- October 1, 2025
- Posted by: admin
- Category: Uncategorized
Case Study: Ennus Company Limited v Commissioner of Domestic Taxes (Income Tax Appeal E208 of 2023) [2025] KEHC 7271 (KLR) (Commercial and Tax) (26 May 2025) (Judgment)
Background
The main objective of the company is to carry on the business as transporters, distributors, exporters and carriers of passengers, goods and all types of merchandise for reward.
The company conducts its business as a matatu Sacco, and apart from the 10 shareholders. Other matatu owners bring their vehicles in the fleet and are charged fees to become members and facilitate their vehicles to operate under the Sacco. The members contribute funds to run the office and the balance is taken up as savings. The Sacco also collects insurance premiums on behalf of Direct Line Insurance Company on commission to boost its business income.
The dispute subject of this appeal arose when KRA conducted a compliance verification exercise on the ENNUS ‘s VAT declarations. It issued a pre-assessment demand notice dated August 25, 2020. It informed ENNUS of the variance between the sales declared in the VAT and income tax returns and the audited accounts for January 2017 to December 2017. The variance observed by KRA for this period being Kshs 11,564325.00.
Ennus objected the assessment
KRA adjusted its assessment after ENNUS provided audited accounts, accepting that Kshs 1,246,400 (transport income) was exempt, reducing the tax due.
Ennus appealed to the Tax Appeal Tribunal
The TAT ruled in favour of KRA stating that ENNUS failed to maintain proper records (as required under Section 43(1) of the VAT Act and Section 23(1) of the TPA) to distinguish exempt vs. taxable income.
Ennus Appealed to the High Court
Ennus Argued That KRA wrongly assumed that all collections (KSh 10.7M) were taxable as “management fees,” ignoring:
- The breakdown in audited accounts showing only KSh 525,700 as management income.
- The rest was exempt transport revenue (passenger fares) and member contributions (not vatable).
KRA argued that the the audited accounts were not backed by primary documents such as invoices, agreements, receipts or such other proof
In its judgement on 26/05/2025, the High Court observed that:
- KRA cannot later claim the evidence was insufficient when it never asked for more documents.
26.The Commissioner does not dispute that it requested the Appellant for a number of documents including the NTSA registration certificate and list of its fleet of motor vehicles showing the registration numbers and owners, audited accounts for the period 2017-2018, minutes of the Appellant’s monthly meetings and bank statements for the said period. The Commissioner admits that the Appellant furnished all these documents requested for by the Appellant including the audited accounts which indicated that the office service fee received for the subject period was Kshs. 527,700.00/-.
Whereas the Commissioner states that the audited accounts were not backed by primary documents such as invoices, agreements, receipts or such other proof, I note that the Commissioner never requested these supporting documents and I am in agreement with the Appellant’s submission that the Commissioner never impeached the veracity, credibility and/ or competence of the audited accounts presented. Up to this point, I find that the Appellant met the minimum threshold of competent and relevant information and documentation necessary to support its position. It should not be lost that what the Appellant was required by law to establish was a prima facie case and that the Commissioner ought to have measured this evidence on a preponderance of probabilities [see Kenya Revenue Authority v Maluki Kitili Mwendwa [2021] KEHC 4148 (KLR)].
- The Tribunal disregarded Ennus’s NTSA registration (proving it was a transport SACCO), Fleet ownership records (showing some vehicles were member-owned, hence management fees applied only to third-party vehicles), Bank statements & meeting minutes supporting revenue breakdowns.
- Section 34(7) of VAT Act – Retroactive VAT liability only applies if taxable supplies exceed KSh 5M
- Even if management fees were taxable, the KSh 525,700 fell below the KSh 5M threshold for mandatory VAT registration.
As such Ennus won
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