Ketua Pengarah Hasil Dalam Negeri v JONATHAN JAMES LAW (WA-14-28-10/2022)

[3] By the said Deciding Order, the SCIT allowed the appeal made under s 99(1) of the Income Tax Act 1967 (“ITA”) in respect of Form JA and Form J raised by the Revenue. [4] Aggrieved by the Deciding Order, the Revenue filed the notice of appeal dated 18.10.2022. At the SCIT [5] The Statement of Agreed Facts before the SCIT is as follows:

Three Sixty Financial Inc, the respondent's employer, had forwarded to the Revenue a copy of a Notification By Employer of Employee's Departure From Malaysia (Form CP21 );

The Revenue had, subsequent to the submission of Form CP21, requested the respondent’s employer to prepare the following documents:- S/N a2/c2oh5fUeOtm5PfHeaNQ i. A statement of remuneration from employment Form (Form EA) for the Years of Assessment 2014, 2015 and 2016; ii. The respondent's BE Form for the Year of Assessment

A BE Form is where an individual receives only non-business income, such as employment; and iii. A copy of the respondent's passport and travel schedule.

Upon reviewing the documents stated in (2) above as submitted by the respondent's employer, the Revenue found that the respondent is claiming a 50% exemption of income tax from the respondent's gross income based on the Income Tax (Exemption) (No. 8) Order 2011 (“the 2011 Order”). The Revenue thereafter instructed the respondent's employer to submit documents to support the respondent's claim.

The Revenue had, after reviewing the supporting documents forwarded by the respondent's employer, concluded that the respondent does not qualify for the exemption in the 2011 Order and had raised Notices of Additional of Assessment for YAs 2015 and 2016 and a Notice of Advance Assessment under s 92 of the ITA for YA 2017 all dated 11.1.2018 against the respondent. S/N a2/c2oh5fUeOtm5PfHeaNQ

The respondent had, on 7.2.2018, filed an appeal against the assessment vide Form Q for YA 2015, 2016 and 2017, all dated 7.2.2018. [6] The only issue before the SCIT is this: Whether the respondent is entitled to the tax exemption under the 2011 Order. [7] The learned Special Commissioner referred to para 2(1) of the 2011 Order, which provides as follows: The Minister exempts an individual non-Malaysian citizen from the payment of income tax on 50% of gross income received by that individual from exercising an employment in a managerial capacity with a Labuan entity in Labuan, co-located office or marketing office from the year of assessment 2011 until the year of assessment 2020. [8] According to the learned Special Commissioner, there are four conditions that have to be fulfilled before the individual non-Malaysian citizen is entitled to claim the 50% exemption under para 2(1):

The individual is a non-Malaysian citizen (“the 1st condition”);

The remuneration received by that individual is from exercising an employment in a managerial capacity (“the 2nd condition”); S/N a2/c2oh5fUeOtm5PfHeaNQ

The remuneration received relates to a Labuan entity in Labuan, co-located office or marketing office (“the 3rd condition”); and

The gross income is in respect of YA 2011 to 2020 (“the 4th condition”). [9] The learned Special Commissioner took cognisance that the Revenue’s position is that the respondent had failed to establish that he was exercising an employment in a managerial capacity – which is the 2nd condition. [10] In arriving at her Deciding Order, the learned Special Commissioner made the following findings:

The 2011 Order does not define the phrase “managerial capacity”.

There is sufficient evidence to establish that the respondent is the manager at Three Sixty Financial Inc. The two documents referred to by the learned Special Commissioner were:

The Notification By Employer of Employee's Departure

(ii) The statement of remuneration from employment Form (Form EA) for the Years of Assessment 2014, 2015 and 2016. S/N a2/c2oh5fUeOtm5PfHeaNQ

Whether the SCIT was correct in law and in fact, in allowing the respondent’s appeal and decided that the respondent was entitled to claim for the exemption from payment of income tax on 50% of the gross income available under the 2011 Order; and

Whether the SCIT was correct in law and in fact, in holding that the Revenue had no legal or factual basis to impose the penalty under s 113(2) of the ITA for YAs 2015, 2016 and 2017. [13] The learned SRC submitted that, based on the documents provided by Thirty Six Financial Inc, the respondent’s employer, the respondent carried out his function as a consultant – such as providing consultations or advice to customers. In any event, the learned SRC pointed out that the EA Form for the period ending S/N a2/c2oh5fUeOtm5PfHeaNQ

The learned Special Commissioner took cognisance of the Revenue’s argument that to qualify for “managerial capacity” within the meaning of para 2(1) of the 2011 Order, the respondent should have been a high-ranking employee in Thirty Six Financial Inc. The extension of the Revenue’s argument is that since the respondent was not one of the three directors of Thirty Six Financial Inc, he could not be said to be in a managerial capacity.

The said line of argument was rejected by the learned Special Commissioner.

The learned Special Commissioner found that the respondent attended regular meetings with the members of the Board of Directors. Based on the guidelines given by the Board, the respondent would, in turn, set the sales target of the company. To this end, the respondent would liaise with the team under him in order to achieve the sales target. The respondent was given a free hand to make decisions without needing to consult the Board.

The respondent's evidence regarding his managerial capacity aligns with his job description and guidelines – Grade “M” Manager, which, according to the respondent, is applicable to him.

The evidence of the respondent, together with the documentary evidence from Thirty Six Financial Inc, was not S/N a2/c2oh5fUeOtm5PfHeaNQ rebutted by the Revenue’s witness, Mohd Zulfadzlan bin Mat Salleh (“SR”). Encik Mohd Zulfadzlan is the Assessing Officer at the Revenue.

For the aforesaid reasons, the respondent had established that his remuneration was received from exercising an employment in a managerial capacity. The learned Special Commissioner then held that the respondent had fulfilled the 2nd condition.

As to the imposition of a penalty under s 113(2) of the ITA, the learned Special Commissioner found that the respondent did not make any incorrect return that warranted the imposition of a penalty. [11] The learned Special Commissioner then made the following Deciding Order. It inter alia states as follows: DAN ADALAH DIPUTUSKAN bahawa Perayu telah berjaya membuktikan rayuan Perayu selaras dengan perenggan 13 Jadual 5 Akta Cukai Pendapatan 1967 [Akta 53] ("ACP"); DAN Perayu layak untuk menuntut pengecualian pembayaran cukai pendapatan atas 50% pendapatan kasar yang diterima oleh Perayu selaras dengan Perintah Cukai Pendapatan (Pengecualian) (No.8) 2011 [P. U. (A) 420/2011]; DAN DENGAN ITU rayuan Perayu dibenarkan dan S/N a2/c2oh5fUeOtm5PfHeaNQ Notis Taksiran Tambahan bagi tahun taksiran 2015 dan 2016 serta Notis Taksiran Pendahuluan bagi tahun taksiran 2017 yang kesemuanya bertarikh 11 Januari 2018 yang berkaitan dengan rayuan ini dan juga penalti adalah diketepikan. At the High Court [12] Before me, the learned Senior Revenue Counsel (“SRC”) highlighted that there are two main issues to be determined at this appeal. They are as follows:

31.12.2015, which was submitted by Thirty Six Financial Inc, revealed the respondent’s designation as a Manager (“Consultant”). [14] The exemption under para 2(1) of the 2011 Order, according to the learned SRC, shall only apply to the top management level officials of Thirty Six Financial Inc, such as Mr Gary Cane, the Managing Director, Mr Justin Moorhouse, the Chief Executive Officer and Ms Claire Fielding, the Financial Director. Failure to call the witness [15] The learned SRC further submitted that the respondent failed to call witnesses to establish that his remuneration was received from exercising an employment in a managerial capacity. [16] The Revenue contended that the respondent, therefore, had failed to discharge his burden to prove that he was employed in a managerial capacity. The onus, according to the learned SRC, on the additional assessments in Form JA and the Notice of Advance Assessment in Form J was on the respondent. By offering no evidence before the SCIT, the learned SRC contended that the respondent failed to discharge the burden; Nicholson v Morris (Inspector of Taxes) [1976] STC 269. [17] In any event, the learned SRC contended that the SCIT had misdirected herself when she failed to invoke the presumption of adverse inference under s 114(g) of the Evidence Act 1950; Sabah Shell Petroleum Co Ltd & Anor v. The Owners of and/or Any S/N a2/c2oh5fUeOtm5PfHeaNQ Other Persons Interested in the Ship or Vessel the ‘Borcos Takdir’ [2012] 5 MLJ 515. The meaning of “managerial capacity” [18] The learned SRC, while acknowledging that “managerial capacity” is not defined in the 2011 Order, urged this Court to refer to Black’s Law Dictionary, 8th Edition. My attention was then attracted to the words “manager” and “capacity”. Having referred to the two words in Black’s Law Dictionary, the learned SRC submitted that “managerial capacity” means that a person has to be involved directly in the administration of the company and he is entrusted with absolute power and mandated with the authority to make vital decisions in relation to management and control of the Company. [19] Using the said dictionary definition, the learned SRC contended that the respondent did not have any control over other departments. Furthermore, according to the learned SRC, the respondent was duty-bound to report to and obtain instructions from the Sales Director, Mr Gary Cane. [20] For the aforesaid reasons, the learned SRC urged this Court to conclude that the learned Special Commissioner had misdirected herself in law when she failed to examine all facts and evidence in allowing the respondent’s appeal. [21] The Revenue, therefore, sought for the appeal to be allowed. S/N a2/c2oh5fUeOtm5PfHeaNQ Analysis [22] Let me begin with the alleged failure of the SCIT to invoke the presumption of adverse inference on the respondent’s failure to call other witnesses. In his evidence, the respondent affirmed that the CEO or the director of the company was no longer in Malaysia. According to the respondent, they were back in the United Kingdom due to the COVID-19 pandemic. The other witnesses whom the respondent would have called were also no longer in Malaysia. [23] The respondent informed the learned Special Commissioner that he had attempted to procure witness statements from them but was told that they would not be admitted. [24] I have gone through the notes of proceedings at the SCIT and I take note that the respondent was not cross-examined on his assertion that all of the witnesses were no longer in Malaysia. What then is the legal position? The Court of Appeal in the case of Soon Peng Yam & Anor v Bank of Tokyo-Mitsubishi (Malaysia) Bhd [2004] 2 MLJ 31 CA, reasserted the proposition that it must be accepted that the failure to cross-examine on important aspects of a witness’s evidence must be treated as acceptance of that part of the evidence. Alauddin JCA (later PCA) remarked that: His evidence was never cross-examined (see p 159. appeal record). Thus, it must be accepted that the failure to cross-examine the defendants on important aspects of their evidence must be treated as acceptance of those part of their evidence. S/N a2/c2oh5fUeOtm5PfHeaNQ [25] Secondly, and this is related to the first issue, the learned SRC contended that there are no supporting documents in relation to the assertions made by the respondent that he was indeed in the managerial capacity during his employment with Thirty Six Financial Inc. In his evidence, the respondent explained that his managerial capacity status is in line with his job description and guidelines – Grade “M”. [26] He explained this in his oral evidence. In ABDA Airfreight Sdn Bhd v Sistem Penerbangan Malaysia Bhd [2001] 3 MLJ 641, the High Court held that: It is a correct statement of the law to say, and I so say, that oral evidence is by itself sufficient to prove a fact in the absence of documentary evidence to support it. [27] In her grounds of the Deciding Order, the learned Special Commissioner referred to the respondent’s job description and guidelines – Grade M and concluded that she accepted the respondent’s evidence as follows: Dalam hal ini, saya cenderung untuk menerima keterangan Perayu bahawa walaupun beliau perlu melapor kepada 3 orang anggota Lembaga Pengarah yang menjawat jawatan tertinggi di dalam syarikat, beliau merupakan seorang Pengurus dan menjalankan peranan serta tanggungjawab dalam kapasiti pengurusan. S/N a2/c2oh5fUeOtm5PfHeaNQ [28] Thirdly, the learned SRC referred me to the dictionary meaning of “manager” and “capacity” and submitted that “managerial capacity” in the 2011 Order means “that a person has to be involved directly in the administration of the company and that he is entrusted with absolute power and mandated with authority to make vital decisions in relation to management and control of the Company”. [29] With respect, I cannot accede to this line of argument. A managerial level is what it is. It does not have, to borrow the phrase of the learned SRC, the “absolute power and mandated with the authority to make vital decisions”. A manager’s job is to implement the policy guidance decided by the board of directors of the company. It is the board of directors that has the absolute power to make a decision on behalf of a company – subject, of course, to the mandate given by the shareholders. [30] In short, it is wrong to conclude, as the learned SRC urged this Court to do, that he who is employed in the managerial capacity has the absolute power in the running of a company. That is simply not accurate. A manager’s power is always subject to the overall direction of the board of directors. [31] If any authority is needed for the aforesaid proposition, it can be seen in the judgment of the English High Court in Wexham Drinks Limited (In Liquidation), Elliott Green, Richard Oury v Charles Corkery, The Slush Company [2005] EWHC 1731 (Ch). Bernard Livesey QC, sitting as a Judge of the High Court, remarked as follows: S/N a2/c2oh5fUeOtm5PfHeaNQ The Company was incorporated on the 13th of August

It supplied ‘slush puppy’ soft drink dispensing machines and other products including paper cups and syrup to its customers, operating under the trade name "King Kwench”. Mr Corkery was a director of the Company from its institution until March of 2002 at which date he says he was compelled to resign by both his fellow director and the company accountants for what was described as tax reasons. He continued however in much the same role as before, in a managerial capacity subject to the overall direction of the remaining sole director, a man called Mr Barney Curley. [32] With respect, I am in agreement with the aforesaid proposition. [33] From the aforesaid proposition, contrary to the Revenue’s argument, the managerial capacity of an employee is always subject to the overall direction of the board of directors of a company. [34] If indeed it is the intention of the Minister in making the 2011 Order to limit the employment in the managerial capacity to those who have executive powers only, he would have said so in the Order. He did not. This Court is not prepared to fill in the gap. The wilful omission of the Minister in exercising his power under s 127(3)(b) of the ITA must be respected by the Court. [35] The 2011 Order is a statutory order that has the force of law. It is well-settled that the Courts have refused to adopt a construction of taxing legislation that would impose liability when doubts exist; see S/N a2/c2oh5fUeOtm5PfHeaNQ National Land Finance Co-operative Society Ltd v Director General of Inland Revenue [1994] 1 MLJ 99 SC. The proposition is reiterated by the Court of Appeal in Exxon Chemical (M) Sdn Bhd v Ketua Pengarah Dalam Negeri [2006] 1 MLJ 428 FC, where it was held that the principle that a provision in a taxing statute must be read strictly is one that is to be applied against revenue and not in its favour. [36] The Court of Appeal in Wan Khairani binti Wan Mahmood v Ismail bin Mohamad & Anor [2008] 1 MLJ 164 CA reminded us as follows: The contention further is that the deficiency in the Act, if any, cannot be provided by the court particularly when the language is plain and simple and the assumed gaps cannot be filled by the court and that the willful omission made by the legislature has to be respected by the court. On the legislature willfully omitting to incorporate something of an analogous law in a subsequent statute, or even if there is a casus omissus in a statute, the language of which is otherwise plain and unambiguous, the court is not competent to supply the omission under the guise of interpretation by analogy or implication, something what it thinks to be a general principle of justice and equity, reliance has been placed upon CST v Parson Tools and Plants, Lord Howard De Walden v IRC, Johnson v Moreton and Harcharan Singh v Shivran. S/N a2/c2oh5fUeOtm5PfHeaNQ Findings [37] In answer to the questions raised by the learned SRC in this appeal, my findings are as follows:

The SCIT was correct in law and in fact, in allowing the respondent’s appeal and deciding that the respondent was entitled to claim exemption from payment of income tax on 50% of the gross income available under the 2011 Order. All the four conditions stated in para 2(1) of the 2011 Order have been fulfilled; and

The SCIT was also correct in law and in fact in holding that the Revenue had no legal or factual basis to impose the penalty under s 113(2) of the ITA for YAs 2015, 2016 and

Since the respondent did not make an incorrect return by omitting or understating any income of which he is required by the ITA to make a return on behalf of himself or give any incorrect information in relation to any matter affecting his own chargeability to tax, the question of the imposition of a penalty does not arise. S/N a2/c2oh5fUeOtm5PfHeaNQ [38] This appeal is dismissed, but I am not going to make any order as to costs. Tarikh: 9 Jun 2025 (WAN AHMAD FARID BIN WAN SALLEH) Hakim Mahkamah Tinggi Kuala Lumpur. Pihak-pihak: Bagi Pihak Perayu : Nur Aina Mohd Jaafar SRC & Intan Natasha Binti Yusri RC Lembaga Hasil Dalam Negeri (LHDN) Bagi Pihak Responden : Jonathan James Law In person S/N a2/c2oh5fUeOtm5PfHeaNQ