https://new.kenyalaw.org/akn/ke/judgment/ketat/2026/264

**REPUBLIC OF KENYA** **IN THE TAX APPEALS TRIBUNAL AT NAIROBI** **TAX APPEAL NO. E1498 OF 2025** **NEXTGEN MALL MANAGEMENT COMPANY LIMITED………..………...APPELLANT** **-VERSUS-** **COMMISSIONER OF LEGAL AND BOARD SERVICES…………….…….RESPONDENT** **JUDGMENT** **BACKGROUND** 1. The Appellant is a limited liability company incorporated in Kenya on 18th June 2010 under the repealed Companies Act (Cap 486) as Nextgen Centre Management P Limited, which changed its name to Nextgen Mall Management Company Limited on 14th July 2016. It was established to manage the common areas of Nextgen Mall along Mombasa Road, Nairobi, on behalf of the purchasers of units therein from Nextgen Office Suites Limited, the developer. 2. The Respondent is a principal officer appointed under Section 13 of the Kenya Revenue Authority Act, CAP 469 of the Laws of Kenya (KRA Act). Under Section 5 of the KRA Act, the Kenya Revenue Authority is an agency of the Government mandated to administer and enforce the written laws set out in the First Schedule thereto for the assessment and collection of revenue. 3. The Respondent selected the Appellant for audit upon noting that the Appellant was declaring income in its Income Tax returns but was not registered for VAT. The audit covered the Appellant’s Income Tax and VAT affairs for the years of income 2016 to 2020, and culminated in a notice of audit findings dated 18th August 2021. 4. *Vide* a notice of tax assessment dated 18th August 2022, the Respondent assessed additional income tax of Kshs. 38,550,556.00 in the years reflecting surpluses. The Respondent further registered the Appellant for VAT obligation pursuant to Section 34(6) of the Value Added Tax Act (VAT Act) and assessed VAT of Kshs. 81,322,637.00 for the years 2017 to 2020, bringing the aggregate assessment to Kshs. 119,873,193.00. 5. The Appellant lodged a notice of objection dated 7th September 2022 contesting the assessments in their totality. *Vide* an objection decision dated 3rd November 2022, the Respondent fully rejected the objection and sustained the additional assessments as initially issued. 6. Aggrieved, the Appellant preferred an appeal to this Tribunal, being **Tax Appeal No. 1496 of 2022; Nextgen Mall Management Company Limited v Commissioner of Domestic Taxes,** wherein the Tribunal found in favour of the Respondent and upheld the assessments. 7. Dissatisfied with the Tribunal’s judgment, the Appellant moved the High Court *vide* **HCITA No. E173 of 2024; Nextgen Mall Management Company Limited v Commissioner of Domestic Taxes**. Both Parties stated that *vide* a judgment delivered on 9th October 2025, the Court set aside the rejection of the objection and the objection decision, and directed the Commissioner to review the additional documents provided by the Appellant and issue an objection decision within sixty (60) days. 8. Pursuant to the said judgment, the Appellant availed to the Respondent, by 14th October 2025, sample service charge reimbursement bills, sample expense invoices, sample sale agreements, and the appeal bundle together with the attendant correspondence with the assessing team. 9. The Respondent then issued the objection decision dated 2nd December 2025, the subject of the instant Appeal, wherein it fully rejected the objection and sustained the additional assessments of Kshs. 38,550,556.00 in income tax and Kshs. 81,322,637.00 in VAT, aggregating to Kshs. 119,873,193.00. 10. Aggrieved by the said objection decision, the Appellant lodged a Notice of Appeal dated 17th December 2025 and filed on 30th December 2025. **THE APPEAL** 1. The Appeal is premised on the Memorandum of Appeal dated 29th December 2025 and filed on 30th December 2025, wherein the Appellant proffered the following grounds of appeal: a) That the Commissioner erred in law and fact by charging tax on an entity not for profit but one that is holding a reversionary interest for the members who purchased business premises and office space from Nextgen Office Suites Limited, the developer. b) That the Commissioner erred in law and fact in finding that the Appellant is a profit-making enterprise, thereby liable to income tax and Value Added Tax (VAT). c) That the Commissioner erred in law and fact in finding that the service charge and or member contributions collected from the members/tenants/proprietors/owners by the Appellant was an income and therefore subject to income tax. d) That the Commissioner erred in law and fact in that the service charge and or member contributions collected from the members / tenants / proprietors / owners constituted payment for a taxable supply, thus subject to VAT. **THE APPELLANT’S CASE** 1. The Appellant’s case is premised on the following: 1. The Appellant’s Statement of Facts dated 29th December 2025 and filed on 30th December 2025; 2. The witness statements of Mr. Ibrahim Idle dated 5th June 2026, Mr. James Aggrey Ojwang dated 26th May 2026 and CPA David Gacigi Kiomoh dated 28th May 2026, which were adopted as their respective evidence in chief at the hearing on 17th June 2026; and 3. Its written submissions dated and filed on 8th July 2026. 2. The Appellant stated that it is a registered management company holding a reversionary interest for the tenants and owners of business premises and office spaces purchased from Nextgen Office Suites Limited. That its objects are confined to the management of the common areas within the Mall, entailing oversight of the collection of land rent and rates, garbage collection, payment of utility bills and repair works within the common areas. 3. The Appellant articulated the corporate architecture underpinning its existence as follows: that the developer is in the real estate business of developing and selling commercial and residential units; Nextgen Mall Commercial Centre is one such development, various units whereof have been sold to individual owners while the unsold units remain the developer’s; and the Appellant’s existence culminates from the agreements for sale of the units, with each entity’s object and purpose complementing the others’. 4. It expounded that, under the sale agreements and its constitutive documents, its membership is to comprise all the unit owners, who are to be allotted shares upon the sale and transfer of all the units within the premises. Pending the sale of the last unit, the current membership and directorship is held by the developer’s directors in trust for the unit owners as the beneficial owners, with decisions, including apportionment of the service charge, made at general meetings of all the unit owners. 5. The Appellant emphasised that, having been incorporated in 2010, the management company model was the only vehicle then available to the members, the Sectional Properties Act, 2020 not having come into operation until after the period of assessment. 6. The Appellant maintained that it collects an annual service charge from the owners in accordance with the sale agreements, which it applies towards utility bills, garbage collection, security, repair works and incidental expenses relating to the common areas. Any surplus or unutilised service charge is carried forward to the subsequent year and applied to offset that year’s receivable service charge. 7. It asserted that it charges no fees of its own, that the service charge does not constitute payment to it for undertaking its objects, and that it is strictly a non-profit-making entity which neither generates income nor profits. That consequently, the service charge does not meet the definition of income under the Income Tax Act, nor does the Appellant attain the Kshs. 5,000,000.00 turnover threshold for VAT registration, its objects giving rise to neither profit nor turnover. 8. The Appellant underscored that professional property managers rendered the management services at the premises. That these were Davita Management Limited with effect from 1st August 2016, Broll Kenya Limited and RDL Property Managers Limited, whose invoices were charged to VAT and in respect of whose payments withholding tax certificates were filed with the Respondent. 9. The Appellant’s first witness, Mr. Ibrahim Idle, the Chairman of the Nextgen Unit Owners Representatives Committee, testified that the monies received by the Appellant emanate from the unit owners; that the amounts remitted are determined by the owners at general meetings; that the owners draw no dividends or loans from the company’s finances; and that the only benefit is a platform for the maintenance of the common areas. He clarified that the Appellant earns income solely from the Kiosk and the Maasai Market, which income is declared to the Respondent. 10. The Appellant’s second witness, Mr. James Aggrey Ojwang, the Appellant’s auditor, testified that the disbursements in the accounts include payments to Broll Kenya Limited and Davita Management Company for professional management services; that the Appellant has no employees, shareholder classes, dividends or loans to directors as would obtain in a trading company; and that any surplus or deficit is transferred to a revolving fund, as evidenced by the statements of comprehensive service charge and expenses, financial position and changes in equity. 11. The Appellant’s third witness, CPA David Gacigi Kiomoh, an accountant with the developer until 5th January 2018, testified that the Appellant derives its funds from the unit owners’ contributions towards the common areas at rates determined during general meetings; that invoices and statements of accounts were prepared indicating balances for both suppliers and members from 2017; and that default by some members in paying the service charge occasioned accounts operating in deficit. 12. In its submissions, the Appellant contended that it is misleading to construe its object and purpose as being for gain. Its purpose is the welfare of its members, whose services are exempt supplies under Paragraph 11 of Part II of the First Schedule to the VAT Act as services rendered by welfare and other philanthropic associations to their members, and any ambiguity in the meaning of a welfare association ought to be resolved in the taxpayer’s favour, as held in **Commissioner of Income Tax v Westmont Power (K) Ltd and Stanbic v Kenya Revenue Authority.** 13. The Appellant further posited that the Respondent created a legitimate expectation that entities operating in the Appellant’s manner were exempt from tax, no notices or directives to the contrary having ever issued. It invoked **Sigona Golf Club & 4 Others v Commissioner of Domestic Taxes [2020] eKLR,** wherein the Tribunal, relying on **Keroche Industries Limited v Kenya Revenue Authority & 5 Others [2007] eKLR,** held public authorities to their promises and consistent practices. 14. On VAT, the Appellant argued that its circumstances fall outside the definition of “supply of services” under Section 2 of the VAT Act, which provides: *“supply of services” means anything done that is not a supply of goods or money, including— (a) the performance of services for another person; (b) the grant, assignment, or surrender of any right; (c) the making available of any facility or advantage; or (d) the toleration of any situation or the refraining from the doing of any act;* 1. The Appellant propounded that, its membership being comprised of the unit owners for whose benefit it exists, any alleged service would constructively be performed by the members for themselves. The company and its members being one and the same, it cannot be said to perform services “for another person”, and holding otherwise would mean that the company trades with itself. 2. It reiterated that the entities which actually render management services at the premises are the professional property managers, whose invoices are charged to VAT and which the Appellant pays from the members’ contributions, and that the Appellant, having no employees, lacks the structure and resources to operate as a trading company. 3. On the burden of proof, the Appellant maintained that, by tendering its Statement of Facts, Memorandum and Articles of Association, sale agreements, subleases, ledgers for the years 2017 to 2020, utility invoices and fee notes, it discharged the burden cast upon it. It placed reliance on **Jacaranda Gardens Management Company Limited v Commissioner of Domestic Taxes (Appeal E1294 of 2024) [2025] KETAT 348 (KLR)**, where this Tribunal expressed itself as follows: *“It is an industry practice that, management companies are created with the view of easing the operation and procurement of services on behalf of home/property owners. Ideally, there role remains that of a manager and not one that executes the services itself, under the prevailing circumstances it remained the role of the Respondent to demonstrate to the Tribunal that once monies were collected for such services, the same was retained by the Appellant who in turn discharged the services and retained the sums as fees. The Respondent failed to demonstrate its case in that regard.”* 1. The Appellant accordingly urged the Tribunal to find that it was created to ease the operation and procurement of services on behalf of its more than 300 members, that the members hired and paid management companies elected during meetings to manage the property, and that the Respondent erred in treating the members’ contributions towards costs incurred on common areas as taxable. **Appellant’s Prayers** 1. The Appellant prayed for the following reliefs: a) That the Appeal be allowed; b) That the income tax assessment of Kshs. 38,550,556.00 be vacated and/or set aside in its entirety; c) That the Value Added Tax assessment of Kshs. 81,322,637.00 be vacated and/or set aside in its entirety; d) That the notice of tax assessment dated 18th August 2022 be vacated and/or set aside in its entirety; and e) That the Appellant be awarded the costs of the Appeal. **THE RESPONDENT’S CASE** 1. The Respondent opposed the Appeal through its Statement of Facts dated 5th February 2026 and filed on the same date; the witness statement of Mr. Eric Mwangi dated 12th June 2026, which was adopted as his evidence in chief at the hearing; and its written submissions dated 8th July 2026 and filed on 9th July 2026. 2. The Respondent asserted that the Appellant is a private company whose declared primary economic activity is real estate activities with own or leased property, specifically the management of Nextgen Mall along Mombasa Road, and that it was selected for audit upon the observation that it was declaring income in its Income Tax returns while remaining unregistered for VAT. 3. The Respondent recounted its audit findings thus: the Appellant is engaged in the provision of taxable supplies within Sections 2 and 5 of the VAT Act; examination of its records indicated that it was charging a service fee of Kshs. 35 per square foot; and, whereas the Appellant declared income per the IT2C, any surplus would be claimed as an allowable deduction on the iTax return, thereby eliminating any incidence of tax. In 2016, the Appellant claimed unsupported office expenses of Kshs. 2,669,071.00, which were disallowed. 4. The Respondent anchored the income tax assessment on Section 3(2)(a)(i) of the Income Tax Act, which charges tax on gains or profits from any business for whatever period of time carried on, read with the definition of “business” under Section 2 thereof, which includes any trade, profession or vocation, and every manufacture, adventure and concern in the nature of trade. It contended that the Appellant’s transactions are a venture and concern in the nature of trade, since the Appellant offers services and charges a fee for them. 5. The Respondent maintained that the Appellant’s Memorandum and Articles of Association state that the objective for which the company was created was “To Manage” the 49 units in the Commercial Centre and to collect proportionate land rent and rates, service charge and garbage collection. These, it argued, are active management functions offered to the occupants of the Mall and constitute taxable services, and not a passive reversionary holding. 6. It posited that the reversionary interest characterisation does not withstand scrutiny of the Appellant’s own constitutive documents and conduct, and that neither the absence of dividends nor the Appellant’s self-description as a not-for-profit is determinative, since the Income Tax Act and the VAT Act look to whether business activity or taxable supplies occurred, and not to an entity’s profit-distribution policy. 7. The Respondent enumerated the following facts as not in contention: the shareholders of the Appellant per the CR12 are the developers of Nextgen Mall; none of the owners of the premises are shareholders in the Appellant; the owners each contribute an agreed amount paid to the Appellant for purposes of managing the common areas; the Appellant filed self-assessment returns declaring the contributions as income, deducted the expenses incurred and declared a surplus; and the tax liability assessed is strictly on the figures declared by the Appellant. 8. The Respondent’s witness, Mr. Eric Mwangi, testified that the assessing team neither adjusted the Appellant’s declared income nor its claimed expenses, and that additional assessments were raised only in the years whose self-assessment returns indicated surpluses, none being raised in deficit years. He further testified that the Appellant treated its surplus as exempt income in its tax computations without at any time availing an exemption certificate, despite requests at both the assessment and objection review stages. 9. On VAT, the Respondent’s witness testified that the assessment rested on the Appellant’s receipts having exceeded the VAT registration threshold of Kshs. 5,000,000.00, the income having been earned for purposes of managing the common areas on behalf of the owners, whereupon the Appellant was registered under Section 34(6) of the VAT Act. 10. The Respondent argued that the income in the Appellant’s hands is chargeable to tax and can only escape taxation through an exemption granted in law, none having been demonstrated. It advanced that “one man’s expense is another’s income”, such that the member contributions, though expenses in the members’ hands, become the Appellant’s income in its hands, being funds the Appellant received, controlled, applied and declared as its own while claiming deductions against them. 11. The Respondent invoked Section 24(2) of the Tax Procedures Act (TPA) on the Commissioner’s entitlement to assess a taxpayer’s liability using any information available; Section 31 of the TPA on additional assessments to the best of the Commissioner’s judgment; Section 54A(1) of the Income Tax Act on the duty to keep records adequate for computing tax; and Section 56(1) of the TPA together with Section 30 of the Tax Appeals Tribunal Act, which place upon the Appellant the burden of proving that the assessments are erroneous. 12. The Respondent distinguished **Jacaranda Gardens Management Company Limited v Commissioner of Domestic Taxes** *(supra)* on the basis that the Appellant herein collected the contributions from the property owners; that it declared the contributions in its filed returns, deducted the expenses incurred and declared the surplus it remained with; and that the surplus still remains in the hands of the Appellant with no evidence tendered to show that it is returned to the contributors. **Respondent’s Prayers** 1. The Respondent implored the Tribunal to: a) Uphold and affirm the Respondent’s objection decision dated 2nd December 2025 for Kshs. 119,873,193.00; and b) Dismiss the Appeal with costs to the Respondent. **ISSUES FOR DETERMINATION** 1. The Tribunal, having carefully considered the parties’ pleadings, documentation, testimony and written submissions, is of the considered view that the issues falling for its determination are as follows: a) Whether the service charge and member contributions collected by the Appellant constituted income chargeable to income tax; and b) Whether the service charge and member contributions collected by the Appellant constituted consideration for a taxable supply chargeable to VAT. **ANALYSIS AND FINDINGS** 1. The Tribunal will proceed to analyse the issues sequentially as hereunder. **a) Whether the service charge and member contributions collected by the Appellant constituted income chargeable to income tax** 1. The charging provision is Section 3(2)(a)(i) of the Income Tax Act, which subjects to tax gains or profits from a business for whatever period of time carried on. Two questions consequently arise: whether the Appellant carried on a business, and whether the receipts in question constituted its gains or profits. Both turn on the true character of the receipts, which is a question of law and fact to be answered from the whole of the evidence, and not from the label which the taxpayer or its accountants attached to them. 2. The Tribunal has interrogated the record. The sample sale agreements oblige each purchaser of a unit to contribute a proportionate share of the outgoings on the common areas by way of a service charge remitted to the Appellant. The agreement dated 15th February 2018 between the Appellant and the representatives of the unit owners apportions the responsibilities of managing the Mall and situates the collection of the service charge within that framework, while the rates are set, varied and ratified by the unit owners at general meetings, as the minutes on record confirm. 3. The Tribunal notes that the Appellant’s constitutive documents point the same way. Clause 3 of the Appellant’s Memorandum of Association confines the objects to managing the Forty Nine (49) units, providing the services required under the Leases, and collecting proportionate land rent and rates, service charge, garbage collection, security charges and other levies from the purchasers and occupiers, and remitting the same timely to the Main Management Company. Clause 4 of the Articles obliges remittance by the fifth day of each month, while Article 40 directs that all payments for the services be paid directly to the Main Management Company. 4. The Articles further define “SURPLUS” as including the excess service charge and other charges payable by the unit owners to the Main Management Company, and Article 10 obliges members to pay a due proportion of all costs and expenses incurred pursuant to the Lessor’s and Manager’s obligations under the Leases. The objects clause upon which the Respondent placed reliance is accordingly a collection-and-remittance mandate within a tripartite management structure, and not the pursuit of trade; the words “To Manage” cannot be severed from the conduit architecture in which they are embedded. 5. The billing instruments exhibited are styled as service charge reimbursement bills, and the corresponding outflows are evidenced by invoices raised by third-party providers: Davita Management Limited, appointed facilities manager with effect from 1st August 2016 at a monthly payment of Kshs. 1,300,000.00 plus VAT; Broll Kenya Limited, engaged under a Facilities Management Agreement commencing 1st January 2020 at a monthly management fee of Kshs. 228,580.00 inclusive of VAT; and RDL Property Managers Limited, whose monthly invoices were equally charged to VAT. 6. The scope of works annexed to the Broll Kenya Limited agreement, comprising billing and collection of the service charge, payment of suppliers on behalf of the client, repairs and maintenance, security and soft services, confirms that the property managers, and not the Appellant, executed the management functions at the premises. The Tribunal observes that the Appellant’s role was confined to receiving the owners’ and other occupiers’ contributions and disbursing them to the said providers, whose invoices bore VAT and in respect of which withholding tax certificates were filed. 7. The Davita Management Limited memorandum dated 7th May 2017 places the service fee of Kshs. 35 per square foot, upon which the Respondent placed considerable store, in its proper context. The figure was the service charge rate set by the developers with effect from 1st August 2016 and was reviewed downwards to Kshs. 25 per square foot from May 2017 upon the owners’ representations. It was the contribution rate payable by the owners into the common pool, and not a fee levied and retained by the Appellant for its own account. 8. The financial statements exhibited, particularly the statement of comprehensive service charge and expenses, the statement of financial position and the statement of changes in equity, demonstrate that surpluses and deficits alike were transferred to a revolving fund. Surpluses stood to the credit of the owners against future service charge, while deficits represented arrears awaiting collection from defaulting owners. The unchallenged testimony of the Appellant’s witnesses, Mr. Ibrahim Idle, Mr. James Aggrey Ojwang, and CPA David Gacigi Kiomoh was to the same effect: no salaries, dividends or loans have ever issued from the Appellant’s finances, and the Appellant has no employees. 9. The cumulative effect of the foregoing findings is inescapable. The Tribunal finds that the receipts in issue are pass-through funds which the Appellant holds in a fiduciary capacity for the property owners and tenants of the Mall, impressed with a single contractual purpose, being the settlement of the outgoings on the common areas. It is the Tribunal’s considered view that the Appellant is a conduit through which the owners pool and disburse their own monies; it renders no service on its own account, adds no margin, and retains nothing as a fee. 10. This finding accords with the holding in **Jacaranda Gardens Management Company Limited v Commissioner of Domestic Taxes (supra)** that a management company’s role remains that of a manager procuring services on behalf of property owners, and that it fell on the Respondent to demonstrate that the monies collected were retained by the Appellant as fees for services it discharged itself. However, the Tribunal notes that the Respondent’s case, through the Respondent’s witness, was that the assessing team adjusted neither the declared income nor the claimed expenses and assessed strictly on the Appellant’s declared figures. 11. From the documentary evidence the Appellant provided, it is evidenced that the Appellant collected the contributions, declared them and remained with a surplus, which are the ordinary incidents of a management company operating a common fund; and this says nothing of retention of the monies as fees. The surplus is not in the Appellant’s hands beneficially: it stands in the revolving fund to the credit of the owners and is offset against the ensuing year’s service charge, a treatment the Respondent did not controvert. 12. The Tribunal must nonetheless confront the feature of this dispute upon which the Respondent’s case substantially rests, being the Appellant’s own self-assessment returns, in which the contributions were presented as income and the expenses deducted, with the resulting surpluses in some years described as exempt income. 13. The Tribunal takes judicial notice that the Appellant erred in its financial reporting. Funds held in a fiduciary capacity for third parties are not revenue of the holder. Under International Financial Reporting Standard (IFRS) 15, Revenue from Contracts with Customers, “revenue” is defined in Appendix A as income arising in the course of an entity’s ordinary activities, while paragraph 47 thereof directs that the transaction price excludes amounts collected on behalf of third parties. Receipts destined, from inception, for third-party providers of common-area services therefore never enter the measurement of revenue at all. 14. The principal-versus-agent considerations at paragraphs B34 to B38 of IFRS 15 are determinative. Paragraph B34 requires an entity, where another party is involved in providing services to a customer, to determine whether its promise is to provide the specified services itself, as a principal, or to arrange for those services to be provided by the other party, as an agent. Under paragraph B35, an entity is a principal only if it controls the specified service before it is transferred to the customer; under paragraph B36, an agent recognises as revenue only the fee or commission to which it expects to be entitled. 15. The Tribunal notes that Paragraph B37 of IFRS 15 supplies the indicators, each of which points away from the Appellant being a principal: primary responsibility for fulfilling the promises lay with Davita Management Limited, Broll Kenya Limited and RDL Property Managers Limited, which executed, invoiced and charged VAT on the services; the Appellant carried no inventory risk; and it had no discretion in establishing prices, the rates being set, varied and ratified by the unit owners at general meetings. The Appellant was, at its highest, an agent and, charging no fee or commission, had no revenue to recognise from the contributions. 16. In the same vein, the Tribunal takes further judicial notice that under the Conceptual Framework for Financial Reporting issued by the International Accounting Standards Board, income is defined at paragraph 4.68 as increases in assets, or decreases in liabilities, that result in increases in equity, other than those relating to contributions from holders of equity claims, whereas a liability is defined at paragraph 4.26 as a present obligation of the entity to transfer an economic resource as a result of past events. Monies received subject to an obligation to expend them for the benefit of others answer the latter definition, and not the former. 17. The Tribunal takes further judicial notice that the correct accounting treatment was accordingly as follows: upon billing and receipt, the Appellant ought to have recognised the cash or receivable from each unit owner together with a corresponding liability for service charge funds held on behalf of the owners; upon settlement of the third-party providers’ invoices, that liability would be reduced, with no expense entering the Appellant’s own statement of profit or loss; and the unexpended balance, being the revolving fund, would be carried as a financial liability within the meaning of paragraph 11 of IAS 32, Financial Instruments: Presentation, extinguishable by offset against future service charge. 18. As to financial presentation, IAS 1, Presentation of Financial Statements, requires at paragraph 15 that financial statements present fairly, and faithfully represent, the effects of transactions in accordance with the definitions in the Conceptual Framework. The Tribunal notes that the fiduciary balance fell to be presented in the statement of financial position within, or alongside, trade and other payables pursuant to paragraphs 54 and 55 of IAS 1, classified as current or non-current in accordance with paragraphs 69 to 76, while the statement of profit or loss should have carried only the Appellant’s own-account income from the Kiosk, the Maasai Market and any agency fee. 19. It follows that the exhibited statement of changes in equity, in transferring surpluses and deficits to the revolving fund, mislabelled a liability owing to the unit owners as an equity reserve. Equally, under paragraph 22(b) of IAS 7, Statement of Cash Flows, cash receipts and payments on behalf of customers, reflecting as they do the activities of the customer rather than those of the entity, may be reported on a net basis, which underscores that the gross flows were never the Appellant’s own. 20. It is the Tribunal’s view that the disclosures required were those attending an agency arrangement: material accounting policy information describing the fiduciary treatment of the service charge, under paragraph 117 of IAS 1; the significant judgement embodied in the principal-versus-agent determination, under paragraph 122 of IAS 1 and paragraph 123 of IFRS 15; the carrying amounts and maturity analysis of the resulting financial liability, under paragraphs 8 and 39 of IFRS 7, Financial Instruments: Disclosures; and, the shares being held by the developer’s principals in trust for the unit owners, the related party relationships and balances contemplated by IAS 24, Related Party Disclosures. 21. The proper presentation of the contributions was therefore as fiduciary funds under management, recognised as a liability owing to the unit owners in the statement of financial position, and not as income of the Appellant in the statement of profit or loss. By representing the receipts as its income and claiming the corresponding costs as its expenses, the Appellant misstated, in its financial statements and returns, transactions it undertook in a representative capacity. The decisive question is whether that erroneous representation converts the receipts into taxable income. The Tribunal holds that it does not. Liability to tax is imposed by statute upon the true nature and legal character of a transaction, and not upon the accounting entries by which a taxpayer records it. 22. The Tribunal, thus, finds and holds that an erroneous presentation can neither create income where none exists nor extinguish income where it exists, and nothing in the Income Tax Act holds a taxpayer to a mislabelling of fiduciary funds as its revenue. The error the Appellant made, the Tribunal notes, was one of financial statement presentation only; it did not alter the character of the transaction. 23. The Respondent, indeed, described itself in its pleadings as merely a consumer of data comprised in the returns filed by the Appellant. Therein lies the infirmity of the assessments: the assessments inherited, rather than interrogated, the Appellant’s presentation error. Once the sale agreements, the reimbursement bills, the third-party invoices and the revolving fund treatment were placed before the Respondent pursuant to the High Court’s direction, the fiduciary character of the receipts was apparent, and the additional assessments lost their foundation. 24. The Tribunal notes that two subsidiary contentions of the Respondent fall to be addressed. The first is the absence of a tax exemption certificate, upon which the Respondent’s correspondence at the objection review stage laid considerable emphasis. It is the Tribunal’s view that an exemption presupposes income that would otherwise be chargeable; where receipts are not income at all, no exemption arises for certification, and the absence of a certificate is immaterial. The Appellant’s description of its surplus as exempt income in its computations was, once again, an inappropriateness of financial presentation incapable of clothing the receipts with a character they do not bear. 25. The second contention by the Respondent is that the contributors are not shareholders of the Appellant, the shares being held by the developer’s principals per the CR12. The Tribunal finds that this circumstance denies the Appellant the strict shelter of the doctrine of mutuality, but it does not align with the Respondent’s basis of assessment. The fiduciary character of the funds received by the Appellant derives not from the identity of the shareholders but from the contractual stipulations in the sale agreements, the agreement of 15th February 2018 and the resolutions of the general meetings, the shares themselves being held pending allotment to the unit owners upon the sale of the last unit. 26. The Tribunal also notes that the subsidiary adjustments in the notice of assessment fall away with the principal finding. The disallowed office expense variance of Kshs. 2,669,071.00 for the year 2016 was, on the evidence, the year’s surplus erroneously debited to office expenses instead of being credited to the revolving fund, a bookkeeping error consonant with the presentation infirmities already identified; while the disallowed depreciation of Kshs. 203,651.00 and the deficit brought forward of Kshs. 9,400,814.00, whatever their merits under Section 16(1)(b) of the Income Tax Act, were adjustments to a computation of income which, as found, did not exist. 27. For the avoidance of doubt, the income earned by the Appellant on its own account from the Kiosk and the Maasai Market is trading income chargeable to tax. The uncontroverted evidence of the Appellant’s Witness, Mr. Ibrahim Idle, was that the same is declared to the Respondent, and the additional assessments were, in any event, not predicated upon it. 28. Indeed, the Appellant’s own objection tabulated the miscellaneous ancillary revenues for the years 2017 to 2020, being collections from owners displaying wares in the common areas and from billboard advertising on the premises, computed the tax thereon at the applicable rates and acknowledged the tax not in dispute of Kshs. 742,823.00 for the year 2017. 29. The Tribunal finds that by the Appellant presenting the Respondent with documentary evidence demonstrating that the surpluses it declared from the funds it received were not taxable income, the Appellant satisfied its burden of proof under Section 56(1) of the Tax Procedures Act and Section 30 of the Tax Appeals Tribunal Act cited below. 30. Section 56(1) of the Tax Procedures Act provides: - *“56. (1) In any proceedings under this Part, the burden shall be on the taxpayer to prove that a tax decision is incorrect.”* 1. Section 30 of the Tax Appeals Tribunal Act states that: - *“30. In a proceeding before the Tribunal, the appellant has the burden of proving—* *(a) where an appeal relates to an assessment, that the assessment is excessive;* *(b) in any other case, that the tax decision should not have been made or should have been made differently.”* 1. Ultimately, the Tribunal finds that the service charge and member contributions collected by the Appellant were pass-through fiduciary funds and did not constitute income chargeable to income tax, and the Respondent erred in assessing the same. **b) Whether the service charge and member contributions collected by the Appellant constituted consideration for a taxable supply chargeable to VAT** 1. Section 5(1) of the VAT Act charges VAT on, *inter alia*, a taxable supply made by a registered person in Kenya. A “taxable supply” under Section 2 of the VAT Act is a supply, other than an exempt supply, made in Kenya by a person in the course or in furtherance of a business carried on by the person, while a “supply of services” means anything done that is not a supply of goods or money, including the performance of services for another person. 2. The Tribunal notes that the evidence establishes that the services at the premises, being management, security, cleaning, repairs, garbage collection and utilities, were rendered by the professional managers and other third-party providers, who invoiced for them and charged VAT thereon. The consideration for those supplies was defrayed out of the pooled contributions, and the suppliers accounted for the output tax. 3. The Tribunal observes that what the Appellant received from the owners was reimbursement of the owners’ proportionate share of costs incurred on their behalf rather than consideration for any service of its own. A reimbursement of costs disbursed for another is not consideration for a supply by the conduit. To charge VAT on the gross contributions would be to tax, a second time, supplies upon which VAT had already been charged and accounted for by the actual suppliers, an outcome at variance with the architecture of the VAT Act as a tax on value added at each stage of supply. 4. It follows, therefore, that the forced registration of the Appellant under Section 34(6) of the VAT Act, predicated as it was on the Appellant having made taxable supplies exceeding the registration threshold of Kshs. 5,000,000.00, was without foundation, the contributions not being consideration for taxable supplies by the Appellant. Nothing in this finding, however, precludes the taxation of the Appellant’s own trading receipts from the Kiosk and the Maasai Market should they attain the statutory threshold. 5. The Tribunal has considered the Appellant’s alternative refuge under Paragraph 11 of Part II of the First Schedule to the VAT Act and its plea of legitimate expectation anchored on the **Sigona Golf Club case *(supra)*.** The Appellant, a company limited by shares managing commercial premises, is not an educational, political, religious, welfare or other philanthropic association, and those limbs of its case would not do not apply to it. The Appeal succeeds not because the Appellant’s supplies are exempt, but because, as regards the contributions, there is no taxable supply by the Appellant at all. 6. Consequently, the Tribunal finds that the service charge and member contributions did not constitute consideration for a taxable supply, and the Respondent erred in charging the same to VAT. **FINAL DECISION** 1. The upshot of the foregoing analysis is that the Appeal is merited and the Tribunal accordingly proceeds to issue the following Orders: a) The Appeal be and is hereby allowed; b) The Respondent’s objection decision dated 2nd December 2025 be and is hereby set aside; c) Each party to bear its own costs. 1. It is so ordered. **DATED AND DELIVERED AT NAIROBI THIS 27TH DAY OF JULY 2026.** **……………………………..….** **ROBERT M. MUTUMA** **CHAIRMAN** **……………………………… ……..….……..……………..** **GLORIA A. OGAGA DR. TIMOTHY B. VIKIRU MEMBER MEMBER** **………………………………** **JIMMY M. MALLA** **MEMBER**