Illness Declared Strong Ground for Late Tax Objections & Appeals

Case Study: Desert Runner Services Limited v Commissioner of Legal Services & Board Coordination (Income Tax Appeal E105 of 2024) [2025] KEHC 10004 (KLR) (Commercial and Tax) (4 July 2025) (Judgment)

Background:

DRSL had been issued additional tax assessments by KRA for the period 2018–2021, amounting to Kshs. 15,892,012/=. DRSL sought an extension of time to file its Notice of Appeal and supporting documents , citing the illness of its Managing Director, who was on bedrest from 13th June 2023 through to at least 10th August 2023. The Tax Appeals Tribunal dismissed the application, finding that the reasons provided did not amount to reasonable cause for the delay.

DRSL’s Arguments:

DRSL argued that the Tribunal erred in dismissing the application despite medical evidence confirming the Managing Director’s illness. They contended that the illness hindered timely decision-making and prevented them from instructing their tax agent effectively. They also argued that the delay was minimal and that the intended appeal raised arguable issues, such as whether the tax assessment should have been based on commissions earned rather than gross contract value, as the business operated as an intermediary.

DRSL further argued that they should not be punished for any perceived mistakes of their tax agent, and that allowing the appeal would not prejudice KRA.

KRA’s Arguments:

KRA opposed the appeal, asserting that the Tribunal properly exercised its discretion. They argued that DRSL failed to provide sufficient evidence of incapacitation despite the Managing Director’s illness, and that DRSL was capable of acting within statutory timelines as evidenced by their instruction to their tax agent to audit accounts and submit a fresh objection. KRA maintained that DRSL did not adequately demonstrate how or for how long they were unable to access their email.

High Court’s Analysis and Determination:

The High Court focused on whether the Tax Appeals Tribunal properly exercised its discretion under Sections 13(3) and 13(4) of the Tax Appeals Tribunal Act.

• The Court noted that Section 13(4) of the TAT Act expressly provides that sickness is a valid ground for seeking an extension of time.
• The Court found that the Tribunal acknowledged the Director’s illness but “failed to fully consider whether that illness, in the context of DRSL’s operational structure and reliance on the Managing Director for decision-making, constituted a reasonable cause for delay.” The Court believed the Tribunal overlooked the uncontested evidence that the Director was the sole decision-maker and was medically incapacitated.
• The Court found DRSL’s explanation for the delay to be plausible and within the statutory grounds for extension, especially considering the illness and the fact that the delay was not inordinate (approximately two months).
• The Court was satisfied that the intended appeal raised triable issues, particularly concerning whether DRSL operated as an intermediary earning commission or as a principal contractor, which would affect the basis of the tax assessment.
• Regarding prejudice, the Court concluded that DRSL would suffer significant prejudice if denied the opportunity to challenge the assessments.

Outcome:

The High Court allowed the appeal. DRSL was directed to file its appeal before the Tax Appeal Tribunal within 14 days of the judgment.

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