[2024] KETAT 1292 (KLR)

NK Brothers Limited v Commissioner of Domestic Taxes (Tax Appeal E955 of 2023) [2024] KETAT 1292 (KLR) (6 September 2024) (Judgment)

Neutral citation: [2024] KETAT 1292 (KLR)

Republic of Kenya

In the Tax Appeal Tribunal

Tax Appeal E955 of 2023

E.N Wafula, Chair, Cynthia B. Mayaka, RO Oluoch, G Ogaga & AK Kiprotich, Members

September 6, 2024

Between

NK Brothers Limited

Appellant

and

Commissioner of Domestic Taxes

Respondent

Judgment

Background 1. The Appellant is a private limited company incorporated in Kenya whose main line of business is construction of high rise buildings, cluster of villas, commercial and residential complexes, processing industries, leisure facilities, port facilities and multi storeyed car parks.

2. The Respondent is a principal officer appointed under and in accordance with Section 13 of the Kenya Revenue Authority (KRA) Act, and KRA is charged with the responsibility of among others, assessment, collection, accounting and the general administration of tax revenue on behalf of the Government of Kenya.

3. In its tax return for the year 2016, the Appellant identified tax credits resulting from overpayment on the manual withholding tax certificates. It thereafter claimed the manual tax credits under line 13. 4 on the iTax portal return, specifically relating to Section 42 of the Income Tax Act.

4. The Respondent disallowed the total credit claimed amounting to Kshs. 24,434,116. 00.

5. On 15th December, 2021 the Appellant objected to the assessments on iTax.

6. Thereafter, it wrote a letter dated 2nd January requesting for a clean up of its iTax ledger in relation to erroneous penalties and interest raised by the Respondent.

7. On 3rd January, 2022 the Respondent issued a letter to the Appellant acknowledging the Appellant’s objection on iTax submitted on 15th December, 2021 and advising the Appellant to consult with the Section 42 Credit Validation team.

8. Thereafter, the Appellant lodged a Notice of Appeal dated 20th December, 2023 and filed on the same date.

The Appeal 9. The Appeal is premised on the following grounds as stated in the Appellant’s Memorandum of Appeal dated 20th December, 2023 and filed on the same date:-i.That the Respondent erred in fact and law by failing to capture and credit on iTax Kshs. 7,534,316. 00 relating to the Appellant's manual withholding tax credits for the year 2016 being withholding tax deducted by the commercial banks on the interest paid to them on deposits held by the banks. The Respondent's rejection of the same is notably unreasonable, especially given that the Appellant had submitted the original withholding tax certificates as supporting evidence.ii.That the Respondent erred in law and fact by disregarding the manual Withholding Tax certificates presented by the Appellant, which were validly issued by the withholding agents. Additionally, they failed to recognize that, at that time, the Income Tax Act CAP 470, under Section 35(5)(b), explicitly allowed for the utilization of manual Withholding Tax certificates.iii.That the Respondent failed to appreciate the provisions of Section 35(5) of the Income Tax Act CAP 470 that places a burden on the withholding agents to remit the taxes collected and provide a return in writing to the Commissioner before the twentieth of the subsequent month in which the deduction was made. This implies that the Respondent should have already possessed evidence of payment from its withholding agents.iv.That the Respondent's failure, delay and or refusal to capture, recognise or accept the Appellant's manual Withholding Tax certificates amounting to Kshs. 7,534,316. 00 constitutes a breach of the Appellant's right to fair administrative action as enshrined under Article 47 of the Constitution of Kenya. The prolonged delay in addressing the Appellant's claim is not only illegal but also unjust, marked by an excessively unreasonable duration.

Appellant’s Case 10. The Appellant’s case is premised on the following documents:i.The Appellant’s Statement of Facts dated 2nd June 2022 and filed on 3rd June 2022 together with the documents attached thereto and proceedings before the Tribunal.ii.The Appellant’ written submissions dated 28th May, 2024 and filed on 27th May, 2024.

11. That the dispute at hand originated with the transition from the Legacy System to the iTax system. That prior to the introduction of iTax, taxpayers were issued with manual Withholding Tax certificates by withholding tax agents as evidence of taxes withheld.

12. That on 1st August, 2015 the Kenya Revenue Authority (KRA) released a Public Notice, directing the adoption of the iTax platform for all income tax returns. That notably, the iTax system did not include features allowing taxpayers to input tax credits arising from the manual Withholding Tax certificates. That this absence proved significant, particularly in cases of overpayment, as there was no mechanism to offset it against the amount owed for the respective year.

13. That as stated above the Appellant is a building and construction contractors’ company. That it is primarily involved in the construction of high-rise buildings, cluster of villas, commercial and residential complexes, processing industries, parks, leisure facilities, port facilities and multi-storeyed car parks etc.

14. That the crux of the matter lies in the Respondent 's failure to capture and credit the Appellant 's manually withheld tax credits for the year 2016. That the Withholding tax was deducted by the commercial banks on payment of interest to the Appellant as required under Section 35 of the Income Tax Act. That according to the Appellant, this omission is not only unfair but is also unlawful and indicative of unreasonable delay in the process.

15. According to the Appellant, below is a concise overview of the events that unfolded in the present case:i.In its tax return for the year 2016, the Appellant identified tax credits resulting from overpayment on the manual Withholding tax certificates.ii.To accurately represent its tax position, the Appellant claimed the manual tax credits under line 13. 4 on the iTax portal return, specifically relating to Section 42 of credits in the Income tax return for the 2016 fiscal year. This was because it was the only option available at the time for claiming tax credits.iii.The Respondent had not provided any space in the return for claiming Withholding tax credits arising from the manual Withholding tax certificates.iv.The Appellant claimed Kshs. 24,434,116. 00 in line 13. 4 of the return for 2016. This amount comprised Kshs. 16,860,800. 00 which was credits brought forward from earlier years and Kshs 7,534,316. 00 which was from the manual Withholding tax certificates for the year 2016. v.That the Respondent disallowed the total credit claimed of Kshs. 24,434,116. 00 and on objection, the assessment was confirmed vide its letter dated 3rd January, 2022 for the reason that line 13. 4 of the return was only for credits relating to double taxation and not the credits the Appellant had claimed. That the letter in its 4th last paragraph advised the Appellant to consult with the Section 42 Credit Validation project team to validate the credits that are rightfully due to it.vi.The Appellant then wrote to the said Section 42 Credit Validation project team on 2nd February, 2022 and provided them with the original WHT certificates for credits amounting to Kshs. 7,534,316. 00 and requested the Respondent to accord it the credit as required for the year 2016. vii.The Appellant followed up with the Respondent with telephone calls, physical visits to the Respondent’s offices. email correspondences and letters but had not received any progress or commitment, by the time it filed this Appeal, from the Respondent on when the credits amounting to Kshs. 7,534,316. 00 will be credited in the Appellant’s ledger for the year of income 2016.

16. That despite the Appellant having submitted the original Withholding tax certificates obtained in accordance with the applicable law at the time, the Respondent has failed to record and capture the corresponding amount in the iTax system.

17. The Appellant submitted that it is crucial to emphasize that the Appellant operates as a Building & General Contractors Construction company, and the Withholding tax was deducted by commercial banks and remitted to the Respondent. That therefore, it is unreasonable for the Respondent to decline crediting the Appellant’s ledgers without providing the reasons for the refusal or decline contrary to Section 4(3) of the Fair Administrative Action Act.

18. That Section 4(3) of the Fair Administrative Action Act provides that:“Where an action is likely to adversely affect the rights or fundamental freedoms of any person, the administrator shall give the person affected by the decision-a.prior and adequate notice of the nature and reasons for the proposed administrative action;b.an opportunity to be heard and to make representations in that regard;c.notice of a right to a review or internal appeal against an administrative decision, where applicable;d.a statement of reasons pursuant to section 6;e.notice of the right to legal representation, where applicable;f.notice of the right to cross-examine or where applicable; or (8) information, materials and evidence to be relied upon in making the decision or taking the administrative action.”

19. That in the same breath, it is also essential to highlight that the Respondent is well aware, or should be aware of the stipulations outlined in Section 35(5) of the Income Tax Act. That this Section places an obligation on withholding agents to remit the collected taxes and furnish a written return to the Commissioner before the twentieth of the subsequent month in which the deduction occurred.

20. The Appellant stated that it finds the situation perplexing, as the tax credits were manually withheld in 2016, as per the stipulations of Section 35(5)(a) of the Income Tax Act were intended for remittance to the Respondent. That it is therefore unreasonable for the Respondent to be provided with evidence of the tax deducted, only to subsequently, without any justification and contrary to the law, deny the Appellant access to the tax credits.

21. The Appellant averred that it should be recognized that the burden on the Appellant was straightforward. That in an ideal scenario, once the Appellant obtains the withholding certificates from the Respondent's withholding tax agents and submits them under Section 42, its role is essentially completed (“functus officio”). That the responsibility is then transferred to the Respondent, who is expected to verify the claims and credit the Appellant 's ledger in a reasonable and efficient manner.

22. That the Appellant is indeed not oblivious of the fact that while there was no specific provision in the iTax portal for filing manual credits, it was held by this very Tribunal in the case of PricewaterhouseCoopers Limited v Commissioner Legal Services and Board Coordination TAT Appeal No. 576 of 2021 as follows:“That manual tax credits claimed under section 42 of the Income Tax Act Return can be lodged under Section 42 of the Income Tax Act. Accordingly, the Appellant is not seeking to reinvent the wheel herein but is merely relying on laid down customs and usages.”

23. The Appellant asserted that the Respondent's denial to credit the full claimed amount is unjust, illegal, and an unreasonable delay. That particularly noteworthy is the fact that these claims were submitted as far back as 2021.

24. That being aggrieved by the Respondent 's unfair administrative action arising from its failure, unreasonable delay and lack of commitment to capture and credit the manually withheld amount of Kshs. 7,354,316. 00 as requested vide the Appellant’s letter dated 2nd February 2022, the Appellant lodged an Appeal before this Honorable Tribunal.

25. That below are the issues for this Honorable Tribunal's determination.i.Whether the Appellant's Appeal has been filed contrary to the proviso of Section 13(1)(b) and Section 13 (3) of the Tax Appeals Tribunal Act.ii.Whether the Respondent's actions breached the Appellant's right to Fair Administrative Action.

26. That in regard to Section 13(1)(b) and Section 13(3) of the Tax Appeals Tribunal Act, the Respondent in its Statement of Facts dated 15th January, 2024 raised a preliminary objection to the Appellant’s Appeal on the grounds that the Appeal was filed contrary to the provisions of Section 13(1)(b) and Section 13(3) of the Tax Appeals Tribunal Act.

27. That this is despite the fact that the Appellant’s Notice of Appeal filed on 20th December, 2023 clearly indicated that the Appellant was dissatisfied with the Respondent's refusal to capture its manual Withholding Tax (WHT) certificates and accord the tax credits as required.

28. That Section 13(1) and 13(3) of the Tax Appeals Tribunal Act provides that:“13. Procedure for appeal(1)A notice of appeal to the Tribunal shall-(a)be in writing;(b)be submitted to the Tribunal within thirty days upon receipt of the decision of the Commissioner.(2)The appellant shall, within fourteen days from the date of filing the notice of appeal, submit enough copies, as may be advised by the Tribunal, of-(a)a memorandum of appeal;(b)statements of facts; and(c)the tax decision.(3)The Tribunal may, upon application in writing, extend the time for filing the notice of appeal and for submitting the documents referred to in subsection(2),(4)An extension under subsection (3) may be granted owing to absence from Kenya, or sickness, or other reasonable cause that may have prevented the applicant from filing the notice of appeal or submitting the documents within the specified period.”

29. That based on the Respondent’s interpretation of the above provisions, it claimed in its Statement of Facts that the Appellant filed its Appeal out of time. That to support this position, the Respondent noted that the Notice of Appeal was filed on 20th December, 2023, which was 1 year and 11 months after the decision was made on 3rd January, 2022.

30. That the Respondent further averred that the Appellant did not seek leave before filing its Appeal and therefore there is no valid appeal before the Tribunal.

31. The Appellant averred that it acknowledges the Respondent's position and wishes to clarify that the Notice of Appeal lodged on 20th December, 2023 did not contest the Respondent's letter dated 3rd January 2022. That instead, the Appellant's Appeal was initiated due to dissatisfaction with the Respondent's failure to capture and credit manual Withholding Tax Certificates totalling Kshs. 7,534,316. 00 on iTax.

32. The Appellant highlighted that the letter dated 3rd January, 2022, which the Respondent used to argue that the Appellant’s Appeal is untimely, explicitly stated in its conclusion as follows:“Please note that this is a response under Section 51(4) of the Tax Procedures Act and not an objection decision under Section 51(9) of the Tax Procedures Act.”

33. That for the sake of clarity, Section 51(4) of the Tax Procedures Act (TPA), as it stood at the time the letter was issued in January 2022, stipulated as follows:“Where the Commissioner has determined that a notice of objection lodged by a taxpayer has not been validly lodged, the Commissioner shall immediately notify the taxpayer in writing that the objection has not been validly lodged.”

34. That conversely, Section 51(9) of the TPA, as it stood at the time the letter was issued in January 2022, stipulated as follows:“The Commissioner shall notify in writing the taxpayer of the objection decision and shall take all necessary steps to give effect to the decision, including, in the case of an objection to an assessment, making an amended assessment.”

35. That based on the above provisions of the law, it is clear that Section 51(4) addresses invalid objections, while Section 51(9) pertains to objection decisions.

36. That the Respondent, based on the wording of the letter, clearly intended for its response to fall within the purview of Section 51(4) of the TPA. That given this context, the Tribunal shall agree with the Appellant that the Respondent cannot now assert that the letter was an objection decision and further claim that the Appellant’s Appeal was in violation of Section 13(1)(b) of the Tax Appeals Tribunal Act.

37. That while the Appellant acknowledged that Section 13(1)(b) of the Tax Appeals Tribunal Act mandates that a Notice of Appeal must be submitted to the Tribunal within thirty (30) days of receiving the Commissioner’s decision, it is important to note two things: first, as stated previously, the Commissioner's letter issued on 3rd January, 2022, was not an objection decision under Section 51(9), and second, that the Appellant did not base its Appeal on the said letter. That instead, the Appeal was filed on the basis of Section 12 of the Tax Appeals Tribunal Act, on the grounds that the Respondent refused to capture its manual Withholding Tax (WHT) certificates and accord the tax credits as required.

38. The Appellant further submitted that, when considering the issue of appeals to the Tribunal under the Tax Appeals Tribunal Act, Section 13 cannot be read in isolation. That one must also consider the preceding Section 12, which outlines the basis for appeals to the Tribunal to include any matter arising under any tax law and is not limited to objection decisions by the Commissioner.

39. That Section 12 clearly states that any person who disputes the Commissioner's decision on any matter under any tax law may appeal to the Tribunal by giving notice to the Commissioner. That Section 12 is recapped below:“Part iii - Appeals To The TribunalAppeals to the TribunalA person who disputes the decision of the Commissioner on any matter arising tax law, upon giving notice In writing to the Commissioner, appeal to the Tribunal,Provided that such person shall before appealing, pay a non-refundable fee of twenty thousand shillings.”

40. That it is clear from the provisions of Section 12 of the Tax Appeals Tribunal Act that taxpayers are not limited to appealing only against a Commissioner's objection decision but are also entitled to appeal on any other matter arising from tax law. That in this particular case, the issue in question was the Respondent's refusal and failure to capture and credit manual Withholding tax Certificates totalling Kshs. 7,534,316. 00 on iTax.

41. That it is therefore clear that Section 13 of the Tax Appeals Tribunal Act does not apply to the Appellant's Notice of Appeal. That this conclusion is based on subsection 1(b), which explicitly states that only appeals concerning the Commissioner's objection decision are subject to statutory time limits. That consequently, it is the Appellant’s understanding that any other decision within the scope of Section 12 is not constrained by statutory timelines.

42. That it is therefore the Appellant's contention that the Respondent misinterpreted the provisions of Section 51(4) and 51(9) of the Tax Procedures Act and Section 13 of the Tax Appeals Tribunal Act in determining that the Appellant's Appeal was filed out of time.

43. That given the above, the Appellant submitted that it is crucial for the Respondent to restrict itself to the clear words of a statute. That this reasoning was adopted in Keroche Industries Limited vs. Kenya Revenue Authority & 5 Others [20071 2 KLR 240 as follows:“Taxation can only be done on clear words and cannot be on intendment. Linked to this is that a penalty must be imposed in clear words. Even where there are two of mere possible meanings, the inclination of the court should be against a construction or interpretation which imposes a burden, tax or duty on the subject...”

44. That it was further held in Cape Brandy Syndicate vs. Inland Revenue Commissioner [1921]1 KB 64 as follows:“In a taxing Act one has to look merely at what is clearly stated. There is no room for any intendment. There is no equity about tax. There is no presumption as to tax. Nothing is to be read in, nothing is to be implied. One can only look fairly at the language used.”

45. That based on the foregoing, the Appellant submitted that its Appeal, did not violate the provisions outlined in Section 13(1)(b) and 13(3) of the Tax Appeals Tribunal Act on the basis that:i.The Respondent's letter dated 3rd January, 2022 was not an objection decision under Section51(9) of the TPA but rather a response under Section 51(4) of the TPA, as clearly stated in the conclusion section of the said letter.ii.The Respondent's letter by virtue of being issued under Section 51(4) of the TPA did not constitute an objection decision under the law.iii.The Respondent's claim that the Appellant's Appeal was based on the letter dated 3rd January, 2022 is flawed as the Appellant's Appeal centers on the Respondent's failure to capture and credit the manual Withholding Tax Certificates and not the letter.iv.The Appellant's Appeal has been filed before this Honorable Tribunal on the basis of Section 12 of the Tax Appeals Tribunal Act, not Section 13 of the Tax Appeals Tribunal Act, and is therefore not subject to the 30-day timeline stipulated therein.

46. The Appellant submitted that in regard to fair administrative action, the Constitution of Kenya, 2010 provides in Article 47 as follows:“Every person has the right to administrative action that is expeditious, efficient, lawful, reasonable and procedurally fair”.

47. That under the aforementioned Article, the Constitution of Kenya grants individuals the right to administrative action that is expeditious, lawful, reasonable, and procedurally fair. That subsequently, the Fair Administrative Action Act reaffirms and underscores these principles while also introducing additional entitlements for citizens.

Appellant’s Prayers 48. The Appellant prayed that the Tribunal grants the following prayers:i.That this Appeal be allowed with costs.ii.That this Honorable Tribunal issues a decision mandating the Respondent to record and capture the Withholding tax credits totalling Kshs. 7,534,316. 00, in the iTax system, in favour of the Appellant, for the year 2016. iii.That the Tribunal grant such other orders as it may deem fit.

Respondent’s Case 49. The Respondent’s case is premised on the hereunder filed documents and proceedings before the Tribunal:-i.The Respondent’s Preliminary Objection dated and filed on 15th January, 2024. ii.The Respondent’s Statement of Facts dated and filed on 15th January, 2024 together with the documents attached thereto.iii.The Respondent’s written submissions dated 21st May, 2024 and filed on 28th May, 2024 together with the legal authorities filed therewith.

50. The Respondent in its Preliminary Objection stated that the Appeal herein was filed contrary to the proviso of Section 13(1)(b) and Section (13)(3) of the Tax Appeals Tribunal Act.

51. In its Statement of Facts, the Respondent submitted that it issued additional assessments amounting to Kshs. 24,434,116. 00 for the year 2016. That the basis of the assessments was disallowed tax credits claimed in the Income tax for Company return for the year 2016 under Section 42 of the Income Tax Act.

52. That on 15th December, 2021, the Appellant objected to the additional assessment. That thereafter, on 3rd January, 2022 an objection response was issued to the Appellant advising it to consult with the Section 42 Credit Validation team.

53. The Respondent averred that the Appellant filed its Appeal out of time. That the Notice of Appeal was filed on 20th December, 2023 which was 1 year 11 months since the decision was made on 3rd January, 2022.

54. That the Respondent relied on Section 13(3) of the Tax Appeals Tribunal Act that states as follows:“The Tribunal may, upon application in writing or through electronic means, extend the time for filing the notice of appeal and for submitting the documents referred to in subsection (2).”

55. The Respondent averred that the Appellant did not seek leave before filing this Appeal before the Tribunal and therefore there is no valid appeal before the Tribunal. That the Appeal is therefore incompetent and bad in law for failure to comply with the mandatory statutory timelines and provisions.

56. That the Respondent relied on the following relevant provisions of statute for its defence:-i.Section 42 of the Income Tax Act;ii.Section 47 of the Tax Procedures Act.

57. That Section 42 of the Income Tax Act, Cap. 470 exclusively deals with offering relief against double taxation in the event of any foreign liabilities. That the Section states as follows:“4(1)This section shall have effect where, under a special arrangement, foreign tax payable in respect of income derived by a person resident in Kenya is to be allowed as a credit against tax chargeable in respect of that income.”

58. The Respondent averred that it established that the amounts declared in Section 42 filed under row 13. 4 of the tax return were in fact not credits resulting from foreign tax payments and as such the Appellant could not be allowed to claim.

59. The Respondent further averred that the only tax credits that can be claimed under the said head must be in relation to special agreements and as such the Appellant did not qualify for tax credits under Section 42.

60. The Respondent argued that refunds unrelated to special arrangements are to be claimed under Section 47 of the Tax Procedure Act which is the proper channel for the Appellant to claim the said refunds.

61. That Section 47 of the Tax Procedure Act 2015 states as follows:-“1)Where a taxpayer has overpaid a tax under any tax law, the taxpayer may apply to the Commissioner, in the prescribed form-(a)to offset the overpaid tax against the taxpayer's future tax liabilities; or(b)for a refund of the overpaid tax within five years, or six months in the case of value added tax, after the date on which the tax was overpaid.”

62. That the lodging of the claim by the Appellant under Section 42 was incorrect and misguided as the claim was not that which was envisaged under Section 42 of the Income Tax Act.

63. The Respondent stated that it disallowed utilization of tax overpayments from prior periods as they were filed in the wrong section and would therefore be misleading. That there was no legitimate expectation created by the system as iTax clearly states that Section 42 was meant for foreign tax credits and arrangements.

64. The Respondent further stated that the Appellant's constitutional right to fair administration action was not violated as the Objection Decision confirmed the assessment and also advised the Appellant to consult with Section 42 Credit Validation Project team at the Large Taxpayers’ Office (LTO) for reconciliation purposes and ledger clean up.

65. That it was clear from the Respondent's objection decision that the process was not meant to deny the Appellant the tax credits, but meant to confirm existence of the tax credit and to update the ledger as required.

66. That the Respondent engaged the Appellant in all steps of the process and communicated the findings with reasons thereof while inviting the Appellant for its comments and feedback.

67. The Respondent contended that the Appellant has not proved unfairness or any capricious acts of the Respondent. That the Respondent acted within the law in the execution of its mandate under tax law. That there is no evidence that the Respondent abused its powers or discretion or that the decision arrived at is so absurd that it lacks logic.

68. The Respondent maintained that the Appellant was misguided in lodging this Appeal. That in conclusion, it averred that the allegations of the Appellant as laid out in its Memorandum of Appeal and Statement of Facts unless where in disagreement by the Respondent are unfounded in law and not supported by evidence.

69. The Respondent made reference to page seven and eight of its letter dated 3rd January, 2022 which stated as follows:“...the lodgement of the tax claims via Section 42 of the Income Tax Act is incorrect as the claim is not what is envisaged under Section 42. ..…“we do acknowledge that the issue at hand requires reconciliation and capturing of the disallowed credits...…“For purposes of paving way for the reconciliation of your ledger, you are hereby advised to consult with your Tax Service Office - Large Taxpayers' Office at Ushuru Pension Plaza - Westlands. Kindly provide the team with all the requisite documents to facilitate the capturing of all credits in your i-Tax ledger.”

70. That the Respondent's decision as in the letter was not meant to deny the Appellant its credits. That the Respondent rightfully communicated to the Appellant that it could not claim the credits under Section 42 of the Income Tax Act as this Section is specific with regard to credits available to taxpayers.

71. That in Gibb Africa Limited v Kenya Revenue Authority [2017] eKLR the court observed that:“It is settled law that Public bodies, no matter how well-intentioned, may only do what the law empowers them to do. That is the essence of the principle of legality, the bedrock of the constitutional dispensation enshrined in the constitution.”

72. That the court in the case of Republic vs Kenya Revenue Authority & Another Ex-parte Fontana Limited [2014] eKLR relying on the case Cape Brandy Syndicate vs. Inland Revenue Commissions (1921) 1 KB 64 stated as follows:“In a taxing Act one has to look at what is clearly said. There is no room for any intendment. There is no equity about a tax. There is no presumption as to a fax. Nothing is to be read in, nothing is to be implied. One can only look fairly at the language used.”

73. That Section 47 of the Tax Procedure Act 2015 states as follows:“Refund of overpaid tax(1)When a taxpayer has overpaid a tax under a tax law the taxpayer may apply to the Commissioner, in the approved form, for a refund of the overpaid tax within five years of the date on which the tax was paid. Provided that for value added tax the period of refund shall be as provided for under the Value Added Tax Act, 2013 (No. 35 of 2013).(2)The Commissioner may, for purposes of ascertaining the validity of the refund claimed, subject the claim to an audit.(3)The Commissioner shall notify in writing an applicant under subsection (1) of the decision in relation to the application within ninety days of receiving the application for a refund.(4)Where, in relation to an application for a refund made under this section or made under any other tax law, the Commissioner is satisfied that a taxpayer has overpaid a tax, the Commissioner shall apply the overpayment In the following order-(a)in payment of any other fax owing by the taxpayer under the tax law;(b)in payment of a tax owing by the taxpayer under any other tax law; and(c)any remainder shall be refunded to the taxpayer.(5)The Commissioner shall repay the overpaid tax within a period of two years from the date of application, failure to which the amount due shall attract an interest of 1% per month or part thereof of such unpaid amount after the period of two years.”

74. That the Appellant ought to have followed the correct procedure in law to claim tax overpayment refunds legally owed to it by the Respondent in place of seeking to invoke the powers of this Honourable Tribunal to get orders based on an illegality and relying on the wrong provision of the law.

75. That upon migration to iTax, the system itself lacked a field for a taxpayer to claim prior year overpayments resulting from excess instalment tax and WHT credits that were well within the records and accounted for with the Respondent’s books.

76. That the Appellant elected to have credits under Section 42 of the Income Tax Act vide the iTax Income tax return template save for the fact that part of these overpaid taxes comprised local taxes, that is procedurally fatal to its claim. That it formed basis for rejection of the Appellant’s Objection Notice dated 15th December, 2021 by the Respondent herein.

77. The Respondent contended that it cannot then be faulted for want of compliance with the law in carrying out its mandate nor can it be faulted for running a defective iTax Income tax return template. That this is because the shortfall has been verily covered by Section 47 of the Tax Procedure Act, 2015, for which the Appellant should have sought precedence of before filing this Appeal.

78. That it is worth to note that the Respondent has been faced with issues in dispute as in the instant Appeal and the Respondent has successfully engaged the taxpayers and resolved their applications but under the correct Section of the law.

79. In regard to legitimate expectation, the Respondent submitted that the Appellant stated that a legitimate expectation was established when the Respondent recommended a reconciliation exercise vide its letter dated 3rd January, 2022.

80. The Respondent submitted that legitimate expectation cannot be created on instances where a taxpayer's actions are in breach of a clear provision of the law. That in the Supreme Court of Kenya case of Communications Commission of Kenya & 5 others v Royal Media Services Limited & 5 others [2014] eKLR the learned justices while discussing the principle of legitimate expectation had the following to say at Paragraphs 268 and 269 of their judgement:“(268)An illuminating consideration of the concept of "legitimate expectation" is found in the South African case, South African Veterinary Council v. Szymanski 2003(4) S.A. 42 (SCA) at [paragraph 28]: the Court held as follows:"The law does not protect every expectation but only those which are 'legitimate'. The requirements for legitimacy of the expectation include the following:i.The representation underlying the expectation must be 'clear, unambiguous and devoid of relevant qualification': De Smith, Woolf and Jowell (op cit [Judicial Review of Administrative Action 5th ed] at 425 para 8-055). The requirement is a sensible one. If accords with the principle of fairness in public administration, fairness both to the administration and the subject. It protects public officials against the risk that their unwitting ambiguous statements may create legitimate expectations. It is also not unfair to those who choose to rely on such statements. It is always open to them to seek clarification before they do so, failing which they act at their peril.ii.The expectation must be reasonable: Administrator, Transvaal v. Traub (supra [1989 (4) SA731 (A)] at 7561 - 757B); De Smith, Woolf and Jowell (supra at 417 para 8-037).iii.The representation must have been induced by the decision-maker: De Smith, Woolf and Jowell (op cit at 422 para 8-050);Attorney-General of Hong Kong v. Ng Yuen Shiu [1983] 2 All ER 346(PC) at 350h-j.iv.The representation must be one which it was competent and lawful for the decision-maker to make without which the reliance cannot be legitimate: Hauptfleisch v. Caledon Divisional Council 1963 (4) SA 53 (C) at 59E - G.”

81. That this was also referred to with approval in Walele v. City of Cape Town and Others; 2008 (6) S.A 129(C.C.) h 41 as follows:“The emerging principles may be succinctly set out as follows:a.there must be an express, clear and unambiguous promise given by a public authority;b.the expectation itself must be reasonable;c.the representation must be one which it was competent and lawful for the decision-maker to make; andd.There cannot be a legitimate expectation against clear provisions of the law or the Constitution.”

82. That in Paragraph 301 of the Communications Commission of Kenya Case, the learned Justices of the Supreme Court while disagreeing with the majority decision of the Court of Appeal and upholding the minority decision held as follows:“In this context, it is clear that the Court of Appeal's order, that the 1st,2nd and 3rd respondents be granted a BSD licence without undergoing the procurement process, lacks a foundation in law. There cannot be a legitimate expectation for a grant of a licence by the 1st appellant without adherence to statutory or constitutional provisions. It has been held in several persuasive authorities, R. v. Devon County Council, ex parte Baker & Another[1995] 1 All. E.R. 73; R. v. Durham County Council, ex parte Curtis & Another [1992] 158 LG Rev R 241 (CA) and R. v. DPP ex p. Kebilene [1993] 3. WLR972, that no legitimate expectation can override clear statutory provisions. The Appellate Court's decision, thus, stood in contradiction to Article 227 of the Constitution, and Section 27(1) of the Public Procurement and Disposal Act. With due respect, there was no lawful basis for the orders that the 1st, 2nd and 3rd respondents be granted a BSD licence as a matter of right.”

83. That The Appellant cannot compel the Respondent to perform a duty that it does not have the power in the law to act upon. That the Respondent cannot issue a decision allowing credits which are not allowable under Section 42 of the Income Tax Act.

84. That in Republic v Kenya Revenue Authority ex-parte L. A. B International Kenya Limited [2011] eKLR the court stated that the Commissioner cannot impose responsibility with motives outside statute. That in this regard, the Respondent's hands are tied to abiding with the provision of Section 17(2) where the allowable claim time frame is six months to which the Appellant did not adhere to thus the claim was validly disallowed since there is no provision in law that allows the extension of time to claim input VAT. That had the Appellant complied with the time limit then the claim would have been considered

Respondent’s Prayers 85. The Respondent prayed that this Honorable Tribunal do:i.Dismiss the Appeal as it lacks merit;ii.Uphold the Respondent's letter dated 3rd January, 2022;iii.Award the Respondent the costs of the Appeal.

Issues For Determination 86. The Tribunal upon due consideration of the pleadings and the written submissions of the parties is of the considered view that the Appeal raises the following issues for its determination:a.Whether the Appeal is validb.Whether the assessments by the Respondent were justified

Analysis And Determination 87. The Tribunal having established the issues falling for its determination proceeds to analyse the same as hereunder.

a.Whether the Appeal is valid 88. The dispute at hand originated with the transition from the Legacy System to the iTax system of various withholding tax balances by the Respondent. Prior to the transition, taxpayers were issued with manual Withholding tax certificates by withholding tax agents as evidence of taxes withheld.

89. The Respondent raised a Preliminary Objection on the matter stating that the Appellant’s Appeal dated 20th December, 2023 is invalid.

90. The Tribunal notes that the Appellant in its Notice of Appeal stated as follows regarding the decision it was appealing to the Tribunal:“...being dissatisfied with the Respondent's refusal to capture the manual Withholding Tax (WHT) certificates and accord the tax credits as required, intends to appeal to the Tribunal against the whole of the said decision.”

91. Sections 13(1) and (2) of the Tax Appeals Tribunal Act provide as follows regarding the procedure for appeal to the Tribunal:“(1)A notice of appeal to the Tribunal shall—(a)be in writing or through electronic means;(b)be submitted to the Tribunal within thirty days upon receipt of the decision of the Commissioner.(2)The appellant shall, within fourteen days from the date of filing the notice of appeal, submit enough copies, as may be advised by the Tribunal, of—(a)a memorandum of appeal;(b)statements of facts; and(c)the appealable decision; and(d)such other documents as may be necessary to enable the Tribunal to make a decision on the appeal.”

92. The Tribunal notes that while the Appellant expressly stated in its Notice of Appeal that it was dissatisfied with the Respondent's refusal to capture the manual Withholding Tax (WHT) certificates and accord the tax credits as required, and that it intended to appeal to the Tribunal against the whole of the said decision; it did not attach a specific decision that would essentially form the appealable decision to the Tribunal.

93. Further, it made reference to various correspondences with the Respondent on the issue in dispute and attached to its pleadings various emails ranging from 6th January, 2022 to 7th November, 2023.

94. In its email of 7th November, 2023, the Appellant sought to get confirmation from the Respondent on the following;i.The withholding tax credits already confirmed from the withholders to be credited in the company ledger account.ii.The way forward or the Respondent’s final decision on the balance of withholding tax not included in (i) above.

95. The Tribunal notes that both the letter dated 3rd January, 2023 and the various emails between the parties did not provide a decision by the Respondent on the issue of the disputed credits. The correspondences between the parties consisted of a letter by the Respondent advising the Appellant to follow up its credit reconciliations with a Credit Validation team within the Respondent’s organisation and a number of follow up emails by the Appellant on the progress made by the Respondent in the review of the credits respectively.

96. Section 3 of the Tax Procedures Act defines a tax decision as follows:“tax decision” means—(a)an assessment;(b)a determination under section 17(2) of the amount of tax payable or that will become payable by a taxpayer;(c)a determination of the amount that a tax representative, appointed person, director or controlling member is liable for under sections 15, 17, and 18;(d)a decision on an application by a self-assessment taxpayer under section 31(2);(e)a refund decision;(f)a decision under section 48 requiring repayment of a refund; or(g)a demand for a penalty;”

97. Further, Section 2 of the Tax Appeals Tribunal Act defines an appeal as follows:““appeal” means an appeal to the Tribunal against a decision of the Commissioner under any of the tax laws;”

98. The Tribunal posits that while the Appellant objected to the iTax decisions vide its letter dated 15th December 2022, the Respondent did not issue an objection decision. It instead responded to the objection by advising the Appellant to consult the Credit Validation team within the Respondent’s organisation.

99. The Tribunal, while acknowledging the reconciliation process of the Respondent on the issue of Section 42 credits, also recognises the Appellant’s dilemma in relation to the lack of a conclusive decision by the Respondent in relation to the Appellant’s credits. The Tribunal, however, reiterates the fact that the Respondent did not issue an objection decision in which case the Appeal herein is not based on any tax decision as per Section 3 of the Tax Procedures Act and contrary to Section 2 of the Tax Appeals Tribunal Act.

100. As a result of the foregoing, the Tribunal finds that the instant Appeal is invalid.

b.Whether the assessments by the Respondent were justified 101. The Tribunal having entered the finding in the foregoing paragraph, will not delve into the other issues for its determination as it has been rendered moot.

Final Decision 102. In view of the foregoing analysis, the Tribunal finds that the Appeal is incompetent and unsustainable in law and accordingly makes the following Orders:a.The Appeal be and is hereby struck out.b.Each Party to bear its own costs.

103. It is so ordered.

DATED AND DELIVERED AT NAIROBI THIS 6TH DAY OF SEPTEMBER, 2024ERIC NYONGESA WAFULA - CHAIRMANCYNTHIA B. MAYAKA - MEMBERDR. RODNEY O. OLUOCH - MEMBERGLORIA A. OGAGA - MEMBERABRAHAM K. KIPROTICH - MEMBER