Kerajaan Malaysia v 1. ) Maksima Amanjaya Development Sdn Bhd (AA-21NCVC-8-02/2021)

MAKSIMA AMANJAYA DEVELOPMENT SDN BHD 15 (DAHULU DIKENALI SEBAGAI MAKSIMA AMANJAYA TERMINAL SDN BHD) (1038187-A) ….

FIRST DEFENDANT MOHD FAIEZ BIN GHAZALI …. SECOND DEFENDANT 20 JUDGMENT Introduction [1] The Plaintiff claims against the Defendants for additional income tax 25 assessed in a Notice of Additional Assessment dated 23 September 2020 (“NAA”). The Defendants opposed the claim and sought to stay proceedings in this Court (“Court”) pending the full and final determination of an appeal by the First Defendant to the Special Commissioners of Income Tax (“SCIT”) against the NAA. 30 2 Applications before the Court [2] On 6 October 2021, three applications were before the Court for 35 hearing: (i) the Defendants’ application for an extension of time to file their Defence (Enclosure 5); (ii) the Defendants’ application for a stay of all proceedings pending the disposal of the First Defendant’s appeal against the NAA to the SCIT (Enclosure 7); and (iii) an application by the Plaintiff for summary judgment to be entered against the Defendants (Enclosure 11). 40 [3] By agreement of both parties, the application for stay (Enclosure 7) was to be heard first followed by the other two applications (Enclosures 5 and 11). 45 Stay Application (Enclosure 7) [4] After hearing the application for stay (Enclosure 7), I dismissed it with costs. Learned counsel for the Defendants then said that he has instructions to appeal against this decision and applied for an interim stay of proceedings 50 pending his appeal. This was opposed by the learned revenue counsel. Interim Stay [5] To allow the defendants to exercise their right to renew an application 55 for stay in the Court of Appeal pending an appeal pursuant to section 44 of the Courts of Judicature Act 1964 [Act 91] (“CJA”), I had allowed an interim stay of all proceedings pending the disposal of the Defendants’ prospective application in the Court of Appeal pending their appeal against this Court’s 3 decision to dismiss their application (Enclosure 7) to stay all proceedings in 60 this Court. [6] For purposes of managing this matter, a case management was fixed on 10 November 2021 for parties to update this Court on the status of the Defendants’ prospective appeal to the Court of Appeal and their application 65 for stay in the Court of Appeal. [7] To aid the reading of this judgment, the provisions of section 44 of the CJA are reproduced hereunder: 70 “(1) In any proceeding pending before the Court of Appeal any direction incidental thereto not involving the decision of the proceeding, any interim order to prevent prejudice to the claims of parties pending the hearing of the proceeding, any order for security for costs, and for the dismissal of a proceeding for default in furnishing security so ordered may at any time be 75 made by a Judge of the Court of Appeal.

Every application under subsection (1) shall be deemed to be a proceeding in the Court of Appeal. 80

Every order made under subsection (1) may, upon application by the aggrieved party made within ten days after the order is served, be affirmed, varied or discharged by the Court.” Appeal to the Court of Appeal 85 [8] On 8 October 2021 the Defendants filed a Notice of Appeal (Enclosure 37) against the decision of 6 October 2020 dismissing their stay application. 4 Plaintiff’s Claim 90 [9] The NAA was raised by the Plaintiff consequent to the Director General of Inland Revenue’s (“DGIR”) decision to subject the gains arising from the First Defendant’s disposal of shares in Perak Transit Berhad to income tax pursuant to the Income Tax Act 1967 [Act 53] (“ITA”). 95 [10] The Second Defendant was at the material time the director of the First Defendant holding 70% shares in the company. [11] For the 2017 year of assessment, the First Defendant was additionally 100 assessed for income tax of RM1,801,120.13. There was a balance sum of RM1,801,096.72 due after taking into account payment of RM23.41. However, as the First Defendant failed to effect payment of the tax due within 30 days of the service of the NAA, an additional 10% penalty amounting to RM180,109.67 was levied. 105 [12] The First Defendant paid a sum of RM131,299.23 bringing the total exigible to be RM1,849,907.16. As it was not paid, hence this action to recover the same. 110 Premise for Stay Application (Enclosure 7) [13] The First Defendant challenged the validity of the NAA and had by the requisite Form Q prescribed by the ITA dated 14 October 2020 filed an appeal to the SCIT. The First Defendant asserted that it has merits in the 115 5 said appeal and that the same will be rendered nugatory if the stay application (Enclosure 7) is not allowed. [14] The Defendants further asserted that if the stay application (Enclosure 7) is allowed it will save much time and costs in this action. 120 [15] In support of the stay application, the Defendants filed an affidavit in support affirmed on 18 March 2021 (Enclosure 8), and an affidavit in reply (Enclosure 17), which was to reply to the Plaintiff’s affidavit in reply affirmed by Siti Sara bin (sic) Abu Bakar on 13 April 2021 (Enclosure 12 and repeated 125 in Enclosure 13). [16] Without meaning any discourtesy to the Defendants, the averments in the affidavits filed to support the stay application can be summarised as follows:

the First Defendant is in the process of settling the claim by way of a dispute resolution proceeding;

(ii) the First Defendant ought to be allowed to pursue its appeal to the SCIT to its final conclusion and in the meanwhile, it was not 135 mandatory for the plaintiff to proceed with this [debt recovery] civil action;

(iii) the First Defendant has a meritorious appeal against the NAA;

(iv) unless stayed, the action will have an adverse impact on the First Defendant’s reputation with an accompanying prospective social 140 cost (such as loss of employment to its employees in the event the First Defendant becomes insolvent) which would be impossible to restore with severe implications upon its directors such as the Second Defendant; 6 v) the economic crisis brought about by the COVID-19 pandemic 145 has heavily affected the First Defendant and it would be very difficult if not impossible for the Defendants to raise such a substantial amount of money; vi) the First Defendant has been diligent in prosecuting the appeal to the SCIT and in filing the stay application. 150 Preliminary Objection [17] By way of preliminary objection, the learned revenue counsel drew the Court’s attention to subsections 103(1), (1A) and (2) of the ITA. In summary, 155 subsection 103(1) stipulates the principle that tax payable under an assessment or additional assessment is due and payable whether or not that person appeals against the assessment. For ease of reference, subsections 103(1) to (2) are reproduced below: 160 “(1) Except as provided in subsection (2), tax payable under an assessment for a year of assessment shall be due and payable on the due date whether or not that person appeals against the assessment.

Where an assessment or additional assessment has been made under 165 section 91A, the tax or additional tax payable under the assessment shall be due and payable on the day the amended return is furnished whether or not that person appeals against the assessment or additional assessment. 170 Provided that where the amended return is furnished within a period of sixty days after the due date and the amount of tax due and payable has not been paid within the period of sixty days from the due date, so much of the tax as is unpaid upon the expiration of that period shall without any further notice being served be further increased by a sum equal to five per cent of the tax so unpaid, 175 7 and that sum shall be recoverable as if it were tax due and payable under this Act.

Where an assessment is made under subsection 90(3), section 91, 92 or 96A, or where an assessment is increased under subsection 101(2), the tax 180 payable under the assessment or increased assessment shall, on the service of the notice of assessment or composite assessment or increased assessment, as the case may be, be due and payable on the person assessed at the place specified in that notice whether or not that person appeals against the assessment or increased assessment.” 185 (Emphasis added) [18] Further, section 106 of the ITA, inter alia, provides that in any proceedings for recovery of tax, the Court shall not entertain any plea that the amount of tax sought to be recovered is excessive, incorrectly assessed, 190 under appeal or incorrectly increased. For ease of reference, subsections 106(1), (2) and (3) are reproduced below: “(1) Tax due and payable may be recovered by the Government by civil proceedings as a debt due to the Government.

The Director General and all authorized officers shall be deemed to be public officers authorized by the Minister under subsection 25(1) of the Government Proceedings Ordinance 1956 [now the Government Proceedings Act 1956], in respect of all proceedings under this section.

In any proceedings under this section the court shall not entertain any plea that the amount of tax sought to be recovered is excessive, incorrectly assessed, under appeal or incorrectly increased under subsection 103(3), (5) or (7).” 205 (Emphasis added) 8 [19] In view of the aforesaid statutory provisions, the learned revenue counsel asserts that the stay application should be dismissed as the Defendants failed to state under what provisions of the law that they seek to 210 apply for the stay. Reliance was placed upon the authorities of Thiruchelvasegaram Manickavasegar v. Mahadevi Nadchatiram (No. 2) [2002] 1 CLJ 609 (HC) and Sarawak Securities Sdn Bhd v. Gerard Ding Sing Dac & Ors [2000] 7 CLJ 378 (HC). 215 [20] However, a perusal of the stay application (Enclosure 7) shows that the Defendants are moving the Court under the Court’s inherent jurisdiction. [21] The Supreme Court in both Chong Woo Yit v. Government of Malaysia [1989] 1 CLJ (Rep) 9; [1989] 2 CLJ 87; [1989] 1 MLJ 473 and 220 Government of Malaysia v. Jasanusa Sdn Bhd [1995] 2 CLJ 701; [1995] 2 MLJ 105 have held that the provisions of subsections 103(1) and 106(1) of the ITA do not bar a court from exercising in appropriate circumstances its inherent powers to grant a stay even in a tax case. 225 [22] In the circumstances, this Court dismissed the preliminary objection and proceeded with the merits of the stay application (Enclosure 7). Merits of Stay Application 230 [23] The Defendants strongly relied on the High Court case of Kerajaan Malaysia v. Berjaya Times Square Sdn Bhd [2018] 1 LNS 720, where Her Ladyship, Nor Bee Ariffin J (now JCA) allowed a stay of proceedings where;

there was a pending appeal to the SCIT; 235 9

(ii) it could not be discounted that a settlement may be arrived at between the DGIR and the taxpayer and in such an event, the assessment would be discharged; and

(iii) the merits of the appeal is one of the factors to be considered. 240 [24] The learned counsel for the Defendants added that upon appeal, the decision of Her Ladyship in Kerajaan Malaysia v. Berjaya Times Square Sdn Bhd (supra) was affirmed by the Court of Appeal. [25] To the credit of learned counsel for the Defendants, several other 245 authorities were marshalled to show that a stay of proceedings had been granted in the following recovery of tax cases:

Kerajaan Malaysia v. Ekran Bhd [2006] 5 CLJ 92; [2010] MSTC 30- 008 (HC);

(ii) Kerajaan Malaysia v. Margaret Au Nyat Fah [2008] 3 CLJ 424 (HC);

(iii) Kerajaan Malaysia v. Raja a/l K Veerasamy [2014] MSTC 30-074 (HC); and

(iv) Kerajaan Malaysia v. AEON Credit Service (M) Berhad (Civil Suit No: BA-21NCVC-34-06/2019) (HC). 255 [26] Besides that, the Defendants had filed an appeal on 9 October 2020, and learned counsel asserted that the DGIR had presented a proposal for settlement that was being considered by the taxpayer and the returns on the disposal of the shares it held should have been treated as a return in capital 260 and not income with reference made to the High court case of Director General of Inland Revenue v. Hypergrowth Sdn Bhd [2008] 4 CLJ 250. It was found in the said case of Director General of Inland Revenue v. 10 Hypergrowth Sdn Bhd (supra) that the dominant purpose for the purchase of shares was established as a matter of fact to be for investment purposes 265 and the gains deemed to be capital receipt. The case of Government of Malaysia v. Jasanusa Sdn Bhd (supra) was also cited for the principle that the need of the taxpayer to be protected against arbitrary and incorrect assessments ought to be taken into account. 270 [27] It was asserted by the Defendants that the Plaintiff has failed to pay out RM3.807 billion in tax refunds for Year of Assessment 2017. The point being made was that if the Defendants were to pay the tax under the NAA, there is no guarantee that the plaintiff would receive a full refund within a stipulated time. However, what this stipulated time is or ought to be, was not 275 stated by the Defendants. [28] The Defendants further asserted it has a history of being a law-abiding and responsible taxpayer with no records of being subjected to any civil action for any past failure to pay any income tax and have given full co- 280 operation when the DGIR conducted a tax audit. There was no delay in making the application for stay and the Defendants concluded their submissions that the SCIT appeal would be rendered nugatory if the stay is refused. 285 [29] With respect to learned counsel for the Defendants, I agree with the learned revenue counsel that the grounds relied upon by the Defendants do not amount to special circumstances. It cannot be gainsaid that it behoves every citizen to pay his just dues in taxes. There is a specific statutory mechanism to challenge whether it is just. In this case, it is by way of an 290 appeal to the SCIT against any assessment that is disputed. The inconveniences and anxiety that the Defendants have expressed are but the 11 natural consequences of being subjected to litigation. If in the opinion of the Defendants that the bringing of such a suit is an abuse of process of court or amounts to tortious conduct, then the Defendants are just as entitled to 295 pursue legal action. [30] In my view, the determining factor in considering the stay application (Enclosure 7) is whether by not making an order for stay would it make the appeal [to the SCIT] nugatory, see Government of Malaysia v. Datuk 300 Kadir Mohamad Mastan and Another Case [1993] 4 CLJ 98 (HC). I find that contrary to the assertion by learned counsel for the Defendants, the recovery action in this set of civil proceedings would not render nugatory the First Defendant’s appeal to the SCIT and this is expressly provided by the statutory provisions of subsections 103 (1), (1A), (2) and 106 (3) of the ITA. 305 [31] I am conscious that in this application for stay (Enclosure 7), the merits of the suit by the Plaintiff should not be decided especially seeing that there is an application (Enclosure 11) for summary judgment to be entered. 310 [32] Indeed, as for there being merits in the appeal [to the SCIT], this Court is guided by the oft-quoted authority of Kosma Palm Oil Mill Sdn Bhd & Ors v. Koperasi Serbausaha Makmur Bhd [2003] 4 CLJ 1 (FC), where Augustine Paul JCA (sitting as FCJ) held that the merits of a party’s case in a stay application is not a relevant matter for consideration. 315 [33] However, as the Defendants have raised the issue that the First Defendant having merits in its appeal is a ground that ought to be considered in this stay application (Enclosure 7) as was decided in Kerajaan Malaysia v. Berjaya Times Square Sdn Bhd (supra), this Court without making any 320 12 ruling which may be construed as a pre-judgment on the application for summary judgment (Enclosure 11) and for the avoidance of any doubt, I repeat that what I am going to say next is without prejudice to the said application [for summary judgment] (Enclosure 11), that to my mind, the jurisprudence underlying recovery of tax cases is settled in that upon service 325 of a notice of assessment, an assessment requires payment, irrespective of there being an appeal [to the SCIT], see National Land Finance Co-operative Society Ltd v. Director General Of Inland Revenue [1993] 4 CLJ 339; [1994] 1 MLJ 99 (SC), Sun Man Tobacco Co Ltd v. Government of Malaysia [1973] 1 LNS 144; [1973] 2 MLJ 163 (FC) and Chong Woo Yit 330 v. Government of Malaysia [1989] 2 CLJ 87 (SC). [34] In putting up these grounds, I gratefully bear in mind the advice of the Rt. Hon. Lord Justice Haddon-Cave of the Court of Appeal reported in the Graya News Number 37 (Autumn 2021) and reproduced hereunder: 335 “...be astute to exercise the self-denying ordinance of only dealing with the key points in issue and not be tempted to write exegesis on points which weren’t. Ideally, excessive citation of authority (in particular cutting and pasting large chunk of cases) should be avoided.” 340 Conclusion [35] The upshot of this case is that the stay application (Enclosure 7) is dismissed with costs. However, in view of the authorities cited by the 345 Defendants including Kerajaan Malaysia v. Berjaya Times Square Sdn Bhd (supra), I had allowed an interim stay pending the Defendants renewing their application in the Court of Appeal for a stay of proceedings pending 13 their appeal against this decision I had made on 6 October 2021 to the Court of Appeal. By agreement, the costs of the dismissal of the stay application 350 (Enclosure 7) is to be costs in the cause of the other two applications (Enclosures 5 and 11). Dated: 22 November 2021 355 ( SU TIANG JOO ) Judicial Commissioner 360 High Court in Malaya Ipoh, Perak For Plaintiff : Norhidayah bt Mohamad Anas 365 [Director General Inland Revenue] For First and Second Saravana Kumar Defendants : (together with Elani Mazlan) [Messrs Rosli Dahlan Saravana Partnership] 370 [Notice: This Grounds of Decision is subject to official editorial revision] 14 Headnotes Income Tax Act 1967 [Act 53] - suit for recovery of tax – payable irrespective of appeal against assessment - stay of proceedings pending appeal to the Special Commissioners of Income Tax (“SCIT”) – whether Court has inherent 375 jurisdiction to order a stay Stay of proceedings – whether merits of the appeal to the SCIT is to be taken into account – whether a refusal to stay legal action will render appeal to SCIT nugatory 380 385 390 395