REPUBLIC OF KENYA

IN THE TAX APPEALS TRIBUNAL

APPEAL NO 86 OF 2019

RUARAKA DIVERSIFIED INVESTMENTS LTD…….……………….…. APPELLANT

-VERSUS-

COMMISSIONER OF DOMESTIC TAXES…………………………..RESPONDENT

JUDGEMENT

BACKGROUND

1. The Appellant was registered as a branch in Kenya in April 2012 under a

certificate of compliance issued under the Companies Act and is a
registered tax payer. It is a branch of a limited shell company
incorporated in Mauritius. It was registered to invest in and hold real
estate.

2. The Respondent is a principal officer of the Kenya Revenue Authority

(KRA). KRA is established under the Kenyan Revenue Authority Act Cap.
469 of the Laws of Kenya and is charged with the mandate of assessment,
collection and receipt of revenue as an agent for the Government of
Kenya.

3. The company in Mauritius has undergone change of name in its certificate

of incorporation as follows:
17th March 2010 : Actis Investment Holdings No 104 limited.
Judgement: TAT No.86 of 2019 – Ruaraka Diversified Investments Ltd –vs- Commissioner of Domestic Taxes Page | 1
 6th September 2010 : Actis Health Services India Ltd.
30th June 2011 : Actis Ruaraka Property Holdings Ltd.
22nd September 2011 : Ruaraka Diversified Investments Ltd
16th April 2012 : Issued with a certificate of compliance in
Kenya under Section 366 of the companies
Act Cap 486.

4. In the year 2011 the Appellant bought land reference no.10119/3 from
East African Breweries Ltd at Kshs 1.2 Billion. The land measured
approximately 13.01 hectares which is equivalent to 34.14 acres.

5. The said land was for the development of garden city project. In
furtherance to this, the Appellant registered two wholly owned
subsidiaries; GC Retail Limited and GC Residential Limited to undertake
the development of the retail and residential components of the
development. These were registered in 2013 and 2015 respectively.

6. The land referred to under Paragraph 4 hereof was subdivided and sold
to three entities (two of which are related entities) as follows;
a) The year 2013; GC Retail Limited, 15.6 acres at Kshs. 941,466,191/=,
b) The year 2015: GC Residential Limited, 8.83 acres at Kshs.
584,965,120/= ; and
c) The year 2015; Safaricom PLC, 5.05 acres at Kshs. 1,150,000.000/=
This worked out to a total of 29.48 acres out of the 34.14 acres.

Judgement: TAT No.86 of 2019 – Ruaraka Diversified Investments Ltd –vs- Commissioner of Domestic Taxes Page | 2
 7. Vide a letter dated 13th February, 2015 Ms Viva Africa Consulting Ltd
wrote to the Respondent seeking clarification on behalf of its client, Actis,
in a bid to ensure that correct compliance from a Capital Gains Tax (CGT)
perspective was applied in a transaction that it was about to embark with
a third party.

8. Vide a letter dated 22nd April, 2015 the Respondent in response to the
letter referred under Paragraph 7 above confirmed the position that CGT
applies to the transaction outlined in the same letter. The owner of the
land as stated in said letter was Actis Properties East Africa Limited.

9. The Appellant proceeded to compute and remit Kshs. 43,914,110/= as

CGT on the said transaction as per the payment slip dated 19th May,
2016.

10. Vide a letter dated 22nd October, 2018 the Respondent revoked its ruling
as contained in its letter dated 22nd April 2015 citing substantive
misrepresentations by the Appellant in its letter of 13thFebruary, 2015.The
Respondent undertook to review and communicate the Appellant’s tax
obligation accordingly.

11. Subsequently, the Respondent vide its letter dated 29thOctober, 2018
communicated its finding of Kshs.672, 150,686/= on Corporation tax
arising from the sale of the land by the Appellant in years 2013 and 2015.

12. The Appellant objected to this assessment through its notice of objection
dated 28thNovember, 2018. In response, the Respondent vide its letter

Judgement: TAT No.86 of 2019 – Ruaraka Diversified Investments Ltd –vs- Commissioner of Domestic Taxes Page | 3
 dated 18th January 2019 rendered its Objection Decision by confirming
the assessment of Kshs. 672,150,686/= and notifying the Appellant of its
right to apply for a refund for the CGT already paid.

13. The Appellant being dissatisfied with the Objection Decision gave a notice
of its intention to appeal under Section 12 of the Tax Appeals Tribunal
Act and proceeded to lodge its Memorandum of Appeal together with
the Statement of Facts on 1st March, 2019.

14. Upon service, the Respondent filed its Statement of Facts on 29th March,
2019.

THE APPEAL

15. The Appeal herein is premised on the following grounds:

a) That the Respondent erred in law by levying Corporation tax of Kshs.
672,150,686/= (inclusive of penalties and interest) for the years of
income 2013 and 2015 on income that was subject to CGT.
b) That the Respondent erred in fact by holding that the Appellant was
incorporated to undertake land development and sale and therefore its
principal business activity is that of land development and sale.
c) That the Respondent erred in fact by holding that the gain realized from
the transfer of land to GC Retail limited was realized in the normal
course of business operations and that the transaction was for the
purpose of making profit.

Judgement: TAT No.86 of 2019 – Ruaraka Diversified Investments Ltd –vs- Commissioner of Domestic Taxes Page | 4
 d) That the Respondent erred in law in holding that the proceeds of the
sale of land to GC Retail ltd was subject to Corporation tax and not
CGT .
e) That the Respondent erred in law by assessing Corporation tax on the
proceeds of the sale of land to GC Retail limited in contravention of the
five (5) year period of limitation provided for under the Tax Procedures
Act (TPA), 2015.
f) That the Respondent erred in fact in holding that the gain realized from
the sale of land to GC Residential Limited was realized in the normal
course of business operations and that the transaction was for the
purpose of making profit.
g) That the Respondent erred in law in holding that the proceeds of the
sale of the land to GC Residential Limited was subject to Corporation
tax and not CGT.
h) That the Respondent erred in law in holding that the proceeds of the
sale of the land to Safaricom PLC was realized in the normal course of
business operations and that the transaction was for the purpose of
making profit.
i) That the Respondent erred in law in holding that the proceeds of the
sale of the land to Safaricom PLC was subject to Corporation tax and
not CGT.
j) That the Respondent erred in fact in arriving at its decision that the
Appellant gave substantiative misrepresentation in its application dated
13th February, 2015 which sought a confirmation from the Respondent
on the tax status of the sale of the land to Safaricom PLC.

Judgement: TAT No.86 of 2019 – Ruaraka Diversified Investments Ltd –vs- Commissioner of Domestic Taxes Page | 5
 k) That the Respondent erred in law in revoking its ruling dated 22nd April,
2015 which gave confirmation to the Appellant on the tax status of the
sale of the land to Safaricom PLC.

16. In conclusion, the Appellant prays that:

a) The Corporation tax assessment of Kshs. 672,150,686/= (inclusive of

penalties and interest) for the years of income 2013 and 2015 levied by
the Respondent be declared null and void ab initio since it is founded
on an erroneous interpretation and application of the Income Tax Act,
(ITA).
b) The Respondent, its employees, agents, or other persons purporting to
act on its behalf be barred and or estopped from taking any further
action or steps towards collecting the assessment amounts.

c) The cost of this Appeal and any other remedies that the Tribunal deems
just and reasonable.

THE RESPONSE

17. On its part the Respondent states as follows:-

That: -
a) Ruaraka Diversified Investments Limited was incorporated in year 2010,
and in the year 2011, the company purchased land measuring
approximately 13.01 hectares from East Africa Breweries Ltd at the price
of Kshs 1.2 billion.

Judgement: TAT No.86 of 2019 – Ruaraka Diversified Investments Ltd –vs- Commissioner of Domestic Taxes Page | 6
 b) The company improved the land by developing infrastructure to
enhance its value. Inclusive of developments, the average cost of the
land per acre was approximately Kshs 39,357,619/=.
c) By 2013, the land had been subdivided and a portion of it measuring
15.6 acres was sold to GC Retail Ltd, a related party at the price of Kshs
941,466,191/=, selling price that translated to approximately Kshs
60,350,396.86/= per acre. No tax was paid on this transaction.
d) In the year 2015, 8.83 acres were sold to GC Residential at Kshs
584,965,120/= which translates to approximately Kshs 66,247,465.46
per acre and 5.05 acres sold to Safaricom PLC at Kshs1, 150, 000,000/=
which translated to Kshs 227,722,772.3 per acre. CGT was computed
and remitted to the Respondent on these two transactions.
e) Arising from the transactions, the Appellant made a profit of
approximately Kshs 1,476,431,311/=. By the end of 2015, the Appellant
had sold all the land.
f) The allegation that the Appellant is an Investment Holding Company is
in incorrect because the core activities of the company as demonstrated
above do not match those of an investment holding company. Ever
since its inception in the year 2011, the company has only been involved
in one activity that is the purchase, development and sale of land at a
profit. That aside, an investment holding company is defined as “a
company that earns income from the payment of dividends, rent or
interest”.
g) The Investment Holding company does not produce or offer services
itself, and instead acts as a holding company by owning shares of other
companies. One such example of an investment holding company is

Judgement: TAT No.86 of 2019 – Ruaraka Diversified Investments Ltd –vs- Commissioner of Domestic Taxes Page | 7
 Real Estate Investment Trust (REIT). This is far off from the core activities
of the Appellant.
h) Further to above, sets of the company’s signed financial statements for
the periods under the audit describe the principal activities of the
Appellant as that of land development and sale. The description was
not an error since the activities of the company followed what was set
out in the financial statements.
i) It is evident that the company having been incorporated to undertake
land development and sale, commenced the business one year after
incorporation and within the following three successive years, the
company purchased land, subdivided it and sold out for value making
astronomical profit. It therefore follows that the gains/profits realized
upon the sale of the land are business profits and not capital gains.
j) The Respondent states that determining the source of finance is
important when deciding whether a trade is carried on. Finance taken
out to purchase an asset, in the first instance may indicate that to repay
the debt the asset would have to be sold. In this current Appeal, the
debt repayment agreement goes to show that the transactions in
question were for the sole purpose of making profits.
k) Section 3(2)(f) of the Income Tax Act brings to charge gains accruing or
derived from the sale of capital assets. The proceeds from the Safaricom
and GC Residential ought to have been subject to Corporation tax and
not CGT because they were profits acquired in the normal course of
trading.
l) Section 31(4)(b) of the Tax Procedures Act,2015 stipulates that the
Commissioner may amend an assessment within five years of, a self-

Judgement: TAT No.86 of 2019 – Ruaraka Diversified Investments Ltd –vs- Commissioner of Domestic Taxes Page | 8
 assessment, the date that the taxpayer submitted the return to which
self-assessment relates. Note that the company filed the 2013 self-
assessment on 17th December, 2015 and 2014 return was subsequently
filed on 29th September, 2016.
m) Based on the foregoing provision, the Commissioner was not time
barred in raising the additional amended assessments in October
2018.Five years had not lapsed since the self-assessments were filed.
n) On whether the gain realized from the sale of the land to Safaricom PLC
was realized in the normal course of business operations and that the
transaction was for making a profit, the Respondent has demonstrated
with clear evidence that there was an adventure in the nature of trade.
The adventure includes, but not limited to the financial statements,
survey reports, agreements attached and the NEMA report.
o) In February 2015, Actis Properties East Africa Ltd, a non-resident
company, through its tax consultants VIVA Africa Consulting Ltd, sought
clarification from the Deputy Commissioner Policy Unit Technical, vide
a letter dated 13th February, 2015 referenced “Application of Capital
Gains Tax”.
p) It is uncontested that the said application was done on behalf of a
company known as Actis yet the subject of the transaction was land
owned by the Appellant. The letter further stated that Actis had received
an offer to sell land they did not own. This misrepresentation is also
demonstrated by the correspondences between the Deputy
Commissioner Policy Unit Technical and the applicant. The Appellant
was asked to explain who Actis is and in its explanation attached a
structure of who Actis was. By using Actis as the applicant, the attention

Judgement: TAT No.86 of 2019 – Ruaraka Diversified Investments Ltd –vs- Commissioner of Domestic Taxes Page | 9
 of the Commissioner was shifted from the Appellant who was the
subject of the sale of land transaction with Safaricom PLC.
q) The letter of enquiry written to the Commissioner failed to give all the
relevant information about the Appellant. For instance, the core
business of the Appellant, that of sale and development of land as
described in the financial statements was not disclosed.
r) It follows that the letter did not relate to the Appellant, hence the same
did not create any legitimate expectation to the detriment of the
Appellant. It is evident that the response issued by the Commissioner
relied on incomplete and inaccurate information thus the reason for its
subsequent revocation. The Appellant did not make any application for
a ruling and Actis did not give all the relevant information relating to
the sale of land transaction between the Appellant and Safaricom PLC.

18. In conclusion, the Respondent prays that: -

a) The Appeal be dismissed for lack of merit.
b) The Respondent’s confirmed Assessment be upheld.
c) The Respondent be awarded the costs of the Appeal.

ISSUES FOR DETERMINATION

19. The Tribunal having carefully studied the pleadings and submissions of
the parties, is of the respectful view that the issues for its determination
are as hereunder:

a) Whether the ruling issued by the Respondent vide its letter dated 22 nd
April, 2015 is a private ruling within the provisions of Section 65 of the
Tax Procedures Act 2015 and therefore any decision to withdraw the
private ruling should apply prospectively and not retrospectively?
Judgement: TAT No.86 of 2019 – Ruaraka Diversified Investments Ltd –vs- Commissioner of Domestic Taxes Page | 10
 b) Whether the decisions of the Respondent in its private ruling gave rise
to legitimate expectation on the part of the Appellant that, the land
transactions it undertook were transactions that resulted in capital gains?

c) Whether the Appellant made substantive misrepresentation when it

sought a private ruling from the Appellant?

d) Whether the income realized by the Appellant from the land

transactions was business income and not capital gains?
ANALYSIS AND FINDINGS

20. The Tribunal having determined the said issues will proceed to analyse
them as hereunder:-

a) Whether the ruling issued by the Respondent vide its letter dated 22 nd
April, 2015 is a private ruling within the provisions of Section 65 of the
Tax Procedures Act, 2015 and therefore a decision to withdraw the
private ruling should apply prospectively and not retrospectively?

21. The Appellant’s letter dated 13th February,2015 was referenced

“Application of Capital Gains Tax”, and stated on the first paragraph,
“we write to seek clarification on behalf of our client, Actis….” and
provided details that were suggestive that the tax applicable for the
imminent transaction was capital gains tax, and sought the concurrence
of the Respondent. It is through the information provided by the
Appellant that the Respondent gave its response vide its letter dated 22nd
April, 2015.

22. The contention here is whether the Respondent’s letter was a private
ruling and whether it should apply prospectively and not retrospectively.
In its submission, the Appellant avers that the appeal enjoys the benefit
Judgement: TAT No.86 of 2019 – Ruaraka Diversified Investments Ltd –vs- Commissioner of Domestic Taxes Page | 11
 of transitional provisions under Section 113 of the Tax Procedures Act
and therefore the private ruling provisions under Sections 65-69 of the
Tax Procedures Act should apply.

23. Section 113(Transitional and saving) states:

“(1) Subject to this section, this Act shall apply to any act or omission that
occurred or is occurring for which no prosecution has been commenced,
or any assessment made against which no appeal has been made, before
the commencement date.
2) Any appeal or prosecution commenced before the commencement
date may be continued and disposed of as if this Act had not come into
force.
3) If the period of any application, appeal or prosecution had expired
before the commencement date, nothing in this Act shall be treated as
having enabled the application, appeal or prosecution to be made under
this Act by reason only that a longer period is specified in this Act.
4) Any tax liability that arose before the commencement date may be
recovered under this Act despite any action already taken for the
recovery of the tax”. This section therefore refers to a different set of
facts (objections and appeals procedure) that enable a taxpayer benefit
from provisions that were clearly spelt out in the repealed Act.

24. The function of a saving clause is to preserve law that legislation

supersede and which otherwise would apply with respect to described
transactions and events that occur before the legislation takes effect to
minimize disruption inherent in change from the old to the new law.

Judgement: TAT No.86 of 2019 – Ruaraka Diversified Investments Ltd –vs- Commissioner of Domestic Taxes Page | 12
 25. The Appellant seeks relevance of its assertion that this was a private ruling
by making reference to Section 65 of the Tax Procedures Act, 2015.The
Tribunal wishes to reproduce Section 65 which states:

“(2) An application under this section shall be in writing and –

a) Shall include all relevant details of the transaction to which the
application relates together with all relevant documents.
b) Shall specify precisely the question on which the Commissioner’s
interpretation is required, and…
(4) If the taxpayer has made a complete and accurate disclosure of the
transaction in relation to an application for a private ruling and the
transaction has proceeded in all material respects as described in the
application, the private ruling shall be binding on the Commissioner”.

26. The said letter of 13th February, 2015 was written on behalf of Actis who
was purported to be in the process of engaging in a land transaction,
land that it did not own. When asked by the Respondent who Actis was,
the Appellant provided an illustration that indicated Actis Properties East
African Limited at the top followed by the Appellant’s name as shown
on page 177 of the Respondent’s Statement of Facts. In the
Memorandum of Appeal (appendix RDIL1) the chronology of change of
name as shown in paragraph 3 hereinabove does not feature Actis
Properties East African Limited. The Respondent therefore relied on the
details provided by the Appellant to render its response. It is the
Tribunal’s view that the Appellant did not provide all the “relevant

Judgement: TAT No.86 of 2019 – Ruaraka Diversified Investments Ltd –vs- Commissioner of Domestic Taxes Page | 13
 details of the transactions” as envisaged under Section 65(2)(a) of the
Tax Procedures Act,2015.

27. Based on the argument above, it is evident that the information provided
by the Appellant amounted to material non-disclosure and substantive
misrepresentation of the facts. In the case of Brinks – MAT Ltd vs Elcombe
(1988) 3 All ER 188, the court set out the following as to what qualifies
as material non-disclosure.
“In considering whether there has been relevant non-disclosure and what
consequences the court should attach to any failure to comply with the
duty to make full and frank disclosure, the principles relevant to the issues
in these appeals appear to me to include the following:
(1)The duty of the Applicant is to make a full and fair disclosure of the
material facts”. It goes on to state in the case of Bank Mellat V Nikpour
at (91) per Donaldson LJ, citing Warrington LJ in the Kensington Income
Tax Comms “If material non-disclosure is established, the court will be
astute to ensure that the plaintiff who obtains on ex-parte injunction
without full disclosure is deprived of any advantage he may have derived
by that breach of duty”.

28. In view of the above, the Tribunal makes as finding that the Respondent’s
letter dated 22nd April, 2015 was not a private ruling within the
provisions of Section 65 of the Tax Procedures Act, 2015, as the
Appellant’s letter dated 13th February 2015 was based on information
that was misrepresented.

Judgement: TAT No.86 of 2019 – Ruaraka Diversified Investments Ltd –vs- Commissioner of Domestic Taxes Page | 14
 b) Whether the decisions of the Respondent in its private ruling gave rise
to legitimate expectations on the part of the Appellant that, the land
transactions it undertook were transactions that resulted in capital gains?

c) Whether the Appellant made substantive misrepresentation when it

sought a private ruling from the Respondent?

29. The Tribunal is of the view that the above two issues b) and c) are
intertwined and will therefore proceed to analyse and make findings on
the same simultaneously.

30. The Appellant in this case sought clarification in relation to capital gains
tax and presented facts supporting its idea that CGT was the applicable
tax head. In English case of Council of Civil Services Unions vs Minister
for Civil services 1985 AC 374; Lord Fraser stated as follows:

“A legitimate expectation may arise –either from an express promise

given on behalf of a public authority or from the existence of a regular
practice which the claimant can reasonably expect to continue….”. The
Appellant’s letter of 13th February, 2015 provided information that was
suggestive or tended to influence the Respondent to concur with the
Appellant. The Appellant provided information that was intentionally
calculated at obtaining a response that suited its purpose.

31. As stated herein above, the Appellant had a duty to make a full and fair
disclosure of all material facts. It disclosed that the client that was
involved in the transaction was Actis and not the Appellant. Further that
the said transaction was not a one-off unanticipated transaction, rather

Judgement: TAT No.86 of 2019 – Ruaraka Diversified Investments Ltd –vs- Commissioner of Domestic Taxes Page | 15
 it was within the nature of the Appellant’s business, that of land
development and sale which would make the gains from the transaction
to be from a business, for whatever period of time carried as per Section
3(1)(a)(i) of the Income Tax Act.

32. It is the considered view of this Tribunal that the, the Appellant
misrepresented facts when it sought the private ruling from the
Respondent.

33. Consequently, we make a finding that the decision of the Respondent in

its private ruling did not give rise to legitimate expectations on the part
of the Appellant that the land transactions it undertook were transactions
that resulted in capital gains. Further, we find that the Appellant made
substantive misrepresentation when it sought a private ruling from the
Respondent.

d) Whether the income realized by the Appellant from the land

transactions was business income and not capital gains?

34. A trading activity is taxable under Section 3(2)(a)(i), whereas a capital

realization is taxable under Section 3(2) of the Income Tax Act. The
contention is whether the gains realized by the Appellant were from
business activity or a one-off transaction. The Black’s Law Dictionary
Eighth Edition defines trade as “the business of buying and selling or
bartering goods or services”. Another definition from the same dictionary
is that trade or business is “Any business or professional activity
conducted by a tax payer with the objectives of earning a profit”.

Judgement: TAT No.86 of 2019 – Ruaraka Diversified Investments Ltd –vs- Commissioner of Domestic Taxes Page | 16
 35. The Appellant’s assertion is that it is an investment holding company
while the Respondent asserts that it is a trading company qualified by the
definition given herein above. The Black’s Law Dictionary Eighth Edition
defines; an investment company as follows;
“A company formed to acquire and manage a portfolio of diverse assets
by investing money collected from different sources. The investment
company act of 1940 defines the term as an insurer of securities that:
(A)is or holds itself out as being engaged primarily, or proposes to engage
primarily in the business of investing, reinvesting or trading in
securities……”.

36. A careful study of the Appellant’s books of accounts for the years 2013,
2014, 2015 and 2016, shows the nature of the Appellant’s main business
is described as land development and sale as indicated on pages 16, 43,
75 and 106 respectively of the Memorandum of Appeal. This consistency
in describing what activities it undertakes informs that it is not a mistake
that it has been described so over the years.

37. The Appellant bought the land reference No. 10119/3 from East Africa
Breweries Ltd for Kshs 1.2 Billion in 2011. In October 2012 the Appellant
entered into an agreement with M/S Davis Langdan African, a consultant
who was to provide quantity surveying services for the retail,
infrastructure and master plan areas of the project as shown in folio 9A
in the Respondent’s Statement of Facts. In the year 2013, the Appellant
sold 15.6 acres to GC Retail Ltd for Kshs 941,466,191/=. In the year 2015

Judgement: TAT No.86 of 2019 – Ruaraka Diversified Investments Ltd –vs- Commissioner of Domestic Taxes Page | 17
 it sold 8.83 acres to GC Residential Ltd at Kshs 584,965,120/= and again
in the same year sold 5.05 acres to Safaricom PLC at Kshs
1,150,000,000/=.

38. It is the view of the Tribunal that the conduct of the Appellant during
the three transactions pointed to a trading activity and not an investment
holding one. The courts have used the badges of trade concept to
determine questions of trade on the basis of the overall impression gained
from their review. The Badges of trade concept is defined in law as “the
circumstances under which a trade can take place” (Black Laws
Dictionary).

39. The Tribunal will apply what it considers as relevant test of badges of
trade under the circumstances to determine whether indeed the
Appellant bought the land, improved it then sold as capital realization
or trading activity.

i.Profit motive
40. The Appellant first bought the land at Kshs 1.2 Billion, improved it and
sold 29.5 acres of the 34.14 at a total of Kshs 2.7 Billion. In the case of
Salt v Chamberlain (1979)53 TC 143 it was held that while an intention
to make a profit supports trading, but by itself is not conclusive.
However, evidence that the sole objective of acquiring an asset is to resell
at a profit without any intention of holding it as an investment, points
to the carrying on of trade, the large profits made was “an adventure in
the nature of trade”.

Judgement: TAT No.86 of 2019 – Ruaraka Diversified Investments Ltd –vs- Commissioner of Domestic Taxes Page | 18
 ii.Modification of asset in order to make it more saleable.

41. If one buys something, does nothing to it then sells it, it is unlikely that
one is trading. However, if one buys an asset, modifies it to make it
attractive to buy, it is possible one would be considered to be trading. In
the case of CIR v Livingston & others (1926) (1) TC 538 in determining
whether trading had taken place the question that was asked was; “was
the asset repaired, modified or improved to make it more easily saleable
or saleable at a greater profit?” The Tribunal notes in this case that the
Appellant bought the land, subdivided it, improved its infrastructure and
was able to sell it at a profit. For clarity, the Appellant bought 34.14 acres
of land at Kes 1.2B and sold 29.48 acres at circa KES 2.7B within
approximately 3 years.

iii.Length of ownership
42. Where one has owned something for a long time it is easier to justify that
one bought for enjoyment or for own private consumptions. A profit on
sale would not therefore be treated as a trading profit. If however, one
had owned it for a short period it is much more likely to be successfully
argued that it was purchased with the aim of selling it at a profit. The
Appellant bought the land in 2011, improved it in 2012 and sold the first
property in 2013 and the other two in 2015.Assets that are the subject of
trade will normally, but not always be sold quickly. Therefore, an
intention to resell an asset shortly after purchase will support trading.

Judgement: TAT No.86 of 2019 – Ruaraka Diversified Investments Ltd –vs- Commissioner of Domestic Taxes Page | 19
 43. In the Tribunal’s mind the three badges of trade applied to the
transactions pass the badges of trade test and we are therefore of the
considered view that the profit arising therefrom was business income
and is therefore taxable as trading income.

44. The Tribunal finds that the income realized by the Appellant from the
land transactions was business income and not capital gains.

FINAL DECISION

45. The upshot of the foregoing is that the Appeal lacks merit and the
Tribunal makes the following Orders:-
a. The Appeal is hereby dismissed.
b. The Respondent’s confirmed tax assessment of Kshs
672,150,686/= vide its letter dated 18th January 2019 is hereby
upheld.
c. Each party to bear its costs.

DATED and DELIVERED at NAIROBI this 1st day of April, 2021.

JOSEPHINE K. MAANGI
CHAIRPERSON

GEOFFREY KARUU TANVIR ALI

MEMBER MEMBER

PATRICIA M. ANAMPIU DELILAH K. NGALA

MEMBER MEMBER

Judgement: TAT No.86 of 2019 – Ruaraka Diversified Investments Ltd –vs- Commissioner of Domestic Taxes Page | 20