Oceanfreight East Africa Limited v Commissioner of Domestic Taxes [2023] KETAT 567 (KLR)

Oceanfreight East Africa Limited v Commissioner of Domestic Taxes (Tribunal Appeal 841 of 2022) [2023] KETAT 567 (KLR) (1 September 2023) (Judgment)

Neutral citation: [2023] KETAT 567 (KLR)

Republic of Kenya

In the Tax Appeal Tribunal

Tribunal Appeal 841 of 2022

E.N Wafula, Chair, D.K Ngala, CA Muga, GK Ashiono, AM Diriye & SS Ololchike, Members

September 1, 2023

Between

Oceanfreight East Africa Limited

Appellant

and

Commissioner of Domestic Taxes

Respondent

Judgment

Background 1. The Appellant is a limited liability Company incorporated in Kenya and is tax resident operating the business of shipping agent for its non-resident principal Mediterranean Shipping Company South Africa (MSC). In executing its duties, the Appellant collects and remits demurrage and detention (DND) charges from various importers/consignees on behalf of its principal.

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. 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 Respondent vide a letter dated 8th November 2021, informed the Appellant of its intention to conduct a tax audit on its operations in line with Section 59(1) of the Tax Procedures Act (TPA) covering the period February 2017 to December 2017. Specifically, the Respondent sought explanation and documents relating to withholding tax for DND charges, because of a variance noted by the Respondent in the Appellant’s returns of Withholding Tax.

4. Thereafter, both parties engaged in various discussions and correspondences during the examination of records resulting in a Notice of Assessment of Kshs 49,845,438. 07 on 21st April 2022.

5. On 17th May 2022, the Appellant objected to the assessment in its entirety stating various grounds for the same. The Respondent however, confirmed the assessment of Ksh. 80,537,204. 76 on 13th July 2022 through its objection decision as comprising the principal withholding tax, penalties and interest.

6. Aggrieved by the objection decision issued by the Respondent, the Appellant lodged its Notice of Appeal dated 4th August 2022 at the Tribunal on 5th August 2022.

The Appeal 7. The Appeal is premised on the following grounds as stated in its Memorandum of Appeal dated 18th August 2022 and filed on the even date.a.That the Respondent erred in law and fact in misclassifying the DND charges as being rental income for use of the containers beyond the agreed time and yet the same constituted compensation and/or liquidated damages on freight under Section 4(c) of the Income Tax Act.b.That the Respondent erred in law and fact in placing the responsibility to withhold tax on DND charges on the Appellant by concluding that the Appellant played the role of payer in respect of DND charges made to the principal and yet the Appellant had contractually been appointed as an agent of MSC.c.That the Respondent erred in law and fact in issuing an assessment against the Appellant in respect of DND charges and yet the Appellant has a similar matter pending for determination at the Court of Appeal of Kenya (Case No. E160 of 2021).d.That the Appellant is apprehensive that the actions of the Respondent lack in merit, are unlawful and a gross abuse of its office and statutory powers; and that unless the orders sought are granted, the Appellant risks being unjustly required to pay alleged tax amount of Ksh 80,537,204. 76 which in fact are not payable under the law.

Appelant’s Case 8. The Appellant’s case was anchored in its Statement of Facts dated 12th August 2022 and filed on even date and the witness statement of Leonard Mugenyah filed on 6th March 2023 and admitted on oath on 27th July 2023.

9. The Appellant averred that demurrage is paid and constitute part of the amount received on account of carriage as compensation for loss of income necessitated by delayed return of containers past the stipulated time; and that the specified time allowed to an importer before DND charges accrue is already provided for in the Bill of Lading with no separate contract issued.

10. The Appellant claimed that Black’s law dictionary defines demurrage as liquidated damages owed by a charterer to load or unload cargo by the agreed time. That a definition whose tax interpretation can be found under Section 9 of the ITA as cost of carriage.

11. The Appellant claimed that as part of its contract with MSC, DND charges are liquidated damages for breach of the stipulated period for carriage of goods in containers and it does not charge separately transport and use of the containers.

12. The Appellant clarified that it is not engaged in the business of renting but providing carriage; thus, DND charges is compensation for holding containers beyond the specified time not for use of the property. The Appellant stated that the Respondent bypassed Section 9(1) of the ITA while relying on Section 3(2)(a)(iii) in its definition of demurrage.

13. The Appellant contended that time is a fundamental term that separate DND charges from rent since these are liquidated damages on a shipper exceeding allocated time. That therefore, transport and use of the container is one and the same thing charged freight charges only and not rent as alleged by the Respondent.

14. In the witness statement, the Appellant claimed that containers are only in the Country on temporary basis with no duty applicable on them, hence no rent whatsoever can be charged on the same as they are not permanently in the Country to warrant utilization. The Appellant claimed that importers were paying for carriage and not the container. The rationale is that should the importer have returned the container within stipulated time, MSC would have put the container to different use to earn additional freight income.

15. The Appellant averred that the principal was not licensed to rent as part of its regular business but was engaged in business of charging its clients DND fees which amount were only “incidental to its main line of business and only occur when there are delays in unloading or return of shipping containers.”

16. The Appellant further claimed that as per Section 9(1) of the ITA, maritime transport is inherently international in character and on most voyages, vessels operate under the regulatory requirements of many jurisdictions therefore, there was risk of judicial/economic double taxation or unintended non- taxation. That international taxation norms and customs have largely prevented this while ensuring the taxing rights of each jurisdiction is preserved.

17. The Appellant’s witness statement further stated that the agency relationship with its principal (MSC) outline and limit the ability to receive all payments owing to the principal. That the Appellant’s sole role was administrative with no profit or loss implication on it as an agent. That the principal does all the invoicing and billing while the Appellant as the agent only collects and remits to the principal DND fees charged to importers/consignees.

18. Further, the Appellant’s witness statement claimed that it was the payee (importer) who should withhold tax on DND fees because even the contract for the said charges was between the payer (principal/MSC) and the importer (payee) and it is clear and apparent upon whom the incidence of the withholding taxes was on.

19. The Appellant averred that the Respondent’s assertions that the Appellant ought to deduct withholding taxes suggest an agency relationship with local importers, a relationship that did not exist because the Appellant only facilitated local importers payments for DND fees to the principal. That these assertions were akin to shifting the burden of deducting withholding taxes from importers to the Appellant, an obligation that by law was upon the importers not the principal or its agent.

20. The Appellant contended that provision of a service attracts a certain charge upon which a tax deduction was levied in this case the alleged service was the use of containers outside the agreed free time. That this service was provided by the principal to local importers who in-turn paid for the service; that based on the foregoing, it was the importers who should deduct and remit withholding taxes not the Appellant.

21. The Appellant further averred that from a contract law perspective, demurrage were liquidated damages for breach of contract in international transport as opposed to damages which were compensation for breach of either a condition or warranty of contract as in the case of rent contract.

22. To buttress its position, the Appellant relied on the Tribunal’s ruling in the case of Maersk Kenya Limited vs Commissioner of Investigations and Enforcement, TAT Appeal No. 269 of 2018;“… that the person obligated to withhold tax on DND charges was the person who made the payments or rather the person who distributes, credits or deals with a payment, that is the importer.”

Appellant’s Prayer 23. The Appellant prayed that the Tribunal do set aside the Respondent’s objection decision dated 13th July 2022 with costs.

The Respondent’s Case 24. The Respondent replied to the Appellant’s grounds of Appeal through its Statement of Facts dated 23rd March 2023 and filed on even date.

25. The Respondent claimed that following its withholding tax compliance investigations, it established an agency relationship between the Appellant and its principal MSC. Further, it asserted that it established that the Appellant’s agency relationship was based on a 20% commission fee for all DND fees collected on behalf of its principal as consideration for agency services rendered on behalf of MSC, the principal.

26. The Respondent averred that an analysis of the Appellant’s audited accounts flagged inconsistencies and queries with regard to Withholding tax in relation to DND charges resulting in an assessment on 21st April 2022 of Withholding tax against the Appellant.

27. The Respondent duly acknowledged the Appellant’s objection of 17th May 2022 and demanded to be furnished all supportive documents to support the objection.

28. The Respondent averred that the Appellant failed to provide all supportive documents or records and only provided agency agreements, a schedule of demurrage received and financial statements for the year 2017 which the Respondent deemed as insufficient to support the Appellant’s objection.

29. The Respondent averred that the assessment was correctly issued and conformed to VAT Act and that the Appellant did not provide any evidence that would have altered the assessment. The Respondent claimed that the Appellant was uncooperative in provision of relevant records and failed to respond to request for documents.

30. The Respondent averred that Section 56(1) of the TPA places the onus of proof in tax objections on the taxpayer who in this case failed to avail evidence that would support a contrary assessment or that would have guided the Respondent to arrive at a different objection decision. The Respondent claimed that the Appellant’s objection was invalidly lodged and that it notified the Appellant on the reasons for the same.

31. The Respondent averred that the assessment was done based on available information and to the best judgement of the Respondent and that the objection decision provided precise and clear breakdown of the workings used for the assessment.

32. The Respondent averred that the Appellant was obligated to collect and remit DND charges paid by local importers to its principal and was under obligation too to withhold and remit to the Respondent Withholding tax as per Rule 4 of Income Tax (Withholding Tax) Rules,2001.

33. The Respondent averred that it issued the assessment in light of non- compliance by the Appellant to withhold and remit Withholding taxes. To firm its position, the Respondent stated that Section 31 (1)(a),(b) and (c) of the TPA empowers it to amend an assessment.

34. The Respondent claimed that the Appellant’s Notice of Appeal was never served upon it until 24th October 2022 when it obtained pleadings from the Tribunal registry.

35. The Respondent claimed that the Appellant did not declare all income it earned from handling imports and exports on behalf of the principal for tax purposes hence any variances that were noted were brought to charge. The Respondent stated that Section 24(1),(2) and Section 29(1) empower it to carry out assessment based on available information; and that Section 35(1)(c), Sec6(1), Sec 9(1) of the ITA empower the Respondent to disallow Withholding tax where necessary documents were not provided.

36. The Respondent averred that the Appellant carried out business in contravention of Sec 10(1) of ITA and Sec 43(1), Sec 9(3)(1) of the TPA by failing to keep and maintain proper records.

37. To buttress its position the Respondent relied on the Tribunal’s holding in Appeal No. 101 of 2015 where the Tribunal clarified that demurrage for use of containers was not part of freight and should be treated as income derived from Kenya by non-resident person thereby attracting withholding tax which should be withheld by the shipping agent. That this position was similarly upheld by the High Court in the ruling of 17th February 2020 in the case of Oceanfreight East Africa Limited vs Commissioner of Domestic Taxes case No. 13 of 2017.

38. The Respondent claimed that the Appellant had not paid all its taxes that were due as it had not made good the assessed amount; thus, its undeserving of the prayers sought.

39. The Respondent prayed that the Tribunal do uphold its Objection decision and dismiss the Appeal with costs.

Parties Submissions 40. The Appellant’s written submissions dated 10th August,2023 were filed on even date whereby the Appellant submitted on four issues;a.Whether the Respondent erred in classifying demurrage and detention charges as rental income for the period.b.Whether the Respondent erred in placing the responsibility to withhold tax on demurrage and detention charges on the Appellant.c.Whether the Respondent erred in issuing and confirming the tax assessment during the pendency of a similar matter before the Court of Appeal in Appeal No. E160 of 2021d.Whether the Respondent acted unlawfully in demanding withholding tax from the Appellant during the period of assessment i.e. February 2017 to December 2017. a.Whether the Respondent erred in classifying demurrage and detention charges as rental income for the period.

41. The Appellant submitted that demurrage paid constitute part of the amount received on account of carriage as compensation for loss of income necessitated by delayed return of containers past the stipulated time.

42. The Appellant stated that the Bill of Lading set the aforesaid timelines allowed to an importer before DND accrue with no separate contract issued for charging the same. That the Bill of Lading also formed the basis upon which DND charges ware levied.

43. The Appellant averred that DND charges were liquidated damages for breach of period provided in a contract for carriage of goods whose payments by various consignees/importers were collected and remitted by the Appellant to its principal on the basis of an agency agreement between them.

44. The Appellant submitted that the Respondent erred in concluding that Section 35(1)(c) of the ITA imposed withholding taxes since DND do not constitute rent as neither the Appellant nor its principal were licensed to engage in business of renting containers.

45. It was the Appellant’s contention that DND charges should be treated as compensation for loss of profits pursuant to Section 4(c) of the ITA not as rental income subject to withholding tax.

46. The Appellant averred that the assessment was contrary to Section 9(1) of the ITA as DND charges arose on account of carriage and not as separate source of income subject to withholding tax which only became possible upon enactment of the Finance Act of 2018.

47. The Appellant submitted that without legal provision subjecting DND to withholding taxes, the Respondent erred in its treatment of DND charges as payment for use of property yet the same constituted liquidated damages for breach of timeliness provided in the contract between the its principal and importers during the period assessment.

48. To firm up its position, the Appellant cited the case of Maersk Kenya Limited vs Commissioner of Investigations & Enforcement, TAT No. 269 of 2018 where it was held that;“To demonstrate that there was a deficiency in the law with regard to the treatment of DND Section 35(1) of the ITA was amended to include “Demurrage” at Section 35(1)(m) by the Finance Act 2018 brought within taxable income. The Appellant is therefore not liable for the period 2013-2017. ”

b. Whether the Respondent erred in placing the responsibility to withhold tax on demurrage and detention charges on the Appellant. 49. The Appellant claimed that the Respondent erred in concluding that the Appellant was the payer of withholding taxes in respect to DND charges whereas the payments were directly made to the principal; The Appellant merely acted as an agent receiving and remitting the payments on behalf of the principal.

50. In defending its agency role, the Appellant cited Section 2 of the ITA as well as Rule 2 of the ITA (Withholding Tax) Rules 2001 that define “payer” and “payee” and their respective tax obligations thereon. It was the Appellant’s submission that the Respondent misapprehended its role in the transactions noting that payments were made by importers whereas, the Appellant merely disbursed the amounts received to the principal that did all the invoicing and billing of the said importers.

51. To buttress this position, the Appellant cited the Tribunal’s holding in the case of Maersk Kenya Limited vs Commissioner of Investigations, TAT No. 269 of 2018 where it was held that the person obligated to withhold tax on DND charges is the person who makes the payment in line with the meaning of “paid” as provided by Section 2 of the ITA, that is the importer. The Appellant also cited the case of Paragon Electronics Limited vs Commissioner of Domestic Taxes, TAT No. of 2015

52. It was the Appellant’s contention that the Respondent incorrectly determined that it was the payer whereas the Third Schedule of the ITA is categorical that the person who distributes, credits or deals with a payment shall be responsible for withholding tax at the appropriate rate of tax.

53. The Appellant asserted that the Respondent’s decision to impose the withholding tax obligation was erroneous as the same should have been upon the importers.

c. Whether the Respondent erred in issuing and confirming the tax assessment during the pendency of a similar matter before the Court of Appeal in Appeal No. E160 of 2021. 54. The Appellant stated that the instant Appeal raised similar issues with respect to that tax treatment of DND and who bore the duty to withhold tax. That the duplicity of suits relating to the same matter arose from the premature decision of the Respondent confirming the assessment in spite of the pendency of the Court of Appeal matter.

55. It was the Appellants’ view that the objection decision was premature and in bad faith.

d. Whether the Respondent acted unlawfully in demanding withholding tax from the Appellant during the period of assessment i.e. February 2017 to December 2017. 56. The Appellant averred that the Respondent incorrectly demanded withholding taxes with the illusion that the Appellant ought to have withheld taxes without any legal basis. That in the review period hereunder, there was no provision empowering the Respondent to claim taxes since Section 35(6) of the ITA had been deleted by the Finance Act of 2016. That it was only after the enactment of the Finance Act 2018 that the Respondent got legal mandate to claim withholding taxes on DND charges.

57. To buttress its position, the Appellant cited the case of Commissioner of Domestic Taxes vs Pevans East Africa Limited (2022)eKLR where the High Court affirmed the Tribunal’s decision in determining that the Respondent erred in demanding withholding tax from the payer during the period of assessment as though it were due from them in the absence of a legal provision empowering the Respondent to do so.

58. The Appellant submitted that the only recourse available to the Respondent in the circumstances was to seek withholding taxes directly from importers since there was no legal basis during the review period for the same to be demanded from the Appellant as assessed and confirmed in the Respondent’s objection decision.

59. The Respondent’s written submissions dated 14th August 2023 were filed on 16th August 2023.

60. The Respondent submitted on three main issues i.e.a.Whether the Respondent took into consideration all additional information availed before making the decision?b.Whether demurrage charges collected from the consignee by a company acting as agent of a disclosed Principal who is based outside Kenya subject to withholding tax under the provisions of Income Tax Act?c.Whether the Respondent erred in applying the provision contained in Section 3(2)(a)(iii) of the ITA and applying it together with Section 6 (1) and 35(1)(c) of the ITA

61. The Respondent stated that the assessment was correctly issued and conformed to ITA and that the TPA placed the onus of proof in tax obligations upon the Appellant who failed to avail evidence to support a contrary assessment. To support this assertion, the Respondent relied on the case of Commissioner of Domestic Taxes v Metoxide Limited [2021].

62. The Respondent averred that contrary to the provisions of ITA, the Appellant failed to withhold taxes on collected demurrage charges whereas it was clearly evident that the only reason why shipping lines would charge DND was for purposes of ensuring timely return of containers.

63. The Respondent stated that the Appellant underdeclared the income for the period under review contrary to the provisions of Section 54 A(1) and Section 55(2) of the ITA by failing to maintain records of all transactions

64. The Respondent averred that Black Law Dictionary 8th Edition define demurrage as “…a charge for late return of ocean container or other equipment thus demurrage was a charge on goods already discharged from a ship and held beyond the free time.” That thus, demurrage qualified as consideration received for use of property as it was paid for use of shipping line containers based on existence of contractual relationship between the sellers/ exporters and owners as was held in the Court of Appeal of Genoa.

65. The Respondent avowed that the demurrage charges collected by the Appellant were in nature of rent pursuant to Section (3)(2)(a)(iii) and Section 6(1) of the ITA. To firm up this position, the Respondent relied on the Philippine’s Court of Tax Appeals decision in the case of Steamship Company of Svendborg and Steamship Company of 1912 vs Commissioner of Internal Revenue where it was held that;“it is undeniable that petitioners are rendering service to its client in providing- containers for their use. For the extended use of the containers, petitioners are charging demurrage fees. Although, petitioners call it a penalty, they are in effect imposing a form of rental or lease fee for the continued use of the containers. The cash or its equivalent that they receive is a flow of wealth…”

66. The Responded stated that detention charges were penalties with agreed contractual rates for the hire of containers that gave rise to a contract of lease that was separate from the contract of carriage which causes payment of container demurrage charges.

67. The Respondent averred that the distinction between freight and demurrage fees was the levying point; that freight was charged on of before commencement of the voyage at the country of origin of the goods whereas demurrage charges accrue after cargo had been disembarked at the port of destination.

68. The Respondent asserted that the objection decision provided precise and clear breakdown of the workings used to arrive at the assessment as per Rule 4 of Income Tax (Withholding Tax) Rules, 2001. The Respondent relied on the case of Burmah Steam Ship Company vs Commissioner of Inland Revenue where the court stated that;“….accordingly, in my opinion, $1,500 paid to them was profit connected with the business as ship-owners which the Appellant carried on and chargeable to tax.”

69. The Respondent averred that demurrage must be looked at from a commercial accounting perspective in order to determine how it should be treated for tax purposes as laid out in the ITA regarding revenue incomes generated by businesses. The Respondent cited the case of Steamship Company of Svendborg and Steamship Company of 1912 vs Commissioner of Internal Revenue (supra).

70. That there was no contention that demurrage income was earned or derived from Kenya by non-resident person not having a permanent establishment in Kenya in respect of rent, premium of similar consideration for use or occupation of property. That demurrage was charged on transactions happening within Kenya thus should be considered as income derived from Kenya as under Section 35(1) of the ITA.

71. The Respondent averred that contrary to Section 6(1) and Section 35(1) of the ITA, the Appellant failed to provide all supporting documents and only provided financial statements, agency agreement and a schedule of demurrage received in support of the objection which was not sufficient. To buttress its position, the Respondent cited Section 29(1) of the TPA- which empowers the Respondent to make alterations or additions to original assessments from available information.

ISSUES FOR DETERMINATION 72. Having carefully considered the parties’ documentation, pleadings and submissions presented, the Tribunal is of the view that a single issue crystalizes for its determination in this instant Appeal being:-Whether the Respondent’s additional assessment as raised in Objection Decision of 13th July 2022 was proper

Analysis and Determination 73. The Tribunal having identified a single issue as calling for its determination now proceeds to analyze the same as follows;

74. The Tribunal notes that the contention in the instant Appeal is the inferred analogous meaning by the Respondent to “demurrage charges” and “rental income.” The Tribunal borrows the definition of the two terms from the English Collins dictionary as follows;a.“Demurrage charges” refer to charge that the merchant pays for the use of the container within the terminal beyond the free time period.b.“Rental income” refer to amount of money that you pay when you rent something such as a car, property or piece of equipment.

75. Similarly, the Finance Act 2018 defines demurrage charge as the penalty paid for exceeding the period allowed for taking delivery of goods or returning of any equipment used for transportation of goods; whereas rental income is defined as income derived from renting out property for use or occupation.

76. Having ploughed through the parties’ pleadings herein, the Tribunal notes that there is a disparity in how the Respondent and Appellant view DND, the Tribunal is guided by the holding in Mansin vs Inland Revenue Commissioner [1971] AC 739 to the effect that:-“…in the event that the law provides a clear definition of a term as is the case of what is allowable and not allowable, the Respondent has not power to infer a meaning on the same to cause an ambiguity that injures a taxpayer.”

77. The Tribunal notes that Kenya operates a self-assessment tax regime whereby a taxpayer makes self-declaration of the taxes they should pay in line with Section 24(1) of the TPA. This was settled by the court in Commissioner of Domestic Taxes v Galaxy Tools Limited [2021] eKLR when it stated that;“This country operates under a self-assessment tax regime. Under this regime, the taxpayer assesses self and declares what he considers to be taxable income on which he then pays tax to the authorities. For this reason, the tax laws are coached in a manner that gives the tax authorities wide powers and discretion in ascertaining ex-post facto, what taxable income is.”

78. The Tribunal notes that Sections 3, 10 and 35 of ITA provides that any income derived from Kenya is subject to income tax whether earned by a resident or non-resident person. The Tribunal is also aware that the Respondent relied on the provisions of Income Tax (withholding tax) Rules 4 of 2001 in establishing the tax liability of the Appellant. The Tribunal equally appreciates the powers and discretion extended to the Respondent under Sections 29 and 31 of the TPA in amending filed tax returns.

79. In the same disposition, the Tribunal notes that the obligation to pay withholding taxes lies with the person making payments not the person receiving payments. The Income Tax (Withholding Tax) Rules 4 of 2001 clearly indicate that if any tax is payable, the same ought to be withheld and be paid by the person paying for the services in issue, whom in the instant Appeal is the importer/consignee paying for demurrage. The Tribunal is guided by the holding in Motaku Shipping Agencies Limited V Commissioner of Income Tax [2014]eKLR that;“The Appellant was under no obligation to retain portion(s) of the subject payments and to remit the same to the Respondent on account of withholding tax since the Appellant was not the payee for purposes of withholding tax and the payments in question were not subject to income tax under the Income Tax Act.

80. The Tribunal notes that the purport of the decision in Motaku Shipping Agencies Limited V Commissioner of Income Tax [2014]eKLR (supra) is that the obligation to pay withholding taxes lies with the person making payments not the person receiving payments as in the instant Appeal. The same position was stated by the Respondent in its Private Ruling of 20th July 2018 to Kenya Ships Agents Association as follows:-“a)The person who is responsible for accounting for withholding tax on import demurrage charges is the one who incurs the charges and shall pay/remit to KRA,b)The tax point for application of this tax is when a person is invoiced by the shipping line.”

81. It is the Tribunal’s holding that in the instant assessment, what is considered to be the taxable person as well as the tax point cannot find meaning in Sections 10 and 35 of ITA as envisaged because the Respondent was not demanding for taxes on services rendered.

82. The Tribunal is satisfied that the provisions of Sections 3,10 and 35 of ITA are very clear and has not sighted anywhere where the above pieces of law have imposed demurrage as taxable income for the period under review.

83. Furthermore, there was no mention of demurrage in ITA prior to the enactment of the Finance Act 2018. It is trite law that a party can only be liable for taxes where the law is specifically binding on them. Thus, the Respondent is estopped from claiming withholding tax from the Appellant as the same was not in force at the time. This was also the Tribunal’s holding in Pevan East Africa Limited & 6 Others vs Commissioner of Domestic Taxes, TAT No 304 of 2019.

84. The Tribunal finds that the Respondent’s levying of withholding tax was founded on illegalities which cannot be supported in law, the same finds legal backing in the case of Macfoy vs. United Africa Co. Ltd [1961] 3 All E.R 1169 as quoted in the case of Omega Enterprises (Kenya) Limited vs. Kenya Tourist Development Corporation Limited & 2 others [1998] eKLR that:“If an act is void, then it is in law a nullity. It is not only bad, but incurably bad. There is no need for an order of the court to set it aside. It is automatically null and void without more ado, though it is sometimes convenient to have the Court declare it to be so. And every proceeding which is founded on it is also bad and incurable bad. You cannot put something on nothing and expect it to stay there. It will collapse.”

85. The Tribunal is guided by its holding in a similar matter in the case of Gulf BADR Group (k) Limited vs Commissioner of Domestic Taxes, TAT 896 of 2022 where it was held that;“In the circumstances, the Tribunal found that there was not withholding tax applicable to the Appellant in the period before the promulgation of the Finance Act 2018. ”

86. In view of the foregoing, the Tribunal finds that the Respondent’s additional assessment as raised by the Respondent in the Objection decision of 13th July 2022 was not proper.

Final Decision 87. The upshot of the foregoing is that the Appeal is merited and the Tribunal accordingly proceeds to make the following Orders:a.The Appeal be and is hereby allowed.b.The objection decision dated 13th July 2022 be and is hereby dismissedc.Each party to bear its own costs.

88. It is so ordered.

DATED AND DELIVERED AT NAIROBI ON THIS 1ST DAY OF SEPTEMBER, 2023ERIC NYONGESA WAFULA CHAIRMANDELILAH K. NGALA - MEMBERCHRISTINE A. MUGA - MEMBERGEORGE K. ASHIONO - MEMBBERMOHAMED A. DIRIYE - MEMBEROLOLCHIKE S. SANKALE - MEMBER