Judgment summary
Diamond Trust Bancassurance Intermediary Limited applied on 3rd December 2020 for a refund of overpaid 2019 income tax of Kshs. 11,442,549.29. The Kenya Revenue Authority did not communicate a decision within the ninety days required by Section 47(3) of the Tax Procedures Act, instead issuing a notice of intention to audit many months later, followed by a Letter of Findings on 29th March 2023 and, finally, an Income Tax Claim Rejection Order on 3rd October 2025 citing pending debt issues at the Tax Service Office.
The Tribunal held that the refund application stood ascertained and allowed by operation of law upon expiry of the ninety-day period on 3rd March 2021, relying on binding High Court authority on the mandatory character of Section 47(3). It found the Rejection Order unlawful, both because the Respondent had no residual power to reject an already-allowed claim and because the stated ground, an unassessed corporation tax adjustment, had never crystallised into a lawful debt and could no longer be assessed given the lapse of the five-year amendment period under Section 31(4)(b)(i) of the Tax Procedures Act.
The Tribunal allowed the appeal, set aside the Rejection Order, and ordered disbursement of the refund together with statutory interest from 4th December 2022.
Background
The Appellant, a company providing bancassurance intermediary services, filed its 2019 self-assessment return on 18th May 2020, declaring tax payable of Kshs. 49,424,477.70 against instalment tax paid of Kshs. 35,743,788.00 and withholding tax credits of Kshs. 25,123,239.00, leaving an overpayment of Kshs. 11,442,549.30 (paragraph 3).
On 2nd December 2020 the Appellant applied for a refund under Section 47 of the Tax Procedures Act, acknowledged by the Respondent on 3rd December 2020 (paragraph 4). The Respondent did not notify a decision within the ninety days prescribed, instead issuing a notice of intention to audit on 7th September 2022, transmitted by email on 12th September 2022 (paragraph 5).
After further exchanges of information, the Respondent issued a Letter of Findings on 29th March 2023, which in Part A confirmed the refund of Kshs. 11,442,549.29 subject to resolution of issues, and in Part B raised a corporation tax adjustment of Kshs. 11,339,659.00 relating to withholding tax claimed on commissions paid to staff (paragraphs 8 to 9). The letter stated it was not an assessment but a notification of findings (paragraph 9).
On 3rd October 2025 the Respondent issued an Income Tax Claim Rejection Order rejecting the entire refund claim on the stated ground of 'pending debt issues at the TSO' (paragraph 11). The Appellant appealed by Notice of Appeal dated 18th November 2025.
Core dispute
The appeal turned on three issues: whether the refund application stood ascertained and approved by operation of law given the Respondent's failure to decide within ninety days; whether the Income Tax Claim Rejection Order of 3rd October 2025 was lawfully made; and whether the Appellant was entitled to the refund claimed together with interest.
The Appellant argued that the ninety-day period under the then Section 47(3) of the Tax Procedures Act was mandatory, that the claim was therefore allowed by operation of law on 3rd March 2021, that the Respondent was functus officio, and that the rejection breached legitimate expectation created by Part A of the Letter of Findings. It also argued that any corporation tax adjustment required a properly notified amended assessment under Section 31(8) of the Tax Procedures Act, which was never issued, and claimed interest under Section 47(5) from 3rd December 2022.
The Respondent maintained that the rejection was properly founded, that the Appellant had not shown the corporation tax add-back of Kshs. 11,339,659.00 to be erroneous, that a presumption of correctness attached to its determination, and that the Appellant bore the burden of proof under Section 56(1) of the Tax Procedures Act and Section 30 of the Tax Appeals Tribunal Act.
Court findings
The Tribunal held that the application was lodged on 3rd December 2020 and that the ninety days under the repealed Section 47(3) of the Tax Procedures Act expired on 3rd March 2021. Relying on Commissioner of Domestic Taxes v Royal Floraholland Kenya Limited [2025] KEHC 10008 (KLR) as binding authority, it found that Section 47(3) was mandatory even before the Finance Act, 2022 amendment, and that failure to decide within time entitled the taxpayer to the refund by operation of law. The refund application was therefore held to have been ascertained and allowed on 3rd March 2021, after which the Respondent retained no power to reject it.
On the second issue, the Tribunal found the Rejection Order unlawful. The reason given, pending debt issues at the Tax Service Office, differed from the reason earlier advanced in the Letter of Findings and was not supported by any amended assessment. Section 31(8) of the Tax Procedures Act requires specified particulars for an amended assessment, none of which were furnished, and the Letter of Findings itself disclaimed being an assessment. The Tribunal further found that by 3rd October 2025 the Respondent's five-year power under Section 31(4)(b)(i) of the Tax Procedures Act to amend the 2019 self-assessment (submitted 18th May 2020) had already lapsed on 18th May 2025, with no gross or wilful neglect, evasion or fraud pleaded or proved. The purported debt could therefore never have lawfully crystallised, and the Order was found to have been made without lawful basis.
On the third issue, the Tribunal held that the Appellant had discharged its burden of proof through its self-assessment return, tax computation, iTax ledgers, bank statements and the refund acknowledgement, establishing the overpayment of Kshs. 11,442,549.29, a fact the Respondent's own Letter of Findings had confirmed. The Tribunal held the Appellant entitled to the refund and to interest at one per cent per month under Section 47(5) of the Tax Procedures Act from 4th December 2022, being the day after expiry of the two-year repayment period that ran from the 3rd December 2020 application. The Tribunal declined jurisdiction over the Appellant's constitutional complaint under Article 47 of the Constitution and the Fair Administrative Action Act, 2015, holding that such claims lie in the High Court.
Outcome
The Tribunal allowed the Appeal. It held that the Appellant's refund application lodged on 3rd December 2020 stood ascertained and allowed by operation of law upon lapse of ninety days on 3rd March 2021, and set aside the Respondent's Income Tax Claim Rejection Order dated 3rd October 2025.
The Respondent was ordered to process and disburse to the Appellant the income tax refund of Kshs. 11,442,549.29 for the year of income 2019 within sixty days of the Judgment, together with interest at one per cent per month or part thereof from 4th December 2022 until payment in full, computed under Section 47(5) of the Tax Procedures Act as it then stood. Each party was ordered to bear its own costs.
Major issues / areas of contention
- Whether the refund application stood ascertained and approved by operation of law once the ninety-day decision period under Section 47(3) of the Tax Procedures Act lapsed without a decision.
- Whether the Respondent became functus officio in relation to the refund application after the ninety-day period expired.
- Whether the Letter of Findings dated 29th March 2023 created a legitimate expectation that the refund had been allowed.
- Whether the Income Tax Claim Rejection Order dated 3rd October 2025 was lawfully made given the stated reason of pending debt issues.
- Whether a corporation tax adjustment could defeat the refund without a properly notified amended assessment under Section 31(8) of the Tax Procedures Act.
- Whether the Respondent's power to amend the Appellant's 2019 self-assessment had lapsed under Section 31(4)(b)(i) of the Tax Procedures Act by the time the Rejection Order was issued.
- Whether the Appellant was entitled to interest on the unpaid refund under Section 47(5) of the Tax Procedures Act, and from what date it began to accrue.
- Whether the Tribunal had jurisdiction to determine the Appellant's constitutional claims under Article 47 of the Constitution and the Fair Administrative Action Act, 2015.