[2023] KEHC 24873 (KLR)

Nakuru Cosmetics Centre Limited v Commissioner Domestic Taxes (Miscellaneous Application 288 of 2023) [2023] KEHC 24873 (KLR) (1 November 2023) (Ruling)

Neutral citation: [2023] KEHC 24873 (KLR)

Republic of Kenya

In the High Court at Nakuru

Miscellaneous Application 288 of 2023

HM Nyaga, J

November 1, 2023

Between

Nakuru Cosmetics Centre Limited

Applicant

and

Commissioner Domestic Taxes

Respondent

Ruling

1. By Notice of Motion dated 1st September,2023 brought pursuant to Section 32 of the Tax Appeal Tribunal Act, Sections 1A, 1B and 3A of the Civil Procedure Act ,the Applicant seeks for the following orders: -i.Spentii.Spentiii.That this Honourable Court be pleased to grant the Applicant leave to file and serve the Notice of Appeal against the Judgment of the Tax Appeals Tribunal delivered on 12th May, 2023 in Tax Appeal No. 549 of 2021 –Nakuru Cosmetics Center Limited vs. Commissioner Domestic Taxes out of time.iv.That upon granting prayer (c) above this Honourable Court be pleased to extend the time for filing its Record of Appeal.v.That pending the hearing and determination of the intended appeal, this Honourable Court be pleased to stay the execution of the Tax Appeals Tribunal Judgment delivered on 12th May, 2023 in Tax Appeal No. 549 of 2021 –Nakuru Cosmetics Center Limited Vs. Commissioner Domestic Taxes and the execution of the Agency Notice issued to Managing Director of I & M Bank Ltd on the 24th August, 2023 by the Kenya Revenue Authority and all other consequential orders and notices emanating therefrom.

2. The Application is premised on the grounds on its face and supported by an Affidavit of Sammy Kiguru who is the Director of the Applicant sworn on the even date. He avers that the Applicant being dissatisfied with the decision of the Respondent confirming the assessment dated 23rd July,2021 lodged an appeal in the Tax Appeal Tribunal serialized as Tax Appeals Tribunal Appeal No. 549 of 2021 vide a Memorandum of Appeal dated 6th September,2021.

3. He further deposes that the appeal was heard by the Tribunal and on 20th September, 2022 parties highlighted their submissions and thereafter the Tribunal advised that it would deliver its judgment on notice. However, to date the Applicant has never been served with a Notice of Delivery of Judgment.

4. It is his averment that the Applicant knew that the judgment had been delivered on 12th May, 2023 when it was served with a letter dated 23rd August, 2023 by the Kenya Revenue Authority (KRA) notifying it about the said judgment and demanding for tax arrears amounting to Ksh. 5,954,209/=

5. He states that on the even date, they wrote to the Tax Appeals Tribunals informing it that they were not aware that the judgment had been delivered as they were yet to be served with a notice and they asked the Tribunal to confirm the status of the file and the fate of the matter, and on 24th August, 2023 the Tribunal responded via email apprising them that the judgment had been delivered on the said date of 12th May, 2023 and they attached a copy of the same.

6. He depones that vide a letter dated 24th August, 2023 the respondent issued an agency notice to the managing director of I & M Bank Ltd requiring them to pay the Respondent a sum of Ksh. 10,201,276. 46 being the alleged tax that was due, and thus the instant application is urgent as the Respondent has already attached the Applicant’s bank account and it no longer has access to it.

7. He asserts that the Applicant has an arguable appeal and should thus be allowed to ventilate it without the threat of execution.

8. He also contends that the Appeal will be rendered nugatory if the orders sought are not granted and that the Applicant is willing to abide by any reasonable conditions set by this honorable court as a prerequisite to the grant of the orders sought.

9. The Application was opposed. Victor Mino an officer of the Kenya Revenue Authority swore a Replying on 11th September,2023 deposing that the applicant has not met the threshold for grant of stay of execution set out in order 42 Rule 6(2) of the Civil Procedure Rules.

10. He contends the respondent ought to be allowed to enjoy the fruits of its judgment by being allowed to enforce collection of the taxes which have now crystalized for collection and that in any case if the Appellant is successful in its intended appeal, the respondent has in place a refund mechanism and therefore the Appellants will not suffer any loss.

11. He further avers that if stay is granted, there is no guarantee that the Applicant will not withdraw all the monies out of their accounts and making the enforcement of taxes impossible in the event they lose their intended appeal.

12. He asserts that in the alternative and without prejudice to the above grounds, should this Honourable Court deem it fit to grant the orders for stay, then the said stay should be on condition that the appellant provides 100% security for taxes by way of depositing 50% of the demanded taxes either with the respondent or with the court and provide a bank guarantee from a reputable bank for the remaining 50% of the demanded taxes.

13. He contends that at the tax appeal tribunal the applicant herein was represented by Kangea and Associates of email address kangeaandaassociates@gmail.com and that the all material time all communications regarding the Appeal at the Tax Appeals tribunals were made through the aforesaid email address.

14. He states that on 11th May, 2023 the Tribunal notified all the parties in this case that judgment was to be delivered on 12th May, 2023 and that on the said date it delivered its judgment by forwarding the same to all the parties through their email addresses. He adds that it is thus untrue the Applicant was unaware of the said Judgment.

15. He contends that there being no plausible explanation as to why the applicants failed to file notice of appeal and memorandum of appeal on time, the application for extension of time to lodge an appeal should not be granted.

16. The Applicant swore a supplementary affidavit in response to the aforestated Replying Affidavit on 15th September, 2023. He reiterates that the applicant will suffer substantial loss and its appeal rendered nugatory if orders sought are not granted as its business will be brought to its knees in the event the alleged monies owed to the respondent are withdrawn from its accounts.

17. He contends the Respondent is hell bent on frustrating its business as evidenced by its final demand notice issued vide a letter dated 22nd August, 2023 claiming a sum of Ksh. 5,954,209/= which in a span of less than 24 hours had doubled to Ksh.10,201,276. 46/=

18. He avers that the Applicant was initially represented by the firm of Kangea & Associates but it later appointed the firm of M/S Mirugi Kariuki & Co. Advocates to take over conduct of the matter vide a Notice of Appointment of advocates dated 15th December, 2021 and on this date the applicant forwarded the notice of appointment of advocate to the Tax Appeal Tribunal and it acknowledged receipt of the same.

19. That consequently, the applicant filed all its pleadings through the firm of Ms Mirugi Kariuki & Co Advocates and all communication was through the email address, mirugi.mirugi@gmail.com but the notice of delivery of judgment was sent to Kangea Associates who were no longer on record for the applicant. That as such the Applicant had no reasonable way of knowing whether the judgment was delivered or not.

20. It is his further deposition that the applicant has shown sufficient cause for extension of time to file Notice of Appeal together with the Record of Appeal.

21. The application was canvassed by way of written submissions.

Applicant’s submission 22. The applicant framed three issues for determination. Namely;a.Whether the applicant should be allowed to file its notice and record of appeal out of time.b.Whether an order of stay of execution against the judgment of the Tax Appeal Tribunal and the agency notice dated 24th August, 2023 ought to issue.c.Whether costs should issue.

23. In regard to the first issue, the applicant submitted that its advocates on record were never made aware of the delivery of judgment and therefore it has shown sufficient cause for consideration of its Application. To buttress its submissions, the Applicant relied on the case of County Executive of Kisumu vs County Government of Kisumu & 8 others [2017] eKLR which the court cited the case of Nicholas Kiptoo Korir Arap Salat v Independent Electoral & Boundaries Commission & 7 others, [2014] eKLR in which the court set out the principles that guide court in the exercise of its discretion to extend time.

24. The applicant also relied on the case of Kamlesh Mansukhalal Damji Pattni vs Director of Public Prosecutions & 3 others [2015] eKLR where the court held inter alia that it is incumbent upon the court in exercising its judicial authority to ensure dispensation of justice as this is what lives up to the constitutional expectation and enhances public confidence in the system of justice.

25. The applicant then submitted that it is only fair and just that this Honorable Court grants the order sought in line with Articles 48 and 50 of the constitution of Kenya which grants parties the right to a fair trial and being aggrieved by the decision of the Tax Appeals Tribunal it is only right that it be allowed to ventilate its issues before the appellate court.

26. In regards to second issue, the Applicant submitted that it has met the threshold for a grant of stay of execution laid down in Order 42 Rule 6(2) of the Civil Procedure Rules, 2010. Citing the case of HGE vs SM [2010] eKLR where the court stated that an applicant seeking stay of execution is obliged to satisfy the conditions set out in Order 42 Rule 6(2) of the Civil Procedure Rules, the Applicant submitted that if stay is not granted, the intended appeal will be rendered nugatory as the substratum of the Appeal will have been automatically eroded.

27. The applicant further cited the case of Butt vs Rent Restriction Tribunal 1979 where the court set out the circumstances which the court must consider in deciding whether or not to grant stay of execution and the case of RWW vs EKW [2019] eKLR, where the court considered the purpose of a stay of execution order pending appeal.

28. The applicant thus submitted that the respondent has already sent an agency notice to I & M Bank requiring them to immediately make payments in the sum of Ksh. 10,201,276. 46/= to its accounts failure to which it will be personally liable. It argued that the whole essence of it’s intended appeal is whether or not it owes the respondent the alleged amount and without an order of stay of execution being granted, the said sum will be deducted from its accounts rendering the whole substratum of appeal nugatory.

29. The applicant citing the case of James Wangalwa & Another Vs Agnes Naliaka Cheseto [2012] eKLR where the court held inter alia that substantial loss is what has to be prevented by preserving the status quo because such loss would render the appeal nugatory, submitted that considering it filed this application instantaneously after finding out about the delivery of the judgment against it, it is only trite and in the pursuit of justice that this honorable court grants the orders sought to ensure the fairness and justice is upheld and to further enable it prosecute its appeal without any fear of execution.

30. The applicant reiterated that it is ready and willing to abide by any directions that the court will issue regarding security for costs. Reliance was placed on the case of Mwaura Karuga t/a Limit Enterprises vs Kenya Bus Services Ltd & 4 others [2015] eKLR where the court held that security must be one which shall achieve due performance of the decree which might ultimately be binding on the applicant.

31. On costs, the applicant submitted that the same do abide the outcome of the appeal.

Respondent’s Submissions 32. On whether the applicant should be allowed to file a notice of appeal out of time, the respondent submitted that the Applicant has failed to provide plausible reasons for the delay and therefore has failed to lay the basis for the application to the satisfaction of the court. To bolster its submissions, reliance was placed on the case of Nicholas Kiptoo Korir Arap Salat vs Independent Electoral & Boundaries Commission & 7 others, (supra).

33. The respondent reiterated that the Applicant’s contention that it was not served with a notice of delivery of judgment is unsubstantiated. It was submitted that it is trite law that he who alleges must proof. To support this proposition reliance was placed on the cases of Mbuthia Macharia vs Annah Mutua Ndwiga & another [2017] eKLR.

34. On whether the stay of execution should be granted, the respondent cited the provisions of Order 42 Rule6 (2) of the Civil Procedure Rules, 2010, the case of RWW vs EKW (2019) eKLR where the court while Expounding on the above principles held the purpose of stay pending an appeal is to preserve the subject matter in dispute so that the rights of the appellant who is exercising the undoubted right of appeal are safeguarded and the appeal if successful is not rendered nugatory. Further the court held in doing so, it has to weigh this right against the rights of a successful litigant who should not be deprived of the fruits of his judgment, then submitted that the Applicant has not established it will suffer substantial loss in the event stay is not granted.

35. To further buttress its submissions the Respondent relied on the cases of James Wangalwa & Another vs Agnes Naliaka Cheseto (supra) & Rana Auto Selection Limited vs Commissioner Of Domestic Taxes (Income Tax Appeal E150 Of 2021)

36. The Respondent argued that should the court be inclined to grant stay, the Applicant should be directed to provide security of taxes of 100% of the principal taxes due. To bolster its submissions, the Respondent relied on the cases of Absalom Dova vs Tarbo Transporters [2013] eKLR cited in Antoine Ndiaye vs African Virtual University [2015] eKLR and Gianfranco Manenthi & Another vs Africa Merchant Assurance Company Ltd [2019] eKLR, for the proposition that granting stay pending Appeal should not result in disadvantage to anyone but justice ought to be done to all the parties.

Analysis & Determination 37. I have considered the application, affidavits on record and the written submissions and I consider the following as issues for determination: -a.Whether the Appellant should be granted leave to file an appeal out of timeb.Whether an order of stay of execution pending appeal should issue and if so, what conditions ought to issue.

Whether the Appellant should be granted leave to file an appeal out of time 38. The Supreme Court in Nicholas Kiptoo Arap Korir Salat vs Independent Electoral and Boundaries Commission & 7 others(supra) set out the considerations that guide the court in exercising its discretion in cases seeking extension of time. It stated:“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; andvii.Whether in certain cases, like election petitions, public interest should be a consideration for extending time.”

39. The Application is brought under Section 32 of the Tax Appeals Tribunal Act which provides;“(1)A party to proceedings before the Tribunal may, within thirty days after being notified of the decision or within such further period as the High Court may allow, appeal to the High Court, and the party so appealing shall serve a copy of the notice of appeal on the other party.(2)The High Court shall hear appeals made under this section in accordance with rules set out by the Chief Justice.”

40. Rules 3 & 4 of the Tax Appeals Tribunal (Appeals to The High Court) Rules, 2015 provide;“3. The appellant shall, within thirty days, after the date of service of a notice of appeal under section 32(1), file a memorandum of appeal with the Registrar and serve a copy on the respondent.4. The Court may extend the time specified in Rule 3 if the Court is satisfied that, owing to absence from Kenya, sickness, or other reasonable cause, the appellant was unable to file the memorandum of appeal within that period and that there has been no unreasonable delay on the part of the appellant.”

41. Further, Section 53 of the Tax Procedures Act, 2015 provides for a right of appeal to the High Court as follows:“53. A party to proceedings before the Tribunal who is dissatisfied with the decision of the Tribunal in relation to an appealable decision may, within thirty days of being notified of the decision or within such further period as the High Court may allow, appeal the decision to the High Court in accordance with the provisions of the Tax Appeals Tribunal Act, 2013 (No. 40 of 2013).”

42. It is uncontroverted that the parties were to be served with a notice of delivery of judgment, as per the directions of the Tribunal when the matter was last before it. The Applicant contends that it was not served with the said notice. The respondent averred that all parties were served via email with the notice and a copy of the judgment in issue. The respondent annexed an email extract showing that the firm of Kangea & Associates for the Applicant was served with the said judgment.

43. However, the Applicant has annexed Notice of Appointment of Advocate dated 15th June, 2021 showing that it appointed the firm of Mirugi Kariuki & Company Advocates to take over the conduct of the matter from the aforesaid firm and an email extract showing the said notice was forwarded to the tribunal on the even date. The email address of the latter firm is mirugi.mirugi@gmail.com.

44. It is thus not clear why the said notice and copy of the judgment was forwarded to the Applicant’s former advocates.

45. To me, it is abundantly clear that the Applicant has shown sufficient cause that its current representative was not served with the notice and judgment in issue. The law is settled. Once there is a notice of change of advocate, then the previous advocate ceases to be on record. In sending the notice to the former advocates the Tribunal was in error and the applicant should not be faulted.

46. The Applicant contended that it learnt about the delivery of the judgment when it was served with a letter dated 23rd August 2023 by the Respondent. It thereafter did an email enquiring the status of the matter and the Tribunal, on 24th August 2023, confirmed to it that the judgment had been delivered on 12th May, 2023. Obviously, the period within which to file appeal had lapsed by the time the Applicant knew about the delivery of the judgment.

47. In the premises, I find that there is a reasonable and satisfactory explanation given for the delay.

Whether an order of stay pending appeal should issue and what conditions are to be given? 48. The Applications for stay of execution pending appeal are governed by Order 42 Rule 6 (2) which provides;No order of stay shall be made under sub rule (1) unless-a.The court is satisfied that substantial loss may result to the applicant unless the order is made and the application has been made without unreasonable delay; andb.Such security as the court orders for the due performance of such decree or order as may ultimately be binding on him has been given by the applicant.

49. In Kenya Shell vs Benjamin Karuga Kibiru & another [1986] eKLR, the Court of Appeal stated that:“If there is no evidence of substantial loss to an applicant, it would be a rare case when an appeal would be rendered nugatory by some other event. Substantial loss in its various forms is the corner stone of both jurisdictions for granting a stay. That is what has to be prevented. Therefore, without this evidence it is difficult to see why the respondents should be kept out of their money.”

50. In Vishram Ravji Halai vs Thornton & Turpin Civil Application No. Nai. 15 of 1990 [1990] KLR 365, the Court of Appeal held that whereas the Court of Appeal’s power to grant a stay pending Appeal is unfettered, the High Court’s jurisdiction to do so under Order 41 Rule 6 of the Civil Procedure Rules (now Order 42 Rule 6) is fettered by three conditions namely, establishment of a sufficient cause, satisfaction of substantial loss and the furnishing of security. Further there is added consideration that the application must be made without unreasonable delay.

51. As regards determination of what amounts to substantial loss, Musinga, J (as he then was) in Daniel Chebutul Rotich & 2 Others vs Emirates Airlines Civil Case No. 368 of 2001 held that:“...substantial loss’ is a relative term and more often than not can be assessed by the totality of the consequences which an applicant is likely to suffer if stay of execution is not granted and that applicant is therefore forced to pay the decretal sum.”

52. Platt Ag JA again in the Kenya Shell case (supra) gave his observations as to the meaning of ‘substantial loss’ when he detailed:“The application for the stay made before the High Court failed because the first of the conditions set out in order XLI rule 4 of the Civil Procedure Rules was not met. There was no evidence of substantial loss to the applicant, either in the matter of paying the damages awarded which would cause difficulty to the applicant itself, or because it would lose its money, if payment was made, since the respondents be unable to repay the decretal sum plus costs in two courts.

53. The learned judge later went on to say:“It is usually a good rule to see if order XLI rule 4 of the Civil Procedure Rules can be substantiated. If there is no evidence of substantial loss to the applicant, it would be a rare case when an appeal would be rendered nugatory by some other event. Substantial loss in its various forms, is the cornerstone of both jurisdictions for granting a stay. That is what has to be prevented. Therefore, without this evidence it is difficult to see why the respondents should be kept out of their money.”

54. And in James Wangalwa & Another vs Agnes Naliaka Cheseto (supra) the High Court held in part as follows:“No doubt, in law, the fact that the process of execution has been put in motion, or is likely to be put in motion, by itself, does not amount to substantial loss. Even when execution has been levied and completed, that is to say, the attached properties have been sold, as is the case here, does not in itself amount to substantial loss under Order 42 Rule 6 of the CPR. This is so because execution is a lawful process.The Applicant must establish other factors which show that the execution will create a state of affairs that will irreparably affect or negate the very essential core of the Applicant as the successful party in the appeal. This is what substantial loss would entail…………”

55. Further in the case of RWW vs. EKW (supra), the Court held that;“The purpose of an application for stay of execution pending an appeal is to preserve the subject matter in dispute so that the rights of the Appellant who is exercising the undoubted right of appeal are safeguarded and the appeal if successful, is not rendered nugatory. However, in doing so, the court should weigh this right against the success of a litigant who should not be deprived of the fruits of his/her judgment. The court is also called upon to ensure that no party suffers prejudice that cannot be compensated by an award of costs.”

56. Substantial loss takes various forms and in this case the Applicant is apprehensive that if the Respondent is allowed to proceed with execution of the judgment, its business will be brought to its knees. The Applicant also averred that as per the final demand notice by the respondent the money claimed was Ksh. 5,954,209/= but in a span of less than 24 hours the amount had doubled to Ksh.10,201,276. 46/=. This position was not controverted by the respondent.

57. I am of the view that the closure of the business’s accounts will evidently occasion substantial loss to the Applicant. The applicant will likely have to close down, and with that, evidently, there will be loss of income.

58. On whether the application has been made without unreasonable delay, I have noted from the annexed Judgment that it was delivered on 12th April, 2023. The Applicant has sufficiently explained that it learnt about the delivery of the said judgment on 24th August, 2023. This Application was filed on 4th September, 2023. It is clear therefore that this application was filed timeously.

59. Regarding the issue of security, the applicant has stated in its supporting affidavit that it is willing to provide such security that this Honourable Court may order.

60. The determination of what amounts to a suitable security is a matter of court’s discretion. In Focin Motorcycle Co. Limited vs Ann Wambui Wangui & another [2018] eKLR, the court stated that:“Where the applicant proposes to provide security as the Applicant has done, it is a mark of good faith that the application for stay is not just meant to deny the respondent the fruits of judgment. My view is that it is sufficient for the applicant to state that he is ready to provide security or to propose the kind of security but it is the discretion of the Court to determine the security….”

61. Since the applicant is willing to abide by any orders to be granted, I find that it has satisfied all the three conditions for grant of stay.

62. The respondent has urged that the court to order the applicant to deposit 50% of the principal taxes assessed with it and provide a bank guarantee for the balance. I find this to be unreasonable as it will be tantamount to asking the applicant to pay what it already disputes.

63. In light of the above, the court makes the following findings and determination;i.The Appellant is hereby granted leave to appeal out of time; the Memorandum of Appeal be filed and served within fourteen (14) days from the date hereof;ii.The execution of the tax assessment is hereby stayed pending the hearing and determination of this Appeal on condition that the Applicant pays the sum of Kshs.2,977,105/- being 50% of the principal taxes assessed by the Respondent to the Respondent within thirty (30) days from the date hereof.iii.Upon compliance with order (ii) above the applicant’s bank accounts be re-opened and the applicant be allowed to operate them.iv.In default of the order (ii) above, the stay orders shall lapse without further recourse to the court.v.Costs shall abide the outcome of the Appeal.

64. It is so ordered.

DATED, SIGNED AND DELIVERED AT NAKURU THIS 1STDAY OF NOVEMBER, 2023. H. M. NYAGAJUDGE