Berjaya Times Square Sdn Bhd v Ketua Pengarah Hasil dalam Negeri Malaysia (WA-25-35-01/2019)

An Order of Certiorari to quash the Respondent‟s decision in the form of additional notices of additional assessment for the years of assessment (“YA”) 2015 and 2016 all dated 11.1.2019 (“Decision”) on the grounds that the said Decision of the Respondent in this respect was illegal, void, unlawful and/or in excess of authority, had been irrational and/or unreasonable, and resulted in a denial of the Applicant‟s legitimate expectation; and

(ii) That all further proceedings including the enforcement and effect of the Decision be stayed until the full and final determination of the application to quash the Decision. [2] The grounds of the application are:

That the Respondent‟s Decision was illegal, void, unlawful and/or in excess of authority as the Respondent had failed to take into account the relevant cases; 3

(ii) That the Respondent had failed to consider that the Applicant is both a property development holding and investment holding company that had consistently recognized the Investment Properties in question as its non-current investment asset;

(iii) That the Respondent had failed to consider that it had also recognized and conceded that such assets as the Applicant‟s “asset pelaburan”;

(iv) That the Respondent had failed to consider that the whole tenor of the Applicant‟s sale and buy back agreement with DBKL, similarly to the taxpayer in Lim Foo Yong’ case indicates an intention on the part of the Applicant to retain the Investment Properties as its capital asset;

That the Respondent‟s decision is not binding as it is in clear contradiction of the decisions of the superior courts;

(vi) That the Decision is unreasonable; and

(vii) That the Decision constitutes a denial of the Applicant‟s legitimate expectation that the Respondent is bound by the decision of the superior courts. [3] The putative respondent, Director General of Inland Revenue (the “DGIR”) was invited by this court to submit on the legal issue of whether leave should be granted. The legal counsel for DGIR had 4 objected to this application for leave on the ground that there is an alternative remedy of appeal under section 99 of the Income Tax Act 1967 (“ITA 1967”) to the Special Commissioners of Income Tax (“SCIT”) and that the Applicant had filed an appeal to the SCIT under the said provision. [4] Having considered the application and the submission of the parties, this court has dismissed the applicant‟s application for leave with costs. The Salient Facts [5] The applicant is a company incorporated in Malaysia and its principal activities are property development and property investment holding. [6] In 2003, the applicant claimed to have divided the lots in its completed Berjaya Times Square Mall (“BTS Mall”) into stocks and investment units. The applicant states that it had retained Lots 01-01 and 04-87 as its investment properties (the “said Lots”). [7] In 2016, the applicant entered into two (2) sales and purchase agreements with Datuk Bandar Kuala Lumpur (“DBKL”) for the sale of the said Lots, as well as an agreement with BDKL where it was agreed, inter alia, that the applicant would buy back the said Lots after a period of 10 years. 5 [8] Vide a letter dated 16.3.2017, the applicant received notification from the DGIR that the disposal of the said Lots would be subject to tax under the ITA 1967. [9] After several exchange of correspondence between the parties, vide a letter dated 23.1.2018, the DGIR informed the applicant of its audit findings that inter alia, the disposal of the said Lots would be subject to income tax under section 4(a) of the ITA 1967. [10] The applicant explained to the DGIR that the disposal of the said Lots should not be subject to the ITA 1967, but subject to the Real Property Gains Tax (“RPGT”). This is on the basis that the applicant is a dual purpose company, which holds assets both as stock in trade and investment asset. [11] Despite the applicant‟s objection to the DGIR‟s audited findings, the DGIR proceeded to issue the Notices of Additional Assessments for the YA 2015 and 2016. [12] On 18.1.2019, the applicant had filed this application to quash the DGIR‟s Decision in issuing the Notice of Additional Assessment dated 11.1.2019. [13] On 31.1.2019, the applicant has filed an appeal under section 99 of the ITA 1967 against the Notice of Additional Assessment dated 11.1.2019. 6 The Findings of the Court [14] The only issue raised at this leave stage is whether this application should be dismissed as the applicant should have proceeded with the appeal process statutorily provided under section 99 of the ITA 1967, as it had filed an appeal. [15] Section 99 of the ITA 1967 provides that a person who is aggrieved by the assessment of the DGIR may appeal to the Special Commissioners for Income Tax (“SCIT”). If the applicant is not satisfied with the decision of the SCIT, it has a statutory right of appeal to the High Court pursuant to para 34, Schedule 5 of the ITA

[16] In Government of Malaysia & Anor v. Jagdis Singh [1987] 2 MLJ 185, the Supreme Court states the following principles;

Judicial review is always at the discretion of the court but where there is another avenue or remedy open to the applicant, it will only be exercised in exceptional circumstances; and

(ii) the applicant must show exceptional circumstances, such as a clear lack of jurisdiction or a blatant failure to perform some statutory duty or a serious breach of natural justice. 7 [17] In Majlis Perbandaran Pulau Pinang v. Syarikat Bekerjasama-sama Serbaguna Sungai Glugor dengan Tanggungan [1999] 3 MLJ 1, the Federal Court made the following findings:

There are certain classes of cases such as planning, employment and tax cases whereby a statute provides for a special appeal procedure, and so the courts understandably may not grant judicial review. However, this is always subject to the grant of review in certain cases, for example, where an applicant is able to demonstrate excess or abuse of power, or breach of natural justice [pp 40B-F]; and

(ii) where the main grounds of judicial review are that the public body had acted unfairly, abused its powers, judicial review is more appropriate, as the issues raised are issues of public importance, going beyond the significance of the case itself [pp 40H-41B]. [18] The above principles were followed by Justice Low Hop Bing in Ta Wu Realty Sdn Bhd v. Ketua Pengarah Hasil Dalam Negeri & Anor [2004] 6 MLJ 53. On the facts of the case, His Lordship held that the issues of the validity of the notices and the errors of law may be raised as issues before the SCIT, where the applicant is given every opportunity to present its case in the tribunal of the first instance. The High Court decision was affirmed by the Court of 8 Appeal in Ta Wu Realty Sdn Bhd v. Ketua Pengarah Hasil Dalam Negeri & Anor [2009] 1 MLJ 555, where the Court held at page 567: “[21] The Supreme Court thus in Jagdis Singh had held that the discretion is still with the courts to act by way of judicial review, but where there is an appeal procedure available to the applicant, certiorari should not normally issue save in exceptional circumstances (see also R v Chief Constable of Merseyside Police; ex parte Calveley & Ors [1986] QB 424}. [22] To repeat the guidelines of Jagdis Singh, the exceptional circumstances in the circumstances of this appeal required to be established by the appellant were that:

the first respondent had a clear lack of jurisdiction; or

there was a blatant failure by the first respondent to perform some statutory duty; or

there was a serious breach of the principles of natural justice.”. (emphasis added) 9 [19] In Ketua Pengarah Hasil Dalam Negeri v Mudah.my Sdn Bhd [2017] 2 MLJ 197; [2017] 5 CLJ 283, the Court of Appeal held as follows: “[22] The principle that the court retained the power to judicially review the decision of a public authority, but where there was an alternative remedy of appeal, leave to bring judicial review proceedings would only be granted in exceptional circumstances would entail the necessity on the part of the respondent to show to our satisfaction the existence of such exceptional circumstances. The effect of the failure by the respondent to establish special circumstances necessarily followed that the legal precept that an alternative remedy was available and yet to be exhausted would therefore return to the forefront for consideration (Ta Wu Realty Sdn Bhd, supra ). The decision in Jagdis Singh thus laid down a lucid and authoritative guiding principles enunciated by none other than the highest court of the land which this court was bound to follow. Therefore, the principle remains a good law here that the way is open for this court to hold that the above case authorities should apply to the appeal before us especially when these authorities deal specifically in revenue matters where an alternative and specific remedy is expressly provided under s. 109H of Act 53. It is beyond question that this position is not an option but the law that ought to be complied with and applied to the instant application.” (emphasis added) [20] In Ketua Pengarah Hasil Dalam Negeri v. Alcatel-Lucent Malaysia Sdn Bhd & Another [2017] 1 MLJ 563 (FC), Zainun Ali 10 FCJ in her Ladyship‟s supporting judgment reasons at page 594 (Column H-I) held that a party who is dissatisfied with an assessment or notice of assessment issued by the Revenue has the remedy to exercise its right to appeal under section 99 of the Act: “[127]. A party who is dissatisfied with an assessment or administrative decision issued by the Revenue under section 109 or 109B is not left without any remedy. In the circumstance of this case, if it is dissatisfied with assessment or notice of assessment issued by the appellant, the 1st respondent ought to have exercised its right to appeal under section 99 of the Act. Before the Special Commissioners, the 1st respondents would have an opportunity to make known its dissatisfaction. It will have the opportunity to tender exhibits and give evidence if necessary.” [21] In the present case, I am of the considered opinion that the facts of this case does not come within the exceptions enumerated in Jagdis Singh’s case and the Majlis Perbandaran Pulau Pinang’s case. There is no issue of a lack of jurisdiction when the DGIR issued the Notices of Additional Assessments dated 11.1.2019. Added to that, the applicant has also failed to show an excess or abuse of power or breach of the rules of natural justice in the issuance of the said letter. [22] However, it is the submission of the applicant that this case involves purely a question of law, that is whether the DGIR can subject the gains arising from the disposal of the said Lots, to income tax. This is 11 based on the case of Magnum Holdings v Ketua Pengarah Hasil Dalam Negeri (2018) MSTC 30-151, where this court had granted leave to the applicant, Magnum Holding to proceed to review the DGIR‟s decision. In this case (Magnum Holding), the issue raised by the applicant was that the “DGIR had failed to apply the legal position in Multi-Purpose Holdings Bhd v Ketua Pengarah Hasil Dalam Negeri [2001] 8 CLJ 462 (involving the same parties)” [23] In allowing the application for leave, this court made the following findings: “[26] As such, bearing in mind that it is the submission of the applicant that the facts and the law in this case falls squarely within the case of Multi-Purpose, I am of the considered opinion that Multi-Purpose case will be binding on both the SCIT and the DGIR. [27] Therefore, since Multi-Purpose case is binding on the DGIR, the failure to apply the principles in multi-Purpose case amounts to an excess of jurisdiction. In Ketua Pengarah Hasil Dalam Negeri v Mudah.My Sdn Bhd [2017] 5 CLJ, the Court of Appeal held that if the taxpayer can demonstrate illegality, then it would be wrong to insist on the exhaustion of an alternative remedy, that is an appeal to the SCIT. [28] Added to that, if the DGIR is seeking to revisit the legal position in Multi-Purpose case, then the proper forum is this court, as both the 12 SCIT and the DGIR are equally bound to apply the High Court decision in Multi-Purpose.” [24] However, this application is different from the Magnum Holding‟s case, as that case involved the same parties (Magnum Holding was previously known as Multi-Purpose) and the very issue between them had been decided by the SCIT, and on appeal, by the High Court. As such, in identical factual situation, the DGIR was bound by the decision of the High Court. As there was only the legal issue involved, that is whether the principle in Multi-Purpose case was correct or not, is not an issue that can be decided by the SCIT (as the SCIT was equally bound by the High Court decision in Multi-Purpose), therefore leave was granted for parties to address this legal issue before the High Court. [25] In the present case, the applicant is submitting that the disposal of the said Lots, which are investment assets, is not taxable under the ITA 1967. There, based on the following cases, the DGIR had committed an error in law in not applying the following cases:

In Alf Properties Sdn Bhd v Ketua Pengarah Hasil Dalam Negeri [2005] 3 CLJ 9367 and Lower Perak Co-operative Housing Society Berhad v Ketua Pengarah Hasil Dalam Negeri [1994] 3 CLJ, the courts have held that gains from the disposal of investment property are not subject to the ITA 1967; and 13

(ii) In Lim Foo Yong Sdn Bhd v Controller-General of Inland Revenue [1986] 2 MLJ 161, the court held that the whole tenor of a sale and repurchase transaction indicates an intention on the part of the taxpayer to retain the asset as a capital asset. [26] Therefore, based on the above cases, the applicant submits that the said Lots were investment assets of the applicant. Since the said Lots are investment properties, the applicant cannot be said to have been trading when disposing of the investment properties. Added to that, the sale and repurchase transactions with DBKL clearly indicates the applicant‟s intention to retain the said Lots as its capital asset. As such, by subjecting the gains from the disposal of the said Lots to income tax, the DGIR has failed to apply the principles in the above mentioned cases. [27] However, the cases of Alf Properties Sdn Bhd (supra) and Lower Perak Co-operative Housing Society Berhad (supra) were all decided after the process of appeal before the SCIT, where the SCIT had made a finding of facts after evaluating the evidence, both oral and documentary evidence tendered by both parties during the hearing. Before the SCIT, one of the issues was whether there was intention to hold the subject matter as an investment. Therefore, whether the transaction amounts to trading or merely a capital transaction is a question of fact and degree. This is a question of fact to be ascertained and decided by the SCIT. 14 [28] In the present case, it is the submission of the applicant that there is no dispute as to the facts which merits the case being referred to the SCIT. This is because the DGIR had conceded that the said Lots as the applicant‟s „aset pelaburan’, ie investment assets. Thus there is no longer any issue of „intention to trade‟. Since the applicant was not trading in disposing of its investment properties, therefore that gains from the disposal of the said Lots should not be subject to section 4(a) of the ITA 1967. [29] The applicant relied on the two (2) letters issed by the DGIR, where the DGIR uses the words „‟Harta-Harta Pelaburan‟. In the letter dated 23.1.2018, titled “PEMBERITAHUAN PENEMUAN AUDIT”, para 2.1 reads – “2. Hasil dari pemeriksaan audit dan dokumen-dokumen yang telah dikemukan, pelarasan akan dibuat ke atas perkara berikut:

2.1 Pelupusan Harta-Harta Pelaburan …. Isu Yang Dibangkitkan Sama ada pelupusan asset pelaburan BTS tertakluk kepada Seksyen 4(a) Akta Cukai Pendapat 1967 atau CKHT Hujah Pegawai Audit Luar 15 Kes Penang Realty Sdn Bhd dan makok Development Sdn Bhd adalah dirujuk dan digunakan sebagai asas bagi menyokong hujah pasukan audit luar dalam membuat keputusan bahawa keuntungan daripada pelupusan hartanah oleh BTS bagi tahun taksiran 2016 adalah ditaksir dibawah seksyen 4(a) ACP 1967. i) Harta/Aset pelupusan adalah stok ….. Semakan mendapati BTS merekodkan asset yang dilupus sebagai Investment Property. Walau bagaimanapun, ianya adalah satu amaln biasa dalam perniagaa pemajuan harta tanah apabila BTS mengasingkan sebahagian lot-lot yang dimajukan diperingkat awal sebagai Investment Property. Walaupun BTS mengklasifikasikan unit-unit pemajuan sebagai asset untuk pelaburan ianya tidak pernah berubah sifat asal stok tersebut. Asset-aset ini adalah tertakluk kepada seksyen 4(a) ACP apabila dilupuskan..” [30] I am of the considered opinion that the applicant has read para 2.1 in isolation. The said paragraph must be read with the rest of the letter, whereby the DGIR had explained the reasons why the DGIR considered the disposal of the said Lots is subject to section 4(a) of 16 the ITA 1967. A mere statement cannot be taken as an admission if one is to appreciate the contents of the letter as a whole. [31] The applicant also relied on the letter dated 20.9.2018 issued by the DGIR which made reference to the words „harta-harta pelaburan’. Paragraph 2 and 3 of the letter titled “PEMBERITAHUAN KEPUTUSAN RAYUAN ATAS PENEMUAN AUDIT” reads: “2. Adalah dimaklumkan bahawa kes rayuan pihak tuan telah dikemukakan kepada Jawatankuasa Audit & Siasatan Ibu Pejabat, Lembaga Hasil Dalam Negeri Malaysia (LHDN) untuk tujuan pertimbangan dan telah memutuskan bahawa pelupusan harta-harta pelaburan oleh pihak tuan masih tertakluk kepada Seksyen 4(a) ACP

1967.

Untuk makluman pihak tuan, asas pendirian pihak LHDN ke atas isu penemuan audit adalah tidak berubah seperti kes sebelum ini sehingga ianya diputuskan oleh Pesuruhjaya Khas Cukai Pendapatan kelak” [32] Again, I am of the considered opinion that there is no factual admission by the DGIR that the said Lots are investment properties. [33] In the premise, I am of the considered opinion that where there is a dispute on the facts, the case should be referred to the SCIT in order to ascertain the factual matrix. 17 [34] Therefore, I am of the considered opinion that there are no special circumstances, namely a lack of jurisdiction, abuse of power or breach of natural justice that would merit this case to be reviewed by this court under Order 53 ROC 2012, when there is already an appeal process under section 99 of the ITA 1967. [35] Added to that, since the applicant has filed an appeal to the SCIT under section 99 of the ITA 1967, it is an abuse of the court process to maintain this application. Conclusion [36] Premised on the reasons enumerated above, I am of the considered opinion that the applicant should proceed with the appeal under section 99 of the ITA 1967 instead of filing this application. As such, I find no merit in the application and the same is dismissed with costs. (AZIZAH BINTI HAJI NAWAWI) JUDGE HIGH COURT MALAYA (Appellate and Special Powers Division 2) KUALA LUMPUR Dated: 17June 2019 18 Counsels/Solicitors for the Appellant S. Saravana Kumar/Chris Toh Pei Roo/Tan Iyan Xin [Tetuan Lee Hishamuddin Allen & Gledhill, Kuala Lumpur] Counsels/Solicitors for the Respondent AGC, Ridzuan bin Othman [Ketua Pengarah Hasil Dalam Negeri Malaysia] REFERENCES: 1) Government of Malaysia & Anor v. Jagdis Singh [1987] 2 MLJ 185 Majlis Perbandaran Pulau Pinang v. Syarikat Bekerjasama-sama Serbaguna Sungai Glugor dengan Tanggungan [1999] 3 MLJ 1 2) Ta Wu Realty Sdn Bhd v. Ketua Pengarah Hasil Dalam Negeri & Anor [2004] 6 MLJ 53 3) Ta Wu Realty Sdn Bhd v. Ketua Pengarah Hasil Dalam Negeri & Anor [2009] 1 MLJ 555 4) Ketua Pengarah Hasil Dalam Negeri v Mudah.my Sdn Bhd [2017] 2 MLJ 197; [2017] 5 CLJ 283 5) Ketua Pengarah Hasil Dalam Negeri v. Alcatel-Lucent Malaysia Sdn Bhd & Another [2017] 1 MLJ 563 (FC) 6) Magnum Holdings v Ketua Pengarah Hasil Dalam Negeri (2018) MSTC 30-151 7) Multi-Purpose Holdings Bhd v Ketua Pengarah Hasil Dalam Negeri [2001] 8 CLJ 462 (involving the same parties) 8) Properties Sdn Bhd v Ketua Pengarah Hasil Dalam Negeri [2005] 3 CLJ 9367 19 9) Lower Perak Co-operative Housing Society Berhad v Ketua Pengarah Hasil Dalam Negeri [1994] 3 CLJ 10) Lim Foo Yong Sdn Bhd v Controller-General of Inland Revenue [1986] 2 MLJ 161