[2023] KETAT 549 (KLR)

Omanga v Commissioner of Domestic Taxes (Tax Appeal 942 of 2022) [2023] KETAT 549 (KLR) (19 October 2023) (Judgment)

Neutral citation: [2023] KETAT 549 (KLR)

Republic of Kenya

In the Tax Appeal Tribunal

Tax Appeal 942 of 2022

E.N Wafula, Chair, Cynthia B. Mayaka, RO Oluoch, E Ng'ang'a, AK Kiprotich & B Gitari, Members

October 19, 2023

Between

John Kennedy Omanga

Appellant

and

Commissioner of Domestic Taxes

Respondent

Judgment

Background 1. The Appellant is a registered individual duly registered taxpayer and a former employee of Kenya Tea Development Agency Holdings Limited.

2. That the Respondent is a principal officer appointed under Section 13 of the Kenya Revenue Authority Act, 1995. Under Section 5 (1) of the Act, the Kenya Revenue Authority (the Authority) is an agency of the Government for the collection and receipt of all tax revenue.

3. The Respondent carried out investigations into the business of the Appellant for the period year 2013-2020 with a view of confirming its tax compliance under the income tax obligations and withholding tax with a view to confirm the income declared under Section 3(2) and Part IV of Income Tax Act.

4. The information from the iTax data base on non-fillers showed that the Appellant had received deposits of Kshs. 4,735,263. 00 in its bank account between the years 2016 and 2019. Among these receipts were rental payments of Kshs. 2,274,078. 00 from Redeemed Christian Church.

5. Further to the review it was established that the Appellant was operating current and investment accounting credit bank account. The current bank account had received deposits of Kshs 21,943,225. 00 between the years 2016 and 2020. An amount of Ksh.13,877,869 did not relate to taxable income. The Respondent therefore adjusted the expected the same from the total banking which resulted in taxable income of Kshs. 8,065,356.

6. In addition, the investment account had interest credits totaling to Ksh 1,799,667. 00 in the period 2013 to 2020. The Respondent found that it was subject to withholding tax of Kshs. 221,350. 00 at the rate of 15% under Section 36 (3) (b) of the Income Tax Act. The Respondent discovered that the Appellant did not deduct and remit the same as tax.

7. Moreover the investigation established that the Appellant received a total of Kshs. 17,585,453. 00 in a bank account which constituted pension, dividends, sitting allowances, rental income, cash and cheque deposits.

8. Aggrieved by the Respondent’s decision, the Appellant lodged the Notice of Appeal on 19th August 2022 and subsequently this Appeal on 1st September 2022.

The Appeal 9. The Appeal is premised on the following grounds as stated in the Memorandum of Appeal filed on 1st September 2022:-a.That the Respondent erred in law and in fact by declining to consider the Appellant’s Objection dated 10th June 2022 contrary to Section 51 (8) of the Tax Procedure Act, as one of that was validly lodged on time on 23rd June 2022. b.That the Respondent erred in law and in fact by misguiding himself and proceeding to consider a correspondence letter dated 21st July ,2022 as duly lodged objection and further invalidating it as per Section 51 (3) of the Tax Procedure Act yet the same was not the validly lodged objection of the Applicant.c.That the Respondent erred in law and in fact by confirming assessment issued beyond the statutory period of 5 years.

Appellant’s Case 10. The Appellant’s case is premised on the following documents:a.The Appellant’s Statement of Facts filed on 1st September 2022 together with the documents attached thereto.b.The Appellant’s written submissions dated and filed on 25th April 2023 together with the authorities attached thereto.

11. That the Appellant is a registered taxpayer and a former employee of Kenya Tea Development Agency Holdings Limited.

12. That the Appellant is also a holder of three (3) bank accounts in Ecobank, Credit Bank and Standard Chartered Bank.

13. That it is from the above mentioned three accounts that the Respondent herein commenced tax investigations vide a letter dated 10th May 2022 referenced―Tax Investigations – years of income 2013-2020‖.

14. That notably the above -mentioned letter was sent to xxx.com which email the Appellant is not accessible to, as it was blocked by his former employer immediately after he left employment. That additionally, the letter was sent to xxx.co.ke which email does not belong to the Appellant.

15. That the Appellant came to learn of the existence of the letter in 3 above when he received a notice of assessment on his KRA iTax portal which was communicated to him on 27th May, 2022.

16. That nonetheless the Appellant vide a letter dated 10th June,2022, objected to the said assessment stipulating the grounds of objection and the reasons for the objection as per Section 51 (3) of the Tax Procedure Act, 2015.

17. That the Appellant on 23rd June 2022, proceeded to lodge the objection vide emails Daniel.musibi@kra.go.ke, mutembei.xxx.go.ke and xxx.go.ke belonging to Daniel Musibi, Mutembei Nyagah and Miltoon Atito, respectively, which emails had communicated the assessment.

18. That out of abundance of caution and having failed to receive a response from the Commissioner and or his representatives, the Appellant proceeded to physically take a copy of the said objection to the Respondent wherein it was received on 6th July 2022.

19. That on 20th July, 2022, the Appellant received a decision from the Respondent indicating that the Appellant’s notice of objection was not admitted as it was filed thirty (30) days after the statutory period required by law which determination by the Respondent is contrary to Section 51 (8) of the Tax Procedure Act, 2015.

20. That in order to clarify the confusion by the decision of 20th July, 2022, the Appellant wrote to the Respondent indicating that:-i.The objection dated 10th June, 2022 was lodged on 22nd June 2022ii.The objection dated 10th June, 2022 should be admitted as validly lodged on time.

21. That the letter dated 21st July, 2022 was sent to Justus.xxx.go.ke, esther.xxxx.go.ke, Anthony.xxx.go.ke, asbdud.xxxx.go.ke, Maureen.xxxx.go.ke

22. That on 4th August, 2022 the Appellant received a further decision from the Respondent which decision was misguided wherein the Respondent indicated that:-i.That the objection being considered was that of 21st July, 2022 andii.That the objection was invalidly lodged as it failed to meet the requirements of Section 51 (3) of the Tax Procedure Act, 2015

23. That the Appellant being aggrieved by the two decisions from the Respondent dated 20th July 2022 and 4th August, 2022, proceeded to file a Notice of Intention of Appeal to the Tribunal on the 19th August, 2022.

Appellant’s Prayers 24. The Appellant therefore prayed that:a.The decision by the Commissioner for domestic taxes made on 10th June 2022 be set aside andb.The Tribunal be pleased to order that the objection decision did not meet the threshold set under Section 51 (8) of the Tax Procedures Act 2015 and dismiss it accordingly.c.The Tribunal be pleased to order that the objection was allowed in accordance with Section 51(11) of the Tax Procedure Act, 2015. d.Cost of this Appeal to be awarded to the Appellant.

Respondent’s Case 25. That the Respondent’s case is premised on the hereunder filed documents and proceedings before the Tribunal: -i.The Respondent’s Statement of Facts dated and filed on 30th September, 2022 together with the documents attached thereto.ii.The Respondent’s written submissions dated and filed on 4th April, 2023 together with the legal authorities filed therewith.

26. That the Respondent carried out investigations into the business of the Appellant for the period year 2013- 2020 with the view of confirming its tax compliance under the income tax obligations and withholding tax with a view to confirm if the income declared under Section 3 (2) and Part IV on the Income Tax Act.

27. That the information from the Itax data base on non-fillers showed that the Appellant had received deposits of Kshs. 4,735,263. 00 in account No 013xxxx01 between the years 2016 and 2019. That among these receipts were rental payments of Kshs 2,274,078. 00 from Redeemed Christian Church.

28. That further to the review it was established that the Appellant was operating current and an investment account in Credit Bank. That the current account no 002xxxx636 had received deposits of Kshs. 21,943,225. 00 between the years 2016- 2020. That an amount of Kshs. 13,877,869. 00 did not relate to taxable income. That the Respondent therefore adjusted the expected the same from the total banking which resulted in taxable income of Kshs. 8,065,356. 00.

29. That in addition, the investment account had interest credits totaling to Kshs. 1,799,667. 00 in the period 2013 to 2020. That the Respondent found that it was subject to withholding tax of Kshs. 221,350. 00 at the rate of 15% under Section 36 (3) (b) of the Income Tax Act. The Respondent discovered that the Appellant did not deduct and remit the same as tax.

30. That moreover the investigations established that the Appellant received a total of Kshs. 17,585,453. 00 in account No. 015xxxx500 which constituted pension, dividends, sitting allowances, rental income, cash and cheque deposits.

31. That in light of the above, the Respondent adjusted an amount of Kshs 1,208,251. 00 as it was already subjected to tax. That it constituted pension receipts from Postal Corporation of Kenya Limited, allowances from Tea Directorate, Britam and Heritage receipts. The rent receipts of Kshs. 1,855,000. 00 and cash/cheque deposits of Kshs. 14,585,202. 00 were established as taxable income.

32. That the Respondent observed that the Appellant was operating a current and a savings account in Chai Sacco of account no 029xxxx401. That the Savings account received credits amounting to Kshs. 78,132,148. 00 consisting loans, salaries and deposits.

33. That as a result, the Respondent adjusted the amount and treated a total of Kshs. 8,854,892. 00 as taxable income. That Kshs. 69,277,256 constituting loans and salaries are not taxable income. That the current account received deposits totaling to Kshs. 41,027,462. 00. That Kshs. 38,722,207. 00 did not constitute taxable income. That the Respondent treated Kshs. 2,305,256. 00 as taxable income.

34. That further to that the Respondent subjected the business income of Kshs. 9,163,622. 00 rental income of Kshs. 383,308. 00 and Kshs. 221,350. 00 Interest income to tax of according to Sections 3,6 and 35 of the Income Tax Act, respectively.

35. That in light of the above, the Respondent issued the Appellant the initial preliminary findings dated 10th May 202, explaining the under declaration of income amounting to Kshs. 9,768,280. 00.

36. That the Appellant did not contest the initial preliminary findings but lodged a late objection on 10th May 2022 on, which was duly acknowledged by the Respondent and on 20th July 2022, the Respondent responded to the objection informing the Appellant that being that the objection was loded after 30 days from the date of the receipt of the tax findings, the Appellant was required to apply for extension of time to file an objection pursuant to Section 51 (7) of the Tax Procedure Act.

37. That the Appellant on 21st July 2022 sent a letter denying the allegations that the objection was filed out of time. That it further stated that 30 days had not lapsed from the time receipt of the tax findings.

38. That in the light of the above, the Respondent upon considering the Appellant’s letter on 4th August 2022, issued a decision and invalidated the objection filed by the Appellant as it did not meet the requirements of Section 51 (3) of the Tax Procedure Act 2015.

39. That the Appellant filed a Notice of Appeal against the decision of the Commissioner on 19th August 2022 against the decision of the Commissioner confirming the assessment of Kshs. 9,768,280. 00.

40. The Respondent averred that the assessment were correctly issued and conform to the Income Tax Act. That the Appellant did not provide any evidence that would have altered the assessment. The Tax Procedure Act places the onus of proof in tax objections on the taxpayer who is this case failed to avail evidence that would support a contrary assessment or that would have guided the Respondent at arriving to a different objection decision.

41. The Respondent averred that examination of the Appellant’s records, audited accounts and income tax returns established that the Appellant failed to declare business income and all their income for years of income 2013-2020, respectively. That the Respondent is empowered under the Income Tax Act 2013 to bring to charge income where the same is established due.

42. The Respondent stated that the tax was reached at based on the information available and provided by the Appellant and that the Commissioner is empowered by the Tax Procedure Act to make such decisions. That the assessment was based on the information provided.

43. The Respondent assertted that the Appellant in lodging his objection failed to state the reasons precisely to be addressed in the assessment raised. That in addition, the Appellant failed to properly lodge his objection as provided by the Tax Procedures Act.

44. The Respondents submitted that the taxpayer despite declaration some income knowingly continued to be under declared income for the period under review contrary to the provisions of the income Tax Act. That the Respondent stated that according to the income Tax Act it is the responsibility of any person carrying on business to maintain records of all transactions.

45. The Respondent urged that the Respondent empowered by Section 31 of Tax Procedures Act 2015 to carry out the amendment on assessment where adjustments are due to bring to charge the correct amounts. That the Section provides as follows:-―(1) Subject to this section, the Commissioner may amend an assessment by making alterations or additions, from the available information and to the best of the Commissioner’s judgement, to the original assessment of a taxpayer for a reporting period to ensure that- ―

46. The Respondents submitted that the Appellant did not file income tax returns for the accounting period 2019- 2020 in contravention of the requirements of the Tax Procedure Act and that the estimated assessment were correct.

47. The Respondent further submitted that the tax assessment are correct and the same was based on the best judgement where the Appellant’s audited accounts and records were analysed and adjustments made for, income declared and withheld tax deducted at source.

48. The Respondent denied that the Appellant has paid all its tax dues and reiterated that because of its under-declaration the Appellant is in debt of Kshs. 9,768,280. 00.

Respondent’s Prayers 49. That the Respondent prayed that this Honourable Tribunal do find:a.That the Respondent’s Objection decision be upheldb.That the outstanding tax arrears of Kshs. 9,768,280. 00 are due and payable by the Appellant.c.The confirmed assessment dated 10th May 2022, were proper in law.d.That the Appeal herein be dismissed with cost to the Respondent.

Issues for Determination 50. The Tribunal having evaluated the pleadings and submissions of the parties is of the view that there are three issues that call for its determination;-a.Whether the Appeal before the Tribunal is valid?b.Whether the Respondent’s decision was justified in rejecting the Appellant’s objection dated 10th June 2022. c.Whether the Respondent was justified in assessing taxes beyond 5 years.

Analysis and Findings 51. The Tribunal having determined the issues falling for its determination proceeds to analyse them as hereunder.

a. Whether the Appeal before the Tribunal is valid? 51. The Appeal before the Tribunal streams from the Respondent’s decision rendered on 20th July 2022, indicating that the Appellant’s notice of objection was not admitted as it was filed thirty (30) days after the statutory period required by the law and that which determination by the Respondent is contrary to Section 51 (8) of the Tax Procedure Act, 2015.

52. The Tribunal, upon the careful examination of the Appellant’s pleadings, notes that the Appellant’s appeal is hinged on the Respondent’s decision dated 20th July 2022. In the decision the Respondent indicated that the notice of objection was filed 30 days after the statutory period hence inadmissible.

53. Under Section 51 (10) of the Tax Procedures Act, the Commissioner is required to give reasons for the decision made. The Tribunal observed that the Commissioner gave reasons to the Appellant in it’s decision of 20th July 2022.

54. The Tribunal is alive to the fact that the decision on the validity of any notice of objection to a tax assessment is the preserve of the Commissioner as is reinforced in Section 53 (3) & (4) of the Tax Procedures Act.

55. Section 52 of the Tax Procedures Act, provides as follows with regard to an appealable decision:-― 52. Appeal of appealable decision to the Tribunal1. A person who is dissatisfied with an appealable decision may appeal the decision to the Tribunal in accordance with the provisions of the Tax Appeals Tribunal Act, 2013 (No. 40 of 2013).2. A notice of appeal to the Tribunal relating to an assessment shall be valid if the taxpayer has paid the tax not in dispute or entered into an arrangement with the Commissioner to pay the tax not in dispute under the assessment at the time of lodging the notice.‖

57. The question that begs is whether the Respondent’s decision of 20th July 2022 constitutes an appealable decision before the Tribunal, the Tribunal notes that aforesaid decision as indicated in the preceding paragraphs relate to Appellant’s notice of objection which was not admitted as it was filed thirty (30) days after the statutory period.

58. Section 3 of the Tax Procedures Act, 2015 defines an appealable decisions as follows:―appealable decision‖ means an objection decision and any other decision made under a tax law other than—a.a tax decision; orb.a decision made in the course of making a tax decision;‖

59. The Tribunal, pursuant to the definition provided herein above, finds that the Respondent’s decision of 20th July 2022 subject of this Appeal is not an objection decision because it did not emanate from an objection that was filed by the Appellant. It was instead a decision that was made in the course and or build up to the issuance of an objection decision. Threrefore, it does not qualify to be an appealable decision.

60. In the case of Kotile General Contractors Company Limited v Commissioner of Domestic Taxes [2020] eKLR, the Tribunal pronounced itself in a similar matter, as follows:-― the taxpayer upon receiving notification from the Respondent that its Notice of Objection was deemed invalid had one recourse: to appeal to the Commissioner. Once the appeal to the Commissioner was considered and a decision reached, then the Applicant would have recourse to lodge an appeal before the Tribunal. Until such process is followed, the application at hand is premature and therefore fails.‖

61. Based on the above analysis it follows that the Appellant in this appeal invoked the jurisdiction of the Tribunal prematurely. The Tribunal therefore lacks the jurisdiction to hear and or determine this appeal for which reasons it must down its tools as it lacks the jurisdiction to hear and determine the remaining issues that fell for determination in this Appeal.

Final Decision 62. The upshot of the foregoing is that the Appeal lacks merit and and the Tribunal proceeds to makes the following Orders:-a.The Appeal be and is hereby struck out.b.Each party to bear its own costs.

63. It is so ordered.

DATED AND DELIVERED AT NAIROBI THIS 19TH DAY OF OCTOBER, 2023ERIC NYONGESA WAFULA - CHAIRMANCYNTHIA B. MAYAKA - MEMBERDR. RODNEY OLUOCH - MEMBEREUNICE NGANGA - MEMBERABRAHAM K. KIPROTICH - MEMBERBERNADETTE GITARI - MEMBER