Judgment summary
The Appellant, a SACCO registered under the Cooperative Societies Act and licensed by SASRA, was audited by the Respondent, resulting in an additional assessment dated 28th June 2025. The Appellant objected on 15th July 2025, and the Respondent issued an objection decision dated 29th August 2025 confirming the assessment.
The dispute centred on whether the Appellant, whose membership comprised approximately 97% individual members and 3% non-individual members, should be classified and taxed as a 'designated co-operative society' under Section 19A(2) of the Income Tax Act or as a 'primary society' under Section 19A(4).
The Tribunal found that the Appellant was a mixed entity, a 'mishmash' of both primary and designated co-operative society characteristics, and that its income should be severed and taxed separately according to the membership category from which it derived. It held that the Respondent erred in taxing the entire income under Section 19A(2) and set aside the objection decision, allowing the Respondent to recompute corporation tax only in respect of non-individual members.
Background
The Appellant is a Savings and Credit Cooperative Organization (SACCO) registered under the Cooperative Societies Act Cap 490 Laws of Kenya and licensed by the Sacco Societies Regulatory Authority (SASRA) (paragraph 1).
Following an audit, the Respondent issued an assessment dated 28th June 2025 (paragraph 3). The Appellant objected on 15th July 2025 (paragraph 4). The Respondent issued an objection decision dated 29th August 2025 (paragraph 5). Aggrieved, the Appellant lodged a Notice of Appeal (paragraph 6), later anchored on an Amended Memorandum of Appeal dated 12th March 2026 (paragraph 7).
Core dispute
The central disagreement was over the interpretation of the term 'primary society' under Section 19A(7) of the Income Tax Act and the correct characterisation of the Appellant, which had approximately 96.68% to 97.45% individual members and 2.55% to 3.32% non-individual members (paragraphs 9, 39, 42).
The Appellant argued it was a primary society and that its interest income from members should be taxed under the doctrine of mutuality and Section 19A(4) of the Income Tax Act, rather than Section 19A(2), and raised further grounds relating to legitimate expectation, fair administrative action, and alleged constitutional violations (paragraphs 7, 11, 12, 14, 15).
The Respondent maintained that the Appellant was not a designated primary society because it had non-individual members, and that Section 19A(2) of the Income Tax Act therefore applied to its entire income, relying on TATC/E822/2024 BAT Co-operative Savings and Credit Society Limited (paragraphs 30, 34).
The issues for determination were whether the Respondent was justified in classifying the Appellant as a primary designated co-operative society, and whether the Respondent's objection decision dated 29th August 2025 was justified (paragraph 37).
Court findings
The Tribunal set out the definitions of 'primary society' and 'designated co-operative society' under Section 19A(7) of the Income Tax Act, and the differing tax treatment under Section 19A(2) and 19A(4) (paragraphs 40, 41).
The Tribunal found that, given the Appellant's mixed membership of about 97% individual and 3% non-individual members, it was a 'mishmash' of both a designated primary and a designated co-operative society (paragraph 46). Relying on the mutuality principle and case law including Muramati District Tea Growers Sacco Society Ltd (Unaitas Sacco) v Kenya Revenue Authority and Nyeri Teachers Sacco v Commissioners of Domestic Taxes, the Tribunal held that not all income generated by a co-operative society is for the mutual benefit of its members, and that a mutual society's commercial income is taxable (paragraphs 46, 47).
The Tribunal held that income of a mixed-membership entity like the Appellant is capable of being severed into two divisible parts, to be taxed under Section 19A(2) for non-individual members and Section 19A(4) for individual members (paragraph 48), consistent with its own prior decision in Invest & Grow Sacco v Commissioner of Domestic Taxes (paragraph 51).
The Tribunal held that the Respondent erred in classifying the Appellant as a designated co-operative society and taxing it entirely under Section 19A(2) (paragraphs 49, 54, 56). It also revisited and departed from its earlier decision in TAT No. E822 of 2024 BAT Co-operative Savings and Credit Society Limited, stating that decision had misapprehended the meaning of a designated and primary society (paragraph 53).
On the objection decision, the Tribunal found that because the corporation tax assessment was premised on the erroneous application of Section 19A(2) to the whole of the Appellant's income, the objection decision confirming that assessment was also erroneous (paragraphs 57, 58, 62, 63).
Outcome
The Tribunal found the appeal meritorious and upheld it (paragraph 64(a)).
The objection decision dated 29th August 2025 was set aside (paragraph 64(b)).
The Respondent was given liberty to re-compute corporation tax only for non-individual members, according to the composition of the Appellant's membership (paragraph 64(c)).
Each party was ordered to bear its own costs (paragraph 64(d)).
Major issues / areas of contention
- Whether the Respondent was justified in classifying the Appellant as a primary designated cooperative society (paragraph 37(a)).
- Whether the Respondent's objection decision dated 29th August 2025 was justified (paragraph 37(b)).