[2024] KETAT 1270 (KLR)

Waki & another (Suing ss the joint Executors of the Estate of the Late Mutula Kilonzo) v Commissioner of Domestic Taxes (Tax Appeal E836 of 2023) [2024] KETAT 1270 (KLR) (Civ) (9 August 2024) (Ruling)

Neutral citation: [2024] KETAT 1270 (KLR)

Republic of Kenya

In the Tax Appeal Tribunal

Civil

Tax Appeal E836 of 2023

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

August 9, 2024

Between

Retired Justice Philip Waki & Cyrose Nduku Kilonzo (Suing As The Joint Executors Of The Estate Of The Late Mutula Kilonzo

Appellant

and

Commissioner Of Domestic Taxes

Respondent

Ruling

1. The Appellant moved this Tribunal vide a Notice of Motion dated the 25th April 2024 filed under a Certificate of urgency on the 26th April, 2024 and which is supported by an Affidavit sworn by Dr. Njoroge O. Kimani, an Advocate of the Appellant, on the 25th day of April, 2024 seeking for the following Orders:a.That the Honourable Tribunal do issue an order lifting, vacating and setting aside the Respondent's Agency Notice Reference Number: PIN A000118925L and VAT 0018354 dated 10th November 2014, issued to the Clerk of the Parliamentary Service Commission, appointing him as an agent and requiring him to pay Kshs 445,505,953 pending the full hearing and determination of this application and Appeal herein.b.That the Honorable Tribunal do issue an order restraining the Respondent either by itself, its agents, employees, servants or through any other person at its behest, from issuing any other Agency Notices against the estate of the deceased, or his Bank Accounts until this application and the Appeal are heard and determined.

2. The application is based on the following grounds:a.That Respondent raised assessments against the Appellant which assessments were objected by the Appellant out of time on the 19th August, 2019 as required by Tax Procedure Act.b.That the Respondent rendered an objection decision on 3rd November 2023 on the Income tax and VAT against the Appellant.c.That being aggrieved by the objection decision aforementioned, the Appellant filed an Appeal to this Tribunal by lodging a Notice of Appeal, Memorandum of Appeal and Statement of Facts all dated 21st November 2023. d.That there exists an Agency Notice No. PIN A000118925L and VAT 0018354 issued by the Respondent to the Clerk, Parliamentary Service Commission on 10th November 2014. e.That if the Agency Notice to The Clerk, Parliamentary Service Commission is acted upon it will totally frustrate the Appeal herein and render it nugatory.f.That the amount the subject of the Agency Notice being Kshs 445,505,953/- is not the true and factual figure hence the reason of this Appeal and the declaration of agency for payment of the aforesaid amount by the Respondent is malicious.g.That it is in the interest of justice that this Honourable Tribunal does allow this application as prayed to safeguard the Appellant's right of appeal and right to be heard.

3. The Appellant relied on its written submissions dated 27th day of May 2024 wherein the Appellant submitted that in seeking to have the impugned Agency Notice lifted, the Applicant seeks preservation of the subject Appeal by having the enforcement of the Agency Notice stayed pending the hearing and determination of the Appeal.

4. The Appellant submitted that the principles in granting stay are well enunciated in Tusho Capital Kenya Limited v Anthony Mbuthin Kiburi & Another [2019] eKLR where the court held that:-“The power of the court to grant and refuse an application for stay is discretionary. To stay execution must however be exercised in such away as not to prevent an appeal; The general principle in granting or refusing stay is, if there is no other overwhelming hindrance, a stay must be granted so that an appeal may not be rendered nugatory should that appeal court reverse the judge's discretion; a judge should not refuse a stay if there are good grounds for grunting it merely because in his opinion, a better remedy may become available to the applicant at the end of the proceedings; The court in exercising its discretion whether to grant or refuse an application for stay will consider the special circumstances of the case and unique requirements. The special circumstances in this case were that there was a large amount of rent in dispute and the appellant had un unqualified right of appeal."

5. The Appellant also submitted that the Respondent seeks to attach terminal dues and other benefits of the deceased’s estate before the Appeal herein is heard and determined. This if allowed would eternally prejudice the interests of the deceased’s estate as it would not be recoverable.

Response to the Application 6. In response to the application, the Respondent relied on its Replying Affidavit sworn by Phillip Karonjo Kamau, an officer of the Respondent, on the 15th day of May, 2024 and filed on the even date and the written submissions dated 22nd May 2024 and filed on the even date.

7. The Respondent’s case is that the late Mutula Kilonzo was an Advocate by profession and later became an MP, a Minister and a Senator. That the assessments were issued based on the incomes earned while practicing as an Advocate trading by the name Mutula Kilonzo & Co. Advocates.

8. That the Appellant was registered under the PIN Number A000118925L for Income tax and 0018345E for VAT. That there are two facets to the dispute which are closely related and are as follows:a.Value Added Tax- An assessment which was issued on 6th June 1998 for the period December 1994 with an amount payable of Kshs 166,685,413. Out of this amount, the principal tax was Kshs 36,791,000 while penalties & interest amounted to Kshs 129,894,413. An amount of Kshs 31,771,642 has so far been recovered through enforcement measures leaving a balance of Kshs 134,913,771. b.Corporation tax- The amount in contention from the year 1995 to 2001 totaling to Kshs 309,467,685. 00 composed of Kshs 141,716,550. 00 as principal tax and Kshs 167,751,135. 00 as penalties and interest.

9. The Respondent averred that the records available indicate that the dispute relating to the assessment was dealt with exhaustively and the assessments confirmed in the ledger on 18th January, 2006.

10. That through a letter dated 7th August 2019, the Respondent wrote to the Appellant’s representative with reference to tax in arrears amounting to Kshs. 312,188,727. 00 and requested for settlement of the pending tax within 14 days after issuance of the said letter. According to the Respondent, on 15th August 2019, the tax agent, Kimani & Associates, responded to this letter objecting to the tax arrears demand notice on the basis that the income assessed was estimated and that, the objection was late due to the Appellant having passed away.

11. The Respondent stated that the Appellant addressed a letter dated 5th September 2023 and made reference to the letter dated 19th August 2019, seeking to make another “late objection”, and proceeded to adduce grounds for consideration. The Respondent also added that the Appellant, vide a letter dated 18th October 2023 was tasked to avail some documents, which the Appellant failed to provide thus the Respondent rejected the objection application.

12. It also stated that the assessments were issued earlier and dealt with, accordingly. Thus, the letter by the Appellant dated 19th August 2019 was not a proper objection, but a response to a demand letter relating to confirmed self-assessment and additional assessment arrears. It maintained that the letter issued by the Respondent on 3rd November 2023 served as a notification that the objection was not valid and as such, it was rejected in full.

13. The Respondent averred that the outstanding taxes have not been fully paid therefore there is an Agency Notice in place, PIN A00011825L and VAT 0018354 dated 10th November 2014 issued to the Clerk of the Parliamentary Service Commission. The Agency Notice has been in place since the year 2014.

14. The Respondent stated that during that period, the Appellant failed to make any attempt to resolve the matter. Based on past engagements, the Appellant has not been keen to resolve the issue at all. The Respondent further stated that the Appellant’s interest is in having the Agency Notice lifted so that they can access any terminal dues payable by the Parliamentary Service Commission which would jeopardize the Respondent and lead to loss of tax revenue.

15. The Respondent further stated that the total outstanding amount inclusive of principal tax, penalties and interest is Kshs. 445,505,953. 00 which is inclusive of self assessment and additional assessment.

16. The Respondent in its written submissions submitted that Sections 25 of the Income Tax Act 2013 (repealed) provided for issuance of agency notices by the Respondent as part of its mandate. It also submitted that Section 52 of the Income Tax Act 2013 (repealed) gave the Respondent the mandate to raise assessments.

17. The Respondent relied on Section 42 of the Tax Procedures Act that provides for the Respondent’s power to collect tax from persons owing money to a taxpayer while Section 43 of the said Act that provides for preservation of funds.

18. The Respondent further relied on Section 51 of the Tax Procedures Act which provides for objection to tax decision. It submitted that the taxes have been unpaid and that the Agency Notice has been in place since the year 2014 yet the Appellant has not made attempt to settle the matter.

19. The Respondent submitted that no substantial loss will be occasioned to the Appellant in the event the orders being sought are not granted because the said issue is monetary and it has not been alleged or proved that in the event of recovery of taxes, the Respondent will be unable to refund the same. The Respondent relied on the case of James Wangalwa & Another v Agnes Naliaka Cheseto in Misc Application No. 42 of 2011 [2002] eKLR in which Gikonyo J. stated that:-“No doubt, in law the fact that the process of execution has been put in motion, or is likely to be put in motion, by itself, does not amount to substantial loss. Even when execution has been levied and completed, that is to say, the attached properties have been sold, as is the case here, does not in itself amount to substantial loss.

20. The Respondent also submitted that the Appellant must establish other factors which show that the recovery of taxes will create a state of affairs that will irreparably affect or negate the very essential core of the Appellant as the successful party in the Appeal.

21. Finally, the Respondent submitted that the Appellant failed to show any prejudice it would suffer if the orders sought are not granted. It is the obligation of every citizen to pay taxes as and when they fall due.

Analysis and Findings 22. The jurisdiction for the Tribunal to consider an application for stay of enforcement of any demand or actions on the part of the Respondent that is likely to adversely impact on the proper determination of a matter before the Tribunal is founded under Section 18 of the Tax Appeals Tribunal Act which provides as follows; -“Where an appeal against a tax decision has been filed under this Act, the Tribunal may make an order staying or otherwise affecting the operation or implementation of the decision under review as it considers appropriate for the purposes of securing the effectiveness of the proceedings and determination of the appeal.”

23. The Respondent on reliance upon Section 96 of the Income Tax Act 2013 (repealed) and Section 25 of the VAT Act 2013 issued an Agency Notice directed to the Clerk, Parliamentary Service Commission for the enforcement of income tax and VAT in the sum of Kshs 445,505,953. 00 as against the Appellant.

24. Section 96 of the Income Tax Act (repealed) allowed the Respondent to appoint an agent for the purposes of the collection and recovery of tax due and upon such an appointment being made the agent was expected to remit the deducted tax within 12 months. This is clear under Section 96(3) of the Act which provided that:-“An agent shall pay the tax specified in his appointment notice out of any moneys which may, at any time during the twelve months following the date of the notice, be held by him for, or due from him to, his principal.”From the provisions of Section 96(3) the agency notice was not meant to last for years and years without an end.

25. Section 96(4) of the said Act was instructive on the obligations of the agent upon being appointed and it provided as follows:-“Where an agent claims to be, or to have become, unable to comply with subsection (3) by reason of the lack of moneys held by, or due from him, he shall, within seven working days, notify the Commissioner accordingly in writing setting out fully the reasons for his inability so to comply, and the Commissioner may -(a)Accept the notification and cancel or amend the appointment notice accordingly; or(b)If he is not satisfied with those reasons, reject the notification in writing.”

26. The Respondent submitted that the Agency Notice was issued vide a letter dated 10th November 2014 to the Clerk of the Parliamentary Service Commission. The Agency notice has been in place since the year 2014 to date. Pursuant to Section 96(3) of the Income Tax Act 2013 (repealed), the agent was supposed to pay the tax not later than the 10th November 2015. There is no indication as to the amount collected in enforcement of the agency notices.

27. The Appellant vide a letter dated the 5th September, 2023 applied to lodge a late notice of objection against the additional tax assessments for the period 1995 to 2021 in the aggregate sum of Kshs 166,685,408. 00. The late objection was accepted by the Respondent on the 18th October, 2023 thereby precipitating in the issuance of the objection decision on the 3rd November, 2023.

28. The Appellant being dissatisfied with the objection decision commenced this Appeal and the taxes informing the issuance of the Agency Notice on the 10th November, 2014 appear to constitute part of the subject matter forming the substrum for the Appeal.

29. The Appellant has contended and which fact has not been controverted by the Respondent that the enforcement of the Agency Notice issued to the Parliamentary Service Commission is likely, unless stayed by the Tribunal, to occasion in the deduction and remittance of any accrued benefits payable to the Appellant.

30. It is apparent that the efficacy and effectiveness of the proceedings in the Appeal are likely to be prejudiced unless the enforcement of the Agency Notice is stayed pending the hearing and determination of the Appeal.

31. In any event it is equally clear that the agency notice issued on the 10th November, 2014 directed to the Clerk of Parliamentary Service Commission has outlived its statutory lifespan and as such its continued enforcement is not sustainable in law.

Disposition 32. In the circumstances, the Tribunal finds that the application is meritorious and accordingly proceeds to make the following Orders:i.The application be and is hereby allowed.ii.The Agency Notice dated 10th November, 2024 be and is hereby lifted.iii.No orders as to costs.

33. It is so ordered.

DATED AND DELIVERED AT NAIROBI THIS 9TH DAY OF AUGUST, 2024ERIC NYONGESA WAFULACHAIRMANEUNICE N. NG’ANG’A ELISHAH N. NJERUMEMBER MEMBERMUTISO MAKAU ABRAHAM K. KIPROTICHMEMBER MEMBER