AA Kenya wins court battle over Sh27m tax dispute
Justice Patrick Otieno upheld the decision of the Tax Appeals Tribunal, which had earlier found that learners enrolled in AA’s driving school were indeed members of the association, making their fees non-taxable income.
The High Court has dismissed a Sh27 million tax claim by the Kenya Revenue Authority (KRA) against the Automobile Association of Kenya (AA), ruling that the century-old organisation qualifies as a members' club and is therefore entitled to tax exemption under the Income Tax Act.
In the ruling, Justice Patrick Otieno upheld the decision of the Tax Appeals Tribunal, which had earlier found that learners enrolled in AA’s driving school were indeed members of the association, making their fees non-taxable income.
“That question was answered by the tribunal in the affirmative. The court finds nothing erroneous, as to be perverse, with the decision and finds that being called upon to re-evaluate the evidence afresh on a second appeal is beyond its jurisdiction,” said the judge.
KRA had raised the tax assessment following a verification of AA’s financial records for the years 2016 to 2020.
The authority argued that AA did not qualify as a members’ club because a majority of its income came from driving school learners, who it claimed were not genuine members.
The taxman maintained that driving school learners were granted temporary access, were not entitled to the club’s assets, and only received membership cards limited to certain services.
It further argued that their engagement with AA was solely for training purposes, that they were not vetted, had no long-term commitment, and that AA itself was not officially registered as a members' club.
On the strength of these arguments, KRA concluded that AA could not benefit from the tax exemptions granted to members' clubs under the law and proceeded to issue the Sh27 million corporate income tax assessment.
However, AA challenged the assessment before the Tax Appeals Tribunal, insisting that the learners were registered as ordinary members and paid subscription fees.
It also argued that they were issued with membership cards, could attend annual general meetings, vote, access club facilities, and had rights to assets in case of liquidation, all as provided for in its Constitution.
The tribunal ruled in favour of AA, prompting KRA to escalate the matter to the High Court, where it has now also lost.
