1. The application that comes up for determination is the one dated at Nairobi this 28 day of June 2024 wherein the applicant is seeking the following Orders:-
1) An Order of Prohibition directed at the Kenya Revenue Authority, either by itself, its agents or employees restraining it from taking any steps, actions, measures to impose, or collect any taxes from the exparte Applicant for the period of 2011 to 2023 when the Commissioner of Domestic Taxes illegally and unreasonably denied the Applicant a Tax Exemption Certificate.
2) An Order of Mandamus to compel the 1st and 2ndRespondents to comply with the terms of the Settlement Agreement dated 28 October 2021 in which the 1st Respondent undertook to issue the exparte Applicant with a Tax Exemption Certificate within 30 days of the exparte Applicant settling full taxes for 2019 and 2020 (which were settled in full) and not later than 30 days upon receipt of the exparte Applicant’s application for a Tax Exemption Certificate
3) A Declaration that the failure by the Respondents to issue a Tax Exemption Certificate to the exparte Applicant in accordance with the Income Tax Act, Chapter 470 of the Laws of Kenya, the parent statute herein amounts to a violation of the exparte Applicant’s constitutional right to enjoy rule of law, fair administrative action and to a fair taxation burden guaranteed under Articles 10 (2) (a), 10 (2) (b), 47 and 48 of the Constitution of Kenya, 2010, respectively.
4) The cost of this Application be provided for.
The Applicant’s Case;
2. It is the applicant’s case that on 23 March 2011, the Applicant made an application to the 2nd Respondent for renewal of the Tax Exemption Certificate as its previous certificate had expired.
3. The 2nd Respondent reviewed the application making a requests for documentation and the Applicant providing all the information requested.
4. The 1st Respondent alleged it notified the Applicant via e-mail dated 18 April 2019, indicating that the application for a Tax Exemption Certificate was denied, as per a letter issued on 25 July 2012.
5. The Applicant avers that it neither received the letter nor the email notification that its application for a Tax Exemption Certificate was denied.
6. On 25th October 2019, the Respondents issued the Applicant with an assessment demanding corporate income tax of KES.2,885,788 for the year 2018.
7. The Applicant objected to the assessment on 1st November 2019. Subsequently, the Respondents issued the Applicant with a demand notice on 11th June 2020 for corporate tax of KES.3,319,799 for the year 2018.
8. The Applicant responded to the demand via a letter dated 30th July 2020 stating that the Respondents were statutorily time barred from issuing the demand by dint of the 5-year statutory limit under section 31 of the Tax Procedures Act, 2015 (TPA).
9. Further, the Applicant requested that the Respondents to process the Tax Exemption Certificate application.The Respondents issued an Objection Decision on 19 August 2020 stating that the Applicant was liable to pay taxes amounting to KES. 2,037,299.
10. The Applicant lodged an Appeal at the Tax Appeals Tribunal (the Tribunal) in Tax Appeal No.456 of 2020, The Madressa-El-Mohammediah Education Society vs Commissioner of Domestic Taxes (the Appeal).
11. A judgment was issued on 30th July 2021 allowing the appeal on the basis that the Respondents had issued an objection decision outside of the 60 days statutorily mandated period under section 51 of the TPA.
12. The effect of the Tribunal’s Judgment was that the Applicant’s Appeal as well as in its Notice of Objection were as deemed allowed by operation of law.
13. The Applicant continued to engage the Respondents on a good faith basis on the status of its Tax Exemption Certificate application. Pursuant to which the parties entered into the Settlement Agreement on 28 October 2021.It contained the following terms inter alia:
a) “Paragraph 29(vi) of the Settlement Agreement:that upon settlement of the full amount of principal corporate income tax for 2019 and 2020, the Commissioner will issue the Society with a Tax Exemption Certificate (the TEC) immediately upon settlement of the full taxes for 2019 and 2020 and not later than thirty (30) days upon receipt of the Society’s application for a TEC. The issuance of the TEC shall be a fundamental precondition of the contractual settlement between the Commissioner and the Taxpayer;
b) Paragraph 29(vii) of the Settlement Agreement: that upon issuance of the TEC by the Commissioner, the tax exemption status will be applicable to the Taxpayer for the year 2021 and the following five (5) years and the Commissioner will not demand any taxes for the years 2021 up to 2026 (both inclusive);
c) Paragraph 30 of the Settlement Agreement: the ADR Agreement is legally binding and shall be the full and final settlement of the matter; and
d) Paragraph 31 of the Settlement Agreement: The Parties undertake to act in good faith to do all acts, deeds and take such steps, including to execute all documents as may be necessary to finalise the Agreement and to facilitate the performance of the obligations contained therein.”
14. In a bid to comply with its part,the Applicant paid the principal corporation income tax in one payment on 28 October 2021.
15. Thereafter the Applicant requested the Respondents to issue a tax exemption certificate. In this regard, the Respondents advised the Applicant to make an application in order to be issued with the Tax Exemption Certificate.
16. In a letter dated 10th March 2022, the Applicant made a fresh application for a Tax Exemption Certificate.On 17th March 2022 an agent of the 2nd Respondent, visited the premises of the Applicant in Mombasa.
17. The purpose of the visit was to carry out an inspection and an interview after which a report would be sent to the 2nd Respondent’s offices in Nairobi regarding the application for a Tax Exemption Certificate.
18. Following the visit, the Respondent requested for information on 22nd March 2022 pertaining to the beneficiaries of the Applicant, the properties owned by the Applicant, the rent earned by the Applicant from its properties and an explanation in relation to the intended use of the surplus funds held by the Applicant in the years 2018, 2019 and 2020.
19. The Applicant responded via a letter dated 22th April 2022 and provided all the information requested for by the Respondents and explained the intended use of the surplus funds to refurbish the buildings whose structural integrity.
20. It argues that the 1st Respondent and 2ndRespondent have deployed a mechanism of repeatedly requesting for documents and posing inquiries regarding the utilization of excess funds, actions which appear to be strategically aimed at circumventing the issuance of the Tax Exemption Certificate to the Applicant.
21. On 4th October 2022, the Respondents requested for additional information relating to the expenditure of the Applicant for the years 2018 and again requested for an explanation on the retention of funds by the Applicant in the years 2018, 2019 and 2020.The Applicant responded via a letter dated 7th October 2022 setting out the details of its expenditure in 2018.
22. The Applicant informed the Respondent that the reason for the retention of funds was to repair the significantly old buildings from which the Applicant generates rental income which is applied towards alleviation of poverty.
23. In a letter dated 13th March 2023, the Respondents requested for information pertaining to the ownership of the Applicant’s buildings, which were destroyed by fire, whether there was compensation by insurance for the buildings destroyed by fire, an explanation for the retention of funds by the Applicant in the years 2018, 2019 and 2020 and details of how the bursaries are allocated by the Applicant.
24. The Applicant responded via a letter dated 16th March 2023 and provided all the information requested by the Respondents.
25. On 2nd May 2023 the Respondents issued a demand requiring the Applicant to pay corporate income tax of KES. 6,023,612 for the years 2018, 2019 and 2020.
26. The Applicant responded to the demand through its agents via an e-mail dated 16th May 2023 challenging the demand as the Applicant’s income is exempt from tax and requesting the Respondents to fulfill their obligations under the Settlement Agreement by issuing the Tax Exemption Certificate.
27. On 25th May 2023, the Respondents once again made a request via email to be provided with an analysis of the expenditure of the Applicant.The Applicant responded by providing the details of the payouts for the years 2018 and 2020 on 4 July 2023.
28. On 10th August 2023, the Respondents requested for further information relating to an impact report of the Applicants activities in the community and details of its beneficiaries via e-mail. The Applicant responded to this request on 13th October 2023 providing the Respondents with the information requested.
29. On 6th November 2023, the Respondents made another request for supplementary information regarding the bank statements of the Applicant. The Applicant once again complied with the request and supplied the requested information to the Respondents on 17 th November 2023.
30. On 29th January 2024, the 1st Respondent declined to issue the Applicant with a Tax Exemption certificate and instead directed the Applicant to resubmit its application with a clear demonstration of the utilization of its funds.
31. In the said Letter, the Respondent articulated that the basis for its refusal to issue the Tax Exemption Certificate to the Applicant was predicated upon the allegation that the Applicant's deployment of funds towards charitable endeavors failed to satisfy the stipulations set forth in Paragraph 10 of the ITA.
32. For the exemption to be granted, the charitable organization must expend its income towards its objective.
33. The ITA does not require all the income be expended toward the charitable objectives of the Applicant.
34. It is the Applicant’s case that The ITA also envisions that for the exemption to be granted the income can also be applied to either such business is carried on in the course of the actual execution of those purposes; or the work in connection with such business is mainly carried on by beneficiaries under those purposes; or such gains or profits consist of rents (including premiums or any similar consideration in the nature of rent) received from the leasing or letting of land and chattels leased or let therewith.
The Applicant’s Submissions;
35. Frustrated by the Respondents’ bad faith and perpetual request for the same documents in support of the exemption, documents which the Applicant had provided severally to the 1st Respondent, the Applicant lodged this instant suit with a view of seeking to enforce the Settlement Agreement.
36. The Applicant submits that not only is judicial review the appropriate course of action but also the only avenue to remedy the conduct of the Respondents for the following reasons:
a. The Respondents are a public body and its agent respectively, with the mandate of collecting taxes on behalf of the Government of Kenya. This mandate is administrative in nature thus making a judicial review court the appropriate court to adjudicate on the matter;
b. The Tribunal became functus officio the moment it delivered its judgment finding that the Applicant’s Objection was deemed allowed by operation of the law. Therefore, the Applicant could not go back to the Tribunal considering that the Tribunal had already pronounced itself on the substratum of appeal;
c. The Respondents entered into the Settlement Agreement with the Applicant in exercise of its administrative mandate thus making the Judicial Review court the only avenue to address non-compliance with the terms of the Settlement Agreement;
d. In any event, the Applicant could not have appealed against the judgment of the TAT to the High Court considering the Tribunal ruled in the Applicant’s favour; and
e. The Applicant exhausted all available remedies to address and resolve the matter before lodging its appeal.
37. In fact, the Settlement Agreement itself is a product of the Respondent’s internal remedy being ADR process.
38. The Applicant relies on Article 22(1) of the Constitution of Kenya, 2010 (CoK), which vests in this Court the power to hear and determine applications for redress of a denial, violation or infringement of, or threat to, a right or fundamental freedom in the Bill of Rights. Article 22 (3) further provides that in granting the appropriate relief, may issue an order for judicial review.
39. Article 47 (1) of the CoK provides that every person has the right to administrative action that is expeditious, efficient, lawful, reasonable and procedurally fair.
40. Sections 9 (1) and 9 (2) of the Fair Administrative Action Act, 2015 (the FAA Act) further buttresses the provisions of Article 47 (1) of the CoK as follows:
9 (1) Subject to subsection (2), a person who is aggrieved by an administrative action may, without unreasonable delay, apply for judicial review of any administrative action to the High Court or to a subordinate court upon which original jurisdiction is conferred pursuant to Article 22(3) of the Constitution.
9 (2) The High Court or a subordinate court under subsection (1) shall not review an administrative action or decision under this Act unless the mechanisms including internal mechanisms for appeal or review and all remedies available under any other written law are first exhausted.
41. The Applicant submits that the actions by the Respondents in this matter are administrative in nature as the Respondents have continually frustrated the Applicant’s application for a Tax Exemption Certificate, through a delay in procedure without making reference to the merits of the Applicant’s Application. Therefore, the Respondents have infringed the Applicant’s constitutional right of fair administrative action thus making this Honourable Court to remedy the Respondents’ conduct.
42. The 1st Respondent being an administrative body is enjoined by the requirements of Article 47 of the CoK. Article 47 not only has the element of procedural fairness but also provides that administrative action must be “expeditious, efficient, lawful and reasonable.
43. In Mbaabu v Cabinet Secretary in Charge of Lands & 5 others (Judicial Review Application E001 of 2023) [2023] KEELC 20512 (KLR) where the Environment and Land Court made reference to the Court of Appeal in Cortec Mining (K) Ltd vs Ministry of Mining and 9 others (2017) eKLR which held with reference to judicial review, that:
“[to] succeed in any application for judicial review, the applicant has to show that the decision or act complained of is tainted with illegality, irrationality and procedural impropriety… Procedural impropriety is when there is a failure to act fairly on the part of the decision-making authority in the process of taking a decision. The unfairness may be in non-observance of the rules of natural justice or to act with procedural fairness toward one to be affected by the decision.”
44. In the context of this matter, the Applicant submits that the 1st Respondent’s refusal to issue the Applicant with TEC is irrational, unreasonable and procedurally unfair. Specifically, the Applicant submits that the Respondent’s refusal to issue the Applicant with the TEC and the repeated requests for the same documents that had already been provided by the Applicant is irrational, arbitrary and unreasonable. As outlined in great detail in the Verifying Affidavit and reinforced in the Supplementary Affidavit, the Applicant had complied with every request for document made by the 1st Respondent.
45. The 1st Respondent put the ex parte Applicant in a perpetual state of providing the exact set of documents only for the 1stRespondent to conclude that the Applicant did not qualify for a TEC despite the fact that this was not the Applicant’s first application to be granted a TEC. The Applicant had previous TECs and did not change its form, nor its operations to be disqualified from holding a TEC. Therefore, there was no justifiable reason for the 1stRespondent to deny the Applicant’s application.
46. In Republic v Were & 2 others; Makhanu & 8 others (Exparte) (Judicial Review E001 of 2024) [2024] KEHC 8139 (KLR), the High Court made reference to Section 9 of the Fair which provides that:
“Subject to subsection 2, a person who is aggrieved by an administrative action may, without unreasonable delay apply for judicial review of any administrative action to the high court or a subordinate court upon which original jurisdiction is conferred pursuant to Article 22(3) of the constitution.”
47. In Capital Markets Authority v Ciano & another [2023] KECA 581 (KLR), the Court of Appeal held that:
“Section 9(2) of the FAA Act reproduced earlier provides that the High Court or a subordinate court under sub-section (1) shall not review an administrative action or decision under the Act unless the mechanisms including internal mechanisms for appeal or review and all remedies available under any other written law are first exhausted.”
48. The Applicant acknowledges the doctrine of exhaustion of statutory remedies under section 9 (2) and (3) of the Fair Administration Act.
49. It submits that the Applicant has exhausted the procedures and remedies prescribed by the Income Tax Act by objecting to the Respondents’ assessment on 1st November 2019, and thereafter pursuing the Tax Appeals Tribunal (the Tribunal) regarding this dispute in Tax Appeal No. 456 of 2020, the Madressa-El-Mohammediah Education Society v Commissioner of Domestic Taxes (the Appeal) upon which both Applicant and Respondents entered into a Settlement Agreement.
50. The Applicant, in good faith and with utmost regard for the rule of law, duly complied and discharged its obligation under the Settlement Agreement by paying the principal corporation income tax in totality. However, the Respondents failed to discharge their obligation under the Settlement Agreement and the Respondents continue to frustrate the Applicant, directly and through their agents, by refusing to issue the Tax Exemption Certificate – a fundamental aspect of the Settlement Agreement. It is after these instances of breach of the Settlement Agreement that the Applicant has approached this court as a means of last resort.
51. The Court of Appeal in Capital Markets Authority v Ciano & another (supra) also reiterated that every person has the right to fair administrative action:
“Article 47 of the Constitution codifies every person's right to fair administrative action that is expeditious, efficient, lawful, reasonable and procedurally fair. Section 4 of the FAA Act echoes Article 47 and reiterates the entitlement of every person to administrative action that is expeditious, efficient, lawful, reasonable and procedurally fair.”
52. The Applicant’s right to fair administrative action has been breached by the Respondents. Despite the terms agreed to in the Settlement Agreement, and the issuance of past Tax Exemption Certificates to the Applicant, the Respondents have continually and without reasonable justification, delayed the issuance of the Tax Exemption Certificate.
53. The Respondents’ conduct is irrational, arbitrary, in bad faith and contrary to the Applicant’s legitimate expectation.
54. The Applicant pleads that it is unfair, and it is also an abuse of power. As a result, the Applicant’s constitutional right to a fair administrative action has been infringed, thus leaving the Applicant with no option but to apply to this Honourable Court for judicial review.
55. In Speaker of the National Assembly v Karume, Civil Application No. NAI 92 of 1992, quoted with approval by the High Court in Havi v Kenya Revenue Authority (Judicial Review Application E129 of 2023) [2024] KEHC 3006 (KLR) which held that where there is a clear procedure for the redress of a particular grievance prescribed by the Constitution or an Act of Parliament, that procedure should be strictly followed.
56. The Applicant, having complied with the internal mechanisms under the ITA, to redress the unlawful, arbitrary, irrational, and unfair decision of the Respondents, has approached this court to redress the violation of their rights under Articles 10, 22, 23 and 47 of the Constitution pursuant to Article 22 (3) of the Constitution.
57. Therefore, this court exercising its jurisdiction will not be usurping any powers of anybody vested with any mandate as the Applicant has been both deliberate and intentional to explore all the available remedies.
58. It is submitted that The Respondents have continually acted unfairly towards the Applicant through the delay in the issuance of the Tax Exemption Certificate. Further, in certain instances, like on 18th April 2019, the Respondents refused to grant the Tax Exemption Certificate to the Applicant without any communicated reason whatsoever.
59. The Settlement Agreement entered into by the parties stipulated that a fundamental provision of the Settlement Agreement was the issuance of the Tax Exemption Certificate, upon compliance with the terms by the Applicant.
60. It submits that the Applicant has complied with the terms of the Settlement Agreement, thus there are no grounds for the Respondents to not issue the Tax Exemption Certificate.
61. In the context of this matter, the Applicant prays that 2ndRespondent, either by itself, its agents or employees restraining it from taking any steps, actions, measures to impose, or collect any taxes from the Applicant for the period of 2011 to 2023 when the 1st Respondent illegally and unreasonably denied the Applicant a Tax Exemption Certificate.
62. An order of prohibition looks to the future, to prevent an incorrect course of practice by an inferior tribunal or a wrong decision. It prevents an action before the action takes place and has no time dealing with the consequences of the prohibited action as the consequences never come to exist anyway.
63. In Kimani v Director of Public Prosecutions & 3 others (Judicial Review Application E062 of 2023) [2024] KEHC 3269 (KLR) (Judicial Review) (3 April 2024) the High Court made reference to Republic v Principal Kadhi, Mombasa Ex-parties Alibhai Adamali Dar & 2 others; Murtaza Turabali Patel (Interested Party) [2022] eKLR where the Court held that;
“Although prohibition was originally used to prevent tribunals from meddling with cases over which they had no jurisdiction, it was equally effective and equally often used, to prohibit the execution of some decision already taken but ultra vires. So long as the tribunal or administrative authority still had power to exercise as a consequence of the wrongful decision, the exercise of that power could be restrained by prohibition.”(Emphasis ours).
64. As a result of the wrongful decision to not issue the Tax Exemption Certificate, the Respondents may still be able to demand for the collection of taxes for the period stipulated above- a period that is outside the statutory limit of 5 years under the TPA, thereby circumventing the statutory demand limit.
65. An order of Prohibition would ensure that the Applicant is protected from the above potential retroactive actions of the 2nd Respondent as a result of the Respondents refusal to issue the Applicants with a Tax Exemption Certificate.
66. The non-issuance of the Tax Exemption Certificate impedes the rules of natural justice. In Esther Victoria Wanjiku Mahoro v Mary Wambui Githinji & 3 others [2021] eKLR, the Environment and Land Court made reference to the Court in Kenya National Examination Council…Vs…Republic Exparte Geoffrey Gathenji & 9 Others, Nairobi Civil Appeal No.266 of 1996where with respect to the Court making an order of Prohibition, that:
“It is an order from the High Court directed to an inferior tribunal or body which forbids that tribunal or body to continue proceedings therein in excess of its jurisdiction or in contravention of the laws of the land. It lies, not only for excess of jurisdiction or absence of it but also for a departure from the rules or natural justice.”
67. It submits that as the 2nd Respondent has acted in a manner that has impeded natural justice in its continual delay and frustration of the issuance of the Tax Exemption Certificate, an order of Prohibition against the Respondents would ensure the restraint of further actions impeding the Applicant’s right to natural justice.
68. Reliance is placed in Republic v Governor Vihiga County Ex parte Amos Kutwa Koluwa, Pamella Mbagaya Kimwele, Kenneth Elvuna Keseko & Paul Jiseve Mbuni [2021] KEHC 2330 (KLR) quoted with approval the holding of the Court of Appeal in Kenya National Examination Council v Republic Ex Parte Geoffrey Gathenji Njoroge, N S, J W, R N, G W, A W, C W, B W, S N & J B [1997] KECA 58 (KLR) on a question of the obligation of the High Court to enhance the rules of natural justice, the High Court is entitled, indeed duty-bound to intervene and prohibit a body from acting in violation of the rules of natural justice.
69. In advancing the issue order of mandamus against the respondents reliance is placed in Kenya National Examination Council v Republic Ex Parte Geoffrey Gathenji Njoroge, N S, J W, R N, G W, A W, C W, B W, S N & J B (supra) the Court of Appeal acknowledged that an order of mandamus will compel the performance of a public duty which is imposed on a person or body where that body has failed to perform the duty to the detriment of a party who has a legal right to expect that duty to be performed.
70. This Court issues an order of Mandamus against the Respondents, to compel the Respondents to uphold the Settlement Agreement and issue the Tax Exemption Certificate following the settlement of the requisite taxes by the Applicant as per the Settlement Agreement.
71. In Kungu v County Government of Nairobi (Judicial Review Miscellaneous Application E034 of 2023) [2024] KEHC 3265 (KLR) (Judicial Review) (3 April 2024) the High Court made reference to Republic v Kenya National Examinations Council Ex Parte Gathenji & 8 Others Civil Appeal No 234 of 1996 where the Court of Appeal held that:
“An order of mandamus compels the performance of a public duty which is imposed on a person or body of persons by a statute and where that person or body of persons has failed to perform the duty to the detriment of a party who has a legal right to expect the duty to be performed.”
72. It submits that an order of Mandamus to compel the Respondents to issue the Tax Exemption Certificate would ensure that the Applicant’s legal right derived from the ITA, FAA and the Settlement Agreement be upheld by the Respondents. The Respondents as public bodies have failed to perform their legal obligations as per the ITA, FAA and Settlement Agreement, to the detriment of the Applicant’s legal rights. As such, an order of Mandamus issued by this Court would ensure the protection of the Applicant’s legal rights.
73. The Applicant has also exhausted all avenues of resolving this dispute with the Respondents, and despite entering into a Settlement Agreement, parties have still not had a fruitful outcome due to the unreasonable delays by the Respondents.
74. In Kenya National Examination Council v Republic Ex Parte Geoffrey Gathenji Njoroge, N S, J W, R N, G W, A W, C W, B W, S N & J B (supra) the Court of Appeal held that:
“The order of mandamus is of a most extensive remedial nature, and is, in form, a command issuing from the High Court of Justice, directed to any person, corporation or inferior tribunal, requiring him or them to do some particular thing therein specified which appertains to his or their office and is in the nature of a public duty. Its purpose is to remedy the defects of justice and accordingly it will issue, to the end that justice may be done, in all cases where there is a specific legal right and no specific legal remedy for enforcing that right;
75. The Court of Appeal went on further to analogize the importance of a compelling order of mandamus to a public body as follows:
“if a party applies for a licence under section 8 (Liquor Licensing Act, Chapter 121 Laws of Kenya) and the licensing court simply refuses or neglects to consider and determine the application such a party would be entitled to come and ask the High Court for a mandamus, and if the High Court is satisfied that the licensing court has simply refused or neglected to consider and determine the “application” the High Court would be entitled to issue an order of mandamus, compelling the licensing court to consider and determine the application as it is bound by the law to do so.” (Emphasis ours)
76. The Applicant submits that it has no other avenue to remedy the violation of its constitutional rights by the Respondents.
77. The Applicant has exhausted potential dispute resolution processes, including entering into a Settlement Agreement with the Respondents (where the Applicant complied with their obligations under the Settlement Agreement).
78. Since the Settlement Agreement has not been contested by either party, it remains binding upon the parties.
79. In Brand Strategy & Design Limited & another v Pride Inn Hotels and Conferencing [2024] KEHC 9394 (KLR) the court acknowledged this position setting out that contracts are binding upon parties.
80. Relying on the decision in National Bank of Kenya Ltd v Pipeplastic Samkolit (K) Ltd & another [2001] eKLR, the court outlined that:
“A court of law cannot re-write a contract between the parties. The parties are bound by the terms of their contract, unless coercion, fraud or undue influence are pleaded and proved.”
81. The Respondents have, even remotely, suggested that t
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1) An Order of Prohibition directed at the Kenya Revenue Authority, either by itself, its agents or employees restraining it from taking any steps, actions, measures to impose, or collect any taxes from the exparte Applicant for the period of 2011 to 2023 when the Commissioner of Domestic Taxes illegally and unreasonably denied the Applicant a Tax Exemption Certificate.
2) An Order of Mandamus to compel the 1st and 2ndRespondents to comply with the terms of the Settlement Agreement dated 28 October 2021 in which the 1st Respondent undertook to issue the exparte Applicant with a Tax Exemption Certificate within 30 days of the exparte Applicant settling full taxes for 2019 and 2020 (which were settled in full) and not later than 30 days upon receipt of the exparte Applicant’s application for a Tax Exemption Certificate
3) A Declaration that the failure by the Respondents to issue a Tax Exemption Certificate to the exparte Applicant in accordance with the Income Tax Act, Chapter 470 of the Laws of Kenya, the parent statute herein amounts to a violation of the exparte Applicant’s constitutional right to enjoy rule of law, fair administrative action and to a fair taxation burden guaranteed under Articles 10 (2) (a), 10 (2) (b), 47 and 48 of the Constitution of Kenya, 2010, respectively.
4) The cost of this Application be provided for.
The Applicant’s Case;
2. It is the applicant’s case that on 23 March 2011, the Applicant made an application to the 2nd Respondent for renewal of the Tax Exemption Certificate as its previous certificate had expired.
3. The 2nd Respondent reviewed the application making a requests for documentation and the Applicant providing all the information requested.
4. The 1st Respondent alleged it notified the Applicant via e-mail dated 18 April 2019, indicating that the application for a Tax Exemption Certificate was denied, as per a letter issued on 25 July 2012.
5. The Applicant avers that it neither received the letter nor the email notification that its application for a Tax Exemption Certificate was denied.
6. On 25th October 2019, the Respondents issued the Applicant with an assessment demanding corporate income tax of KES.2,885,788 for the year 2018.
7. The Applicant objected to the assessment on 1st November 2019. Subsequently, the Respondents issued the Applicant with a demand notice on 11th June 2020 for corporate tax of KES.3,319,799 for the year 2018.
8. The Applicant responded to the demand via a letter dated 30th July 2020 stating that the Respondents were statutorily time barred from issuing the demand by dint of the 5-year statutory limit under section 31 of the Tax Procedures Act, 2015 (TPA).
9. Further, the Applicant requested that the Respondents to process the Tax Exemption Certificate application.The Respondents issued an Objection Decision on 19 August 2020 stating that the Applicant was liable to pay taxes amounting to KES. 2,037,299.
10. The Applicant lodged an Appeal at the Tax Appeals Tribunal (the Tribunal) in Tax Appeal No.456 of 2020, The Madressa-El-Mohammediah Education Society vs Commissioner of Domestic Taxes (the Appeal).
11. A judgment was issued on 30th July 2021 allowing the appeal on the basis that the Respondents had issued an objection decision outside of the 60 days statutorily mandated period under section 51 of the TPA.
12. The effect of the Tribunal’s Judgment was that the Applicant’s Appeal as well as in its Notice of Objection were as deemed allowed by operation of law.
13. The Applicant continued to engage the Respondents on a good faith basis on the status of its Tax Exemption Certificate application. Pursuant to which the parties entered into the Settlement Agreement on 28 October 2021.It contained the following terms inter alia:
a) “Paragraph 29(vi) of the Settlement Agreement:that upon settlement of the full amount of principal corporate income tax for 2019 and 2020, the Commissioner will issue the Society with a Tax Exemption Certificate (the TEC) immediately upon settlement of the full taxes for 2019 and 2020 and not later than thirty (30) days upon receipt of the Society’s application for a TEC. The issuance of the TEC shall be a fundamental precondition of the contractual settlement between the Commissioner and the Taxpayer;
b) Paragraph 29(vii) of the Settlement Agreement: that upon issuance of the TEC by the Commissioner, the tax exemption status will be applicable to the Taxpayer for the year 2021 and the following five (5) years and the Commissioner will not demand any taxes for the years 2021 up to 2026 (both inclusive);
c) Paragraph 30 of the Settlement Agreement: the ADR Agreement is legally binding and shall be the full and final settlement of the matter; and
d) Paragraph 31 of the Settlement Agreement: The Parties undertake to act in good faith to do all acts, deeds and take such steps, including to execute all documents as may be necessary to finalise the Agreement and to facilitate the performance of the obligations contained therein.”
14. In a bid to comply with its part,the Applicant paid the principal corporation income tax in one payment on 28 October 2021.
15. Thereafter the Applicant requested the Respondents to issue a tax exemption certificate. In this regard, the Respondents advised the Applicant to make an application in order to be issued with the Tax Exemption Certificate.
16. In a letter dated 10th March 2022, the Applicant made a fresh application for a Tax Exemption Certificate.On 17th March 2022 an agent of the 2nd Respondent, visited the premises of the Applicant in Mombasa.
17. The purpose of the visit was to carry out an inspection and an interview after which a report would be sent to the 2nd Respondent’s offices in Nairobi regarding the application for a Tax Exemption Certificate.
18. Following the visit, the Respondent requested for information on 22nd March 2022 pertaining to the beneficiaries of the Applicant, the properties owned by the Applicant, the rent earned by the Applicant from its properties and an explanation in relation to the intended use of the surplus funds held by the Applicant in the years 2018, 2019 and 2020.
19. The Applicant responded via a letter dated 22th April 2022 and provided all the information requested for by the Respondents and explained the intended use of the surplus funds to refurbish the buildings whose structural integrity.
20. It argues that the 1st Respondent and 2ndRespondent have deployed a mechanism of repeatedly requesting for documents and posing inquiries regarding the utilization of excess funds, actions which appear to be strategically aimed at circumventing the issuance of the Tax Exemption Certificate to the Applicant.
21. On 4th October 2022, the Respondents requested for additional information relating to the expenditure of the Applicant for the years 2018 and again requested for an explanation on the retention of funds by the Applicant in the years 2018, 2019 and 2020.The Applicant responded via a letter dated 7th October 2022 setting out the details of its expenditure in 2018.
22. The Applicant informed the Respondent that the reason for the retention of funds was to repair the significantly old buildings from which the Applicant generates rental income which is applied towards alleviation of poverty.
23. In a letter dated 13th March 2023, the Respondents requested for information pertaining to the ownership of the Applicant’s buildings, which were destroyed by fire, whether there was compensation by insurance for the buildings destroyed by fire, an explanation for the retention of funds by the Applicant in the years 2018, 2019 and 2020 and details of how the bursaries are allocated by the Applicant.
24. The Applicant responded via a letter dated 16th March 2023 and provided all the information requested by the Respondents.
25. On 2nd May 2023 the Respondents issued a demand requiring the Applicant to pay corporate income tax of KES. 6,023,612 for the years 2018, 2019 and 2020.
26. The Applicant responded to the demand through its agents via an e-mail dated 16th May 2023 challenging the demand as the Applicant’s income is exempt from tax and requesting the Respondents to fulfill their obligations under the Settlement Agreement by issuing the Tax Exemption Certificate.
27. On 25th May 2023, the Respondents once again made a request via email to be provided with an analysis of the expenditure of the Applicant.The Applicant responded by providing the details of the payouts for the years 2018 and 2020 on 4 July 2023.
28. On 10th August 2023, the Respondents requested for further information relating to an impact report of the Applicants activities in the community and details of its beneficiaries via e-mail. The Applicant responded to this request on 13th October 2023 providing the Respondents with the information requested.
29. On 6th November 2023, the Respondents made another request for supplementary information regarding the bank statements of the Applicant. The Applicant once again complied with the request and supplied the requested information to the Respondents on 17 th November 2023.
30. On 29th January 2024, the 1st Respondent declined to issue the Applicant with a Tax Exemption certificate and instead directed the Applicant to resubmit its application with a clear demonstration of the utilization of its funds.
31. In the said Letter, the Respondent articulated that the basis for its refusal to issue the Tax Exemption Certificate to the Applicant was predicated upon the allegation that the Applicant's deployment of funds towards charitable endeavors failed to satisfy the stipulations set forth in Paragraph 10 of the ITA.
32. For the exemption to be granted, the charitable organization must expend its income towards its objective.
33. The ITA does not require all the income be expended toward the charitable objectives of the Applicant.
34. It is the Applicant’s case that The ITA also envisions that for the exemption to be granted the income can also be applied to either such business is carried on in the course of the actual execution of those purposes; or the work in connection with such business is mainly carried on by beneficiaries under those purposes; or such gains or profits consist of rents (including premiums or any similar consideration in the nature of rent) received from the leasing or letting of land and chattels leased or let therewith.
The Applicant’s Submissions;
35. Frustrated by the Respondents’ bad faith and perpetual request for the same documents in support of the exemption, documents which the Applicant had provided severally to the 1st Respondent, the Applicant lodged this instant suit with a view of seeking to enforce the Settlement Agreement.
36. The Applicant submits that not only is judicial review the appropriate course of action but also the only avenue to remedy the conduct of the Respondents for the following reasons:
a. The Respondents are a public body and its agent respectively, with the mandate of collecting taxes on behalf of the Government of Kenya. This mandate is administrative in nature thus making a judicial review court the appropriate court to adjudicate on the matter;
b. The Tribunal became functus officio the moment it delivered its judgment finding that the Applicant’s Objection was deemed allowed by operation of the law. Therefore, the Applicant could not go back to the Tribunal considering that the Tribunal had already pronounced itself on the substratum of appeal;
c. The Respondents entered into the Settlement Agreement with the Applicant in exercise of its administrative mandate thus making the Judicial Review court the only avenue to address non-compliance with the terms of the Settlement Agreement;
d. In any event, the Applicant could not have appealed against the judgment of the TAT to the High Court considering the Tribunal ruled in the Applicant’s favour; and
e. The Applicant exhausted all available remedies to address and resolve the matter before lodging its appeal.
37. In fact, the Settlement Agreement itself is a product of the Respondent’s internal remedy being ADR process.
38. The Applicant relies on Article 22(1) of the Constitution of Kenya, 2010 (CoK), which vests in this Court the power to hear and determine applications for redress of a denial, violation or infringement of, or threat to, a right or fundamental freedom in the Bill of Rights. Article 22 (3) further provides that in granting the appropriate relief, may issue an order for judicial review.
39. Article 47 (1) of the CoK provides that every person has the right to administrative action that is expeditious, efficient, lawful, reasonable and procedurally fair.
40. Sections 9 (1) and 9 (2) of the Fair Administrative Action Act, 2015 (the FAA Act) further buttresses the provisions of Article 47 (1) of the CoK as follows:
9 (1) Subject to subsection (2), a person who is aggrieved by an administrative action may, without unreasonable delay, apply for judicial review of any administrative action to the High Court or to a subordinate court upon which original jurisdiction is conferred pursuant to Article 22(3) of the Constitution.
9 (2) The High Court or a subordinate court under subsection (1) shall not review an administrative action or decision under this Act unless the mechanisms including internal mechanisms for appeal or review and all remedies available under any other written law are first exhausted.
41. The Applicant submits that the actions by the Respondents in this matter are administrative in nature as the Respondents have continually frustrated the Applicant’s application for a Tax Exemption Certificate, through a delay in procedure without making reference to the merits of the Applicant’s Application. Therefore, the Respondents have infringed the Applicant’s constitutional right of fair administrative action thus making this Honourable Court to remedy the Respondents’ conduct.
42. The 1st Respondent being an administrative body is enjoined by the requirements of Article 47 of the CoK. Article 47 not only has the element of procedural fairness but also provides that administrative action must be “expeditious, efficient, lawful and reasonable.
43. In Mbaabu v Cabinet Secretary in Charge of Lands & 5 others (Judicial Review Application E001 of 2023) [2023] KEELC 20512 (KLR) where the Environment and Land Court made reference to the Court of Appeal in Cortec Mining (K) Ltd vs Ministry of Mining and 9 others (2017) eKLR which held with reference to judicial review, that:
“[to] succeed in any application for judicial review, the applicant has to show that the decision or act complained of is tainted with illegality, irrationality and procedural impropriety… Procedural impropriety is when there is a failure to act fairly on the part of the decision-making authority in the process of taking a decision. The unfairness may be in non-observance of the rules of natural justice or to act with procedural fairness toward one to be affected by the decision.”
44. In the context of this matter, the Applicant submits that the 1st Respondent’s refusal to issue the Applicant with TEC is irrational, unreasonable and procedurally unfair. Specifically, the Applicant submits that the Respondent’s refusal to issue the Applicant with the TEC and the repeated requests for the same documents that had already been provided by the Applicant is irrational, arbitrary and unreasonable. As outlined in great detail in the Verifying Affidavit and reinforced in the Supplementary Affidavit, the Applicant had complied with every request for document made by the 1st Respondent.
45. The 1st Respondent put the ex parte Applicant in a perpetual state of providing the exact set of documents only for the 1stRespondent to conclude that the Applicant did not qualify for a TEC despite the fact that this was not the Applicant’s first application to be granted a TEC. The Applicant had previous TECs and did not change its form, nor its operations to be disqualified from holding a TEC. Therefore, there was no justifiable reason for the 1stRespondent to deny the Applicant’s application.
46. In Republic v Were & 2 others; Makhanu & 8 others (Exparte) (Judicial Review E001 of 2024) [2024] KEHC 8139 (KLR), the High Court made reference to Section 9 of the Fair which provides that:
“Subject to subsection 2, a person who is aggrieved by an administrative action may, without unreasonable delay apply for judicial review of any administrative action to the high court or a subordinate court upon which original jurisdiction is conferred pursuant to Article 22(3) of the constitution.”
47. In Capital Markets Authority v Ciano & another [2023] KECA 581 (KLR), the Court of Appeal held that:
“Section 9(2) of the FAA Act reproduced earlier provides that the High Court or a subordinate court under sub-section (1) shall not review an administrative action or decision under the Act unless the mechanisms including internal mechanisms for appeal or review and all remedies available under any other written law are first exhausted.”
48. The Applicant acknowledges the doctrine of exhaustion of statutory remedies under section 9 (2) and (3) of the Fair Administration Act.
49. It submits that the Applicant has exhausted the procedures and remedies prescribed by the Income Tax Act by objecting to the Respondents’ assessment on 1st November 2019, and thereafter pursuing the Tax Appeals Tribunal (the Tribunal) regarding this dispute in Tax Appeal No. 456 of 2020, the Madressa-El-Mohammediah Education Society v Commissioner of Domestic Taxes (the Appeal) upon which both Applicant and Respondents entered into a Settlement Agreement.
50. The Applicant, in good faith and with utmost regard for the rule of law, duly complied and discharged its obligation under the Settlement Agreement by paying the principal corporation income tax in totality. However, the Respondents failed to discharge their obligation under the Settlement Agreement and the Respondents continue to frustrate the Applicant, directly and through their agents, by refusing to issue the Tax Exemption Certificate – a fundamental aspect of the Settlement Agreement. It is after these instances of breach of the Settlement Agreement that the Applicant has approached this court as a means of last resort.
51. The Court of Appeal in Capital Markets Authority v Ciano & another (supra) also reiterated that every person has the right to fair administrative action:
“Article 47 of the Constitution codifies every person's right to fair administrative action that is expeditious, efficient, lawful, reasonable and procedurally fair. Section 4 of the FAA Act echoes Article 47 and reiterates the entitlement of every person to administrative action that is expeditious, efficient, lawful, reasonable and procedurally fair.”
52. The Applicant’s right to fair administrative action has been breached by the Respondents. Despite the terms agreed to in the Settlement Agreement, and the issuance of past Tax Exemption Certificates to the Applicant, the Respondents have continually and without reasonable justification, delayed the issuance of the Tax Exemption Certificate.
53. The Respondents’ conduct is irrational, arbitrary, in bad faith and contrary to the Applicant’s legitimate expectation.
54. The Applicant pleads that it is unfair, and it is also an abuse of power. As a result, the Applicant’s constitutional right to a fair administrative action has been infringed, thus leaving the Applicant with no option but to apply to this Honourable Court for judicial review.
55. In Speaker of the National Assembly v Karume, Civil Application No. NAI 92 of 1992, quoted with approval by the High Court in Havi v Kenya Revenue Authority (Judicial Review Application E129 of 2023) [2024] KEHC 3006 (KLR) which held that where there is a clear procedure for the redress of a particular grievance prescribed by the Constitution or an Act of Parliament, that procedure should be strictly followed.
56. The Applicant, having complied with the internal mechanisms under the ITA, to redress the unlawful, arbitrary, irrational, and unfair decision of the Respondents, has approached this court to redress the violation of their rights under Articles 10, 22, 23 and 47 of the Constitution pursuant to Article 22 (3) of the Constitution.
57. Therefore, this court exercising its jurisdiction will not be usurping any powers of anybody vested with any mandate as the Applicant has been both deliberate and intentional to explore all the available remedies.
58. It is submitted that The Respondents have continually acted unfairly towards the Applicant through the delay in the issuance of the Tax Exemption Certificate. Further, in certain instances, like on 18th April 2019, the Respondents refused to grant the Tax Exemption Certificate to the Applicant without any communicated reason whatsoever.
59. The Settlement Agreement entered into by the parties stipulated that a fundamental provision of the Settlement Agreement was the issuance of the Tax Exemption Certificate, upon compliance with the terms by the Applicant.
60. It submits that the Applicant has complied with the terms of the Settlement Agreement, thus there are no grounds for the Respondents to not issue the Tax Exemption Certificate.
61. In the context of this matter, the Applicant prays that 2ndRespondent, either by itself, its agents or employees restraining it from taking any steps, actions, measures to impose, or collect any taxes from the Applicant for the period of 2011 to 2023 when the 1st Respondent illegally and unreasonably denied the Applicant a Tax Exemption Certificate.
62. An order of prohibition looks to the future, to prevent an incorrect course of practice by an inferior tribunal or a wrong decision. It prevents an action before the action takes place and has no time dealing with the consequences of the prohibited action as the consequences never come to exist anyway.
63. In Kimani v Director of Public Prosecutions & 3 others (Judicial Review Application E062 of 2023) [2024] KEHC 3269 (KLR) (Judicial Review) (3 April 2024) the High Court made reference to Republic v Principal Kadhi, Mombasa Ex-parties Alibhai Adamali Dar & 2 others; Murtaza Turabali Patel (Interested Party) [2022] eKLR where the Court held that;
“Although prohibition was originally used to prevent tribunals from meddling with cases over which they had no jurisdiction, it was equally effective and equally often used, to prohibit the execution of some decision already taken but ultra vires. So long as the tribunal or administrative authority still had power to exercise as a consequence of the wrongful decision, the exercise of that power could be restrained by prohibition.”(Emphasis ours).
64. As a result of the wrongful decision to not issue the Tax Exemption Certificate, the Respondents may still be able to demand for the collection of taxes for the period stipulated above- a period that is outside the statutory limit of 5 years under the TPA, thereby circumventing the statutory demand limit.
65. An order of Prohibition would ensure that the Applicant is protected from the above potential retroactive actions of the 2nd Respondent as a result of the Respondents refusal to issue the Applicants with a Tax Exemption Certificate.
66. The non-issuance of the Tax Exemption Certificate impedes the rules of natural justice. In Esther Victoria Wanjiku Mahoro v Mary Wambui Githinji & 3 others [2021] eKLR, the Environment and Land Court made reference to the Court in Kenya National Examination Council…Vs…Republic Exparte Geoffrey Gathenji & 9 Others, Nairobi Civil Appeal No.266 of 1996where with respect to the Court making an order of Prohibition, that:
“It is an order from the High Court directed to an inferior tribunal or body which forbids that tribunal or body to continue proceedings therein in excess of its jurisdiction or in contravention of the laws of the land. It lies, not only for excess of jurisdiction or absence of it but also for a departure from the rules or natural justice.”
67. It submits that as the 2nd Respondent has acted in a manner that has impeded natural justice in its continual delay and frustration of the issuance of the Tax Exemption Certificate, an order of Prohibition against the Respondents would ensure the restraint of further actions impeding the Applicant’s right to natural justice.
68. Reliance is placed in Republic v Governor Vihiga County Ex parte Amos Kutwa Koluwa, Pamella Mbagaya Kimwele, Kenneth Elvuna Keseko & Paul Jiseve Mbuni [2021] KEHC 2330 (KLR) quoted with approval the holding of the Court of Appeal in Kenya National Examination Council v Republic Ex Parte Geoffrey Gathenji Njoroge, N S, J W, R N, G W, A W, C W, B W, S N & J B [1997] KECA 58 (KLR) on a question of the obligation of the High Court to enhance the rules of natural justice, the High Court is entitled, indeed duty-bound to intervene and prohibit a body from acting in violation of the rules of natural justice.
69. In advancing the issue order of mandamus against the respondents reliance is placed in Kenya National Examination Council v Republic Ex Parte Geoffrey Gathenji Njoroge, N S, J W, R N, G W, A W, C W, B W, S N & J B (supra) the Court of Appeal acknowledged that an order of mandamus will compel the performance of a public duty which is imposed on a person or body where that body has failed to perform the duty to the detriment of a party who has a legal right to expect that duty to be performed.
70. This Court issues an order of Mandamus against the Respondents, to compel the Respondents to uphold the Settlement Agreement and issue the Tax Exemption Certificate following the settlement of the requisite taxes by the Applicant as per the Settlement Agreement.
71. In Kungu v County Government of Nairobi (Judicial Review Miscellaneous Application E034 of 2023) [2024] KEHC 3265 (KLR) (Judicial Review) (3 April 2024) the High Court made reference to Republic v Kenya National Examinations Council Ex Parte Gathenji & 8 Others Civil Appeal No 234 of 1996 where the Court of Appeal held that:
“An order of mandamus compels the performance of a public duty which is imposed on a person or body of persons by a statute and where that person or body of persons has failed to perform the duty to the detriment of a party who has a legal right to expect the duty to be performed.”
72. It submits that an order of Mandamus to compel the Respondents to issue the Tax Exemption Certificate would ensure that the Applicant’s legal right derived from the ITA, FAA and the Settlement Agreement be upheld by the Respondents. The Respondents as public bodies have failed to perform their legal obligations as per the ITA, FAA and Settlement Agreement, to the detriment of the Applicant’s legal rights. As such, an order of Mandamus issued by this Court would ensure the protection of the Applicant’s legal rights.
73. The Applicant has also exhausted all avenues of resolving this dispute with the Respondents, and despite entering into a Settlement Agreement, parties have still not had a fruitful outcome due to the unreasonable delays by the Respondents.
74. In Kenya National Examination Council v Republic Ex Parte Geoffrey Gathenji Njoroge, N S, J W, R N, G W, A W, C W, B W, S N & J B (supra) the Court of Appeal held that:
“The order of mandamus is of a most extensive remedial nature, and is, in form, a command issuing from the High Court of Justice, directed to any person, corporation or inferior tribunal, requiring him or them to do some particular thing therein specified which appertains to his or their office and is in the nature of a public duty. Its purpose is to remedy the defects of justice and accordingly it will issue, to the end that justice may be done, in all cases where there is a specific legal right and no specific legal remedy for enforcing that right;
75. The Court of Appeal went on further to analogize the importance of a compelling order of mandamus to a public body as follows:
“if a party applies for a licence under section 8 (Liquor Licensing Act, Chapter 121 Laws of Kenya) and the licensing court simply refuses or neglects to consider and determine the application such a party would be entitled to come and ask the High Court for a mandamus, and if the High Court is satisfied that the licensing court has simply refused or neglected to consider and determine the “application” the High Court would be entitled to issue an order of mandamus, compelling the licensing court to consider and determine the application as it is bound by the law to do so.” (Emphasis ours)
76. The Applicant submits that it has no other avenue to remedy the violation of its constitutional rights by the Respondents.
77. The Applicant has exhausted potential dispute resolution processes, including entering into a Settlement Agreement with the Respondents (where the Applicant complied with their obligations under the Settlement Agreement).
78. Since the Settlement Agreement has not been contested by either party, it remains binding upon the parties.
79. In Brand Strategy & Design Limited & another v Pride Inn Hotels and Conferencing [2024] KEHC 9394 (KLR) the court acknowledged this position setting out that contracts are binding upon parties.
80. Relying on the decision in National Bank of Kenya Ltd v Pipeplastic Samkolit (K) Ltd & another [2001] eKLR, the court outlined that:
“A court of law cannot re-write a contract between the parties. The parties are bound by the terms of their contract, unless coercion, fraud or undue influence are pleaded and proved.”
81. The Respondents have, even remotely, suggested that t
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