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Oluoch v Commissioner of Legal Services and Board Coordination (Appeal 104 of 2022) [2023] KETAT 325 (KLR) (Civ) (2 June 2023) (Judgment)
Neutral citation:
[2023] KETAT 325 (KLR)
Republic of Kenya
Appeal 104 of 2022
E.N Wafula, Chair, Cynthia B. Mayaka, Grace Mukuha, Jephthah Njagi & AK Kiprotich, Members
June 2, 2023
Between
Lindah Adhiambo Oluoch
Appellant
and
Commissioner of Legal Services And Board Coordination
Respondent
Judgment
Background
1.The Appellant, Lindah Adhiambo Oluoch, is part of a partnership registered as Motorcar Enterprises.
2.The Respondent is a principal officer appointed under and in accordance with Section 13 of the Kenya Revenue Authority (KRA) Act, and the Kenya Revenue Authority is charged with the responsibility of among others, assessment, collection, accounting and the general administration of tax revenue on behalf of the Government of Kenya.
3.On 21st September 2021, the Respondent wrote to the Appellant's bankers, Kenya Commercial Bank, requiring it to immediately pay a sum of KShs. 1,687.467.00.
4.Due to the inability to access funds in her bank account at Kenya Commercial Bank on account of the agency notice, on 1st October 2021, the Appellant visited the Kericho KRA tax office, where she was furnished with 3 tax assessments all dated 31st August 2018.
5.By a letter dated 4th October, 2021 and lodged by email on 5th October, 2021, the Appellant objected to the assessments and the agency notice and requested the Respondent's officer responsible for the Debt Enforcement Section to withdraw the agency notices.
6.Owing to the failure by the Respondent to withdraw the agency notice dated 21st September, 2021, the Appellant instituted Misc. Tax Application 97 of 2021; Linda Adhiambo Oluoch vs. Commissioner of Domestic Taxes. The agency notice was vacated by consent on 22nd October 2021.
7.On 22nd December 2021, the Respondent issued its objection decision wherein the Appellant's objection was dismissed and taxes demanded in the sum of Kshs. 1,375,821.94.
8.Being dissatisfied with the objection decision of the Respondent, the Appellant lodged a Notice of Appeal dated 19th January, 2022 and filed on 20th January 2022.
The Appeal
9.The Appeal is premised on the following grounds as stated in the Appellant’s Memorandum of Appeal dated 1st February, 2022 and filed on 2nd February, 2022:-a.That the Respondent erred in fact and in law by issuing the objection decision dated 22nd December, 2021 out of time contrary to Section 51(11) of the Tax Procedures Act, 2015.b.That the Respondent erred in fact and in law by failing to appreciate and consider that it was unlawful and unreasonable to raise, on the same day, multiple additional assessments over the same tax period.c.That the Respondent erred in fact and law by issuing the objection decision that purported to alter the assessment period from the year 2016 only to 2016, 2017, 2018.d.That the Respondent erred in fact and in law by failing to appreciate and consider that the 3 additional assessments all dated 31st October 2018 failed to comply with the mandatory requirements provided in Section 31(8) of the Tax Procedures Act, 2015.e.That the Respondent erred in fact and in law by failing to appreciate and consider that the 3 additional assessments all dated 31st October 2018 were defective and fell short of the requirements of a proper notice in so far as they failed to disclose the nature and implication and consequences of non-compliance.f.That the Respondent erred in fact and in law by failing to appreciate and consider that during the tax period under review, at no time was the Respondent involved in the management of the partnership known as Motorcar Enterprises, including as a signatory to any transaction or even bank accounts and that she never derived any financial benefit, including income, from the aforesaid partnership.g.That in the alternative, and without prejudice to the foregoing, the Respondent erred in fact and in law by holding that the Appellant was liable for 50% of the partnership's alleged tax liability while failing to appreciate that the Appellant's stake in the partnership was 30% hence, pursuant to Section 12(1) of the Partnerships Act, 2012, and Clause 6 of the Partnership Deed dated 1st July 2016, any alleged liability in taxes by the Appellant could only be levied at the rate of 30% of the outstanding taxes, if any.
Appellant’s Case
10.The Appellant’s case is premised on the following documents:a.The Appellant’s Statement of Facts dated 1st February, 2022 and filed on 2nd February, 2022 together with the documents attached thereto and proceedings before the Tribunal.b.The Appellant’s written submissions dated 26th October, 2022 and filed on 9th November, 2022.
11.The Appellant categorically states that during the pendency of the partnership, including the year 2016, at no time was she involved in the management of the partnership, including as a signatory to any transaction or even bank accounts. That further, she has never derived any financial benefit, including income, from the aforesaid partnership.
12.That the Appellant's stake in the partnership was 30% and she did not derive any income whatsoever from this stake during the tax period to which the assessments relate. That the 70% stake was held by her partner. That if there was any income derived from the partnership, it was wholly, exclusively and solely enjoyed by her partner.
13.That owing to the dysfunction of the partnership, the Appellant successfully applied to have the partnership cease business on 16th September 2019.
14.That, vide an agency notice dated 21st September 2021, the Respondent wrote to the Appellant's bankers Kenya Commercial Bank, requiring it to immediately pay a sum of Kshs. 1,687.467.00.
15.That alarmed by the inability to access funds in her bank account at Kenya Commercial Bank on account of the agency notice, on Friday 1st October, 2021, she visited the Kericho KRA tax office, where she was furnished with 3 tax assessments all dated 31st August 2018. That the particulars of the assessments are as follows:i.Assessment no: KRA201813149991 - Kshs. 495,235.98ii.Assessment no: KRA201813149470 – Kshs. 389,380.68iii.Assessment no: KRA20l 813146164 – Kshs. 491,205.48
16.That it is unlawful and unreasonable to raise, on the same day, multiple additional assessments over the same tax period. That the aforesaid 3 additional assessments all dated 31st October 2018 failed to comply with the mandatory requirements provided in Section 31(8)(f) of the Tax Procedures Act, 2015 for failure to specify the manner of objecting to the assessment.
17.That further, the aforesaid assessments were defective and fell short of the requirements of a proper notice in so far as they failed to disclose the nature and implication and consequences of non-compliance. That the Appellant categorically and unequivocally states that she only received the assessments on 1st October, 2021.
18.That the objection decision dated 22nd December, 2021 was issued 78 days after the objection was lodged; on 5th October, 2021. That in the case of Vivo Energy Kenya Ltd. vs. Commissioner of Customs and Border Control, Kenya Revenue Authority & Another [2020] eKLR, the court held that:
19.The Appellant further relies on the case of Republic vs. Commissioner of Customs Services ExParte Unilever Kenya Limited (2012) eKLR, where Korir J stated as thus:-
20.The Appellant further pegs its submissions on the decision in Republic vs. Kenya Revenue Authority Ex Parte M-kopa Kenya Limited (2018) eKLR where it was held that an objection decision made beyond the 60 day limit is null.
21.That the Respondent’s demand was erroneous as it is based on wrong assumption that the Appellant shared the income in equal terms with the other partner. Therefore the Respondent's reasoning was preposterous and outrageous.
22.That in the case of PZ Cussons East Africa Limited vs. Kenya Revenue Authority (2013) eKLR, the Honourable Judge D.S Majanja held that:
23.That KRA’s action of insisting on payment of additional tax assessment in the circumstances in light of claim that the Appellant’s share of partnership income was 50:50 was unreasonable and unfair and in breach of the right to fair administrative action under Article 47 of the Constitution.
24.That the Appellant paid the taxes as required of Kshs 120,000.00 under the Partnership Pin Number.
25.That the Appellant attached a statement and bank receipts to its pleadings for payment of tax arrears installments dated 4th October, 2019 and 14th November, 2019. That the payments were compelled by advice from the KRA Kisumu Enforcement Office that the release of the Appellant's Bank Account was conditional on the Appellant making payments. That the Appellant attached acknowledgement from the iTax system of the four payments.
26.That the Appellant further relied on the following cases:a.Kenya Revenue Authority vs. Man Diesel & Amp; Turbo Se [2021] eKLR.b.Soi Ceramics Limited vs. Commissioner of Domestic Taxes TAT No. 465 of 2021.c.Minazini Enterprises Ltd vs. The Commissioner of Domestic Taxes, Tax Appeal No. 56 of 2016.d.Republic vs. Kenya Revenue Authority (KRA) & 4 Others; New Flamingo Hardware & Paints Limited & 22 Others (Ex Parte) (2020) eKLR.
Appellant’s Prayers
27.The Appellant made the following prayers:i.This Honourable Tribunal be pleased to allow the Appellant's Appeal in its entirety.ii.The objection decision dated 22nd December 2021 demanding taxes in the total sum of Kshs. 1,375,821.94 issued by the Respondent be set aside.iii.The Appellant's objection dated 4th October, 2021 be allowed.iv.This Honourable Tribunal be pleased to Order the Respondent to pay the costs of this Appeal, andv.This Honourable Tribunal be pleased to issue any other Order favourable to the Appellant as it may find just and expedient to issue.
The Respondent’s Case
28.The Respondent’s case is premised on the hereunder filed documents and proceedings before the Tribunal: -i.The Respondent’s Statement of Facts dated and filed on 5th August, 2022 together with the documents attached thereto.ii.The Respondent’s written submissions dated and filed on 2nd November, 2022 together with the legal authorities filed therewith.
29.That the Appellant in her annual income tax returns, failed to declare her share of income derived from operation of Motorcar Enterprises. That data from Customs and Border Control Department clearly indicate Customs entries made by Motorcar Enterprises for importation of second-hand cars between 27th September, 2016 and 1st September, 2018. That the Appellant made no declaration of her share of income from sale of the imported cars in her annual income tax returns.
30.That in response to the allegations that the Respondent's objection decision dated 22nd December, 2021 was invalid, the Respondent avers that the Appellant had continued to provide documentation and communicated with the Respondent up to 2nd November, 2021.
31.That the Respondent issued income tax assessments on 31st August, 2018 on the undeclared income and the same automatically communicated to the taxpayer's iTax registered e-mail address.
32.That the Respondent was guided by the information provided by the Appellant in arriving at the assessment. That Section 24(2) of the Tax Procedures Act provides that, “The Commissioner shall not be bound by a tax return or information provided by, or on behalf of, a taxpayer and the Commissioner may assess a taxpayer's tax liability using any information available to the Commissioner”.
33.That the Appellant filed a late objection on 4th October, 2021 stating majorly that she did not derive any income from the partnership. That the Appellant did not provide any evidence of dissolution of the partnership in any of the forms provided under Section 35 of the Partnership Act.
34.The Respondent avers that Section 7(1) of the Partnership Act, 2012 provides that: “Each partner in a partnership shall have responsibility for the business of the partnership.”
35.The Respondent further avers that the law is very clear on the burden of proof and the Appellant has not produced any evidence to support the averments contained in her Statement of Facts. Further, that the law is very clear and Section 56(1) of the Tax Procedures Act, 2015 provides that;
36.That the Appellant's grounds for Appeal are not sufficient to form the facts of the case, the Appellant did not provide any evidence contrary to the basis of the Respondent's assessment.
37.The Respondent avers that it is imperative to highlight the provisions of Section 51 of the Tax Procedures Act which stipulates that:
38.That Section 51(11) of the TPA provides that the Commissioner shall make the objection decision within sixty days from the date of receipt of a valid notice of objection failure to which the objection shall be deemed to be allowed.
39.That it is evident from the email correspondences between the Appellant and Respondent that the last communication on 2nd November 2021 from the Respondent requested for documentation that would validate the notice of objection by the Appellant including but not limited to certified copies of accounts covering the period under review and evidence of either resignation, minutes of when the Appellant left the Partnership.
40.That the Respondent relies on Republic vs. Kenya Revenue Authority Ex-Parte M-Kopa Kenya Limited [2018) eKLR where the Tribunal held that once the Appellant had lodged an objection as contemplated under Section 51 of the TPA, then the Respondent was required to make a decision within sixty (60) days under Section 51(11) of the Act.
41.That the Respondent magnanimously gave time to the Appellant to avail the requisite documents but to no avail and in adherence to the law issued an additional income tax assessment on 22nd December 2021 amounting to Kshs. 1,375,821.54 for the years 2016, 2017 and 2018.
42.That the Respondent issued the assessment within the sixty days timeline and outlined its statement of findings on the material facts and the reasons for the decision as required by section 51(10) of the Tax Procedures Act, 2015.
43.The Respondent buttressed its arguments with the Tribunal’s decision in Tax Appeals No. 50 of 2017, Local Productions Kenya Limited vs. The Commissioner of Domestic Taxes wherein the Tribunal upheld the need for giving reasons on the part of the Respondent.
44.That the Respondent also relied on TAT No. 162 of 2021 Githima Limited vs. Commissioner of Domestic Taxes where it was held the Commissioner might choose any format at his disposal of writing an objection decision, but must at all times include a statement of findings on the material facts and reasons for the decision. That therefore its decision was proper in law as it adhered to the set criteria.
45.That the Respondent provided the material facts and the reasons for the decision and the Appellant cannot claim otherwise.
46.The Respondent reiterates its decision in the assessment that the Appellant did not provide evidence of dissolution of the partnership for her to distance herself from the profit and liabilities; no documents provided to support the objection and the Commissioner rightfully assessed the income of the partnership on the partners.
47.That it is trite law that the onus of proving a tax assessment is erroneous or excessive lies on the taxpayer, and this was not discharged by the Appellant to the Respondent.
48.That in Mechai International vs. Commissioner of Domestic Taxes TAT Appeal No. 38 of 2021 the Tribunal stated that:
49.That in Kenya Revenue Authority vs. Man Diesel & Turbo Se, Kenya [2021] eKLR where the court relied on the decisions of various jurisdictions on the issue of the burden of proof stating as follows:
50.That the Appellant did not produce unchallenged and uncontradicted evidence to the Respondent.
51.That Section 24(2) of the TPA stipulates that:
52.That in Republic vs. Kenya Revenue Authority Ex-Parte Bata Shoe Company (Kenya) Limited (2014] eKLR the court expressed itself as follows:-
53.That the Respondent is mandated to ensure efficient and effective collection of revenue even through various assessments. That the Respondent is confident that no prejudice is suffered by the Appellant with the three assessments issued. That the Appellant when aggrieved by the assessment is at liberty to disapprove the assessment as per Section 56 of the Tax Procedures Act, 2015.
54.That Section 31(1) of the Tax Procedures Act, 2015 empowers the Respondent to issue additional assessments within five years of the reporting period.
55.That the Respondent further relies on the cases of Republic vs. Public Procurement Administrative Review Board & 2 Others Ex-Parte Pelt Security Services Limited (2018] eKLR and Republic vs. Kenya Revenue Authority Ex-Parte Bata Shoe Company (Kenya) Limited [2014] eKLR.
56.That it is quite evident that the assessments made were within the jurisdiction of the Respondent and they have no hint of unreasonableness and neither do they defy logic but illustrate the duty and mandate of the Respondent in revenue collection.
57.That contrary to the averments of the Appellant, it is crystal clear and by the admission of the Appellant, that she was in a partnership at Motorcar Enterprises accordingly.
58.That the Appellant has passionately denied any involvement in the partnership and avers that she did not enjoy any benefits from the partnership. That it is however, ironical that the Appellant is reluctant and has blatantly refused to produce documents to prove her case.
59.That if indeed the Appellant did not receive income from the partnership business with her estranged husband, she should not resist in providing copies of accounts covering the period under review, supporting ledgers and documents to either show resignation or dissolution of the said partnership.
60.That Section 7(1) of the Partnership Act stipulates each partner in a partnership shall have responsibility for the business of the partnership; a partnership agreement/deed is defined as the agreement between persons who carry on business in common with a view of making a profit.
61.That the Appellant failed to produce documents to show the duties and obligations of the partners under the partnership at the time of the objection necessitating the Respondent to use the facts as were available at the time of making the objection decision.
62.That it is prudent to note that the Appellant during the period assessed received the income from the partnership and failed to remit her respective taxes leading to the assessments.
63.That the Appellant's assertions of not being involved in the partnership ought to be disregarded as she did not cease to be a partner according to Section 27 of the Partnership Act and neither did she provide documentation to substantiate her claim. That the said provision states as follows:
64.That in Boleyn International Ltd vs. Commissioner Domestic Taxes TAT No. 55 of 2018 this Tribunal found the following paragraph from Pierson vs. Belcher (H.M. Inspector of Taxes) (1956-1960) 38 TC 387 to be instructive:
65.The Respondent also relies on the cases of Digital Box Limited vs. Commissioner of Domestic Taxes TAT Appeal No. 115 of 2017 and Dyer & Dyer Limited vs. Commissioner of Domestic Taxes, TAT 139 of 2020.
66.That it is evident that the Appellant has not discharged the burden of proof in proving the assessments were erroneous and excessive and neither did the Appellant prove that she is not liable for taxes of the income received under the partnership.
Respondent’s Prayers
67.The Respondent prayed that the Tribunal:a.Upholds the Respondent’s decision dated 22nd December, 2021 as proper in law and in conformity with the provisions of the law.b.Finds that the Appellant to pay the additional Income Tax Assessment amounting to Kshs. 1,375,821.54.00.c.Dismisses the Appeal with costs as the same is devoid of any merit.
Issues for Determination
68.The Tribunal upon due consideration of the pleadings and the written submissions of the parties was of the considered view that the Appeal raises the following issues for its determination:a.Whether there is a valid Appeal before the Tribunalb.Whether the assessment is justified
Analysis and Determination
69.The Tribunal having ascertained the issues for determination as set out above proceeds to deal with the same as hereunder.
a. Whether there is a valid Appeal before the Tribunal
70.This dispute arose from a demand of tax on partnership income that the Respondent avers was earned by the Appellant.
71.On its part, the Respondent states that it issued its objection decision within the sixty days timeline allowed by the law and outlines its statement of findings on the material facts as required by Section 51(10) of the TPA.
72.The Appellant on her part argues that the Respondent issued its objection decision dated 22nd December 2021 out of time contrary to Section 51(11) of the Tax Procedures Act, 2015.
73.The Respondent avers that it is evident from the email correspondences between the Appellant and Respondent that the last communication on 2nd November 2021 from the Respondent requested for documentation that would validate the notice of objection by the Appellant.
74.In its pleadings, the Appellant avers that the objection decision dated 22nd December, 2021 was issued 78 days after the objection was lodged on 5th October, 2021.
75.The Tribunal has reviewed in detail all the documents submitted by the parties and established that indeed there were various email conversations after the Appellant’s objection and the last email was submitted by the Appellant on 2nd November, 2021 wherein she reiterated her grounds of objection to the Respondent. Prior to this email, the Respondent had sent an email on the same date to the Appellant requesting for further information to enable an independent review of the objection and issuance of a decision.
76.Section 51(11)of the Tax Procedures Act states as follows regarding the issuance of objection decisions by the Commissioner:
77.The Tribunal notes that with the email correspondences between the parties and the last having been made on 2nd November, 2021, the Respondent’s objection decision issued on 22nd December, 2021 was well within the 60-day timeline as provided under Section 51(11) of the TPA.
b. Whether the assessment is justified
78.The Appellant argued that her stake in the partnership was 30% and she did not derive any income whatsoever from this stake during the tax period to which the assessments relate.
79.The Appellant also submitted that if there was any income derived from the partnership, it was wholly, exclusively and solely enjoyed by her partner. She stated further that owing to the dysfunction of the partnership, she successfully applied to have the partnership cease business on 16th September 2019. The Tribunal notes that the Appellant attached a Notice of Cessation of Business and a Certificate of Cessation of Business to support this averment.
80.The Respondent, on its part, averred that it issued income tax assessments on the Appellant’s undeclared income and the same was communicated via iTax. That further, the Respondent was guided by the information provided by the Appellant in arriving at the assessment.
81.The Respondent further stated that the Appellant’s grounds for Appeal were insufficient and that the Appellant had not discharged her burden of proof or provided any evidence to support her averments.
82.The Tribunal notes that the Partnership Deed was attached to the Appellant’s pleadings and therefore the averment by the Appellant that she was only entitled to 30% of the partnership’s earnings was substantiated by the Deed. Further, an email dated 23rd May, 2019 from the Appellant to the Respondent’s officer shows that the Appellant had in this email attached the Partnership Agreement referred to in the parties’ pleadings, explained her stake of 30% in the partnership and informed the Respondent that she was in the process of winding up as she had already served her resignation from the partnership to the other partner.
83.Further, the Tribunal makes reference to the tax assessments referred to by the Appellant as having been issued by the Respondent on 1st October, 2021. The said assessments were dated 31st August, 2018, a fact that is not in dispute by the parties. These assessments are the basis of the Appellant’s objection dated 4th October, 2021 and filed on 5th October, 2021. These documents were attached to the Appellant’s pleadings.
84.The Tribunal notes that provision of documents as evidence is well stated under Section 30 of the Tax Appeals Tribunal Act which provides as thus:
85.The Tribunal notes further that Section 56(1) of the Tax Procedures Act states as follows in relation to general provisions relating to objections and appeals:
86.Additionally, the Tribunal found it appropriate to rely on the provisions of Section 107 of the Evidence Act which provides that:
87.The court in Alfred Kioko Muteti vs. Timothy Miheso & Another [2015] eKLR held that a party can only discharge its burden upon adducing evidence. Merely making pleadings is not enough. The court stated that:
88.Similarly, in the case of Boleyn International Ltd vs. Commissioner of Investigations and Enforcement, Nairobi TAT Appeal No. 55 of 2018, the Tribunal held that:-
89.The Tribunal confirms that, contrary to the averments by the Respondent that the Appellant had not adduced sufficient evidence to back its pleadings, the Appellant attached the Partnership Deed, the Certificate of Registration of the partnership, the Notice of Cessation of business dated 16th September 2019 and a Certificate of Cessation of Business by the Registrar of Companies dated 5th December 2019 all of which support the Appellant’s averments as to her status as far as the partnership in question is concerned.
90.Consequently, the Tribunal finds that the Appellant discharged the burden of proof placed upon her in demonstrating that the Respondent erred in its assessment of income tax. The Respondent did not appropriately consider the Appellant’s specific shareholding in the partnership and by extension her tax liability in respect of the revenue generated by the partnership.
Final Decision
91.Based on the foregoing analysis the Tribunal determined that the Appeal is merited and the Orders that accordingly recommend themselves are as follows: -a.The Appeal be and is hereby allowed.b.The Respondent’s Objection Decision dated 22nd December, 2021 be and is hereby set aside.c.The Respondent to recompute the Appellant’s tax liability based on her 30% stake in the partnership as per the Motorcar Enterprises Partnership Deed.d.Each party to bear its own costs.
92.It is so ordered.
DATED AND DELIVERED AT NAIROBI THIS 2TH DAY OF JUNE, 2023..................................ERIC N. WAFULACHAIRMAN..................................CYNTHIA B. MAYAKAMEMBER.....................................GRACE MUKUHAMEMBER.......................................JEPHTHAH NJAGIMEMBER.........................................ABRAHAM K. KIPROTICHMEMBER
