribunal’s Orders issued on 6th June, 2024.

20. In view of the Tribunal’s finding that there was no contempt, the Application by the Respondent dated 19th June, 2024 and filed on 20th June, 2024 and that of the Applicant dated 25th June, 2024 and filed on 26th June, 2024 are rendered moot.

21. The Tribunal will therefore proceed to analyse and make its findings on the Main Application dated and filed on 5th June, 2024 wherein the Applicant filed an Application for stay of the execution of the Agency notice dated 24th May, 2024 placed by the Respondent.

22. Section 18 of TATA dictates as follows:“18. Order to stay or affect the implementation of the decision under reviewWhere an appeal against a tax decision has been filed under this Act [emphasis ours] Tribunal may make an order staying or otherwise affecting the operation or implementation of the decision under review as it considers appropriate for the purposes of securing the effectiveness of the proceeding and determination of the appeal.”

23. The foregoing section provides for the stay of any implementation of the Respondent’s decision only when an appeal has been filed with the Tribunal. From a review and perusal of the evidence of the parties, the Tribunal never sighted a record of Appeal filed by the Applicant and served on the Respondent. Accordingly, the finding of the Tribunal is that this Application as an interlocutory matter could only have been appropriately entertained after an appeal was filed with the Tribunal.

Disposition 24. Based on the foregoing analysis, the Tribunal finds that all the Applications lack merit and accordingly proceeds to make the following Orders:a.The Application dated and filed on 5th June, 2024 is hereby dismissed.b.The Application dated and filed on 12th June, 2024 is hereby dismissed.c.The Application by the Respondent dated 19th June, 2024 and filed on 20th June, 2024 is hereby dismissed.d.The Application dated 25th June, 2024 and filed on 26th June, 2024 is hereby dismissed.e.No orders as to costs.

25. It is so ordered.

DATED AND DELIVERED AT NAIROBI THIS 6TH DAY OF AUGUST, 2024. ............................................CHRISTINE A. MUGACHAIRPERSON............................................BONIFACE K. TERER DELILAH K. NGALAMEMBER MEMBER............................................GEORGE KASHINDI OLOLCHIKE S. SPENCERMEMBER MEMBER