Kenya Revenue Authority (KRA) has lost a tax case against I&M Bank, where it was seeking Sh434 million in taxes.
KRA demanded the money as corporation and agency taxes for the income generated between 2011 and 2013.
In its response, the bank denied owing the taxman the said amount and in its own assessment said it owed only Sh3.7 million and was working towards clearing it.
KRA later revised the claim to Sh238 million inclusive of penalties and interest.
Aggrieved by the decision the bank lodged an appeal with the Tax Appeals Tribunal where they lost in a decision delivered on March 30, 2020. The lender took its case to court.
In the appeal, I&M Bank said that the taxman replied outside the prescribed time by the law arguing that KRA ought to have responded within 60 days.
Among its other arguments, I&M also said the guidelines published by KRA through Legal Notice No 37 of 2011 did not apply to doubtful debts and that the tax tribunal applied them wrongly when they dismissed the bank's appeal.
KRA, on the other hand, said the tribunal did not err in dismissing the appeal by the bank on the grounds that the objection decision was validly lodged.
Its lawyers told the court that there was an arranged meeting between KRA and the bank but that could not constitute an objection, adding that the letter sent by the bank to KRA on June 26, 2015 did not qualify as an objection either.
They said that the letter was simply suggesting meetings and requesting time to carry out a review and that KRA acted in good faith in giving them a window to provide further information.
In her judgment, Justice Gathiru Mugambi ruled that the letter by the bank to KRA was an objection since it was captioned “Notice of Objection” and went ahead to address the disputed items under different heads.
“This to my mind provided sufficient clarity for the respondent to proceed on the basis that this was indeed an objection,” she said.
The judge said if KRA felt that the letter did not amount to an objection, it ought to have notified the bank and looked at the evidence on record the taxman.
Mugambi said it was up to KRA to consider the objection by the bank and make their objection decision, which he said now lies at the heart of the appeal.
According to the Judge, the fact that KRA did not respond to the objection letter by the bank within 60 days, meant that the issues they raised were allowed by the Tax Appeal Tribunal.
The tribunal however in their ruling raised the issue of when the 60 days would start counting since the KRA and the bank were in communication.
“The question raised by the Tribunal on when the 60 days begin to run is readily answered by the law which presents two possible scenarios; either from the date of receipt of the objection or from the date of receipt of any information required from the taxpayer by the Commissioner,” said Justice Mugambi.
She said that the objection by KRA came in March 2017 which is way letter than the anticipated 60 days.
Regarding letters from the bank that KRA said were an ambush, Justice Mugambi disagreed saying that it was just communication from a taxpayer who wanted to know their fate as required by the law.