Aia Berhad v Ketua Pengarah Lembaga Hasil dalam Negeri (WA-25-297-10/2020)

Judicial power continues to reside with the courts, which are required under the statute to exercise their full judicial powers after the SCIT, as a specialist tribunal, has heard and decided on the tax appeal put forward by the taxpayer. To reiterate, the right to have the taxpayer's dispute heard in full is simply deferred, to enable payment to be made first by way of recovery.

Finally, as other forms of judicial intervention are not ousted, the right to seek a stay or to resort to judicial review (which require exceptional circumstances) remains.

There is, however, nothing to stop the taxpayer from pursuing these matters under the appeals process in s. 99(1) to the SCIT and the subsequent appeals on matters of law to the High Court and the appellate courts. Moreover, judicial review is available in exceptional circumstances.

The availability of judicial review in tax is cases is generally confined to rare cases where, for example, what is said to be an assessment is not in fact an assessment (see: Andrew Chew Peng Hui, Tax Appeals in Malaysia: Law and Procedure, (Malaysia: Thomson Reuters, 2021) at 181). In exceptional cases, review may be available in cases of deliberate maladministration. \t is incumbent on the taxpayer to establish exceptional circumstances of a kind which result in the assessment falling outside the scope of assessments as provided for in s. 106 of the ITA.

What is not permissible is allowing collateral challenges to assessments through judicial review, when the appeals procedure is the proper mode to be adopted. This can give rise to abuse of the remedy, by the use of the same to put forward disguised challenges to quantum or the basis of assessment, all of which can and should be more properly dealt with under s. 99(1) of the ITA and the appeals process. ... 9. Of importance is the fact that with regard to the application for leave to commence judicial review proceedings in respect of the First JR. The application was heard and leave granted over the objections by Senior Federal Counsel for the Attorney General and Senior Revenue Counsel, the DGIR, who was then the putative respondent. The learned High Court Judge was of the view that the issue of alternative remedy ought to be taken up at the substantive stage of the hearing and not at the leave stage. This was stated in the following paragraph of Her Ladyship’s written judgment:

It must be noted further that the line of authorities have demonstrate that the existence of an alternative remedy is an argument that should be canvassed at the substantive stage. This position can be seen in the judgment of the High 10 Court in Flextronics Shah Alam Sdn Bhd v Ketua Pengarah Hasil Dalam Negeri [2018] 7 CLJ 487;

MLJU 590, where the High Court stated as follows: “Thus, | accept the learned Applicant's counsel's submission that when the pronouncement of the Federal Court in Alcatel-Lucent is read together with the ratio decidendi in Chin Mee Keong and QSR Brands Bhd, the availability or non- availability of an alternative remedy is irrelevant at the leave stage and should be raised at the merits stage. The existence or non-existence of a sufficient alternative remedy is something that should be canvassed at the substantive stage and is therefore a premature objection to be raised now at the leave stage”. 10. An appeal was filed against the decision of the learned High Court Judge, but was withdrawn. Thus, the issue of alternative remedy was to be ventilated at the substantive stage of the judicial review proceedings. This would apply also with regard to the Second JR that was heard before the same Judge. 11, 11. On 19 February 2025, | dismissed both the First JR and the Second JR on the grounds that there were no exceptional circumstances shown by the applicant and that the matters which are before the SCIT ought to be heard by the SCIT. This judgment contains the reasons for my decision. THE BACKGROUND FACTS 12. The applicant is a public listed company in Malaysia and operates as a License Insurer under the Financial Services Act 2013, conducting the business of life and general insurance. As part of its business operations as an insurer, the applicant also buys insurance policies known as reinsurance from reinsurance companies. By way of the reinsurance agreements, the reinsurance companies agree to assume and undertake, either fully or partially, the risks and liabilities from the applicant in respect of the insurance policies sold by the applicant. 13. On 3 July 2020, the DGIR conducted an audit review on the applicant. In a letter dated 6 July 2020, the first audit finding was issued to the applicant in respect of the YA 2015, YA 2016, and YA 2017. In its audit finding, the DGIR found that the reinsurance commissions and profit commissions (rebates) received by the applicant from the reinsurance companies constitute income which is subject to tax under Section 60(8) of the ITA. In the said letter, the DGIR had also 2 requested for sample profit commission agreements, annual profit commission statements, and a complete list of the profit commission receipts. 14. On 24 July 2020, on advice of its professional tax consultant and auditor, PricewaterhouseCoopers Taxation Services Sdn Bhd, the applicant responded to the DGIR’s letter and provided the explanation. The DGIR then issued its second audit finding vide letter dated 27 July 2020 and maintained its earlier finding that the profit commissions and reinsurance commissions are subject to tax under Section 60(8) of the ITA. The DGIR in this audit excluded the Unit Linked Funds from the computation of the set-off for tax charged on actuarial surplus under Section 110B of the ITA. 15. | The DGIR’s findings were stated as follows: “Potongan tidak sepatutnya dibenarkan tolakan daripada Lebihan Aktuari yang dipindahkan kepada tabung pemegang saham di bawah Seksyen 110B ACP”. “Penentuan pengiraan Set-off for Tax Charged on Actuarial Surplus berkaitan dengan Investment Linked Funds yang tidak memberi sumbangan ke atas Lebihan Aktuari yang dipindahkan kepada Dana Hayat (tabung insurans nyawa) hendaklah diabaikan’”. 13 16. | The Applicant, in its response letter dated 10.9.2020, had set out its reasoning inter alia as follows: First issue: Reinsurance commission and profit commission i. | That profit commission is not taxable under section 60(8) of the ITA as it is purely an adjustment to cost for reinsurance; ii. That profit commission is a rebate given to the applicant when the claim by the insurance policy holder is lesser and the reinsurance premium paid by the applicant is deemed to be paid in excess. iii. As such, the relief from expenditure ought not to be assessed as income; and iv. The Life Insurance Association of Malaysia (“LIAM”) and the Malaysian Takaful Association (“MTA”) are still in discussion with the DGIR regarding reinsurance commission and profit commission, and these issues remain a hotbed issue affecting the Malaysian insurance industry. Second Issue: The calculation as to the set-off for tax charged on actuarial surplus under section 110B ITA i. For the purpose of deduction under section 110B ITA, Investment Link Funds bought by an insurance 14 policy holder as a life insurance policy ought to be assessed in its entirety; ii. That Investment Linked Funds ought not to have been distinguish by the DGIR to an Operating Funds and Unit Linked Funds for purposes of calculation under section 110B ITA; and iii. Therefore, Unit Linked Funds ought not to have been disqualified by the DGIR in the calculation set off for tax charged on actuarial surplus under section 110B ITA for Investment Linked Policy sold by the Applicant. 17. On 22 September 2020, the DGIR responded 22.9.2020 the DGIR responded maintaining his position, and thereafter, on 25 September, the DGIR issued the said Notices of Additional Assessment, including imposing a 45% on additional income from the profit commission and reinsurance commission received by the applicant under Section 113(2) of the ITA. This is now the subject matter of the First JR. 18. | The DGIR subsequently issued Notices of Additional Assessment for YA 2018 and YA 2019 dated 13 August 2021 on the same issues as the matters pending in the First JR. Accordingly, the applicant filed the Second JR. It is observed here that the certiorari relief is the main relief in both the First 15 JR and the Second JR applications, although declarations are sought. Suffice to say that the declarations sought concern matters which would be dealt with in respect of the main relief of certiorari. EXCEPTIONAL CIRCUMSTANCES TEST 19. | The learned Judge in the instant case, who allowed leave expressly as shown above, stated that the issue of alternative remedy is to be dealt with at the substantive stage. 20. In Zakaria bin Abdullah & Ors v Lembaga Perlesenan Tenaga Atom & Ors [2013] 5 MLJ 206, the Court of Appeal has reiterated the reluctance of the court to entertain judicial review proceedings in the face of specialised appeal bodies established by the legislature for such purpose referring to the law stated by the Federal Court in Majlis Perbandaran Pulau Pinang. The relevant paragraph of the Court of Appeal in Zakaria bin Abdullah is reproduced below:

Secondly, admittedly, the Federal Court in the same case of Majlis Perbandaran Pulau Pinang v. Syarikat Bekerjasama-sama Serbaguna Sungai Gelugor dengan Tanggungan (supra), after stating that the reality of the matter is that: 16 When genuine grounds for judicial review are alleged, it is the refusal rather than the grant of relief which is the exceptional course” (Quoting Professor Wade — see page 38 — Paragraph G to H of the Reported Judgment of the Court). then acknowledged cases of a technical nature involving planning, employment, and tax to fall within the category of cases where the Court could justifiably refuse, where a statute provides for a specialized appeal procedure. In other words, in cases of a technical nature such as this, the rule would operate in reverse, and the Court should grant leave for judicial review only in exceptional cases. The exception being where the applicant is able to demonstrate abuse of power or breach of the rules of natural justice. 21. Further, as a reminder, the case of Jagdis Singh had provided the following as exceptional circumstances: apart from breach of rules of natural justice, a clear lack of jurisdiction or a blatant failure to perform some statutory duty by the decision maker. 22. The latest case on alternative remedy is the Federal Court's decision in Ketua Pengarah Hasil Dalam Negeri v Kind Action (M) Sdn Bhd [2025] 4 CLJ 501. There, the law 17 stated in the landmark cases of Jagdis Singh and Majlis Perbandaran Pulau Pinang were applied. It was held as follows:

There was no error committed by the Court of Appeal in dismissing the appellant's contention that this was not a proper case for the respondent to bypass the avenue to appeal to SCIT. The finding of the Court of Appeal is supported by the authorities (see Jagdis — Singh; and Majlis Perbandaran Pulau’ Pinang v. — Syarikat Bekerjasama-Sama Serbaguna Sungai Gelugor Dengan Tanggungan [1993] 3 CLJ 65; [1999] 3 MLJ 1). and the concurring judgment in Kind Action also stated that the law is as stated in Jagdis Singh and Majlis Perbandaran Pulau Pinang, and when applied to the facts, held as follows:

... In the present case before us, there is indeed an excess or abuse of power as the appellant should not have further imposed tax on the respondent under the ITA, having done so under the RPGTA. Therefore, the respondent should not be prohibited in applying for judicial review. 18 23. The situation in Kind Action was a situation of excess or abuse of power, given that the DGIR, without discharging the real property gains tax imposed on the taxpayer under the Real Property Gains Tax Act 1976, proceeded to impose income tax under the ITA on the taxpayer based on the same receipts. The DGIR only has the power to impose tax under one of the Acts but not both, for the same receipts. It was clearly a case that met the test of exceptional circumstances. DECISION 24. | found the exceptional circumstances test not met and not a proper case for judicial review, and the proper forum for the issues raised is before the SCIT. | am of the view that if the matter is to be heard by way of judicial review, the intention of Parliament to establish the SCIT is defeated and the established principles of law stated in Jagdis Singh and Majlis Perbandaran Pulau Pinang are rendered otiose. 25. A careful perusal of the Order 53 Statement and Affidavit in Support of both the First JR and the Second JR reveals that the applicant is relying on the normal grounds of review of illegality and irrationality or Wednesbury unreasonableness. There is nothing exceptional raised. 26. The issues raised by the applicant are centred on these two matters: (i) computation of the set-off for tax charged on actuarial surplus under Section 110B of the ITA; 19 and (ii) whether the reinsurance commissions and profit commissions is or is not income which is subject to tax. 27. Section 110B of the ITA provides as follows: (1) Notwithstanding Section 110, where for a basis period for a year of assessment an amount of actuarial surplus from the life fund of an insurer is transferred to the shareholders’ fund pursuant to subsection 60(3A) or (4A), any amount of tax charged on the portion of that surplus shall be set off against the tax charged on the chargeable income from the shareholders’ fund of that insurer in respect of the life business. (2) Where — (a) taxis set off under this section against the tax charged on the chargeable income of an insurer from its shareholders’ fund in respect of life business for a year of assessment, and the amount of the tax set off exceeds the tax charged for that year, the excess shall be disregarded; or (b) there is no tax charged for that year, so much of the amount of tax that would 20 otherwise be set off but for the absence of such tax charged shall be disregarded. (3) For the purposes of this section, tax charged on the chargeable income of an insurer from its shareholders’ fund in respect of life business shall consist of an amount of tax before taking into account the tax set-off under Section 110. (4) The portion of the surplus referred to in subsection (1) shall be ascertained in accordance with the formula prescribed by the Minister. 28. There is a dispute on whether there is a transfer of actuarial surplus from the life fund to the shareholder fund, where, from the DGIR’s view, based on the tax calculation, the amount of transfer is 0. The applicant had given its own account on the calculation of the surplus; there are is reason given why it has not transpired in the tax calculation. The fact and amount of actual surplus that can be claimed by the applicant is a question of fact and needs to be ventilated before the SCIT for which it is established. 29. It is a trite that in tax matters, especially on the issues of interpretations of tax law, are very technical in nature as it involves the determination of facts and documents. This is 21 the function of the SCIT and not this Court. The SCIT would determine whether, on the facts and law whether the DGIR’s assessment is correct or not. If authority is needed, the Federal Court’s decision in Kerajaan Malaysia v Dato’ Haji Ghani Gilong [1995] 3 CLJ 161 provides as follows: “We say so because the Special Commissioners are the judges of fact, and have the jurisdiction to consider not only a plea of limitation based on sub- sections 1 and 3 of s. 91 of the Act but also other issues such as whether the amount of tax sought to be recovered is excessive, incorrectly assessed, or incorrectly increased, all of which are issues which the Court in proceedings for recovery of tax by suit is prohibited by s. 106(3) of the Act from entertaining”. 30. In respect of Wednesbury unreasonableness, it was contended that the DGIR had exercised his powers in failing to take into account relevant factors and disregarding relevant factors as follows: (a) failed to excluded the Unit Linked Funds from the computation of the set-off for tax charged on actuarial surplus under Section 110B of the ITA; (b) failed to consider that the Investment Linked Policy is sold as one life policy in its entirety and ought not be separated or differentiated into Operating Funds and 22 Unit Linked Funds for purposes of computation under Section 110B of the ITA; (c) failed to consider that the applicant had met the requirements to claim the full set-off under Section 110B of the ITA, as the Investment Linked Policy is a life policy sold under the life business conducted by the Applicant; (d) failed to consider that the formula prescribed by the Minister of Finance under Section 110B(4) of the ITA and the Income Tax (Set Off for Tax Charged on Actuarial Surplus) Rules 2008 does not state that the Unit Linked Funds are to be excluded or removed from the computation of the set-off for tax charged on actuarial surplus; (e) failed to consider the legal position that the reinsurance commissions and profit commissions received by the applicant from the reinsurance companies are not income subject to tax under the ITA; (f) failed to consider that the reinsurance commissions and profit commissions are not income earned by the applicant and instead are a reduction to the premium costs paid by the applicant to the reinsurance companies, i.e., savings from the expenses incurred; 23 (g) acted in direct contradiction against its own preliminary view issued earlier to the applicant by treating the reinsurance commission received by the applicant as taxable income; (h) would not have raised the issue of profit commissions, which had been conclusively deliberated and settled in the case of American International Assurance Co Ltd, and would have complied with the terms of the settlement, in that the profit commissions are not subject to tax; and (i) made the additional assessment, being fully aware that there are ongoing negotiations with LIAM and MTA on the issue of reinsurance commission and profit commissions, which may potentially impact the entire Malaysian insurance industry. 31. These matters raised are issues of law and fact and interpretation of the relevant provisions of the ITA. 32. The challenges in the instant application are predicated largely on the interpretation of the ITA provisions. Such challenges on the interpretation and/or applicability of a provision in the ITA is the function of the SCIT. All that is needed to demonstrate this point is the fact that the decision of the SCIT, in the form of a deciding order, is appealable to the High Court on a question of law. The relevant provisions 24 housed in Schedule 5 of the ITA and are reproduced below (emphasis added): 34(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. 34B(1) The memorandum of appeal shall set forth consecutively, concisely, and under distinct heads without any argument or narrative, the grounds of objection to the decision appealed against and the points of law which are alleged to have been wrongly decided. 33. Further, the issue of interpretation of law is not an exceptional circumstance. This principle had been confirmed by the Court of Appeal in Ketua Pengarah Hasil Dalam Negeri (LHDN) v IBM (Malaysia) Sdn Bhd [2019] MLJU 2062 in the following words:

The main grievance of the Respondent against the Advance Ruling is the treatment of the distribution fee payable by the Respondent to a non-resident as royalty. It is a matter of interpretation of law, which is not a special circumstance to allow a judicial review application. 25 34. | am therefore of the considered view that the matters in dispute in the instant case involve questions of fact and/or questions of law and/or mixed questions of fact and law on the following questions. The matters that are raised concern whether the assessment made by the DGIR was correct or not. There are no exceptional circumstances about the challenge for which judicial review would be available without first having exhaust the remedy of an appeal to the SCIT under section 99 of the ITA. It is an abuse of the process of the court to proceed by way of judicial review when no exceptional circumstances are shown. The proper forum is the appeal process before the SCIT. Conclusion 35. For the above reasons, both applications for judicial review were dismissed. Dated: 5 August 2025 AMARJEET SINGH SERJIT SINGH JUDGE HIGH COURT KUALA LUMPUR 26 No. Kes : WA-25-297-10/2020 Counsel of the Applicant: Jason Liang Dinghui Ng Anlynn Messrs Wong & Partners Level 21, The Gardens South Tower, Mid Valley City, Lingkaran Syed Putra, 59200 Kuala Lumpur Counsel of the Respondent: Mohammad Hafidz bin Anmad (Senior Revenue Counsel) Muhammad Danial Izzat bin Zulbahari (Revenue Counsel) Mohamad Asyraf bin Zakaria (Revenue Counsel) Revenue Attorney, Inland Revenue Board Menara Hasil, Aras 11 dan 16, Persiaran Rimba Permai, Cyber 8, 63000 Cyberjaya Selangor. 27 No. Kes : WA-25-295-08/2021 Counsel of the Applicant: Jason Liang Dinghui Ng Anlynn Messrs Wong & Partners Level 21, The Gardens South Tower, Mid Valley City, Lingkaran Syed Putra, 59200 Kuala Lumpur Counsel of the Respondent: Mohammad Hafidz bin Anmad (Senior Revenue Counsel) Muhammad Danial Izzat bin Zulbahari (Revenue Counsel) Mohamad Asyraf bin Zakaria (Revenue Counsel) Revenue Attorney, Inland Revenue Board Menara Hasil, Aras 11 dan 16, Persiaran Rimba Permai, Cyber 8, 63000 Cyberjaya Selangor. 28 Cases referred to: 1) Government of Malaysia & Anor v Jagdis Singh [1987] 2 MLJ 185; [1986] 1 MLRA 207; [1987] CLJ Rep 110 (“Jagdis Singh). 2) Majlis Perbandaran Pulau’ Pinang v. Syarikat Bekerjasama-Sama Serbaguna Sungai Gelugor Dengan Tanggungan [1993] 3 CLUJ 65 (“Majlis Perbandaran Pulau Pinang’). 3) Mohd Najib Haji Abdul Razak v Government of Malaysia & Another Appeal [2023] 10 CLJ 329. 4) Zakaria bin Abdullah & Ors v Lembaga Perlesenan Tenaga Atom & Ors [2013] 5 MLJ 206. 5) Ketua Pengarah Hasil Dalam Negeri v Kind Action (M) Sdn Bhd [2025] 4 CLJ 501. 6) Kerajaan Malaysia v Dato’ Haji Ghani Gilong [1995] 3 CLJ 161. 7) Ketua Pengarah Hasil Dalam Negeri (LHDN) v IBM (Malaysia) Sdn Bhd [2019] MLJU 2062. 29