Kerajaan Malaysia v SAYYID SHAH BIN ABDULLAH (WA-29NCC-80-01/2023)

These Grounds concern 2 Notices of Appeal filed vide Encl 104 and Encl 135 against my decision dismissing both Encl 104 and Encl 135. a. Encl 104 is a Notice of Appeal dated 2.10.2024 against the Senior Assistant Registrar’s (“SAR”) decision on 27.09.2024 rejecting Encl 67. Encl 67 dated 24.6.2024 was an application for stay of the bankruptcy proceedings (“Bankruptcy Proceedings”) including the Creditors S/N 6knSj39olUq98HsQYywL0w Petition dated 19.1.2024 (“CP”) against the JD until disposal of the appeals of the JD in Form Q filed on 15.3.2019 to the Special Commissioners for Income Tax (“SCIT”) in Appeal No. MOF PKCP. 700-7/1/563-569. b. Encl 135 is a Notice of Appeal dated 17.1.2025 against the SAR’s decision rejecting Encl 105 on 17.1.2025. Encl 105 dated 9.10.2024 was for stay of the CP, until disposal of the Appeal to the Judge in Chambers and the application of the JD to set aside the CP in Encl 102 dated 4.10.2024.

In essence, both Appeals concern applications for stay of the Bankruptcy Proceedings: first, pending appeals to SCIT (Encl 104) and second, pending, inter alia, the setting aside of the CP (Encl 135).

On 11.06.2019, a Writ and Statement of Claim was filed against the JD for a sum of RM14,463,166.14, for income tax for the Years of Assessment 2011, 2012, 2013 (Additional), 2014 (Additional), 2015 (Additional), 2016 (Additional) and 2017 (Additional) including increases under the Income Tax Act 1967 (“ITA”).

On 20.4.2022, the High Court allowed the JC’s claim for Summary Judgment for RM14,463,166.14 with the interest at S/N 6knSj39olUq98HsQYywL0w 3 5% and costs RM3,000.00. The JD’s application for stay of execution was dismissed by YA Roz Mawar Rozain on 12.6.2024.

In the absence of full payment by the JD, a bankruptcy notice was issued on 27.1.2023 for the total sum of RM15,026,861.48 comprising the Judgment Sum of 14,463,166.14, interest of RM560,695.34 and costs of RM3,000.00.

The Bankruptcy Notice was served on the JD and an act of bankruptcy occurred on 8.8.2023, as confirmed by the SAR. The CP was filed on 24.1.2024, but full payment for the sum claimed had not been made, although the JD alleges that part payment of RM1,073,000.00 was made. The JD also claims that he has assets of over RM107.8 million, far in excess of the sum claimed.

The JD is challenging the assessments by filing appeals (Forms Q) to SCIT which are now pending. The JC has complied with s. 102 of the ITA 1967. The JD's Form Q was reviewed by the Dispute Resolution Department and was submitted to SCIT. The JD claims in his submissions that his appeal to SCIT has merits.

The JC asserts that on the contrary, the appeals to SCIT do not prevent the JC from proceeding with the tax recovery proceedings, including the Bankruptcy Proceedings, and no stay should be granted. S/N 6knSj39olUq98HsQYywL0w

I have had occasion to consider a stay of bankruptcy proceedings in Re Mohd Najib bin Hj Abd Razak; ex parte Government of Malaysia and another application [2025] MLJU 4039 (“Re Mohd Najib HC”).

What seems clear is that once a Creditor’s Petition has been filed, the power to grant a stay is found in s. 97 of the Insolvency Act 1967 (“IA”). The section provides: “The court may at any time, for sufficient reason, make an order staying the proceedings under a bankruptcy petition, either altogether or for a limited time, on such terms and subject to conditions as the court thinks just.” The s. 97 Test

The Court of Appeal in Chen Ying @ Chin Ying v Export-Import Bank of Malaysia Bhd [2016] 4 MLJ 324 at para 32, considered s. 97 in detail. The Court held that the test for a stay under s. is to show ‘sufficient reason’ before a stay will be granted. This test is different from the ‘special circumstances’ test for a stay of execution pending appeal.

The Court of Appeal held that the ‘sufficient reason’ test carries a lower burden than the ‘special circumstances’ test. The lower burden is said to be understandable given the nature of S/N 6knSj39olUq98HsQYywL0w bankruptcy with its effect on the assets of the bankrupt and the ability of a bankrupt to occupy public office.

I did not apply s. 97 in Re Mohd Najib (supra) as a bankruptcy petition had not been filed. Instead, I referred to the decision of the Federal Court in Mohd Najib bin Hj Abd Razak & Anor v Government of Malaysia and another appeal [2023] 6 MLJ 483 (“Mohd Najib FC”). The Federal Court found a residual power (for want of a better phrase) to grant a stay of proceedings.

In para 9 of the grounds, the Federal Court, speaking through Nallini Pathmanathan FCJ, held: “[9] Although collection might precede the full adjudication of the dispute, it is relevant to note that the Director-General of Inland Revenue (‘DGIR’) possesses the power and discretion to allow for suspension, payment in instalments, partial payment and a variety of other means as an alternative to payment in full immediately (see s 107B of the ITA for instance). Similarly, the courts have the power to stay full enforcement on failure to pay by the taxpayer pending appeals, if sufficient grounds are made out.”

In Re Mohd Najib HC (supra), I refrained from attempting to formulate a test for this residual power as recognised by the Federal Court. However, I was particularly mindful of the scheme or tax model to which the provisions of the ITA are subject. I said this, citing the Federal Court: S/N 6knSj39olUq98HsQYywL0w “[36] … It is a ‘pay now dispute later’ model, which is designed to ensure prompt collection of tax in the interest of the nation. The merits are to be determined by SCIT and not by the Courts, the latter being merely to facilitate the collection of tax. The Federal Court held: “[86] Put another way, adjudication of the merits of an assessment fall to be considered by the SCIT under s 99(1) of the ITA with recourse to the superior courts by way of appeal. However, for purposes of immediate collection and recovery of sums assessed to be due by the DGIR, recourse is made to the courts under s 106 of the ITA supported by s 142(1) of the ITA and s 103B of the ITA to give effect to the ‘Pay first dispute later’ scheme and operation of the ITA. [87] The court under s 106 of the ITA is fulfilling the purpose of recovery or collection only. It is not undertaking a full judicial adjudicatory role. Its full adjudicatory judicial power is deferred to the appeal arising from the decision of the SCIT by way of questions of law, or administrative or constitutional judicial review at a subsequent stage.” [37] The Court’s role is therefore only to facilitate the recovery of tax, almost as a tax collection agency. The adjudication of the merits of a challenge to an assessment is left to SCIT under s. 99(1) of the ITA. The ‘pay now dispute later’ scheme of the ITA requires the Courts to facilitate the recovery of tax and not to adjudicate the merits of an assessment. The Federal Court held: “[90] This is borne out by the characterisation of the quantum of assessment (falling due after issuance by the DGIR and S/N 6knSj39olUq98HsQYywL0w expiry of the time period given to make payment) as a ‘debt’ under s 106(1). This means that the sum assessed becomes a ‘debt’ due under the ITA, which is recoverable in civil proceedings. [91] This statutory certification of the sum assessed as a debt means that the sum so certified is statutorily due and payable. However, it is equally clear from a perusal of the ITA as a whole, that it is not a final determination of the sum due and owing by the taxpayer because s 99(1) of the ITA remains untouched and enables the taxpayer to proceed with his grievances through the SCIT and the entire hierarchy of the courts. It follows that the sum adjudged to be due under s 106 is to facilitate the collection and recovery of the sum assessed under the ‘Pay first, dispute later’ system.”

What is perhaps clear is that ‘pay first dispute later’ model is to ensure the “immediate” collection of tax. Indeed, s. 103(1) requires the payment of the tax under the assessment on the due date whether or not there has been an appeal; and s. 103B requires the payment of the assessment irrespective of any proceedings against the Government. And by s. 106, the tax payable may be recovered by civil suit and by s. 106(3), in such proceedings, 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.

On the effect of these sections, the Federal Court in Mohd Najib FC (supra) held that the merits of the assessments are only to be raised before SCIT: S/N 6knSj39olUq98HsQYywL0w “[53] This Court opined that the Defendant’s argument with regard to merit at paras 25-28 and paras 36-45 in the Defendant’s submission (which involved “purported donations” etc., are irrelevant for the purpose of this application. The issues on whether the additional tax raised are incorrectly assessed or excessive are issues of merit, which will be dealt with before SCIT. … [84] The provisions in ss 103–106 of the ITA, and in particular s 106 of the ITA in toto, relate to the immediate collection and recovery of tax assessed to be due by the DGIR within a ‘pay first dispute later’ system. On the other hand, objections to, or appeals against the veracity of the sum assessed to be due, are adjudicated on the basis of the system prescribed under s 99(1) of the ITA under Part VI, Chapter 2 entitled ‘Appeals’. This means, in effect, that even if adjudication is delayed on the ultimate liability of the taxpayer of the sum assessed to be due, immediate payment of the sum is NOT deferred. …

The following passages emphasising curial non-interference in the tax model, are worth repeating: “[86] Put another way, adjudication of the merits of an assessment fall to be considered by the SCIT under s 99(1) of the ITA with recourse to the superior courts by way of appeal. However, for purposes of immediate collection and recovery of sums assessed to be due by the DGIR, recourse is made to the courts under s 106 of the ITA …. [87] The court under s 106 of the ITA is fulfilling the purpose of recovery or collection only. It is not undertaking a full judicial adjudicatory role. Its full adjudicatory judicial power is deferred to the appeal arising from the decision of the SCIT by way of questions S/N 6knSj39olUq98HsQYywL0w of law, or administrative or constitutional judicial review at a subsequent stage.”

Appeals under s. 99 (to SCIT) will not defer the obligation to pay the tax. In this tax model, the Courts are really only a debt collection agency to facilitate the collection of tax, and are not designed to determine the merits of the DG’s assessment. The Court’s adjudicatory role on the merits is deferred to the appeals or review of the decision of SCIT.

From the reasoning of the Federal Court in Mohd Najib FC (supra), the nature of the tax model must be borne in mind when considering the powers of the Courts to delay the collection of tax by granting a stay of bankruptcy proceedings.

The ‘Pay now Dispute later’ model for the collection of tax was imposed in the national interest. In short, the Courts’ role in the initial stages is only as a debt collection agency, the merits of the assessment falling outside the remit of the Courts and is for SCIT to determine. The Courts full adjudicatory role is deferred and limited to appeals from SCIT. This process for the collection of tax is collectively referred to as “the Tax Model”.

The Tax Model has been designed for expediency and the efficiency. It has its own safeguards such as powers conferred on the Director General of Inland Revenue (“DG”) as recognised S/N 6knSj39olUq98HsQYywL0w by the Federal Court at para 9 of Mohd Najib FC (supra) as “the power and discretion to allow for suspension, payment in instalments, partial payment and a variety of other means as an alternative to payment in full immediately …”. And to conduct a review under s. 101 in the hope of reaching an agreement with the taxpayer. If no agreement is reached, the DG must refer the appeal to SCIT under s. 102.

As such, in cases involving the collection of tax, the power to grant a stay in bankruptcy, whether under s. 97 of the IA or under the residual power must be read subject to the provisions and objectives of the processes or system imposed by the Tax Model. It follows that such processes designed to ensure the expeditious collection of tax, should be allowed proceed without curial interference, except in limited circumstances.

In my judgment, the Courts may interfere, whether under s. of the IA or under the residual power, in instances where there has been an abuse of the processes of the Tax Model or where such processes have broken down. Such instances obviously mean that these processes cannot be relied on and the policy of curial non-interference, likewise, cannot apply.

These instances are fact sensitive and will depend on the circumstances on each case. An obvious example is where there has been a failure to make a reference under s. 102 of the IA. I must emphasise that these instances are not intended to S/N 6knSj39olUq98HsQYywL0w be comprehensive and that there may be other deserving exceptions.

As such, a pending appeal on the merits of an assessment which is within the remit of SCIT, without more, will not warrant a stay. The Federal Court in Mohd Najib FC (supra) held at paras 155 and 156: “[155] In other words, while the process of appeal is pending the tax becomes due, putting into effect the ‘Pay first, dispute later’ system that defers the dispute but requires immediate payment. This is an essential aspect of expeditious and efficient collection of tax which is required to enable the nation to function effectively. Therefore, notwithstanding the taxpayer’s right to challenge the tax assessed through the SCIT and subsequently the hierarchy of the courts, payment is not deferred. Any seeming ‘inequity’ is met by the guaranteed right of repayment under the Act. [156] The deferral of the challenge or dispute as to the tax assessed is further borne out by s 103B which provides: ‘The institution of any proceedings under any other written law against the Government or the Director General shall not relieve any person from liability for the payment of any tax, debt or other sum for which he is or may be liable to pay under this Part.” [And at para 165] S/N 6knSj39olUq98HsQYywL0w “[165] Once the statutory s 106 debt is subject to a full-blown trial, there cannot be another or second attempt at litigation under s 99(1) of the ITA as that would give rise to res judicata and/or issue estoppel. Therefore, the entire purport and effect of the ITA would be thwarted by a full trial under the O 14 civil procedure under the Rules of Court 2012. This is in accord with the older case-law which stipulates that such defences are to be remitted to the equivalent of the then SCIT and not considered by the courts. To that extent there was appreciation of the fact that judgment under s 106 of the ITA was for purposes of ensuring payment of taxes first while disputes were adjudicated later.”

A pending SCIT appeal, without more, is not the basis to grant a stay.

Similarly, in proceedings to collect tax other than through bankruptcy, a mere appeal to SCIT will not hamper the obligation to pay the assessed tax and to dispute the adjudication at a later date. In Re Osman bin Ahmad; ex parte The Government of Malaysia [2020] MLJU 2489 at para 8: “[8] … Even if there was a tax appeal lodged by the Appellant to the Special Commissioners of Income Tax, that does not deprive the Respondent from proceeding with recovery action by way of civil proceedings as provided in Section 103(1) of the Income Tax Act

In Chong Woo Yit v Government of Malaysia [1989] 1 CLJ 9, the Supreme Court held that: ‘[2] On service of a notice of assessment on the person assessed, the tax payable under the assessment becomes S/N 6knSj39olUq98HsQYywL0w due and payable whether or not the person appeals against the assessment and would be recovered by the Government by civil proceedings as a debt due to the Government. [3] On such civil proceedings being brought by the Government, the Court, unlike the Special Commissioners of Income Tax, has no power to entertain any plea that the amount of tax sought to be recovered is excessive, incorrectly assessed, under appeal, or incorrectly increased.’

I was referred to Chong Woo Yit v Government of Malaysia [1989] 1 MLJ 473 where the Supreme Court (as it then was) granted a stay of execution pending the determination of the appeal before SCIT. The appeal to SCIT was filed in 1985 and was yet to be heard in 1989 (the date of the Supreme Court appeal). The Supreme Court granted the stay finding that the delay was through no fault of the taxpayer.

Choo’s case could be explained on the basis that the delay in SCIT delivering its decision on the appeals could be viewed as a failure of the system through no fault of the taxpayer thus warranting the intervention by the Court.

In this case, it is alleged by the JD that the appeals to SCIT were filed on 15.3.2019. If correct, this would mean that there has been a delay of over 6 years. However, the point of the delay was dealt with in a cursory fashion (see para 66 of Encl 150) without any details of the conduct of the JD. S/N 6knSj39olUq98HsQYywL0w

I was therefore unable to find that the JD was blameless in the delay or that the processes of the Tax Model had failed, so as to invoke the exception.

On this basis, the appeal in Encl 104 to stay the Bankruptcy proceedings pending the disposal of the appeal to SCIT fails.

In the JD’s submissions in Encl 150, the JD relied on various grounds in support of the stay under Encl 135: a. there was part payment of RM1,073,000.00 (see para 13 of Encl 150). But this is well short of the RM15,026,861.48 due; b. the entry of Registrar’s Caveats over lands worth RM21 million preventing the sale of these lands (para 14) and that the JD is solvent with assets worth RM107.8 mil (paras 32, 33), more than the amount claimed of RM15,026,861.48. The JD cites Chen Ying (supra); however, the values of the securities in that case was not seriously disputed (see at para 36 of the judgment). The values of the assets raised here have not been accepted by the JC. Further, the JC maintains that no attempt was made to make any repayments (para 36 of Encl 112). I note that the first assessment was raised in 2011, some 15 years ago; S/N 6knSj39olUq98HsQYywL0w c. the JD has merits in his appeal to SCIT (paras 15 to 26), As stated above, it is not for the Courts to deal with the merits, which is an issue for SCIT. And as stated in para 28 above, the Federal Court has held that a pending appeal before SCIT is no basis to grant stay; d. the imposition of the assessments when the JD was overseas and thus oppressive (see para 64 and 65). The JD is obliged to monitor his tax obligations, in this case assessments raised for the years 2011 to 2017. e. the JD would suffer harm that cannot be compensated for in damages if the Bankruptcy Proceedings are not stayed (at para 39). The answer to this, is that the JD who claims to have over RM107 million in assets should simply pay the amount claimed and indeed, if the SCIT appeals are successful, the Government is bound to refund the same, thus prejudice is not a compelling ground.

With respect, these are insufficient reasons to stay (under Encl 135) the tax collection efforts through Bankruptcy Proceedings.

As such, I dismissed both appeals in Encl 104 and Encl 135 with costs of RM4,000.00 for each appeal. S/N 6knSj39olUq98HsQYywL0w Dated the 31st day of December 2025 ...........................tt............................ YA TUAN SAHERAN SUHENDRAN JUDICIAL COMMISSIONER OF THE HIGH COURT (COMMERCIAL 11) (INSOLVENCY 2) OF KUALA LUMPUR IN THE TERRITORY, MALAYSIA Case References: • Chen Ying @ Chin Ying v Export-Import Bank of Malaysia Bhd [2016] 4 MLJ 324 • Chong Woo Yit v Government of Malaysia [1989] 1 MLJ 473 Counsel for the Judgment Debtor: Solicitors: Lee Teong Hooi Messrs. Lee Tan & Associates (Petaling Jaya) Counsel for the Judgment Creditor: Qhistina Mohd Apandi Lembaga Hasil Dalam Negeri (LHDN), Wilayah Persekutuan (Kuala Lumpur) S/N 6knSj39olUq98HsQYywL0w • Mohd Najib bin Hj Abd Razak & Anor v Government of Malaysia and another appeal [2023] 6 MLJ 483 • Re Mohd Najib bin Hj Abd Razak; ex parte Government of Malaysia and another application [2025] MLJU 4039 • Re Osman bin Ahmad; ex parte The Government of Malaysia [2020] MLJU 2489 Legislation References: • Income Tax Act 1967 (“ITA”). • Insolvency Act 1967 (“IA”) Decision Date: 3rd November 2025 S/N 6knSj39olUq98HsQYywL0w