Gulf Stream Investments Limited v Commissioner Domestic Taxes [2024] KETAT 26 (KLR)

Gulf Stream Investments Limited v Commissioner Domestic Taxes (Tax Appeal 1147 of 2022) [2024] KETAT 26 (KLR) (26 January 2024) (Judgment)

Neutral citation: [2024] KETAT 26 (KLR)

Republic of Kenya

In the Tax Appeal Tribunal

Tax Appeal 1147 of 2022

E.N Wafula, Chair, E Ng'ang'a, RO Oluoch, Cynthia B. Mayaka, AK Kiprotich & B Gitari, Members

January 26, 2024

Between

Gulf Stream Investments Limited

Appellant

and

Commissioner Domestic Taxes

Respondent

Judgment

Background 1. The Appellant is a limited liability company domiciled and incorporated in Kenya. Its principal activity is the provision of bulk liquid storage services to Louis Dreyfus Company Limited (“LDC Kenya”) at the Port of Mombasa. The Appellant is a wholly owned subsidiary of LDC Kenya. The Appellant is licensed to operate custom bonded warehouses and provide storage services to LDC Kenya’s crude palm oil at a fee.

2. The Respondent is a 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.

3. The Respondent conducted an audit on the Appellant’s operations for the financial years January 2016 to December 2020 which culminated with the Respondent issuing preliminary audit findings on 7th October 2021.

4. On 24th February 2022, the Respondent issued the Appellant with a notice of assessment amounting to a tax liability of Kshs. 145,443,424. 00 inclusive of penalties and interest. The assessed tax included Corporate tax (CIT), VAT and WHT.

5. The Appellant lodged a valid notice of objection to part of the Respondent’s assessment amounting to Kshs. 145,443,424. 00 inclusive of penalties and interests on the 22nd March 2022. Prior to lodging the objection, the Appellant conceded and paid the tax not in dispute which included Corporate income tax of Kshs. 126,153. 00 assessed on to no- trade creditors written off.

6. The Respondent and the Appellant engaged in various correspondences at the Objection review stage including meeting on 5th July 2022 where the Appellant availed all additional documentation requested for.

7. On 29th August 2022, the Respondent issued the Appellant with its objection decision allowing part of the objection and confired tax assessment amounting to Kshs. 82,253,273. 00 inclusive of penalties and interests.

8. Being aggrieved by the Respondent’s decision, the Appellant subsequently filed a Notice of Appeal dated 27th September 2022

The Appeal 9. The Appeal is premised on the following grounds as stated in the Appellant’s Memorandum of Appeal dated and filed on 7th October 2022:a.That the Respondent erred in law and in fact by disallowing the Appellant's legitimate business expenses related to insurance costs of KShs 8,804,352. 00 for 2016 year of income on the basis that the Appellant failed to provide sufficient support for the insurance costs.b.That the Respondent failed to take into consideration documents provided by the Appellant such as insurance policy agreements, accompanying invoices, debit notes and email correspondences in support of insurance expenses at the objection review stage.c.That the Respondent erred in law and fact by assessing Corporate income tax (CIT) in 2016 year of income on the variance of Kshs 82,656,709. 00 arising from the Appellant's revision to its billing model which necessitated the Appellant to issue credit notes. The Respondent disallowed the valid credit notes and treated the variance as undeclared revenue.d.That the Appellant's customer adjusted its cost of sales and input VAT downwards on account of the above credit notes and therefore no loss of revenue to the Respondent. The new billing model was fully executed by both the Appellant and its customer.e.The Respondent erred in fact and law by assessing CIT on non-trade creditors written off amounting to Kshs 420,510. 00 in complete disregard to the fact that the Appellant had conceded to the said assessment and paid CIT of Kshs 126,153. 00 on 25th March 2022 prior to lodging the notice of objection with the Respondent.f.The Respondent erred in law by assessing WHT of KShs 1,850,100. 00 inclusive of penalties and interest on reimbursed costs paid to outsourced labor service providers in the 2016 to 2020 years of income. The Respondent erred in treating reimbursed costs to be management or professional fees.

Appellant’s Case 10. The Appellant’s case is supported by the following documents:a.The Appellant’s Statement of Facts dated and filed on 7th October 2022 together with the documents attached thereto.b.The Witness Statement of Joseph Wamalwa dated and filed on the 17th May, 2023 that was admitted in evidence on oath on the 28th September, 2023. c.The Appellant’s written submissions dated 9th May 2023 and filed on 10th May 2023 and authorities attached hereto.

11. The Respondent conducted an audit on the Appellant's operations for the financial years January 2016 to December 2020 which culminated with the Respondent issuing preliminary audit findings on 7th October 2021.

12. The Appellant responded to the above audit matrix vide an email on 13th October 2021 providing a reconciliation and explanation to the issues identified in the audit together with documents in support of the response. Furthermore, the Appellant provided additional explanation requested for a working meeting with the Respondent which was granted. Consequently, the Appellant and the Respondent held a working meeting on 16th December 2021 to review the Appellant's response and supporting reconciliations.

13. That on 24th February 2022, the Respondent issued the Appellant with a notice of assessment amounting to a tax liability of Kshs 145,443,424. 00 inclusive of penalties and interest. The assessed tax included Corporate income tax (CIT), VAT and WHT.

14. That consequently on the 22nd March 2022, the Appellant lodged a valid notice of objection to part of the Respondent's assessment amounting to KShs 145,443,424. 00 inclusive of penalties and interest.

15. That prior to lodging the Objection, the Appellant conceded and paid the tax not in dispute which included corporate income tax of Kshs 126,153. 00 assessed on to non-trade creditors written off.

16. The Respondent and the Appellant engaged in various correspondence at the objection review stage including a working meeting on the 5th July 2022. The Appellant availed all additional documentation requested prior to and after the working meeting with the Respondent.

17. On 29th August 2022, the Respondent issued the Appellant with its objection decision allowing part of the objection and confirmed a tax assessment amounting to Kshs 82,253,273. 00.

18. The Appellant filed the Notice of Appeal on 27th September 2022.

19. That in regard to realized exchange losses and gains the Appellant concurred with the Respondent's assessment on net realized foreign exchange losses of Kshs 26,064,349. 00 and Kshs 7,911,637. 00 in the 2016 and 2017 years of income.

20. That pursuant to the provisions of Section 13 of the TAT Act, the Appellant conceded to CIT assessed on net foreign exchange loss amounting to Kshs 10,192,796 and the conceded tax was paid prior to the lodging of this Appeal.

21. That further, the Appellant stated that in the 2016 year of income, the Appellant had a taxable business loss of Kshs 53,003,665. 00 which was fully extinguished by the Respondent's tax decision. The conceded tax with regard to net foreign exchange loss shall be an overpaid tax in the event this Appeal is allowed in respect of CIT on undeclared revenue and unsupported insurance expense.

22. That in regard to legitimate insurance costs considered as non-deductible expenses, the Appellant submitted that the Respondent disallowed insurance expenses amounting to Kshs 8,804,352 for 2016 in the year of income on the basis that the Appellant failed to provide sufficient documents to prove that the insurance premiums were business related expenses.

23. The Appellant averred that the insurance expenses were incurred wholly and exclusively in the furtherance of business hence allowable for tax purposes as provided for under Section 15(1) of the ITA. The Appellant affirmed that it paid insurance premiums to cover its assets against all risks incurred in its business operations.

24. That in the 2016 year of income, the Appellant opined that it entered into various insurance policy agreements with Fidelity Shield Insurance Company Limited (Fidelity) and Saham Assurance Company Kenya Limited (Saham) for general insurance covers and with APA Insurance Company Limited (APA) and Trident Insurance Company limited for bond insurance covers.

25. That Fidelity insurance policy covered the period 1st June 2015 to 31st May 2016 while the APA insurance policy covered the period 1st November 2015 to June 2016. Further, Saham insurance policy covered the period 1st June 2016 to 31st May 2017.

26. The Appellant challenged the Respondent's assessment on the ground that the Respondent failed to review and take into consideration the above supporting documents and erroneously assessed tax in complete disregard to the availed documentation and the Appellant respectfully requested the Tribunal to vacate the assessment.

27. In regard to Corporation income tax charged on already conceded and paid tax the Appellant stated that the Respondent disallowed non-trade creditors written off expense amounting to Kshs 420,510. 00 for 2016 year of income on the basis that the Appellant did not provide sufficient explanation.

28. The Appellant averred that it conceded to the CIT amounting to Kshs 126,153. 00 assessed on non-trade creditors written off prior to the notice of objection.

29. In regard to assessing Corporation income tax on valid credit notes the Appellant averred that the Respondent assessed tax on the perceived understatement of revenue of Kshs 82,656,709. 00 for 2016 year of income on the understanding that the Appellant executed and implemented two contracts i.e. one covering the month January 2016 and the other covering the periods February 2016 to December 2016. The Respondent stated that the two contracts were amendments to the original contract signed between the Appellant and its customer on 1st April 2011.

30. The Appellant averred that the two contracts were the basis of the assessment of CIT for 2016 year of income as the Respondent relied on the two contracts to estimate revenue for the Appellant in 2016 year of income and arrived at the perceived undeclared revenue.

31. The Appellant concurred with the Respondent that it entered into a contract with its customer to provide the latter with bulk liquid storage services as guided by the original Contract signed in 2011. That the original contract indicated that the Appellant would receive a fixed monthly storage fee based on estimated tonnage of goods stored in the Appellant's bonded warehouse.

32. The Appellant averred that in the 2016 year of income, it revised its billing model and the aforementioned contract from a fixed monthly billing system to a billing model based on the actual tonnage of goods stored in the Appellant's custom bonded warehouses.

33. The Appellant averred that the Respondent alluded to the following issues while assessing CIT on the perceived undeclared revenue:i.The Original contract for 2016 year of income was never set aside since all invoices were issued in accordance with it;ii.That all payments received from the Appellant's customer matched with the invoices issued except in the months VAT was withheld;iii.That the new contract did not nullify the first contract and was in fact an addendum and was never implemented at any point in the course of the financial year;iv.That all sale invoices were done at the close of the year after all business transactions had been closed; andv.That the amounts received from the Appellant's customer were never reimbursed nor were they treated as prepayments for future transactions.

34. That the above assertions are irrelevant and meant to dictate to the Appellant on how to conduct its business transactions. The Appellant stated the revised contract for the 2016 year of income onwards was valid and legally binding to both the Appellant and its customer. That none of the parties to the said contract objected to the revisions made to the Original contract and that the revisions were fully executed by both the Appellant and its customer.

35. That the author of Hudson's Building and Engineering Contracts, 10th Edition, at page 22 postulates as follows:-“...A simple contract can be validly varied by the subsequent agreement of the parties, so long as there is consideration to support the variation agreement. If at the time when the variation agreement is made, obligations remain partly unperformed under the original contract by both parties, there will usually be consideration for the new agreement. If, however, one party to the contract has wholly performed his obligations, and therefore agrees without advantage to himself or detriment to the other party to forgo some part of the performance of the outstanding obligations of the other party, there will be no consideration to support his agreement to do so. The variation agreement will therefore be unenforceable if not under seal and the original contract requiring full performance will remain.....”

36. That furthermore, in Housing Finance Co.of Kenya Limited vs. Gilbert Kibe Njuguna Nairobi HCCC No. 1601 of 1999, it was held that:-“...Courts are not for as where parties indulging in varying terms of their agreements with others will get sanction to enforce the varied contracts. Contracts belong to the parties and they are at liberty to negotiate and even vary the terms as and when they choose and this they must do together and with meeting of the minds. If it appears to the Court that one party varied terms of the contract with another,without the knowledge,consent or otherwise of the other, and that other demonstrates that the contract did not permit such variation, the Court will say no to the enforcement of such contract."

37. That it is the Appellant's submission that the original contract was revised by both parties to the contract i.e. the Appellant and its customer, and that both parties wholly performed their contractual obligations under the old contract as well the new contract. Therefore, it matters not whether the contract was entered into by related parties or third parties.

38. The Appellant reiterated that the Respondent's reliance on the issues addressed above amounts to dictating the business operations of the Appellant and leads to an outright miscarriage of justice.

39. The Appellant stated that the fact that the Appellant received fixed payment on a monthly basis does not legally stop them from restructuring its business operations i.e. business and billing model at any time can be aligned by the Appellant when it deems fit to do so.

40. The Appellant affirmed that it issued original sales invoices on budget estimates of tonnage stored and accounted for sales at a fixed rate but thereafter restructured its billing model to issue sale invoice to its customer based on actual volume of goods stored in the bonded warehouses. This was done in order for the management accounts to reflect actual business revenue results as guided for by revenue recognition principle. The revised billing model was applied in subsequent years and remains applicable to date. The Appellant averred that it issued valid credits notes in line with its new billing model.

41. The Appellant asserted that its decision to change the billing model was sound to avoid over-or-under billing itself in the competitive market. The Appellant stated that the new billing model was implemented in the 2016 year of income and reflected in the revenue recognized in the same year. That further, the Appellant wishes to state that no provision in the ITA or any other tax law for that matter prohibits or restricts it from raising credits notes at any point in any given year.

42. The Appellant averred that the revision to the contract and billing model was discussed and agreed upon with the customer, who equally executed the model and contract fully. The Appellant's customer recognized the credit notes in the VAT returns in December 2016 and additionally passed reduction adjustment to its cost of sales ledger in 2016 year of income.

43. The Appellant stated that the Respondent should only have an issue if such an adjustment was done by one party and not done by the other party but since the adjustment was done by both the Appellant and its customer then there is no revenue lost.

44. That on account of the above, assessing further tax on the Appellant as perceived undeclared income is an act of double taxation.

45. That the Respondent erroneously set aside the new contract (on which the credit notes were based on) and assessed income tax on the variance between the actual revenue on the new contract and the estimated revenue under the old contract. That moreover, by recognizing that the Appellant's billing arrangement is right for the subsequent years of income, the Respondent has breached the Appellant's legitimate expectation that the Respondent would respect its business model for the 2016 year of income.

46. That in the case of Republic v Kenya Revenue Authority Ex Parte Cooper K-Brands Limited [2016], Odunga, J cited De Smith, Woolf & Jowell, "Judicial Review of Administrative Action" 7th Edn Sweet & Maxwell page 609 as follows:“A legitimate expectation arises where a person responsible for taking a decision has induced in someone a reasonable expectation that he will receive or retain a benefit of advantage. It is a basic principle of fairness that legitimate expectations ought not to be thwarted. The protection of legitimate expectations is at the root of the constitutional principle of the rule of law, which requires predictability and certainty in government's dealings with the public."

47. That the Respondent's assertion that the original contract was never nullified by the Appellant is irrelevant as any revision to the original contract expressly superseded the previous contract. The Appellant provided the Respondent with the applicable contract between itself and its customer for the year 2016 where the operations and billing arrangement were aligned to the new billing model.

48. Based on the foregoing, the Appellant averred that the assessment on the understated turnover due to transaction reversals of Kshs 82,656,709. 00 for 2016 year of income is erroneous.

49. In regard to Value Added Tax assessment the Appellant conceded to the assessment and paid the conceded principal VAT of Kshs 18,267,007. 00 prior to lodging this Appeal.

50. In regard to assessing WHT on reimbursed costs the Appellant averred that the Respondent assessed WHT of Kshs 960,884. 00 on reimbursed costs paid by the Appellant to its outsourced labor service providers. The Appellant in the 2016 to 2020 years of income engaged Cyka Manpower Services Limited (Cyka) and Manpower Networks Services (Manpower) to provide it with outsourced personnel where a service (management) fee was charged to the Appellant at 18. 5% and 18% of the cost of the activities carried out, respectively.

51. The Appellant affirmed that in the years WHT was assessed, it deducted and remitted WHT on service (management) fee as clearly indicated on the service providers' respective invoices.

52. The Appellant stated that reimbursed costs were not “management fee" and that they were distinct costs on the invoices raised by Cyka and Manpower. The Appellant stated that the reimbursed costs were a recharge for the service providers' personnel who were involved in the provision of the services to the Appellant i.e. salaries, wages, statutory deductions and other disbursements.

53. The Appellant stated that WHT is only applicable on management or professional fees in line with the provisions of Section 35 of the ITA and that reimbursements and recharges are not qualifying fees for applicability of WHT as alluded to by the Respondent.

54. In the Tax Appeal No. 420 OF 2021 between Two Lakes Packaging Services Limited and Commissioner of Domestic Taxes, the TAT held that:“...Two Lakes Packaging Services Limited correctly paid WHT on the management fee leaving out employee related costs such as payroll, insurance, NSSF on the grounds that these costs did not form part of management and professional fees which do not attract WHT as such reimbursement for the cost themselves cannot be deemed to be payments or consideration for any services rendered. By their nature, payroll costs, NHIF, NSSF and such costs were not payments to the contractor and therefore could not have been subject of WHT..."

55. That it is worth mentioning that one of the service providers in the above case was also contracted by the Appellant in the instant case. Therefore, the Appellant notes that for any payment to fall within the ambit of WHT, the payment should be in consideration for "managerial, technical, agency, professional or consultancy services" received. Consequently, the WHT assessment herein lacks any legal basis and should be vacated.

Appellant’s Prayers 56. That the Appellant prays for orders, that:a.Part of the objection decision dated 29th August 2022 amounting to Kshs 53,793,471. 00 inclusive of interest and penalties be annulled and set aside in its entirety;b.The Appellant sufficiently supported, evidenced and demonstrated full tax compliance in its operations;c.The Appeal be allowed; andd.Any other remedies that the Honorable Tribunal deems just and reasonable

Respondent’s Case 57. The Respondent’s case is premised on the hereunder filed documents and proceedings before the Tribunal: The Respondent’s Statement of Facts dated 28th October and filed on 4th November 2022.

58. The Respondent conducted an audit on the Appellant's operations for the financial years January 2016 to December 2020.

59. The audit culminated with the Respondent issuing preliminary audit findings on 7th October 2021. That this was followed by several correspondences and a working meeting held on 16th December 2021 which resulted in the Respondent requesting the Appellant to share creditors and debtors' ledgers for the years 2016 and 2017 for its review before issuance of a notice of assessment.

60. That following the conclusion of the audit exercise, the Respondent vide a letter dated 24th February 2022 informed the Appellant of additional assessment amounting to Kshs 145,443,424. 00.

61. The Appellant on 22nd March 2022 lodged an objection application where it objected to taxes amounting to Kshs 144,880,571. 00, inclusive of penalties and interests.

62. The Respondent upon receipt of the objection application engaged the Appellant in various meetings and correspondences.

63. That on 29th August 2022, the Respondent issued its objection decision where it partially allowed the objection and confirmed a tax assessment amounting to Kshs 82,253,273. 00 inclusive of penalties and interest.

64. That in regards to foreign exchange losses and gains the Appellant averred that foreign exchange losses were as a result of day-to-day transactions and therefore realized in the normal course of business and ought to be allowed. That tax was charged on realised foreign exchange gains amounting to Kshs.100,815,812. 00 and Kshs. 98,850. 00 in years 2016 and 2017, respectively, and therefore the realized losses should be allowed.

65. The Respondent argued that even if there were to be any forex losses, they were attributable to the holding Company loans more than the trading transaction.

66. In regard to legitimate insurance costs considered as non – deductible expenses, the Appellant averred that the expenses were actually incurred and that there were no documents to support it. However, it was the Respondent’s case that the Appellant had a challenge in obtaining these particular relevant documents since they had been archived and needed a lot of time to be retrieved in response, the Respondent averred that the expenses were not fully supported with the necessary documentation which is contrary to Section 15(1) of the Income Tax Act, Cap 470 of the laws of Kenya .

67. The Respondent further averred that the availed invoices related to the year of income 2017 and not 2016. The Appellant never availed supporting invoices for the insurance costs claimed and consequently the expenses were disallowed.

68. That in 2016, The Appellant expensed an item described as non-trade creditors written off as Kshs. 420, 510. 00. The Respondent averred that no explanation was provided as to what the cost was all about, neither did the Appellant demonstrate the amount added back in the tax computation.

69. The Respondent averred that it established that the Appellant was consistently being advanced loans by the holding company Louis Dreyfus Company Kenya Limited and that the its loan balances were much higher than the turnover declared by the Appellant.

70. That in regards to assessing corporate income tax on valid credit notes, the Appellant was engaged in the business of bulk liquid storage for its customers. That prior to 2017, the company offered this service to a single customer, Louis Dreyfus Company Kenya Limited (LDCK), which is its holding company and during this period, the Appellant would invoice a fixed amount as per the standard terms and conditions stipulated in the contract between them.

71. That in the Year 2016, the contract terms were such that the Appellant would charge LDCK USD 218,000 per month with effect from February 2016 for a period of 12 months. In January 2016, the amount paid was USD.213,000 a price which was set by the November 2015 contract.

72. That an analysis of the bank statements of the Appellant showed that these were amounts that were paid, but not inclusive of VAT. That the total amount received by the Appellant in 2016 amounted to USD. 2,743,248. That when adjusted for both opening and closing debtors and VAT, the turnover is USD. 2,364,178. (Kshs.242,543,080)

73. That at year-end the Appellant issued credit notes to reverse all the sales transactions and issued fresh invoices resulting in a lower turnover of Kshs. 159,886,371. 00 which is what was declared in the IT2C return for 2016.

74. The Appellant argued that it changed its business model to only pay for products stored as opposed to a fixed charge.

75. The Respondent averred that from the Appellant's documents provided it was clear that the credit notes had an impact on income tax by reducing the turnovers.

76. The Respondent reiterated the following;a.That the Appellant is 100% owned subsidiary of Louis Dreyfus Company Kenya Limited who was also the sole customer in the year 2016. b.That the company invoiced for the storage service as per the terms and conditions of the contract applicable in 2016. c.That the Appellant was paid by the customer as per the invoices issued.d.That the Appellant reversed all transactions for the year by issuing credit notes dated 31st December 2016, despite having received payment. The Respondent posited that this could not have happened if the companies had an arm's length relationship between them.e.That after the reversals, the Appellant issued new invoices which had a much lower value than the original invoices.f.That the Appellant never refunded the additional payment received after reversing the original invoices.g.That the "additional payment" after the reversal of the original invoices was not treated as prepayment for future invoices. As per the audited balances sheet, the prepayments as at 31st December 2016 amounts to Kshs. 1,387,523. 00 whereas the variance in turnovers (which is an indicator of the “additional payment”) is Kshs.82,656,709. 00.

77. The Respondent claimed that the Appellant falsified the records to not reflect the true position of the business dealings contrary to Section 97 of the Tax Procedures Act 2015.

78. The Respondent asserted that the Appellant did not withhold tax as required by law and as such, a principal tax of Kshs. 960,884. 00 is due from the Appellant after giving credit for amounts already deducted and remitted.

Respondent’s Prayers 79. The Respondent’s prayers to this Tribunal were for orders:-a.Respondent’s objection decision dated 29th August 2022 be upheldb.The instant Appeal be dismissed with costs.

Issues For Determination 80. The Tribunal having evaluated the pleadings and submissions of the parties is of the view that there is only one issue that calls for its determination;

Whether the Respondent’s assessment was justified. Analysis And Findings 81. The Tribunal having determined the issue falling for its determination proceeds to analyse it as hereunder.

82. In regard to assessing WHT on reimbursed costs the Respondent averred that between years 2016 and 2020, the Appellant outsourced labour to Cyka Manpower Services Limited and Manpower Networks Services.

83. Section 35(3)(f) of the ITA provides as follows regarding management fees:“(3)Subject to subsection (3A), a person shall, upon payment of an amount to a person resident or having a permanent establishment in Kenya in respect of -(f)management or professional fee or training fees the aggregate value of which is twenty-four thousand shillings or more in a month.”which is chargeable to tax, deduct therefrom tax at the appropriate resident withholding tax.”

84. The Tribunal finds that the management fees from the Appellant’s contract with Cyka Manpower Services Limited, which is 18% of the total cost falls under management fees which attracts withholding tax at 5% as stipulated by Section 35(3)(f) of the Income Tax and Paragraph 5 (f) of the Third Schedule of the Income Tax Act.

85. In regard to foreign exchange losses gains the Tribunal is guided by Section 16(1) (a)of the Income Tax Act which provides that:-“Save as otherwise expressly provided, for purposes of ascertaining the total income of a person for a year of income, no deduction shall be allowed in respect of expenditure or loss which is not wholly and exclusively incurred by him in the production of the income.”

86. The Tribunal further notes that Paragraph 13, of Section 4A(1)(ii)(a) of the Income Tax Act states that:“the foreign exchange loss shall be deferred (and not taken into account)where the foreign exchange loss is realized by a company with respect to a loan from a person who, alone or together with four or fewer other persons, is in control of that company and the highest amount of all loans by that company outstanding at any time during the year of income is more than three times the sum of revenue reserves and the issued and paid up capital of all classes of shares of the company."

87. The Tribunal finds that there is no clear and proper demonstration that the Appellant was not consistently being advanced loans by its holding company, Loius Dreyfus Company Kenya Limited, even after the Respondent established that the balances were much higher than the turnover declared by the Appellant was to the contrary.

88. It is now settled that the burden of proof in tax cases lies with the taxpayer as is espoused in Section 30 of the TAT Act which provides as follows:-“In a proceeding before the Tribunal, the appellant has the burden of proving—(a)where an appeal relates to an assessment, that the assessment is excessive; or(b)in any other case, that the tax decision should not have been made or should have been made different” 89. This position has been reaffirmed in Alfred Kioko Muteti vs. Timothy Miheso & another [2015] eKLR where the court held that:-“a party can only discharge its burden upon adducing evidence. Merely making pleadings is not enough”. In reaching its findings, the Court stated that: “Thus, the burden of proof lies on the party who would fail if no evidence at all were given by either party…. Pleadings are not evidence....”

90. The Appellant’s failure to provide evidence to prove that it was advanced any loans means that the Respondent’s assessment has not been impeached and it is thus presumed to be correct.

91. The Tribunal also holds that no evidence was tabled before it in regard to legitimate insurance costs considered as non – deductible expenses, the Appellant averred that the expenses were actually incurred and that there were documents to support this claim however, the Appellant failed to provide the said documents or provide any form of evidence to support its assertion. The Respondent’s assessment under this head is thus presumed to be correct.

92. In regard to corporate income tax charged on already conceded and paid tax it is the Tribunal’s view that the Appellant failed to demonstrate and or provide evidence on how Corporation tax was charged on tax that had already been conceded and paid.

93. It behoved the Appellant in this case to provide evidence of concession and proof that this tax had been paid and or was due for payment. This was not done and hence the reason why its prayer under this head shall also not succeed.

94. The Tribunal reiterates the conclusion in the case of Primarosa Flowers Limited v Commissioner of Domestic Taxes [2019] eKLR which relied on the Australian case of Mulherin vs Commissioner of Taxation [2013] FCAFC 115 where it was held:“The onus is on the taxpayer in proving that assessment was excessive by adducing positive evidence which demonstrates the taxable income on which tax ought to have been levied.” it was the Respondent’s contention that the Appellant failed to discharge the burden of proving that the additional assessment by the Respondent was incorrect.”

95. The Appellant’s failure to support its Appeal with sufficient proof on a balance of convenience has resulted in the Tribunals conclusion that the Appellant’s assessment was justified.

Final Decision 96. In view of the foregoing, the Tribunal finds that the Appeal lack merit and accordingly makes the following Orders;a.That the Appeal be and is hereby dismissed.b.That the Objection decision dated 29th August 2022 be and is hereby upheld.b)Each party to bear its own cost.

97. It is so ordered.

DATED and DELIVERED at NAIROBI this 26th day of January, 2024ERIC NYONGESA WAFULA - CHAIRMANEUNICE NG’ANG’A - MEMBERDR RODNEY O. OLUOCH - MEMBERCYNTHIA B. MAYAKA - MEMBERMABRAHAM K. KIPROTICH - MEMBERBERNADDETTE GITARI - MEMBER