IOI Properties Group Berhad v Ketua Pengarah Hasil Dalam Negeri (WA-25-354-10/2021)

By way of these judicial review proceedings, the Applicant seeks to challenge the imposition of tax with penalty for the years of assessments 2016 to 2020 amounting to RM 16,751,696.54. Key background facts

The facts upon which the proceedings are premised upon are not in dispute. They are as follows:

On 19.10.2015, the Applicant IOI Group Properties Berhad, entered into Share Sale Agreements (“SSA”) to purchase shares in 2 companies, namely Mayang Development Sdn Bhd (“MDSB”) and Nusa Properties Sdn Bhd (“NPSB”) respectively;

(ii) The consideration for the share purchase comprised of cash and allotment of shares to the Applicant as follows: Company Cash Consideration (RM) No. of shares allotted to Applicant Total Consideration (RM) MDSB 126,345,736.00 514,530,146 1,263,457,358,00 NPSB 31,982,639.00 130,246,041 319,826,391.00

(iii)

(iv) To finance the share purchase, the Applicant took loans from HSBC and AmBank respectively on 22.1.2016 and 27.1.2016 (“the Bank Loans”) amounting to RM 700,000,000.00. Out of the Bank Loans, RM 234,179,312.64 was immediately utilized by the Applicant to settle MDSB’s and NPSB’s Historic Debts, as obligated under the SSA;

Pursuant thereto, MDSB and NPSB became indebted to the Applicant Taxpayer for the Applicant’s Loan as represented below: Company Applicant’s Loan (RM) MDSB 232,853,324.07 NPSB 1,325,988.57 (this amount owing to the Applicant was fully settled before the financial year end of 2016) Total 234,179,312.64

(vi) The Applicant received interest income from MDSB and NPSB on the Applicant’s Loan. The Applicant recognized this as interest income and paid income tax on it;

(vii) On 13.11.2019, the Respondent commenced its audit on the Applicant. Documents were requested for. Between 13.11.2019 and 23.9.2021, there were exchanges of correspondence between the Applicant and the Respondent. Following the audit, the Respondent assessed issued Notices of Additional Assessment for the years of assessment (“YA”) 2016, 2017, 2018, 2019, and 2020 dated 29.9.2021 and Notice of Reduced Assessment for the YA 2019 dated 8.10.2021, claiming a total of tax payable by the Applicant amounting to RM 16,751,696.54.

The central issue in contention between the parties is the treatment of the interest on the Bank Loans which was utilized to pay off the Historic Debts. The Applicant contends that this interest is a deductible expense under section 33(1)(a)(i) of the Income Tax Act 1967 (“ITA”) from the interest income received from MDSB and NPSB, being interest paid for the production of gross income.

The Respondent contends otherwise. It takes the position that although the Bank Loans were taken and utilized to pay off MDSB and NPSB’s Historic Debts, the purpose of the Bank Loans was to finance the purchase of shares in MDSB and NPSB. The interest paid on the Bank Loan is therefore not a deductible expense under section 33(1). Instead, it is a capital expenditure.

The Applicant therefore commenced the present proceedings for certiorari to quash the Respondent’s decision in the form of Notices of Additional Assessment dated 29.9.2021 and Notice of Reduced Assessment for the YA 2019 dated 8.10.2021 on the grounds that the said Decision of the Respondent was illegal, void, unlawful and/or in excess of authority, irrational and/or unreasonable, a blatant failure to perform its statutory duty and resulted in a denial of the Applicant’s legitimate expectations.

Leave was granted on 23.3.2023.

In response to the application, the Respondent raised a crucial point of objection that the Applicant had failed to resort to the domestic remedy of an appeal to the Special Commissioner for Income Tax (“SCIT’) under section 99 of the Income Tax Act, 1967. An appeal is appropriate where the matter at hand involves issues of fact to be resolved by the SCIT. The affidavits filed shows issues of facts to have been raised.

It was further argued that it is only in very exceptional circumstances that the Applicant can apply for judicial review proceedings. The Applicant has not demonstrated the present case to fall within any of the exceptions.

The Applicant’s response is that the issues in this case turn solely on questions of law; there are no questions of fact. The interpretation of the SSA and other documents do not require evidence to be led. That being the case, judicial review is the appropriate remedy. Analysis and decision

I am of the view that the point raised by the Respondent alone would determine the present proceedings. If the Applicant should, and did not resort to the domestic remedy provided for under the law, then judicial review ought not to issue.

Section 99 of the Income Tax Act 1967 provides as follows: Right of appeal

(1) 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.

The Applicant’s hurdle is in overcoming decided authorities that have held that the domestic remedy must be resorted to first before filing a judicial review application. There are a plethora of cases on this point and I will refer to merely a few.

In Government of Malaysia & Anor v Jagdis Singh [1987] 2 MLJ 185, the Supreme Court examined U.K cases that have been decided on the issue and found it to have consistently upheld the cardinal principle that save in the most exceptional circumstances the review jurisdiction will not be exercised where other remedies are available. It held as follows: 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 is another avenue or remedy open to the applicant it will only be exercised in very exceptional circumstances. …. 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.

In Robin Tan Pang Heng @ Muhammad Rizal bin Abdullah (suing as public officer at Penang Turf Club) v Ketua Pengarah Kesatuan Sekerja Malaysia & Anor [2011] 2 MLJ 457, the Federal Court had the occasion to deal with a similar issue. The question that fell for its determination was whether the existence of a statutory appeal procedure/alternative remedy is a bar to judicial review or declaratory reliefs in view of the statutory remedy under s. 71A of the Trade Unions Act 1959, which provide for an appeal to the Minister against the decision of the Director General of Trade Unions.

The Federal Court held: [16]….The declaratory orders sought seek to reverse the decision of the registrar. Hence in that sense if an employer wishes to refute recognition then it is the mandatory procedure that is laid down that has to be resorted to for the legislation has identified the specific procedure whereby any person who is dissatisfied is to seek further recourse with the Minister if that person wishes to negate the decision of the registrar. [17] In our opinion the legislation by stipulating that the decision of the Minister is to be final is itself indicative that when there is already stipulated a second tier identified in the legislation, courts are not authorised to interfere for the statutory right that has accrued is not purely formal but mandatory. In other words, the statutory right has to be exhausted.

The principle was re-affirmed in Ketua Pengarah Hasil Dalam Negeri v Mudah.My Sdn Bhd [2017] 2 MLJ 197 when 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). 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. …. [24] It is indeed an irrefragable fact that the respondent had failed or refused to avail themselves of the remedy of appeal process. The court should not be influenced by the fact that the process by way of judicial review could be resorted to when Act 53 had provided for a specific remedy in the form of an appeal process under s 109H, Chapter 2 of Part VI and Schedule 5 thereof. The Act has specifically provided comprehensive provisions on the right and procedure of appeal for the taxpayers to avail themselves to in the event they were aggrieved by the act of the appellant. Parliament would not have enacted in vain without any real significance such comprehensive provisions on appeal. It is indeed an alternative remedy within the legislative scheme of income tax legislation that allows any person aggrieved by an assessment to appeal before a body which is dedicated specifically to hear such appeal. It would indeed be an exercise in futility to create such mechanism of appeal if it is not to be complied with.

Finally, the Federal Court in Ketua Pengarah Hasil Dalam Negeri v Alcatel-Lucent Malaysia Sdn Bhd & Anor [2017] 1 MLJ 563 explained the disadvantage attendant upon an applicant who files a judicial review proceeding instead of appealing to the SCIT against the assessment as follows: [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 is 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 (see Director-General of Inland Revenue v Lahad Datu Timber Sdn Bhd [1978] 1 MLJ 203). … [64] At the risk of repeating, as there was no appeal to the Special Commissioners, this court has no option but to accept certain facts and conclusions as not reversible (fait accompli). We cannot alter the view that the payments made by the first respondent are royalty payments and now be heard to complain, bearing in mind that they have failed to avail themselves, to echo Gill FJ, ‘of that remedy as laid down by the law’ before coming to the courts. … [69] A judicial review is a court proceeding where a challenge is made on the decision of the relevant authority or entity by challenging the lawfulness of the decision making process. This is trite law. Generally, the court dealing with the judicial review application in a supervisory capacity is not to delve into the merits of the case. In other words, the evidence is not reassessed. The court is merely to quash the decision of the relevant authority, if need be, and not to substitute with what it thinks is the correct decision. We are not here to usurp the powers of the designated authority.

In the light of the authorities cited, it is therefore settled principle that where a statutory remedy is provided, that remedy must first be had before resorting to judicial review, unless the Applicant can demonstrate exceptional circumstances.

I am of the view that the present case raises issues of fact appropriate to be decided by the SCIT. The Respondent’s audit finding concluded that the Bank Loans “bersifat ekuiti.” It was for the purpose of acquiring the shares in MDSB and NPSB. Premised on this finding, it then concluded that the interest paid on this loan portion was a capital expenditure.

The question whether the interest on the loans was capital expenditure or revenue expenditure to my mind, is a question of mixed law and fact. It is not solely a question of law. The Respondent held the view that “…pembayaran hutang bagi pihak MDSB and NPSB kepada Progressive Holding Sdn Bhd tidak merubah tujuan asal pinjaman tersebut dilakukan.” To reiterate, the original purpose of the loan was to acquire the shares of MDSB and NPSB.

In view of the Respondent’s findings, relevant witnesses would have to be called by the Applicant to explain the nature of the loan taken to pay off the Historic Debts, and to ascertain its real purpose. The loan documentation will have to be examined and evaluated together with the oral evidence of the witnesses in order to determine the true nature of the interest paid on the loans. Then and only then can it be ascertained whether the interest is a deductible expense under section 33(1).

The Applicant contends the Federal Court’s decision in Director General of Inland Revenue v Rakyat Berjaya Sdn Bhd [1984]1 CLJ (Rep) 108. had held definitively that interest is inherently a revenue expense. There is no purpose to be served by appealing to the SCIT in the light of an apex court decision on the matter. The Respondent had clearly made an error of law by disregarding a settled principle.

Whilst I appreciate that it is a decision of the apex court, I am of the view that it would not be appropriate to apply a general principle to the present case without appreciating the differences in the factual scenario. Finding of facts will still have to be made first, which may well be a distinguishing factor to exclude the application of the principle decided in Rakyat Berjasa.

The Applicant has also advanced the argument that even if the sums borrowed are laid on assets, they would nevertheless be deductible under section 33(1)(a)(ii) of the ITA. Again, that is a question for the SCIT to determine on the evidence before it.

To recapitulate, the deductibility of an interest expenditure under section 33(1) depends on whether it is revenue in nature. The Respondent has determined it to be a capital expenditure instead, based on the audit findings. These audit findings were the outcome of correspondence exchanged and documents examined. The validity of the findings is very much fact-based; it remains to be affirmed or overruled by the SCIT on appeal by the Applicant.

For the sake of completeness, I would also add that the Applicant has not demonstrated any exceptional circumstances to render it unnecessary for the Applicant to appeal to the SCIT.

In the light of my findings as stated above, I do not consider it necessary to consider the merits of the Applicant’s case raised in these judicial review proceedings.

Premised on the aforesaid reasons, the application for judicial review is dismissed. Costs of RM 3,000.00 subject to allocatur, is to be paid to the Respondent. Dated: 4th May 2026 -sgd-Alice Loke Yee Ching Judge High Court Kuala Lumpur Counsel for Applicant: Dato’ Nitin Nadkarni (Mr. Chris Toh Pei Roo, Cik Soon Jua Ying together with him) Tetuan Lee Hishammudin Allen & Gledhill Counsel for Respondent: En. Mohammad Hafidz bin Ahmad Senior Revenue Counsel (En. Muhammad Danial Izzat bin Zulbahari, Revenue Counsel together with him)