[2024] KETAT 441 (KLR)

Thenducat Enterprises Limited v Commissioner Of Domestic Taxes (Miscellaneous Case E0165 of 2023) [2024] KETAT 441 (KLR) (22 March 2024) (Ruling)

Neutral citation: [2024] KETAT 441 (KLR)

Republic of Kenya

In the Tax Appeal Tribunal

Miscellaneous Case E0165 of 2023

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

March 22, 2024

Between

Thenducat Enterprises Limited

Applicant

and

Commissioner Of Domestic Taxes

Respondent

Ruling

1. The Applicant vide a Notice of Motion dated the 19th October, 2023 and filed on the even date and supported by an Affidavit sworn by Peter Wachira, a Director of the Applicant, on the 17th October, 2023 sought for the following Orders:-i.Spent.ii.This Tribunal be pleased to extend the time for filing the Notice of Appeal, Memorandum of Appeal, Statement of Facts and Tax decision.iii.The costs be in the intended appeal.

2. The application is premised on the following grounds:-i.That the Respondent issued assessment orders to the Applicant dated 23rd September 2020 and 30th September 2020, requiring it to pay the sum of Kshs. 4,107,642. 00 being tax arrears on Income tax Company and Value Added Tax for the periods covering January 2019, June 2019 and 2017. ii.That the Applicant in turn objected to the assessment on Income tax Company on 30th September 2020 but delayed to object to the VAT assessments. The Applicant lodged late objection to the VAT assessments on 30th October 2020 and the same was acknowledged by the Respondent on the same date.iii.That the Respondent went ahead to issue objection decision confirming the additional assessment on Income tax Company via letter dated 27th November 2020 without taking time to review and consider the Applicant's books of accounts and documentations.iii.That the Respondent erred in fact and in law by failing to issue an objection decision against the objection lodged by the Applicant on VAT assessments.iii.That the Applicant stands to suffer substantial loss and damage if the Respondent's objection decision is enforced by the Respondent.iii.That the Applicant did not deliberately delay in lodging the appeal to the Respondent's decision but was occasioned by the adverse health condition of the Managing Director as evidenced by the appended medical reports.iii.That unless the prayer for extension of time for filing the Appeal is allowed, the Applicant will suffer substantial loss as he will be compelled to pay a colossal sum of money on taxes which is not lawfully due.iii.That it shall be just and fair that this application is allowed.

3. The Respondent opposed the application through its Grounds of Opposition dated and filed on 15th November 2023 and supported by an Affidavit of Charles Kimutai Cheruiyot, an officer of the Respondent, sworn on 15th November, 2023. The grounds were as follows:-i.That the application is incompetent, bad in law, fatally defective and is an abuse of this Tribunal's process.ii.That no credible reason has been advanced by the Applicant to warrant extension of time to file appeal as provided at Section 13(4) of the Tax Appeals Tribunal Act.iii.That an application of this nature requires an Applicant to prove his/her absence from Kenya, sickness or other reasonable cause.iv.That equity aids the vigilant and not the indolent. That the Applicant ought to have acted swiftly to preserve its rights. That the Applicant is guilty of laches.iv.That the application is an afterthought and a delay tactic by the Applicant meant to delay the conclusion of the matter, which holds substantial Government revenue.iv.It averred that the taxes demanded herein became due on confirmation of the assessments. That they now continue to accrue interest and penalties as provided under the various tax laws as there is no valid Appeal before the Tribunal thus the Applicant ought to pay 50% on account to show commitment in the matter/for the Tribunal to consider granting the orders sought.iv.That the Applicant has not demonstrated it deserves favorable discretion of this Tribunal and the application should be dismissed with costs to the Respondent.

Analysis and Findings 4. In compliance with the directions of the Tribunal to the effect that the application was to be canvassed by way of written submissions, the Applicant filed their submissions on 13th April 2023. The Tribunal has duly considered the written submissions of the Applicant in arriving at its determination in this Ruling.

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

6. In determining whether to extend time, the Tribunal was guided by the decision of the Court in Charles Karanja Kiiru v Charles Githinji Muigwa [2017] eKLR, where the learned Judge stated that:-“It is trite that extension of time is not a right of a party. It is an equitable remedy that is only available to a deserving party, at the discretion of the Court”

7. On the criteria of the issues to be considered when granting an extension to file an appeal out of time, the Tribunal referred to the case of Odek, JJ. A in Edith Gichugu Koine vs. Stephen Njagi Thoithi [2014] eKLR, where the Court laid out the factors as thus:-“Nevertheless, it ought to be guided by consideration of factors stated in many previous decisions of this Court including, but not limited to, the period of delay, the reasons for the delay, the degree of prejudice to the respondent if the application is granted, and whether the matter raises issues of public importance, amongst others...”

8. Further, in Sammy Mwangi Kiriethe & 2 others v Kenya Commercial Bank Ltd [2020] eKLR, the court held that:-“The Court considers the length of the delay; the reason for the delay; the chances of success of the intended appeal, and the degree of prejudice that would be occasioned to the respondent if the application is granted.”

9. The Tribunal, guided by the principles set out in John Kuria v Kelen Wahito, Nairobi Civil Application Nai 19 of 1983 April 10, 1984, referred to by the judges in the case of Wasike V Swala [1984] KLR 591, Sammy Mwangi Kiriethe & 2 others v Kenya Commercial Bank Ltd (supra) and Section 13 of the Tax Appeals Tribunal Act, 2013 used the following criteria to consider the application.a.Whether there is a reasonable cause for the delay?b.Whether the appeal is merited?c.Whether there will be prejudice suffered by the Respondent if the extension is granted?

a. Whether there is a reasonable cause for the delay 10. In considering what constitutes as a reasonable reason for delay, the court in Balwant Singh v Jagdish Singh & Ors (Civil Appeal No.1166 of 2006), held that: “The test is whether or not a cause is sufficient to see whether it could have been avoided by the party by the exercise of due care and attention”.

11. The statutory timelines and provisions to file an appeal have been clearly set out in the Tax Appeal Tribunal Act. Section 13 (3) of the Tax Appeals Tribunal Act provides as follows with regard to the statutory timelines in commencing appeal process:-“A notice of appeal to the Tribunal shall—a.be in writing;b.be submitted to the Tribunal within thirty days upon receipt of the decision of the Commissioner.(2)The appellant shall, within fourteen days from the date of filing the notice of appeal, submit enough copies, as may be advised by the Tribunal, of—a.a memorandum of appeal;b.statements of facts; andc.the tax decision.”

12. For a taxpayer who has not met the timelines as provided in the above provision of the law, Section 13(4) of the Tax Appeals Tribunal Act provides the conditions that the taxpayer ought to meet to enable the Tribunal to exercise its discretion to extend time to appeal. The Section provides as follows;“An extension under subsection (3) may be granted owing to absence from Kenya, or sickness, or other reasonable cause that may have prevented the applicant from giving notice of appeal within the specified period.”

13. Regarding the reasons for delay, the Respondent stated that no credible reason had been advanced by the Applicant to warrant extension of time to file appeal as provided at Section 13(4) of the Tax Appeals Tribunal Act. That an application of this nature requires an Applicant to prove his/her absence from Kenya, sickness or other reasonable cause.

14. The Applicant on its part cited illness as the cause. The Applicant stated that it did not deliberately delay in lodging the appeal to the Respondent's decision but the delay was occasioned by the adverse health condition of its Managing Director.

15. To support its averment that the director had been unwell, the Appellant attached a letter from a medical facility indicating that the director at some point in October 2020 had been unwell. The Applicant also attached a payment invoice from the same facility dated 16th October 2020.

16. The Tribunal was of the view that although the actual duration and level of indisposition could not be determined, based on the evidence adduced, the Tribunal was persuaded that the director had indeed suffered ill health.

17. Consequently, the Tribunal determined that the Applicant had demonstrated reasonable cause for delay.

b. Whether the appeal is merited? 18. The Tribunal considered whether the matter under dispute was frivolous to the extent that it would be a waste of the Tribunal’s time, or it was material to the extent that it deserved its day in the Tribunal.

19. The test is not whether the case is likely to succeed. Rather, it is whether the case is arguable. This was the finding in Samuel Mwaura Muthumbi V Josephine Wanjiru Ngungi & Another (2018) eKLR where the court stated that:-“Looking at the draft Memorandum of Appeal filed, I am unable to say that the intended Appeal is in arguable. Of course, all the Applicants have to show at this stage is arguability- not high probability of success. At this point the Applicant is not required to persuade the Appellate court that the intended or filed appeal has a high probability of success. All one is required to demonstrate is the arguability of the Appeal, a demonstration that the Appellant has plausible grounds of either facts or law to overturn the original verdict. The Applicants have easily met that standard. I believe that the Applicant has discharged this burden.”

20. The Tribunal was further guided by the findings of the court in Kenya Commercial Bank Limited Vs Nicholas Ombija (2009) eKLR where it was held that:“An arguable appeal is not one which must necessarily succeed, but one which ought to be argued fully before the court.”

21. Similarly, in Kenya Commercial Bank Limited Vs Nicholas Obija (2009) eKLR it was stated that “an arguable appeal is not one which must necessarily succeed, but one which ought to be argued fully before the court” that was also the position held in Stanley Kangethe Kinyanjui Vs Tony Keter & others (2013) eKLR where the court held that:-“on whether the appeal is arguable, it is sufficient if a single bonafide ground of appeal is raised, .. an arguable appeal is not one which must necessarily succeed, but one which ought to be argued fully before the court: one which is not frivolous.”

22. The Tribunal noted that the Respondent’s decision dated 27th November 2020 confirmed the assessments for income tax amounting to Kshs 3,135,380. 43. Looking at the draft Memorandum of Appeal by the Applicant, the Tribunal noted that the Applicant had raised four grounds of Appeal that required rebuttal by the Respondent. Going by the standards set out in the Stanley Kangethe Kinyanjui Vs Tony Keter & others (2013) case the Tribunal finds that the Applicant had an arguable case which required to be canvassed and considered on its full merits.

c. Whether there will be prejudice suffered by the Respondent if the extension is granted? 23. The courts have held that in considering whether to extend time, due regard must be given to whether the extension will prejudice the opponent. In determining this, the Judge in Patrick Maina Mwangi v Waweru Peter [2015] eKLR quoted the finding in United Arab Emirates V Abdel Ghafar & Others 1995 IR LR 243 in finding that:“…….a plaintiff should not in the ordinary way be denied an adjudication of his claim on its merits because of a procedural default, unless the default causes prejudice to his opponent for which an award of cost cannot compensate………”

24. The test, therefore, as set out in the case above is whether the Respondent will suffer irreparable prejudice if the application is granted. However, having found that the subject matter was arguable, it is the view of the Tribunal that the Applicant’s recourse to justice now lies in an appeal to the Tribunal. Thus, the Applicant would suffer prejudice if it is not granted leave to file its appeal. The Respondent on the other had will not suffer prejudice since it will still be able to collect the taxes plus interest and penalties should the Applicant be found to be at fault.

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

Disposition 26. Based on the foregoing, the Tribunal finds that the application is merited and proceeds to make the following Orders:i.The application be and is hereby allowed.ii.Leave be and is hereby granted for the Applicant to file its Notice of Appeal, Memorandum of Appeal, Statement of Facts and Tax decision out of time.iii.The Applicant to file and serve the Notice of Appeal, Memorandum of Appeal, the Statement of Facts and Tax decision within Fifteen (15) days of the date of delivery of this Ruling.iv.The Respondent to file and serve its response to the Appeal within the statutory period upon being served with the Appeal documents.v.No orders as to costs.

DATED AND DELIVERED AT NAIROBI THIS 22ND DAY OF MARCH, 2024ERIC NYONGESA WAFULA - CHAIRMANMUTISO MAKAU - MEMBERABRAHAM K. KIPROTICH - MEMBERELISHAH N. NJERU - MEMBEREUNICE N. NG’ANG’A - MEMBER