Background
1. This is an appeal from the Judgment of the Tax Appeals Tribunal (Tribunal) dated 18th August 2023 in the Nairobi Tax Appeal No. 249 of 2022: Pevans East Africa Ltd V Commissioner of Domestic Taxes, in which the Tribunal set aside the Appellant’s Objection Decision dated 27th January 2022 in relation to withholding tax on winnings.
2. The background of the dispute is that on 27th August 2020, the Commissioner (Appellant herein) issued the Respondent with a notice of intention to carry out a tax audit on the operations of the Respondent covering the tax periods 2015 and 2019. The audit covered corporate income tax, betting tax, withholding income tax (WHT), WHT on winnings, value added tax (VAT), pay as you earn (PAYE), and excise duty.
3. Upon conclusion of the audit, the Appellant vide its letter of 29th July 2021, issued the Respondent with a Notice of tax Assessment in the aggregate sum of Kshs. 88,671,470,995 being the principal tax, penalties, and interest, covering all the above tax heads.
4. Following the issuance of the Assessment, parties engaged in an out of court settlement, resulting in a partial consent dated 19th June 2023 between the parties, wherein it was agreed that the only tax liability that was to be determined by the Tribunal was on the issue of “withholding tax on winnings.”
5. On 18th August 2023, the Tribunal delivered its judgment on the sole issue of “withholding tax on winnings,” and held that the issue was res-judicata, the term “winnings” having been determined by the Tribunal in a previous case between the same parties (Appellant and Respondent herein) being the TAT Case No. 304 of 2019. The Tribunal therefore upheld their previous decision that “Winnings as stipulated in the TAT refers to payouts by the licensee but does not include amounts staked by the bettor.”
6. The Tribunal further found that with the deletion of subsection 6 of Section 35 of the Income Tax Act, the Commissioner could not, during the period in question. lawfully demand “withholding tax on winnings” from the Respondent herein as if it were a tax due from the Respondent. According to the Tribunal, had the Parliament intended to have withholding tax on winnings to be recoverable from the Respondent (withholding agent) as if it were due from it, then the legislation could have clearly stated so.
The Appeal
7. Aggrieved by the decision of the Tribunal, the Appellant, vide its memorandum of appeal dated 13th October 2023, lodged the instant appeal against the Tribunal’s judgment, raising the following main grounds of appeal:
i. The Honourable Tribunal erred in law and fact by failing to appreciate that there was no valid appeal before the Tribunal.
ii. The Honourable Tribunal erred in law and fact in failing to appreciate the import of provisions of the Finance Act 2016, which amended Section 35 of the ITA by deleting Section 35 (6).
iii. The Tribunal erred in law and fact by applying the wrong computation of WHT on winnings.
iv. The Tribunal erred in law and fact in failing to appreciate that the law provided for the payment of WHT on winning by the Respondent as per the provisions of the Finance Act 2018.
v. The Tribunal erred in law and fact in failing to appreciate that the Respondent had not exhausted their burden of proof (sic) by providing evidence and documentation to show specifically what constituted the "punters' stakes" and the "winnings".
8. The Respondent did not oppose the appeal by filing its Statement of Facts as required under Rule 8 of the Tax Appeals Tribunal (Appeals to the High Court) Rules, 2015.
9. The appeal was canvassed by way of written submissions. The Appellant’s submissions are dated 24th September 2024, whilst the Respondent’s submissions are dated 17th October 2024.
Appellant’s Submissions
10. Despite listing numerous grounds of appeal, the Appellant only argued its appeal under two headings. First, the Appellant took the position that the tribunal erred by finding that the Respondent’s appeal thereat was valid and properly before the Tribunal. According to the Appellant, the Respondent’s appeal at the Tribunal was invalid since the same was filed outside the statutory period of thirty (30) days period provided under Section 52(2) of the Tax Procedures Act, and Section 13 (1) (b) and (3) of the Tax Appeals Tribunal Act.
11. Relying on the Supreme Court decision in the case of County Executive of Kisumu v County Government of Kisumu & 8 others, SC. Civil Appl. No. 3 of 2016; [2017] eKLR, the Appellant asserted that the Respondents to the appeal to the Tribunal was filed out of time, without leave, and was therefore irregular, and the same ought to have been struck out.
12. The second issue taken by the Appellant in this appeal is that the Tribunal erred by failing to appreciate that the term “winnings” under Section 2 of the Income Tax Act Cap. 470 Laws of Kenya (as amended by the Finance Act, 2018) referred to the gross payouts to the punter and did not exclude the stakes.
13. Referring to the Court of Appeal decision in Kenya Revenue Authority v Republic (Ex-parte Fintel Ltd) [2019] eKLR, the Appellant maintained that the term “winnings” as defined under Section 2 of the Income Tax Act, when strictly interpreted, is inclusive of the stakes placed.
14. The Appellant, therefore, prayed that this appeal be allowed and that the Tribunal’s Judgment dated 18th August 2023 be set aside, and the Appellant’s objection decision dated 27th January 2022 be upheld. The Appellant also prays for the costs of this appeal.
Respondent’s Submission
15. On its part, the Respondent supported the judgment by the Tribunal and urged this court to uphold the same. On the validity of the Respondent’s appeal before the Tribunal, the Respondent submitted that the same was filed within the requisite timelines (30 days) provided under Section 13 (1) (b) of the Tax Appeals Tribunal Act.
16. According to the Respondent, the Appellant’s Objection decision was issued on 27th January 2022, and the Respondent lodged its notice of appeal against the decision before the Tribunal on 25th February 2022, before filing its memorandum of appeal on 10th March 2024. This, the Respondent asserted, was within the 30 days’ timeline permitted in law.
17. Regarding the Tribunal’s interpretation of the term “winnings”, the Respondent submitted that the issue was res judicata, the same having been raised by the Appellant and decided in the Tribunal in the Tax Appeal No. 304 of 2019 Pevans East Africa Limited vs The Commissioner of Domestic Taxes, a decision which was later affirmed by the High Court in the Milimani High Court Commercial Income Tax Appeal No. E003 of 2019 Commissioner of Domestic Taxes vs Pevans East Africa Limited & 6 others.
18. It was further the Respondent’s position that, in any event, the Appellant’s interpretation of the term “winnings” as provided under the Income Tax Act was not correct. The Respondent maintained that the term winnings, according to the Income Tax Act, excluded stakes of punters and therefore the Appellant herein had no basis for demanding withholding tax on punters’ stakes.
19. In the premises, the Respondent urged this Court to dismiss the appeal, with costs in their favour.
Analysis and determination:
20. This being a first appeal, this court is under a duty to re-evaluate and assess the evidence and make its own conclusions. It must, however, keep at the back of its mind that a trial court, unlike the appellate court, had the advantage of observing the demeanour of the witnesses and hearing their evidence first hand.
21. In the case of Mbogo and Another vs. Shah [1968] EA 93 the Court stated:
“…that this Court will not interfere with the exercise of judicial discretion by an inferior court unless it is satisfied that its decision is clearly wrong, because it has misdirected itself or because it has acted on matters on which is should not have acted or because it failed to take into consideration matters which it should have taken into consideration and in doing so arrived at a wrong conclusion.”
22. Again, the Court of Appeal for Eastern Africa in Pandya -vs- Republic [1957] EA 336 is as follows: -
“On a first appeal from a conviction by a Judge or magistrate sitting without a jury the appellant is entitled to have the appellate court’s own consideration and views of the evidence as a whole and its own decision thereon. It has the duty to rehear the case and reconsider the witnesses before the Judge or magistrate with such other material as it may have decided to admit. The appellate court must then make up its own mind not disregarding the judgment appealed from but carefully weighing and considering it. When the question arises which witness is to be believed rather than another and that question turns on manner and demeanor, the appellate court must be guided by the impression made on the Judge or magistrate who saw the witness but there may be other circumstances, quite apart from manner and demeanor which may show whether a statement is credible or not which may warrant a court different.”
23. This is an appeal from the Tax Appeals Tribunal to this court pursuant to Section 32 of the Tax Appeals Tribunal Act (Cap. 469A), which provides that appeals from the Tribunal lie with the High Court and that the rules applicable in the High Court are those set out by the Chief Justice.
“32. Appeals to the High Court on decisions of the Tribunal
(1) A party to proceedings before the Tribunal may, within thirty days after being notified of the decision or within such further period as the High Court may allow, appeal to the High Court, and the party so appealing shall serve a copy of the notice of appeal on the other party.
(2) The High Court shall hear appeals made under this section in accordance with rules set out by the Chief Justice.”
24. It is critical to note that Section 32 of the Tax Appeals Tribunal Act, as read together with the Tax Appeals Tribunal (Appeals to the High Court) Rules, does not restrict appeals from the Tribunal to be on issues of law only. It therefore means that in appeals from the Tribunal, this court has the power to interrogate both factual and legal findings of the Tribunal.
25. I have carefully reviewed and considered the Appellant’s memorandum of appeal dated 13th October 2023, the record of appeal, and the parties' submissions filed herein in support of their respective positions. I note that the two issues that arise for this Court’s determination are as follows:
i. Whether the Tribunal erred in failing to find that the Respondent’s appeal filed thereat was incompetent.
ii. Whether the Tribunal erred in its interpretation of the term “winnings” as provided under the Income Tax Act.
Whether the Tribunal erred in failing to find that the Respondent’s appeal filed thereat was incompetent.
26. The Appellant submitted in this appeal that the Tribunal erred by failing to find that the Respondent’s appeal to the Tribunal was invalid for having been filed outside the 30 days provided under both the Tax Procedures Act and the Tax Appeals Tribunal Act. Conversely
27. Conversely, the Respondent, on its part, maintained that its appeal at the Tax Appeals Tribunal was filed within the permitted statutory timelines and was therefore validly lodged.
28. First, it is necessary to point out that from the record of appeal and proceedings, I note that the question of whether or not the Respondent’s appeal was valid was not argued before the Tribunal. In its submissions dated 10th February 2023, filed at the Tribunal on 15th February 2023, the only issue that the Appellant raised concerning the competency of the Respondent’s appeal before the TAT was the fact that the Respondent (then an Appellant) had not paid the taxes not in dispute, being the sum of Kshs. 1,272,469,133/-, prior to lodging the appeal contrary to the provisions of Section 52 of the Tax Procedures Act.
29. From the record, there is nowhere in its pleadings or submissions before the Tribunal that the Appellant attacked the competency of the Respondent’s appeal based on the fact that the same was not filed/lodged outside the timelines provided under Section 13 of the Tax Appeals Tribunal Act.
30. Further, I equally note that contrary to the Appellant’s assertions, there is nowhere in the Judgment of the Tribunal where a determination was made on the competency of the appeal based on the timelines within which it was filed.
31. It is trite law that matters not canvassed by parties at trial cannot form the basis of an appeal. In West Kenya Sugar Company Limited v Okendo (Civil Appeal E056 of 2023) [2024] KEHC 2844 (KLR) (8 March 2024) (Judgment), the court stated as follows on the issue:
“Matters not canvassed by the parties and which the trial court did not get a chance to pronounce itself upon are not available for consideration by the appellate court. In this finding the court is bound and guided by the Court of Appeal in Republic V Tribunal of Inquiry to Investigate the Conduct of Tom Mbaluto & Others ex-parte Tom Mbaluto [2018] eKLR (as cited in Frera Engineering Company Limited v Morris Mureithi Mutembei (2020) eKLR where the court held that;
“It is in the discretion of the Court to allow a party to raise a new point on appeal, depending on the circumstances of the case…In this case we have stated that the appellant never raised the issue in his judicial review application, neither party addressed the issue in the High Court, the learned judge, quite properly did not address the issue and, to make the matters worse, the appellant did not raise the issue in his memorandum of appeal in this Court…. As has been stated time and again, there is a philosophy and logical reason behind our appellate system, which except in exceptional cases and upon proper adherence to the prescribed procedure, restricts the appellate court to consideration of the issues that were canvassed before and decided by the trial court. If that were not the case, the appellate court would become a trial court in disguise and make decisions without the benefit of the input of the court of first instance.”
32. Further, from the record of appeal, it is evident that by the consent of the parties dated 19th June 2023 and filed at the Tribunal on 26th June 2023, the only issue that proceeded for trial before the Tribunal was the question of “withholding tax on winnings.” The question of the competence of appeal was not one of the issues for the Tribunal’s determination.
33. In any event, I have perused the record of appeal and note that the Respondent’s appeal to the Tribunal was filed within the timelines provided in law. The Appellant issued its objection decision on 27th January 2022, and the Respondent filed its notice of appeal to the Tribunal on 25th February 2022. This was well within the 30 days provided under Sections 12 and 13 of the Tax Procedures Act, in the following terms:
“12. Appeals to the Tribunal
A person who disputes the decision of the Commissioner on any matter arising under the provisions of any tax law may, subject to the provisions of the relevant tax law, upon giving notice in writing to the Commissioner, appeal to the Tribunal,
Provided that such person shall before appealing, pay a non-refundable fee of twenty thousand shillings.
13. Procedure for appeal
(1) A notice of appeal to the Tribunal shall—
(a) be in writing or through electronic means;
(b) be submitted to the Tribunal within thirty days upon receipt of the decision of the Commissioner.”
34. In the premises, this Court finds and holds that this ground of appeal by the Appellant is unmeritorious and therefore fails.
Whether the Tribunal erred in its interpretation of the term “winnings” as provided under the Income Tax Act.
35. The Appellant submitted that under Section 2 of the Income Tax Act (as amended by the Finance Act 2018), the term “winnings” is defined in the following words:
“winnings” includes winnings of any kind and a reference to the amount or the payment of winnings shall be construed accordingly;
36. The above definition, according to the Appellant, meant that gross payouts to the punter were to be subjected to withholding tax, without excluding the amount of stakes placed by the punters. The Appellant submitted that tax statutes must be strictly construed and cited the Court of Appeal decision in Mount Kenya Bottlers Ltd & 3 others v Attorney General & 3 others [2019] eKLR in support of that position.
37. On its part, the Respondent maintained that the issue was res judicata, the same having been raised by the Appellant and decided by the Tribunal in the Tax Appeal No. 304 of 2019 Pevans East Africa Limited vs The Commissioner of Domestic Taxes, a decision which was later affirmed by the High Court in the Milimani High Court Commercial Income Tax Appeal No. E003 of 2019 Commissioner of Domestic Taxes vs Pevans East Africa Limited & 6 others.
38. It was further the Respondent’s position that, in any event, the Appellant’s interpretation of the term “winnings” as provided under the Income Tax Act was not correct. The Respondent maintained that the term winnings, according to the Income Tax Act, excluded stakes of punters and therefore the Appellant herein had no basis for demanding withholding tax on punters’ stakes.
39. I have carefully considered the Appellant’s submissions on the issue and note that the question of whether withholding tax on winning was based on the gross winnings, or excluded the stake by the punters, was the subject of the Tribunal's consideration in the Tax Appeal No. 304 of 2019 Pevans East Africa Limited vs The Commissioner of Domestic Taxes. The Tribunal, in that case, while deciding on the issue and stated as follows: -
“73. The said correspondence sought clarification and guidance on the definition of winnings under the Finance Act, 2018. It is not uncommon to seek such clarification from an officer of a competent body and one who is the regulator with statutory authority on the relevant subject in respect of a given sector or industry. Anthony Kimani Ndung’u was at the material time the Chairman of the Betting Control and Licensing Board and therefore a proper officer for any matter pertaining to the gaming industry and with authority for purposes of responding to issues pertaining to the industry as sought by the relevant stakeholders.
74. The Tribunal notes that at no time prior to this case did the Legislature explicitly or implicitly intimate that winnings either in the ITA or the BLGA should include Stakes or have the same meaning as gross pay-out. Furthermore, if the intention was to include Stakes in the definition of Winnings, the Legislature, which has never fallen short of words, would have specifically stated so, as it has done in Section 34 of the ITA. The Finance Bill 2019 is testament to the Legislature’s clarity on matters terminology and the same cannot be over emphasized beyond the proposed amendment to the First Schedule to the Excise Duty Act, 2015 in part II paragraph 5...” Excise duty on betting shall be ten percent of the amount wagered or staked’. The foregoing is a clear illustration that the drafters of the law appreciate the difference between a wager/stake and winnings.
75. In view of the foregoing, the Tribunal makes a finding that winnings as stipulated in the ITA refers to pay-outs by the licensee but does not include amounts staked by the bettor.”
40. The Commissioner (who is the Appellant herein), dissatisfied with the Tribunal’s decision, appealed to this Court against the finding vide the Milimani High Court Commercial Income Tax Appeal No. E003 of 2019 Commissioner of Domestic Taxes vs Pevans East Africa Limited & 6 others. The Court (Majanja J), while upholding the Tribunal’s finding on the issue, stated that:
“35. On the legal aspects of the matter, I hold that when the definition of winnings was first amended on 18th July 2018, it was clear and specific that “winnings” meant the amount gained by the punter over and above the amount staked. However, the 21st September 2018 amendment limited and generalised this definition, leaving it open to interpretation by the commissioner or taxpayer as to the amount payable. I have no doubt that the current definition of “winnings” under Section 2 of the ITA is ambiguous. By stating that, “winnings of any kind and a reference to the amount or the payment of winnings shall be construed accordingly”. The “amount or payment of winnings” does not state or clarify whether that amount includes the stake. Further by stating that the reference shall be construed accordingly does not make any sense as it is not clear what the point of reference is. I am therefore in agreement with the Respondents that it does not state or set out what constitutes winnings and how to compute the “winnings” ….
37. The Fact of ambiguity is not idle as other tax statutes have sought to resolve it. The Excise Duty act, 2015 imposes excise tax on betting services and when they were brought to charge through the Finance Act, 2019, the amendment therein was very explicit that “Excise duty on betting shall be twenty percent of the amount wagered or staked.” This buttresses the point that had parliament intended to define “winnings’ to include both the wager and the profit, nothing would have been easier than for it so state just like they did in the Tax Laws (Amendment) Act, 2018 and the Excise Duty Act, 2015.
38. It is clear that the strictest interpretation that favours the taxpayer, in this case the Respondents in respect of the definition of “winnings”, in that it is the payment made to the punter less the amount staked. It is this amount that is subject to tax and what the Respondents are obligated to deduct and remit to the Commissioner. I am therefore in agreement with the Tribunal’s conclusion on its definition of “winnings.”
41. From the foregoing, it is abundantly clear that the question of whether withholding tax on winnings was to be levied on the gross payouts, or was to exclude the stakes by punters, has been decided, both at the Tax Appeals Tribunal and by this Court. The dispute, having been between the same parties and on substantially similar issues, is therefore res judicata.
42. The Black’s law Dictionary 10th Edition defines “res judicata” as:
“An issue that has been definitively settled by judicial decision…the three essentials are (1) an earlier decision on the issue, (2) a final Judgment on the merits, and (3) the involvement of the same parties, or parties in privity with the original parties…”
43. Further, Section 7 of the Civil Procedure Act provides as follows:
7. Res judicata
"No court shall try any suit or issue in which the matter directly and substantially in issue has been directly and substantially in issue in a former suit between the same parties, or between parties under whom they or any of them claim, litigating under the same title, in a court competent to try such subsequent suit or the suit in which such issue has been subsequently raised, and has been heard and finally decided by such court."
44. The Supreme Court in the case of Independent Electoral & Boundaries Commission vs Maina Kiai & 5 Others [2017] eKLR, held that all the elements outlined thereunder must be satisfied conjunctively for the doctrine to be invoked. That is:
"(a) The suit or issue was directly and substantially in issue in the former suit.
(b) That former suit was between the same parties or parties under whom they or any of them claim.
(c) Those parties were litigating under the same title.
(d) The issue was heard and finally determined in the former suit.
(e) The court that formerly heard and determined the issue was competent to try the subsequent suit or the suit in which the issue is raised.”
45. All the above elements as prescribed by the Supreme Court in the Maina Kiai Case (supra) have been met in the instant case. Accordingly, it is the finding of this Court that the scope of “withholding tax on winnings” under the Income Tax Act has been decided by this Court and therefore res judicata.
46. The upshot of the above determination is that the instant appeal lacks merit and is accordingly dismissed with costs to the Respondent.
47. It is so ordered.
SIGNED, DATED and DELIVERED IN VIRTUAL COURT
THIS 3RD DAY OF APRIL 2025
ADO MOSES
JUDGE
In the presence of:
Moses – Court Assistant.
N/A……………....For the Appellant.
Oboso……………...For the Respondent.