Judgment summary
The Appellant, a sole proprietor collecting and reselling drums sourced from informal traders, was assessed for additional income tax (Kshs 32,893,930 for 2019 to 2023) and additional VAT (Kshs 26,482,401.17 for 2019 to 2024) by the Respondent. The assessments were based on withholding VAT certificates issued by a customer, Synresins Limited, compared against the Appellant's declared sales.
The Appellant objected, arguing that the certificates reflected pass-through disbursements made to small-scale traders on behalf of Synresins Limited, and did not constitute taxable income or taxable supplies. The Commissioner rejected the objection in full on 20th March 2025, treating the certificates as reflecting income received by the Appellant.
The Respondent raised a preliminary objection to the Appellant's amended pleadings on grounds of non-compliance with Section 13(2)(c) of the Tax Appeals Tribunal Act, Cap 469A. The Tribunal dismissed the preliminary objection, holding that the original pleadings remained valid and on record regardless of any defect in the amended pleadings.
On the substantive appeal, the Tribunal found that the Appellant did not file any documentary evidence, such as the audited accounts, loan statements or bank statements it claimed to have supplied to the Respondent, to support the Appeal. The Tribunal held that the Appellant failed to discharge its burden of proving the assessments were incorrect and dismissed the Appeal, upholding the Objection decision dated 20th March 2025.
Background
The Appellant operates a sole proprietor business collecting and reselling drums sourced from informal traders. On 3rd October 2024, the Respondent issued a pre-assessment notice, followed by an additional income tax assessment on 8th November 2024 for periods 2019 to 2023 totalling Kshs 32,893,930, and an additional VAT assessment on 18th October 2024 for periods 2019 to 2024 totalling Kshs 26,482,401.17 (paras 1, 3).
The Appellant filed an objection to the income tax assessment on 20th January 2025 and to the VAT assessment on 21st January 2025 (para 4). The Commissioner accepted both objections for consideration on 4th February 2025 and requested supporting documents, which the Appellant says it provided, including audited accounts, loan statements and bank statements (paras 10, 13).
On 20th March 2025, the Commissioner issued a decision rejecting the Appellant's objection in full, on the basis that the withholding tax certificates should reflect income received by the Appellant, taxable for both income tax and VAT purposes (paras 11, 14). The Appellant appealed via Notice of Appeal dated and filed 18th April 2025, later seeking leave to file an amended Memorandum of Appeal and Supplementary Statement of Facts (para 6).
Core dispute
The dispute centred on whether withholding VAT (2%) certificates issued by the Appellant's customer, Synresins Limited, correctly represented taxable income and taxable supplies of the Appellant, or whether they reflected pass-through/agency disbursements paid to small-scale traders that should be excluded from taxable value under Section 13(5) of the VAT Act, Cap 476.
The Appellant contended that the Respondent had adopted a turnover-based model contrary to Sections 3(2) and 15 of the Income Tax Act, Cap 470, which taxes gains or profits rather than gross receipts, and had failed to test expenses against the 'wholly and exclusively' standard under the ITA. The Appellant also argued the Respondent failed to engage with its intermediary business model and issued an objection decision with inadequate reasons despite receipt of supporting documents.
The Respondent additionally raised a preliminary objection dated 11th March 2026, contending that the Appellant's amended Memorandum of Appeal and Statement of Facts, filed on 22nd September 2025, were invalid and void ab initio for non-compliance with Section 13(2)(c) of the Tax Appeals Tribunal Act, Cap 469A, seeking to have the Appeal struck out.
Court findings
On the preliminary objection, the Tribunal held it raised a pure point of law per Mukisa Biscuit Manufacturing Co. Ltd v West End Distributors Ltd [1969] EA 696 (para 33). It found that the original Memorandum of Appeal and Statement of Facts had been properly and timeously filed on 19th April 2025, and that the Respondent's objection was directed only at the later amended pleadings, not the original ones (paras 34–36). Applying D.T. Dobie & Company (Kenya) Ltd v Muchina [1982] KLR 1, the Tribunal held that even if the amended pleadings were improperly filed, the original pleadings remained on record as the basis of the Appeal (para 38). Finding no demonstrated breach of Section 13(2)(c) of the TATA, the Tribunal dismissed the preliminary objection as lacking merit (para 39).
On the substantive appeal, the Tribunal noted that Section 50(1)(a) of the Tax Procedure Act creates a rebuttable presumption that the Respondent's assessment is correct, and that Section 56(1) of the TPA and Section 30 of the TATA place the burden of proof on the taxpayer (paras 42–43, 48). It referred to statutory record-keeping obligations under Section 23(1)(b) of the TPA, Section 43 of the VAT Act and Section 54A of the Income Tax Act (paras 44–46).
The Tribunal found that the Appellant did not file any documentary evidence, including the audited accounts, loan statements and bank statements it claimed to have supplied, to support the Appeal, having only filed the objection decision dated 20th March 2025 (paras 51–52). Citing Eldama Technologies Limited v Commissioner of Customs & Border Control [2023] KEHC 20762 (KLR), Rongai Furniture Centre Limited v Commissioner of Domestic Taxes [2025] KEHC 1124 (KLR), and Darwine Wholesalers Limited v Commissioner of Investigations and Enforcement [2023] KEHC 23537 (KLR), the Tribunal held that the Appellant failed to discharge its burden of proving the Respondent's decision was incorrect (paras 49, 54–55, 57).
Outcome
The Tribunal found the Preliminary Objection dated 11th March 2026 lacked merit and dismissed it. It further found that the Appellant failed to demonstrate that the Respondent erred in confirming the assessments.
The Appeal was dismissed. The Objection decision dated 20th March 2025 was upheld. Each party was ordered to bear its own costs (para 58).
Major issues / areas of contention
- Whether the Preliminary Objection dated 11th March 2026, challenging the validity of the Appellant's amended Memorandum of Appeal and Statement of Facts under Section 13(2)(c) of the Tax Appeals Tribunal Act, was merited.
- Whether the Objection Decision dated 20th March 2025, confirming additional income tax and VAT assessments, was justified.
- Whether withholding VAT certificates issued by Synresins Limited represented taxable income and taxable supplies of the Appellant, or pass-through disbursements excluded under Section 13(5) of the VAT Act.
- Whether the Appellant discharged the burden of proof under Section 56(1) of the Tax Procedure Act and Section 30 of the Tax Appeals Tribunal Act to show the assessments were incorrect.