[2023] KETAT 563 (KLR)

Uto Creation Studios Limited v Commissioner of Domestic Taxes (Tax Appeal 318 of 2023) [2023] KETAT 563 (KLR) (29 June 2023) (Ruling)

Neutral citation: [2023] KETAT 563 (KLR)

Republic of Kenya

In the Tax Appeal Tribunal

Tax Appeal 318 of 2023

E.N Wafula, Chair, EN Njeru, GA Kashindi, E Komolo & AK Kiprotich, Members

June 29, 2023

Between

Uto Creation Studios Limited

Applicant

and

Commissioner of Domestic Taxes

Respondent

Ruling

1. Before the Tribunal is a Notice of Motion filed under a certificate of urgency on 26th April 2023 is seeking for orders;a.Spentb.That the Tribunal do consider the Applicant’s reasons for late filing of the appeal and grant the Applicant an extension of time to allow the Applicant time to file the Appeal.c.That pending the hearing and determination of this application, the Tribunal do issue an order temporarily restraining the Respondent from taking recovery measures against the Applicant for confirmed taxes of Kshs 14,975,315. 90. d.That the Tribunal issue any other and or further orders that it may deem fit or just.

2. The Application which was supported by an Affidavit sworn by Peter Njokah Kanyi is premised on the following grounds;i.That on 13th October 2021 the Respondent raised VAT and Income Tax-Company assessments amounting to an incremental liability of Kshs 14,975,315. 90. ii.That the Applicant aggrieved with these assessments objected.iii.That in various correspondences between it and the Respondent, the Respondent requested from the Applicant documents in support of its objection application which the Applicant, in good faith provided.iv.That on or about the 6th December 2022, the Respondent communicated its position on the objection application lodged by the Applicant.v.That the decision communicated required the Applicant to settle the Kshs 24,967,849. 72 confirmed from the tax assessed by the Commissioner of Domestic Taxes.vi.That the decision communicated required the Applicant to settle the Kshs 24,967,849. 72 confirmed from the tax assessed by the Commissioner.vii.That the decision communicated required the Applicant to make good on the assessed principal liability of Kshs 14,975,315. 90 on account of the objection application falling short of Section 51(3) of the TPA.viii.That the failure to adhere to the provisions of Section 51(3) particularly the settlement of the tax not in dispute was on account of the Respondent’s impractical timelines to produce documents.ix.That the Respondent was insensitive to the burden placed upon the Applicant of producing the voluminous documents it requested.x.That the Applicant has demonstrated discernible goodwill and resolves to settle the matter amicably and equitably with respect to what is due and payable to the Respondent.xi.That the delay in filing was occasioned by the Applicant’s late receipt of the invalidation on account of technical issues that should be canvassed before the Tribunal and determined on merit.xii.That the Respondent will not suffer any prejudice if the orders prayed are granted.xiii.That it is in the interest of justice and administrative fairness that the orders sought by the Applicant are granted.

3. The Applicant beseeched the Tribunal to be materially guided by its previous ruling in Kotile General Contractors Company Limited v Commissioner of Domestic Taxes [2020] eKLR and the Tribunal to associate itself with the Majanja J’s line of thought in Jipsy Civil and Building Contractors Limited vs Commissioner of Domestic Taxes [2021] eKLR.

4. In opposition to the application, the Respondent filed a Replying Affidavit sworn by Violet Tananko an officer of the Respondent on the 17th May, 2023 and filed on the 17th May, 2023 in which the following grounds of opposition were raised:i.That the Applicant in its Certificate of Urgency, has indicated that the Respondent raised a VAT assessment on 26th April 2022 for Kshs 14,975,315. 90. that this assessment is not attached to the application and hence not able to respond to.ii.That the Respondent commenced an audit process on the Applicant’s returns as filed on iTax to confirm the accuracy of the assessments as filed by the Applicant and ascertain the correct tax due from the Applicant.iii.That on 23rd December 2021, the Respondent communicated with the Applicant to avail documents in support of returns filed on iTax but the Applicant failed to avail the documents.iv.That on 10th March 2022, the Appellant visited the Respondent’s offices accompanied by its tax agent and undertook to avail audited financial statements by 15th March 2023 which was never done.v.That on 18th May 2022, having failed to avail documents to support its returns as previously requested, the Respondent was constrained to raise additional assessments against the Applicant vide the iTax portal.vi.That the assessments were for VAT for the month of December 2019 for the amount of Kshs 2,409,112. 14, Corporation tax for the year of income 2019 of Kshs 4,662,631. 75, Corporation tax for the year of income 2017 for Kshs 15,416,879. 04 and additional VAT assessment for the month of December 2021 for Kshs 107,761. 12. vii.That the Applicant was duly informed of its rights to object to the assessment within 30 days of the assessment in default, enforcement action would be taken.viii.That the Applicant was required to pay or file an objection to the assessment as required under Section 51(2) of the TPA.ix.That the Applicant failed to object to the assessment within the required 30 days of the assessment and instead objected on 4th June 2022 which was after the 30 days allowed by the law.x.That the Applicant filed an objection without providing documents to support his objection and did not seek leave of the Commissioner to file a late objection as provided under Section 51(6) of the TPA.xi.That the Respondent communicated its invalidation objection to the Applicant on 6th July 2022. That the objection was invalidated for want of compliance with Section 51(3) of the TPA.xii.That since the invalidation notice was issued to the Applicant, the Applicant has never availed itself to the Commissioner to seek more time to avail documents to support its objection.xiii.That it is untrue that the Respondent gave strict timelines to the Applicant to avail documents as the Respondent had been in communication with the Applicant since before the assessment was raised and hence the Applicant had ample time to avail documents for consideration by the Commissioner.xiv.That the Applicant has been sleeping on its rights and has come to the Tribunal only when there is imminent threat of agency notices being placed on its bank accounts for purposes of execution and recovery of taxes due and owing to the state.xv.That contrary to the Applicant’s assertions that it had demonstrated discernible goodwill to resolve the matter amicably and equitably, the Applicant has yet to avail itself to the Commissioner for amicable settlement of the matter or provision of supporting documents.xvi.That the Applicant has also not disclosed that it had been in communication severally with the Commissioner spanning almost a year and has never availed documents in support of its objection and even before the assessment was raised.xvii.That on the face of the application and in the supporting affidavit, the Applicant has not demonstrated any good reason at all why the Tribunal should grant the prayers sought in the application contrary to the provisions of Section 51(7) of the TPA.xviii.The Respondent prayed that the application be dismissed with costs.

Analysis and Determination 5. 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 its submissions on 25th May, 2023 while the Respondent filed its submissions on 15th May, 2023. The Tribunal has duly considered the written submissions in arriving at its determination in this Ruling.

6. The Applicant is primarily praying to the Tribunal for extension of time to file its appeal documents out of time.

7. The power to expand time for filing an Appeal is donated by Section 13(3) of the Tax Appeals Tribunal Act which provides that:“The Tribunal may, upon application in writing or through electronic means extend the time for filing the notice of appeal and for submitting the documents referred to in subsection (2).”It is therefore a discretionary power and not a right to be granted to the Applicant.

8. In determining whether to expand time, courts have in the past considered a number of factors. These factors were discussed in Leo Sila Mutiso vs Rose Hellen Wangari Mwangi, Civil Application Nai. 251 of 1997 where the judge held that:“It is now settled that the decision whether to extend the time for appealing is essentially discretionary. It is also well stated that in general the matters which this court takes into account in deciding whether to grant an extension of time are, first the length of the delay, secondly the reasons for the delay, thirdly (possibly) the chances of the appeal succeeding if the application is granted and fourthly the degree of prejudice to the respondent if the application is granted.”

9. The court in Wasike v Swala [1984] KLR 591 provided the hierarchy of the factors to consider when it stated that:“an applicant must now show, in descending scale of importance, the following factors: -a)That there is merit in his appeal.b)That the extension of time to institute and/or file the appeal will not cause undue prejudice to the respondent; andc)That the delay has not been inordinate.”

10. The Tribunal, guided by the principles set out in Leo Sila Mutiso vs Rose Hellen Wangari Mwangi, Civil Application Nai. 251 of 1997, Wasike V Swala [1984] KLR and Section 13 of the Tax Appeals Tribunal Act 2013 used the following criteria to consider the application:a.The merits of the complained action.b.Whether there is a reasonable cause for the delay.c.Whether there will be prejudice suffered by the Respondent if the extension is granted.

a. The Merits of the Complained action 11. 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.

12. 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.”

13. The Tribunal was further guided by the findings of the court in Kenya Commercial Bank Limited v 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.”

14. Similarly, in Kenya Commercial Bank Limited v 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 v 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.”

15. Regarding the merits of the Appeal, the Respondent stated that the Applicant filed an objection without providing documents to support its objection and did not seek leave of the Commissioner to file a late objection as provided under Section 51(6) of the TPA.

16. That the Respondent communicated its invalidation notice to the Applicant on 6th July 2022. That the objection was invalidated for want of compliance with Section 51(3) of the TPA.

17. That since the invalidation notice was issued to the Applicant, the Applicant has never availed himself to the Commissioner to seek more time to avail documents to support his objection.

18. That the Applicant ignored, refused and/or failed to pay the confirmed taxes or lodge an objection against the assessments within 30 days of the date of the decision as stipulated under Section 51(2) of the Tax Procedures Act.

19. The Tribunal noted that although the parties did not attach the Applicants objection application, the Respondent in its letter dated 6th July 2022 acknowledges the same to have been lodged by the Appellant on 4th June 2022.

20. The Tribunal noted that the Respondent in its letter dated 6th July 2022 titled “Objection Application Against Income Tax And Value Added Tax (VAT) Kshs 14,975,315. 9.” it stated in part as follows;“I refer to your notice of objection application dated 04/06/2022 in response to Income tax and Value Added Tax (VAT) additional assessments raised on iTax on 18/05/2022 and our emails dated 06/13/2022 and 06/23/2022. I note with regret that you have failed to avail the following supporting documents as requested in our previous communication to you:i.Grounds of objectionii.Reasons in support of the grounds of objectioniii.Amendments required to be madeIn light of the above, your objection application is declared invalid as it fails to meet the requirements of section 51(3) of the Tax Procedures Act 2015 that states;……..In this regard, the Commissioner hereby declines to grant the application sought. The principal VAT liability of Kshs 14,975,315. 9 together with the accrued penalty and interest as at the date of this letter remains due and payable as per the assessment”

21. From the Respondent’s letter of 6th July 2022, it is clear that upon receipt of the Appellant’s objection application the Respondent immediately on 13th June 2020 and 23rd June 2022 engaged the Applicant via email in an effort to have the Applicant validate its objection by providing documents. Subsequently, the Respondent vide the letter of 6th July 2022 invalidated the Applicant’s objection application.

22. Section 52(1) of the Tax Procedures Act provides as follows regarding appealable decisions to the Tribunal:-“A person who is dissatisfied with an appealable decision may appeal the decision to the Tribunal in accordance with the provisions of the Tax Appeals Tribunal Act, 2013 (No. 40 of 2013).”

23. It follows from the above provision of the law that for a taxpayer to approach the Tribunal to argue its case, there ought to be an appealable decision from the Commissioner.

24. In addition, Section 3 of the Tax Procedures Act defines an appealable decision as follows;“"appealable decision” means an objection decision and any other decision made under a tax law other than—(a)a tax decision; or(b)a decision made in the course of making a tax decision;”

25. In this case the Appellant’s objection application having been invalidated by the Respondent, there was no objection decision that was issued. It follows therefore that there was nothing that ccould enable the Applicant to approach the Tribunal with an appeal therefore granting the extension of time would be a waste of the Tribunal’s time.

26. Consequently, the Tribunal finds that the Appellant had no possible arguable appeal.

27. The Tribunal having found that there was no appealable decision to be escalated to an appeal, it accordingly finds that a determination of the other tests is rendered moot.

28. The Tribunal notes that the Appellant simultaneously with the filing of the present application proceeded to file its Appeal documents on 26th April, 2023. The Appeal having been filed prior to the grant of the orders for the enlargement of time within which to file the appeal out of time, the same is to that extent incompetent and unsustainable in law.

Disposition 29. Based on the foregoing, the Tribunal determined that the application lacks merit and the Appeal filed therewith is incompetent and unsustainable in law. The orders that accordingly commend themselves to the Tribunal are as follows;a.The application be and is hereby dismissed.b.The Appeal be and is hereby struck outc.No orders as to costs.

30. It is so ordered.

DATED AND DELIVERED AT NAIROBI THIS 29TH DAY OF JUNE, 2023ERIC N. WAFULA - CHAIRMANELISHAH N. NJERU - MEMBERGEORGE A. KASHINDI - MEMBERERICK O. KOMOLO - MEMBERABRAHAM K. KIPROTICH - MEMBER