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Reprieve for Westgate over Sh600 million tax dispute

By Julius Chepkwony | May 7th 2021

The High Court in Nairobi has affirmed the decision by the Tax Appeal Tribunal that insurance disbursement of Sh600 million to Westgate Shopping Mall was not subject to tax.

Justice David Majanja last week dismissed an appeal by Kenya Revenue Authority against Sony Holdings Limited.

Sony Holdings is a company engaged in the business of developing, owning and letting real estate and its flagship project is the Westgate Shopping Mall from which it receives rental income.

The mall was on September 21, 2013 subjected to a terror attack that led to loss of lives and property, which greatly affected its operations. The company held a terrorism and political violence insurance cover for property damage and loss of rent receivable in the sum of Sh6 billion and Sh1.2 billion, respectively with Kenindia Assurance Company Limited.

After the attack, Sony Holdings claimed and accordingly received total compensation for loss of rent receivable of Sh1.2 billion and an amount of Sh3.1 billion for loss and damage of buildings and outbuildings.

Further, it sought exemption from withholding tax on rental income in a letter dated March 7, 2017, addressed to the Cabinet Secretary, National Treasury. In response, the Commissioner of Taxes in a letter dated March 16, 2017, requested supporting documents purportedly in consideration of the application. On December 19, 2017, the commissioner gave notice of its intention to make an additional assessment and in a letter dated May 18, 2018, issued an additional assessment for Income Tax, VAT and Withholding Tax. The commissioner assessed the company’s tax liability as Sh380,388,596, being principal corporation tax, penalty and interest thereon.

Aggrieved by the decision, Sony Holdings formally objected by filing its Notice of Objection dated June 14, 2018. The Commissioner affirmed its decision by its letter dated August 10, 2018. In 2019, Sony Holdings lodged a complaint against the commissioner at the Tax Appeal Tribunal.

At the conclusion of the hearing, the tribunal held that the insurance compensation paid to Sony Holdings was not chargeable to corporation tax as there was evidence that the said sum was used for reconstruction of the damaged mall, thus it could neither qualify as gains nor profit.

The decision by the tribunal saw the commissioner lodge an appeal at the High Court. But Justice Majanja held there was sufficient evidence for the tribunal to find that the payment of Sh600 million was in respect of damages to the mall and was to be used in repairs and reinstatement of the mall and was therefore not subject to corporation tax.“From the totality of the facts and evidence, I cannot say that the decision was without any legal or factual basis to support the respondent’s (Sony Holdings Limited) case that the commissioner’s assessment was incorrect. I, therefore, affirm the tribunal’s decision on this issue,” ruled Majanja.

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