1. ) Eng Chin Tian v Ketua Pengarah Lembaga Hasil dalam Negeri (BA-14-2-08/2022)

ENG CHIN TIAN (No. K/P: 591225-10-6357)

LIM KEE YIK (No. K/P: 620906-10-5085)

TEH HENG LEE (No. K/P: 671021-10-5627)

LIM CHIN LEE (No. K/P: 640423-10-7391) …PERAYU-PERAYU DAN KETUA PENGARAH HASIL DALAM NEGERI …RESPONDEN [Dalam perkara Pesuruhjaya Khas Cukai Pendapata di Putrajaya Rayuan No. PKCP(R) 81/2018 (Y/A 2004), PKCP(R) 82/2018 (Y/A 2004), PKCP(R) 83/2018 (Y/A 2004) dan PKCP(R) 84/2018 (Y/A 2004) ANTARA 1. ENG CHIN TIAN (No. K/P: 591225-10-6357)

LIM KEE YIK (No. K/P: 620906-10-5085)

TEH HENG LEE (No. K/P: 671021-10-5627)

LIM CHIN LEE (No. K/P: 640423-10-7391) …PERAYU-PERAYU DAN KETUA PENGARAH HASIL DALAM NEGERI …RESPONDEN] 06/11/2023 16:14:59 Kand. 32 JUDGMENT Introduction [1] This is an appeal by the appellant on the question of law pursuant to paragraph 34 of Schedule 5 of the Income Tax Act 1967 (“ITA”). [2] This appeal stems from a notice of assessment issued by the respondent dated 4 May 2017 for the year of assessments (“Y/A”)

Brief Facts [3] The facts of this appeal are as follows. Syarikat Gagah Makmur Sdn Bhd (“Gagah”) is the beneficial owner of a piece of agricultural land under Sandakan Lease No: 085330016 in Sungai Lokan Telupid di Daerah Beluran, Sabah with a land area of 906.60 acres. The appellants are the shareholders of Gagah, which is a real estate company. [4] On 27 April 2004, Gagah entered into Sales and Purchase agreement with Express Credit Sdn Bhd (140202-W) to acquire a land under Sandakan Lease No. 08533016 in Sungai Lokan Telupid, Daerah in Beluran, Sabah (“the said Land”) for the sum of [5] Gagah obtained a loan facility from Public Bank Berhad for a sum of RM 4,000,000.00 for the purchase of the said land. [6] On 30 November 2004, the appellants and others entered into Share Sales Agreement to dispose their shares in Gagah to Yap Lam Boon and Ang Kun Huat, the new shareholders. [7] Only two (2) appellants, namely Eng Chin Tian and Lim Kee Yik, filed Form CKHT 1 on 26 September 2012, while the other two appellants, namely Teh Heng Lee and Lim Chee Lee did not. [8] The respondent issued Form K dated from 28 April 2017 and 4 May 2017 for the appellants for Y/A 2004. [9] The appellants appealed to the Special Commissioner of Income Tax who dismissed the appellants’ appeal. [10] The appellants then lodged an appeal in this court. Law Pertaining to Appeals from the SCIT [11] With regard to whether, the High Court has jurisdiction to hear appeals from the SCIT, paragraph 34 of Schedule 5 of the ITA provides as reproduced below: “(1) Either party to the proceedings before the Special Commissioners may appeal to the High Court on a question of law against a deciding order made in those proceedings.” [12] Furthermore, paragraph 39 of Schedule 5 of the ITA further reads: “The High Court shall hear and determine any question of law arising on an appeal under paragraph 34 and may in accordance with its determination thereof—

order the assessment to which the appeal relates to be confirmed, discharged or amended;

remit the appeal to the Special Commissioners with the opinion of the court thereon; or

make such other order as it thinks just and appropriate.” [13] In the case of Kenny Heights Development Sdn Bhd v. Ketua Pengarah Hasil Dalam Negeri [2015] 5 CLJ 923, the Court of Appeal stated: “[24] We make the general observation that courts, acting in accordance with the law, are at all times bound by the legislation placing jurisdiction and authority in specialised bodies such as the SCIT. The legislation specified that the deciding order of the SCIT is final and allowed appeals to the court on question of law and not any grievance. It underlines, within the SCIT’s jurisdiction, its authority, and prevents the courts being buried under an avalanche of tax appeals by parties unhappy with the determination of the KPHDN and the SCIT.” [Emphasis added] [14] Morever, in the case of Saujana Hotel Sdn Bhd v. Ketua Pengarah Hasil Dalam Negeri [2011] 9 MLJ 213, the court held: “[8] It is trite that it is open for the High Court to review the decision SCIT, if SCIT.

misdirect themselves on the law;

answer the wrong questions;

omit to answer a question which they ought to behave answered;

took into account factors which they ought not to have;

reached a conclusion on facts which is not supported by the evidence before them; and

made a finding of facts which no reasonable person in the circumstances would arrive at.” [15] In the Director General Inland Revenue v Rakyat Berjaya [1984] 1 MLJ 248, the Federal Court stated: “In Chu Lip Kong’s case the Privy Council reversed the Commissioners’ decision on the ground that it was wrong in law. The approach is similar to that of the House of Lords in Edwards v. Bairstow & Harrison [1956] AC 14; [1955] 3 All ER 48; [1953] 36 TC 207, a case universally acknowledged as the leading authority on the distinction between questions of fact and questions of law. It was also referred to by the learned Judge. He was fully conscious of the critical distinction between questions of fact and law. He stated the position succinctly and accurately before citing a passage from the above case. At p. 54 of the Appeal Record he reminded himself in the following words: ... The power of the Court to interfere is quite limited where the findings of the Special Commissioners are basically findings of facts. The Court will interfere only if there is no evidence to justify the finding or where they have applied erroneous tests in arriving at their conclusions or have drawn a wrong inference on the facts or have misdirected themselves in law ...” [Emphasis added] [16] Founded on the provisions of the law and the authorities stated, the High Court may hear appeals from the SCIT on a question of law. Analysis and Findings [17] The question of law posed for this court’s consideration is whether the learned SCIT was correct in law in deciding that the disposal price of Gagah is RM6,799,500.00. [18] The facts disclose that Gagah is a real property company whose shareholders are the appellants. In this regard, when the matters involves a real property company, the provision of the law that is applicable is paragraph 34A of the Second Schedule of the Real Property Gains Tax Act 1976 (“RGPT Act”), which is reproduced: “Acquisition and disposal of shares in real property companies 34A. (1) An acquisition of shares in a real property company (hereinafter referred to in this paragraph as “the relevant company”) shall be deemed to be an acquisition of a chargeable asset, and where such shares are disposed of, such a disposal shall be deemed to be a disposal of a chargeable asset notwithstanding that at the time of disposal of such shares the relevant company is not regarded as a real property company.

The chargeable asset in this paragraph shall be deemed to be acquired—

on the date the relevant company becomes a real property company; or

on the date of acquisition of the chargeable asset.

For the purposes of this paragraph, the acquisition price of a chargeable asset shall—

where subparagraph (2)(a) applies, be deemed to be equal to a sum determined in accordance with the formula— 𝐴 𝐵 𝑥 𝐶 where A is the number of shares deemed to be a chargeable asset; B is the total number of issued shares in the relevant company at the date of acquisition of the chargeable asset; and C is the defined value of the real property or shares or both owned by the relevant company at the date of acquisition of the chargeable asset;

where subparagraph (2)(b) applies, be determined in accordance with paragraph 4 or 9.

Notwithstanding paragraph 5, the disposal price of the chargeable asset in this paragraph is the amount or value of the consideration in money or money’s worth for the disposal of the chargeable asset.

This paragraph shall not apply to an acquisition or a disposal of any shares under paragraph 34.

For the purposes of this paragraph— “controlled company” means a controlled company as defined under the Income Tax Act 1967; “defined value” means the market value of real property or the acquisition price of shares as determined under subparagraph

(3); “real property company” means—

a controlled company which, as at 21 October 1988, owns real property or shares or both, the defined value of which is not less than seventy-five per cent of the value of its total tangible assets; or

a controlled company to which subparagraph (a) is not applicable, but which, at any date after 21 October 1988, acquires real property or shares or both whereby the defined value of real property or shares or both owned at that date is not less than seventy-five per cent of the value of its total tangible assets: Provided that where at any date the company disposes of real property or shares or both whereby the defined value of real property or shares or both owned at that date and thereafter is less than seventy-five per cent of the value of its total tangible assets, that company shall not be regarded as a real property company as from that date; “shares” refers to shares owned in a real property company; “value of its total tangible assets” means the aggregate of the defined value of real property or shares or both and the value of other tangible assets.” [19] At the crux of this appeal is the consideration paid by the purchasers for Gagah shares pursuant to the Share Sale Agreement. [20] What then, amounts to consideration. Section 2 of the RPGT Act defines consideration as follows: “In this Act, unless the context otherwise requires— “consideration” means consideration in money or money’s worth;” [21] Subparagraph 34A(4)of the Second Schedule of the RPGT Act provides: “(4) Notwithstanding paragraph 5, the disposal price of the chargeable asset in this paragraph is the amount or value of the consideration in money or money’s worth for the disposal of the chargeable asset.” [Emphasis added] [22] The Osborne’s Concise Law Dictionary (Seventh Edition) defines consideration as: “Consideration in the sense of law may consist either in some right, interest, profit or benefit accruing to one party, or some forbearance, detriment, loss or responsibility given, suffered or undertaken by the other.” [23] In the case of Ketua Pengarah Hasil Dalam Negeri v. Tan Teik Kin [2010] MSTC 7, 117 reference was made to consideration from Pollock’s Principles of Contract (12th Edition) as follows: “Consideration means not so much that one party is profited as that the other abandons some legal right in the present, or limits his legal freedom of action in the future, as an instrument for the promise of the first. It does not matter whether the party accepting the consideration has any apparent benefit thereby or not: it is enough that he accepts it, and that the party giving it does thereby undertake some burden, or lose something which in contemplation of law maybe of value.” [24] Founded on the definition of consideration as alluded to above, it could be concluded that consideration may take the form of not only money but the value of money. This means that consideration includes one party gaining profit, rights, advantages, or another party bearing losses, damages, and responsibilities. [25] Coming back to this instant appeal, the consideration stated in the Share Sale Agreement between the appellants and the purchasers dated 30.11.2004 states: “J. Subject to the fulfilment of the terms in recital G above, the vendors have agreed to sell all their Ordinary Shares in the said company together with the said property to the said company together with the said property to the said purchasers and/or their nominees have agreed to purchase the said same at the agreed purchase price of Ringgit Malaysia Six Million Seven Hundred Ninety Nine Thousand and Five Hundred (RM6,799,500/-) only (hereinafter referred as to as “the Purchase Price”) [the agreed price for the ordinary shares stands at RM6.7995 per shares] upon the terms and conditions hereinafter contained.” [Emphasis added] [26] From a reading of clause J in the Share Sale Agreement, the purchase price of Gagah’s ordinary shares was agreed between parties at RM6,799,500.00. This amount was further confirmed by the appellant’s witness at the SCIT hearing. Moreover, one of the purchasers of Gagah’s shares, Mr Yap Lam Boon had, vide a letter stated that the purchase price of Gagah’s shares is RM6,799,500.00 including the loan which amounts to part of the purchase price. [27] The appellants contend the consideration is the amount paid by the purchasers to the appellants which is RM2,799,500.00, not [28] In this regard, this court looked to clause 2 of the Share Sale Agreement as reproduced below: “Klausa 2 In considering of sum of Ringgit Malaysia Two Million Seven Hundred Ninety-Nine Thousand and Five Hundred (RM2,799,500/-) only paid by the purchasers directly to the Vendors’ Solicitor as stakeholder upon the execution of this agreement being deposit and the part payment of the purchase price… … the Vendors do hereby sell all the purchasers and/or their nominees do hereby purchase the said company, the said shares and the said property together with vacant possession at the agreed purchase price Ringgit Malaysia Six Million Seven Hundred Ninety-Nine Thousand and Five Hundred (RM6,799,500/-) only upon the terms and conditions hereinafter contained but subject to the existing loan.” [Emphasis added] [29] From a reading of clause 2 of the Share Sale Agreement, it is plain that the RM2,799,500.00 is part payment of the purchase price. The amount of RM2,799,500.00 is not the purchase price as contended by the appellants. The applicants argued that there is the outstanding loan facility amounting to RM4,000,000.00. Based on clause 2 above, it would appear that the consideration for the appellant’s Sale of Share is RM6,799,500.00. [30] Pertaining to the loan from Public Bank Berhad, clause 3 of the Share Sale Agreement states: “Klausa 3 The purchasers shall ensure that the principal sum of RM 4,000,000/- in the respect of the said loan together with interest and all other sums levied by Public Bank Berhad are duly paid by the company at the same times and in the manner required by Public Bank Berhad. The purchasers shall be deemed to have full knowledge of the terms and condition thereof AND shall have the option to pay the said sum of RM4,000,000/- in cash within seven (7) days of the Completion Date so that the loans could be cancelled forthwith.” [31] Based on clause 3 of the Share Sale Agreement, the purchasers are given an option to pay the full sum of RM4,000,000.00. This option was not taken by the purchasers. The amount of RM4,000,000.00 being the principal sum of a loan from Public Bank Berhad. The purchasers are to ensure the RM4,000,000.00 and all others sums due to Public Bank Berhad is to be paid by Gagah which has now been purchased by the purchasers. [32] As the purchasers did not take the option to pay off the loan with the principal sum of RM4,000,000.00, the loan from Public Bank Berhad which was taken by Gagah, is still due. This consequentially means Gagah (and Gagah’s new owners) are tasked to make the installments for the loan. This is evident from clause 3 of the Share Sale Agreement which states that the purchasers shall ensure the principal sum of RM4,000,000.00 in respect of the loan together with the interest and all other sums levied by Public Bank Berhad are duly paid by the company (Gagah) at the times and manner required by Public Bank Berhad. [33] This entails that the loan which was the responsibility and/or liability of the appellants has now, in accordance with the Share Sale Agreement, become the responsibility of the purchasers. The Public Bank Berhad loan is no longer the responsibility and/or liability of the appellants. The appellants are no longer liable or required to make payments towards the loan. It could be concluded that the appellants had benefited by no longer having to ensure the payment of the loan to Public Bank Berhad. [34] This benefit, in the considered view of this court, amounts to a consideration under the Share Sale Agreement. The purchase price of the shares in Gagah as per the Share Sale Agreement is [35] Moreover, the Share Sales Agreement plainly and clearly states the purchase price is RM6,799,500.00. In this regard, reference is made to the case of Mulpha Pacific Sdn Bhd v. Paramount Corn Bhd [2003] 4 CLJ 294. [36] Therefore, this court is of the considered view the purchase price or the consideration for the sale of ordinary shares in Gagah is RM6,799,500.00. This court is also of the considered view the appellants had benefited as the appellants are no longer required to pay of the loan of RM4,000,000.00 from Public Bank Berhad. Conclusion [37] For the aforementioned reasons, this court is satisfied that the SCIT did not err in law. The decision of the SCIT is hereby upheld and affirmed. This appeal is dismissed with costs of RM3,000.00 subject to allocator. Date: 06 November 2023 (SHAHNAZ BINTI SULAIMAN) Judge High Court of Malaya, Shah Alam Counsel: For the Appellant: Gan Boon Yi Tetuan Yeong & Mak Advocates & Solicitors No. 5-2, Jalan Temoh, Off Jalan Tapah, 41400 Klang, Selangor klg@ym.com.my +6 03 3344 2902 / 11 For the Respondent: Nur Aina Mohd Jaffar, Intan Natasha binti Yusri Bahagian Litigasi Cukai, Jabatan Undang-Undang, Ibu Pejabat Lembaga Hasil Dalam Negeri Malaysia, Menara Hasil, Aras 11, Persiaran Rimba Permai, Cyber 8, 63000 Cyberjaya, Selangor. +6 03 8313 8888