WIN FOR KRA AS APPELLATE COURT ALLOWS THE AGENCY TO COLLECT OVER SH33.5 MILLION FROM KENYA NUT COMPANY.

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BY SAM ALFAN.

Kenya Revenue Authority has been given greenlight to recover over Sh33.5 million from Kenya Nut Company Limited.

Court of Appeal judges William Ouko, Daniel Musinga and Sankale Ole Kantai ruled that the High Court erred by quashing the agency’s assessment notices demanding Sh33,534,855 from Kenya Nut company.

They ruled that Justice George Odunga erred by quashing the assessment.

“This appeal , accordingly succeeds with costs,” ruled the judges.

However, the appellate judges said in light of their observation regarding penalty, adjust the percentage of 10% of the amount of the tax involved subject to a maximum penalty of 1 million for the period July , 2004 to 2005.

They added the rate of interest on late payment remains what was provided under section 94.

Justice Odunga had quashed KRA letter dated August 19, 2008 assessing the withholding tax at shilling 33,534,855 and blocked the agency from recovering the money.

Aggrieved by the decision, the taxman filed an appeal challenging the judgement.

The agency through lawyer David Ontwenka argued that it was the duty of the Kenya Nut Company to ensure that withholding tax was deducted and remitted to KRA irrespective of whether the proceeds of sale were remitted to it or its agent.

Lawyer Ontwenka further said judge Odunga erred in failing to apply the basic principles of principal or agents relationship in stating that there was no provision in the Income Tax Act that justified the levying of penalties and interests.

He also submitted that it was an error of the judge to hold that KRA had no jurisdiction to impose withholding tax.

“It was erroneous to excuse the failure to deduct withholding tax merely because the respondent was not in a position to effect deduction at the time when the agent paid themselves the commission. Yet, the agents upon receipt of all the payments on behalf of the respondent were expected to deduct their commission at source , but taking into account the withholding tax as an element in those commissions and remit the same to the respondent, ” added Ontweka.

He added that the in the circumstances of the dispute, Kenya Nut company’s main intention was to evade tax.

Regarding penalties and interest on interest on withholding tax, the agency submitted that section 35 , 72D and 94 of the Act provide that unpaid tax would attract both a penalty at the rate of 20% and a late payment interest of 2% monthly.

He added that the two sections which provide for general damages methodology of calculating penalties and interest of late payment of tax should be construed together with rule 14A and in any case section 35(6) of the Act empowers the commissioner to impose such penalties and interest as may be prescribed from time to time.

But Kenya Nut reiterated that the commission was deducted at source by their trading partners and it was paid the sale proceeds of it goods net of commissions and expenses that it had no control over the payments and found it impossible to withhold tax since it had no control nor could it exercise agency under section 96 of the Income Tax Act over the funds held by foreign entities and the funds are retain by the said foreign entities were a mixture of commission and expenses.

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