[2024] KETAT 258 (KLR)

Sportybet Limited v Commissioner Domestic Taxes (Appeal 344 of 2023) [2024] KETAT 258 (KLR) (Civ) (23 February 2024) (Judgment)

Neutral citation: [2024] KETAT 258 (KLR)

Republic of Kenya

In the Tax Appeal Tribunal

Civil

Appeal 344 of 2023

E.N Wafula, Chair, RO Oluoch, AK Kiprotich, Cynthia B. Mayaka & T Vikiru, Members

February 23, 2024

Between

Sportybet Limited

Appellant

and

Commissioner Domestic Taxes

Respondent

Judgment

1. The Appellant is a betting company duly licensed and regulated by the Betting and Control Licensing Board under the Betting and Lotteries and Gaming Act.

2. The Respondent is a principal officer appointed under Section 13 of the Kenya Revenue Authority Act. The Kenya Revenue Authority is an agency of the Government of Kenya mandated with the duty of collection and receipting of all tax revenue, and the administration and enforcement of all tax laws set out in parts 1& 2 of the first schedule to the Act, for purposes of assessing, collecting, and accounting for all tax revenues in accordance with those laws.

3. The issue in dispute in this Appeal arose when the Respondent carried out a returns review of the Appellant’s books of accounts and it served the Appellant with its review findings on 25th October 2021.

4. The parties engaged in several communication and audit processes in the intervening period resulting in the issuance of a tax assessment of Kshs 1,691,425,085. 00 on the 23rd January 2023.

5. The Appellant objected to this assessment vide its letter dated 21st February 2023, which letter was acknowledged as received by the Respondent on 22nd February 2023.

6. The Respondent issued its objection decision through a letter dated 20th April 2023 and an amended objection decision on 21st April 2023.

7. The Appellant being dissatisfied with the Respondent’s objection decision lodged its Notice of Appeal on 16th May 2023.

The Appeal 8. The Appellant's Appeal as stated in the Memorandum of Appeal dated 2nd May 2023 and filed on the 16th May 2023 has set out the following grounds of Appeal, that:a.The Respondent erred in fact and law and also violated its rights by denying the taxpayer an opportunity to exercise his rights contained in the Tax Procedure Act to object to an assessment by placing an agency notice on the taxpayer’s Paybill and bank account 7 days after the Commissioner raised an assessment.b.The Respondent erred in fact and law by using the payouts of Kshs 7,326,149,594. 00 as the base for computing the Withholding tax on winnings. The amount of Kshs 7,326,149,594. 00 was erroneous. The amount was the result of a system bug that was duplicating stakes and payouts when the accountant was querying the figures to be used to pay the betting tax. That the correct gross payouts are Kshs 1,948,360,384. 00 according to the BCLB returns. A system Audit was done by the large taxpayer office and preliminary findings arrived showed the total payouts were Kshs 1,929,987,093. 00. c.The Respondent failed in its statutory duty to exercise reasonableness having done a system audit and got results that showed there was an error.d.The Respondent erred in law and fact by using the gross payouts to compute the Withholding tax on winnings. In the case between the Commissioner of Domestic Taxes department Vs Pevans East Africa Limited and Shop and Deliver and 5 others HCCOMMITA/E003/2019 (Paragraph 38 of the ruling) the High Court upheld the decision of the Tax Appeals Tribunal that winnings exclude the stake placed by the punter and thus meant that it was that which a punter gained, over and above the bet placed. Other than the Commissioner using the wrong tax base to compute the Withholding tax on winnings, the commissioner should have taken into consideration the winning stake and excluded it from the Winnings to arrive at the net winnings.e.The Respondent erred in fact and law by demanding the withholding tax from Sportybet. In the case between the Commissioner of Domestic Taxes Department vs Pevans East Africa Limited ad Shop and Deliver and 5 others HCCOMMITA/E003/2019 (Paragraph 42 of the Ruling) the High Court upheld the decision of the Tax Appeals Tribunal that during 2018 and 2019 period the Commissioner could not demand taxes not withheld from the person who should have withheld as there was no enabling law considering Section 35(6) of Income Tax had been repealed. This position remained in force until 7th November 2019. f.The High Court and the Tax Appeals Tribunal have already pronounced themselves on the issue of what is to be subject to withholding tax when it comes to winnings and how the value is to be arrived at. That the Respondent did not file a Notice of Appeal to the Court of Appeal. Therefore, the Appellant is of the opinion that res judicata applies in this matter. In Commissioner of Domestic Taxes department vs Pevans East Africa Limited and Shop and Deliver and 5 others HCCOMMITA/E003/2019 there were two main issues for determination, the definition of what is winning and whether the commissioner can demand withholding tax for the period when Section 35(6) of the Income Tax Act had been deleted.g.The Respondent erred in law by serving its amended objection decision in total disregard of Section 77 of the Tax Procedures Act which requires that a decision should be submitted on the last working day when the due date falls on a Saturday or a public holiday in Kenya, the due date shall be the previous working day. Therefore, a proper objection decision should have been served on 20th April 2023. The Respondent by making an amendment to the objection decision sent on 20th April 2023 and serving a new one on 21st April 2023 meant that the decision issued on 20th April 2023 had been withdrawn and suspended by the new one. That this meant the new decision was issued in contravention of Section 51(11) TPA as read together with Section 77 of the Tax Procedures Act.h.The Respondent erred and contravened Section 51(10) of the TPA when it failed to address the grounds of objection as stated in the Appellant’s letter dated 22nd February 2023. That the Respondent introduced new grounds of objection and addressed them in the objection decision. In the said objection decision the Respondent avers that the objected amount was Kshs 1,691,425,085. 00 while in the Appellant’s Objection letter, the Objected amount is Kshs 1,428,251,043. 00. That this error occurred because the Respondent introduced issues of interest of reverse VAT, Income tax, and withholding tax on winnings for the year 2021 which had already been accounted for under self-assessment and were thus not part of the Appeal. That the Appellant paid reverse VAT on a without prejudice basis because it was not registered for VAT and therefore not bound by law to account for same.

Appellant’s Case 9. The Appellant has grounded its Appeal on its:a.Statement of Facts dated 2nd May 2023 and filed on 16th May 2023 and annexures thereto.b.Written submissions dated 22nd September 2023 and filed on 27th September 2023.

10. The Appellant stated that Respondent erred by:a.Denying it an opportunity to exercise his rights contained in the Tax Procedures Act to object to an assessment when it placed an agency notice on the taxpayer's pay bill and bank account 7 days after the Respondent raised an assessment. That this action violated its rights.b.Using the Payouts of Kshs. 7,326,149,594. 00 that was relied on by the Respondent as the base for computing the withholding tax on winnings was a result of a system bug that was duplicating stakes and payouts when the accountant was querying the figures to be used to pay the betting tax. That the correct gross payouts according to BCLB was Kshs 1,948,360,384 and that this figure was confirmed by the large taxpayer office.c.Ignoring the case of Commissioner of Domestic Taxes department vs Pevans East Africa Limited and Shop and Deliver and 5 others HCCOMMITA/E003/2019 where the High Court upheld the decision of the Tax Appeals Tribunal that winnings exclude the stake placed by the punter.d.Using the tax base to compute the Withholding tax on winnings.e.Demanding the Withholding tax from the Appellant when Section 35(6) of the ITA which would have compelled it to withhold such tax had been repealed in 2016. That this position remained the same until 7th November 2019 when Section 39(A) of TPA was re-introduced.

11. The Appellant identified six issues as falling for determination in this Appeal.

i. Whether the Respondent violated the Appellant’s rights under section 51 (2) of the TPA as read together with provisions of Article 50 of the Constitution and Article 47 thereof as read together with the provisions of the Fair Administrative Actions Act. 12. The Appellant stated that the Respondent’s notice of assessment contravened Section 51(2) of the TPA because:a.It did not inform the Appellant of its right to object to the assessment within thirty days.b.It proceeded to issue agency notices against the Appellant to recover the assessed debt seven days after the issuance of the assessment. That this action was premature, irrational and done in bad faith.c.It proceeded with enforcement before the period for objection had lapsed.d.It invoked enforcement proceedings under Section 42 of the TPA without allowing the Appellant a chance to object to the assessment and to also exhaust all the dispute resolution avenues available under the TPA.e.It proceeded with enforcement proceedings when the tax was not due.f.It did not allow the Appellant the statutory time limit to pay the assessed tax before proceeding with enforcement proceedings.

13. The Appellant further stated that the agency notices issued by the Respondent:a.Subverted and circumvented the due process of the law.b.Amounted to an abuse of discretion and the administrative powers of the Respondent.c.This was a blatant breach of the Appellant’s legitimate expectation of fair administrative action under Article 47 of the Constitution which provides that every person has a right to an administrative action that is expeditious, efficient, lawful, reasonable and procedurally fair.d.Amounted to a breach of the rules of natural justice which requires that no one shall be condemned unheard. That in this matter, an adverse decision to debit the Appellant’s account was made and implemented to the detriment of the Appellant without giving it the benefit of a fair hearing contrary to all the known rules of natural justice and the provisions of Article 50 of the Constitution.e.Was made in bad faith, irrational and unreasonable. It supported its arguments with the case of Republic vs. Kenya Revenue Authority Ex Parte Jaffer Mujtab Mohamed Nairobi miscellaneous Civil Application No. 312 of 2011.

ii. Whether the Respondent was legally right to use the Payouts of Kshs 7,326,149,594 as the base for computing the WHT on winnings as against the Appellant instead of Actual Payouts of Kshs 1,948,360,384. 14. The Appellant submitted that the Respondent assessed WHT on winnings of Kshs. 1,517,923,803. 00 by using payouts of Kshs 7,326,149,594. 00 as the base when the amount of Kshs. 7,326,149,594. 00 was erroneous. That the latter amount was a result of a system bug that was duplicating stakes and payouts when the Appellant’s accountant was querying the figures to be used to pay the Betting tax.

15. The Appellant contended that the Respondent was granted access to the archived data which contained data covering the period of review from April 2018 to December 2021 to verify this information. That this live environment contained data covering 6 recent months because it is usually archived after 6 months.

16. That contrary to the Respondent’s assertion that it was not granted full access to the betting platform, the Appellant stated that it shared the system audit workings with the Appellant on 15th September 2022 who then issued its notice of assessment on 23rd January 2023 in total disregard of the system audit workings it had commissioned and the documents that had been supplied to it by the Appellant.

17. It was the Appellant’s submission that the decision by the Respondent to use the sum of Kshs 7,326,149,594. 00 as the base for computing the WHT instead of actual payouts of Kshs. 1,948,360,384. 00 was irrational, unreasonable, and a violation of its legitimate expectation to fair administrative action as was stated in the case of Republic v Kenya Revenue Authority Ex-Parte Funan Construction Limited [2016] eKLR.iii.Whether the Respondent should use Gross Payouts to compute the WHT on winnings given the judgment of the High Court in Commissioner of Domestic Taxes v Pevans East Africa Limited & 6 others (Tax Appeal E003 of 2019) and in the Tribunal Appeals.

18. The Appellant submitted that the Respondent erred by issuing the notice of assessments demanding Withholding tax on winnings based on the gross payouts i.e., a winning is inclusive of the stake by the punter, yet both the Tribunal and the High Court have repeatedly held that winnings do not include the amounts staked by a punter.

19. That the Respondent only used the wrong tax base to compute the WHT on winnings but it applied the wrong definition of winnings to arrive at the net winnings contrary to the following decisions:a.Commissioner of Domestic Taxes v Pevans East Africa Limited & 6 others (Tax Appeal E003 of 2019) [2022] KEHC 10392 (KLR) (Commercial and Tax) (13 May 2022) (Judgement).b.Shop and Deliver Limited versus the Commissioner of Domestic taxes, tax Appeal Number 129 of 2022, where this Tribunal held that;“As to what constitutes “winnings” under the Income-tax Act (Chapter 470 of the Laws of the Laws of Kenya) (“the ITA”), this tribunal concluded in TAT Appeal No. 304 of 2019 (Pevans East Africa Limited v Commission of Domestic taxes) that winnings as stipulated in the ITA refers to pay-outs by the license but does not include amounts staked by the bettor.Therefore, as it is, the definition of the Tribunal regarding winnings in TAT Appeal No. 304 of 2019 (Pevans East Africa Limited v Commissioner of Domestic taxes) remain valid, and hence the authoritative definition of “winnings” under the ITA…”

20. The Appellant stated that the Tribunal should be bound by its definition of winning as upheld by the High Court because this was the very basis of the judicial doctrine of stare decisi as was stated in the Court of Appeal decision of Dodhia v National & Grindlays bank Limited and Another, Civil Appeal No. 1970.

21. The Appellant submitted that the facts and law in the High Court judgment are identical to the facts and law in the Consolidated Appeals and as such it urged the Tribunal to adopt both the TAT Judgements and High Court Judgment in this Appeal by allowing its Appeal.

iv. Whether the Respondent can legally demand WHT from the Appellant for the period between April 2018 to 7th November 2019 given the judgment of the High Court in Commissioner of Domestic Taxes v Pevans East Africa Limited & 6 others (Tax Appeal E003 of 2019) and in the Tribunal Appeals. 22. The Appellant submitted that for the period between April 2018 and 7th November 2019, WHT could not be demanded because there was no legal basis for such demand. That this position was upheld by the Tribunal in the Consolidated Appeal and confirmed by the High Court in Commissioner of Domestic Taxes v Pevans East Africa Limited & 6 others (tax Appeal E003 of 2019) (Supra).

23. It posited that demanding withholding tax when Section 35(6) of the ITA which would have compelled it to withhold such tax had been deleted in 2016 was illegal. That this position remained the same until 7th November 2019 when Section 39(A) of TPA was re-introduced.

24. It stated that the effect of these legislative amendments is that it was not obliged to withhold, deduct and remit WHT relating to withholding tax on winnings for the period between 2016 and 7th November 2019.

iv. Whether the service of the Amended Objection decision on the Appellant by the Respondent complied with the mandatory provisions of Section 77 of the TPA. 25. The Appellant averred that the Respondent erred in law by serving its amended objection decision in total disregard of Section 77 of the Tax Procedures Act which requires that a decision should be submitted on the last working day when the due date falls on a Saturday or a public holiday in Kenya.

26. That a proper objection decision should have been served on 20th April 2023. That the issuance of the amended objection on 21st April 2023 meant that the decision issued on 20th April 2023 had been withdrawn and superseded by the new one.

27. That the consequence of these actions is that the amended objection decision was issued outside the 60 days in contravention of Section 51(11) as read together with Section 77 of the Tax Procedures Act.

28. The Appellant further asserted that the objection decision that was issued on 20th April 2022 was addressed to a taxpayer by the name Neramo Limited with KRA PIN P051517895A while the Appellant’s PIN is P0516811841. That the consequence of this was that the objection decision of 20th April 2022 was not addressed to the Appellant and was therefore fatally defective ab initio and of no legal effect.

v. Whether the Respondent erred in law by failing to address the Grounds of objection as stated in the Appellant’s letter dated 22nd February 2023 in contravention of Section 51 (10) of TPA. 29. The Appellant submitted that the Respondent introduced new grounds of objection in the Objection decision when it stated that the objected amount was Kshs 1,691,425,085. 00 while the objected amount was Kshs 1,428,251,043. 00. in the Appellant’s Objection letter.

30. That this new amounts included interest of reverse VAT, Income tax, and withholding tax on winnings for the year 2021 which amounts had already been paid by the Appellant and were thus not part of this Appeal.

Appellant’s Prayer 31. The Appellant’s prayers to this Tribunal were for orders that:a.The objection decision of the Respondent contained in the letter dated 20th April 2023 concerning the WHT on Winnings assessment of Kshs 1,428,251,043. 00 be annulled and set aside in its entirety:b.The Respondent is to be ordered to refund Kshs 1,428,251,043. 00 that was illegally collected from the Appellant;c.The Appeal be allowed with costs to the Appellant; andd.Any other orders that the Honourable Tribunal may deem fit and just in the circumstances of this Appeal.

Respondent’s Case 32. The Respondent has grounded its case on the Statement of Facts dated and filed on the 14th June 2023 and the Written Submissions dated 16th October 2023 and filed on 17th October 2023.

33. The Respondent stated that it reviewed the Appellant’s books of accounts and issued it with its findings on the 25th October 2021 and an assessment on the 23rd January 2023.

34. That it subsequently issued agency notices against the Appellant on 31st January 2023 and it recovered Kshs 862,041,435. 00 and Kshs 15, 940,081. 00 on 2nd and 3rd February 2023, respectively.

35. The Respondent responded to the 6 issues for determination raised by the Appellant as follows:

36. On whether it erred in denying the Appellant an opportunity to object to an assessment when it placed an agency notice on the taxpayer’s Pay bill and bank account 7 days after it raised an assessment.a.The Respondent stated that this action was taken to preserve the funds in these accounts and to stop the Appellant from transferring these funds.b.That it exercised this power as provided in Section 43 of the Tax Procedures Act.

37. On whether it erred in using the Payouts of Kshs. 7,326,49,594. 00 as the base for computing the Withholding tax on winnings when the correct gross payout figure was Kshs. 1,948,360,384. 00 according to the BCLB returns and a system audit that also done by the Large Taxpayer Office, the Respondent stated that:a.It used the payouts of Kshs 7,326,398,805. 00 as the base in computing the withholding tax on winnings because the Appellant did not provide it with full access to the betting platform, which would have enabled it to verify the said system bug.b.The base amount used was picked from the payouts declared by the Appellant in the payment of its betting tax every month.c.When the system audit was initiated, the Appellant only provided partial access to a fraction of this platform. That full access needed to be granted to the system auditors to both the live and archived environments for it to extract all the data including total stakes and payouts (winning stakes and net winnings).d.The Appellant did not provide access to the system audit and it was only after its license was withdrawn that it gave full access to the system audit.e.Analysis of the extracted data is ongoing.

38. On whether it erred in using the gross payouts to compute the Withholding tax on winnings contrary to the position in Commissioner of Domestic Taxes Department vs Pevans East Africa Limited and Shop and Deliver and 5 others, HCCOMMITA/E003/2019 where it was held that winnings exclude the stake placed by the punter and thus meant that it was that which a punter gained, over and above the bet placed, the Respondent stated that:a.It was not in a position to verify and separate the payouts into the net winnings and the winning stake due to the refusal of the Appellant to grant full access to the betting platform.b.It relied on the declaration of the payouts as per the betting slips.c.It was not able to separate the net winnings from the gross payouts because the Appellant did not allow it access to its system.

39. On whether it erred in fact and law by demanding the withholding tax from the Appellant when the court had held in Commissioner of Domestic Taxes Department vs Pevans East Africa Limited and Shop and Deliver and 5 others HCCOMMITA/E003/2019 that the Respondent could not demand taxes not withheld from the person who should have withheld as there was no enabling law due to the fact that Section 35(6) of Income Tax had been repealed and only re-introduced on 7th November 2019, the Respondent stated that:-a.It demanded the tax without the knowledge that there was a gap in the law that was in force then.b.Having carried out investigations in various accounts held by the Appellant, it had since established that the Appellant had some income in the accounts and therefore it had to attract tax, as was held in the case of Lambe v Commissioners of Inland Revenue [1934] 1KB 178.

40. On whether it erred by serving its amended objection decision in total disregard of Section 77 of the Tax Procedures Act, and whether its amended assessment of 21st April 2023 withdrew the previous assessment of 20th April 2023 thereby causing its objection decision to contravene Section 51(11) as read together with Section 77 of Tax Procedures Act, the Respondent stated that:a.It delivered its objection decision on the 20th April 2023 in compliance with Section 51(11) of the TPA.b.Section 77 of the TPA is only for the compliance of taxpayers and not the Respondent.

41. On whether it introduced new grounds of objection in the objection decision by varying the objected amount to Kshs 1,691,425,085. 00 from Kshs 1,428,251,043. 00 and thereby introducing the issue of interest of reverse VAT, Income tax, withholding tax on winnings for the year 2021 which were not part of the Appeal and which had already been accounted for under self-assessment. On whether it failed to address the grounds of objection as stated in the Appellant’s letter dated 22nd February 2023 in contravention of section 51(10) of TPA, the Respondent stated that:a.The compliance check issued an assessment on various tax heads amounting to Kshs 1,691,425,085. 00. That the Appellant agreed to the tax adjustments on the income tax, VAT and normal withholding tax.b.The only contention is the Withholding tax on winnings of Kshs 1,428,251,043. 00 being withholding tax on winnings for 2018, 2019 and 2020. c.There was a mix-up in the objection decision where the confirmation of the assessment was done for all the assessments initially issued without giving credit to the agreed ones.d.The issues of income tax, VAT and normal withholding tax are not disputed.

42. The Respondent identified two issues for determination in this Appeal:i.Whether the Respondent was in breach of the various tax laws in issuing the objection decision.ii.Whether the Respondent’s objection decision is proper in law

43. Regarding the first issue the Respondent referred this Honourable Tribunal to :-a.Section 2 of the Income-tax Act which defines winnings as follows;“Winnings includes winnings of any kind and a reference to the amount or the payment of winnings shall be constructed accordingly.”b.Rule 6 of the Income-tax (Withholding tax) Rules 2001 states as follows;“Upon making a payment and deducting withholding tax in any month, the person making the payment shall furnish the payee with a certificate showing the gross amount paid, the total tax deducted and such other particulars as the commissioner may require.”c.Rule 8(2) of the Income-tax (Withholding tax) Rules 2001 further states as follows:“The tax remitted shall be accompanied by an appropriate return showing the name of the payee, the gross amount of payment, the amount of tax deducted and such other information as the Commissioner may specify.”

44. Based on these provisions of the law, the Respondent argued that winnings refer to payouts less staked amount placed by punters, and it used Kshs 7,326,398,805. 00 as the base of computing withholding tax on winnings.

45. That it picked this base amount from payouts declared by the Appellant, but it was denied full access to the Appellant’s platform. That it could therefore not verify and separate payouts into winnings and winnings stake.

46. The Respondent posited that it was justified in issuing the assessment based on the information available to it and based on its best judgment as is prescribed in Sections 29 and 31 of the TPA.

47. That what constitutes the application of best judgment was approved in Commissioner for Her Majesty’s Revenue and Customs TC/2017/02292 Saima Khalid Appellant v The Commissioner for Her Majesty’s Respondents Revenue Customs.

48. Regarding the second identified issue for determination, the Respondent submitted that its objection decision was made under the guidance of Section 51 of the Tax Procedures Act. That the Appellant has also failed to provide documents or evidence to show that its decision was erroneous or invalid.

49. That it exercised its judgment properly in the circumstances as was explained in TAT No. 70 of 2017 Afya X-Ray Centre v Commissioner of Domestic Taxes wherein the Tribunal provided that:“From the foregoing chain of events, it is our understanding that the Appellant failed in its duty in providing documents in order that a comprehensive analysis of its affairs is done. Accordingly, the Respondent can hardly be faulted for raising the assessment in accordance with the availed documents…”

50. The Respondent reiterated that the Appellant had failed to discharge its burden of proof in proving that its tax decision was incorrect as per the provisions of Section 56(1) of the Tax Procedures Act.

Respondent’s Prayer 51. The Respondent’s prayers to this Honourable Tribunal were for orders that;i.Its objection decision dated 20th April 2023 be upheld.ii.The Appeal herein be dismissed for lack of merit.iii.It be awarded costs of this Appeal.

Issues for Determination 52. The Tribunal having considered the pleadings filed and the evidence tendered through documentation is of the view that the Appeal herein crystallizes into the following issues for its determination:a.Whether the objection decision was valid.b.Whether the Respondent was justified in issuing its Objection decision

Analysis And Determination 53. The Tribunal shall analyse the identified issue for determination as follows:

a. Whether the Objection Decision was valid. 54. Both parties have addressed the issue of the validity of the Respondent's objection decision at length.

55. The Appellant is of the view that the objection decision dated 20th April 2023 was addressed to a taxpayer by the name Neramo limited with KRA PIN P051517895A while the Appellant’s PIN is P0516811841. That its objection decision was titled amended objection decision and was dated 21st April 2023.

56. That its objection decision should have been served on 20th April 2023 but was instead issued on the 21st April 2023 which was outside the 60 days and in contravention of Section 51(11) as read together with Section 77 of the Tax Procedures Act.

57. The Respondent took the position that it issued its objection decision on the 20th April 2023. That it was thus valid as it was issued within the 60-day prescribed statutory limit period under Section 51(11) of the TPA.

58. Section 51(11) of the TPA provides as follows regarding timelines within which an objection decision must be issued upon receipt of a valid objection:“(11)The Commissioner shall make the objection decision within sixty days from the date of receipt of a valid notice of objection failure to which the objection shall be deemed to be allowed.”

59. It is not disputed that the Appellant lodged its objection to the Respondent’s assessment on 21st February 2023. Under Section 51(11) of the TPA, the Respondent was required to issue its objection decision on or before 22nd April 2022.

60. Whichever way one looks at it, the impugned decision was issued in time and it does not matter that it was issued on the 20th April 2023 or 21st April 2023.

61. The Tribunal hereby finds and holds that both decisions were issued within the prescribed statutory time limits and they are thus valid.

62. The Tribunal shall only refer to the objection decision dated 21st April 2023 in this Appeal as it is the one that was properly addressed to the Appellant and bearing its PIN.

b. Whether the Respondent was justified in issuing its Objection decision 63. The Objection decision by the Respondent demanded tax on winnings and withholding tax on winnings. This in essence means that the crux of this dispute is on the definition of “winnings‟ under the ITA.

64. More precisely the issue is whether winnings refer to gross payouts to the punter including stakes as is preferred by the Respondent, or whether the correct definition is one that exclude stakes as is preferred by the Appellant.

65. The determination of what constitutes ‘winnings; under the ITA shall dispose of both heads of taxation that have been demanded by the Respondent under income tax and WHT as the assessments are premised on the Respondent’s view that ‘winning constitute that which the punter gained over and above the bet placed while the Appellant was of the view that it refers to pay-outs by the license but does not include amounts staked by the bettor.

66. The Respondent argued that it was compelled to apply its best judgment in determining the definition and application of ‘winnings’ in this Appeal because:a.It was not in a position to verify and separate the payouts into the net winnings and the winning stake due to the refusal of the Appellant to grant full access to the betting platform.b.It relied on the declaration of the payouts as per the betting slips.c.It was not able to separate the net winnings from the gross payouts because the Appellant did not allow it access to its system.d.It was given a limited scope to determine the net winnings.

67. The Tribunal has had the chance to define the term “winnings” under the Income Tax Act in the case of TAT Appeal No. 304 of 2019 (Pevans East Africa Limited v Commission of Domestic Taxes) where it defined winnings as pay-outs by the licensee but do not include amounts staked by the bettor.

68. This definition was affirmed by the High Court in the subsequent Appeal case of Commissioner of Domestic Taxes v Pevans East Africa Limited & 6 others (Tax Appeal E003 of 2019) [2022] KEHC 10392 (KLR) (Commercial and Tax) (13 May 2022) (Judgment) where it was held that:“It is clear that the strictest interpretation that favours the taxpayer, in this case, the Respondents in respect of the definition of “winnings” in that it is the payment made to the punter less the amount staked. It is this amount that is subject to tax and what the respondents are obligated to deduct and remit to the commissioner. I am therefore in agreement with the Tribunal‟s conclusion on its definition of “winnings”. (Emphasis added).

69. The Tribunal has also recently held in Judgment – Appeal No. 129 of 2022 - Shop And Deliver Limited v Commissioner Of Investigations & Enforcement when it stated that:“Considering that the Tribunal has not been presented with an order of stay of implementation of the High Court’s decision and or a contrary decision from the Court of Appeal, then it follows that the authoritative definition of the term taxable “winnings” under the ITA only relate to payments made to the punter less the amount staked.”

70. It is thus clear from the foregoing precedents that the settled and authoritative definition of “winnings” is the payment made to the punter less the amount staked. The Respondent’s decision to charge tax winnings without deducting the amount staked from the payments made to the punter was thus illegal.

71. The Respondent has argued that it ignored this definition of winnings in its assessment because it was denied access to documents and the Appellant’s live platform.

72. The Tribunal has noted that the Appellant attached the following to its Memorandum of Appeal:a.Its bookmakers return forms which were also submitted to the Regulator, the Betting Control and Licensing Board for the period from 1st April 2018 to 31st December 2021. b.Result of the System audit workings from May 2018 to December 2021.

73. The Respondent did not:a.Aver that these were new documents that it had never sighted.b.Proffer any reason why it had not used or applied these documents to determine the Appellant’s winnings and lawful tax liability.c.Explain why it was reluctant to rely on and apply documents that had been submitted to the Regulator, Betting Control and Licensing Board, in determining the Appellant’s tax liability.

74. Having failed to plead and show that these were new documents, and having failed to explain why it had ignored these documents which would have helped it to arrive at the Appellant’s lawful tax liability for the ‘winnings’, the Tribunal finds and holds that the Appellant has proved its case on a balance of probability and that the Respondent’s averment that it was not supplied with documents has not been verified and it thus holds no water.

75. Based on the above analysis the Tribunal hereby finds that Respondent’s decision to asses and enforce tax liability on the Appellant in flagrant contravention of the definition of winnings as was interpreted by the High in Domestic Taxes v Pevans East Africa Limited & 6 others (Tax Appeal E003 of 2019) [2022] KEHC 10392 (KLR) (Commercial and Tax) (13 May 2022) (Judgment) was illegal and invalid.

76. Consequently the Tribunal finds and holds that the Respondent's assessments for income tax and WHT as contained in its objection decision dated 20th April 2023 and amended objection decision dated 21st April 2023, were premised on an illegal and erroneous understanding and application of the term ‘winnings’.

Final Decision 77. For the reasons set out above, the Tribunal finds that this Appeal has merit and accordingly proceeds to make the following Orders;a.The Appeal be and is hereby allowed.b.The Respondent’s objection decision dated 20th April 2023 and amended objection decision dated 21st April 2023 be and are hereby set aside.c.The Respondent is hereby directed to process the refund of the amounts collected through agency notices (60) subject of this Appeal within Sixty (60) days of the date of delivery of this Judgment.d.Each party to bear its own costs.It is so ordered.

DATED AND DELIVERED AT NAIROBI THIS 23RD DAY OF FEBRUARY, 2024ERIC NYONGESA WAFULACHAIRMANDR. RODNEY O. OLUOCH ABRAHAM K. KIPROTICHMEMBER. MEMBER.CYNTHIA B. MAYAKA TIMOTHY B. VIKIRUMEMBER. MEMBER.