[2023] KETAT 970 (KLR)

Telkom Kenya Limited v Commissioner of Domestic Taxes (Tax Appeal 226 of 2022) [2023] KETAT 970 (KLR) (Commercial and Tax) (6 October 2023) (Judgment)

Neutral citation: [2023] KETAT 970 (KLR)

Republic of Kenya

In the Tax Appeal Tribunal

Commercial and Tax

Tax Appeal 226 of 2022

E.N Wafula, Chair, Cynthia B. Mayaka, Grace Mukuha, Jephthah Njagi & AK Kiprotich, Members

October 6, 2023

Between

Telkom Kenya Limited

Appellant

and

Commissioner of Domestic Taxes

Respondent

Judgment

Background 1. The Appellant is a limited liability company incorporated in Kenya whose principal business activities are providing integrated telecommunications solutions offering voice and data services as well as provision of network facilities for residential and business customers.

2. The Respondent is a principal officer appointed under and in accordance with Section 13 of the Kenya Revenue Authority Act, and the Kenya Revenue Authourity is charged with the responsibility of among others, assessment, collection, accounting and the general administration of tax revenue on behalf of the Government of Kenya.

3. The Respondent conducted a tax audit on the operations of the Appellant for the period 2015 to 2019.

4. Following the tax audit, the Respondent issued its preliminary audit findings in a letter dated 2nd January 2020, in which the Respondent computed a principal tax liability of Kshs. 1,709,586,969. 00 covering Value Added Tax ("VAT"), Excise Duty, Corporate Income Tax ("CIT"), Withholding Tax ("WHT") and Capital Gains Tax (“CGT”).

5. The Appellant responded to the Respondent’s preliminary audit findings in a letter dated 13th March 2020, that was followed by interactions between the Appellant, the Respondent and the Appellant’s tax advisers, in a bid to amicably resolve the issues contained in the Respondent’s letter of preliminary audit findings.

6. The Respondent issued its final audit findings vide a letter dated 28th May 2021 indicating an increased potential principal tax liability of Kshs. 3,905,523,840. 00.

7. The Appellant made its response to the final audit findings in the letter of 18th June 2021.

8. The Respondent issued a tax assessment on 24th June 2021 demanding a total tax liability of Kshs. 5,500,014,096. 00 comprising of VAT, Excise Duty, CIT, WHT and CGT with principal tax of Kshs. 3,697,346,616. 00 penalties of Kshs. 184,867,332. 00 and interest of Kshs. 1,617,800,148. 00.

9. The Appellant lodged its notice of objection against the Respondent’s assessment vide a letter dated 23rd July 2021.

10. Following this letter, the Appellant conceded to settle taxes not in dispute and to pay Kshs. 132,929,439. 00 in 10 monthly installments.

11. The Respondent rendered its objection decision vide a letter dated 18th January 2022 confirming an assessed principal tax liability amounting to Kshs. 3,739,087,832. 00 and the resultant penalties and interest.

12. Dissatisfied with the Respondent’s objection decision the Appellant notified the Respondent of its intention to appeal against the said decision through a Notice of Appeal dated 17th February, 2022 and filed on the same date.

The Appeal 13. The Appeal is based on the following grounds as laid out in the Appellant’s Memorandum of Appeal dated 3rd March, 2022 and filed on the same date:a.That the Respondent erred in law and fact by assessing VAT, Excise Duty, and CIT on the Appellant based on income estimates as per the purported Industry Average Revenue Per User (“ARPU”) as opposed to the Appellant’s actual income;b.That the Respondent erred in law and acted ultra vires to Section 51 (8) of the Tax Procedures Act by issuing additional VAT assessment of Kshs. 244,673,265. 00 in the objection decision;c.That the Respondent erred in law and fact by seeking to assess VAT on inbound wholesale traffic and inbound visitor roaming services, supplies of which were subject to VAT at the zero rate by virtue of being exported services;d.That the Respondent erred in law and fact by assessing VAT at the standard rate on disposal of various assets, which supplies are exempt from VAT under the First Schedule to the VAT Act, 2013;e.That the Respondent erred in law and fact by disregarding the detailed reconciliation provided by the Appellant and assessing VAT on the unreconciled sales variance without due consideration to incomes not chargeable to VAT;f.That the Respondent erred in law and fact by assessing Excise Duty on deferred income at 15% without taking into account the legally prescribed ‘time of supply’ for Excise Duty purposes under Section 4 of the Excise Duty Act;g.That the Respondent erred in law and fact by assessing VAT on incremental Excise Duty on deferred income, on which supplies VAT had been accounted for accordingly;h.That the Respondent erred in law and fact by deeming collocation income as a specified source of income rather than business income thereby incorrectly levying CIT contrary to Section 15 (7) (e) of the ITA as read with Section 2 of the Registration of Documents Act, Cap 285;i.That the Respondent erred in law and fact by demanding WHT on the collocation payments made by the Appellant which do not qualify as rental income under the ITA;j.That the Respondent erred in law and fact by disallowing the adjusted costs used by the Appellant in the calculation of CGT for properties sold yet the amounts were fully supported/explained contrary to the provisions of Paragraph 8 (1) of the Eighth Schedule to the ITA;k.That the Respondent erred in law and fact by issuing VAT and Excise Duty assessments for the year 2015 outside the five-year statutory limits under Sections 31 (4) and 29 of the TPA;l.That the Respondent erred in law and fact by demanding penalties based on its erroneous assessments; andm.That the Respondent erred in law and fact by demanding interest based on its erroneous assessments.

Appellant’s Case 14. The Appellant’s case is premised on the following documents: -a.The Appellant’s Statement of Facts dated and filed on 3rd March 2022 together with the documents attached thereto.b.Witness statement of Parrot Hezekiah Yobera dated 20th July 2022 and filed on 21st July 2022 and the further witness statement dated 28th September 2022 that were both admitted in evidence on oath on 12th October 2022. c.Witness statement of Job Maina Kabochi dated 20th July 2022 and filed on 21st July, 2022 that was admitted in evidence on oath on 12th October 2022. d.The Appellant’s written submissions dated 26th October 2022 and filed on 27th October 2022 together with the authorities attached thereto.

15. The Appellant presented its case as follows;

a). Estimated Assessments Not Based On Actual Income But Average Revenue Per User 16. The Appellant averred that the Respondent erred in law and fact by assessing VAT, Excise Duty, and CIT on the Appellant based on income estimates as per the purported Industry Average Revenue Per User (“ARPU”) as opposed to the Appellant’s actual income.

17. That the Appellant in the ordinary course of its business of providing integrated telecommunications solutions in Kenya and offering voice and data services has in its possession Call Data Records (“CDR”) data.

18. That these CDR data contain highly sensitive data which details calls made by customers on the Appellant’s network. That particularly, the CDR, inter alia, shows the number of the caller, the duration of the call and the location from where the call is initiated. That this runs into millions of calls made every second and each day, there are 300 million CDR records generated warranting significant storage power to process and store. That should the Appellant provide the foregoing data outside its premises, it runs the risk of violating Article 31 of the Constitution of Kenya, 2010 as well as being sued by its customers for breach of their right to privacy.

19. That the Appellant proposed that the Respondent’s officers review the information sought in electronic format at its premises given the nature of the CDR data.

20. That according to the Respondent, the Appellant failed to provide the requested CDR data that would have enabled the Respondent to ascertain the correct amount of taxes payable.

21. That on this basis, the Respondent proceeded to calculate principal VAT, Excise Duty and CIT amounting to Kshs. 2,272,044,643. 00 on the Appellant based on what the Respondent termed as the Industry Average Revenue Per User’ (“ARPU”) due to alleged failure by the Appellant to provide CDR data.

22. That in support of its claim, the Respondent cited Sections 59 (4) and 31 of the TPA which provide for the requirements on a taxpayer to provide records as well as the instances whereby assessments may be amended respectively. That the Respondent relied on these provisions as its basis for issuing amended assessments to the Appellant for the years 2015 to 2018 based on ARPU.

23. That in response, the Appellant averred that contrary to the Respondent’s assertions, the Appellant invited the Respondent’s officers to its premises with a view of granting the authority access to the information sought in relation to its revenue streams. That the request for review of the data at the Appellant’s premises was necessitated by: -a.The size of the data by the Respondent: the CDR data sought by the Respondent involves calls made by customers on the Appellant’s network. This runs into millions of calls warranting significant storage power to process and store. That in particular, the Respondent at the meeting held on 24th September 2021 pointed out that the capacity it had was for two (2) billion CDR records which is equivalent of 5 days’ worth of the Appellant’s CDR records; andb.The privacy concerns and the need to maintain utmost confidentiality in respect of the data reviewed.

24. The Appellant averred that the Respondent’s officers visited the Appellant’s premises on 24th September 2021, 9th November 2021 and 15th December 2021. That during these visits, the Respondent was taken through: -a.How various files generated flow to mediation and finally to the Data warehouse (DWH). That the Respondent was also shown how the files were generated in less than every 5 minutes.b.That using live data, the Appellant demonstrated the integrity of the automated process used to transfer the files generated by the Online Charging System (“OCS”) to the mediation by performing a record count on the raw file generated on the OCS and comparing it to the count of records loaded on the DWH.c.That the Appellant also reviewed each of the fields on the raw data availed to the Respondent and compared it to the anonymized data to ensure that the excluded fields were not required because they were non-revenue fields.

25. That the Appellant went further to provide its system for audit by the Respondent’s technicians. That the Appellant availed minutes as proof of the meeting held on 24th September 2021 at its premises to the Tribunal. That further support in the form of email correspondence was attached to the Appellant’s Statement of Facts.

26. That despite the Appellant availing the data sought, the Respondent continued to insist on lack of CDR records as its basis for confirmation of the assessments.

27. The Appellant submitted that it accounted for all taxes applicable to its revenues arising from the use of its platforms by its customers. That these included CIT, Excise Duty and VAT. That in support of its case, the Appellant availed the actual revenues it earned in the years 2015 to 2018 from voice, data, and other services as recorded in its audited financial statements which audited financial statements have not been challenged by the Respondent.

28. That the Appellant is regulated by the Communications Authority of Kenya (“CA”) whose responsibilities are, inter alia, monitoring the activities of licensees such as the Appellant so as to enforce compliance with license terms and conditions as well as the law.

29. The Appellant averred that in case there were any discrepancies in the data and values reported and declared by the Appellant, the CA as the regulator would have raised this as a concern. The Appellant submitted that the CA has not raised any such concerns.

30. The Appellant further submitted that the Respondent has not cast any doubt on the authenticity of the Appellant’s audited financial statements. That if anything, the Respondent has placed reliance on the statements duly audited by a third-party qualified auditor in relation to some of the other issues raised in its assessment.

31. The Appellant submitted that no proof or evidence has been availed by the Respondent to demonstrate that the figures used in its calculations do indeed constitute the industry average revenue per user. That in the absence of any supporting documentation, the Appellant is not able to substantively respond to the Respondent’s claim.

32. That failure to provide the basis or source of the industry averages is tantamount to a breach of the Appellant’s right to a fair administrative action under Article 47 of the Constitution of Kenya 2010 and Section 4 (3) (g) of the Fair Administrative Actions Act, 2015 (“FAAA”).

33. That in support of its decision to have the Respondent assess the records in its premises, the Appellant submitted that it is duty bound to maintain the privacy of its customers’ data pursuant to Article 31 (d) of the Constitution of Kenya, 2010.

34. The Appellant submitted that given the facts of this particular case, the Respondent’s demand for the provision of CDR data in any other form than was provided by the Appellant constitutes an unreasonable and unjustifiable limitation to the right of privacy provided for, to the Appellant’s customers, under Article 31 of the Constitution of Kenya, 2010.

35. That failure to provide the basis or source of the industry averages is tantamount to a breach of the Appellant’s right to a fair administrative action under Article 47 of the Constitution of Kenya 2010, Section 4 (3) (g) of the Fair Administrative Actions Act, 2015 (“FAAA”) and the holding in High Court decision of Scenaries Ltd v National Land Commission [2017] eKLR which mandates full disclosure of reasons/basis where a person’s rights have or are likely to be adversely affected by an administrative decision.

36. The Appellant submitted that the Respondent’s failure to provide the basis or source of the industry averages created a rebuttable presumption that the Respondent’s calculations using the ARPU were taken without good reason.

37. The Appellant submitted that the Court of Appeal in the case of Fleur Investments Limited v Commissioner of Domestic Taxes & another [2018] eKLR, while dealing with a similar issue, held that: -“A taxing authority is not entitled to pluck a figure from the air and impose it upon a taxpayer without some rational basis for arriving at that figure and not another figure. Such action would be arbitrary, capricious and in bad faith. It would be an unreasonable exercise of power and discretion and that would justify the Court in intervening.”

38. That during the cross examination, the witness of the Respondent Mr. Sylvester Masinde, was unable to provide the source or rationale of the purported industry average revenue per user relied upon by the Respondent in its tax demand to the Appellant.

39. The Appellant submitted that it had undertaken independent research in a bid to prepare a substantive response to the Respondent’s claims. That the only documents it came across, that in its view, may form the basis of the Respondent’s industry ARPU figures was the Kenya Telecommunications Reports by the Fitch Group Company (“Fitch Group Reports”). That the Fitch Group Company is a global leader in financial information services with operations in more than 30 countries.

40. That the Quarter 3 2018 version of the Fitch Group Reports has the following contents on page 6. “Only Safaricom provides ARPU data, and we believe it to be substantially higher on account of its dominant market share. We expect the average revenue per user (ARPU) to be much lower and continue to face pressure as competition mounts and new subscribers will inevitably come from low-income segments of the consumer base, such as rural dwellers and the agrarian population.”

41. The Appellant submitted that it met its burden of proof in providing clear, unchallenged and uncontradicted evidence and that the onus shifted to the Respondent, who produced no evidence whatsoever to support its tax demand.

42. That in this respect, the Appellant relied on the case of Hickman Motors Ltd v Canada [1997] 2 SCR 33. 6 where the Canadian Supreme Court held that:“The minister in making the assessments proceeds on assumptions in the assessment. The initial burden is only to ‘demolish’ the exact assumptions made by the Minister but no more. The initial onus of demolishing the Ministers exact assumptions is met where the applicant makes out at least a prima facie case.Where the Minister’s assumptions have been demolished by the appellant the onus shifts to the Minister to rebut the prima facie case made out by the appellant and to prove the assumptions.The Appellant adduced clear, unchallenged and uncontradicted evidence. The Respondent adduced no evidence whatsoever. Where the onus has shifted to the Minister and the Minister has adduced no evidence whatsoever, the taxpayer is entitled to succeed.”

b). Value Added Tax. 43. The Appellant averred that the Respondent in its assessment demanded VAT of Kshs. 156,255,292. 00 as principal taxes on inbound wholesale traffic and inbound visitor roaming services, supplies of which were subject to VAT at the zero rate by virtue of being exported services after carrying out an audit of the Appellant's tax affairs.

44. That the Appellant objected to the assessment and attended meetings with the Respondent pursuant to which additional information and explanations were availed to the Respondent in a bid to resolve the dispute.

45. The Appellant averred that the Respondent proceeded to issue an objection decision demanding payment of VAT amounting to Kshs. 400,928,557. 00 as principal taxes on inbound wholesale traffic and inbound visitor roaming services. That this amount was higher by Kshs. 244,673,265. 00 from the initial amount assessed and objected to. That therefore the Kshs. 244,673,265. 00 is tantamount to an additional assessment issued at the objection decision stage.

46. The Appellant averred that the Respondent acted ultra vires by issuing an additional assessment in its objection decision. That as per Section 51 (8) of the Tax Procedures Act, the Respondent has the options to either allow a taxpayer's objection in whole or in part or disallow it in its objection decision.

47. The Appellant averred that in its objection decision, the Respondent confirmed its assessment of VAT on disposal of various assets on the assertion that VAT was not accounted for and remitted on their sales as required under Section 5 of the VATAct.

48. The Appellant averred that the the Respondent erred in law and fact by assessing VAT on disposal of commercial property, supplies which are exempt for VAT purposes.

49. That the Respondent erred in law and fact in assessing VAT on disposal of other assets, supplies which were exempt from VAT.

50. The Appellant averred that the Respondent erred in law and fact by assessing VAT on disposal of motor vehicles, supplies on which computation of output VAT was restricted.

51. That in its objection decision, the Respondent confirmed its assessment of the Appellant for VAT amounting to Kshs. 7,516,600. 00 on the allegation that the Appellant did not account for VAT on disposal of motor vehicles.

52. The Appellant submitted that Section 17 (4) of the VATAct, 2013 restricts input tax deduction on acquisition of passenger cars or minibuses, unless the passenger cars or minibuses are acquired by the registered person exclusively in the ordinary course of business of selling or dealing in or hiring of passenger cars or minibuses. That furthermore, the VATAct, 2013 provides that no tax shall be charged on the supply where no input tax deduction was allowed on that supply under this subsection.

53. The Appellant averred that in its letter of assessment, the Respondent stated that a review of the sales per the Appellant’s Financial Statements (FS) to the VAT3 returns was done and variances noted for the years 2015, 2016 and 2017. That the Respondent stated that it reviewed the Appellant’s response to the preliminary audit findings and maintained its earlier position as the response on the reconciliation was not supported by specific detailed revenue streams.

54. The Appellant submitted that it carried out a detailed reconciliation for the years 2015 to 2017 and shared its updated reconciliation workings with the Respondent on 27th August 2020. That in its response dated 18th June 2021, the Appellant re-shared its updated reconciliation workings and requested that the Respondent considers the same and update its findings accordingly.

55. The Appellant averred that the Respondent disregarded its updated reconciliation workings and maintained its findings and issued its assessment based on the Appellant’s initial workings.

c). Excise Duty Act. 56. The Appellant submitted that the Respondent erred in law and fact by assessing excise duty on deferred income at 15% without taking into account the legally prescribed ‘time of supply’ for excise duty purposes under Section 4 of the Excise Duty Act.

57. That the Finance Act, 2018 amended the Excise Duty Act, No. 23 of 2015 (“Excise Duty Act”) by deleting the charging provision of 10% Excise Duty rate on mobile cellular services and other wireless services and introducing excise duty on telephone and internet data services at the rate of 15% effective 21st September 2018.

58. That following explanations provided by the Appellant, the Respondent, amended its assessed Excise Duty liability from Kshs. 78,934,616. 00 to Kshs. 26,311,539. 00 on the incremental Excise Duty chargeable on the deferred income arising from the increase in rate from 10% to 15% (5% of Kshs. 526,230,774. 00).

59. The Appellant submitted that it offers various telecommunication services that have different tax implications from both a VAT and Excise Duty perspective. That these services include fixed/landline telephone services (PSTN & ISDN), mobile cellular phone (GSM) services and wireless telephone services (CDMA).

60. That following the introduction of the USC in 2008 that could be used across all its services, there was a challenge for the Appellant to determine its excise duty liability at the time of sale of scratch cards as the airtime could either be used for CDMA wireless services (subject to Excise Duty) or fixed telephone services that were not subject to Excise Duty at the time.

61. That on this basis, the Appellant wrote to the Respondent on 2nd November 2009 requesting for approval to account for Excise Duty upon consumption by the customer as it was only at this juncture that a clear separation could be made between the usage on fixed telephone services and usage on mobile cellular services.

62. That the Respondent granted the approval for the Appellant to defer accounting for Excise Duty on airtime from its time of supply to time of usage via the letter dated 7th January 2010.

63. The Appellant submitted that the Respondent erred in law and fact by assessing VAT on incremental Excise Duty on deferred income, on which supplies VAT had been accounted for accordingly.

64. That the Respondent, in its objection decision, amended its assessed VAT liability from Kshs. 12,629,539. 00 to Kshs. 4,209,846. 00 on the incremental Excise Duty chargeable on the deferred income on the basis that Excise Duty forms part of the excisable value for VAT purposes as per Section 13 of the VATAct.

65. That in the objection decision, the Respondent categorically agreed to the above assertions by the Appellant that VAT was declared correctly in accordance with provisions of the VATAct. That the Respondent, however, proceeded to amend its assessment and still computed additional VAT on the incremental amount of excise duty accounted for at the rate of 15%.

66. That the Appellant disputed the VAT assessment of Kshs. 4,209,846. 00 and averred that this amount was neither due nor payable as the Appellant had accounted for VAT on the prepaid airtime of Kshs. 526,230,775. 00.

d. Corporate Income Tax. 67. The Appellant averred that the Respondent erred in law and fact by deeming collocation income as a specified source of income rather than business income thereby incorrectly levying CIT contrary to Section 15 (7) (e) of the ITA as read with Section 2 of the Registration of Documents Act, Cap 285.

68. The Appellant submitted that it provides collocation services in the ordinary course of its business of providing integrated telecommunications solutions and network facilities. That these collocation services involve the Appellant providing space on its transmission towers on which its customers’ equipment may be installed. That in this regard, the Appellant has entered into Collocation Agreements with Safaricom PLC and Kenya Towers Limited.

69. That the Respondent had indicated that the income made by the Appellant from its collocation and site sharing in respect of the Appellant-owned sites should have been declared separately in the Appellant’s income tax returns rather than it being declared as ‘business income’.

70. That according to the Respondent, the masts/towers constitute immovable structures, and as such, the gains and profits received for their use or occupation are rental in nature. That as such, pursuant to Section 15 (7) (e) of the ITA, the Respondent averred that the Appellant should have declared collocation income as a specified source income rather than business income.

71. The Appellant submitted that the towers do not constitute immovable property and as such, Section 15 (7) (e) of the ITA is not applicable to income arising therefrom. That whereas the ITA does not define what constitutes an immovable property, the same is defined under the Registration of Documents Act Cap 285 (“RDA”). That relying on the decision of the Tribunal in Cooperative Bank of Kenya Limited v Commissioner of Domestic Taxes, Tax Appeal No. 45 of 2017 in so far as adoption of definitions from other statutes is concerned, the definition of immovable property from the RDA is applicable to the ITA.

72. The Appellant submitted that the towers/masts are not permanently affixed to the earth and that the same can be easily moved. That as such, they do not constitute an immovable property to warrant application of Section 15 (7) (e) of the ITA.

e). Withholding Tax. 73. The Appellant submitted that the Respondent erred in law and fact by demanding WHT on the collocation payments made by the Appellant which do not qualify as rental income under the ITA.

74. That the Respondent in its objection decision further contended that where the Appellant utilizes space in another telecommunication company’s masts/towers and makes collocation payments, such payments do constitute rental payments and as such are subject to WHT. That this follows the appointment of the Appellant as a WHT agent in respect of rental income on 19th January 2017 pursuant to Section 35 (3) (a) of the ITA. That the Respondent has therefore confirmed its assessment of WHT on the collocation amounts paid by the Appellant amounting to Kshs. 141,954,544. 00 in principal taxes.

75. The Appellant submitted that the Respondent has no legal basis for demanding WHT from the Appellant as if the same was tax due and payable by the Appellant in respect of the 2017 year of income following deletion of Section 35 (6) of the ITA through changes introduced by Section 9 of the Finance Act, 2016. That the deleted Section 35 (6) of the ITA gave the Respondent powers to impose a penalty on taxpayers for failure to deduct or remit WHT for which penalty is prescribed under Rule 14A of the Income Tax (Withholding Tax) Rules, 2001 (“the WHT Rules”).

76. The Appellant averred that the import of the deleted Section 35 (6) was that in cases where a person failed to make a deduction or deducted only part of what he was required to deduct, the whole amount of what should have been deducted and remitted were recoverable from the person who had failed to deduct as if it was tax due from him.

77. That following the deletion of Section 35 (6), the Appellant asserted that the Respondent then had no basis to demand WHT not withheld/remitted from the person who should have withheld/remitted WHT on qualifying payments. That this position was upheld by the Tax Appeals Tribunal in the case of Pevans East Africa Limited & 6 Others v the Commissioner of Domestic Taxes, Tax Appeal No. 304 of 2019 where the Tribunal stated as follows:“The Tribunal is alive to the fact that the Finance Act 2016 amended section 35 of the ITA by deleting paragraph 35(6). The import of this amendment was that where a person failed to withhold tax as prescribed, the Commissioner cannot demand the tax not withheld from the person who should have withheld. Consequently, the Respondent cannot demand withholding tax from the Appellant as if it was a tax due from it. It is also to be appreciated that when Parliament intended the WHT to be recovered from the WHT agent as if it was a tax due, the legislation clearly stated so. The Tribunal is also aware that Parliament has now proposed an amendment in the Finance Bill, 2019 to introduce the provision previously created by Section 35(6) of the ITA vide Section 39A of the TPA…Consequently, it is clear to the Tribunal that the introduction of the aforesaid provision of the TPA is proof that a similar provision has not been in existence”

78. The Appellant submitted that the Respondent had no legal basis to impose WHT on the amounts of collocation paid by the Appellant to service providers. Further, the Respondent cannot seek refuge in Section 39 A of the TPA as the said provision only came into operation in 2019 and not 2017 which the WHT they seek relates to. That this would be tantamount to retrospective application of the law.

f. Capital Gains Tax. 79. That Appellant submitted that the Respondent erred in law and fact by disallowing the adjusted costs used by the Appellant in the calculation of CGT for properties sold yet the amounts were fully supported/explained contrary to the provisions of Paragraph 8 (1) of the Eighth Schedule to the ITA.

80. The Appellant averred that according to the Respondent, the Appellant did not adduce documentation in support of the cost of acquisition of the said properties. That as a result, the Respondent proposed to disallow any amounts referred to as ‘cost of acquisition’ in the calculation of the Appellant’s CGT. That the Respondent proposed to assess CGT on the variance.

81. The Appellant submitted that it did not dispose of the Nakuru Municipality Block 6/29 & Eburu trading centre 7935/5 property as alleged by the Respondent. That there cannot be CGT payable on this property given that there was no transfer. The Appellant also submitted that the Respondent had erroneously included a second separate amount of Kshs. 70,000. 00 for a ‘Nambale’ property in its workings and yet the Appellant only disposed of the one ‘Nambale Exchange LR No. 26148’ property.

82. The Appellant submitted that during incorporation, the Government obtained shares in the Appellant in exchange for the assets contributed. The Appellant submitted that the consideration for and the value of the assets contributed to the Appellant equals the value of the shares issued by the Appellant to the Government.

83. The Appellant also submitted that Section 23 of the TPA mandates taxpayers to keep records for a period of five years. That the Appellant was incorporated 23 years ago in 1999 and it would therefore be unfair for the Respondent to insist on the Appellant producing dated information contrary to express stipulations of the TPA. That furthermore, CGT had been a suspended tax for fourteen (14) years prior to the year of incorporation of the Appellant and was not reintroduced until 2015 which was sixteen (16) years after the Appellant’s incorporation.

84. That considering this, the Appellant produced all the necessary documents that it would reasonably produce given the nature and circumstances of the Appellant’s transactions at the time.

85. That in support of this assertion, the Appellant relied on the Tribunal’s ruling in Shreeji Enterprises (K) Limited v Commissioner of Investigations & Enforcement, Tax Appeals No. 58 and 186 of 2019 where it was held as follows: -“Although the current tax laws provide that the onus of proof lies with the Appellant to prove that tax was paid or that the Respondents assessment was wrong, it cannot have been the intention of the legislature to put the taxpayer in a position where he would be required to produce any document that the taxman may require. In demanding the production of documents which are not prescribed by legislation, the tax authority should be guided by reasonableness, the nature and circumstances of the trader otherwise it would, as it occasionally does, demand information which the trader cannot produce because he does not have.”

86. The Appellant submitted that it has no obligation to provide records past the period prescribed under Section 23 of the TPA. That therefore, the need for reasonableness in the requests for proof applies in tandem with foregoing holding by the Tribunal.g). Time barred assessments for VAT and excise duty for the year 2015.

87. The Appellant submitted that the Respondent erred in law and fact by issuing VAT and Excise Duty assessments for the year 2015 outside the five year statutory limits under Sections 31 (4) and 29 of the TPA.

88. That the Respondent also erred in law and fact by issuing VAT assessments for the year 2015 outside the five-year statutory limit under Section 31 (4) of the Tax Procedures Act, 2015.

89. That the Respondent vide its assessment dated 24th June 2021 issued VAT assessments for the year 2015 amounting to Kshs. 198,992,922. 00.

90. The Appellant submitted that Section 3 of the TPA defines the following terms as follows as; -“assessment" means a self-assessment, default assessment, advance assessment, or amended assessment, and includes any other assessment made under a tax law”"amended assessment" means an amended assessment made by theCommissioner under section 31;"default assessment" means a default assessment made by theCommissioner under section 29;"self-assessment" means an assessment made by a taxpayer or his representative under section 28;

91. That further, Section 28 of the TPA provides for a self-assessment as follows:-“(1)(1) A taxpayer who has submitted a self-assessment return in the prescribed form for a reporting period shall be treated as having made an assessment of the amount of tax payable (including a nil amount) for the reporting period to which the return relates being the amount set out in the return.”

92. The Appellant submitted that with regards to VAT, it made a self-assessment in line with Section 28 of the TPA in duly filing its monthly VAT returns for the year 2015 in accordance with provisions of the VAT Act. That the last self-assessment made with regards to VAT for the year 2015 was made on 19th January 2016 for the reporting period of December 2015. That all other VAT self-assessments for the year 2015 had been made prior to January 2016 in accordance with provisions of the VATAct.

93. That Section 31 (4) of the TPA provides that the Respondent shall not make an amendment to a self-assessment after five years immediately following the last date of the reporting period to which the self-assessment relates.

94. The Appellant submitted that the Respondent erred in law and fact by issuing Excise Duty assessments for the year 2015 outside the five-year statutory limit under Section 29 of the Tax Procedures Act, 2015.

95. That the Respondent vide its assessment dated 24th June 2021 issued Excise Duty assessments for the year 2015 amounting to Kshs. 73,372,566. 00.

96. The Appellant submitted that as it did not file any self-assessment for the tax periods in the year 2015, the Commissioner could only issue a default assessment as provided for under Section 29(1) of the Tax Procedures Act, 2015 which states as follows: -“Where a taxpayer has failed to submit a tax return for a reporting period in accordance with the provisions of a tax law, the Commissioner may, based on such information as may be available and to the best of his or her judgement, make an assessment (referred to as a "default assessment") of…”

97. That pursuant to Section 29 (5) of the Act, the time limit for issuance of such a default assessment is five (5) years as noted below:“29. (5)Subject to subsection (6), an assessment under subsection (1) shall not be made after five years immediately following the last date of the reporting period to which the assessment relates”.

98. The Appellant submitted that the Respondent’s attempt to assess Excise Duty, vide an assessment dated 24th June 2021, for the year 2015, is a total disregard of the five-year statutory limit under provisions of Section 29 of the TPA. The Appellant requests that the Respondent’s assessments for Excise Duty amounting to Kshs. 73,372,566. 00 for the year 2015 be vacated accordingly.

h). Penalties And Interest 99. The Appellant submitted that the Respondent erred in law and fact by demanding penalties based on erroneous assessments.

100. The Appellant noted that the Respondent vide its objection decision sought to levy any resultant penalties on principal taxes of Kshs. 3,739,087,832. 00 on erroneous VAT, Excise duty, CIT, WHT and CGT assessments.

101. The Appellant submitted that the Respondent erred in law and fact by imposing penalties on tax obligations that did not exist in the first place.

102. The Appellant submitted that the Respondent’s imposition of penalties is based on erroneous assessments and prays that the same should be vacated accordingly.

103. The Appellant relied on the following cases; -a.Vestey v Inland Revenue Commissioners [1979] 3 All ER at 984. b.Keroche Industries Limited v Kenya Revenue Authority & 5 Others [2007] 2 KLR 240. c.Scenaries Ltd v National Land Commission [2017] eKLR.d.Okiya Omtatah Okoiti v Communication Authority of Kenya & 8 others [2018] eKLR,e.Hickman Motors Ltd v Canada [1997] 2 SCR 33. 6.f.Nizaba International Trading Company Limited v Kenya Revenue Authority [2000] eKLR.g.Republic v Kenya Revenue Authority ex-parte Amsco Kenya Limited [2014] eKLR.h.Kenya Medical Association Housing Cooperative Society Limited v Attorney General & another [2016] eKLR.i.Diamond Trust Kenya Ltd v Daniel Mwema Mulwa [2010] eKLR.j.Attorney-General & another v Randu Nzai Ruwa & 2 others Civil Appeal No. 275 of 2012; [2016] eKLR.k.Union of Civil Servants & 2 others v Independent Electoral and Boundaries Commission (IEBC) & another H.C. Petition No. 281 of 2014 & 70 of 2015; [2015] eKLR.Karen Njeri Kandie v Alassane Ba & another [2017] eKLR.l.Commissioner of Income Tax v Pan African Paper Mills (E.A) Limited [2018] eKLR.m.Faulu Microfinance Bank Ltd v Commissioner Of Domestic Taxes (Tax Appeal No. 208 of 2019).n.Onyango Oloo v Attorney General [1986-1989] EA 456. o.Coca- Cola Central East and West Africa Limited v the Commissioner of Domestic Taxes (Tax Appeal No. 5 of 2018).p.Commissioner of Domestic Taxes v W. E. C. Lines (K) Limited (Tax Appeal E084 of 2020) [2022] KEHC 57 (KLR).q.David Mwangi Ndegwa v the Kenya Revenue Authority [2018] eKLR,r.Commissioner of Income Tax v Westmont Power (K) Ltd Nairobi High Court Income Tax Appeal No. 626 of 2002. s.Cooperative Bank of Kenya Limited v Commissioner of Domestic Taxes, Tax Appeal No. 45 of 2017. t.Vodafone Mobile Services Limited v Commissioner of Service Tax, CEAC 12/2016, C.M. APPL. 37207/2016. Sirpur Paper Mills Ltd. v Collector of Central Excise, Hyderabad (1998) 1 SCC 400. u.Pevans East Africa Limited & 6 Others v the Commissioner of Domestic Taxes, Tax Appeal No. 304 of 2019. v.Shreeji Entreprises (K) Limited v Commissioner of Investigations & Enforcement, Tax Appeals No. 58 and 186 of 2019. w.Commissioner of Domestic Taxes v Unga Limited [2021] eKLR.

Appellant’s Prayers 104. The Appellant made the following prayers; -a.That this Appeal be allowed;b.That the Respondent’s objection decision dated 18th January 2022 be set aside in its entirety;c.That the principal tax of Kshs. 3,739,087,832. 00 and attendant penalties and interest demanded by the Respondent vide its objection decision dated 18th January 2022 be vacated forthwith in their entirety;d.The costs of and incidental to this Appeal be awarded to the Appellant; ande.Any other orders that the Tribunal may deem fit.

The Respondent’s Case 105. The Respondent’s case is premised on the following documents: -a.The Respondent’s Statement of Facts dated 28th March 2022 and filed on the same date together with the documents attached thereto.b.The witness statement of Silvester Masinde dated 21st July 2022 and admitted in evidence on oath on 12th October 2022. c.The Respondent’s written submissions dated and filed on 26th October 2022 and the authorities attached thereto.d.The Respondent’s supplementary written submissions dated 1st November 2022 and filed on 2nd November 2022.

106. The Respondent replied to the Appellant’s case as follows; -

a. Estimated Assessments Based On Average Revenue Per User (arpu) Due To Failure By The Appellant To Provide Call Detail Record (cdr) Data. 107. The Respondent averred that the Constitution of Kenya, 2010 Article 31 provides that;“Every person has the right to privacy, which includes the right not to have;a.their person, home or property searched;b.their possessions seized;c.information relating to their family or private affairs unnecessarily required or revealed; ord.the privacy of their communication infringed.”

108. That however, it is trite law that the rights enshrined in the Bill of rights are not absolute and may be limited by law. That the only rights that cannot be limited by law are those provided for under Article 25 of the Constitution of Kenya, 2010, are;a.Freedom from torture and cruel inhuman or degrading treatment or punishment;b.Freedom from slavery or servitude;c.The right to fair trial; andd.The right to an order of habeas corpus.

109. That in the case of MWK v another Attorney General & 3 others (2017) eKLR, the court held as follows in regard to bill of rights;“When the constitutional right is infringed, it is important to determine whether such infringement is justified in terms of article 24 of the Constitutionwhich provides that the rights in the bill of rights may be limited only in terms of law;”

b. The Kenya Information and Communication Act (KICA) 110. The Appellant averred that the telecommunications companies such as Safaricom are regulated under KICA. That the duty to maintain the confidentiality of the details of subscribers is contained in Section 27 (2) (c) of the KICA which provides as follows;“A telecommunication operator shall ensure that the registration details of a subscriber are kept in a secure and confidential manner, and shall not be disclosed without the written consent of the subscriber”.

111. That the information can only be disclosed by the operators in accordance with Section 27 A (3) of KICAwhich is: -“(a)For purpose of facilitating the performance of any statutory functions of the authority (CAK).(b)In connection with investigation of any criminal offence or for purpose of any criminal proceedings.(c)For purpose of any civil proceedings under the Act.”

112. That the registration information that is protected under Section 27 (a) of KICA relates to the following: -“a)For natural person - the persons full name, identity card number, date of birth, gender, physical and postal address;b.From corporate persons or statutory bodies-the official name, postal and physical address, particulars of registration, incorporation enabling legislation or gazette notice as the case may be.”

c). The Data Protection Act, 2019} (DPA). 113. The Respondent averred that the Data Protection Act was enacted and came into operation on 25th November 2019 after the request of information was made.

114. That the DPA regulates the processing of personal data and provides for the rights of data subjects (owners of information/subject of personal data) and obligations of data controllers (holders/processors of information e.g. Telkom).

115. That in as much as Section 25 (a) of the DPA provides that every data controller or data processor shall ensure that personal data is processed lawfully and in accordance with the right to privacy of the data subject, Section 30 (1) (v) & (vi) of the DPA provides for the processing of data necessary for the performance of any task carried out by a public authority.

116. That the information that is sought is not unreasonable and meets the Constitutional threshold as set out in the case of Human rights commission v Communications Authority of Kenya and 4 others (2018) eKLR.

117. That in particular, the anonymization of some of the information as proposed by the Authority is reasonable, non-intrusive on the privacy of the customers and that there is no other alternative measure that may similarly achieve the same purpose with lesser degree of limitation.

118. The Respondent averred that several meetings were held to reach an agreement on the provision of the call data records requested. That this was followed by a demonstration of the process flow of the call data recording. That however, no verifiable Call Data Records to enable verification of the voice revenues reported was given to the Respondent.

119. That in as much as the Respondent would be agreeable to the assertion that there is need to demonstrate how ARPU was arrived at, the absence of the actual data in the form requested renders it the only justifiable way to compute the Appellant's revenues.

120. That the systems audit team (SABS) concluded that they could not rely on the walk through of the call centre to justify that the data used in arriving at the numbers recorded in the financial statements for the period under review was correct since the actual data was not provided for analysis and comparison.

121. The Respondent submitted that the basis upon which the assessment was confirmed in the objection decision was because the Appellant failed to provide the Call Data Record in its possession necessary to challenge the veracity of the assessment.

122. The Respondent submitted that the source of the information which the Respondent based its judgment on could originate from a variety of sources, some of which are intelligence based. That the law does not envisage as the Appellant demands, situations where the Respondent must disclose and share the source of its information, especially where the same involves investigations into tax compliance of a person.

123. The Respondent submitted that information giving rise to the assessment was communicated to the Appellant vide various letters in the audit findings and the assessment. That the information was sufficient to enable the Appellant to understand and appreciate the basis of the assessment. That there is nothing in the pleadings to show that the assessment was in any way obscure and that the Appellant did not understand its basis. That the source of information used in coming up with an assessment is not an assessment per se and there is no legal obligation requiring the Respondent to disclose its sources.

124. The Respondent submitted that once it disclosed that the information is the ARPU data in its possession, and that it is that information that it used to exercise its judgement, then the burden of proof automatically and immediately shifts to the Appellant to demonstrate that whatever information giving rise to the assessment is wrong and consequently, the assessment is erroneous or in any way excessive.

125. The Respondent submitted that the nature of data/information that the Respondent based its assessment on is in the control, custody and possession of the Appellant. That the burden therefore is squarely on the Appellant to produce the information/data in its possession, control and custody and demonstrate to the Tribunal that the information used by the Respondent was wrongly applied in arriving at the assessment.

126. That how they go about that business in discounting the Respondent’s assessment is their business. That they need to place before the Tribunal information/data to deconstruct the Respondent’s assessment and demonstrate that the said assessment is erroneous. That the Appellant failed to bring evidence before the Tribunal to show that the assessments by the Respondent were not justified.

127. The Respondent submitted that where the Appellant provides its financial statements as the true version of its income, the Respondent is obligated to interrogate them and request for source documents used to prepare the statements. That one of the source documents that the Appellant admitted during the hearing was used to prepare the Financial Statement is the CDR. That the Appellant cannot claim that it has prepared it's financials in accordance with the best practices but when required to provide the source document used to prepare the financials, refuses to do so. That even at the objection stage the Appellant could not support its own prepared and audited financial statements.

128. The Respondent submitted that in the present case, the Tribunal’s mandate is anchored in Tax Appeals Tribunal Act and the Rules made thereunder as well as relevant provisions of the Tax Procedures Act. That where the contention is a tax dispute as is in the present case, the mandate is limited to appealable decisions and specifically whether the Appellant discharged its burden of proof by providing the CDR data requested. That the mandate cannot extend to making a determination on the constitutionality or otherwise arising from production of CDR data. That this question is a preserve of the High Court.

d). VAT On Wholesale Roaming/inbound Roaming. 129. The Respondent averred that the International Telecommunications Regulations (ITR) (Melbourne Treaty) dated 1988 has not been domesticated in Kenya on wholesale roaming services.

130. That VATRegulations 13 (1) provide as to what amounts to an exported service to be taxable supply­“(a)in the case of services, when the taxable supply involves the services being provided to a recipient outside Kenya for use, consumption, or enjoyment outside Kenya. Provided that the exportation of services shall not include(b)Taxable services provided in Kenya but paid for by a personWho is not a resident in Kenya.”

131. That Appellant cited misclassification of the exempt sales from wholesale roaming. That however, the Appellant was not able to prove that the goods classified as exempt and zero rated were indeed supposed to be treated that way as provided for in the VATAct 2013. That it is upon the Appellant to satisfy the Respondent to treat a certain item in a certain way.

132. That based on the VATAct 2013, the accounting for VAT and Excise Duty on roaming services in cases of post-paid services are charged on Kenyan subscribers by his service provider locally. That the rationale is that the service is provided by a Kenyan firm though the services were consumed outside Kenya. That the subscriber has no contractual obligation with the foreign provider.

133. That the foreign provider cannot even disconnect the individual subscriber. That in case of prepaid roaming services, VAT and Excise duty is accounted for where the scratch card is purchased and not the country where the subscriber is using the services.

134. That where the Appellant enters into contractual agreement with service providers outside Kenya to enable the Appellant to use its services in their countries, those service providers will bill the Appellant for inter connectivity and other charges and the Kenyan providers will account for reverse VAT.

e). VAT On Disposal Of Various Assets. 135. The Respondent averred that land sold with buildings and improvements that is commercial in nature is taxable at 16% and should be brought to charge as per Section 5 (1) of the Vat Act 2013.

136. That after analyzing the objection and records and explanations, it was confirmed that the supported passenger cars were considered while charging VAT on sale of commercial vehicles as per Section 5 of the Vat Act 2013.

f). Variances between Turnover declared in the financial statements and VAT 3 returns for years of income 2015 - 2017 137. The Respondent averred that the review of the streams of income in the audited Trial Balances and Legders revealed that the reconciling items provided by the Appellant were not part of the streams of income reported.

138. That therefore, the Appellant cannot be reconciling items in the above variances and therefore the assessment was confirmed as issued.

g). Excise Duty on Deferred Income. 139. The Respondent submitted that effective 21st September, 2018, the Finance Act 2018 introduced Excise duty of 15% of excisable value on telephone and internet services as provided for in the Excise Duty Act of 2015, Section 5 and Part II of the 1st Schedule.

140. That prior to the changes in the Act, the Appellant was accounting for Excise on consumption of airtime due to the nature of the Appellant's business. That this augmented by the Appellant's response, that the amount of deferred income amounting to Kshs. 526,230,774. 00 had not been subjected to Excise duty.

141. The Respondent averred that the assessment took the position that the Excise duty rate should be at a rate of 15% as per Finance Act 2018 as opposed to 10% as per the Finance Act 2017 given that at the effective date of change in Excise duty rate, the Appellant had not declared and paid Excise duty on the deferred income until the assessment was brought to the Appellant's attention on 24th June 2021.

142. That in pursuant to Section 5 of the Excise Duty Act 2015, the Excise duty of Kshs. 78,934,616. 00 at the rate of 15% on deferred income amounting to Kshs. 526,230,774. 00 was not declared in the period prior to the amendment of the Excise Duty Act in 2018.

h). VAT On Excise Duty On Deferred Income (unconsumed Airtime) 143. The Respondent averred that based on the Appellant's letter to the Respondent dated 2nd November 2009 referenced as tax/0021109/pnn, the Appellant indicated that the request only related to Excise duty since the VAT would be declared correctly in accordance to the provisions of the VATAct. That this is taken that the VAT relating to Excise duty at the rate of 10% was declared correctly. That the outstanding VAT would only be on the incremental amount of Excise duty accounted for at the rate of 15% from the 10% used during the declaration. That therefore, the VAT will be subjected to the variance of Kshs. 26,311,539. 00 whose VAT had not been subjected to.

Collocation Income (rent) As A Specified Source Of Income. 144. The Respondent averred that income from the rent of towers amounts to rent income which should be treated as a specified source of income as detailed in the assessment letter.

145. That supported expenses attributable to collocation should be deducted appropriately to arrive at the gains and profits chargeable to tax. That however, the same has already been considered while computing the business income and therefore considering the expenses would amount to double taxation for the expenses in question.

j). Withholding Rent On Collocation. 146. The Respondent averred that the Appellant was registered as a withholding rent agent on 19th January 2017 as provided under Section 35 (3) (a) of the Income Tax Act. That however, for the year 2017, the Appellant failed to withhold rent on collocation expenses.

147. That income from the rent of towers amounts to rent income which attracts withholding tax at the specified tax rates. That during the period when the Appellant was a registered withholding rent agent, it ought to have withheld and remitted to the Commissioner from the rent expenses at the specified rates.

k). Withholding Tax Is Due On Accruals And Prepayments 148. The Respondent averred that since the Appellant stated that withholding tax on this amount was accounted for although not in the periods accrued but, when the payments were made, the interest and penalties that arise from the timing difference in the payment of the withholding tax remains the only question. Therefore, the objection on this issue was accepted and the assessment vacated.

Capital Gains Tax (CGT). 149. The Respondent averred that there is need to consider actual costs incurred in acquisition of property while computing CGT of the property disposed off. That the Appellant was unable to provide the actual costs incurred in the acquisition of the properties disposed off. That in the absence of the actual cost of acquisition, the Respondent cannot be guided by valuation reports or book values stated in the financial statements several periods after the property acquisition.

150. The Respondent relied on the following cases: -a.MWK v another Attorney General & 3 others (2017) eKLR.b.Human rights commission v Communications Authority of Kenya and 4 others (2018) eKLR.c.Digital Box Limited v Commissioner of Investigations & Enforcement (TAT 115 of 2017).d.Van Boeckel v C & E QB Dec 1980, [1981] STC 290. e.Gashi v Respondent of Taxation [2012] FCA 638. f.Fredericks & Others v MEC for Education and Training, Eastern Cape & Others (2002) 23 ILJ 81(CC).g.Speaker of National Assembly v Njenga Karume [2008] 1 KLR 425. h.Kipkalya Kones v Republic & Another ex-parte Kimani Wanyoike & 4 Others (2008) 3 KLR (EP) 291. i.Francis Gitau Parsimei & 2 Others v National Alliance Party & 4 Others Petition No.356 and 359 of 2012. j.Samuel Kamau Macharia & another v Kenya Commercial Bank Limited & 2 others [2012] eKLR.k.The Owners of the Motor Vessel “Lilian S” v Caltex (Kenya) Ltd [1989] KLR 1. l.Kenya Human Rights Commission v Communications Authority of Kenya & 4 others [20181 eKLR.m.Fusys (kenya) Limited v Southern Credit Banking Corporation Limited (2015) eKLR.n.Commissioner of Domestic Taxes v Total Cargo Holland HC ML No. 17 of 2013 (2018).o.David Mwangi Ndegwa v Kenya Revenue Authority (2018) eKLR.p.National Bank of Kenya v Commissioner of Domestic Taxes (TAT No. 14 of 2017).q.National Social Security Fund board of Trustees v Commissioner of Domestic Taxes, Kenya Revenue Authority (2016) eKLR).r.CMC Aviation Ltd v Cruisair Ltd (1) [1978] KLR 103. s.Ocean Freight (E.A) Limited v Commissioner of Domestic Taxes [2020] eKLR.t.Shreeji Enterprises(K) ltd (TAT No. 58 and 186 of 2019).u.Commissioner of Domestic Taxes v Galaxy Tools Ltd (2021) eKLR (income Tax Appeal No. E 088 of 2020).v.Osho Drapers Limited v Commissioner of Domestic Taxes [2022] eKLR (income Tax Appeal No. E 147 of 2020)w.Kenya Revenue Authority v Man Diesel & Turbo Se, Kenya [2021] eKLR.x.Commissioner of Domestic Services v Galaxy Tools Limited [2021] eKLR.y.Republic v Commissioner of Domestic Taxes Large Taxpayer’s Office ex-parte Barclays Bank of Kenya Ltd, [2012] eKLR.

Respondent’s Prayers 151. The Respondent prayed that the Tribunal finds that; -a.This Appeal is without merit.b.This Appeal be dismissed with costs.

Issues For Determination 152. The Tribunal upon due consideration of the pleadings of the parties identified the following issues for its determination: -a.Whether the Respondent erred in assessing VAT, Excise Duty and CIT on the Appellant based on the income estimate as per the purported industry Average Revenue Per User as opposed to the Appellant’s actual income.b.Whether the Respondent erred in law and in fact in Assessing VAT on the following income streams: -i.Inbound wholesale traffic and inbound visitor roaming taxes.ii.Disposal of various assets.iii.Disposal of motor vehicles.iv.Unreconciled variances.c.Whether the Respondent erred in law and in fact in assessing Excise duty on deferred income and assessing VAT on incremental Excise duty.d.Whether the Respondent erred in law and fact in deeming collocation income as specified source of income rather than business income and demanding withholding tax on collocation income.e.Whether the Respondent erred in law and fact by disallowing the adjusted costs used by the Appellant in the calculation of Capital Gains Tax (CGT).f.Whether the Respondent erred in law and in fact by issuing VAT and Excise duty assessments for the year 2015 outside the five-year statutory limit.

Analysis And Determination 153. The Tribunal having ascertained the issues that fall for its determination as set out above proceeds to deal with them as hereunder.

Whether the Respondent erred in assessing VAT, Excise Duty and CIT on the Appellant based on the income estimate as per the purported industry Average Revenue Per User as opposed to the Appellant’s actual income. 154. The dispute before the Tribunal emanated from the issue of Call Data Records (CDR), and subsequent use of a purported industry Average Revenue Per User (ARPU), which the Respondent used in determining the VAT, Excise Duty and CIT tax liabilities of the Appellant.

155. The Appellant submitted that in the ordinary course of its business of providing integrated telecommunications solutions in Kenya and offering voice and data services it has in its possession Call Data Records (“CDR”) data.

156. That these CDR data contain highly sensitive data which details calls made by customers on the Appellant’s network. That particularly, the CDR, inter alia, shows the number of the caller, the duration of the call and the location from where the call is initiated. That this runs into millions of calls made every second and each day, there are 300 million CDR records generated warranting significant storage power to process and store.

157. The Appellant submitted that it proposed that the Respondent’s officers review the information sought in electronic format at its premises given the nature of the CDR data.

158. In presenting its case before the Tribunal, the Appellant submitted that contrary to the Respondent’s assertions, the Appellant invited the Respondent officers to its premises with a view of granting access to the information sought in relation to its revenue streams.

159. The Appellant submitted that the Respondent’s officers visited the Appellant’s premises on 24th September 2021, 9th November 2021 and 15th December 2021.

160. The Appellant submitted that it went further to provide its system for audit by the Respondent’s technicians. That the Appellant availed minutes as proof of the meeting held on 24th September 2021 at its premises to the Tribunal. That further support in the form of email correspondence was attached to the Appellant’s Statement of Facts.

161. The Appellant submitted that it is regulated by the Communications Authority of Kenya (“CA”) whose responsibilities are, inter alia, monitoring the activities of licensees such as the Appellant so as to enforce compliance with license terms and conditions as well as the law.

162. On its part, the Respondent submitted that several meetings were held to reach an agreement on the provision of the call data records requested. That this was followed by a demonstration of the process flow of the call data recording. That however, no verifiable Call Data Records to enable verification of the voice revenues reported was given to the Respondent.

163. The Respondent submitted that in as much as the Respondent would be agreeable to the assertion that there is need to demonstrate how ARPU was arrived at, the absence of the actual data in the form requested renders it the only justifiable way to compute the Appellant's revenues.

164. The Respondent further submitted that its systems audit team (SABS) concluded that they could not rely on the walk through of the call centre to justify that the data used in arriving at the numbers recorded in the financial statements for the period under review was correct since the actual data was not provided for analysis and comparison.

165. The Respondent submitted that the basis upon which the assessment was confirmed in the objection decision was because the Appellant failed to provide the Call Data Record in its possession necessary to challenge the veracity of the assessment.

166. Section 23 (1) of the Tax Procedures Act requires the following for every taxpayer: -“23. Record-keeping(1)A person shall—(a)maintain any document required under a tax law, in either of the official languages;(b)maintain any document required under a tax law so as to enable the person's tax liability to be readily ascertained; and(c)subject to subsection (3), retain the document for a period of five years from the end of the reporting period to which it relates or such shorter period as may be specified in a tax law”.

167. From the pleadings, the parties seem to be in agreement that the Appellant kept records and therefore complied with this requirement of the law.

168. Secondly, Sections 58 and 59 of the Tax Procedures Act 2015 provides as follows; -“58. Power to inspect goods, records etc.1. Notwithstanding anything to the contrary in any written law, an authorised officer may inquire into the affairs of a person under any tax law, and shall at all times have full and free access to all lands, buildings, places to inspect all goods, equipment, devices and records whether in the custody or control of a public officer, or of a body corporate or of any other person, and may make extracts from or copies of those records2. An officer acting under subsection 1) may require the owner or employee, or a representative of the owner of the business, to give him all assistance and to answer all questions relating to the inquiry.59. Production of records1. For the purposes of obtaining full information in respect of the tax liability of any person or class of persons, or for any other purposes relating to a tax law, the Commissioner or an authorised officer may require any person, by notice in writing, to-a.produce for examination, at such time and place as may be specified in the notice any documents (including in electronic format) that are in the persons custody or under the person’s control relating to the tax liability of any person.”

169. Section 59 of the TPAmakes it mandatory for every taxpayer to produce records for examination by the Respondent while Section 58 gives the Respondent the powers to inspect the records.

170. Section 92 (1) of the TPA makes it an offence for a taxpayer to fail to maintain records. The Section states that:“A person commits an offence if the person fails to keep, retain or maintain a document that may be required to be kept, retained or maintained in accordance with a tax law without reasonable excused during the reporting period.”

171. The Tribunal notes that Sections 4 (2) and 4 (3) of the TPA give powers to the Respondent to enforce tax laws. The Section states as follows: -“(2)The Commissioner shall appoint such authorised officers as may be necessary for the administration of a tax law.(3)An authorised officer shall enforce, and ensure due compliance with, the provisions of the tax law, and shall make all due inquiries in relation thereto.”

172. That if any tax laws were broken by the Appellant, then it was the duty of the Respondent to enforce the law.

173. It is clear from the witness statements that the Respondent was given access to documents and records that are in electronic form during the meetings held at the premises of the Appellant on 24th September 2021, 9th November 2021 and 15th December 2021.

174. During the open court hearing, the witness of the Respondent was asked why they were not able to extract the information they wanted from the records they were given access to by the Appellant. He responded as follows: -“I would indicate to you that on several occasions, I was part of the team that went to the premises and we could sit there for a whole day and did nearly nothing in review. A walk-through would take us less than 5 minutes to finish. But we are looking at how did you arrive at this information. You have given us financial statements from call data. You are telling us this is what we had as call data and we are telling you give us this information that you used to generate.”

176. The Tribunal notes that during the first meeting held on 24th September 2021, the parties agreed among other things as follows: -a.“Telkom Kenya (TKL). That the review would be undertaken at TKL’s premises and possibly using their machines as well due to privacy concerns.

KRA would choose a sample of the months to use in their review.b.KRA KRA’s technical person and TKL’s technical person to agree on a schedule for the review of the data sample chosen.”

177. It is clear from this Minute (which was not refuted by the Respondent), that the technical person of the Respondent was supposed to go to the premises of the Appellant and extract the sample data that they would then analyze. The Appellant submitted that the technical officer of the Respondent never came back to its premises to carry out this task as agreed by the parties.

178. In his witness statement and during the hearing, the first witness of the Appellant (Mr. Yobera), emphasized three issues that were not denied by the Respondent: -“a).That the KRA systems audit team (SABS), were actually given access to the live system with their unique credentials and were allowed access to access data freely under the guidance of technical team as the systems are complex.b).The KRA team was well informed of system audit trails on the systems and was comfortable that these were normal and served as checks and balances where the need arose..c).The KRA agreed to review that data in the archive and from live system for five days consecutively after all the queries were answered by TKL. To this end, TKL provided access to the live platform to the KRA. However, the KRA team never came back for joint review as agreed.”

179. The Tribunal now turns its attention to the issue of Average Revenue Per User (ARPU).

180. During proceedings in open court, the witness of the Respondent was specifically asked the question:-“You are saying that the assessments were estimated based on the Average Revenue Per User due to the failure by the Appellant to provide call detailed records data. Where did you get your Average Revenue Per User? Do we have it as a Tribunal to say this is the average revenue per user that we used, and this is where we got it from?”

181. In response, the witness of the Respondent stated: -“It is part of the documents I shared with the counsel, I will check with the counsel to see if it is part of the bundles that was shared.”

182. The Tribunal notes that the Respondent did not disclose to the Appellant or the Tribunal how it arrived at the estimated industry Average Revenue Per User or where they got the figures from.

183. The Appellant on the other hand submitted to the Tribunal that it had undertaken independent research in a bid to prepare a substantive response to the Respondent’s claims. That the only documents it came across which in its view may form the basis of the Respondent’s industry ARPU figures are the Kenya Telecommunications Reports by the Fitch Group Company (“Fitch Group Reports”). That the Fitch Group Company is a global leader in financial information services with operations in more than 30 countries.

184. The Appellant submitted that Quarter 3 2018 version of the Fitch Group Reports had the following contents on page 6. “Only Safaricom provides ARPU data, and we believe it to be substantially higher on account of its dominant market share. We expect the average revenue per user (ARPU) to be much lower and continue to face pressure as competition mounts and new subscribers will inevitably come from low-income segments of the consumer base, such as rural dwellers and the agrarian population.”

185. That on page 29, the report stated: -“Note: Only Safaricom provides information for Monthly Blended ARPU.”

186. That furthermore, The Quarter 1 2017 version of the Fitch Group Reports has the following contents on page 19: -“The region's (Sub-Saharan Africa’s) poor Industry Rewards profile stems primarily from low consumer spending power combined with very intense competition as operators battle for the few remaining new subscribers in urban areas. As a result, ARPUs in the vast majority of markets have fallen below USD4 while subscriber growth forecasts have tapered off.”

187. The Appellant submitted that without any basis or source of the industry averages from the Respondent, the Respondent’s calculations based on the industry average revenue per user do not reflect the pertinent and independent data sourced by the Appellant in a bid to substantively respond to the Respondent’s claim. That the Respondent’s ARPU figures are higher, i.e. USD 4. 9 and 4. 93 over the period in question, than those reported in the Fitch Group Reports and thus the calculations by the Respondent have placed an unsupported and unreasonable tax liability on the Appellant.

188. The Appellant submitted that it met its burden of proof in providing clear, unchallenged and uncontradicted evidence and that the onus shifted to the Respondent, who produced no evidence whatsoever. The Appellant relied on the case of Hickman Motors Ltd v Canada [1997] 2 SCR 33. 6.

189. The Tribunal notes that Kenya has a self-assessment tax system where the taxpayer files tax returns to the Respondent. However, Section 24 (2) of the TPA states that: -“The Commissioner General is not bound by a tax return or information provided by, or on behalf of, a taxpayer and the Commissioner may assess a taxpayer's tax liability using any information available to the Commissioner.”

190. The Tribunal is guided by the holding in the case of Fleur Investments v Commissioner of Domestic Taxes & Another [2018] eKLR where the Court in dealing with a similar issue held at paragraph 25 as follows:-“In this case from the record before us and the voluminous correspondence between the parties herein, and the clear inconsistencies in the respondents’ responses and actions, it is clear that the respondents in making the assessment in question proceeded on erroneous state of facts, either mistakenly or mischievously in a bid to punish the appellant for no justifiable reason, and in doing so did not act in good faith whatsoever. Therefore, whereas this Court is not entitled to question the merits of the decision of taxing authority, that authority must exercise its powers fairly and there ought to be a basis for the exercise of such powers. A taxing authority is not entitled to pluck a figure from the air and impose it upon a taxpayer without some rational basis for arriving at that figure and not another figure. Such action would be arbitrary, capricious and in bad faith. It would be an unreasonable exercise of power and discretion and that would justify the Court in intervening.In Republic v Institute of Certified Public Accountants of Kenya ex parte Vipichandra Bhatt T/A J v Bhatt & Company Nairobi HCMA No. 285 of 2006, it was held that in the absence of a rational explanation, one must conclude that the decision challenged can only be termed irrational within the meaning of the Wednesbury unreasonableness, was in bad faith and constitutes a serious abuse of statutory power since no statute can ever allow anyone on whom it confers a power to exercise such power arbitrarily and capriciously or in bad faith. Faced with circumstances similar to the present case in Republic v Kenya Revenue Authority Ex parte Jaffer Mujtab Mohammed (2015) eKLR, Odunga J held as follows;“a taxing authority is not entitled to pluck a figure from the air and impose it upon a taxpayer without some rational basis for arriving at that figure and not another figure. Such action would be arbitrary, capricious and in bad faith. It would be an unreasonable exercise of power and discretion and that would justify the court intervening.”In this case the respondents clearly plucked the figure from the air. No explanation was given to the appellant as to how that figure was arrived at”.

191. Although the law allows the Respondent to use whatever source of information it wishes to determine a taxpayer’s liability, the Respondent was unable to explain to the Tribunal how it arrived at the estimated Average Revenue Per User (ARPU), that it imposed on the Appellant.

192. On the other hand, the Appellant was able to demonstrate to the Tribunal using the Fitch report that the ARPU used by the Respondent was not only erroneous but also excessive as it was far higher than the Sub Saharan average of below 4US$,

193. It is the Tribunal’s view that the Appellant has discharged its burden of proof in demonstrating that it provided access to data that the Respondent requested and that it also demonstrated that the ARPU used by the Respondent was excessive.

194. Based on the fact that the Appellant demonstrated to the Tribunal it provided access to the Respondent and that the Respondent’s technical officer failed to extract or analyze the data provided by the Appellant, and in absence of an explanation on how the estimated Average Revenue Per User figure imposed on the Appellant by the Respondent was arrived at, the Tribunal finds that the Respondent erred in assessing VAT, Excise Duty and CIT amounting to Kshs. 2,272,044,643. 00 on the Appellant based on the income estimate as per the purported industry Average Revenue Per User as opposed to the Appellant’s actual income.b).Whether the Respondent erred in law and in fact in assessing VAT on the following income streams: -i.Inbound wholesale traffic and inbound visitor roaming taxes.ii.Disposal of various assets.iii.Unreconciled variances.

195. The Appellant submitted as follows on each of the above issues: -

Inbound Wholesale Traffic And Inbound Visitor Roaming Taxes. 196. The Appellant raised two objections in relation to this issue.

197. The Appellant submitted that the Respondent erred in law and acted ultra vires to Section 51 (8) of the Tax Procedures Act by issuing additional VAT assessment of Kshs. 244,673,265. 00 in the objection decision.

198. The Appellant submitted that the Respondent in its assessment demanded VAT of Kshs. 156,255,292. 00 as principal taxes on inbound wholesale traffic and inbound visitor roaming services.

199. That the Appellant objected to the assessment and attended meetings with the Respondent pursuant to which additional information and explanations were availed to the Respondent in a bid to resolve the dispute.

200. That the Respondent proceeded to issue an objection decision demanding payment of VAT amounting to Kshs. 400,928,557. 00 as principal taxes on inbound wholesale traffic and inbound visitor roaming services.

201. That this amount was higher by Kshs. 244,673,265. 00 from the initial amount assessed and objected to. That therefore, the Kshs. 244,673,265. 00 is tantamount to an additional assessment issued at the objection decision stage.

202. The Appellant submitted that the Respondent acted ultra vires by issuing an additional assessment in its objection decision. As per Section 51 (8) of the Tax Procedures Act, the Respondent had the options to either allow a taxpayer's objection in whole or in part or disallow it in its objection decision.

203. The Appellant relied on the case of Faulu Microfinance Bank Ltd v Commissioner of Domestic Taxes (Tax Appeal No. 208 of 2019) where the Tribunal expressed itself on this particular issue.

204. The Respondent did not address itself to this issue raised by the Appellant either in the Statement of Facts or in its submissions.

205. The Tribunal does not wish to depart from its finding in the case of Faulu Microfinance Bank Ltd v Commissioner of Domestic Taxes (Tax Appeal No. 208 of 2019) and therefore finds that the Respondent erred in law and acted ultra vires to Section 51(8) of the Tax Procedures Act by issuing additional VAT assessment of Kshs. 244,673,265. 00 in the objection decision.

206. The Second objection the Appellant raised was that the inbound wholesale traffic and inbound visitor roaming constitute exported services that are subject to VAT at zero rate.

207. That this is on the basis that under the carrier arrangements, the Appellant provides carrier network services to non-resident telecommunication companies for their use and consumption outside Kenya. That a third party (customers to the non-resident telecommunication service provider) who is not privy to the carrier arrangement cannot be construed to use or consume services in Kenya for the purposes of determining the location with taxing rights over the services.

208. The Appellant submitted that it has adduced clear, unchallenged and uncontradicted evidence to prove that the inbound wholesale traffic and inbound visitor roaming services were subject to VAT at zero rate by virtue of being exported services. That this evidence included its general ledgers, tax computations, audited financial statements, the detailed definitions and explanations supported by the CA Manual as well as its brochure on carrier services.

209. That the Respondent’s witness admitted to the fact that VAT is accounted for where the scratch card is purchased and not in the Country where the subscriber is using the provider services. That in Paragraph 14 and 15 of his witness statement, the witness statement stated: -“The subscriber has no contractual obligation with the foreign provider (being the Appellant in this case) and the foreign provider cannot even disconnect the individual subscriber…. In case of prepaid roaming services VAT and excise duty is accounted for where the scratch card is purchased and not the country where the subscriber is using the provider services.”

210. On the other hand, the Respondent submitted that even in a situation where there is a carrier arrangement between resident and non-resident telecommunication service providers, as is the present case, it is clear that transaction/arrangement between the two telecommunication companies do not operate in abstract.

211. The Respondent submitted that the same is activated when the inbound roamer, who is in Kenya initiates the telecommunication service by either making a call or sending an SMS. That the inbound roamer is charged and pays for the services rendered. That there is indeed a relationship between the amount the inbound roamer pays or is charged on the one hand with respect to the calls made or SMS done, and the roaming services rendered to him/her on the other hand. That the inbound roamer pays for that service over and above what its mobile services provider may impose on local subscribers.

212. That accordingly, the ultimate beneficiary for the telecommunication service provided is the inbound roamer who is in Kenya and who pays for all the charges made with respect to the telecommunication service rendered in Kenya. That the carrier arrangement may only make the non-resident telecommunication company an intermediate consumer rather than the ultimate/ final consumer or beneficiary/user of the services.

213. The Respondent relied on the case of Commissioner of Domestic Taxes v Total Cargo Holland HC ML No. 17 of 2013 (2018), the court stated as follows:“… for a service to be deemed an exported service, it matters not whether the service was performed in Kenya or outside Kenya. The determining factor is the location where that service is to be finally used or consumed……”

214. In the circumstances of the foregoing, the Tribunal finds that the Respondent erred in law and in fact in by seeking to assess VAT amounting to Kshs. 400,928,557. 00 on inbound wholesale traffic and inbound visitor roaming services, supplies which were subject to VAT at zero rate by virtue of being exported services.

Disposal Of Various Assets. 215. The Appellant submitted that the Respondent erred in fact by using incorrect values and classification of the assets disposed off.

216. That the Respondent erred in law and fact by assessing VAT on disposal of commercial property, supplies which are exempt for VAT purposes. The Appellant relied on the High Court judgment in the case of David Mwangi Ndegwa v the Kenya Revenue Authority [2018] eKLR, wherein the High Court of Kenya in Nairobi held that VAT is not payable on the sale or purchase of land whether the buildings erected thereon are residential premises or commercial buildings. The Court held that there exists ambiguity in the exemption provision and that there can be no separability of buildings from the land they are erected on hence the transaction is exempt from VAT.

217. That the Respondent erred in law and fact in assessing VAT on disposal of other assets, supplies which were exempt from VAT. The Appellant submitted that the Respondent confirmed its assessment of VAT amounting to Kshs. 3,815,705. 00 on disposal of generators, IT equipment and other non-core assets on the allegation that the Appellant did not account for VAT on them.

218. The Appellant submitted that these assets constitute plant and machinery classifiable under Chapters 84 and 85 of the East African Community Common External Tariff (“CET”) including but not limited to radio transmission equipment/apparatus, power plant, switching core and generator Cummins.

219. The Appellant submitted that prior to 1st July 2018, Paragraph 27 of Part I: Section A to the First Schedule to the VATAct provided for the generic exemption of plant and machinery of Chapters 84 and 85. The Appellant submitted that for the period under review, any disposal of plant and machinery classifiable under Chapters 84 and 85 of the CET were exempt from VAT.

220. That the Respondent erred in law and fact by assessing VAT on disposal of motor vehicles, supplies on which computation of output VAT was restricted.

221. The Appellant submitted that the Respondent confirmed its assessment of the Appellant for VAT amounting to Kshs. 7,516,600. 00. on the allegation that the Appellant did not account for VAT on disposal of motor vehicles.

222. The Appellant submitted that Section 17 (4) of the VATAct, 2013 restricted input tax deduction on acquisition of passenger cars or minibuses, unless the passenger cars or minibuses were by the registered person exclusively in the ordinary course of business of selling or dealing in or hiring of passenger cars or minibuses. That furthermore, the VATAct, 2013 provided that no tax shall be charged on the supply where no input tax deduction was allowed on that supply under this subsection.

223. On the other hand, the Respondent submitted that in its preliminary audit findings communicated vide a letter dated 2nd January, 2020, it established that Appellant failed to charge VAT on the sale of certain commercial assets. The specific assets that were subject to the finding were specified by the Respondent. That these assets were individually valued and sold as separate and distinct commercial assets.

224. That accordingly, what was sold by the Appellant were in substance the commercial assets and not land per se. That the values of the said items were stated in the letter of findings and they originated from the Appellant’s own financial statements and sales reconciliation provided to the Respondent.

225. That the Appellant’s reliance of the case of David Mwangi Ndegwa v Kenya Revenue Authority (2018) eKLR is misleading since the orders of the court in that case were stayed by the Court of Appeal by consent of the parties dated 31st January, 2019, pending the hearing and determination of the substantive appeal.

226. That once a judgement or order is stayed, it can no longer have any force of law. That accordingly, it cannot form a precedent. That essentially, the status quo prior to the judgement was maintained which is that the sale of a commercial building and improvement thereon are vatable.

227. That this position was confirmed by the Tribunal in the case of National Bank of Kenya v Commissioner of Domestic Taxes (TAT No. 14 of 2017) where it was stated thus:“The VAT is not payable for the transactions for the sale or purchase of land whether/or not the building thereon are residential or commercial buildings. We are however alive and aware of the fact that there is a stay of execution of the declamatory orders of the high court pending the determination of the appeal preferred to the court of appeal.”

228. That the upshot of the foregoing is that the operative position is that VAT is due and payable on the sale of the commercial property as stated in the assessment.

229. The Respondent submitted that during the audit, it was also established that the Appellant had disposed off certain assets. That the assets disposed off were tabulated in the assessment issued to the Appellant. That on purchase of these items, input VAT is allowed and on their subsequent sale, VAT ought to be charged accordingly. That the Appellant however failed to charge VAT on the sale of these assets.

230. The Respondent submitted that from the schedule of assets disposed, the Tribunal will note that some were given generic names termed as ‘non-core’ assets, SRT equipment, Idle IT & N Equipment etc.

231. That without a proper identification of the assets, the Respondent was not, and the Tribunal would still not be in a position to accurately determine whether the said assets were indeed machinery of chapter 84 and 85 of the EAC CET as alleged by Appellant.

232. That secondly, since the Appellant alleged that the items fall under Chapters 84 and 85 of the EAC, CET, the burden falls on it to demonstrate that the items in question indeed were properly classified under those chapters. That no evidence is on record to ascertain this position. That averments made in the pleadings, on their own cannot satisfy the burden of proof. That in the National Social Security Fund board of Trustees v Commissioner of Domestic Taxes, Kenya Revenue Authority (2016) eKLR) it was stated:“there is a world of difference between assertion and proof. That which a party puts to be his case is an assertion. The party needs to adduce evidence to support his said assertion with a view to supporting his case”

233. On the sale of motor vehicles, the Respondent submitted that the Appellant grossly misconstrued the basis of the assessment, which was premised on the whether the motor vehicles sold were indeed passenger cars not subject to tax under Section 174 (4) of the VATAct rather than the VAT treatment of the passenger cars as stated in the Appellant’s grounds of appeal.

234. The Respondent submitted that the issue before the Tribunal is whether the Appellant satisfied the burden of proof that the said motor vehicles were indeed passenger cars.

235. That this position is clear from the assessment issued to the Appellant that where the Respondent dropped the assessments in cases where the Appellant properly supported its case that indeed what were sold/disposed off were passenger cars. That in cases where no evidence was provided, assessments were confirmed.

236. On the sale of commercial buildings, the Tribunal reiterates its holding in similar matters that VAT is payable in all transactions relating to the sale of commercial buildings, more specifically its decision in the National Bank of Kenya v Commissioner of Domestic Taxes (TAT No. 14 of 2017). The Tribunal therefore finds that the Respondent did not err in law and fact by assessing VAT on disposal of commercial property.

237. In relation to the sale of other assets termed as non-core assets, SRT equipment, idle IT & N equipment, the Tribunal notes that the Appellant did not adduce any evidence to support its averments that these were indeed chapter 84 and 85 of the EAC CET.

238. Without the proper identification of the assets disposed off, the Tribunal was not in a position to determine whether the said assets were indeed chapter 84 and 85 of EAC CET. In the circumstances, the Tribunal finds that the Respondent did not err in law and in fact in assessing VAT on disposal of other assets to the tune of Kshs. 3,815,705. 00.

239. On confirmation of assessment of Kshs. 7,516,600. 00 as VAT on motor vehicles, the Tribunal finds that in absence of any evidence that the vehicles were indeed passenger cars, the Respondent did not err in assessing VAT on disposal of motor vehicles.

Unreconciled Variances. 240. The Appellant submitted that it carried out a detailed reconciliation for the years 2015 to 2017 and shared its updated reconciliation workings with the Respondent on 27th August 2020.

241. That the Respondent disregarded its updated reconciliation workings and maintained its findings and issued its assessment based on the Appellant’s initial workings.

242. The Appellant submitted that in its notice of objection, it objected to the assessment and noted that the revenue declared in the VAT returns and the revenue as per the FS for the years of income 2015 to 2017 had been fully reconciled.

243. That the initial workings relied on by the Respondent were incomplete and it requested the Respondent to disregard the initial workings and consider the updated, complete, reconciliation workings shared with it in the notice of objection on 23rd July 2021.

244. The Appellant relied on the case of Nizaba International Trading Company Limited v Kenya Revenue Authority [2000] eKLR, where the High court held that failure to consider material facts presented by a party against whom an assessment had been raised amounts to an abuse of legislative provisions and such an assessment cannot be acted upon.

245. On the other hand, the Respondent submitted that the Appellant’s further additional information attempting to reconcile the variance could not be supported by the data on the revenue streams. That the basis of the assessment and the objection decision was that the purported reconciliation provided by the Appellant materially departed from its own data on specific revenue streams disclosed in its financial statements.

246. That in effect, the Appellant could not be reconciling items on the variances disclosed. Accordingly, the same could not be allowed and the taxes imposed on the variances were confirmed.

247. That the Respondent’s decision was premised on the fact that the alleged updated and complete workings/reconciliations in fact deviates from the data on specific revenue stream disclosed in the financial statement and already provided to the Respondent.

248. After analyzing the pleadings and case law presented by the Appellant, the Tribunal finds that the Appellant has discharged the burden of proof and that the Respondent erred in law and fact in assessing VAT on the unreconciled sales at Kshs. 44,374,599. 00.

c). Whether The Respondent Erred In Law And In Fact In Assessing Excise Duty On Deferred Income And Assessing Vat On Incremental Excise Duty. 249. The Appellant submitted that the Respondent sought to charge Excise Duty at 15% on deferred income amounting to Kshs. 526,230,774. 00 as at September 2018 tax period.

250. That the Finance Act, 2018 amended the Excise Duty Act, No. 23 of 2015 (“Excise Duty Act”) by deleting the charging provision of 10% Excise Duty rate on mobile cellular services and other wireless services and introducing excise duty on telephone and internet data services at the rate of 15% effective 21st September 2018.

251. That According to the Respondent, the Excise Duty rate applicable should be a rate of 15% as per Finance Act 2018 as opposed to 10% given that at the effective date of change in Excise Duty rate, the Appellant had not declared and paid Excise Duty on the deferred income as it awaited consumption of the sold Unified Scratch Card (USC) to determine the amount to subject to Excise duty.

252. That the Respondent further stated that once the Finance Act 2018 came into force, the Appellant could not go back and claim that the Excise duty point was an earlier period, whereas the application for deferment was made by the Appellant. The Respondent, in its assessment letter, proceeded to assess Excise Duty amounting to Kshs. 78,934,616. 00 at the rate of 15%.

253. That following the explanations provided by the Appellant, the Respondent, in its objection decision, amended its assessed Excise duty liability from Kshs. 78,934,616. 00 to Kshs. 26,311,539. 00 on the incremental Excise Duty chargeable on the deferred income arising from the increase in rate from 10% to 15% (5% of Kshs. 526,230,774. 00).

254. That the Appellant disputed the Respondent’s assertions and submitted that at the time of supply of the USC amounting to Kshs. 526,230,774. 00 was triggered prior to 21st September 2018, hence the applicable Excise Duty rate should be 10% and not 15% as alleged by the Respondent.

255. The Appellant submitted that the Respondent has no power to change the law as enacted by the National Assembly of Kenya. That the Respondent can only provide guidance on how the substantive law is to be effected or administered, as is the current case.

256. The Appellant further submitted that the Respondent, in its objection decision, amended its assessed VAT liability from Kshs. 12,629,539. 00 to Kshs. 4,209,846. 00 on the incremental Excise duty chargeable on the deferred income on the basis that Excise duty forms part of the excisable value for VAT purposes as per Sec 13 of the VATAct.

257. The Appellant disputed the Respondent’s VAT assessment on Excise Duty on deferred income for lack of legal merit.

258. The Appellant submitted that provision of Section 13 (2) of the VATAct was deleted by the Finance Act 2018. Consequently, the taxable value of a supply of mobile cellular services became inclusive of the Excise duty value in accordance with the provisions of Section 13 (3) of the VATAct effective 21st September 2018.

259. On the other hand, the Respondent submitted that vide a letter dated 2nd November 2009, the Appellant made a request to the Respondent to be allowed to account for excise duty on one of its new products, Unified Scratch Card (USC) upon usage rather than sale of the card.

260. That the justification for the request was that allowing excise duty to be charged upon sale would make telephony services expensive for consumers. That further the Appellant stated that;“it would be unequitable to account for excise duty upon sale of USC because the implication would be that fixed telephone services would be subjected to excise duty upon usage of USC on this service.”

261. That the Appellant’s request was allowed by the Respondent vide a letter dated 7th January 2010. That upon the request being granted, the Appellant indeed enjoyed a benefit as it was exempted from accounting for the Excise duty at the point of sale which is the time of supply pursuant to Section 4 (1) of the Excise Duty Act. In the process, the Appellant continued to enjoy the said benefit undeterred. The Respondent on its part had to forgo the benefit of early realization of the revenue.

262. That when an amendment to Excise Duty Act was done vide the Finance Act 2018, it is not disputed that the Appellant had accrued a deferred income of Kshs. 526,230,774. 00. That this is on account of the fact that whereas the sale of the USC had taken place, the same had not been used/consumed.

263. That the Finance Act 2018 introduced Excise duty at the rate of 15% on excisable value on telephone and internet services. That the same was effective from 21st September, 2018. That before then however, the Excise duty rate was 10%.

264. That as at the effective date of the amendment of the Excise duty rate, the Appellant had not declared the excise duty based on the approved request that they account for the excise duty at the point of consumption rather than sale of the scratch card.

265. That at the point when the rate changed from 10% to 15% the excise duty had not crystallized on the USC since the Appellant was still awaiting their consumption/usage. That accounting for excise duty at the point of consumption must be given it's ordinarily meaning. That it means either to arrive at/compute the excise duty using the prevailing rate at the point of consumption/usage.

266. That accordingly, it is clear that the applicable rate is the 15% vide an amendment introduced by Finance Act 2018. That this is because the Appellant’s request was still effective, operative and subsisting and had not been rescinded by any party. That there is no ambiguity as to the intention of the parties to the effect that at the time, the duty would be computed at the point of consumption/usage of USC, the applicable rate would undeniably be the prevailing rate at that point of usage/consumption, which in the present case was 15%.

267. That the Appellant therefore cannot be allowed to go back using a rate of 10% when in fact as at the time the USC are finally consumed, the guiding rate was 15%.

268. The Tribunal notes that it was the Appellant who requested to account for Excise duty upon usage. When the Excise duty was increased from 10% to 15%, the Appellant had not accounted for the usage. The accounting of that usage of scratch cards had therefore to be based on the new rates. The Tribunal therefore finds that the Respondent did not err in law and in fact in assessing excise duty on the deferred income and assessing VAT on incremental Excise duty.

d). Whether the Respondent erred in law and fact in deeming collocation income as specified source of income rather than business income and demanding withholding tax on collocation income. 269. The Appellant submitted that it provides collocation services in the ordinary course of its business of providing integrated telecommunications solutions and network facilities. That these collocation services involve the Appellant providing space on its transmission towers on which its customers’ equipment may be installed. That in this regard, the Appellant entered into Collocation Agreements with Safaricom PLC and Kenya Towers Limited.

270. That the Respondent insisted that the income made by the Appellant from its collocation and site sharing in respect of the Appellant-owned sites should have been declared separately in the Appellant’s income tax returns rather than it being declared as ‘business income’.

281. That according to the Respondent, the masts/towers constitute immovable structures, and as such, the gains and profits received for their use or occupation are rental in nature. As such, pursuant to Section 15 (7) (e) of the ITA, the Respondent averred that the Appellant should have declared collocation income as a specified source income rather than business income.

282. The Appellant asserted that the towers/masts are not permanently affixed to the earth and that the same can be easily moved. As such they do not constitute an immovable property to warrant application of Section 15 (7) (e) of the ITA.

283. In support of its case, the Appellant relied on the finding in Vodafone Mobile Services Limited v Commissioner of Service Tax, CEAC 12/2016, C.M. APPL. 37207/2016. where a question arose whether towers and shelters are movable or immovable property. The Court was categorical that:“A machine or apparatus annexed to the earth without its assimilation by fixing with nuts and bolts on a foundation to provide for stability and wobble free operation cannot be said to be one permanently attached to the earth and therefore, would not constitute an immovable property.”

284. In accordance with the foregoing authority, the Appellant submitted that its towers and masts are merely fastened to a civil foundation and that the same can easily be unbolted and reassembled with minimal alteration to the ground/location. That therefore, the towers and masts are indeed movable property and cannot for this reason give rise to rental income as alleged by the Respondent.

285. The Appellant also noted that the Respondent has only subjected the collocation income to tax without taking into consideration the attendant expenses. That this is contrary to the stipulations of Section 15 of the ITA which provides that:“(1)For the purpose of ascertaining the total income of a person for a year of income there shall, subject to section 16, be deducted all expenditure incurred in that year of income which is expenditure wholly and exclusively incurred by him in the production of that income.”

286. The Appellant disputed the Respondent’s CIT assessment of Kshs. 676,007,273. 00 on collocation income as a specified source of income and as such prayed that the Respondent’s objection decision be vacated.

287. The Appellant further submitted that the Respondent erred in law and fact by demanding withholding tax on the collocation payments made by the Appellant which do not qualify as rental income under the ITA.

288. That the Appellant was appointed as a WHT agent in respect of rental income on 19th January 2017 pursuant to Section 35 (3) (a) of the ITA. The Respondent therefore confirmed its assessment of WHT on the collocation amounts paid by the Appellant amounting to Kshs. 141,954,544. 00 in principal taxes.

289. On the other hand, the Respondent submitted that the dispute before the Tribunal is traceable to the Appellant’s treatment of the collocation income as business income rather than a distinct source of income relating to rental income.

290. That in arriving at a determination whether the income is in the nature of business or otherwise, it is important to ascertain whether the income is earned or accrued in the ordinary conduct or course of the Appellant’s core operations.

291. That the intention of setting up transmission towers was to provide a platform for the transmission of the network to the Appellant’s own mobile subscribers/customers. That essentially the target group was the Appellant’s customer base rather than other 3rd parties which are not in the category of the Appellant’s ordinary customers.

292. That where, however, through an arrangement or agreement, third parties rent and use the towers for other activities (installment of their equipment) outside the targeted Appellant’s customers, this amounts to renting activities different from the core mandate of the Appellant and any income/fee accrued as a result amounts to rental income. That the Appellant was therefore, wrong to lump up the income received from the lease of the towers as part of its business income.

293. That having established that colocation income is subject to tax as rental income arising from the use of immovable property, the Respondent submitted that any payments made by the Appellant in this regard ought to have been subjected to withholding tax in line with Section 35 (3) of the Income Tax Act read together with the Withholding Tax Rules (Rule 4) and Section 39 A of the Tax Procedures Act, 2015.

294. That additionally, the Appellant failed to provide proof to the Respondent, and nothing was provided before the Tribunal that it incurred electricity and power bills amounting to Kshs. 253 Million which ought to have been excluded from the collocation expenses. That the burden was on the Appellant to provide proof of such expenses in line with Section 56 of the TPAand Section 30 of TATA.

295. The Tribunal has analyzed the evidence submitted by the parties, more particularly the Tribunal observed from the evidence presented by the Appellant that the infrastructure (collocation towers) would be installed and dismantled upon the lapse of the term of the lease. That this disqualifies the collocation towers from being immovable properties or such that would qualify to be permanently erected and is of the view that the collocation towers are not permanent structures and can be easily dismantled.

296. The Law Insider dictionary defines a permanent structure as follows:-“a structure with wall, roof and floor made up with construction materials of high durability ie of at least 20 years.”

297. It further specifies that “the structure must be anchored on a permanent foundation with an impermeable floor and that is completely roofed and walled.”

298. The Tribunal is also persuaded by the finding in the Vodafone Mobile Services Limited v Commissioner of Service Tax, CEAC 12/2016, C.M. APPL. 37207/2016 and finds that the collocation towers are not permanent structures.

299. Having established that the collocation towers are not permanent structures as alleged by the Respondent, the Tribunal finds that the Respondent erred in law and fact in deeming collocation income as specified source of income rather than business income and demanding withholding tax on collocation income.

e). Whether the Respondent erred in law and fact by disallowing the adjusted costs used by the Appellant in the calculation of Capital Gains Tax (CGT). 300. In its assessment, the Respondent noted that the Appellant had disposed of various assets that were subject to Capital Gains Tax (“CGT”) in accordance with Section 3 (2) (f) of the ITA and the 8th Schedule to the ITA, over the audit period.

301. The Respondent indicated that the Appellant had not adduced documentation in support of the cost of acquisition of the said properties. That as a result, the Respondent disallowed any amounts referred to as ‘cost of acquisition’ in the calculation of the Appellant’s CGT.

302. The Appellant submitted that in 1999, the Government of Kenya ("Government") split the Kenya Post & Telecommunication Company ("KPTC") into three entities including the Appellant, Communications Commission of Kenya ("CCK"), and the Postal Corporation of Kenya ("POSTA"). That the Government incorporated the Appellant as a wholly owned company limited by shares.

303. That during incorporation, the Government obtained shares in the Appellant in exchange for the assets contributed. The Appellant submitted that the consideration for and the value of the assets contributed to the Appellant equals the value of the shares issued by the Appellant to the Government.

304. The Appellant submitted that the consideration for acquisition of a property does constitute the adjusted cost. That therefore, the shares in the Appellant obtained by the Government in exchange for the various properties does constitute sufficient/adequate adjusted cost.

305. The Appellant further submitted that whereas it does not have records as of the date of incorporation in April 1999, the Appellant provided the evidence to the Respondent showing that the audited financial statements for the year ended 31st December 2007 which had the original cost of the land and buildings sold.

306. The Appellant pointed out that from the review of the audited financial statements for the year ended 31st December 2007, the Auditor General categorically deducted an adjustment totaling to Kshs. 1,026,000. 00 which arose from a revaluation of the land and buildings transferred by the Government in exchange of shares in the Appellant.

307. That consequently, the total acquisition cost of the Appellant’s land and buildings from the Government which stood at Kshs. 4,972,000. 00 was actual cost not the revalued cost.

308. The Appellant submitted that it used the correct adjusted cost in calculating the CGT payable in respect of all the properties it disposed off.

309. The Appellant also submitted that Section 23 of the TPA mandates taxpayers to keep records for a period of five years. That the Appellant was incorporated 23 years ago in 1999 and it would therefore be unfair for the Respondent to insist on the Appellant producing data information contrary to express stipulations of the TPA.

310. The Appellant submitted that it has no legal obligation to provide records past the five-year period prescribed under Section 23 of the TPA.

311. On the other hand, the Respondent submitted that the Appellant was incorporated in 1999 and acquired various property from the Government in exchange of shares.

312. That if the value of shares obtained by the Government of Kenya in exchange of various properties were to be treated as the adjusted costs within the meaning of 8th Schedule of the Income Tax Act, then such costs should only be ascertained as at the date of acquisition of such property which is the date of the Appellant’s incorporation.

313. That in the present case, the Appellant however, sought to rely on valuation reports for the year 2008 as well as its financial statement 2017 to justify the ‘value of the consideration for the acquisition’ as the adjusted cost.

314. That the effect of this is that the adjusted cost was heavily inflated from the time that the actual acquisition of the property was done in the year 1999.

315. The Respondent submitted that there is nothing that has been placed before the Tribunal to demonstrate attempts made by the Appellant to obtain the said records required to show its adjusted costs at the point of incorporation/date of acquisition of the property.

316. That secondly, bearing in mind that the transaction of this nature involved the Government of Kenya and involved transfer of land and other immovable property, the Tribunal should take judicial notice of the fact that such records are in fact available and are within the Government custody.

317. That if such information were to be sought by the Appellant, it would have easily obtained the same.

318. That thirdly, the Appellant’s attempt to rely on Section 23 of the Tax Procedures Act to justify failure to produce records did not in any way aid its cause. That the records required are purely land transactions entered between itself and the Government of Kenya. That custody or keeping of such land transactional records cannot be said to be limited by Section 23 of the Tax Procedures Act. That further, the assessments relate to transaction which took place between the year 2016 - 2018 and therefore are within the limitation period stated under Section 23 of the TPA and the Appellant ought to produce records and justify its adjusted cost.

319. The Respondent submitted that tax laws do not operate by a way of a taxpayer alleging difficulties in discharging burden of proof so as to attract sympathy from the court and in the process, avoid tax liability. The Respondent submitted that the Tribunal cannot and should not aid them in that adventure. That it is either the Appellant provides the actual adjusted cost based on the value of the consideration of the acquisition of such property as at the date of its incorporation or nothing less.

320. That if they fail to provide the actual adjusted cost of the acquisition of the property as required by law, then they fall within the text of the taxing Act and taxes are to be accounted for accordingly.

321. After analyzing the pleadings and the case laws, the Tribunal finds that the Respondent did not err in law and fact by disallowing the adjusted costs used by the Appellant in the calculation of Capital Gains Tax (CGT).

f). Whether the Respondent erred in law and in fact by issuing VAT and Excise duty assessments for the year 2015 outside the five-year statutory limit. 322. The Appellant submitted that the Respondent erred in law and fact by issuing VAT and Excise Duty assessments for the year 2015 outside the five (5) year statutory limits under Sections 31 (4) and 29 of the TPA.

323. That the Respondent also erred in law and fact by issuing VAT assessments for the year 2015 outside the five-year statutory limit under Section 31 (4) of the Tax Procedures Act, 2015.

324. The Appellant submitted that it made a self-assessment in line with Section 28 of the TPA in duly filing its monthly VAT returns for the year 2015 in accordance with provisions of the VATAct. That the last self-assessment made with regards to VAT for the year 2015 was made on 19th January 2016 for the reporting period of December 2015. That all other VAT self-assessments for the year 2015 had been made prior to January 2016 in accordance with provisions of the VATAct.

325. That Section 31 (4) of the TPA provides that the Respondent shall not make an amendment to a self-assessment after five years immediately following the last date of the reporting period to which the self-assessment relates.

326. The Appellant submitted that the Respondent’s attempt to assess VAT, vide an assessment dated 24th June 2021, for the year 2015 whose VAT returns were filed on 19th January 2016, is a total disregard of the five-year statutory limit under the provisions of Section 31 (4) of the TPA. The Appellant submitted that the Respondent’s assessments for VAT amounting to Kshs. 198,992,922. 00 for the year 2015 be vacated accordingly.

327. The Appellant also submitted that the Respondent vide its assessment dated 24th June 2021 issued Excise Duty assessments for the year 2015 amounting to Kshs. 73,372,566. 00.

328. In response, the Respondent submitted that it is required by law, pursuant to Section 31(4) and 29 of the Tax Procedures Act to issue assessment within 5 years immediately following the last date of the reporting period to which the self-assessment relates.

329. That the five (5) years period is counted not from the year of income, but from the last period when a taxpayer filed its original self-assessment or an amended self-assessment.

330. That this is a factual issue that can easily be gleaned from record, upon the Appellant providing evidence and discharging its burden of proof as to when the last self-assessments were filed.

331. That the Appellant averred in its pleadings that the Respondent’s assessment dated 24th June, 2021 with respect to VAT were outside the time limitation period since their last assessment was made on 19th January, 2016 for the Year of income 2015 whereas other self-assessments were made prior to the 2016.

332. That being charged with the burden of proof that indeed the assessment were outside the time limitation period, the Appellant only made an averment on when it allegedly filed its last self-assessment returns without corresponding evidence on record. That no copies of the alleged self-assessment returns dated 19th January, 2016 were placed before the Tribunal to corroborate this position.

333. That the High Court in the case of National Social Security Fund Board of Trustees v Commissioner of Domestic Taxes, Kenya Revenue Authority (2016) eKLR affirmed as follows at paragraph 36: -“There is a world of difference between assertion and proof. That which a party puts to be his case is an assertion. The party needs to adduce evidence to support his said assertion with a view to supporting his case”

334. That most importantly and in further response to the Excise duty assessment amounting to Kshs. 73,372,566. 00 the Respondent submitted that the issues of the alleged time barred assessments were not raised in the objection and therefore cannot form part of grounds of appeal pursuant to Section 56 (3) of the Tax Procedures Act which provides as follows:-“(3)In an appeal by a taxpayer to the Tribunal, High Court or Court of Appeal in relation to an appealable decision, the taxpayer shall rely only on the grounds stated in the objection to which the decision relates unless the Tribunal or Court allows the person to add new grounds.”

335. The Respondent submitted that the Appellant’s objection did not at any point object to the alleged time barred assessments and therefore the same cannot be a ground of appeal before the Tribunal.

336. That what the Appellant raised in its objection was the demand for penalties and interests for all the tax heads. That the Tribunal therefore does not have the mandate to entertain and determine matters that are not properly before it having not been made an issue at the objection stage as required by Section 56 (3) of the Tax Procedures Act.

337. The Tribunal analyzed the documents submitted by the parties and noted that the issue of the assessment being filed out time was not included in the objection to the assessment made by the Appellant.

338. Section 31(4) of the TPA states the following on the amendment of assessment by the Respondent:-“(4)The Commissioner may amend an assessment—(a).in the case of gross or willful neglect, evasion, or fraud by, or on behalf of, the taxpayer at any time; or(b)in any other case within five years of--------(i)for a self-assessment, the date that the self assessment taxpayer submitted the self-return to which the self-assessment relates; or(ii)for any other assessment, the date the commissioner notified the taxpayer of the assessment.”

339. The Tribunal is bound by the requirement of Section 31(4)(a) which states that the Respondent can only amend an assessment beyond 5 years in situations of “willful neglect, evasion or fraud” irrespective of whether the issue was raised by the Appellant. In the present case, no evidence of willful neglect, evasion or fraud was tendered before the Tribunal. In the circumstances, the Tribunal finds that the Respondent erred in law and in fact by issuing VAT and Excise duty assessments for the year 2015 outside the five-year statutory limit.

Final Decision 340. The upshot of the foregoing analysis is that the Appeal is merited and partially succeeds. The Tribunal accordingly proceeds to make the following final Orders:-a.The Appeal be and is hereby partially allowed.b.The Respondent’s objection decision dated 18th January 2022 be and is hereby varied in the following terms: -i.The estimated VAT due on ARPU for the period 2015 to 2018 is hereby set aside.ii.The estimated Excise Duty due on ARPU for the period 2015 to 2018 is hereby set aside.iii.The estimated income tax due on ARPU for the period 2015 to 2018 is hereby set aside.iv.VAT on wholesale roaming/inbound roaming for the period 2015 to 2018 is hereby set aside.v.VAT on disposal of assets is hereby upheld.vi.VAT on unreconciled variances in IT/VAT returns is hereby set aside.vii.Excise duty on deferred income for the year 2018 is hereby upheld.viii.VAT on Excise Duty on deferred income is hereby upheld.ix.Income tax (rent) on Collocation for the period 2015 to 2019 and the corresponding withholding tax are hereby set aside.x.Capital Gains Tax for year 2016 is hereby upheld.xi.VAT and Excise Duty assessment for year 2015 are hereby set aside.c.Each Party to bear its own costs.

341. It is so ordered.

DATED AND DELIVERED AT NAIROBI THIS 6TH DAY OF OCTOBER, 2023ERIC NYONGESA WAFULA .............CHAIRMANCYNTHIA B. MAYAKA.............MEMBERGRACE MUKUHA......................MEMBERJEPHTHAH NJAGI.....................MEMBERABRAHAM K. KIPROTICH.....MEMBER