[2023] KETAT 992 (KLR)

Rural Electrification & Renewable Energy Corporation v Commissioner of Domestic Taxes (Miscellaneous Application E126 of 2023) [2023] KETAT 992 (KLR) (Commercial and Tax) (1 December 2023) (Ruling)

Neutral citation: [2023] KETAT 992 (KLR)

Republic of Kenya

In the Tax Appeal Tribunal

Commercial and Tax

Miscellaneous Application E126 of 2023

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

December 1, 2023

Between

Rural Electrification & Renewable Energy Corporation

Applicant

and

Commissioner Of Domestic Taxes

Respondent

Ruling

1. The Applicant moved the Tribunal vide a Notice of Motion application filed on 11th September 2023 under a certificate of urgency and supported by an Affidavit sworn by Davis Cheruiyot, the Applicant’s General Manager, on the even date seeking for the following Orders: -a)Spent.b)That the Honourable Tribunal be pleased to Order immediate lifting of Agency Notices dated 29th August 2023 against the Applicant’s bank accounts held at Equity Bank, Co-operative Bank, Standard Chartered Bank (K) Limited, Citi Bank and KCB Limited.c)That the Honourable Tribunal be pleased to extend time of filing the Applicant’s Notice of Appeal and Memorandum of Appeal herein.d)That consequently, the Memorandum of Appeal be deemed to have been properly filed within time.e)That this Tribunal be pleased to give orders and directions as it may deem fit and just.f)That costs for the application be in the cause.

2. The application is premised on the grounds, that: -i.That the Applicant is committed to ensure that it is compliant with the inherent tax legislation and did not delay the process.ii.That the Respondent issued the Applicant with an objection decision dated 28th April 2022 relating to Corporation tax for the year 2014/2015 to 2018/2019 on the basis of the income from the sales of electricity and interest income.iii.That the Applicant objected to the same vide the letter dated 30th September 2021. iv.That the Respondent did not allow the Applicant to claim investment deduction on capital cost incurred for the construction of its 50 MW Garissa Solar Power Plant project against its business income.v.That the Applicant has paid all taxes which were not disputed relating to interest income and sale of scrap.vi.That the revenue being generated from the 50 MW Garissa Solar Power Plant project is usually deposited into an Escrow account where the Applicant is not a signatory.vii.That the revenue therein attracts other taxes including Value Added Tax (VAT) and Corporation tax.viii.That the delay in failure to lodge the Notice of Appeal and Memorandum of Appeal within the stipulated time was as a result of the Applicant’s engagements with the Respondent which have been on going with a view to amicably resolve the dispute.ix.That the intended Appeal is plausible with overwhelming chances of success.x.That the Respondent has already commenced the process of execution in respect to the said objection decision vide the Agency Notices upon the Applicant’s bank accounts thereby crippling the Applicant’s operations.xi.That the interests of justice would be served better by allowing the orders herein.xii.That the Respondent will suffer no prejudice if this application is granted.xiii.That the Applicant is willing and ready to abide by any conditions/directions imposed by the Honourable Tribunal.

3. The Respondent opposed the application through a Replying Affidavit sworn by Levina Asiba, an officer of the Respondent, on the 21st September 2023 and filed on the 22nd September 2023. The grounds of opposition as highlighted in the Affidavit were as follows:-i.That the Respondent carried out investigations into the business of the Applicant for the period year 2015 to 2021 with a view of confirming its tax compliance under Income tax, VAT, PAYE and withholding taxes in both Income and VAT tax obligations.ii.That from the iTax data base on non-filers showed that the Applicant provided services to various customers but failed to declare the transactions for Income tax, PAYE and VAT tax purposes for the year 2015 to 2021. iii.That the Respondent issued additional assessments dated 24th August 2021 for Corporation tax, PAYE, VAT and withholding taxes totaling to Kshs. 5,266,766,802. 00 including interest and penalties.iv.That the Applicant filed an Objection on 30th September 2021, which was fully considered by the Respondent, who thereafter issued an objection decision confirming the taxes as Kshs. 420,034,611. 00. v.That the Respondent stands to suffer gross prejudice, injustice and irreparable loss if the prayers sought to allow appeal out of time is granted.vi.That no records were provided upon request by the Respondent upon investigation findings, Objection stage before issuance of objection decision.vii.That the application is misplaced and without merit as the Applicant seeks to appeal out of time after the period of more than 1 year with no valid explanations or supporting evidence in regards to why the same was never produced when the Respondent requested the same.

Applicant’s Submissions 4. The Applicant in its written submissions dated the 27th September 2023, submitted that there were two (2) issues for determination, namely;a)Whether the Tribunal may extend the time for filing the Applicant’s Notice of Appeal and Memorandum of Appeal.b)Whether the Tribunal may order immediate lifting of the Agency Notices dated 29th August, 2023 against the Applicant’s Bank account held at Equity Bank, Cooperative Bank, Standard Chartered Bank (K) Limited, Citi Bank and KCB Bank Limited.

5. The Applicant submitted that the power to grant the order sought herein is pursuant to Section 13 (3) and (4) of the Tax Appeals Tribunal Act.

6. The Applicant contented that the criteria to be considered when granting an extension to file an appeal out of time is laid out in the case of Wasike v Swala [1984] KLR 591, where the factors were indicated to include:-i.Whether there is met in the Appeal.ii.That the extension of time to institute the appeal will not cause undue prejudice to the Respondent; andiii.That the delay has not been inordinate.

7. The Applicant submitted that the Respondent issued additional assessments for the period 2020/2021 without seeking clarification from the Applicant.

8. The Applicant submitted that it incurred costs in its 50 MW Garissa Solar Power Plant project and the Respondent did not allow the Applicant to claim investment deduction on the same. Further, the Applicant has paid all taxes that were not disputed relating to the interest income and sale of scrap.

9. The Applicant stated that the appeal is plausible with an overwhelming chance of success.

10. The Applicant asserted that the Respondent will not suffer any prejudice if the application is granted and that the Applicant’s recourse in law lies in the Appeal to the Tribunal.

11. The Applicant is the one who stands to suffer great injustice and prejudice if it is not granted leave to file the appeal considering the amount of money due is of a significant value and that the Respondent has commenced the process of recovery of the taxes vide the Agency Notices thereby crippling the Applicant’s operations.

12. The Applicant submitted that since issuance of the objection decision on 28th April 2022, has been engaging in good faith with the Respondent, which dispute the Applicant anticipated would be resolved amicably until it learnt of the Agency Notices had been placed on its bank accounts.

13. The Applicant submitted that the application has been brought without undue delay, the Applicant relied on Section 1A of the Civil Procedure Rules and Article 159 (2) (d) of the Constitution of Kenya.

14. The Applicant submitted that it has already paid the undisputed amount of Kshs. 222,565,519. 00 being the payment of self-assessment income tax, leaving the disputed sum of Kshs. 383,829,978. 02 thereby showing goodwill exhibited by both parties to amicably resolve the dispute.

15. The Applicant in fortifying its legal position, relied on the following case law;a)Wasike v Swala [1984] KLR 591. b)Kenya Commercial Bank Limited v Nicholas Ombija [2009] eKLR.c)Kenya Commercial Bank Limited v Kenya Planters Co-operative Union Civil Application No. Nai. 85 of 2010.

16. The Applicant prayed for the application to be allowed.

Respondent’s Submissions 17. The Respondent in its written submissions dated 4th October 2023 and filed on the 5th October 2023, referred the Tribunal to the timelines of institution of appeals before the Tribunal as outlined under Section 13 of the Tax Appeals Tribunal Act.

18. The Respondent asserted that the application must fail since no proffered explanation to the delay in instituting the appeal was availed and as such the Tribunal ought to be slow to allow any obstacle that would prevent into challenge of the Respondent’s exercise in tax collection.

19. The Respondent submitted that the burden of proof lies with the Applicant to show why it should be granted leave to file a appeal out of time. Further, the Applicant failed to demonstrate reasonable grounds upon which it should be granted leave to appeal out of time and the grounds relied upon by the Applicant do not align with the provisions of Section 13 (4) of the TATAct.

20. The Respondent relied on the following case law;a)Nicholas Kiptoo Arap Korir Salat v Independent Electoral and Boundaries Commission & 7 Others [2014] eKLR.

21. The Respondent prayed for the application to be dismissed with costs.

Analysis and Findings 22. The application herein seeks for leave to file and/or lodge an appeal out of time and orders restraining the Respondent from employing any enforcement mechanism vide the Agency Notices pending the hearing and determination of the intended appeal.

23. The both parties made references to Section 13 of the Tax Appeals Tribunal Act as the provisions that ought to be relied upon when dealing with an application of this nature.

24. The Applicant reiterated the Tribunal’s jurisdiction to grant the orders and referred to Section 13 (3) and (4) of the Tax Appeals Tribunal Act, which Sections provide that:“(3)The Tribunal may, upon application in writing or through electronic means, extend the time for filling the notice of appeal and for submitting the documents referred to in subsection (2)”“(4)An extension under subsection (3) may be granted owing to absence from Kenya, or sickness, or other reasonable cause that may have prevented the applicant from filing the notice of appeal or submitting the documents within the specified period.”

25. The Respondent placed reliance on Section 13 (1) and (2) of the Tax Appeals Tribunal Act, which provides that:-“13 (1) A notice of appeal to the Tribunal shall—(a)be in writing;(b)be submitted to the Tribunal within thirty days upon receipt of the decision of the Commissioner.(2)The appellant shall, within fourteen days from the date of filing the notice of appeal, submit enough copies, as may be advised by the Tribunal, of—(a)a memorandum of appeal;(b)statements of facts; and(c)the tax decision.”

26. It was the Respondent’s submissions that the Applicant did not advance any reasonable grounds towards the lateness.

27. The Tribunal is guided by the principles set out in the case of Leo Sila Mutiso v Rose Hellen Wangari Mwangi in considering an application of this nature, being:a)Whether there is a reasonable cause for the delay.b)The merits of the complained action.c)Whether there will be prejudice suffered by the Respondent if the extension is granted.

28. Whereas the Applicant pleaded and explained the reasons that prevented it from filing the Appeal within the statutory timelines was that the Appellant was engaged in discussions with the Respondent in good faith and honestly believed that the Respondent would have settled the dispute amicably only to have the Agency Notices issued against it.

29. The reason advanced by the Applicant would be categorized under “other reasonable cause” and is one that is provided for the Tribunal’s consideration in dealing with application’s for extension of time to file an Appeal.

30. The Tribunal is therefore invited to look into the reasonableness of the Applicant’s grounds for extension of time to lodge an appeal.

31. From the documents presented, the Tribunal noted that there are documents supporting the Applicant’s assertions, particularly emails and correspondences between the respective deponents of the rival affidavits herein as late as an email from the Respondent of 4th September 2023 calling for documents from the Appellant.

32. That fact has not been disputed and/or rebutted by the Respondent either in its Replying Affidavit or written submissions, more so the Applicant asserted that it has paid the undisputed taxes amounting to Kshs. 222,565,519. 00, which has also not been disputed by the Respondent.

33. The powers of the Tribunal are to be exercised cautiously, not to cause hardship to any party on one hand, however, the same ought not to be exercised with the result thereof being aiding a party who has been indolent about its claim.

34. The Tribunal observed that indeed the parties were engaged in discussions which could cause or could lead any reasonable or prudent person, including the Applicant to believe that the dispute would be resolved amicably.

35. The Tribunal is therefore persuaded that the Applicant’s grounds are reasonable and under the circumstances the period of delay is not inordinate.

36. The Respondent submitted that it shall suffer prejudice if leave is granted, but has not demonstrated how it would suffer any prejudice, save for the collection of taxes, which the Tribunal holds the view that the same would still be collectable if the assessment was justifiable.

37. It is the Tribunal’s considered view, that the Respondent shall not suffer any prejudice under the circumstances.

38. The Tribunal, on a balance of convenience finds that the Applicant has advanced sufficient grounds and has adequately explained the delay in filing the Appeal within the statutory timelines.

39. It was the Applicant’s assertion that Agency Notices were issued dated 29th August 2023 against the Applicant’s bank accounts held at Equity Bank, Co-operative Bank, Standard Chartered Bank (K) Limited, Citi Bank and KCB Limited.

40. The Applicant further submitted that the enforcement measure vide the Agency Notices has crippled its operations, the same was issued without any warning and at time when parties were still engaged in discussions.

41. The Tribunal is guided by Section 42 (14) of the Tax Procedures Act, which provides as thus:-“(14)The Commissioner shall not issue a notice under this section unless—(a)the taxpayer has defaulted in paying an instalment under section 33(2);(b)the Commissioner has raised an assessment and the taxpayer has not objected to or challenged the validity of the assessment within the prescribed period;(c)the taxpayer has not appealed against an assessment specified in an objection decision within the prescribed timelines;(d)the taxpayer has made a self-assessment and submitted a return but has not paid the taxes due before the due date lapsed; or(e)the taxpayer has not appealed against an assessment specified in a decision of the Tribunal or court.”

42. The Tribunal has been invited by the Applicant to intervene and restrain the Respondent from enforcing the collection of the taxes until the intended appeal is heard. The Tribunal having held that the Applicant has a reasonable ground to warrant the Tribunal grant it leave to file an appeal out of time, hence the Respondent ought to be prohibited by law from employing any mechanisms in recovery of the said taxes, including, but not limited to Agency Notices in accordance with Section 42 (14) (e) of the Tax Appeals Tribunals Act.

43. The Tribunal, on a balance of convenience finds that the Applicant has advanced sufficient grounds to warrant the Tribunal to interfere with the enforcement process and holds the application as merited.

Disposition 44. Premised on the foregoing analysis, the Tribunal finds that the application is merited and accordingly makes the following orders: -a)The Applicant be and is hereby granted leave to file an appeal out of time.b)The Applicant to file and serve its Notice of Appeal, Memorandum of Appeal, Statement of Fact together with documents in support thereof and the objection decision within Fifteen (15) days of date of delivery of this Ruling.c)The Respondent to file and serve its Statement of Facts together with documents in support thereof within thirty (30) days of service thereof.d)That Agency Notices dated 29th August 2023 issued the Applicant’s bank accounts held at Equity Bank, Co-operative Bank, Standard Chartered Bank (K) Limited, Citi Bank and KCB Bank be and are hereby lifted unconditionally.e)No orders as to costs.

45. It is so ordered.

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