Chegero v Commissioner of Domestic Taxes [2023] KETAT 93 (KLR)

Chegero v Commissioner of Domestic Taxes (Tribunal Appeal 866 of 2021) [2023] KETAT 93 (KLR) (17 March 2023) (Judgment)

Neutral citation: [2023] KETAT 93 (KLR)

Republic of Kenya

In the Tax Appeal Tribunal

Tribunal Appeal 866 of 2021

RM Mutuma, Chair, RO Oluoch, EN Njeru, D.K Ngala & EK Cheluget, Members

March 17, 2023

Between

James Songore Chegero

Appellant

and

Commissioner of Domestic Taxes

Respondent

Judgment

Background 1. The Appellant is an individual Kenyan citizen operating business in Nairobi and deals in service provision among other businesses.

2. The Respondent is principal officer appointed under Section 13 of the Kenya Revenue Authority Act, 1995. 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 & 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. The Appellant was flagged for being a nil filer despite being engaged in active business and in particular services offered to Cosmocare for the period January 2015 to January, 2018.

4. The Respondent issued a demand letter dated September 28, 2021 for tax in arrears for the sum of Ksh 8,115,365. 00 to be paid with immediate effect.

5. The Appellant on receipt of the demand letter, objected to the same on October 5, 2021.

6. The Appellant filed this Appeal on December 31, 2021 before the Tribunal.

The Appeal. 7. The Appeal is premised on the grounds as set out in the Memorandum of Appeal dated December 27, 2021 and filed on December 31, 2021 as follows:-a.The Respondent erroneously overstated additional revenue assessed for the years 2015 & 2016. Please see attached the actual income earned supported by details of withheld tax certificate whose has been paid.b.The Respondent did not factor in related business expenses in arriving at the tax liability that was based on gross revenue.c.The Respondent did not grant personal relief for respective years in arriving at tax payable.

The Appellant’s Case 8. The Appellant’s case is premised on his Statement of Facts dated December 27, 2021 and the Appellant’s written submissions dated August 30, 2022and filed on August 31, 2022.

9. The Appellant in his Statement of Facts stated as follows: -i.The Appellant requests for review of tax liability and required adjustments made by the Respondent as per actual revenue generated.ii.The Appellant requests for rescheduling of a reasonable payment plan upon agreed revised tax liability.

10. The Appellant provided a table of his expenses for the year 2015 and 2016 and from which he said the taxable income for 2015 is KShs 1,795,785. 00 and for 2016 it is KShs 688,930. 00.

11. The Appellant attached the Objection dated August 5, 2021 and acknowledgment printout from the Respondent dated April 4, 2019.

12. Appellant’s submission stated as follows;a.The Appellant requests for review of tax liability and required adjustments made by the Respondent as per actual revenue generated.b.The Appellant’s liability for the year 2015 is Ksh 1,182,339. 00 and year 2016 is Ksh 1,286,805. 00c.The Appellant requests for rescheduling of a reasonable payment plan upon agreed revised tax liability.

The Respondent’s Case 13. The Respondent has opposed the Appeal by filing the Statement of Facts dated and filed on March 21, 2022 and the written submissions dated September 19, 2022 and filed on September 20, 2022.

14. The Respondent has said that the Appellant is a nil-filer despite dealing in active business with Cosmocare Limited.

15. The Respondent argued that the Appellant objected late and did not provide supporting documents. It further argued that the Appellant stated that it had attached the documents in support of the Statement of Facts. The said attached documents are the Notice of Objection by the Appellant and transaction statement with Cosmocare limited.

16. That the Appeal is invalid for violating the provisions of the Tax Procedures Act and the Tax Appeals Tribunal Act.

17. The Respondent in his written submissions has reiterated that the Appellant objected late and did not provide documents in support of the Objection.

18. That the Appeal is incompetent, that the Appeal is not properly on record as it is based on an invalid objection.

19. That the Appellant did not involve the Respondent in its payment plan. That the Appellant has conceded to liability for 2017 & 2018 and partially for 2015 & 2016 as stated by the Appellant’s pleadings.

20. The Appellant having admitted the tax not in dispute should have paid the same before filing this Appeal. He did not do so. That the Appellant therefore contravened Section 52(2) of the TPA.

21. The Respondent submitted that the Appellant did not follow the right procedure under Section 51 of the TPA for the process of objecting to a tax decision.

22. The Respondent has identified one issue for determination which is whether the Appeal was valid.

23. It has relied on the following cases,inter alia;a.Nairobi TAT No 21 of 2018Tangazo Letu Limited Vs Commissioner of Investigations & Enforcement, and Income TaxAppeal No 12 of 2018; andb.Hewlett Packard East Africa limited Vs the Commissioner of Domestic taxes.

Issues for Determination 24. The Tribunal has carefully considered the arguments of the parties herein and is of the view that there is only one issue for determination;-Whether the assessed taxes for the years 2015 & 2016 are due from the Appellant.

Analysis and Findings Whether the assessed taxes for the years 2015 & 2016 are due from the appellant. 25. The Respondent argued that the Appellant conceded to some of the taxes assessed in his notice of objection and that the same should have paid before filing this Appeal and that to that extent contravened Section 52(2) of the TPA.

26. The Appellant had in the notice of objection stated as follows; -“I refer to the demand notice date September 28, 2021. While I accept the tax liability for the years 2017 & 2018, and which 2017 has been fully paid and 2018 payment ongoing. I wish to Appeal for review of the tax liability for years 2015 & 2016 which has been based on an erroneous Additional Assessment…”

27. The Appellant raised the objection and it was incumbent upon the Respondent to either notify the Appellant that the objection had not been validly lodged under Section 51(4), or issue an objection decision under Section 51 Subsections (8), (9) & (10) of the TPA. Short of that, the objection is deemed allowed as per Section 51(11) for failure by the Respondent to issue any objection decision in respect of the notice of objection lodged by the Appellant.

28. The resultant effect is that the Appellant’s Objection was allowed by operation of law as the Respondent neither gave a notice invalidating the Appeal nor did it issue an objection decision with the stipulated period.

Final Orders 29. The upshot of the foregoing is that the Appeal is partially merited and the Tribunal accordingly proceeds to make the following Orders: -a.The Appeal be and is hereby partially allowed.b.The Appellant’s tax liability for the year 2015 & 2016 be computed on the taxable income of Kshs 1,795,785. 00 and Kshs 688,930. 00, respectively;c.The tax liabilities for years 2017 and 2018 are due and payable as assessed; andd.Each party bears its own costs.

30. Orders accordingly.

DATED AND DELIVERED AT NAIROBI THIS 17TH DAY OF MARCH, 2023…………………………..ROBERT M. MUTUMACHAIRPERSON…………………………..RODNEY O. OLUOCHMEMBER…………………………..ELISHAH NJERUMEMBER……………………….DELILAH K. NGALAMEMBER…………………………..EDWIN K. CHELUGETMEMBER