Capital gains tax is not payable by chargees when they exercise their statutory power of sale.
Kenya Revenue Authority v Kenya Bankers Associations
Civil Appeal No 213 of 2018
Court of Appeal at Nairobi
W Ouko (P), H Okwengu & F Sichale, JJA
January 24, 2020
Reported by Beryl Ikamari
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Taxation Law - income tax - capital gains tax - obligation to pay capital gains tax - where an online tax system (I-Tax) required the payment of stamp duty together with capital gains tax upon the exercise of a statutory power of sale by a chargee - whether a chargee upon exercise of its statutory power of sale was obligated to pay capital gains tax.
On October 4, 2016, the appellant discontinued manual payment of stamp duty and capital gains tax and required that payments for both taxes be made online. The I-Tax system did not permit the payment of stamp duty on a transfer unless the capital gains tax was also paid. The respondents challenged the legality of the fact that under the I-Tax system, upon the exercise of its statutory power of sale, a chargee was obligated to pay capital gains tax. They said it violated rights to property. The High Court made a ruling in which inter alia it declared that the payment of stamp duty and capital gains tax on a transfer of land by a chargee under a statutory power of sale was unreasonable, unfair and influenced by an error of law.
The appellants challenged the High Court decision at the Court of Appeal. Their main contention was that a chargee acquired a proprietary right in the chargor's property when exercising its statutory power of sale and that capital gains tax was therefore due.
- Whether a chargee upon the exercise of its statutory power of sale was obligated to pay capital gains tax.
- Whether when exercising its statutory power of sale, a chargee gained a proprietary interest in charged property.
- An appeal from the High Court was by way of re-trial and the Court of Appeal was not bound to follow the trial court's findings of fact if it appeared that it failed to take account of particular circumstances or probabilities or if the impression of the demeanor of a witness was inconsistent with the evidence generally. The Court of Appeal had to reconsider the evidence, evaluate it and make its own conclusions while bearing in mind the fact that it did not see or hear the witnesses.
- The charge instrument would facilitate the transfer of land upon a chargor's failure to repay the sum secured by the charge. The power of the chargee to undertake the transfer was based on its statutory power of sale. Under a charge instrument, a chargee would not become the owner or proprietor of the land but it would be the proprietor of the charge. Placing a chargee and a chargor on equal footing would in effect blur the distinction between the chargee and the chargor.
- The interest of the chargee was confined to the sum borrowed and a chargee's statutory power of sale would be invoked upon the chargor's default in repaying the loan. In executing the transfer, after exercising its statutory power of sale, a chargee would do so in the capacity of a nominee. It would not become a proprietor of the land.
- Section 101 of the Land Act provided for how money received after the exercise of the statutory power of sale would be applied to pay rates, rents, taxes and charges. It was therefore improper for the appellant to demand money that had not been received by the chargee.
- Capital gains tax was a charge on the income of a person. It was a type of income tax under section 3(2)(f) of the Income Tax Act. Furthermore, for a person to pay that tax, it was necessary to establish that there had been a gain.
- Given that capital gains tax was a form of income tax chargeable on the income of a person, section 19 of the Land Act which referred to taxes to be paid on charged land, was inapplicable.
- Contrary to what the right to fair administrative action contemplated, the respondents were not given an opportunity to present their points of view concerning the payment of capital gains tax by a chargee upon the exercise of its statutory power of sale. The unilateral decision to demand that the respondents' members collect capital gains tax from its various borrowers by twinning the payment of the tax and stamp duty was clearly unfair and irregular.
Case Updates Issue 012/2020
|| Factors to consider in establishing citizenship by birth
Galma Duba Gufu v Attorney General & another  eKLR
Petition No.5 of 2018
High Court at Marsabit
SJ Chitembwe, J
November 27, 2019
Reported by Kakai Toili
Constitutional Law – citizenship – citizenship by birth – factors to be considered in establishing citizenship by birth - revocation of citizenship by birth - what were the circumstances in which citizenship by birth could be revoked – when could one lose citizenship by birth - Constitution of Kenya, 2010, articles 13, 17(2); Kenyan Citizenship and Immigration Act, Cap 172 Laws of Kenya, section 21(2)
Constitutional Law – citizenship – citizenship by birth – where it was alleged that a person’s citizenship by birth had been revoked – remedies available - whether a court could make an order for a person to make a fresh application for citizenship
The petitioner claimed that he was a businessman in Marsabit and was born in 1982 at Dirib Gombo in Marsabit County. He further claimed that in the year 2002 there was vetting of people for registration purposes in his location and he was vetted and three months later issued with a Kenyan identity card. It was alleged that the petitioner’s parents gave out their identity cards during the vetting. The petitioner claimed that he was arrested on August 8, 2004 and taken to Sololo Police station and that his identify card was taken away by the police. He further alleged that he was charged with the offence of moving around at night and was fined Kshs.3000 in default to serve one month imprisonment.
The petitioner claimed that he went back to Moyale Police Station to collect his identity card and was directed to go to Sololo Police station but he was arrested again at the police station and placed in the cells for about two (2) hours and then released without being given his identity card. The petitioner claimed that he was a Kenyan and had not been charged with the offence of being a foreigner.
- What were the factors to consider in establishing citizenship by birth and when could one lose citizenship by birth?
- What were the circumstances in which citizenship by birth could be revoked?
- Whether a court could make an order for a person to make a fresh application for citizenship where it was alleged that the person’s citizenship by birth had been revoked.Read More..
Relevant provisions of the law
Constitution of Kenya 2010
Section 30 – A Kenyan citizen is a citizen by birth that citizen –
(1) acquired citizenship under article 87 or 88 (1) of the former Constitution; or
(2) would have acquired citizenship if Article 87 (2) read as follows: -
“Every person who, having been born outside Kenya, is on 11th December, 1963 a citizen of the United Kingdom and Colonies or a British protected person shall, if his father or mother becomes, or would but for his or her death have become, a citizen of Kenya by virtue of subsection (1), become a citizen of Kenya on 12th December, 1963.
Kenya Citizenship and Immigration Act, 2011
(1) The Cabinet Secretary may, where there is sufficient proof and on recommendation of the Citizenship Advisory Committee, revoke any citizenship, acquired by registration on the grounds specified in Article 17 of the Constitution.
(2) The Cabinet Secretary shall by notice, in writing, inform any person whose citizenship is due for revocation of the intention to revoke his or her citizenship giving reasons for the intended revocation.
(3) The Cabinet Secretary shall give a person who has been given a notice under subsection (2) an opportunity to present the reasons why his or her citizenship should not be revoked.
(4) The Cabinet Secretary may after considering the presentations made under subsection (3) revoke the citizenship and cause the revocations to be entered into the register for revocation of citizenship.
- The petitioner was born in 1982 and was issued with a Kenyan identity card in 2002 before the promulgation of the Constitution of Kenya, 2010 (Constitution). Article 18 of the Constitution empowered Parliament to enact legislation on citizenship and that led to the enactment of the Kenya Citizenship and Immigration Act, Chapter 172, Laws of Kenya in August, 2011. Section 30 of the Sixth Schedule to the Constitution was not very relevant to the instant case. Article 87 of the repealed Constitution related to citizens of United Kingdom and its colonies who were born in Kenya. The petitioner testified that he was born at Dirib Gombo area in Marsabit County. He was vetted and issued with a Kenyan identity card. His parents were Kenyans, his father was a holder of a Kenyan identity card while his mother held a Kenyan identity card. It was therefore clear that the petitioner was a Kenyan by birth.
- There was no evidence that the petitioner’s citizenship was revoked in accordance with the provisions of section 21(2) of the Kenyan Citizenship and Immigration Act. Under article 17(2) of the Constitution, it had to be established that the person who was presumed to be citizen by birth acquired the citizenship by fraud, false representation or concealment of any material fact or it was established that the person was a nationality of another country or his parentage was not Kenyan.
- The only document which made reference to the contention that the petitioner was not a Kenyan citizen was a letter dated September 16, 2019. There was reference to letter of Ref SEC/POL 2/1/6/Vol.1/99 which was not produced. It was not clear what the contents of that letter were.
- The petitioner contended that his identity card was taken in 2004, that contention was believable because that was the time he was arrested. There was a letter dated December 13, 2012 addressed to the District Registrar of Persons by the Senior Chief of Dirib Gombo location. The letter stated that the petitioner was the resident of the location and was issued with an identity card in 2002. There was a letter dated January 20, 2014 by the petitioner addressed to the National Registration of Persons. The letter indicated that the petitioner re-applied for an identity card in Nairobi and was told that he was an alien. He followed up the issue with the UNHCR and was confirmed that he was not an alien. It was therefore clear that the petitioner had persistently been following up the issue of his identity card.
- It could be that it had taken too long for the petitioner to complain but the reality was that he had at all times maintained that his identity card was taken by the police in 2004. He was issued with an identity card and DW2 confirmed that and an identity card was issued to him. The identity card was issued to him in his capacity as a Kenyan by birth. The petitioner was a Kenyan citizen by birth and the identity card issued to him in 2002 was not procured through fraud or misrepresentation of facts.
- Despite the petitioner’s denial, on a balance of probabilities it was established that the petitioner was charged under the Immigration Act for being in Kenya illegally and was fined Kshs.5000. The petitioner was a Borana and there were Boranas in Ethiopia. There was no single document indicating that he was from Ethiopia or had ever lived in that country. In 2004 the repealed Constitution did not allow dual citizenship. The letter dated June 16, 2019 did not state the reason for the invalidation of the petitioner’s records. It did not make reference to the court case as the reason as to why his records were invalidated.
- The petitioner’s parents were Kenyans and lived in Kenya. The petitioner lived in Kenya. There was no evidence that he renounced his Kenyan citizenship and became an Ethiopian. If the petitioner pleaded guilty to the charges of being in Kenya illegally or was convicted that did not make him a non-Kenyan. He was a Kenyan by birth and could not be stripped off his citizenship. The entry from the court was done on October 9, 2004. It was not clear what happened between August 8, 2004 to October 9, 2004.
- There was no judgment or proceedings other than the occurrence book entries. The question which the respondents had to grapple with was proof that the petitioner was an Ethiopian. The respondents could all along have even ordered for DNA test to confirm the petitioner’s parentage. His parents were available and had readily stated that they were his parents. The area chief and assistant chief had confirmed that they knew the petitioner since childhood. The position taken by the respondents that the petitioner pleaded guilty to being in Kenya illegally was not a good reason for taking away the petitioner’s Kenyan citizenship by birth. Citizenship came with several advantages. The petitioner’s children had been denied birth certificates since their father’s identity card was invalidated. The petitioner’s mobile registration was also cancelled and could not enjoy the privileges which come with the possession of an identity card.
- The court could not hold that the petitioner make a fresh application for purposes of regaining his citizenship because he would have to prove the citizenship of his country. At that moment he lived in Kenya and the evidence showed that he had all along lived in Kenya. He could not prove that he was an Ethiopian citizen and proof of citizenship of another country was a requirement when one made an application to regain Kenyan citizenship.
- The petitioner’s parents were Kenyans and his mother testified that she obtained her first identity card when she was 20 years old. Therefore as long as the petitioner’s parents were Kenyans, the petitioner would remain a Kenyan by birth unless the contrary was proved. Citizenship by birth could not be lost unless one renounced it. The petitioner’s identity card was invalidated maybe in the year 2005 before the promulgation of the Constitution. Some legal provisions were not in force then. However, since the petitioner had been pursuing his identity card all along, it was not clear why there was no communication to him. No reasons for the alleged invalidation were given, between 2004 to 2019 there had been no communication to the petitioner and he had all along been expecting to be issued with his identity card.
Petition allowed; costs to the petitioner.
- A declaration was issued that the petitioner was holder of a valid Kenya National identity card and remains the legitimate holder of Id/No.[xxxx].
- A declaration was issued that the petitioner was a Kenyan citizen by birth and declared that all decisions, actions by the 2nd respondent, purporting to confiscate or withhold the petitioner’s national identity card aforesaid, were unconstitutional, null and void.
- An order was issued compelling and directing the respondents jointly and severally by themselves their servants, agents officers or whomsoever else was acting on their behalf to surrender to the petitioner his national identity card number [xxxx], forthwith and from preventing or in any other manner whatsoever or howsoever from interfering with the petitioner’s right of being a Kenyan citizen.
An appellate court has no jurisdiction to entertain a ground of appeal that was never raised in the lower courts
Charles Maina Gitonga v Republic  eKLR
Petition No. 11 of 2017
Supreme Court of Kenya
MK Ibrahim, JB Ojwang, SC Wanjala, NS Ndungu, &I Lenaola, SCJJ
January 23, 2020
Reported by Robai Nasike Sivikhe
Jurisdiction- jurisdiction of the Supreme Court- appellate jurisdiction of the Supreme Court- boundaries within which the Supreme Court’s appellate jurisdiction could be exercised- where the issue raised before the Supreme Court was first raised in the Court of Appeal and not any other lower court- whether the Supreme Court had jurisdiction to hear, on appeal, a matter that raised an issue which was first handled at the Court of Appeal and not any other lower court- whether the Court of Appeal erred when it entertained the question of legal representation as one of the grounds of appeal despite acknowledging that it was never raised in the lower courts - Constitution of Kenya, 2010, article 163 (4) (a).
The appellant challenged the entire judgment and orders of the Court of Appeal and thus sought four (4) declaratory orders namely; that the Supreme Court had jurisdiction to entertain additional constitutional questions in relation to existing constitutional questions; that it was mandatory for an accused person in custody to be informed of his right to legal representation; that the fundamental rights of the appellant were gravely violated and that the trial court was mandated to make an inquiry as to whether an accused person in a serious case deserved an advocate assigned by the State and at the State’s expense. Apart from the declaratory orders, the appellant also sought orders to have him discharged or acquitted and that the Court of Appeal’s judgment be reversed and set aside.
On the other hand, the respondent had argued that the appellant did not have an automatic right of appeal to the Supreme Court and that his prayer that he be acquitted on grounds that his rights to legal representation under article 50(2)(g) and (h) of the Constitution was violated, was totally misconceived and legally untenable.
- Whether the Supreme Court had jurisdiction to hear, on appeal, a matter that raised an issue which was first handled at the Court of Appeal and not any other lower court.
- Whether the question of legal representation as one of the grounds of appeal could be handled despite acknowledging that it was never raised in the lower courtsRead More...
Relevant Provisions of the Law
Constitution of Kenya 2010, article 163 (4) (a)
(4) Appeals shall lie from the Court of Appeal to the Supreme Court –
a) As of right in any case involving the interpretation or application of this Constitution;
- There were boundaries to the jurisdiction of the Supreme Court as shown under article 163(4) (a) of the Constitution. An appeal to the Supreme Court had to originate from a Court of Appeal case where issues of contestation revolved around the interpretation or application of the Constitution. In other words, an appellant had to challenge the interpretation or application of the Constitution which the Court of Appeal used to dispose of the matter in that forum. Such a party had to be faulting the Court of Appeal on the basis of such interpretation. Where the case to be appealed from had nothing or little to do with the interpretation or application of the Constitution, it could not support a further appeal to the Supreme Court under the provisions of article 163 (4) (a).
- In order to determine whether the appeal was properly before court, it had to be confirmed that the issues of constitutional interpretation and application being raised, arose through the normal appellate mechanism so as to reach the court. The question as to whether the appellant’s right to fair trial was infringed by failure to accord him legal representation at the expense of the state or by failure to inform him of the right to legal representation was raised for the first time at the Court of Appeal. The issue was neither raised at the Resident Magistrate’s Court nor at the High Court. In addition, none of the articles of the constitution in the petition of appeal was the subject of interpretation and application at the High Court.
- The Court of Appeal was at fault for entertaining the question of legal representation as one of the grounds of appeal despite acknowledging that it was never raised in thelower courts. To allow the appellant to ignore the normal hierarchy of courts would amount to abuse of the process of court. The Supreme Court lacked jurisdiction to entertain the appeal pursuant to article 163(4) (a) of the Constitution.
Petition of appeal dismissed with no orders as to cost.
|CIVIL PRACTICE AND PROCEDURE
Principles courts should consider before grant of an extension of time
Kenya Revenue Authority v Krish Commodities Limited  eKLR
Civil Application No 23 of 2019
Supreme Court of Kenya
MK Ibrahim, JB Ojwang, SC Wanjala, NS Ndungu, &
I Lenaola, SCJJ
January 23, 2020
Reported by Robai Nasike Sivikhe
Civil Practice and Procedure- limitation of time- application for extension of time- principles a court should consider when exercising the discretion to extend time- where a delay of one-month was incurred in an application to appeal- whether a reasonable explanation had been issued to warrant the grant of an extension of time- Constitution of Kenya, 2010, articles 159 and 163(4)(a); Supreme Court Act, No. 7 of 2011, sections 21(2) and 24 Rules 23; and Supreme Court Rules 2012, rule 53.
The applicant filed a notice of appeal on July 5, 2018 but failed to file the substantive appeal within the required timelines hence leading to the application before the court for extension of time to file the appeal.
The applicant claimed that it filed its Notice of Appeal on July 4, 2018 and served it on July 13, 2018 in compliance with the Supreme Court Rules. However, it was unable to file the appeal for lack of the Court of Appeal judge’s notes during the hearing which, despite request made, were issued to him beyond the statutory timelines for filing an appeal to the Supreme Court.
- What principles should a court consider when exercising the discretion to extend time?
- Whether a reasonable explanation was issued to warrant the grant of an extension of time where a one-month delay was incurred.
- Whether the matter could have been considered one of general public importance if an extension of time was granted.Read More...
- The discretion to extend time was unfettered. It was incumbent upon the applicant to explain the reasons for delay in making the application for extension and whether there were any extenuating circumstances that could enable the court to exercise its discretion in favour of the applicant. The following were the underlying principles that a court should consider in exercising such discretion;
- extension of time was not a right of a party, it was an equitable remedy that was only available to a deserving party, at the discretion of the court;
- a party who sought extension of time had the burden of laying a basis, to the satisfaction of the court;
- whether the court should exercise the discretion to extend time, was a consideration to be made on a case- to- case basis;
- where there was a reasonable cause for the delay, the same should be expressed to the satisfaction of the court;
- whether there would be any prejudice suffered by the respondents, if extension was granted;
- whether the application was brought without undue delay; and
- whether in certain cases, like election petitions, public interest should be a consideration for extending time.
- The typed proceedings were certified on July 2, 2019 though no certificate of delay from the Deputy Registrar of the Court of Appeal was attached to enable the court to ascertain the delay. Other than the request for the typed proceedings made by the applicant on July 5, 2019, there was no follow up from the applicant. The instant application was filed a month later on August 2, 2019. The applicant had not provided a satisfactory explanation for the one-month delay after receipt of the typed proceedings.
- The applicant had not pursued the procedure provided for under rule 33(6) of the Supreme Court Rules which allowed for filling of the requisite documents late, but without leave of court. Having filed the Notice of Appeal on July 5, 2018, the last day for filing the appeal was July 19, 2018. Thereafter, the applicant had a further fifteen days (until August 3, 2018) to file a supplementary record without leave. The applicant ought to have filed the appeal and the record with the documents that were available as a sign of diligence, and then later sought leave of the Supreme Court to file the supplementary record out of time. Consequently, the applicant had not satisfactorily explained the inordinate delay of one year to warrant exercise of the court’s discretion to enlarge time.
- Even if certification had been obtained (and it was not), the findings by the Court of Appeal did not affect the interest of the general public to enable the Supreme Court to exercise the discretion to extend time to file the appeal. Similarly those issues did not require an interpretation or application of the Constitution.
Application dismissed with costs to the respondent.
|CIVIL PRACTICE AND PROCEDURE
Court declines to issue orders for extension of time to file a notice of appeal
Robert Muhambi Katana & 15 others v Mombasa Teachers Co-operative Savings & Credit Society Limited  eKLR
Application No. 31 of 2018
Supreme Court of Kenya
PM Mwilu, DCJ & VP; MK Ibrahim, JB Ojwang, SC Wanjala, I Lenaola, SCJJ
November 8, 2019
Civil Practice and Procedure- limitation of time- application for extension of time- whether there was inordinate delay in filing an appeal- whether sufficient reason had been given to warrant the grant of an extension of time- whether the matter was appealable before the Supreme Court if an extension of time was granted
Upon filing the appeal, the application was certified urgent at the first instance when it was placed before a single judge of the Supreme Court; hence dispensing with the prayer that the application should be certified urgent and initial service be dispensed with in the first instance. As a result the issues for determination were whether an order of stay of execution should be granted and whether the court should extend time for filing the notice of appeal.
- Whether sufficient reason had been given to warrant the grant of an extension of time.
- Whether the matter was appealable before the Supreme Court if an extension of time was granted.Read More...
- Whereas the applicants sought to invoke article 163(4) (a) of the Constitution that the intended appeal was as of right, the applicants were not supported by the pleadings or the judgment. There was no evidence of any constitutional question having been raised and determined, or the same being raised through the court hierarchy. Even if the applicants’ case was that the matter took a constitutional trajectory to warrant the Supreme Court’s jurisdiction, the applicants had not demonstrated the same, having not cited any constitutional provision that was applicable either in the application or the draft petition.
- The applicants were jolted into action by being served with the Court of Appeal order. The filing of a notice of appeal was not dependent upon any other event and could be filed as a matter of course regardless of the court’s appellate jurisdiction sought to be invoked. Whereas the applicants could be indulged on grounds that they acted promptly and their reason for delay, the intended appeal had not raised constitutional questions as contended. The issue seemed to be largely related to the applicability of the doctrine of adverse possession as against the registered proprietor of a parcel of land and how the same was applied to the facts of the matter. The doctrine of adverse possession was a fairly developed doctrine and the applicants had not made any spirited attempt to have the same declared unconstitutional as was expected of them.
- There was no practical purpose to be served if the applicant was to be granted leave to file an appeal out of time. There had to be some prospects that the intended appeal was sustainable on the jurisdiction invoked, which was lacking of the applicants. It was not necessary to consider the prayer for stay of execution as no appeal lay before the instant court, the basis upon which the application for leave would suffice.
Application dismissed with no orders as to costs.
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The Kenya Law Team
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