[2024] KETAT 544 (KLR)

Titus v Commissioner of Domestic Taxes (Tax Appeal E072 of 2023) [2024] KETAT 544 (KLR) (26 April 2024) (Judgment)

Neutral citation: [2024] KETAT 544 (KLR)

Republic of Kenya

In the Tax Appeal Tribunal

Tax Appeal E072 of 2023

Grace Mukuha, E Komolo, Jephthah Njagi, W Ongeti & G Ogaga, Members

April 26, 2024

Between

Joyce Mwende Titus

Appellant

and

Commissioner of Domestic Taxes

Respondent

Judgment

Background 1. The Appellant is a Kenyan citizen and registered taxpayer.

2. The Respondent is a principal officer appointed under section 13 of the Kenya Revenue Authority Act, 1995. Under Section 5 (1) of the said Act, the Kenya Revenue Authority is an agency of the Government for the collection and receipt of all revenue.

3. On October 28, 2021, the respondent issued additional income tax assessment on the appellant vide assessment order of Kshs. 710,132. 47 covering the year 2020.

4. On January 18, 2023, the Respondent issued an objection decision against the Appellant confirming the additional assessment.

5. Aggrieved by the objection decision, the appellant lodged this appeal via notice of appeal dated February 13, 2023.

The Appeal 6. The appeal is premised on the appellant’s memorandum of appeal dated February 18, 2023 stating the following grounds:-i.That in arriving at the additional assessment:-a.The respondent raised additional assessment for income tax on the appellant using gross amount of the partnership income instead of the share of profit of the partner. According to Partnership Act, partners do not pay Corporation tax as all partners must individually account for their taxes. The profit is distributed to the individual partners in the ration of ownership.b.The Respondent based its assessment on the estimates of income on the withholding taxes in the iTax database for Rykan General Supplies PIN Number Pxxx which is to be accounted to the partnership.ii.That the Respondent double counted income by raising additional assessment on the Appellant and the partnership as well thus double taxation.iii.That the accountant committed an error of filing the individual tax return by using partnership income instead of share of profit.iv.That the Respondent also raised an additional assessment to the Appellant using the partnership income and another additional assessment for the same income thus purporting that the Appellant had a share of profit and at the same time another source of income which is not true.v.That the Appellant objected to the assessment but was fully rejected by the Respondent.vi.That the Appellant is willing to provide documents to be reviewed to get to the correct tax position to be reviewed to get the correct profit to be taxed.

The Appellant’s Case 7. The appellant’s case is premised on the following documents filed before the Tribunal: -a.The appellant’s statement of facts dated February 28, 2023. b.The appellant’s written submissions dated December 2, 2023 and filed on December 4, 2023.

8. The appellant averred that the respondent issued her with an additional income tax assessment on October 12, 2021, but the appellant could not respond to the additional assessment due to ill health, which was duly notified on the Respondent.

9. That the appellant filed a late objection on November 23, 2022 to Tax Resolution Division, Independent Review of Objections.

10. That the respondent communicated to the appellant receipt of her objection on November 24, 2022.

11. That the respondent accepted the late objection after a valid reason document was attached and requested for provision of documents within three (3) days on December 6, 2022

12. That the Appellant engaged in various working meetings with the Respondent, which the Respondent confirmed with reminders dated December 15, 2022.

13. That the Appellant explained to the Respondent that the accountant filed the returns wrongly for the individual income and included costs, which were meant to be for the partners.

14. That the Respondent raised additional assessment on undeclared income of Kshs. 3,195,739, which was also gross income for the partnership, deducted the expenses and charged tax on it yet this contract was for Rykan General Supplies and committed the same error which the accountant had submitted.

15. That the Respondent raised the additional assessment on the same income to the partnership hence a double accounting taxation.

16. That the Appellant was also forced to pay taxes on this additional assessment for VAT obligation entering a payment plan with Debt and Enforcement Department thus causing the Appellant to suffer financially.

17. That the Appellant is pleading with the Honorable Tribunal for the Respondent to amend the additional assessments made to both the partnership and individual return for the Appellant to pay the correct taxes based on the share of profit.

18. That there was no under declaration of income by the Appellant and that the Appellant has records of the true income and expenditure, which if examined will reduce the tax liabilities as the taxes estimated do not portray a true and fair view.

Appellant’s Prayers 19. The Appellant prayed to the Tribunal that the Appeal be upheld and additional assessments be set aside.

The Respondent’s Case 20. The Respondent’s case is premised on the following documents filed before the Tribunal: -a.The respondent’s statement of facts dated June 8, 2023 and filed on the same date.b.The respondent’s written submissions dated October 30, 2023 and filed on the same date.

21. The Respondent averred that it carried out investigations into the business of the Appellant for the year 2020 with a view of confirming her tax compliance under income tax obligation.

22. That the information from the iTax database on non-filers showed that the Appellant provided services to various customers but failed to declare the business income from partnership for the year 2020 totaling to Kshs. 710,132. 48.

23. That during the aforesaid investigations, it was discovered that the Appellant had overstated expenses while others were unsupported and their income was underdeclared, respectively.

24. That further compliance review was conducted by examining the records and audited accounts of the Appellant to establish the correctness of income declarations, and upon examining the records, it was established as follows:a.The Appellant was a partner at Rykan General Supplies and had received income of Kshs. 5,657,173. 00. b.The Appellant declared a turnover of Kshs. 2,461,434. 00 in their self-assessment income tax return, and as such, the under declared income of Kshs. 3,195,739. 00 was charged income tax.c.The Appellant failed to amend her income returns to account for the under-declared income and request by the Respondent for reconciliations showing how the under-declared income was accounted for in her returns fell on deaf ears.

25. That the partnership declared turnover of Kshs. 3,736,355. 00 for the period under review. However as per WHT certificates, the turnover for the period under review was Kshs. 9,992,490. 00, and therefore the Respondent raised additional income tax assessment on 8th October 2021 for the underdeclared income. This accordingly led to revised partnership profit of Kshs. 6,285,748. 00.

26. That the profit-sharing ratio of the partnership was 90:10, and therefore the partnership profit was distributed to the two partners with the Appellant, who holds 90 percent, having her share of profit being Kshs. 5,657,173. 00.

27. That the Appellant’s share of partnership profit is Kshs. 5,657,173. 00. However, the Appellant declared a turnover of Kshs. 2,461,434. 00 in her self-assessment income tax return. Therefore, the undeclared income of Kshs. 3,195,739. 00 was charged income tax of Kshs. 617,506. 50.

28. That the Appellant was requested for reconciliations of partnership share of profit and income declared in self-assessments returns, but she did not provide the same. This was necessary to determine when and how the partnership profit was declared.

29. That in view of the above, the established share of partnership profit was not declared in full, and thus the Respondent was right in bringing to charge the undeclared profit to income tax.

30. That accordingly, the assessment was confirmed for principal income tax of Kshs. 617,506. 50, penalty of 30,875. 33 and interest of Kshs. 129,676. 37 totaling to Kshs. 778, 058. 19.

31. That in view of the above, the adjustments were brought to charge for income tax together with unsupported expenses and under-declared income by issuing additional assessments for the year 2020.

32. That as a result, the Respondent thereafter issued additional assessments dated October 28, 2021 for income tax totaling to Kshs. 710,132. 48 including interest and penalty.

33. That the Appellant failed to file an objection as required under section 51(2) and (3) of the TPA, and failed to provide all supporting documents for her objection as requested within stipulated timelines.

34. That the Appellant never lodged an objection to the assessment yet a review of the payment certificates, payment vouchers and certificate of completion revealed that indeed the partnership made a turnover of Kshs. 9,992,530. 00 for the period under review. That this is equally the same turnover assessed except for the immaterial variance of Kshs. 40. That therefore, the undeclared income was rightfully brought to charge for income tax by the Respondent.

35. That considering the above and failure to provide all the relevant supporting documents of records for income tax for the year 2020, the Appellant’s income was therefore estimated, as this was the only reasonable basis for assessing the income tax and the objection decision issued.

36. That the appellant filed a notice of appeal on February 13, 2023 against the decision of the Commissioner confirming the assessment for income and rental income of Kshs. 778,058. 19.

37. That in addition, the Appellant failed to serve the Notice of Appeal and or the Memorandum of Appeal together with her Statement of Facts as filed before the Tribunal in contraction of section 13(5) of the TAT Act.

38. That further, the Respondent only learnt of the filed Notice of Appeal and Memorandum of Appeal together with the Statement of Facts when a mention notice dated 9th May, 2023 was served on the Respondent on 23rd May, 2023, upon which the Respondent procured copies of the filed pleadings from the Tribunal.

39. The Respondent averred that the Appellant did not pay all her taxes due on the established under-declaration, and thus the Appellant was in debt of Kshs. 778,058. 19

40. That the Appellant is un-deserving of the prayers sought due to the forestated reasons.

Respondent’s Prayers 41. The Respondent prayed to the Tribunal for the following orders: -a.That the Respondent’s decision be upheld.b.That the outstanding tax arrears of Khs. 778,058. 19 be declared as due and payable by the Appellant.c.That the confirmed assessments dated 28th October, 2021 were proper in law.d.That the Appeal herein be dismissed with cost to the Respondent.

Issue for Determination 42. The Tribunal, having carefully reviewed the pleadings and filings made by the parties and the supporting documentation is of the view that the following issue falls for its determination: -Whether the Respondent’s Objection Decision Dated 18th January, 2023 is Justified and Proper in Law.

Analysis and Findings 43. The Tribunal having determined the issue that falls for its determination proceeds to analyze it as hereunder.

44. The Tribunal notes that the origin of the dispute was the Respondent’s confirmation of additional income tax assessment against the Appellant vide its objection decision dated 18th January 2023.

45. The Respondent averred that it had sought additional documents from the Appellant, but which were not availed to enable the Respondent review the additional assessment.

46. The Respondent further contended that the Appellant carried out business in a partnership which she owned in the ratio of 90:10, and therefore additional assessment was carried out on the basis of business activities of the partnership.

47. That the Respondent reviewed payment certificates, payment vouchers and a certificate of completion which showed the partnership had a turnover of Kshs. 9,992. 530. 00.

48. It was the Respondent’s further contention that in the absence of relevant supporting documents and records, the Appellant’s income tax for the year 2020 was estimated as this was the only reasonable basis for assessing income tax and issuing the objection decision.

49. To support its case, the Respondent extensively relied on statutory provisions including sections 54A(1), 55(2) and 73(1) & (2) of Income Tax Act 2013, and Sections 24, 31(1), 42, 43, 51(3), 94, 93 and 95 of the TPA, which cumulatively obligate the Appellant to keep and avail records.

50. On her part, the Appellant submitted on her relationship with the partnership, and particularly the individual obligation of partners in such partnerships.

51. The Appellant submitted that the Respondent erred in raising additional assessments on both the partnership and herself yet the income was the same, and that this amounted to double taxation.

52. The Tribunal noted that the Appellant, in her Statement of Facts, referred to several annexed documents, but which were not availed to the Tribunal.

53. The Tribunal reiterates that it is now settled law that the duty to make full and accurate disclosures in tax matters vests with the Appellant. In other words, the burden of proof in tax matters, in the first instance, rests with the Appellant. This is the import of Section 56(1) of the TPA, and section 30 of TAT Act.

54. In this regard, the Tribunal reiterates the authority in Commissioner of Investigations and Enforcement vs Kidero (Income Tax Appeal E028 of 2020 eKLR, where it was held that:“…the duty imposed on the taxpayer to keep records and the provisions on the burden of proof all go to support the Kenyan tax collection regime which is centered on a system of self-assessment. This system relies on the taxpayer making full and good faith disclosures in their tax declaration and affairs and hence empower the Commissioner to demand documents from time to time when investigating the affairs of a taxpayer…”

55. In the instant case, the Appellant has not discharged her burden of proof in the first instance.

Final Decision 56. Accordingly, it is the determination of the Tribunal that the Appeal lacks merit and the Tribunal accordingly proceeds to make the following orders:-a.The appeal be and is hereby dismissed.b.The respondent’s objection decision dated January 18, 2023 be and is hereby upheld.c.Each party to bear its costs.

57. It is so ordered.

DATED AND DELIVERED AT NAIROBI THIS 26THDAY OF APRIL, 2024. GRACE MUKUHACHAIRPERSONDR. ERICK KOMOLO JEPHTHAH NJAGIMEMBER MEMBERDR. WALTER J. ONGETI GLORIA A. OGAGAMEMBER MEMBER