[2024] KETAT 477 (KLR)

Panma Contractor Limited v Commissioner of Domestic Taxes (Tax Appeal E209 of 2024) [2024] KETAT 477 (KLR) (19 April 2024) (Ruling)

Neutral citation: [2024] KETAT 477 (KLR)

Republic of Kenya

In the Tax Appeal Tribunal

Tax Appeal E209 of 2024

E.N Wafula, Chair, EN Njeru, E Ng'ang'a, M Makau & AK Kiprotich, Members

April 19, 2024

Between

Panma Contractor Limited

Appellant

and

Commissioner of Domestic Taxes

Respondent

Ruling

1. The application which was by way of a Notice of Motion dated 19th February 2024 filed under a certificate of urgency on the even date is supported by an Affidavit sworn by the Appellant’s Director, Paul Maina, on the 19th February, 2024 sought for the following Orders:-a.It be granted leave to file the appeal out of time.b.The attached appeal documents be admitted on record as properly filed.c.The agency notice issued against the Appellant’s banks sent to NCBA Bank on 16th August 2022 be lifted.d.Any other order as the Tribunal may deem fit.

2. The application is premised on the following grounds, that:-a.The Respondent in this matter raised a company default income tax assessment in September 2015 amounting to Ksh. 2,000,000. 00 which is punitive in law and erroneous as the Respondent misdirected itself in regard to that decision.b.By the time the Appellant was supposed to lodge its Objection to the assessment done its Director was unwell and could not be in a position to lodge the Objection.c.The Appellant is a contractor and income obtained from such services for the above period did not amount to tax of Kshs. 2,000,000. 00 per the company’s records.d.The income that was used to calculate the taxes as per the Respondent’s calculations is unclear and baseless and the Respondent’s decision to deny the Appellant the opportunity to lodge its complaint is ignoring or dishonoring fair administrative action as per Section 47 of the Constitution of Kenya.e.The decision has failed to determine some material issues of law having the force of law.f.If the said orders are not granted the Appellant stands to suffer irreparable damage as its director has been unwell and does not even have funds to access health and believes that the Appellant has a strong case.g.The Company has been crippled and is barely operational as a direct consequence of the Company's account being frozen and the lack of the necessary Tax Compliance Certificate required during tendering, seeking opportunities.h.Penalties and interests on any liabilities that may emanate from the conclusions of the case will accrue more as the contentious issues remain unsolved.i.The assessment and the state of the Company are a major threat to the director’s health who is already sick.j.The Tribunal ought to move speedily to save this company from bankruptcy and insolvency and save the life of the director who is constantly under stress and sickly.

3. The Applicant in its written submissions dated 20th March, 2024 submitted that on 27th April 2017, the Respondent raised a company default income tax assessment for the period September to August 2015 amounting to Kshs 2,000,000. 00 which when calculated gives a net profit for the business of Kshs. 6,666,666. 66.

4. It asserted that the net profit assumed does not represent the business income and if the cost of contracts and other allowable expenses were included, the income assumed would be more than 6,666,666. 66.

5. It contended that from the record, there is no such income and the Respondent should explain and support its sources of the alleged income.

6. It argued that on 16th March 2023, it objected to the assessment late and reasons and documents were requested for the late Objection. It added that the director runs the company and all its affairs solely and the director has been unwell since 2015 and therefore had not been in a position to respond timely and appropriately.

7. It maintained that the director suffered from a hypertensive urgency, diabetic Ketoacidosis, acute kidney injury, and benign prostatic hyperplasia with some of the conditions are lifelong conditions that are managed by outpatient clinics. It added that the director was diagnosed in 2015 and to this date, he is still attending the clinics to manage his condition.

8. It was submitted that the emails sent requesting documents to the late objection were not received by the director because he lacked a gadget that could access emails.

9. The Appellant reiterated that the director is a senior Citizen aged 67 years and therefore his response has been affected by his age.

10. It added that the penalties in the company’s system continue to build up every single day as this case continues to delay.

11. It argued that on 16th August 2022, the commissioner went ahead and sent an agency notice to the taxpayer’s bankers barring access to the company’s NCBA account which has tremendously hurt the company.

Response to the Application 12. The Respondent filed a Replying Affidavit sworn by Kevin Ngari, an officer of the Respondent, on the 18th March, 2024 and filed on 18th March 2024 citing the following as the grounds for opposition:-a.That from the face of it, this application is not merited as the Appellant has flouted the timelines under Section 51 of the Tax Procedures Act.b.That the Respondent issued an assessment for the Income tax on 7th April 2017 for Kshs. 2,000,000. 00. c.That the Appellant had 30 days, that is until 6th May 2017, to lodge an Objection against the same assessment as per Section 51(2) of the Tax Procedures Act.d.That the Appellant however lodged its objection on 16th March 2023 which is 2,169 days outside the statutory timelines.e.That the Respondent in response to the Objection wrote to the Appellant on 21st March 2023 informing the Appellant that its objection was not validly lodged and requested the Applicant to provide reasons and evidence for the late objection in response to the additional income tax assessment raised on 7th April 2017 as per Section 51(7) of the Tax Procedures Act.f.That the Respondent followed this up through a phone call on the Appellant’s iTax registered number 0721410400 and the Appellant was well explained about the invalidity of its Objection.g.That the Appellant however failed to respond to the email/provide reasons and evidence for late Objection as per Section 51(7) of the Tax Procedures Act and on 28th March 2023, the Respondent wrote to the Appellant declining the late Objection application and confirming the assessed income taxes of Kshs 2,000,000. 00 as due and payable.h.That even after being aggrieved by the Respondent’s decision to decline the late Objection, the Appellant went silent and it was not until the 20th February 2024 that the Appellant filed a Notice of Appeal.i.That Section 51(12) of the Tax Procedures Act clearly provides that a person dissatisfied with the Commissioner’s decision may appeal to the Tribunal within thirty days after being notified of the decision.j.That the Respondent issued its decision dated 28th March 2023 and the Appellant filed the Notice of Appeal dated 20th February 2024, eleven months later.k.That the Notice of Appeal flouts the provisions of Sections 13(3) and 13(4) of the Tax Appeals Tribunal Act on extension of time to file an appeal out of time.l.That such an application is conditional on demonstrable reasonable grounds by an Appellant seeking refuge under the provisions of Section 13(4) of the Tax Appeals Tribunal Act which is unequivocal on the allowable parameters as absence from Kenya, sickness, or any other reasonable cause.m.That the Appellant’s director claims to have been unwell and sickly which caused the delay in lodging the Objection. However, the documentary evidence attached by the Appellant in its application shows that he was last admitted to hospital in May 2022 and the report concludes by indicating that since then, the Appellant has been doing well medically.n.That the said medical report does not make reference to the Appellant’s director being medically unwell in 2017, when he ought to have objected to the assessment of Kshs. 2,000,000. 00. The Appellant was therefore indolent in handling his tax affairs.o.That there is no medical report showing that the Appellant was medically unwell in 2023, when the Respondent issued its decision rejecting the Appellant’s late Objection dated 16th March 2023. p.That from this chronology of events, the Appellant has not provided any cogent evidence or reasons to warrant this Honourable Tribunal to allow this application to lodge an appeal out of time.q.That the assessment against the Appellant was issued by the Respondent on 7th April 2017, more than 6 years ago, which shows the inordinate delay the Applicant has taken in filing an appeal is without reasonable cause.r.That this application is misconceived as it does not meet the standards to warrant an extension of time under Section 13(3) and (4) of the Tax Appeals Tribunal Act.s.That the Appellant has not satisfied the criteria for the grant of an extension of time and does not therefore warrant an extension under Section 10(3) of the Tax Appeals Tribunal (Procedure) Rules 2015. t.That no reasonable circumstances have been demonstrated to warrant an order for an enlargement of time.u.That this Honourable Tribunal therefore ought to reject the prayers that the Appellant be allowed to file an Appeal out of time as the same is not merited.v.That this application is frivolous and devoid of merit as it is based on mere apprehensions that the Respondent may issue agency notices against the Appellant, which apprehensions are unfounded.w.The Appellant has not demonstrated that it will suffer irreparable harm/loss if the application is not granted.x.That the Appellant alleged that the Respondent placed an agency notice on the Appellant’s NCBA Bank Account on 16th August 2022 but the Appellant failed to attach the said notice to the current application and as such, the said allegation cannot be substantiated by the Respondent.y.That the Respondent is guided by Section 56(1) of the Tax Procedures Act which provides that the burden of proof is on the taxpayer.z.That the Appellant has shown great indolence in pursuing its affairs by not seeking to have the alleged agency notice lifted almost 2 years later, which goes to prove that this application is not merited in the first instance.

13. The Respondent in its written submissions dated 20th March, 2024 cited Section 52(1) of the Tax Procedures Act and Section 13(1) of the Tax Appeals Tribunal Act and submitted that it issued an Assessment Order on 7th April 2017 to the Appellant for the Income tax of Kshs. 2,000,000. 00 the Appellant had 30 days, which is until 6th May 2017, to lodge an Objection against the same assessment per Section 51(2) of the Tax Procedures Act.

14. The Respondent asserted that the Appellant lodged its Objection on 16th March 2023, 2,169 days outside of the statutory timelines but did not attach any evidence in support of its late objection.

15. It contended that in response to the Objection, it wrote to the Appellant on 21st March 2023 informing the Appellant that its objection was not validly lodged and requested the Appellant to provide reasons and evidence for the late objection in response to the additional income tax assessment rated on 7th April 2017 as per Section 51(7) of the Tax Procedures Act.

16. It maintained that it followed up on the request through a phone call on the Appellant’s iTax registered number 0724104400 but the Appellant failed to respond to the email or provide reasons and evidence for the late objection per Section 51(7) of the Tax Procedures Act.

17. It relied on the case of TAT Misc App 257 of 2022 Logistics & Energy Africa Ltd v Commissioner of Domestic Taxes and Section 13(4) of the Tax Appeals Tribunal Act together with Section 10(3) of the Tax Appeals Tribunal (Procedures) Rules to support its argument that whereas the Appellant’s director claims to have been unwell and seeking treatment in hospital causing the delay in lodging the objection to the additional assessment, the documentary evidence attached by the Appellant in the application shows that he was last admitted in hospital in May 2022 with a conclusion that since then, the Appellant has been doing well medically.

18. It further argued that the said medical report does not make reference to the Appellant’s director being medically unwell in 2017 when he ought to have objected to the assessment nor was there any medical report showing that the Appellant’s director was unwell in 2023 when the Respondent issued its decision rejecting the Appellant’s late Objection dated 16th March 2023.

19. It was submitted that the Appellant has not provided any cogent evidence or reasons to warrant this Honourable Tribunal to allow the application to lodge the Appeal out of time.

20. It cited the case of Nicholas Kiptoo Arap Korir Salat v IEBC & 6 Others [2013] eKLR and asserted that the Appellant seeks to file the appeal 12 months after the Respondent’s late Objection rejection decision dated 28th March 2023 and the Appellant was aware of its right to challenge the decision within 30 days but slept on its right by failing to challenge the decision within the stipulated timelines thus the Appellant cannot move this Honourable Tribunal to exercise its discretion and bend the rules of procedure at the Respondent’s expense.

21. The Respondent submitted that the Appellant has merely alleged that there is an agency notice placed on its NCBA bank account on 16th August 2022 but failed to attach the said notice to this application and as such, the said allegation cannot be substantiated by the Respondent.

22. It asserted that the burden of proof rests on the Appellant per Section 56(1) of the Tax Procedures Act and the Appellant has shown great indolence in pursuing its affairs by not seeking to have the alleged agency notice lifted almost two years later, showing that this application is not merited in the first instance.

23. It cited the case of Caliph Properties Limited v Barbel Sharma & Another [2015] eKLR and contended that the Appellant herein has continually defaulted in paying the taxes demanded from it yet payment of tax is an obligation of every Kenyan taxpayer.

24. It relied on the case of Republic v Kenya Revenue Authority Ex Parte Bata Shoe Company (Kenya) Limited [2014] eKLR and reiterated that this application is clearly an afterthought aimed at scuttling the Respondent’s mandate of tax collection.

Analysis and Findings 25. The Tribunal is enjoined to determine the length and reason for the delay when considering an application for the extension of time to appeal out of time. The power to extend time is discretionary and unfettered but the same must be exercised judiciously and it is not a right to be granted to the Appellant.

26. In determining whether to extend time, the Tribunal was guided by the decision in the case of Leo Sila Mutiso -vs- Rose Hellen Wangari Mwangi - Civil Application No. Nai. 255 of 1997 (unreported), where the Court expressed itself as thus:-“It is now well settled that the decision whether or not to extend the time for appealing is essentially discretionary. It is also well settled that in general the matters which this court takes into account in deciding whether to grant an extension of time are: first, the length of the delay; secondly, the reason for the delay; thirdly (possibly), the chances of the appeal succeeding if the application is granted; and, fourthly, the degree of prejudice to the respondent if the application is granted.”

27. The Tribunal, guided by the principles set out in John Kuria v Kelen Wahito, Nairobi Civil Application Nai 19 of 1983 April 10, [1984] where the court used the following criteria to consider the application.a.Whether there is a reasonable cause for the delayb.Whether the appeal is meritedc.Whether there will be prejudice suffered by the Respondent if the extension is granted

a. Whether there is a reasonable cause for the delay 28. In considering what constitutes a reasonable reason for the delay, the court in Paul Wanjohi Mathenge v Duncan Gichane Mathenge [2013] eKLR, held that:-“...it is clear that the discretion to extend time is indeed unfettered. It is incumbent upon the applicant to explain the reasons for delay in making the application for extension and whether there are any extenuating circumstances that can enable the Court to exercise its discretion in favour of the applicant.”

29. The Appellant submitted that it could not file the Appeal in time because its director was unwell during the time it was supposed to file.

30. The Tribunal has perused the Appellant’s pleadings and documentary evidence and has found that the Appellant adduced before it medical reports and discharge summary letters showing that its director was indeed ailing for a few years.

31. It is therefore the Tribunal’s finding that the reason tendered by the Appellant that its director was unwell has been established to be a reasonable cause for the delay.

b. Whether the Appeal is merited 32. The Tribunal examined whether the actions complained of by the Appellant were merited and there was an arguable appeal before the Tribunal or the appeal was frivolous to the extent that it would only result in a waste of the Tribunal’s time.

33. An appeal being merited does not mean that it should necessarily succeed rather it is arguable. The Tribunal was guided by the findings of the court in George Boniface Mbugua v Mohammed Jawayd Iqbal (Personal representative of the Estate of the late Ghulam Rasool Jammohamed) [2021] eKLR where it was held that:-“It must be remembered that the question whether an appeal is arguable, does not call for the interrogation of the merit of the appeal, and the Court, at this stage must not make any definitive findings of either fact or law. An arguable appeal is not one which must necessarily succeed, but one which ought to be argued fully by the Court.”

34. The Respondent filed a Memorandum of Appeal on the 20th February, 2024 that raises four substantive grounds of Appeal. It is not upon the Tribunal at this point in time to determine the merits or otherwise of the grounds of appeal as raised by the Appellant.

35. As such, the Tribunal finds that there is an arguable Appeal and the same has triable issues that can only be gleaned in an evidentiary hearing before it.

c. Whether there will be prejudice suffered by the Respondent if the extension is granted? 36. The Appellant contended that it will suffer prejudice as its business has been crippled by the freezing of its accounts occasioned by the Respondent’s agency notice issued to its bank account.

37. The Respondent did not demonstrate how it would suffer prejudice if the prayer for expansion of time was granted.

38. The Tribunal observes that the Appellant’s recourse to justice lies in an appeal to the Tribunal. Thus, the Appellant would suffer prejudice if it is not granted leave to file its appeal considering that the amount of money claimed is of significant value.

39. It is the view of the Tribunal that the Respondent would otherwise still collect the taxes together with penalties and interest should the Appellant be found to be at fault.

40. The Tribunal, therefore, finds that the Respondent will not suffer prejudice if the extension is granted.

41. It is therefore clear to the Tribunal that the Appellant has reasonably proved to the court that its director’s ill health caused a significant enough problem to keep it from following up on its tax affairs at the earliest convenient time.

Disposition 42. The Tribunal in the circumstances finds the application is meritorious and finds in favour of the Appellant.

43. The Tribunal accordingly makes the following Orders:-a.The application for the extension of time is hereby allowed;b.The Appellant is hereby granted leave to file an appeal out of time.c.The Notice of Appeal and the Appeal documents file on the 20th February, 2024 be and are hereby deemed as duly filed and served.d.The Respondent to file and serve its Statement of Facts within Thirty(30) days of the date of delivery of this Ruling.e.The Agency notice issued to the Appellant’s bankers at NCBA on 16th August, 2023 be lifted.f.No orders as to costs.

DATED AND DELIVERED AT NAIROBI THIS 19TH DAY OF APRIL, 2024ERIC NYONGESA WAFULA..............CHAIRMANELISHAH NJERU....................... MEMBEREUNICE NG’ANGA...................... MEMBERMUTISO MAKAU ........................MEMBERABRAHAM K. KIPTROTICH.................MEMBER