Case update – position of judicial review post-Bintulu Lumber

If one may recall, in August 2020, the apex court of the country held in the case of Bintulu Lumber Sdn Bhd v Ketua Pengarah Hasil Dalam Negeri that the question of palm oil fruit is considered as a “fruit” within the context of the Schedule 7A of the Income Tax Act 1967 (“the Act”) is a question of fact and not suitable of judicial review. As such, the Federal Court remitted the case back to the Special Commissioners of Income Tax to determine this point.

Fast forward a few months later, many judicial review cases involving a dispute of taxes have appeared before the High Court and/or Court of Appeal for determination. Notwithstanding the Federal Court’s decision in Bintulu Lumber, subsequent cases had demonstrated that the doors for judicial review involving tax cases are not closed. In a recently released Grounds of Decision of Kind Action (M) Sdn Bhd v Ketua Pengarah Hasil Dalam Negeri, the High Court of Johor allowed the taxpayer’s application for judicial review and allowed an application for a stay pending the disposal of the judicial review application.

Facts:

The taxpayer was initially in the plantation business. Following a change in the ultimate holding company, a strategic decision was made to withdraw from the plantation business altogether and focus on the chemical manufacturing business. The taxpayer sold several plots of land following its intention to exit the plantation business.

The Director General of Inland Revenue (“DGIR”) was of the view that the disposal of land was subject to income tax instead of real property gains tax (“RPGT”). The taxpayer was disagreed with the DGIR’s position and stated, amongst others, that the land sold should be subjected to tax under RPGT instead because the taxpayer actively produced income from the plantation activities and the Respondent accepts that the taxpayer was carrying on a plantation business and the disposal was following a strategic decision to exit the plantation business.

The DGIR proceeded to issue Notices of Additional Assessment against the taxpayer worth more than RM81 million. The taxpayer appealed to the DGIR to have the taxes and penalties under the Notices of Additional Assessment to be paid, under protest, via instalments.

The DGIR allowed the Applicant’s instalment payment requested to have the Notices of Additional Assessment to be paid via 60 instalments. However, the DGIR disallowed the amount payable under the Notices of Additional Assessment offset against the RPGT already paid by the taxpayer previously.

This taxpayer then applied for judicial review as the Respondent’s decision in disallowing the taxes under Notices of Additional Assessment to be offset against the RPGT already paid offends the principle that the same income should not be taxed twice. By disallowing the offset, the DGIR has thereby subjected the same income, i.e. profit from the disposal of land, to both income tax and RPGT.

Decision:

The Court allowed the taxpayer’s application for leave for judicial review.

Following the cases of QSR Brands Bhd v Suruhanjaya Security & Anor [2006] 3 MLJ 164 and Flextronics Shah Alam Sdn Bhd v Ketua Pengarah Hasil Dalam Negeri [2018] 7 CLJ 487, a wide interpretation is to be taken when deciding whether or not a taxpayer is “adversely affected” by a decision of a public authority under Order 53 of the Rules of Court 2012.

In this case, the requirement to pay RM 81 million within a very short period (normally 30 days from the day of the assessment) was an “unequivocal demonstration” of being “adversely affected” and “serious financial prejudice”.

The Court allowed the leave of judicial review and for the DGIR to respond at the merits stage of the judicial review application.

On the point of the availability of a domestic remedy i.e. an appeal to the Special Commissioners of Income Tax under Section 99 of the ITA, the High Court was of the view that these should only be considered during the merits stage and not at the leave stage. This is in line with our body of case law which had held in similar tune.

Comments:

Whilst the Federal Court in Bintulu Lumber said that based on the facts of its case, the case ought to be determined by judicial review, the Federal Court did not shut the doors for judicial review for tax cases.

This is especially the case where the taxpayer has good grounds to prove that judicial intervention vide judicial review is warranted, i.e. where there are:

  • A clear lack of jurisdiction;
  • A blatant failure to perform some statutory duty; or
  • A serious breach of the principles of natural justice.

As such, judicial review remains open for tax cases and the availability of an alternate remedy, i.e. an appeal to the SCIT, is not a permanent bar to such.