[2023] KETAT 243 (KLR)

Ogango v Commissioner of Domestic Taxes (Miscellaneous Application 133 of 2023) [2023] KETAT 243 (KLR) (Commercial and Tax) (31 March 2023) (Ruling)

Neutral citation: [2023] KETAT 243 (KLR)

Republic of Kenya

In the Tax Appeal Tribunal

Commercial and Tax

Miscellaneous Application 133 of 2023

E.N Wafula, Chair, AK Kiprotich, Cynthia B. Mayaka, RO Oluoch & EN Njeru, Members

March 31, 2023

Between

Kennedy Omolo Ogango

Applicant

and

Commissioner of Domestic Taxes

Respondent

Ruling

Background 1. The applicant vide a notice of motion dated the February 9, 2023 and filed on the same date and supported by an affidavit sworn by the applicant on the even date, sought for the following orders:-i.That the tribunal be pleased to grant leave to the applicant to file and/or lodge the objection out of time.ii.That the notice of objection filed herein be deemed to be properly filed.iii.That the cost of the application be in the cause.

2. The application which is supported by an affidavit sworn by the applicant himself on the February 9, 2023 is premised on the following facts and grounds;-a.That on the October 7, 2020 and August 1, 2022 the respondent issued the appellant with agency notices against his bank accounts.b.That upon receipt of the agency notice dated October 7, 2020 the appellant requested the respondent for submission, analysis, reconciliation and data correction on his monthly rental income tax account which letter was duly acknowledged.c.That further on October 22, 2020, the appellant wrote to the respondent advising on PRN No 2xxxxxx8 dated October 22, 2020 which was duly acknowledged.d.That on 23rd October, the respondent acknowledged payment for all tax liabilities thereat and subsequently suspended agency notice of October 7, 2020. e.That on June 24, 2022 the respondent issued a final demand notice No 1xxxxx1 for Kshs 129,149. 88 against the applicant’s monthly rental income tax.f.That upon receipt of the final demand notice, the applicant communicated in writing to the respondent objecting to the details of the final demand notice dated June 24, 2022 which was duly acknowledged.g.That on August 1, 2022, the respondent issued agency notice number An/Arvr/035/08/2022 issued to his banks.h.That at no time did the respondent serve the agency notice to the appellant either in person or through the official email address as indicated in his official KRA pin registration certificate.i.That the appellant came to know of the agency notice when the respondent appointed his bankers (Credit Bank Limited) (personal) as their agents to collect the assessed amount and remit the same.j.That by the time the decision was reached and/or came to his attention the statutory period within which to appeal had already lapsed.k.That the appellant engaged the respondent and requested to know why they still wanted to recover the assessed amounts even after the appellant writing to them requesting for submission, analysis, reconciliation and data correction on his monthly rental income tax ledger account and furnishing them with all the necessary documents to support his request for analysis, reconciliation and data correction.l.That the appellant has now prepared all the required documents including notice of appeal, memorandum of appeal and statement of facts as is required. That however, he could not lodge the same as the prescribed time allowed to do so had lapsed.m.That for the appeal to be filed or lodged, the appellant needs leave of the tribunal to do so hence the filing of this application.

3. The respondent opposed the application through its grounds of opposition dated and filed on February 23, 2023 stating as follows:-i.That the application relates to a demand notice dated June 24, 2022 and subsequent agency notices issued on August 1, 2022. ii.That the application and intended appeal is premature as the applicant has not exhausted the respondent’s appeal procedures pursuant to the provisions of section 51 of the Tax Procedures Act, 2015. iii.That in view of (ii) above the tribunal lacks jurisdiction to grant the orders sought as enshrined under section 52 (1) of the Tax Procedures Act, 2015. iv.That consequently, the application dated February 9, 2023 is ripe for striking out.v.That in the alternative to the above, the applicant has not given a reasonable cause for the delay in filing the appeal pursuant to the provisions of section 13(4) of the Tax Appeals Tribunal (Procedure) Rules, 2015. vi.That no sufficient reason has been given by the applicant to warrant exercise of the tribunal’s discretion to grant the orders sought.

Analysis and Findings 4. Before diving into the analysis and determination of the orders sought some undisputed facts relating to this application are as follows;a.The applicant was issued with an agency notice on October 7, 2020. b.The applicant vide a letter dated October 15, 2020 and received by the respondent on October 16, 2020 requested for submission and analysis of outstanding debit balance on his account.c.The applicant wrote to the respondent and made payment of taxes due on October 22, 2020d.The agency notice was lifted by the respondent vide a letter dated October 23, 2020 after the taxpayer made payment of the taxes due.e.The applicant was subsequently served with a final demand notice for tax outstanding amounting to Kshs 129,149. 88 on June 24, 2022. f.The applicant objected to the demand notice vide a letter dated July 5, 2022 and received by the respondent on the same date.g.The respondent issued an agency notice to the applicant’s bank (Credit Bank Limited) on August 1, 2022. h.The applicant wrote to the respondent vide a letter dated January 23, 2023 and received on the same date requesting for suspension of the agency notice.

5. The genesis of the dispute before the tribunal is the respondent’s final demand notice of June 24, 2022 and the subsequent agency notice dated August 1, 2022.

6. The applicant stated that on June 24, 2022 the respondent issued a final demand notice No 1xxxxxx1 for Kshs 129,149. 88 against the applicant’s monthly rental income tax. That upon receipt of the final demand notice, he communicated in writing to the respondent objecting to the details of the final demand notice dated June 24, 2022 which was duly acknowledged. That further, on August 1, 2022, the respondent issued an agency notice.

7. On the other hand, the respondent in its grounds of opposition stated that the intended appeal is premature as the applicant had not exhausted the respondent’s appeal procedures pursuant to the provisions of section 51 of the Tax Procedures Act, 2015. That in view of this, the tribunal lacks jurisdiction to grant the orders sought as enshrined under section 52 (1) of the Tax Procedures Act, 2015.

8. Section 42 of the Tax Procedures Act provides as follows regarding power to collect tax from person owing money to a taxpayer;“This section applies when a taxpayer is, or will become liable to pay a tax and—(a)the tax is unpaid tax; or(b)the commissioner has reasonable grounds to believe that the taxpayer will not pay the tax by the due date for the payment of the tax.” (emphasis added)

9. Going by the above provision of the law, it is clear to the tribunal that for the respondent to issue agency notice with the view to enforce collection under this section the taxes ought to have crystalized.

10. In the instant case, the appellant was served with a tax demand on June 24, 2022 and he duly objected on July 5, 2022. There was no indication from the respondent as to whether there was any prior assessment that allowed the applicant its right to object as provided by law and therefore the tax demand dated June 24, 2022 was rightly objected to by the applicant on July 5, 2022.

11. Section 51 of the Tax Procedures Act provides for the steps that ought to be taken in a tax objection process prior to the tax being considered due. The section provides as follows;(1)A taxpayer who wishes to dispute a tax decision shall first lodge an objection against that tax decision under this section before proceeding under any other written law.(2)A taxpayer who disputes a tax decision may lodge a notice of objection to the decision, in writing, with the commissioner within thirty days of being notified of the decision.(3)A notice of objection shall be treated as validly lodged by a taxpayer under subsection (2) if—(a)the notice of objection states precisely the grounds of objection, the amendments required to be made to correct the decision, and the reasons for the amendments; and(b)in relation to an objection to an assessment, the taxpayer has paid the entire amount of tax due under the assessment that is not in dispute.(4)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.(5)Where the tax decision to which a notice of objection relates is an amended assessment, the taxpayer may only object to the alterations and additions made to the original assessment.(6)A taxpayer may apply in writing to the commissioner for an extension of time to lodge a notice of objection.(7)The commissioner may allow an application for the extension of time to file a notice of objection if— (a) the taxpayer was prevented from lodging the notice of objection within the period specified in subsection (2) because of an absence from Kenya, sickness or other reasonable cause; and (b) the taxpayer did not unreasonably delay in lodging the notice of objection.(8)Where a notice of objection has been validly lodged within time, the commissioner shall consider the objection and decide either to allow the objection in whole or in part, or disallow it, and commissioner's decision shall be referred to as an "objection decision".(9)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.(10)An objection decision shall include a statement of findings on the material facts and the reasons for the decision.(11)Where the commissioner has not made an objection decision within sixty days from the date that the taxpayer lodged a notice of the objection, the objection shall be allowed.”(emphasis added)

12. It was not in dispute that there was no objection decision in this dispute. The tribunal was therefore of the view that the respondent having been served with the applicant’s objection within time on July 5, 2022, the respondent ought to have followed the steps as stipulated under section 51 of the TPA to either, invalidate the objection if the same was deemed not validly lodged under section 51(4) or issue an objection decision under section 51(8).

13. From the provisions of section 51 it is clear that although the respondent has the right to enforce collection under section 42, the objection process ought to be completed first for the tax to be considered to have crystalized. The respondent therefore ought to have issued a decision within time for the tax to be considered due.

14. The tribunal noted that the respondent has issued agency notice on August 1, 2022 prior to issuing the objection decision in response to the applicant’s objection dated July 5, 2022. This, the tribunal finds it to be in gross violation of due process as provided by law.

15. Consequently, the tribunal finds that the respondent’s agency notice dated August 1, 2022 was premature as the taxes had not crystalized and therefore not proper in law.

16. The tribunal has noted the applicant’s otherwise incoherent orders sought that purportedly relate to the lodging of a notice of objection. The applicant appears to have intended to seek for leave to file an appeal out of time as he has indeed gone ahead to file an appeal herein. in the absence of an objection decision there is no appealable decision as envisaged under section 52 of the Tax Procedures Act and or section 3 of the Tax Appeals Tribunal Act and to that extent the appeal filed herein is premature and unsustainable in law.

Disposition 17. On the basis of the foregoing, the tribunal finds the application to be partially merited and the orders that commend themselves are as follows:-i.The agency notice dated August 1, 2022 issued to Credit Bank Limited requiring the bank to pay the respondent the sum of Kshs 159,364. 00 as tax owing by the applicant be and is hereby unconditionally lifted.iiThe appeal be and is hereby struck out.iiiNo orders as to costs.

DATED AND DELIVERED AT NAIROBI THIS 31ST DAY OF MARCH 2023. …………………………ERIC N. WAFULACHAIRMAN…………………………ABRAHAM KIPROTICHMEMBER…………………………CYNTHIA MAYAKAMEMBER…………………………RODNEY ODHIAMBOMEMBER…………………………ELISHAH NJERUMEMBER