Tax Objection ‘Allowed’ By Court Proves KRA’s Delay Costly

Case Study: Kellico Limited v Commissioner of Domestic Taxes (Income Tax Appeal E188 of 2024) [2025] KEHC 16672 (KLR) (Commercial and Tax) (7 November 2025) (Judgment)

In a significant judgment that underscores the critical importance of statutory timelines for tax authorities, the High Court has overturned a decision by the Tax Appeals Tribunal, ruling that the Kenya Revenue Authority (KRA) cannot ignore its own deadlines when dealing with taxpayer objections.

The case, Kellico Limited v Commissioner of Domestic Taxes, centered on a delayed response from the KRA that ultimately cost the taxman the case, leading to the annulment of a multi-million shilling tax demand.

Background of the Dispute

The dispute began in 2018 when the KRA issued Kellico Limited with an original tax assessment for the period 2014-2017. In April 2020, the KRA amended this assessment, prompting Kellico to file an objection on 24th April 2020.

The KRA, however, did not respond to this objection until four months later, on 24th September 2020, when it issued a “notice of invalidation.” The KRA claimed Kellico’s objection was invalid for failing to specify grounds for the objection or provide supporting documents, as required by law.

Subsequently, the KRA moved to recover the disputed taxes by issuing agency notices. These notices were directed at Kellico’s tenant and, notably, the personal bank account of the company’s director, demanding the payment of the tax arrears from his personal funds.

Kellico appealed to the Tax Appeals Tribunal, but the Tribunal dismissed the case, stating that the amended assessment Kellico was challenging was not an “appealable decision.”

The High Court’s Analysis

Dissatisfied, Kellico took the matter to the High Court. The High Court ruled that:

1. The “Deemed Allowed” Doctrine and the KRA’s Delay

The core of the Court’s ruling hinged on the interpretation of Section 51 of the Tax Procedures Act. This section governs how taxpayers can object to a tax decision and, crucially, how the KRA must respond.

The Court noted that at the time of Kellico’s objection, Section 51(4) required the KRA to notify a taxpayer “immediately” if it found an objection to be invalid. The KRA argued that since the law did not specify a strict number of days, its four-month delay was acceptable.

Justice Mwangi soundly rejected this argument. The Court interpreted “immediately” to mean “within a reasonable time,” a standard that a 123-day delay clearly violated. The judgment pointed to the subsequent amendment of the law, which now explicitly gives the KRA only 14 days for such a notification, as evidence of the legislative intent for a swift process.

This failure was fatal to the KRA’s case. The Court invoked Section 51(11) of the same Act, which states that if the Commissioner does not make an objection decision within 60 days of a valid objection, the objection is “deemed to be allowed.”

By taking 123 days to respond, the KRA had effectively allowed Kellico’s objection by default. The belated “invalidation notice” was itself declared “illegal, null and void.” Consequently, the tax assessment it sought to defend was overturned.

2. Invalidated Agency Notices and the Corporate Veil

With the primary tax assessment nullified, the foundation for the agency notices crumbled. The Court ruled that the notices issued to Kellico’s tenant and its director’s personal bank account were “irregular and therefore not properly issued.”

The judgment also implicitly criticized the KRA’s approach of targeting the director’s personal account. While the Tribunal had upheld this action, the High Court’s ruling reinforces the principle of separate legal identity between a company and its directors, protecting personal assets from being used to settle corporate liabilities without clear justification.