D PRISTINE MEDINI SDN BHD v Ketua Pengarah Hasil Dalam Negeri (JA-25-19-05/2021)

On 07.03.2023 the Applicant obtained leave to commence their Judicial Review Application against the Respondent.

The subject matter of review relates to the decision by the Respondent in issuing the Notice of Assessment dated 30.4.2021 against the Applicant for year of assessment 2015 till 2019.

The main complaint by the Applicant in the matter instant is of two prongs, i.e. firstly, the Respondent sought to deny the Applicant’s enjoyment and entitlement of its tax exemption status and secondly, the Respondent had illegally brought the Applicant to tax under the Income Tax Act 1967 (Act 53) (hereinafter referred to as “ITA 1967”).

In the meantime, the Applicant also sought for a stay of proceedings of the tax reference before the Special Commissioner of Income Tax (“SCIT”) which the Applicant also instituted simultaneously with the matter instant.

At the conclusion of the hearing at the substantive stage, this Court had dismissed the Applicant’s application with costs.

The following is the Court’s Grounds of Judgment. The salient facts

The facts which are mostly undisputed are as follows.

The Applicant is a property developer for the D’ Pristine @ Medini Condominium at the Iskandar Region in Johor. The development for the project started in 2013 and was completed in 2018.

Somewhere in 2007, the Minister of Finance (“MOF”) made an order under s. 127(3)(b) of the ITA and had issued the Income Tax (Exemption Order) (No. 19) Order PUA 417/2007. Paragraph 3(1) of the Exemption Order states the following: “3(1) Subject to subparagraph (2), the Minister exempts-

a developer from the payment of income tax in respect of its statutory income derived from-

the disposal of any right or rights over any land in an approved node commencing from the first year of assessment in which the developer derived statutory income until the year of assessment 2015; and

(ii) rental or disposal of a building located in an approved node commencing from the first year of assessment in which the developer derived statutory income until the year of assessment 2020; …”.

The Applicant applied to the Government of Malaysia (“GOM”)/ MOF to enjoy a tax exemption under the Exemption Order. Vide a letter from the Malaysian Investment Development Authority (“MIDA”) dated 18.10.2013, GOM approved the tax exemption application made by the Applicant, worded as follows: “a) Pengecualian cukai pendapatan di bawah Perintah Cukai Pendapatan (Pengecualian) (No.19) 2007 [P.U(A) 417/2007] bagi pendapatan berkanunnya yang terbit daripada: - i. Pelupusan apa-apa hak atau hak-hak atas mana-mana tanah dalam kawasan Medini (seperti di Jadual 1) bermula dari tahun S/N HBkE4nplAEe2d8u1tNC8lg taksiran pertama yang pemaju itu memperoleh pendapatan berkanun sehingga tahun taksiran 2015; dan ii. Sewa atau pelupusan suatu bangunan yang terletak di dalam (seperti di Jadual 1) bermula dari tahun taksiran pertama yang pemaju itu memperoleh pendapatan berkanun sehingga tahun taksiran 2020.”.

During the course of business, a number of purchasers failed to pay for the full price of the condominium units and/or failed to fulfil the terms in the Sales and Purchase Agreement (“SPA”) entered between them and the Applicant. This resulted in the Applicant either forfeiting the deposits paid by the purchasers and/or imposing unit cancellation fees and/or late payment charges towards the purchasers, whichever applicable according to the cases.

Upon its audit and findings, the Respondent took position that “forfeited deposit received from purchasers”, “unit cancellation fees” and “late payment charges” received by the Applicant were incidental income and did not fall within the scope of the Exemption Order.

A meeting was held to discuss over the matter between the Applicant and the Respondent. Yet, the Respondent proceeded to issue Notices of Additional Assessments for Year of Assessments 2015-2019 against the Applicant dated 30.4.2021 and had also therein imposed penalties at the rate of 45%, resulting in a total tax and penalties being S/N HBkE4nplAEe2d8u1tNC8lg imposed against the Applicant to a sum of RM985,935.94 (“Impugned Notices”).

The Applicant applied to the Respondent vide a letter dated 12.5.2021, to pay the taxes and penalties by instalments but no response was given by the Respondent.

Hence the Judicial Review application. The law on Judicial Review

It is trite law that Judicial Review is a process by which the High Court exercises its supervisory jurisdiction over proceedings and decisions made by bodies exercising quasi-judicial functions or performance of public acts or duties.

In Malaysia, the procedure for judicial review is as prescribed in Order 53 Rules of Court 2012 (“ROC 2012”). It consists of two stages commonly referred to as leave stage and substantive stage.

At leave stage, the High Court is only concerned whether the Applicant has met the necessary threshold requirements, that are, firstly whether the Applicant has demonstrated that its complaint is prima facie arguable, secondly whether he has the necessary locus to bring the S/N HBkE4nplAEe2d8u1tNC8lg said complaint to court for judicial review and finally whether his complaint is made within the prescribed time [see: Dato' Sri Mohd Najib bin Tun Hj Abdul Razak v Attorney General & Ors [2020] 3 MLJ 114; Ahmad Jefri Mohd Jahri v Pengarah Kebudayaan & Keseniaan Johor & Ors [2010] 5 CLJ 865 (Federal Court); Association of Bank Officers Peninsular Malaysia v Malayan Commercial Banks Association [1990] 1 CLJ 33 (Federal Court); Mohd Nordin Johan v. The Attorney-General Malaysia [1983] CLJ (Rep) 271; and Mersing Omnibus Co Sdn Bhd v Minister of Labour and Manpower & Anor [1983] 2 MLJ 54].

Once leave is obtained, the grounds for judicial review would particularly centre on illegality, irrationality, procedural impropriety and proportionality. These grounds were laid down by Lord Diplock in the case of Council of Civil Service Unions & Ors v. Minister of Civil Service [1985] AC 374 which was adopted by Rama Chandran v The Industrial Court of Malaysia & Anor [1997] 1 MLJ 145 where it was held by the Federal Court that: - "In this context, it is useful to note how Lord Diplock (at pp. 410-411) defined the three grounds of review, to wit, (i) illegality, (ii) irrationality, and

(iii) procedural impropriety. This is how he put it: By 'illegality' as a ground for Judicial Review I mean that the decision maker must understand directly the law that regulates his decision making power and must give effect to it. Whether he has or not is par excellence a justiciable question to be decided, in the event of a dispute, by those persons, the judges, by whom the judicial power of the state is exercisable. S/N HBkE4nplAEe2d8u1tNC8lg By 'irrationality' I mean what can by now be succinctly referred to as 'Wednesbury unreasonableness' (see Associated Provincial Picture Houses Ltd v. Wednesbury Corp [1948] 1 KB 223). It applies to a decision which is so outrageous in its defiance of logic or of accepted moral standards that no sensible person who had applied his mind to the question to be decided could have arrived at it. Whether a decision falls within this category is a question that judges by their training and experience should be well equipped to answer, or else there would be something badly wrong with our judicial system. To justify the courts' exercise of this role, resort I think is today no longer needed to Viscount Radcliffe's ingenious explanation in Edwards v. Bairstow [1956] AC 14, of irrationality as a ground for a court's reversal of a decision by ascribing it to an inferred though undefinable mistake of law by the decision maker. 'Irrationality' by now can stand on its own feet as an accepted ground on which a decision may be attacked by Judicial Review I have described the third head as 'procedural impropriety' rather than failure to observe basic rules of natural justice or failing to act with procedural fairness towards the person who will be affected by the decision. This is because susceptibility to Judicial Review under this head covers also failure by an administrative tribunal to observe procedural rules that are expressly laid down in the legislative instrument by which its jurisdiction is conferred, even where such failure does not involve any denial of natural justice. Lord Diplock also mentioned 'proportionality' as a possible fourth ground of review which called for development."

The approach envisaged by the Federal Court in Rama Chandran above is not only limited to the Industrial Court but also applicable to decisions made by other statutory tribunals or bodies depending on S/N HBkE4nplAEe2d8u1tNC8lg the factual matrix of each case [see: Petroliam Nasional Bhd v Nik Ramli Nik Hassan [2003] 4 CLJ 625 (Federal Court)]. Whether the Applicant ought to resort to the alternative or domestic remedy under the Income Tax Act 1967 rather than proceeding with the Judicial Review application

The Respondent in objecting to the Applicant’s application submitted at length that there is an alternative or domestic remedy available under ITA 1967 to the Applicant.

Accordingly, the Respondent made reference to Section 99 (1) ITA 1967 which reads: - “99(1) Subject to subsection (1A), a person aggrieved by an assessment made in respect of him may appeal to the Special Commissioners against the assessment by giving to the Director General within thirty days after the service of the notice of assessment or, in the case of an appeal against an assessment made under section 92, within the first three months of the year of assessment following the year of assessment for which the assessment was made (or within such extended period as regards those days or months as may be allowed under section 100) a written notice of appeal in the prescribed form stating the grounds of appeal and containing such other particulars as may be required by that form.”.

Therefore, it was submitted by the Respondent that pursuant to Section 99 (1) ITA 1967, the Applicant is provided with a statutory right S/N HBkE4nplAEe2d8u1tNC8lg to appeal to the SCIT if they are aggrieved by the Respondent’s assessments.

On the interpretation of Section 99 (1) ITA 1967, reference was made to the case of Mohd Najib Hj Abd Razak v Government of Malaysia & Another Appeal [2023] 10 CLJ 329 where it was held by the Federal Court that: - “[72] A taxpayer's right of appeal is set out in s. 99(1) of the ITA. It is therefore apparent that any person aggrieved with an assessment is to appeal to the SCIT against the assessment by the DGIR within 30 days after the service of the notice of assessment. … [76] When the general scheme of the Act is looked at, it becomes apparent that the ITA provides for a mode of resolution of a taxpayer's dispute by way of appeal to the SCIT under s. 99(1) of the ITA which provides: A person aggrieved by an assessment made in respect of him may appeal to the Special Commissioners against the assessment by giving to the Director General within 30 days after the service of the notice of assessment or, in the case of an appeal against an assessment made under section 92, within the first three months of the year of assessment following the year of assessment for which the assessment was made (or within such extended period as regards those days or months as may be allowed under s. 100) a written notice of appeal in the prescribed form stating the grounds of appeal and containing such other particulars as may be required by that form. (emphasis added) S/N HBkE4nplAEe2d8u1tNC8lg [77] Section 99(1) provides for a reference of the dispute to the SCIT who are qualified to deal with tax issues, more particularly the basis for assessment, the quantum for assessment, the computation of assessment, the liability for assessment under the ITA etc.”.

On the legislative intent behind the enactment of Section 99 (1) ITA 1967, reference was also made to the explanation contained in the Parliamentary Hansards during the second reading of the Income Tax 1967 at the Dewan Rakyat by the then Finance Minister, Tun Tan Siew Sin (Parliamentary Debates of the House of Representatives-Fourth Session of the Second Parliament of Malaysia, 24.08.1967, Volume IV, No 1, pages 2259-2260): - “Appeals against assessments to the Board of Review in West Malaysia and Sabah and to the Commissioner of Inland Revenue in Sarawak will be discontinued with the appointment of Special Commissioners. The appointments will be made by the Yang di-Pertuan Agong and it is intended that at least one of any two Special Commissioners hearing an appeal should be a person with legal or judicial qualifications. Adequate safeguards for the interests of taxpayers are provided in the Bill through a right of appeal to the High Court and, if necessary, to the Federal Court. The new procedure, it is hoped, will expedite the disposal of appeals against assessments to the mutual advantage of both the appellant and the Government.”.

Now, before I deliberate on the substance of the instant application, I have to state the law as I understand it that the issue relating to alternative remedy is an issue that can be canvassed to and entertained by the Court either during leave stage or at the substantive S/N HBkE4nplAEe2d8u1tNC8lg stage [refer: QSR Brands Berhad v Suruhanjaya Sekuriti & Anor

3 MLJ 164; Zakaria Zakaria Abdullah & Others v Lembaga Perlesenan Tenaga Atom & Others (2013) 5 MLJ 2063].

Next, it is trite law that when another avenue or remedy remains available to an applicant, judicial review would only be exercised in very exceptional circumstances such as when: -

there is a clear lack of jurisdiction;

there is a blatant failure on the Respondent’s part to perform some statutory duty; or

in appropriate case where there is a serious breach of the principles of natural justice.

The above principles were clearly enunciated in Government of Malaysia v Jagdis Singh [1987] 2 MLJ 185 where it was held by the Supreme Court that: - “A clear principle is reiterated here i.e. it is not a rigid rule that whenever there is an appeal procedure available to the applicant he should be denied judicial review. Judicial review is always at the discretion of the Court but where there are other avenue or remedy open to the applicant it will only be exercised in very exceptional circumstances. In Re Preston was a tax case. It was quite clear from the speeches of their Lordships in the House of Lords that the Inland Revenue Commissioners were not immune from the process of judicial review. But what was also made clear is that remedy by way of judicial review is not S/N HBkE4nplAEe2d8u1tNC8lg to be available where an alternative remedy exists except in very exceptional cases. In answer to the first question we would therefore hold that the discretion is still with the Courts but where there is an appeal provision available to the applicant certiorari should not normally issue unless there is shown a clear lack of jurisdiction or a blatant failure to perform some statutory duty or in appropriate cases a serious breach of the principles of natural justice.”. [see also: Zakaria Zakaria Abdullah & Others v Lembaga Perlesenan Tenaga Atom & Others (2013) 5 MLJ 2063; Ketua Pengarah Hasil Dalam Negeri v Alcatel-Lucent Malaysia Sdn Bhd & Anor [2017] 2 CLJ 1].

Further reference can also be made to R v Epping and Harlow General Commissioner [1983] 3 ALL ER 257 where the English Court of Appeal held as follows: - “But it is a cardinal principle that, save in the most exceptional circumstances, that jurisdiction will not be exercised where other remedies were available and have not been used.”.

On what constitutes “very exceptional circumstances”, the High Court had held in Sangka Chuka & Ors Pentadbir Tanah Daerah Mersing Johor & Ors [2014] CLJU 734 that: - “Taking the decision in Jagdish Singh as the guiding principle the position of law is thus clear. Where there is another avenue open to the applicant (as opposed to a case where there is no such avenue), the court will only S/N HBkE4nplAEe2d8u1tNC8lg exercise its judicial review jurisdiction in very exceptional circumstances. Exceptional means "unusual; not typical": see Concise Oxford English Dictionary 11th Edition. Very exceptional circumstances therefore means very unusual circumstances. It is a heavy burden to discharge. What amounts to very unusual circumstances must depend on the facts and circumstances of each case. As for the exercise of discretion it is axiomatic that the power must be exercised judiciously and not capriciously, least of all wantonly. Judiciously means done with sensible judgment and not on an unaccountable mood swing.”.

The Applicant in their reply submissions have urged this Court to adopt a more flexible approach to Judicial Review in that the existence of domestic remedies under ITA 1967 would not bar an application for Judicial Review. In support of this contention, the Applicant referred to Majlis Perbandaran Pulau Pinang v Syarikat Bekerjasama-Sama Serbaguna Sungai Gelugor Dengan Tanggungan [1999] 3 MLJ 1 and R Raman Chandran aforementioned.

Now, upon perusing the cause papers as well as the affidavits filed by the parties, it is apparent that the challenge advanced by the Applicant can be summarized as follows: -

that the Respondent had acted beyond the statutorily prescribed limitation period under ITA 1967;

that the Respondent bears the burden of proof to show that the Applicant committed fraud or wilful default or had been negligent in order for the notice of assessments for 2015 and 2016 issued on 30.04.2021 to be valid;

that the Respondent possesses no power to subdivide a source of income;

the Respondent purportedly acting Ultra Vires in denying the Applicant’s enjoyment of its tax exemption status; and

the imposition of penalties by the Respondent on the Applicant was done mechanically.

Upon hearing the arguments advanced by counsel for both parties on the aforesaid issues, the Court is more inclined to agree with the Respondent that all the issues raised such as limitation of time, fraud or willful default, eligibility of exemptions, imposition of penalties, late payment charges are not only factual in their nature but also to a larger extent they are embedded with technical and business accounting matters.

Perhaps the most highlighted issue advanced by counsel for the Applicant is the one relating to the method employed by the Respondent in segregating the amount of deposit forfeited by the Applicant in cases where the purchasers failed to pay the balance purchase price of the houses sold by the Applicant to them as an element which is outside the Exemption Order. It is the contention of the Applicant that the Respondent has no power to do so since that would tantamount to unilaterally subdividing the business accounts kept by the Applicant. Thus, the Applicant contends that such forfeiture of deposit, unit cancellation fees or late payment charges received by them were actually derived from the same activity that they had been S/N HBkE4nplAEe2d8u1tNC8lg given tax exemption of and thus the accounts cannot be fragmented in the way as assessed by the Respondent.

In my view, although the said issue may appear as or capable to be made as a legal issue, it still concerns with the merits of the assessment. I say this because before a proper legal issue can be formulated on the matter, there must first be established certain substratum of facts relating to the scope and extent of the exemptions given by the MOF to the Applicant and how it should be applied to the business practice of the Applicant as a developer.

Bearing in mind, the forfeiture of deposit or unit cancellation fees for instance may have the effect that the Applicant still retain the ownership of the properties involved which they may re-sell it to other purchasers. In this regard, rules of accounting relating to costs, profit and loss or other relevant considerations on taxation may be of utmost importance.

What more in the present matter, the available evidence shows that the Applicant and the Respondent initially had a meeting over the impugned notices and arising therefrom the Applicant in fact had negotiated for payment for the sums imposed be paid by them to the Respondent by way of instalment. Surely, the said discussion must have touched on the technicalities of things aforementioned.

Hence, if ever the issues are to be revisited for the purpose of ascertaining the merits of the assessment, surely SCIT would be better S/N HBkE4nplAEe2d8u1tNC8lg equipped to take on the tasks. Only when the facts and technical issues are resolved by the SCIT, then if further disputes ensue, should the High Court be moved to look into the matter via appeal on points of law under Schedule 5 of ITA 1967.

In this regard, I would like to add as illustration that what constitute an income to a lay person may not be so in the eyes of tax law. For example, a ‘gift’ may not be an income to a lay person, but I take judicial notice that under tax law, a gift, in certain circumstances, is still taxable.

Thus, in such factual and technical issue as this, I am of the view that it is best for the said issues be resolved by the SCIT via evidence adduced either orally which may include opinion by experts and via documents. Surely the facts and the technicalities attached to it can be effectively presented to and analyzed by those who are trained in the relevant discipline. After all, the SCIT are judges of facts thus confidence therefore must necessarily be accorded to them by virtue of their appointments under the ITA. Having the matter heard and resolved before the SCIT would also gave every opportunity to the Applicant to call upon their witnesses as well as experts to undo the Respondent’s impugned assessments.

On this matter, it would be instructive by analogy I think to refer to the Federal Court decision in Kerajaan Malaysia v Dato’ Haji Ghani Gilong [1995] 3 CLJ 161 where it was held that: - S/N HBkE4nplAEe2d8u1tNC8lg “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.”.

Another reference on the efficacy and objectivity of having internal appeal mechanism to be exhausted in tax matters can also be made to Ketua Pengarah Hasil Dalam Negeri v Alcatel-Lucent Malaysia Sdn Bhd & Anor [2017] 2 CLJ 1 where the Federal Court held that: - “[60] Had the respondents filed an appeal before the Special Commissioners, where the onus is on the respondents to establish their position, they will be accorded every opportunity to show where the appellant went wrong. The respondents may request for the attendance of witnesses to give evidence on oath and request any witness to produce any books, papers or documents which are in his custody or his control necessary for purposes of the appeal. Therefore, before the Special Commissioners the respondents will have all the opportunity to ventilate his disgruntlement, with every opportunity to undo what the appellant determined.”.

On another point, this Court also recognized that the Applicant in the matter instant also sought for a declaration that such impugned notices are invalid in law. Now, as early as in the 1970s, it has been the Court’s stand to be very vigilant in entertaining declaratory reliefs in cases where an adequate alternative remedy is available. In Manggai v S/N HBkE4nplAEe2d8u1tNC8lg Government of Sarawak & Anor [1970] 2 MLJ 41 the Federal Court held that: - “It is well settled law that the Court will not make a declaratory judgment where an adequate alternative remedy is available (see Halsbury's Laws of England, 3rd ed. vol 22, page 749, para 1611).”.

Further support could be found in Sun Man Tobacco v Government of Malaysia [1973] 2 MLJ 163 where the Federal Court held that: - “In place of a Board of Review we now have the Special Commissioners of Income Tax. It is open to a taxpayer to go before them and prove that he is not liable to assessment. The doors of justice are not shut to him merely because the claimant is the Government, but he has to enter the doors of the Special Commissioners first to raise the plea of non-observance of the principle of natural justice or to establish that the Director-General acted arbitrarily and in a non-judicial manner. It is only after he has availed himself of that remedy as laid down by the law that he has a right to come to the Courts.”.

Even the Federal Court in Majlis Majlis Perbandaran Pulau Pinang had held that certain cases such as planning, employment and tax cases where specialized appeal procedures are provided for (as in the present case Section 99 ITA 1967), the courts would not allow judicial review unless it can be demonstrated that there is excess or abuse of power or breach of natural justice rules. According to the Federal Court: - “Having said that we recognise that there are certain classes of cases such as planning, employment cases and tax cases (See, e.g. R. v. S/N HBkE4nplAEe2d8u1tNC8lg Commissioners for Special Purposes of the Income Tax Act ex p. Napier [1988] 3 All ER 166, R. v. Epping Forest DC ex p. Green [1993] COD 81, where a statute provides for a specialised appeal procedure, and so the courts understandably may not grant judicial review but 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 the rules of natural justice. (See, Accountant in bankruptcy v. Alls of Gillock [1991] SLT 765; Macksville & District Hospital v. Mayze [1987] 10 NSWLR 708.)”.

Thus, since the Courts are not experts in accounting and due to the technical nature relating to the issues raised by the Applicant, I find that the best avenue for the Applicant would be to pursue their right to appeal, which the Applicant had already lodged, with the SCIT under Section 99(1) ITA 1967 instead of proceeding with the Judicial Review application herein.

Further on the facts and evidence presented by the parties without more, it is also my finding that the Applicant has failed to proof the existence of exceptional circumstances to justify the exercise of this Court’s judicial review jurisdiction.

Finally, although I have perused through the cause papers, affidavits and submissions by counsel for both parties relating to the merits, due to the conclusion that I have reached, it would only be right I think that I should decline to make any ruling on the issues raised by the Applicant in the instant application, and so I hold.

Based on the reasons as adumbrated above, the Applicant’s judicial review application herein is dismissed with costs of RM5,000.00 subject to allocator fees. Dated: 15th August 2025 …………………………………………. (NOOR HISHAM BIN ISMAIL) Judge High Court, Johor Bahru Solicitors for the Applicant : Anand Raj (Cheong Wen Yie and Chantal Lean Barnabas) M/s Shearn Delamore & Co. Kuala Lumpur Solicitors for the Respondent : Ashrani Ramzan Ali (Senior Revenue Counsel and Surani binti Che Ismail (Revenue Counsel) Inland Revenue Board of Malaysia Jabatan Rayuan Khas, Ibu Pejabat Lembaga Hasil Dalam Negeri Malaysia, Cyberjaya Selangor