[2023] KETAT 897 (KLR)

Transmara Sugar Company Limited v Commissioner of Domestic Taxes (Appeal 1367 of 2022) [2023] KETAT 897 (KLR) (24 November 2023) (Judgment)

Neutral citation: [2023] KETAT 897 (KLR)

Republic of Kenya

In the Tax Appeal Tribunal

Appeal 1367 of 2022

E.N Wafula, Chair, RO Oluoch, AK Kiprotich, Cynthia B. Mayaka, E Ng'ang'a & B Gitari, Members

November 24, 2023

Between

Transmara Sugar Company Limited

Appellant

and

Commissioner Of Domestic Taxes

Respondent

Judgment

Background 1. The Appellant is a private limited company incorporated in Kenya. Its principal activity is the manufacture and sale of sugar.

2. The Respondent is a principal officer appointed under Section 13 of the Kenya Revenue Authority Act, 1995. Under Section 5 (1) of the Act, the Kenya Revenue Authority is an agency of the Government for collecting and receiving all tax revenue. Further, under Section 5(2) of the Act, concerning the performance of its functions under subsection (1), the Authority is mandated to administer and enforce all provisions of the written laws as set out in Parts 1 & 2 of the First Schedule to the Act to assess, collect and account for all revenues under those laws.

4. The dispute arose when the Appellant applied for an extension of the period to carry forward unutilized losses incurred in the financial years 2011 and 2012 beyond the stipulated 10 years as prescribed in Section 15(5) (now repealed) of the Income Tax Act (ITA).

5. The Appellant’s application was made vide a letter dated 24th July 2019 to carry forward a tax deficit of Kshs. 1,840,023,570 as of the end of the 2011 financial year.

6. That the being aware that Section 15(5) of the ITA that it was relying on had been repealed, the Appellant sought a private ruling vide a letter dated 26th October 2021, on whether it could carry forward these losses as was hitherto provided in the ITA.

7. The Respondent issued its Private Ruling vide a letter dated 26th November 2021 where it counselled that only unexpired losses as of the date of the change of the law, 1st July 2021, shall be subject to the new law.

8. Subsequent thereto, the Appellant wrote letters dated 24th July 2019 and 5th October 2020 seeking an extension of the period to carry forward the deficits in issue.

9. The Respondent issued its response in a letter dated 29th September 2022 where it stated that the Cabinet Secretary had approved an extension period to carry forward unutilised losses of Kshs 774,809,156. 00 for the 2011 financial year.

10. Dissatisfied with this response, the Appellant filed its Notice of Appeal on 28th October 2022.

The Appeal 11. The Appellant’s Memorandum of Appeal which was dated and filed on the 11th of November 2022 was premised on the following grounds:a.That Respondent erred in law and fact by denying the Appellant its right to enjoy the incentive for investment deduction, which incentive is provided in law for purposes of encouraging and rewarding investment in Kenya.b.The Respondent misdirected itself in law and in fact by failing to give its reasons in the decision dated 29 September 2022 contrary to the provision of Section 49 of the Tax Procedure Act, 2015. c.That the Respondent erred in law and fact, in its decision dated 29 September 2022 by finding the decision on an erroneous and unprocedural assessment.d.That it was not open in law for the Respondent to arrive at its decision dated 29th September 2022 without affording the Appellant a right to fair administrative action contrary to the dictates of Section 3(b)&(g) of the Fair Administrative Actions Act, 2015. e.That the Respondent erred in fact and law in its decision dated 29 September 2022 and the attendant email of 15th October 2022 by failing to give due regard to the reasons and the evidence submitted by the Appellant in its application dated 24th July 2019.

Appellant’s Case 12. The Appellant has supported its Appeal with the following documents:a.Statement of Facts dated and filed on the 11th November 2022b.Witness Statement by Joseph Ringui dated and filed on the 8th May 2023 that was admitted in evidence on oath on the 28th September, 2023. c.Written submissions dated 13th September 2023 and filed on the 18th October 2023.

13. It was the Appellant's case that:a.The denial of this extension was unjustified because it had complied with all the conditions prescribed under Section 15(5) (repealed) of the ITA.b.The Respondent's decision dated 29th September 2022 contravened Article 47(2) of the Constitution, Section 49 of the TPA and Section 3(d) of the Fair Administrative Actions Act (FAA Act) as it did not embody reasons for the decision. It supported this assertion with the case of Republic v Retirement Benefits Appeals Tribunal and 5 others Ex-parte Kenya Airports Authority staff superannuation scheme [2025]eKLR.c.The impugned decision was based on error, because the Respondent had used erroneous tax periods and budgeted sugar production figures instead of the actual sugar produced, in arriving at its conclusion. That this irregularity resulted in an irregular assessment.d.The Respondent arrived at its decision without allowing it the chance to be heard contrary to Article 50(1) of the Constitution. It supported this view with the case of JMK v MWM and Another [2015]eKLR.e.The reasons it provided in support of its application were not considered when the Respondent arrived at its decision contrary to Article 47 of the Constitution and Section 5(1) (b) and (c ) of the FAA Act. It supported this position with the case of Nizaba International Trading Company Limited v Kenya Revenue Authority.f.Its legitimate expectation that it would be allowed to utilise its losses incurred in the 2011 and 2012 financial years was breached contrary to the settled principles in the case of Keroche Industries Limited v Kenya Revenue Authority and 5 Others Nairobi HCMA No. 743 of 2006 [2007] KLR 240.

14. It identified the following as the issues falling for determination in this Appeal:a.Whether this Tribunal is clothed with jurisdiction to hear and determine this Appeal.b.Whether the Respondent misdirected itself in law and fact by failing to give reasons for its decision dated 29th September 2022 thereby partially invalidating the decision.c.Whether the Respondent’s decision dated 29th September 2022 is partially invalid by dint of it being arrived at based on an erroneous and unprocedural tax assessment contrary to Section 3(b) and (g) of the Fair Administrative Act, 2015. d.Whether the Respondent’s decision dated 29th September 2022 is partially defective for being founded on factual inaccuracies, erroneous and unprocedural tax assessment contrary to the Tax Procedures Act.e.Whether the Respondent erred in law and fact by denying the Appellant its right to enjoy the incentive for investment deduction, which incentive is provided in law for purposes of encouraging, promoting and rewarding investments in Kenya.

15. It argued each issue as hereunder:

a. Whether this Tribunal is clothed with jurisdiction to hear and determine this Appeal. 16. The Appellant stated that the impugned decision was made by the Respondent and not the Cabinet Secretary, Treasury for the following reasons.i.The Respondent having made this assertion bore the burden of proof to persuade this Tribunal that indeed this was not its decision but a communication of the CS Treasury. Regrettably, the Respondent did not supply any evidence to prove that they were under instructions to communicate the decision of the CS Treasury.ii.It is trite law that the burden of proof lies on he who alleges a fact. Section 107 of the Evidence Act provides that: (1) Whoever desires any court to give judgment as to any legal right or liability dependent on the existence of facts which he asserts must prove that those facts exist"iii.During the hearing of this matter in the open Tribunal, the Appellant's witness Mr. Joseph Ringui did point out in re-examination, whilst referring to the decision dated 29th September 2022, that it was apparent that this decision was on the letterhead of the Kenya Revenue Authority which confirmed that this was the Respondent's decision and not any other person's. That the reference number of the said decision was KRA/DTD/P&TA/1015/24 and there wasn’t any other reference number letter from treasury. In its view this reference number was an assurance that this was a decision of the Respondent.iv.The Appellant's witness also attested during his re-examination that the letter was signed by: "Ms Esther Wahome; Deputy Commissioner-Policy & Tax Advisory” who appended her signature thereon NOT on behalf of the CS Treasury, but rather: “for Commissioner For Domestic Taxes”;v.In the absence of evidence to support the Respondent's allegations, there was therefore little doubt as to whose decision the letter of 29th September 2022 was. Further, it was common practice for the Treasury to render its decisions on its letterhead and by the designated officials. Nothing would have been easier than for the CS Treasury to sign off a letter on the CS Treasury's letterhead, directing or instructing the Respondent of its decision, which decision would then be conveyed by the Respondent concerning that communication. In the absence of this communication, the Respondent's allegations were mere allegations made with a view of circumventing the Appellant's right to access justice by way of this Appeal. By its conduct, the Respondent was estopped from denying authorship and ownership of the content of its letter dated 29 September 2022.

17. The Appellant cited Section 15(5) of the Income TAX Act (now repealed), which stated as follows:“(5)Notwithstanding section (4), the minister may on the recommendation of the commissioner, extend the period of deduction beyond ten years where a person applies through the commissioner for such extension, giving evidence of inability to extinguish the deficit within that period”

18. It submitted that the Appellant did not follow the procedure laid down in Section 15(5) of the ITA.

19. It argued that whereas it made its application through the Respondent, the decision was issued by the Respondent and not the CS Treasury. That it was thus justified to sue the Respondent who had issued the said decision. It relied on the case of Vivo Energy Kenya Limited v Commissioner of Customs & Border Control, Kenya Revenue Authority & Another (2020) eKLR to support that argument.

20. It was also its view, that there was nothing on record to demonstrate that the Respondent had made recommendations to the CS Treasury and that the CS Treasury was the owner of the decision in dispute herein.

21. The Appellant stated that the erroneous decision by the CS Treasury emanated from an erroneous rationalisation by the Respondent with no evidence of CS Treasury's intervention. That the detailed reasons for the decision which was vide an email dated 14th October 2022 were also conveyed by the Respondent and not the CS Treasury and hence the reason why it holds that the impugned decision was issued by the Respondent.

22. The Appellant invoked the principle of delagatus non potest delegare to state that a person to whom a power, trust, or authority is given to act on behalf or for the benefit of another, cannot delegate this obligation unless expressly authorized to do so by the law, and that Section 15(5) of the ITA had placed these exclusive powers only on the CS Treasury.

23. That it was improper for the Respondent to claim that it was undertaking the role of the CS Treasury when in fact, there was no Gazette Notice or any proof that those powers had been delegated to the Respondent by the CS Treasury. It relied on the case of Republic v University of Nairobi Ex Parte Maxwel Magawi Odhiambo (2019) eKLR, to explain how the delagatus non potest delgare principle works.

24. The Appellant stated that the impugned decision was appealable because it was a decision of the CS Treasury communicated by the Respondent (as claimed by the Respondent). That it is a decision made under a tax law under Section 15(5) (repealed) of the ITA and it is thus an appealable decision, in which case it was properly filed before the Tribunal.

25. The Appellant averred that the said decision did not fit with the definition of a tax decision in Section 3 of the TPA. That it instead fell within the ambit of Section 2 of the TPA which has included ITA as one of the statutes falling under the definition of tax law.

b. Whether the Respondent misdirected itself in law and fact by failing to give reasons for its decision dated 29th September 2022 thereby partially invalidating the decision. 26. The Appellant posited that the decision dated 29th September 2022 did not provide a statement of reasons to allow it to know the reasons for the Respondent's decision contrary to Article 47 of the constitution, Section 3(d) of the FAA Act and Section 49 of the TPA. It relied on the case Republic v Retirement Benefits Appeals Tribunal & 5 Others Ex-Parte Kenya Airports Authority Staff Superannuation Scheme (2015) eKLR to stress this point.

c. Whether the Respondent’s decision dated 29th September 2022 is partially invalid by dint of it being arrived at based on an erroneous and unprocedural tax assessment contrary to Section 3(b) and (g) of the Fair Administrative Act, 2015. 27. The Appellant postulated that the Respondent failed to consider the information and documents presented for its consideration contrary to the dictates of Article 47 of the Constitution and Section 5 (1) (b) and (c) of the FAA Act.

28. That the reasons for the decision were irregular as it came after the impugned decision had been issued on the 14th of October 2022 and only after the same had been requested by the Appellant.

29. The Appellant affirmed that the Respondent denied its request and instead relied on extraneous reasons provided by Kenya Sugar Board without engaging the Appellant contrary to principles of natural justice and the dictates of Articles 47 and 50 of the Constitution. It also placed reliance on the case of JKM v WMM & another (2015) eKLR.

30. The Appellant submitted that it tendered its application on 24 July 2019 and obtained a response thereto on 29th September 2022. That this delay of over 3 years in rendering the decision was inordinate and highly prejudicial. It cited the case of Ericsson Kenya Limited v Attorney General & 3 other (2014) eKLR, to argue that the Respondent ought to have issued its decision within a reasonable time.

d. Whether the Respondent’s Decision dated 29th September 2022 is partially defective for being founded on factual inaccuracies, erroneous and unprocedural tax assessment contrary to the Tax Procedures Act. 31. The Appellant averred that the reasons on which the impugned decision was based were founded on an unprocedural assessment which contravened Section 31 of the TPA as it was not involved or notified of the decision before it was issued. That the said assessment was thus improper as was stated in the case of Republic v Kenya Revenue Authority (KRA) & 4 others; New Falmingo Hardware & Paints Limited & 22 others (Ex Parte) [2020] eKLR and Geothermal Development Company Limited v Attorney General & 3 others (2013) eKLR.

32. It submitted that the Respondent relied on an erroneous tax period, bagged sugar and also relied on estimated budget figures to arrive at its erroneous decision.

e. Whether the Respondent erred in law and fact by denying the Appellant its right to enjoy the incentive for investment deduction, which incentive is provided in law for purposes of encouraging, promoting and rewarding investments in Kenya. 33. The Appellant invoked the doctrine of legitimate expectation to argue that the law and practice and entitled it to carry forward its unutilised losses and that this was breached in this case contrary to the court guidance in Keroche Industries Ltd v Kenya Revenue Authority and 5 others Nairobi HCMA No. 743 of 2006 [2007] KLR 240.

34. That it had the right to certainty and predictability in the applicability of conduct, rules, policies and procedures which underlie the proper regulation of economic activities and in this case the treatment of losses.

35. It concluded that the Respondent had generally not properly exercised its discretion when it denied it the right to carry forward its unutilised losses on the basis that it did not qualify for the extension.

Appellant’s Prayer 36. Arising from the above the Appellant prayed for the following orders, that:a.The Appeal is allowed.b.The Honourable Tribunal be pleased to seize jurisdiction under Section 29(3) (c) (i) of the Tax Tribunal Act, 2013 and to consider the evidence and submissions made in connection hereto and to find that because the decision to disallow the carry forward of the tax losses in issue was founded on an erroneous and unprocedural assessment, the same ought to be set aside.c.The erroneous assessment contained in the email dated 15th October 2022 be set aside, and that the Honourable Tribunal do find that there were no grounds for the Appellant to carry forward the disallowed tax losses in the sum of Kshs. 1,065,214,414, concerning the year 2011. In the Alternative to prayer (b) and (c) above,d.The Honourable Tribunal be pleased to direct the Respondent to grant the Appellant’s Application dated 24 July 2012 within 60 days from the date of the judgment hereof, in compliance with the provisions of the law.e.Any other relief that the Tribunal may deem fit to grant.f.The cost and incidental to this Appeal be awarded.

Respondent’s Case 37. The Respondent has grounded its case on:a.Its Statement of Facts dated and filed on the 1st December 2022. b.Witness Statement by Joseph Ringui dated 8th May 2023 who testified and was cross-examined by the Appellant's counsel on 28th September 2023. c.Written submissions dated 24th October 2023.

38. The Respondent stated that it had requested the Appellant to submit evidence supporting the losses and evidence supporting its inability to recoup the losses within the 10 years starting in 2011 but it failed to do so.

39. It further submitted that it carried out a data analysis of the Appellant’s sugar production and sales for the period 2011 to 2021 before the review was issued wherein it recommended to the CS Treasury for approval of Kshs. 774,809,156. 00. That the CS Treasury approved the request as it had recommended.

40. The Respondent took the position that it followed the laid down procedure in reviewing the application by the Appellant for an extension of the period to carry forward losses beyond 10 years and it did not deny the Appellant its right to enjoy the incentive for investment deduction as provided in law. That all the valid capital allowance claims were allowed when arriving at the decision recommended to the Minister as required in law.

41. The Respondent further averred that the adjustments made to the losses before the recommendations were based on other observations regarding the Appellant's income declarations. That no capital allowances were disallowed in arriving at the recommendation that the Respondent made to the Minister regarding the Appellant’s application.

42. The Respondent submitted that it was not required to communicate its recommendation to the Appellant before making a recommendation to the Minster concerning the application for carry forward of losses.

43. That it had forwarded all the documents submitted by the Appellant together with its recommendation to the Minister for consideration.

44. The Respondent affirmed that the decision was not a refusal but a recommendation to the Minister following the law under Section 15(5) of the Income Tax Act(repealed).

45. The Respondent took the position that its letter dated 29th September 2022 was not its decision but was instead a communication of the Minister’s approval of the Appellant’s request to carry forward the losses in accordance with the Appellant’s Constitutional right and right to fair administrative action.

46. That it considered all reasons and evidence by the Appellant in arriving at its recommendation to the Minister.

47. The Respondent averred that the letter dated 29th September 2022 was not an assessment as alleged by the Appellant but a communication of the approval by the Minister based on the Appellant’s application to carry forward losses beyond 10 years. That the said recommendation is not appealable to the Tribunal under the meaning of appealable decision in Section 3 of the ITA, Section 52 of the TPA and the Tax Appeals Tribunal Act No. 40 of 2013. it relied on the case of Mount Kenya Bottlers Limited and 3 others vs The Attorney General and 3 Others (2019) eKLR to support this argument.

48. It was of the view that the absence of an appealable decision in this Appeal implies that the Tribunal lacks the jurisdiction to entertain it. In which case it ought to down its tools as was stated in the case of Owners of Motor Vessel “Lilian S” v Caltex Oil (Kenya) Ltd [1989] eKLR. this suit

49. The Respondent concluded by stating that the Appellant had not exhausted all avenues of dispute resolution as envisaged in the TAT Act Act.

Respondent’s Prayers 50. Based on the above grounds the Respondent prayed to the Tribunal for orders that:a.The Tribunal lacks jurisdiction to entertain the case when no decision has been issued.b.It be awarded costs of the Appeal.

Issues For Determination 51. The Tribunal has carefully considered the pleadings filed, evidence tendered, the testimony of the sole witness in this Appeal and submission of both parties, and is of the view that the Appeal herein crystallizes into the following issues for determination:a.Whether the Tribunal lacks jurisdiction to hear and determine this Appeal.b.Whether the Respondent was justified in issuing its decision as contained in the letter dated 29th September 2022.

Analysis And Findings 52. Jurisdiction is everything and without it, the Tribunal must down its tools. The central issue in this Appeal is whether this Tribunal has jurisdiction to hear and determine it.

53. The background in this Appeal was that the Respondent sent a letter dated the 29th September 2022 disallowing the Appellant's request for an extension of time to carry forward its unutilised losses for the year 2011.

54. Whereas the Appellant asserted that the said letter was an appealable decision which clothed the Tribunal with jurisdiction to hear and determine this Appeal, the Respondent on the other hand affirmed that the letter was not an appealable decision that could vest jurisdiction on the Tribunal. Therein lies the dispute.

55. The applicable law which provided for the carrying forward of unutilised losses was contained in Section 15(5) (now repealed) of the ITA Act, and it provided as thus:“Notwithstanding section (4), the minister may on the recommendation of the commissioner, extend the period of deduction beyond ten years where a person applies through the commissioner for such extension, giving evidence of inability to extinguish the deficit within that period”

56. From the above provision, it is clear that:a.This power to approve the carry forward of unutilised loses was vested in the CS Treasury.b.The CS Treasury was to act on the recommendations of the Commissionerc.The application for an extension of the period of deduction beyond the ten years was to be made through the Commissionerd.The applicant was required to give evidence of its inability to extinguish the debt within 10 years.

57. On the other hand, the jurisdictional power of the Tribunal to hear and determine tax appeals emanates from Section 3 of the TAT Act which provides as follows:“There is established a Tribunal to be known as the Tax Appeals Tribunal to hear appeals filed against any tax decision made by the Commissioner.”

58. Section 3 of the TAT Act is clear that the Tribunal has jurisdictional authority to hear and determine disputes against decisions of the Commissioner. This means that an appeal from decisions made by any other entity outside the establishment of the Commissioner's office shall not fall for determination before the Tribunal.

59. The relevant part of the Respondent’s letter dated 29th September 2022 explaining the purpose of this letter reads as follows:-“We wish to guide that after due consideration, the Cabinet Secretary has approved extension of the period to carry forward unutilised `losses of Kshs 774,809,156 in relation to the financial year.”

60. From the tenor of the foregoing letter, it is apparent that the Respondent was issuing a communication on behalf of the CS Treasury, and not on his behalf as the Commissioner.

61. It is also clear from the provision of Section 15(5) of the repealed ITA that the decision whether to extend the period to utilise any unutilised tax losses beyond ten years lies with the CS Treasury and not the Commissioner. The role of the Commissioner in this process is to receive the utilisation application and forward it to the CS Treasury together with its recommendations. It is from here that the CS Treasury would issue its decision.

62. This is precisely what the Respondent did in this case, it received the application from the Appellant and forwarded the said application together with its recommendation to the CS Treasury. Thereafter, it shared the decision of the CS Treasury with the Appellant vide a letter dated 29th September 2022.

63. Based on the above analysis, the Tribunal holds that the plain reading of Section 15(5) of the repealed ITA and the tenor of the letter dated 29th September 2022 shows that the Respondent merely communicated the decision of the CS Treasury to the Appellant.

64. Even if this was not the case, Section 15(5) of the repealed ITA makes it clear that the Respondent lacked the power and authority to make or issue the decision on extension of time for the utilisation of unutilised losses as contained in the letter dated 29th September 2022.

65. It is thus not legally feasible for the Appellant and or any other party to impose jurisdictional power contained in Section 15(5) of the repealed ITA on the Respondent when the law had specifically prohibited this and the Respondent had also clarified that it was merely communicating the decision of the CS Treasury who was empowered by statute to make the decision.

66. Having held that the decision in the letter dated 29th September 2022 was not made by the Respondent, it follows that the impugned decision falls outside the wide jurisdictional dragnet of the Tribunal as contained in Section 3 of the TAT Act for the reasons that the Tribunal lacks the jurisdictional mandate to hear and determine disputes emanating from the decisions of the CS Treasury. It does not matter that such a decision was made within the ambit of a tax law.

67. This position aligns with the decision of the case of Phoenix of E.A. Assurance Company Limited vs. S. M. Thiga t/a Newspaper Service [2019] eKLR, where the Court of Appeal held that:“...Jurisdiction is primordial in every suit. It has to be there when the suit is filed in the first place. If a suit is filed without jurisdiction, the only remedy is to withdraw it and file a compliant one in the court seized of jurisdiction. A suit filed devoid of jurisdiction is dead on arrival and cannot be remedied. Without jurisdiction, the Court cannot confer jurisdiction to itself.

68. The consequence of the above analysis and the decision of the Court of Appeal in the Phoenix of E. A case (supra) is that the Tribunal lacks the jurisdiction to hear and determine this Appeal. The Appeal is thus dead on arrival and cannot be remedied.

69. Having held that the Tribunal lacks jurisdiction to determine this Appeal, the Tribunal shall now down its tools and would thus not delve into the second issue that was identified for determination.

Final Decision 70. For the reasons set out above, the Tribunal finds that this Appeal lacks merit and accordingly proceeds to issue the following Orders;-a.The Appeal be and is hereby struck out.b.Each party is to bear its own costs.

71. It is so ordered.

DATED AND DELIVERED AT NAIROBI THIS 24TH DAY OF NOVEMBER, 2023. ERIC NYONGESA WAFULACHAIRMAN...........................................DR. RODNEY O. OLUOCHMEMBER...........................................ABRAHAM KIPROTICHMEMBER...........................................CYNTHIA MAYAKAMEMBER............................................EUNICE NG’ANG’AMEMBER............................................BERNADETTE GITARIMEMBER