The Tax Appeal Tribunal (TAT) has recently in the case of Samaj Vs Commissioner of Domestic Taxes (2024) delivered a dissenting decision from its earlier decisions as to the treatment of a decision by the Kenya Revenue Authority (KRA) rejecting a Taxpayer’s application for issuance of an Exemption Certificate. The determination by the Tribunal gives further clarity as to the relevant level of proof necessary for a rejection of issuance of an Exemption Certificate to qualify as an appealable decision valid for determination by the TAT.
A. Facts
The brief facts of the case are that SAMAJ (The Appellant) was a society registered under the Societies Act to carry out charitable purposes aimed at the furtherance of education, health, relief of public distress, promotion of fraternal relationships and unity among the members, foster opportunities to uplift the social, physical, educational and cultural activities the institutional members and to preach and promote Hindu religion and allied activities among others.
It applied for an Income Tax Exemption Certificate from the KRA which was rejected after several submission of documentation on various dates and a stakeholder meeting having been held and resubmission of requested documentation having been done. However, even with the submission of the documents as requested by the KRA, the KRA vide decision issued on 15th December 2023 declined the Appellant’s Application.
It is on the basis of the above rejection that the Appellant appealed to the TAT arguing that the decision to reject it application by the KRA was not in accordance with the Law and hence should be set side.
B. Arguments by the KRA
On its part KRA averred that the Appellant had failed to respond on the action points comprehensively. Further, it argued that there was no evidence to support relief of poverty, relief of public distress, advancement of religion and advancement of education. Moreover, that a copy of the Appellant’s constitution showed that the organization was a society created to serve their members and not the public.
KRA further reiterated that the law on an application for an exemption as per Paragraph 10 of the First Schedule of the Income Tax Act (ITA) as read together with Section 13 of the ITA did not provide for timelines to reject or allow the application of Exemption from tax.
It was the KRA’s submission that it was within its administrative powers to reject the application as it was evident the gains from the business were not being expended solely as provided under Paragraph 10 of the First Schedule of the ITA more particularly that the transactions undertaken by the appellant were for the benefit of its members rather than the public in general.
Lastly, the KRA submitted that the Tribunal did not have jurisdiction to determine the matter as the same was not an appealable decision as per Section 3 of the Tax Procedure Act (TAT) and therefore there was no valid appeal before the Tribunal.
C. Tribunal’s Findings
In tackling the issue of jurisdiction of the TAT in terms of whether the decision by the KRA in rejecting the application for issuance of an Exemption Certificate was an appealable decision, the KRA referred the TAT to its earlier decisions in TAT No. E298 of 2023-CPF Trust Fund vs. Commissioner of Domestic Taxes (2024) and Tax Appeal No. 1545 of 2022 – Saleh Mohamed Trust vs. Commissioner of Domestic Taxes (2023) where the Tribunal had categorically stated that the rejection of an application for exemption to Income Tax did not constitute an appealable decision as envisaged under Section 3 of the Tax Procedure Act hence could not be entertained by the TAT.
In the subject case however, the TAT while concluding contrary to its earlier decisions in the referenced cases noted that the TPA defined an appealable decision as an objection decision and any other decision made under a tax law other than a tax decision; or a decision made in the course of making a tax decision.
In differentiating the facts in the two earlier cases vis a vis the current case, the TAT noted that the KRA’s letter dated 15th March, 2022 rejecting the Appellant’s application for tax exemption and asking them to resubmit its application was a decision made in the course of making a tax decision and not an Appealable Decision. On the other hand, the final KRA’s letter of 15th December, 2023 rejecting the application was an Appealable Decision since the Appellant had exhausted all the administrative mechanisms as to its application for tax exemption as provided under Section 51 of the TPA.
Based on the above reasoning, the TAT concluded that the decision by KRA to reject the application for Income Exemption was an appealable decision and proceeded to analyze the substantive aspect of the case ultimately issuing judgment that the KRA do issue the Appellant with an Income Exception Certificate.
D. Take away from the case
From the judgment of the referenced case, of key take away is that as a Taxpayer applying for exemption from tax, documentation of all correspondences between the Taxpayer and the KRA is critical as the same will provide a chronology of events and ultimately be a determinant as to whether the KRA decision is a appealable decision hence valid before the TAT or a decision made in the course of making a tax decision hence not viable before the TAT.
