[2023] KETAT 993 (KLR)

Questek Limited v Commissioner of Domestic Taxes (Miscellaneous Appeal E058 of 2023) [2023] KETAT 993 (KLR) (Commercial and Tax) (1 December 2023) (Ruling)

Neutral citation: [2023] KETAT 993 (KLR)

Republic of Kenya

In the Tax Appeal Tribunal

Commercial and Tax

Miscellaneous Appeal E058 of 2023

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

December 1, 2023

Between

Questek Limited

Applicant

and

Commissioner Of Domestic Taxes

Respondent

Ruling

1. The application which was by way of a Notice of Motion dated 20th June 2023 and filed under a Certificate of urgency on 21st June 2023 is supported by an Affidavit sworn by the Appellant’s Director, Noor Ali Haji, on the 20th June, 2023 sought for the following Orders:-a.Spentb.spentc.The Agency Notice dated 23rd June 2023 issued to Gulf African Bank Limited and First Community Bank Limited and any other Agency Notice issued on any of the Applicant’s bankers be lifted vacated and/or set aside and the Respondent whether by itself, its officers, employees and/or agents, be stopped from taking any steps or other enforcement action founded on the said assessments.d.The intended Appellant/Applicant be granted an extension of time with regard to filing a Notice of Appeal and Memorandum of Appeal to this Honourable Tribunal.e.The intended Appellant/Applicant’s Notice of Appeal dated 21st June 2023 be admitted into the record of this Honourable Tribunal as having been filed within time.f.The cost of this application be in the cause.g.This Honourable Tribunal be pleased to issue any such orders as it deems just and expedient.

2. The application is premised on the following grounds, that:-a.The Respondent issued the Agency Notices dated 23rd June 2021 to the Applicant’s bankers requiring them to immediately pay a sum of Kshs 547,014. 00b.The Applicant was not aware that its objection to the said taxes done on 15th December 2019 was rejected as confirmed since the Respondent did not respond within the stipulated timelines of 60 days as per Section 51(11) of the Tax Procedures Act and the confirmation notices were never sent to the Applicant’s iTax account nor communicated in any other substituted method.c.The Applicant came to know of the Confirmation of the Assessment Notices dated 13th August 2022 when it visited the Respondent’s offices.d.Being dissatisfied with the decision of the Respondent to issue Agency Notices to its bankers, the Applicant has lodged an application to this Tribunal.e.The Agency Notices are unlawful, unreasonable, unfair and in bad faith.f.The Applicant stands to suffer substantial loss and damage if the Agency Notices are not lifted including the inability to meet its immediate financial obligations like loans, family and salary obligations.g.The intended Appellant/ Applicant was not informed of the confirmation assessment notices dated 12th August 2022 by the Respondent since the same was not sent to its email nor to the iTax platform of the Applicant.h.The intended Appellant/ Applicant learned of the same early in the month of June 2023 when it visited the Respondent’s offices.i.The Applicant had objected to the assessments and the same acknowledged through the system on 15th December 2019 whereby the Respondent never issued a decision within its stipulated timelines only to issue the same late and not notify the taxpayer.j.This application is brought without undue delay.k.The Respondent will suffer no prejudice if the orders sought herein are granted.l.It is in the interest of justice that the Honourable Tribunal grants the orders for lifting the Agency Notice to Gulf African Bank Limited and First Community Bank Limited accounts and allow the Notice of Appeal to be filed out of time as sought herein.m.Unless this application is heard on a priority basis and the orders sought herein are granted, the Applicant/taxpayer will be highly prejudiced and will suffer substantial and irreparable loss.

3. Given that the Applicant did not file any submissions, the Tribunal will rely on the pleadings and accompanying documents attached thereto filed by the Applicant to determine the totality of its case.

4. The Respondent in response to the application filed Grounds of Opposition dated and filed on 26th June 2023 raising the following grounds, that:-a.The application is fatally defective for want of compliance with Section 13(3) and (4) of the Tax Appeals Tribunal Act. Furthermore, an application of this nature requires an Applicant to prove his/her absence from Kenya, sickness, or other reasonable cause.b.The Respondent has legally made an assessment of Kshs 547,014. 00 on the Applicant and at the point of the Respondent’s issuance of an Agency Notice dated 23rd June 2021 the Applicant (sic) had not complied with the provisions of Section 13(2) of the Tax Appeals Tribunal Act.c.Issuance of the Agency Notices to the Applicant’s bankers or persons owing to the Applicant or holding monies on behalf of the Applicant is a recognised mode of enforcement under Section 42 of the Tax Procedures Act.d.The tax demanded herein became due on confirmation of the assessments and they now continue to accrue interest and penalties as provided under the various tax laws as there is no valid appeal before the Tribunal thus the Applicant ought to pay 50% on account to show commitment in the matter for the Tribunal to consider granting the orders sought.e.The Respondent ought to be allowed to exercise its mandate of collection of revenue which is key to the economic development of the Country and consequently, the public and all the arms of the Government and specifically the Tribunal is called upon to assist the Respondent in carrying out its mandate as long as the same is within the law.f.The indolence and negligence of the Applicant should not bar the Respondent from fulfilling its mandate of collecting taxes that are due and payable.g.The Respondent has the ability to refund the taxes in dispute if the Honourable Tribunal finds in favour of the Applicant.h.Should this Honourable Tribunal be convinced to grant the Applicant stay, this Honourable Tribunal should direct the Applicant to provide the Respondent with the security of the taxes due.i.The Respondent is apprehensive that the Applicant will not be in a position to recover the amount owing and due and this Honourable Tribunal should order it to pay the security of taxes for the Applicant to be granted a stay.j.The Applicant has not demonstrated that it deserves favourable discretion of this Honourable Tribunal and the application should be dismissed with costs to the Respondent.k.The application is an afterthought and a delay tactic by the Applicant, meant to delay the conclusion of the matter, which holds substantial Government revenue.l.The application is misconceived, bad in law and is a gross abuse of the Honourable Tribunal’s process.

5. In its written submissions dated 6th August 2023 and filed on 26th August 2023, the Respondent presented its case as hereunder.

6. The Respondent submitted that the Applicant lodged its application to extend time on 22nd June 2023, a period of 9 months after the statutorily prescribed time for lodging an appeal contrary to the provisions of Section 13(1)(b) of the Tax Appeals Tribunal Act. This delay is not only inordinate but it has also not been satisfactorily explained.

7. It submitted that the Applicant lodged its application objecting to the assessments issued by the Respondent adding that the Applicant’s late objection application lodged on 15th December 2021 was not supported by any documents in contravention of Section 51(3) of the Tax Procedures Act and was issued with a late Objection Rejection Notice on 12th August 2022 for failure to provide reasons for the objection and documentary evidence in support of the objection of assessments pursuant to Section 51(3) of the Tax Procedures Act.

8. It asserted that the Respondent’s decision was lawfully and regularly issued pursuant to Section 51(4) of the Tax Procedures Act adding that the Applicant has not advanced sufficient or reasonable grounds for the delay on its part for filing either a Notice of Appeal or the substantive appeal within the statutory timelines.

9. It further asserted that the Applicant has failed to provide any credible reason to warrant an extension of time as provided by Section 13(4) of the Tax Appeals Tribunal Act and rebut the Respondent's evidence of effective service.

10. It contended that the Applicant has annexed the confirmation of assessment note and late objection application in its application confirming that the Respondent’s decision was lodged in the Applicant’s iTax portal on 12th August 2022 and the Applicant was indolent for not taking any action for 9 months.

11. It relied on the case of Chairman, Kenya National Union of Teachers & Another v Henry Inyangala & 2 Others [2018] eKLR where it averred that the court held that a delay of 15 months in the absence of a satisfactory and reasonable explanation is inordinate and an instance of laches arguing that the delay of 9 months with no explanation is inordinate.

12. It urged the Tribunal to be guided by the case of Utalii Transport Company Limited & 3 Others v NIC Bank Limited & Another [2014] eKLR where it was held:-“Whereas there is no precise measure of what amounts to inordinate delay. And whereas what amounts to inordinate delay will differ from case to case depending on the circumstances of each case; the subject matter of the case; the nature of the case; the explanation given for the delay; and so on and so forth. Nevertheless, inordinate delay should not be difficult to ascertain once it occurs; the litmus test being that it should be an amount of delay which leads the court to an inescapable conclusion that it is inordinate and therefore, inexcusable. On applying the court's mind on the delay, caution is advised for courts not to take the word ‘’inordinate’’ in its dictionary meaning, but in the sense of excessive as compared to normality.”

13. The Respondent cited Section 13(3) and (4) of the Tax Appeals Tribunal Act and argued that the power to extend time to file an appeal is discretionary. It further relied on the case of Nicholas Kiptoo Arap Korir Salat v. Independent Electoral and Boundaries Commission and 7 Others [2014] eKLR where it was held that:“1. Extension of time is not a right of a party. It is an equitable remedy that is only available to a deserving party at the discretion of the Court;2. A party who seeks for extension of time has the burden of laying a basis to the satisfaction of the court3. Whether the court should exercise the discretion to extend time, is a consideration to be made on a case-to-case basis;4. Whether there is a reasonable reason for the delay. The delay should be explained to the satisfaction of the Court;5. Whether there will be any prejudice suffered by the respondents if the extension is granted;6. Whether the application has been brought without undue delay; and7. Whether in certain cases, like election petitions, public interest should be a consideration for extending time.”

14. It reiterated that ignorance of the law is no defense to the Applicant’s contention that it did not file an appeal because it was not made aware of the expiry of filing an objection when the additional assessment order was issued adding that the Applicant is aware of the provisions of the Tax Procedures Act on filing an appeal.

15. It argued that the fact that the Applicant did not bother to check on the status of its Objection despite being aware that the law requires the Commissioner to render it within 60 days is a demonstration of indolence.

16. It submitted that the delay by the Applicant is unreasonable and not excusable as the Applicant like any other taxpayer has a duty to ensure that its tax affairs are well managed by making regular consultations with its tax agent for the purpose of tracking the progress of its tax matters.

17. It asserted that Section 16(8) of the Tax Procedures Act provides that a taxpayer is not relieved from performing any obligation imposed on it under a tax law that a tax representative has failed to perform and the indolence of the Applicant to follow up on this matter and leaving the same to its tax agent without exercising some control on the tax agent’s work should not be excused.

18. It contended that the Assessment Order and the Respondent’s decision were lodged on the Applicant’s iTax portal and the fact that the Applicant lodged an Objection is further confirmation that it was issued with the assessments by the Respondent thus the Applicant has not provided the Tribunal with credible reasons to warrant the exercise of its discretion to extend the time to file an appeal as provided in Section 13(4) of the Tax Appeals Tribunal Act.

19. It cited the case of Misc App No. 177 of 2022: Katahira & Engineers International v Commissioner of Domestic Taxes where the Tribunal held that:-“for the Tribunal to exercise its discretion, the Applicant ought to explain the reason(s) for the delay which reason(s) should either be absence from Kenya, sickness or other reasonable cause. In the absence of such explanation from the Appellant, the Tribunal is constrained from exercising such discretion.”

20. It reiterated that the Applicant has not been keen on this matter and was woken up from slumber by the action of the Respondent of lawfully enforcing taxes which was undisputed as no appeal had been lodged within statutory timelines and the Applicant has proclaimed in its application that it was aware of the Respondent’s decision.

21. The Respondent contended that allowing the appeal after such an inordinate period will be prejudicial to the Respondent since the taxes have been outstanding since 2022 and the Applicant has failed to give reasonable cause for delay.

22. It maintained that the Applicant has not attached a draft Memorandum of Appeal and it remains speculative what the Applicant wishes to appeal against. A requirement that has not been met thus the Applicant has not demonstrated that its appeal is arguable.

23. It relied on the following cases:a.Misc. Application No 175 0f 2022 Valley Drillers & General Contractors Limited v The Commissioner of Domestic Tax where the Tribunal held that “without a valid Objection the Applicant has no basis for bringing its appeal before the Tribunal”b.TAT Appeal No 470 of 2021 Seme NG-CDF v The Commissioner of Domestic Taxes where the Tribunal stated: “in the absence of an Objection Decision that would have otherwise been issued under Section 51() of the Tax Procedures Act there is no appealable decision to be pursued before the Tribunal on the part of the Appealable decision to be pursued before the Tribunal on the part of the Appellant in pursuant to the provisions of Section 52(1) of the Tax Procedures Act.”c.Tax Appeals Tribunal Appeal No. 721 of 2021 Manchester Outfitters Ltd v Commissioner of Domestic Taxes: where the Tribunal held: “the Appellant did not comply with both Section 51(2) and (3) of the Tax Procedures Act having concluded that there was no valid objection, it follows that there is no valid appeal as there is no appealable decision to anchor this Appeal. The Appeal is thus not meritorious and must fail in this limb.”

24. It submitted that the issuance of Agency Notices to the Applicant’s bankers is a recognized mode of enforcement under Section 42 of the Tax Procedures Act as at the point of the Respondent’s issuance of Agency Notices dated 23rd June 2021 and 23rd June 2023 respectively.

25. It asserted that the taxes demanded became due on confirmation of the assessments and continue to accrue interest and penalties provided in the law as there is no valid appeal before the Tribunal thus the Applicant should pay 50% on account to show commitment for the Tribunal to consider granting the orders sought.

26. It reiterated that the Applicant has been indolent since 23rd June 2021 when Agency Notices were placed on the Applicant only to move the Honourable Tribunal two years later adding that the Applicant’s failure to follow up on the stay or lifting of the same for that long time demonstrates its lack of vigilance and does not warrant the Tribunal’s exercise of its discretion in the Applicant’s favour.

27. It submitted that the Applicant has not attached the Agency Notices dated 23rd June 2023 and has misled the Tribunal into believing that the Agency Notices were placed in its bank account when the instant application was filed on 23rd June 2023.

28. It argued that the application must be proportionally balanced with the Respondent’s statutory Obligation to collect taxes under Section 5(1) of the KRA Act and pursuant to Sections 13(1) and (2) of the TAT Act, upon the Applicant failing to file a Notice of Appeal or a Memorandum of Appeal within the stipulated timelines, the taxes assessed crystalised and allowing the subject application 1 year and 10 months later prejudices the Respondent’s legitimate expectation to a timeous resolution of tax disputes which risks materially hampering its administrative functions of revenue collection.

Analysis and Findings 29. 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 Applicant.

30. In determining whether to extend time, the Tribunal was guided by the decision of the court 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 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.”

31. 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 delay?b.Whether the appeal is merited?c.Whether the application for extension has been brought without undue delay?d.Whether there will be prejudice suffered by the Respondent if the extension is granted?

a. Whether there is a reasonable cause for the delay? 32. 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.”

33. The Applicant submitted that the Applicant has objected to the confirmed assessments and the same was acknowledged through the system on 15th December 2019 whereby the Respondent never issued a decision within its stipulated timelines only to issue the same late and not notify the taxpayer.

34. The Respondent contended that the Applicant lodged its application objecting to the Assessments issued by the Respondent late on 15th December 2021 which was not supported by any documents in contravention of Section 51(3) of the Tax Procedures Act and was issued with a late Objection Rejection Notice on 12th August 2022 for failure to provide reasons for the objection and documentary evidence in support of the objection of assessments pursuant to Section 51(3) of the Tax Procedures Act.

35. The Tribunal has perused the Applicant’s pleadings and documentary evidence and has found that whereas the Applicant raised an Objection against the Respondent’s assessment received by the Respondent on 15th December 2019, the Respondent issued its objection decision on 12th August 2022.

36. The Tribunal finds that the Objection Ddecision was issued over 20 months after the Objection was lodged which is clearly past the 60 days timeline provided under the law. It is the Tribunal’s position that the Appellant would have reasonably thought that its objection was allowed after sixty days and as such would not have expected an Objection Decision after the timelines had expired.

37. It is therefore the Tribunal’s finding that the reason tendered by the Applicant has been satisfactorily established to be a reasonable cause for the delay to the Tribunal.

b. Whether the Appeal is merited? 38. The Tribunal examined whether the actions complained of by the Applicant 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.

39. 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.”

40. In the instant case, the Applicant brought up an issue of the Objection decision being issued beyond the statutory timelines of 60 days.

41. The Respondent further submitted that the Applicant has not filed its Statement of Facts thus there is no way to discern what its case is based on therefore the Appellant has not proved that its case is merited. It added that its Objection Decision was regularly issued as the Applicant’s Objection was lodged without any supporting documents attached.

42. The Tribunal notes that while the Applicant has not provided documentation detailing the gist of its case, the parties have sufficiently provided information regarding the course of the dispute herein before the Tribunal.

43. It is the Tribunal’s finding that these are issues that can only be appropriately interrogated in a trial.

c. Whether there will be prejudice suffered by the Respondent if the extension is granted? 44. The Respondent did not demonstrate how it would suffer prejudice if the prayer for expansion of time was granted. The Respondent only pointed out the fact that allowing the Appeal after such an inordinate period will be prejudicial to it and since the Respondent’s mandate of collection of revenue is key to the economic development of the country, the public and all the arms of the government specifically the Tribunal are called upon to assist the Respondent in carrying out its mandate so long as the same is within the law.

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

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

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

d. Whether the Application for an extension has been brought without undue delay? 48. The Tribunal noted from the submissions and documents presented that the Appellant’s bank was issued with an Agency Notice on May 26th 2023 with the current Application filed with the Tribunal on 3rd August 2023.

49. The Applicant contended that it did not become aware of the Notice of Objection Decision until it visited the Respondent’s offices.

50. The Applicant indicated that it visited the Respondent’s offices in the month of June, 2023 following the issuance of the Agency Notices, and to that extent there was no inordinate delay in filing the application upon learning of the existence of the Respondent’s decision.

51. The Tribunal, consequently finds the Applicant has satisfactorily proven to it that it filed the application at the earliest convenient time after it found out about the Objection decision and the same has been brought without undue delay.

Disposition 52. The Tribunal in the circumstances finds the application is meritorious and accordingly exercises its discretion in favour of the Applicant.

53. The Tribunal accordingly makes the following Orders:-a.The Applicant is hereby granted leave to file an appeal out of time.b.The Notice of Appeal dated 21st June, 2023 be and is hereby deemed as duly filed and served.c.The Applicant to file and serve its Memorandum of Appeal, Statement of Facts and tax decision within Fifteen (15) days of the date of delivery of this Ruling.d.The Agency Notices dated 23rd June 2021 issued to the Applicant’s bankers be and are hereby liftede.No orders as to costs.

DATED AND DELIVERED AT NAIROBI THIS 1ST DAY OF DECEMBER, 2023ERIC NYONGESA WAFULA............CHAIRMANELISHAH N. NJERU..............MEMBERMUTISO MAKAU................MEMBEREUNICE N. NG’ANG’A...........MEMBERABRAHAM K. KIPTROTICH..........MEMBER