KRA must make objection decision within 60 days

Case Study:Eastleigh Mall Limited v Commissioner of Investigations & Enforcement (Income Tax Appeal E068 of 2020) [2023] KEHC 20000 (KLR) (Commercial and Tax) (17 July 2023) (Judgment)

KRA investigated the affairs of EML for the years 2008 to 2015 for rent income for corporation tax, VAT on commercial rent and PAYE on the employees’ salary. By a letter dated June 16, 2015, KRA raised an assessment of Kshs 386,701,864/-. EML opposed the assessment and the issue for VAT was agreed upon by the parties.

On April 28, 2017, KRA issued an objection decision confirming the assessment of withholding tax at Kshs 140,965/-, PAYE of Kshs 2,712,094/- and Corporation tax of Kshs 22,211,047/-. Aggrieved by the assessment on Corporation tax, EML lodged an appeal at the Tax Appeals Tribunal. By its judgment made on July 9, 2020, the Tribunal dismissed the said appeal and upheld KRA’s assessment.

Dissatisfied with that decision, EML lodged this appeal vide a Memorandum of Appeal dated July 20, 2022 raising 6 grounds which can be summarized into two as follows: -

1. That the Tribunal erred in law and in fact in failing to consider the issues of evidence raised by EML and employing the wrong analysis in coming up with its determination.
2. That the Tribunal erred in fact and in law in failing to appreciate the timelines set out in the Tax Procedures Act, 2015.

KRA urged the court to look beyond technicalities and be guided by Article 159 of the Constitution which mandates the court to do substantial justice. On its part, EML submitted that failure to issue the objection decision in time meant that its objection had been upheld

In its ruling on 17/07/2023, the High Court observed that:

• ?the provisions of section 51(11) of the Tax Procedures Act are mandatory. They are not cosmetic. Parliament in its wisdom knew that in matters tax, time is very crucial as those in commerce need to make informed decisions. If the Commissioner is allowed to exercise his discretion and stay ad-infinitum before issuing an objection decision, the tax payer would be unable to make crucial decisions and plan his/her business properly. The timelines set are mandatory and not a procedural technicality.
• the Tribunal erred in dismissing the objection raised by EML. KRA’s failure to issue the objection decision within 60 days meant that EMLs objection had been allowed. In this regard, the Tribunals decision cannot stand. The Court need not therefore consider the second ground regarding the assessment of Corporation Tax.

As such EML won