Schedule
Schedule 5, may represent and act generally on behalf of the principal 315 for the purposes of the provisions of this Act relating to appeals (“the principal” and “the representative” here having the same meaning as in section 67). (4) This section shall not apply to an assessment made under subsection 90(1) or section 91A, except where a person in respect of such 320 assessment is aggrieved by the public ruling made under section 138A or any practice of the Director General generally prevailing at the time when the assessment is made. 325 Section 99 is the legal basis for taxpayers' right of appeal to challenge a tax assessment made by the DGIR that they believe to be incorrect. It is a fundamental safeguard within the tax system that ensures taxpayers have the means to dispute their tax liability. Any taxpayer who feels they have been wrongly assessed and is aggrieved by a notice of assessment 330 has the right to appeal, which must be made in writing within 30 days after the notice of assessment has been served. The notice of appeal must be in the prescribed form and clearly state the grounds for the appeal. If a resolution cannot be reached, an appeal may be referred to the SCIT for a decision. 335 5.4 Incorrect Tax Returns (Penalties) Section 113 (1) Any person who: (a) makes an incorrect return by omitting or understating any income of which he is required by this Act to make a return on behalf of himself 340 or another person; or (b) gives any incorrect information in relation to any matter affecting his own chargeability to tax or the chargeability to tax of any other person, shall, unless he satisfies the court that the incorrect return or incorrect 345 information was made or given in good faith, be guilty of an offence and shall, on conviction, be liable to a fine of not less than one thousand ringgit and not more than ten thousand ringgit and shall pay a special penalty of double the amount of tax which has been undercharged in consequence of the incorrect return or incorrect information or which 350 would have been undercharged if the return or information had been accepted as correct. (2) Where a person: (a) Makes an incorrect return by omitting or understating any income 355 of which he is required by this Act to make a return on behalf of himself or another person; or (b) Gives any incorrect information in relation to any matter affecting his own chargeability to tax or the chargeability to tax of any other person, 360 then, if no prosecution under subsection (1) has been instituted in respect of the incorrect return or incorrect information, the Director General may require that person to pay a penalty equal to the amount of tax which has been undercharged in consequence of the incorrect return or incorrect information or which would have been undercharged if the return or 365 information had been accepted as correct; and, if that person pays that penalty (or, where the penalty is abated or remitted under subsection 124(3), so much, if any, of the penalty as has not been abated or remitted), he shall not be liable to be charged on the same facts with an offence under subsection (1). 370 Section 113(2) empowers LHDN to impose penalties of up to 100% on the amount of tax that has been undercharged. As a concession, LHDN usually imposes penalties at the rates of 15%, 30% or 45%, depending on the number of offences committed by the taxpayers. Section 113(2) 375 ITA 1967 authorises LHDN to impose a penalty when a person has filed an incorrect tax return. This section applies to cases where no criminal prosecution has been initiated under Section 113(1). The DGIR may impose a penalty under Section 113(2) in the following circumstances: (a) A person makes an incorrect return by omitting or understating 380 any income. (b) A person gives any incorrect information that affects their own tax chargeability or that of another person. 385 [6] The badges of trade 6.1 A set of characteristics or indicators used in tax law to determine if a person's activity is a taxable "trade" or merely the disposal of a personal investment: (1) This distinction is crucial for tax purposes, as profits from a 390 trade are subject to income tax, while profits from selling personal assets may be treated as a capital gain. (2) The concept originated in UK tax law and was developed through case law and a 1955 Royal Commission report. No single badge is conclusive on its own; instead, tax authorities 395 and courts consider the overall impression from all the facts and circumstances of a case. 6.2 Tax authorities use the badges of trade to determine if profits should be taxed as income or capital gains. This has significant 400 financial implications for taxpayers: (1) Income tax vs. capital gains tax: Tax on trading income is often higher than capital gains tax. The characterisation of a transaction as a trade can therefore result in a much larger tax bill. 405 (2) The badges are critical for distinguishing between a hobby that occasionally turns a profit and a full-fledged business. A profitable activity that displays sufficient "badges" can be reclassified as a trade by tax authorities. 410 (3) Because no single badge is decisive, the tests allow tax authorities to evaluate each case based on its specific circumstances, preventing rigid rules from being exploited. 415 See application of badges of trade: -ALF Properties Sdn Bhd v Ketua Pengarah Jabatan Hasil Dalam Negeri [2003-2005] AMTC 308; [2005] 5 MLJ, CA: The court considered the period of ownership when a taxpayer sold land that they had held for more than 10 years. The Court of Appeal held that this 420 indicated an investment intention, not trading. -Ketua Pengarah Hasil Dalam Negeri v Ng Huan Tong [2023] 1 LNS 296, HC: The High Court considered the motive behind a land disposal. It was argued 425 that the taxpayer only advertised the land and appointed agents when financially distressed, rather than with the intention to trade initially. The court ruled that appointing a broker is a common practice and, on its own, is not conclusive proof of a trading intention. 430 -Dr Zanariah Binti Ramli v Ketua Pengarah Hasil Dalam Negeri (2023: Unreported, Court of Appeal (Appellate Jurisdiction), Civil Appeal No: W-01-711-12/2011): This case involved frequent buying and selling of bonds. The Malaysian Court of Appeal ruled that the taxpayer's activity constituted an "adventure in the 435 nature of trade" rather than an investment due to the volume and frequency of the transactions. The Court of Appeal observed that: (a) The court would be concerned with looking at the evidence to see whether there had existed the badges of trade in the whole scenario as presented before the SCIT. 440 (b) Six criteria need to be considered in that process (NYF Realty Sdn Bhd v Comptroller of Inland Revenue (1974) 1 MLJ 183): (1) The subject matter of the transaction. (2) The period of ownership. (3) The frequency of the transaction. 445 (4) The alteration of the property to make it more saleable. (5) The methods in disposing of the property, and (6) The circumstances responsible for the resale of the property. (c) From the evidence adduced before the learned SCIT, it would become 450 apparent that such evidence has shown that the Appellant had hardly held on, for an extended period of time, to all the bonds that she purchased throughout the period under review. (d) In the absence of an express admission, a person’s intention can only, at most, be deduced or inferred from his conduct, either overtly by his 455 commission or otherwise, by his omission. (e) From the evidence adduced surrounding the market activities of the taxpayer, it would justify a strong inference to be made that the taxpayer had, in fact, been actively trading in bonds during the period under scrutiny. 460 (f) One single act could amount to doing trade. -Keysight Technologies Malaysia Sdn Bhd v Ketua Pengarah Hasil Dalam Negeri [2024] MLJU 1271, CA: A landmark ruling by the Malaysian Court of Appeal affirmed that the badges 465 of trade test can apply to intangible assets, such as intellectual property (IP), not just tangible property or land. The court ruled that the sale of IP rights during a corporate restructuring constituted a capital gain, noting that it was a one-time transaction and that the taxpayer was not in the business of selling IP rights. The Court of Appeal ruled that applying the badges of trade test 470 would have led to the conclusion that the IP Rights were capital assets. FINDINGS OF THIS COURT [7] All things considered, it is my considered judgment that: 475 7.1 In determining this appeal, I am mindful of the following: (1) The High Court's power to review findings of fact by the SCIT is minimal, as the SCIT are considered the "finder of fact" in tax appeals. 480 (2) The SCIT's primary function is to hear tax disputes and make findings of fact based on the evidence presented. The High Court's role in an appeal is to determine whether the SCIT's decision was correct in law, based on the facts already found 485 by the SCIT. (3) It is trite law, however, that the Court can intervene in the SCIT's findings of fact in specific circumstances, such as when the findings are "perverse" or "wholly unreasonable," not 490 supported by any evidence, inconsistent with the primary facts, or when the SCIT has misdirected itself in law. (3) The distinction between a finding of fact and a question of law is crucial, as an inference drawn from facts can sometimes be 495 challenged as a question of law if it is an inference that no reasonable tribunal could have drawn. The process of interpreting the law and facts is not mechanical but involves the court's interpretation to produce a lawful and appropriate conclusion. 500 7.2 With that in mind, I had examined the SCIT’s findings based on the use of the badges of trade. Tax authorities use the badges of trade to determine if profits should be taxed as income or capital gains. Tax on trading income is often higher than the tax on capital gains. 505 The characterisation of a transaction as a trade can therefore result in a much larger tax bill: (1) The badges are critical for distinguishing between a hobby that occasionally turns a profit and a full-fledged business. A 510 profitable activity that displays sufficient "badges" can be reclassified as a trade by tax authorities. (2) Because no single badge is decisive, the tests allow tax authorities to evaluate each case based on its specific 515 circumstances, preventing rigid rules from being exploited. (3) The Court of Appeal held in Dr Zanariah Binti Ramli v Ketua Pengarah Hasil Dalam Negeri (2023: Unreported, Court of Appeal (Appellate Jurisdiction), Civil Appeal No: W-01- 520 711-12/2011), the court would be concerned with looking at the evidence to see whether there had existed the badges of trade in the whole scenario as presented before the SCIT. Six criteria need to be considered in that process (NYF Realty Sdn Bhd v Comptroller of Inland Revenue (1974) 1 MLJ 525 183): (a) The subject matter of the transaction. (b) The period of ownership. (c) The frequency of the transaction. (d) The alteration of the property to make it more saleable. 530 (e) The methods in disposing of the property, and (f) The circumstances responsible for the resale of the property. (4) It is a question of fact and not law what the intention was when 535 the asset was acquired. Was it as a long-term investment in land, or was it with a view to disposing of it at a profit? The total circumstances must be duly considered. 540 [8] The SCIT in her grounds of decision made the following findings of fact (briefly): Intention 545 (1) The M&A of Exceptional Landmarks empowers it as a land investment company. When it purchased the impugned property for RM23.6 million on 23.06.2012, it was intended for a long-term investment in land, to generate long-term income from rental to be collected from the commercial building 550 (captured and reflected as a non-current asset in the accounts of the company). There was no tangible evidence to say otherwise. Duration 555 (2) Exceptional Landmarks held the impugned property for about two years before disposing of it to RHB Trustees Berhad (Trustee for Axis REIT) for RM52.5m. Although the holding period was approximately two (2) years, it is a well-established principle that this does not render the transaction a trading 560 activity. Frequency of transaction (3) It is unrefuted that Exceptional Landmarks does not have any other property other than the impugned property. It was proven 565 at the trial that Exceptional Landmarks does not have anyone in employment to carry out the trading activities, which supports its contention that the said property was intended for long-term investment. There is an absence of systematic repetition to constitute a trade, and there is no evidence to hold 570 otherwise. It was for only that single transaction (disposal to RHB Trustees Berhad). Alteration or improvements (4) There is no cogent evidence to negate the position by 575 Exceptional Landmarks that the works carried out on the 20- year-old building were for required maintenance and safety requirements by the authorities. There is no compelling evidence that it was an improvement for sale purposes. 580 Method of disposal (5) It was established that no real estate agent or broker was engaged to try to sell the impugned property. No advertisement for the sale of the said property was pursued. The purchaser, RHB Trustees Berhad, is the trustee of Axis 585 REIT, which formerly owned the impugned property. Circumstances for the sale (6) There was no compelling evidence before the SCIT that would suggest any circumstance to influence this sale to Axis REIT. 590 There are no materials to support any suggestion of a planned scheme to generate a profit, indicating a potential trading transaction. The badges of trade taken collectively justify the position that the 595 disposal of the impugned property was not an adventure in a trade to attract section 4(a) ITA 1967 assessment. Instead, it supports the application of the RPGT Act 1976. [9] In light of the foregoing circumstances, it is my considered view that 600 there is no legitimate basis for the DGIR to disregard the RPGT Exemption Order (No.4) 2003 issued by the Minister under s.9(3) of the RPGT Act 1976 on the disposal of the impugned property. Consequently, the issuance of the Additional Notice of Assessment for YA 2014 was in error. 605 [10] Therefore, it does not justify the DGIR in issuing a penalty under section 113(2) of the ITA, as it does not meet the statutory requirements under the said section. The DGIR may impose a penalty under Section 113(2) if the taxpayer makes an incorrect 610 return by omitting, understating any income, or submitting any erroneous information that affects their own tax chargeability. There is no compelling evidence that it is so. CONCLUSION 615 [11] All things considered, I find that the SCIT has not misdirected herself on the facts and the law. In the circumstances, I see no reason to disturb her findings in the SCIT Deciding Order. The DGIR’s appeal is dismissed with costs of RM5,000.00 subject to the allocatur fee. 620 Dated 03.09.2025. HAYATUL AKMAL ABDUL AZIZ 625 JUDGE HIGH COURT OF MALAYA KUALA LUMPUR 630 For the Appellant: Muhammad Arif Zaini Revenue Counsel Inland Revenue Board of Malaysia (KPHDN) For the Respondent: S. Saravana Kumar, together with Felicia Wong 635 Sie Ying and Nur Hanina Mohd Azhar Messrs Rosli Dahlan Saravana Partnership