[2024] KETAT 987 (KLR)

Victoria Entreprises Limited v Commissioner of Domestic Taxes (Appeal E202 of 2023) [2024] KETAT 987 (KLR) (19 July 2024) (Judgment)

Neutral citation: [2024] KETAT 987 (KLR)

Republic of Kenya

In the Tax Appeal Tribunal

Appeal E202 of 2023

CA Muga, Chair, BK Terer, D.K Ngala & SS Ololchike, Members

July 19, 2024

Between

Victoria Entreprises Limited

Appellant

and

Commissioner of Domestic Taxes

Respondent

Judgment

Background 1. The Appellant is a limited liability company incorporated under the Companies Act and a registered taxpayer.

2. The Respondent is a principal officer appointed under Section 13 of the Kenya Revenue Authority Act, CAP 469 of Kenya’s Laws. Under Section 5 (1) of the Act, the Kenya Revenue Authority is an agency of the Government for the collection and receipt of all tax revenue. Further, under Section 5(2) of the Act with respect to 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 Part 1 and 2 of the First Schedule to the Act for the purposes of assessing, collecting and accounting for all revenues in accordance with those laws.

3. After conducting tax compliance investigations, the Respondent served the Appellant with two income tax assessment orders on 23rd August 2018 and 1st March 2019 relating to years 2015 and 2017 respectively. The principal income tax assessments were for Kshs. 6,395,688. 30 and Ksh 1,652,310. 00 relating to 2015 and 2017 years of income respectively.

4. The Appellant objected to the 2015- and 2017-income tax assessments on 30th August 2018 and 21st May 2019 respectively. Consequently, the Respondent in an electronic mail of 26th October 2018 requested the Appellant to file income tax returns for 2013 to 2017 years of income.

5. Vide letters dated 22nd May 2019 and 29th October 2019, the Respondent demanded principal tax, interest and penalty arrears from the Appellant totaling to Ksh 15,306,699. 00 and Ksh 15,871,672. 00 in relation to the 2015 and 2017 years of income respectively.

6. On 27th July 2020, the Appellant’s tax agent responded to the letters of 22nd May 2019 and 29th October 2019 objecting to the tax arrears demand.

7. The Respondent confirmed the tax assessments as contained in the objection decisions dated 30th July 2020 which was rendered vide the i-Tax portal as indicated in the Respondent’s electronic mail of 24th August 2020.

8. Aggrieved by the Respondent’s objection decision dated 30th July 2020, the Appellant filed its notice of appeal dated 11th April 2023 at the Tribunal on 5th May 2023.

The Appeal 9. The Appeal was founded upon the following grounds as laid-out in the undated Memorandum of Appeal filed on 5th May 2023;(i)That the Respondent erred in fact by raising the income tax assessments for the years 2015 and 2017 based on revenues as opposed to gains or profits chargeable to tax, which arise after considering the cost of goods sold, the available administrative expenses, establishment expenses and finance cost incurred during the years under review.(ii)That the Respondent erred in fact by failing to make income tax assessments based on the taxable profit for the years 2015 and 2017. (iii)At the time of assessment, the Appellant’s financial audits were ongoing, thus could not file pending income returns for years 2015 and 2017. Currently the audits have been concluded to aid in the filing of the correct income tax returns.

Appellant’s Case 10. The Appellant’s stated as follows in its undated statement of facts filed on 5th May 2023:

11. That the Respondent raised, confirmed and demanded income tax assessments for years 2015 and 2017 totaling Kshs. 8,186,481. 02 and Kshs. 1,844,064. 10 respectively without considering the cost of goods sold, administrative expenses, establishment expenses and finance costs incurred during the years under review.

12. That the sales revenue and expenses for the period under review pursuant to the audited accounts were as tabulated below:2015 (in Kshs.) 2017 (in Kshs.)

Sales 21,318,966. 00 5,507,702. 00

Cost of Sales 14,430,035. 00 3,452,175. 00

Expenses 7,896,484. 00 2,680,414. 00

Appellant’s Prayer 13. The Appellant made the following prayers to the Tribunal:(a)That the Tribunal vacates the income tax assessments for years 2015 and 2017 with costs.(b)That the Tribunal strikes out in entirety the Respondent’s decision to raise additional assessments for years 2015 and 2017 based on revenue and instead direct the Respondent to consider cost of sales and other expenses so as to reflect the true tax position as per audited accounts.

The Respondent’s Case 14. The Respondent replied to the Appeal through its Statement of Facts dated 8th May 2023 and filed on 9th May 2023;

15. The Respondent stated that its tax investigations for 2015 and 2017 tax period established that the Appellant had not filed income tax returns despite having made taxable sales as per the VAT3 returns filed, as a result the Respondent raised additional income tax assessments for the period.

16. The Respondent stated that on 26th October 2018 it requested the Appellant to regularize its tax returns for 2013 to 2017 period to enable the Respondent process the Appellant’s objection. That however, the Appellant neither filed its income tax returns nor provided documentation in support of its objection which left the Respondent no option but to confirm the income tax assessments.

17. That as per Section 24 and 28 of the Tax Procedures Act, CAP 469B of Kenya’s Laws (hereinafter “TPA), a taxpayer is allowed file returns but further provides that the Commissioner is not bound by information provided therein and can assess tax liability based on any other available information. Moreover, that Section 73 of the Income Tax Act, CAP 470 of Kenya’s Laws (hereinafter “ITA”) as read together with Section 29 of the TPA allows the Respondent to issue a default assessment where the taxpayer fails to declare returns based on any available information and to the best of his judgement.

18. The Respondent stated that the additional income tax assessments for year 2015 were raised based on sales declared in VAT3 returns and this was because the Appellant failed to file its self-assessment income tax returns despite several reminders or provide documentation in support of its objections. That as a result, the Appellant could not claim expenses and cost of sales for the tax period under review.

19. The Respondent was determined that the assessments as confirmed for the 2015 and 2017 tax period were proper in law and based on information available to it. Additionally, the Respondent asserted that the instant Appeal was filed out of time and should therefore be struck out.

Respondent’s Prayer 20. The Respondent made the following prayers:(i)That the Tribunal upholds the 2015 and 2017 additional income tax assessments.(ii)That the Tribunal dismiss the Appeal with costs for want of merit.

Parties’ Submissions 21. The Respondent’s written submissions dated 27th March 2024 and filed on 28th March 2022 were expunged for failure to adhere to the timeliness within which the same were to be filed as directed the Tribunal on 27th February 2024. The Appellant did not file written submissions.

Issues For Determination 22. The Tribunal having carefully considered the parties’ pleadings and documentation note that the matter distils into two issues that call for its determination as follows:(i)Whether the Appeal is properly before the Tribunal.(ii)Whether the Respondent’s objection decision dated 30th July 2020 was justified.

Analysis And Determination 23. The Tribunal having established the two issues that require its determination will proceed to analyse the same as hereinunder:

(i) Whether the Appeal is properly before the Tribunal. 24. The Tribunal notes the genesis of the instant Appeal was a tax compliance investigation by the Respondent which led to two income tax assessment orders in years 2018 and 2019 respectively and the subsequent confirmation of the assessments as contained in the objection decisions dated 30th July 2020 which was rendered vide the i-Tax portal. The Appellant filed its appealed to the objection decision at the Tribunal on 5th May 2023.

25. The Tribunal notes the following provisions of Section 3(1) of TPA:“appealable decision” means an objection decision and any other decision made under a tax law other than—a.a tax decision; orb.a decision made in the course of making a tax decision; …

26. The Tribunal notes that the Appellant appealed on 5th May 2023 against a decision that was rendered by the Respondent on 20th July 2020. The Respondent’s objection decision was therefore rendered approximately 3 years ago. The Tribunal notes the following provisions of Section 13 (3) and (4) of the Tax Appeals Tribunal Act, CAP 469A of the Laws of Kenya (hereinafter “TATA”) which outlines the remedy for situations where the Appellant files its Appeal out of the statutorily stipulated timelines:“(3)The Tribunal may, upon application in writing, extend the time for filing the notice of appeal and for submitting the documents referred to in subsection (2).(4)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 filing the notice of appeal or submitting the documents within the specified period.”

27. The Appellant ought to have sought leave for the Tribunal as outlined in the preceding provisions of the TATA before filing the instant Appeal after having delayed on enforcing its rights for a period of 3 years. In the instant Appeal, the Tribunal is guided by decision of the the Court of Appeal in Phoenix of E.A. Assurance Company Limited vs. S. M. Thiga t/a Newspaper Service [2019] eKLR where it was held as follows:“...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.

28. Equity aids the vigilant and not the indolent. The Tribunal has observed that the Appellant, rather than asserting itself and enforcing its rights, ignored the mandatory statutory timelines outlined in the TATA. The Tribunal further observed that the Appellant never gave any reason for the delay in spite of it waiting 3 years to Appeal.

29. The Tribunal notes that the doctrine of not allowing an equitable remedy where there has been unconscionable delay is known as laches and the meaning of the doctrine was outlined in the case Patridge vs. Patridge [1894] 1 Ch 351 where North J gave the meaning of laches by stating that “laches” or “lasches” is an old French word for slackness or negligence or not doing”.

30. In view of the preceding analysis, the Tribunal finds that the effluxion of time in filing the instant Appeal, indicates that it lacks jurisdiction over the matter as the same was improperly before it ab initio.

(ii) Whether the Respondent’s objection decision dated 30th July 2020 was justified. 31. The Tribunal having established that the Appeal herein was improperly before it will not proceed to analyze the second issue for determination as the same has been rendered moot.

Final Decision 32. The upshot of the foregoing is that the Appeal herein lacks merit and the Tribunal accordingly proceeds to make the following Orders:(a)The Appeal be and is hereby struck out.(b)Each party to bear its own costs.

33. It is so ordered.

DATED AND DELIVERED AT NAIROBI ON THIS 19TH DAY OF JULY, 2024. CHRISTINE A. MUGA - CHAIRPERSONBONIFACE K. TERER - MEMBERDELILAH K. NGALA - MEMBEROLOLCHIKE S. SPENCER- MEMBER