[2025] KETAT 169 (KLR)

Panari Centre Limited v Commissioner of Legal Services & Board Coordination (Tax Appeal E863 of 2024) [2025] KETAT 169 (KLR) (14 March 2025) (Judgment)

Neutral citation: [2025] KETAT 169 (KLR)

Republic of Kenya

In the Tax Appeal Tribunal

Tax Appeal E863 of 2024

CA Muga, Chair, BK Terer, EN Njeru, E Ng'ang'a & SS Ololchike, Members

March 14, 2025

Between

Panari Centre Limited

Appellant

and

Commissioner of Legal Services & Board Coordination

Respondent

Judgment

Background 1. The Appellant is a limited liability Company incorporated in Kenya under the Companies Act. The Appellant is in hospitality business, operating a Hotel.

2. The Respondent is a principal officer appointed under Section 13 of the Kenya Revenue Authority Act, CAP 469 of Kenya’s Laws (hereinafter “the Act”). Under Section 5 (1) of the Act, the Kenya Revenue Authority is an agency of the Government for the collection and receipt of all tax revenue. Further, under Section 5(2) of the Act with respect to the performance of its functions under subsection (1), the Authority is mandated to administer and enforce all provisions of the written laws as set out in Part 1 and 2 of the First Schedule to the Act for the purposes of assessing, collecting and accounting for all revenues in accordance with those laws.

3. The Respondent issued additional assessment dated 23rd June 2021 disallowing credits amounting to Kshs 33,077,407. 00 on corporation tax for the year 1st January 2015 to 31st December 2015. The Appellant objected the Respondent's assessment on 21st July 2021.

4. The Respondent fully rejected the Appellant's objection and issued its confirmation of assessment notice dated 26th June 2024. Dissatisfied with the Respondent’s decision, the Appellant filed the instant Appeal through the notice of appeal dated 22nd July 2024 and filed on even date.

The Appeal 5. The Appellant filed its Memorandum of Appeal dated 2nd August 2024 on even date raising the following grounds:a.That the Respondent's objection decision was issued out of time, beyond the 60 days of receipt of the objection notice as set under Section 51(11) of the Tax Procedures Act, CAP 469B of the Laws of Kenya (hereinafter “TPA”) to a notice of objection dated 21st July 2021, the Respondent issued the objection decision on 26th June 2024, 35 months later grossly in violation of section 51(11) of TPA and pursuant to sub section (b), the objection stands accepted.b.That in addition to being out of time, the Respondent's decision blatantly disregarded the Appellant's grounds of objection as put out in the notice of objection.c.That the Respondent erred in material and facts by disallowing tax credits on the basis that the credits were wrongly claimed under the wrong section while filing the self-assessment for the year 2015. The tax credits in question related to overpaid income taxes which were carried forward from one tax period to the other.d.That credits related not to credits under Section 42 of the Income Tax Act, CAP 470 of the Laws of Kenya (hereinafter “ITA”) but related to withholding taxes and instalment taxes which were carried forward from 2012 to 2014 which had neither been refunded by KRA nor utilized previously by the Appellant and disregarding them would be unfair and excessive to the Appellant.e.That on the basis of the above grounds the Appellant urges the Tribunal to allow the appeal, order the Respondent to withdraw the additional assessment notice and be accordingly stopped from demanding tax, interest and penalties in respect to the additional assessment on estimated revenue.

Appellant’s Case 6. In support of the appeal, the Appellant lodged its statement of facts dated 2nd August 2024 on even date. The Appellant also filed written submissions dated 3rd December 2024 on even date.

7. The Appellant stated that on 23rd June 2021 the Respondent issued additional assessment in respect to corporation tax for the year of income 2015 amounting to Kshs 33,077,407. 00 The Appellant then filed an objection dated 21st July 2021.

8. It stated that the Respondent more than 4 years later, on 26th June 2024, confirmed the assessment without giving any reasons rejecting the Appellant's grounds of objection. The Appellant averred that the objection decision is way past the timeline of 60 days as stipulated under Section 51 (11) of the TPA.

9. The Appellant argued that the Respondent erred in material and facts by disallowing tax credits for being registered under the wrong section while filing the self-assessment return for the year 2015. The Appellant asserted that the credits were claimed under field 13. 4 of the i-Tax return which relates to special credits under Section 42 of the ITA.

10. The Appellant contended that the disallowed tax credits related to instalment tax and withholding tax and the same was clearly outlined to the Respondent but the Respondent disregarded the same.

11. It asserted that the Respondent was fundamentally misguided in law by disallowing the tax credit claim despite the Appellant providing all the available and relevant documentation supporting its tax refund claim through its objection notice dated 21st July 2021.

12. In its written submissions, the Appellant submitted that the Respondent’s decision offends Section 51(11) of the TPA. It cited the case of Republic v Commissioner of Customs Service ex-parte Unilever Kenya Limited (2012) eKLR to support the position that the Respondent has to issue objection decision within 60 days. Therefore, the Appellant submitted that the Respondent infringed Article 47 of the Constitution of Kenya 2010 (hereinafter “the Constitution”).

13. The Appellant also submitted that despite the objection decision being out of time the Respondent also failed to meet the requirements of Section 51(10) of the TPA which provides that ‘‘An objection decision shall include a statement of findings on the material facts and the reasons for the decision.’’ In this regard, the Appellant cited the case of Minazini Enterprises vs Commissioner of Domestic Taxes (Tax Appeal Number 56 of 2016) to support the position that the Respondent’s decision has to include a statement of facts and reason for the decision.

14. The Appellant also submitted that by rejecting legitimate tax credits on basis of technicalities, the Respondent violated the Appellant’s constitutional right to fair administrative action. The Appellant relied on Article 159(2)(d) of the Constitution which provides that justice shall be administered without undue regard to procedural technicalities. It also relied on the case of Okoth Obado v Edward Akongó Oyugi &2 Others (2014) eKLR wherein the Court stated that a party's right should not be abruptly excluded blatantly from non-compliance with a procedure rule especially where no apparent injustice to the other party can be deduced.

15. The Appellant also relied on the case of Price Waterhouse Coopers Limited vs Commissioner for Legal Services & Board Coordination (Appeal 576 of 2021) to support its appeal.

16. Consequently, the Appellant prayed for the following orders:i.That the Appeal be allowed; andii.The Respondent's objection decision dated 26th June 2024 be declared null and void and be set aside in its entirety.

Respondent’s Case 17. In response to the Appeal, the Respondent filed its Statement of Facts dated 5th August 2024 on 5th September 2024. The Respondent also filed written submissions dated 11th December 2024 on even date.

18. The Respondent averred that it issued its additional assessment on the Appellant disallowing credits amounting to Kshs 33,077,407. 00 on corporation tax for the year 2015. The Appellant objected the Respondent's assessment requesting migration of income tax credits to offset the additional assessments. The Respondent rejected the Appellant's objection and issued its confirmation of assessment notice hence this appeal.

19. On whether the Appellant rightly claimed the disallowed tax credits, the Respondent asserted that the Appellant ought to have applied for the tax refunds in the periods to which the over payment related.

20. The Respondent also stated that claims made under Section 42 of the ITA are intended to be credits under special agreements. The Respondent contended that the Appellant failed to demonstrate that the credits were related to foreign tax payable in respect of income earned outside Kenya under special agreements as provided for under Section 42 of the ITA.

21. The Respondent having failed to receive explanation of proof from the Appellant of the validity of the legal ground for claiming credits, the Respondent rejected the Appellant's objection for want of satisfaction of its burden of proof. The Respondent relied on the provisions of Section 30 of the Tax Appeals Tribunal Act, CAP 469A of the Laws of Kenya (hereinafter “TATA”) and Section 56(1) of the TPA which provide for the need for the taxpayer to satisfy burden of proof for the arguments on tax position to succeed.

22. The Respondent stated that its assessment was factual and based on the information within its possession and that it gave reasons and explanations on how it arrived at the demanded taxes. The Respondent therefore asserted that the averments of the Appellant as laid out in its memorandum of appeal and statement of facts were unfounded in fact and in law. The Respondent asserted that it confirmed the assessment based on best judgment in accordance with the provisions of Section 31 of the TPA.

23. It maintained that the Appellant failed in providing sufficient evidence to illustrate its allegations and tax position. Therefore, the Respondent argued that the Appeal herein is devoid of any merits. It asserted that the assessment and subsequent confirmation were done in accordance with the provisions of the law.

24. The Respondent also relied on its written submissions to support its case. In summary, it submitted that it rightly disallowed the Appellant’s claim for tax credits. It submitted that the Appellant proceeded under inapplicable law that is Section 42 of the ITA instead of invoking Section 47 of the TPA.

25. The Respondent relied on the case of Boleyn International Ltd v Commissioner of Investigations and Enforcement, Nairobi TAT Appeal no. 55 of 2018 and Gashi v Respondent of Taxation [2012] FCA 638, to support the position that a taxpayer must provide documents to support the objection to discharge the burden of proof. The Respondent submitted that the Appellant failed to discharge the burden.

26. Consequently, the Respondent urged the Tribunal to dismiss the Appeal with costs to the Respondent as the same is devoid any merit.

Issues for Determination 27. The Tribunal having carefully reviewed parties’ pleadings, documents and submissions is of the respectful view that the following three issues call for its determination are as hereunder:a.Whether the Confirmation of Assessment Notice dated 26th June 2024 was time barred pursuant to Section 51(11) of the TPA.b.Whether the assessments are statute barred pursuant to Section 31 (4)(b) of TPA.c.Whether the Respondent was justified in disallowing Appellant’s tax credits.

Analysis and Findings a. Whether the Confirmation of Assessment Notice dated 26th June 2024 was time barred pursuant to Section 51(11) of the TPA. 28. The Respondent issued income tax assessment dated 23rd June 2021 seeking to recover Kshs 33,077,407. 00 for the period 1st January 2015 to 31st December 2015. The Appellant lodged its notice of objection which the Respondent received on 21st July 2021 as evidenced under the objection application acknowledgment receipt of 21st July 2021. The Respondent, decided to issue a Confirmation of Assessment Notice dated 26th June 2024, wherein it fully rejected the Appellant’s objection and confirmed the assessment. The Appellant objecting stating that the said confirmation notice offended Section 51(11) of the TPA on the basis that it was issued beyond the statutory timeline of 60 days.

29. The Respondent neither addressed the issue of the provisions of Section 51(11) of the TPA in its statement of facts nor in its written submissions. Instead, the Respondent submitted on how the Appellant sought credit under Section 42 of the ITA instead of Section 47 of the TPA. The Tribunal has noted and observed that the Respondent never explained the circumstances under which it took two years and 11 months to issue its decision.

30. At the time of lodging of the notice of objection, Section 51(11) of TPA provided as follows:‘‘51(11)The Commissioner shall make the objection decision within sixty days from the date of receipt of—(a)The notice of objection; or(b)Any further information the Commissioner may require from the taxpayer, Failure to which the objection shall be deemed to be allowed.’’

31. The Tribunal reiterates that the the Respondent did not explain why it issued its decision after two years and 11 months when the provisions of Section 51(11) of the TPA which are mandatory, require that the the Respondent issues its decision within 60 days of receipt of the Appellant’s objection. In Republic v Commissioner of Customs Services Ex-Parte Unilever Kenya Limited (2012) eKLR the court was of the view that if the Commissioner does not render a decision within the stipulated period, the objection is deemed as allowed by operation of the law.

32. The Tribunal cites the following holding of Mabeya, J. who also provided insight on the application of the provisions of Section 51 (11) of the TPA in the case of Eastleigh Mall Limited v Commissioner of Investigations & Enforcement (Income Tax Appeal E068 of 2020) [2023] KEHC 20000 (KLR) (Commercial and Tax) (17 July 2023) (Judgment):“It is clear from the forgoing that the provisions of section 51(11) of the Tax Procedures Act are mandatory. They are not cosmetic. Parliament in its wisdom knew that in matters tax, time is very crucial as those in commerce need to make informed decisions. If the Commissioner is allowed to exercise his discretion and stay ad-infinitum before issuing an objection decision, the tax payer would be unable to make crucial decisions and plan his/her business properly. The timelines set are mandatory and not a procedural technicality.’’

33. The view of the Tribunal is that the provisions of Section 51(11) of the TPA are express and mandatory in providing that the Respondent must issue its decision within 60 days of receiving the notice of objection. The consequence of the failure by the Respondent to comply with the provisions of Section 51 (11) of the TPA is that a notice of objection is deemed to be allowed by operation of the law.

34. Consequently, the Tribunal finds and holds that the Confirmation of Assessment Notice dated 26th June 2024 was time barred pursuant to Section 51(11) of the TPA and the Appellant’s notice of objection stood allowed by operation of law.

35. Having established that the Appeal stood allowed by operation of law, the Tribunal finds the analysis of the remaining issues is rendered moot.

Final Decision 36. The upshot to the foregoing is that the Tribunal finds and holds that the Appeal succeeds and proceeds to make the following Orders:a.The Appeal be and is hereby allowed.b.The Confirmation of Assessment Notice dated 26th June 2024 be and is hereby set aside.c.Each party to bear its own cost.

37. It is so Ordered.

DATED AND DELIVERED AT NAIROBI ON THIS 14TH DAY OF MARCH, 2025. CHRISTINE A. MUGA - CHAIRPERSONBONIFACE K. TERER - MEMBERELISHAH N. NJERU - MEMBEREUNICE N. NG’ANG’A - MEMBEROLOLCHIKE S. SPENCER - MEMBER