[2023] KETAT 217 (KLR)

Yago Electrical & Refrigeration Service Limited v Commissioner of Domestic Taxes (Appeal 251 of 2022) [2023] KETAT 217 (KLR) (Civ) (5 May 2023) (Ruling)

Neutral citation: [2023] KETAT 217 (KLR)

Republic of Kenya

In the Tax Appeal Tribunal

Civil

Appeal 251 of 2022

E.N Wafula, Chair, Cynthia B. Mayaka & AK Kiprotich, Members

May 5, 2023

Between

Yago Electrical & Refrigeration Service Limited

Appellant

and

Commissioner of Domestic Taxes

Respondent

Ruling

1. The appellant vide a Notice of Motion dated the 21st day of September, 2022 and filed under a Certificate of urgency on the 23rd day of November, 2022 seeks for the following Orders:-a.Spentb.Spentc.That the Agency Notice issued to African Banking Corporation Limited and any other agency notice issued on any of the Applicant’s Bankers be lifted, vacated and/or set aside and the Respondent whether by itself, its officer, employees and/or agents be stopped from taking any steps or other enforcement action founded on the said assessments.d.That the costs of this application be in the cause.e.That this Honourable Tribunal be pleased to issue any such orders as it deems just and expedient.

2. The application which is supported by an affidavit sworn by Daniel Onyango Odero, a Director of the applicant, on the 21st day of September, 2022 is premised on the following grounds:-a.That the respondent issued the agency notices dated June 8, 2022 to the Applicant’s bankers requiring them to immediately pay a sum of Kshs.2,170,934. 00b.That the agency notices have been issued at a time when the applicant has been engaging the respondent’s Independent Review of Objection Division and the process of review is ongoing.c.That being dissatisfied with the decision of the respondent to issue agency notices to its bankers, the applicant lodged an application to this Tribunal.d.That the agency notices are unlawful, unreasonable, unfair and in bad faith.e.That the applicant stands to suffer substantial loss and damage if the agency notices are not lifted, including the inability to meet its immediate and long-term financial obligations including loans, family and salary.f.That this application is brought about without undue delay.g.That the respondent will suffer no prejudice if orders sought herein are granted.h.That it is in the interest of justice that the Honourable Tribunal grants the orders for lifting the agency notice issued to African Banking Corporation Limited.i.That unless this application is heard on priority basis and the orders sought herein granted, the applicant will be highly prejudiced and will suffer substantial and irreparable loss.

Analysis and Findings 3. It is important to note at the very onset that the respondent opted not to file any response to the application.

4. The powers of the Commissioner to collect taxes from a person owing or holding money payable to a taxpayer through issuance of agency notices is immortalized under section 42 of the Tax Procedures Act. The issuance of agency notices to enforce payment of taxes is permissible under the law when the conditions imposed by the statute are met. section 42(1) of the Act Provides as follows:-“This section applied when the taxpayer is, or will become liable to pay a tax and –a.the tax is unpaid tax; orb.the Commissioner has reasonable grounds to believe that the taxpayer will not pay the tax by the due date for the payment of the tax.”

5. It is manifestly clear form the foregoing section 42(1) of the Tax Procedures Act that the Commissioner can only invoke the issuance of the agency notices to enforce payment of a tax liability that has accrued or when the Commissioner has a good basis to inform a believe that the taxpayer is unlikely to pay the tax on the due date for the payment.

6. A perusal of the affidavit in support of the application reveals that the respondent acknowledged a receipt of a notice of objection to a tax assessment from the applicant on the July 27, 2022. The applicant indicates that as at the time of filing of this application its notice of objection was under consideration by the respondent and that no objection decision or any other decision had been issued by the respondent as relates to the notice of objection.

7. In the absence of any response from the respondent to the application the material facts raised by the applicant remain completely uncontroverted.

8. With the notice of objection raised by the applicant deemed to remain under consideration by the respondent as at the time of filing of the application, the taxes assessed by the respondent and in respect of which the applicant has raised an objection had not crystalized for payment.

9. In the absence of any decision on the part of the respondent invalidation the notice of objection or confirming the tax assessment, it was not available for the respondent to issue any agency notice calculated at the enforcement of the tax liability under the impugned tax assessment.

10. The Tribunal in the circumstances finds that the agency notices issued to the applicant’s bankers on the June 8, 2022 were premature and in breach of both word and spirit of the provisions of section 42 of the Tax Procedures Act.

Disposition 11. The Tribunal on the basis of the foregoing analysis finds that the application is merited and that the Orders that recommend themselves are as follows:-a. The application be and is hereby allowed.b. The Agency Notice dated June 8, 2021 issued to African Banking Corporation Limited and any other agency notices issued to the Appellant’s bankers or creditors towards the enforcement of a tax liability in the sum of Kshs 2,170,934. 00 be and are hereby lifted unconditionally.c. No orders as to costs

DATED AND DELIVERED AT NAIROBI THIS 5TH DAY OF MAY, 2023. .................................ERIC N. WAFULACHAIRMANCYNTHIA B. MAYAKAABRAHAM KIPROTICHMEMBER MEMBER