Ketua Pengarah Hasil Dalam Negeri v SENAI AIRPORT CITY SDN BHD (JA-14-1-01/2026)

This is an appeal by the Ketua Pengarah Hasil Dalam Negeri (“the Appellant” or “DGIR”) against the decision of the Special Commissioners of Income Tax (“SCIT”) delivered on

19.12.2025, whereby the SCIT allowed the appeal by Senai Airport City Sdn Bhd (“the Respondent” or “the Taxpayer”) against the Notice of Additional Assessment raised for the Year of Assessment (“YA”) 2016.

The Additional Assessment was raised in respect of a Call Option Fee amounting to RM1,400,000.00 received by the Respondent from Hershey Malaysia Sdn Bhd (“Hershey”). The DGIR took the position that the said sum was taxable income and did not fall within the tax exemption granted by the Minister of Finance. A penalty was also imposed under section 113(2) of the Income Tax Act 1967 (“ITA”).

The SCIT held that the Call Option Fee was exempt from income tax under the Minister of Finance’s exemption approval dated 27.12.2016 and that the subsequent letter dated

08.07.2019 did not operate retrospectively so as to affect the tax treatment of the transaction in YA 2016. The SCIT accordingly set aside the Additional Assessment and the penalty.

The DGIR now appeals against the whole of the SCIT’s decision. Having considered the Record of Appeal, the Grounds of Decision of the SCIT, the written submissions of the parties and the authorities relied upon, this Court dismisses the appeal for the reasons set out below.

The Respondent is a company incorporated in Malaysia on

25.01.2005 under the name Enigma Harmoni Sdn Bhd and subsequently changed its name to Senai Airport City Sdn Bhd on 20.05.2015.

The Respondent is the master developer of an integrated industrial development on land measuring approximately 2,718 acres in Johor known as Senai Airport City.

On 20.09.2013, the Respondent entered into a Lease Agreement with Hershey. Under the Lease Agreement, the Respondent agreed to grant and Hershey agreed to take a lease of approximately 41 acres of land in Johor for a period of 99 years.

The Lease Agreement also granted Hershey a Call Option in respect of a further 16.24 acres of land adjacent to the leased land (“the Adjacent Land”). The Call Option gave Hershey the right to call upon the Respondent to lease the Adjacent Land within the stipulated Call Option Period.

On 27.12.2016, the Minister of Finance granted a Special Tax Incentive Package for the Senai Airport City Project pursuant to section 127(3A) of the ITA. The exemption included full income tax exemption on statutory income derived from the disposal of rights over plots of land that add value to areas within the Senai Airport City node.

On 08.07.2019, the Ministry of Finance issued a subsequent letter concerning the Special Tax Incentive Package.

The DGIR took the position that the Call Option Fee received by the Respondent from Hershey did not fall within the scope of the 2016 exemption, particularly because the Adjacent Land was neither sold nor leased to Hershey in YA 2016. The DGIR further contended that the 2019 letter clarified or amended the exemption and limited the exempt income to disposal by way of sale or lease only.

The Respondent, however, maintained that the Call Option Fee was derived from the disposal of rights over value-added land and was therefore exempt under the 2016 exemption approval. The Respondent also contended that the 2019 letter could not apply retrospectively to a transaction that had already occurred in YA 2016.

Before the SCIT, the parties agreed that the following two issues were to be tried:

whether the Call Option Fee received by the Respondent from Hershey in YA 2016 was exempt from income tax under the ITA; and

whether the DGIR had any legal or factual basis to impose penalty against the Respondent for YA 2016 under section 113(2) of the ITA.

The SCIT heard evidence from two witnesses. The Respondent called Johari bin Mohd (“AW”), who was the Head of Tax of MMC Corporation Berhad, the intermediate holding company of the Respondent. The DGIR called Arliza binti Mohd Nor (“RW”), a Pegawai Eksekutif Hasil involved in the assessment of the Respondent.

Upon considering the evidence and submissions, the SCIT held that by granting the Call Option and accepting the Call Option Fee, the Respondent had effectively disposed of its right to deal with the Adjacent Land for the relevant period and Hershey had acquired a certain degree of rights over the Adjacent Land.

The SCIT further held that the applicable exemption letter was the 2016 exemption approval and that the 2019 letter could not be applied retrospectively to deprive the Respondent of the benefit of the exemption in respect of the Call Option Fee received in YA 2016.

The SCIT also found that the Respondent had fulfilled the conditions under the 2016 exemption approval and that the Additional Assessment was erroneous. Consequently, the penalty under section 113(2) of the ITA was set aside. PARTIES’ SUBMISSIONS The Appellant’s Submissions 18. The DGIR submits that the SCIT erred in law and fact in concluding that there was a disposal of rights over the Adjacent Land. The DGIR argues that the Call Option was merely a contractual right exercisable in the future and that no proprietary interest or registrable interest in land was transferred to Hershey.

The DGIR further submits that Hershey did not exercise the Call Option. Therefore, according to the DGIR, the Option Fee arose from non-exercise of the Call Option and not from any disposal of rights over the Adjacent Land. The DGIR also argues that there was no sufficient evidence that the Adjacent Land was value-added land. It is contended that the SCIT relied only on AW’s assertion and failed to appreciate the absence of documentary evidence.

In respect of the exemption, the DGIR submits that tax exemption provisions must be construed strictly. The DGIR relies on authorities including, among others, Mitraland Kota Damansara, Berjaya Times Square, Littman v Barron, Syarikat Pukin Ladang Kelapa Sawit and Syarikat Ibraco-Paremba for the proposition that a taxpayer claiming exemption must bring itself clearly within the terms of the exemption.

The DGIR further relies on section 148 of the ITA and contends that the Minister has power to vary or revoke an approval retrospectively. It is therefore submitted that the 2019 letter is applicable and should be read as clarifying the scope of the 2016 exemption.

Finally, the DGIR submits that since the Respondent failed to declare the Option Fee as taxable income, the penalty under section 113(2) of the ITA was properly imposed. The Respondent’s Submissions 23. The Respondent submits that the appeal is limited to questions of law under Paragraph 34 of Schedule 5 to the ITA. The Respondent relies on authorities including Gan Yook Chin, Ng Hoo Kui and Keysight Technologies to submit that findings of fact and factual inferences made by the SCIT should not be disturbed unless there is a clear error of law, misdirection or a conclusion unsupported by evidence.

The Respondent submits that the Call Option constituted a disposal of a right because Hershey acquired valuable and enforceable rights over the Adjacent Land, while the Respondent’s freedom to deal with the Adjacent Land was correspondingly restricted.

The Respondent further submits that the Call Option formed part of the overall commercial arrangement between the Respondent and Hershey and was not a separate standalone arrangement divorced from the Senai Airport City Project. The Respondent also contends that the applicable exemption letter is the 2016 exemption approval. The Respondent submits that the 2019 letter cannot retrospectively alter the tax treatment of income already derived in YA 2016.

The Respondent relies on Sellar v Lee Kwang Tenakoon for the principle that a provision or instrument affecting accrued rights is presumed to operate prospectively unless a contrary intention is clearly expressed.

In respect of penalty, the Respondent submits that once the Additional Assessment is set aside, the penalty under section 113(2) necessarily falls away.

This Court is of the view that the appeal may be determined under the following four principal issues:

whether this Court may interfere with the findings of fact and factual inferences made by the SCIT in an appeal under Paragraph 34 of Schedule 5 to the ITA;

whether the SCIT erred in law or principle in holding that the grant of the Call Option constituted a disposal of rights over value-added land;

whether the SCIT erred in holding that the Option Fee was exempt under the 2016 exemption approval and was not displaced by the subsequent 2019 letter; and

whether the penalty imposed under section 113(2) of the ITA can be sustained. ANALYSIS AND FINDINGS OF THE COURT Issue (i) : Whether this Court may interfere with the findings of fact and factual inferences made by the SCIT

This Court begins with the scope of its appellate jurisdiction. Paragraph 34(1) of Schedule 5 to the ITA provides that either party to the proceedings before the SCIT may appeal to the High Court “on a question of law” against a deciding order made by the SCIT.

The statutory language is clear. This appeal is not a rehearing of the evidence before the SCIT. This Court does not sit as a court of first instance to reassess witness testimony, reweigh documentary evidence or substitute its own factual view merely because a different inference may be possible.

The principles governing appellate intervention are well established. In Gan Yook Chin (P) & Anor v Lee Ing Chin @ Lee Teck Seng & Ors [2005] 2 MLJ 1, the Federal Court held that appellate intervention is justified where the court or tribunal below has acted on a wrong principle, failed to take into account relevant matters, taken into account irrelevant matters or reached a conclusion which no reasonable tribunal properly directing itself could have reached.

Similarly, in Ng Hoo Kui & Anor v Wendy Tan Lee Peng, Administrator of the Estates of Tan Ewe Kwang, Deceased & Ors [2020] 10 CLJ 1, the Federal Court reiterated that an appellate court should not interfere merely because another view of the evidence may be available. The question is not whether the appellate court would have reached the same conclusion, but whether the conclusion reached below was reasonably open on the evidence.

In Keysight Technologies Malaysia Sdn Bhd v Ketua Pengarah Hasil Dalam Negeri [2024] 5 MLJ 276, the Court of Appeal dealt with an appeal arising from a tax assessment and reaffirmed that findings made upon the evidence before the SCIT are not lightly disturbed unless they disclose an error of law, are unsupported by evidence or are plainly wrong.

The Appellant itself accepts in its submission in reply that findings of fact made by the SCIT are generally not open to challenge, save in recognised exceptional circumstances.

Applying those principles, this Court must examine whether the Appellant has identified any true question of law or whether the appeal is, in substance, an attempt to reargue findings of fact and commercial inferences made by the SCIT.

Upon examining the grounds of appeal and submissions, this Court finds that much of the Appellant’s complaint is directed towards:

the SCIT’s interpretation of the commercial effect of the

the SCIT’s factual finding that the Respondent disposed of rights over the Adjacent Land;

the SCIT’s acceptance of AW’s evidence on added value; and

the SCIT’s rejection of the DGIR’s position that the 2019 letter retrospectively narrowed the 2016 exemption.

These are findings of fact, mixed fact and law, and factual inferences drawn from the contractual documents and oral testimony. They are not to be disturbed unless tainted by an appealable error of law. With that framework in mind, I now turn to the substantive issues. Issue (ii) : Whether the SCIT erred in holding that the grant of the Call Option constituted a disposal of rights over value-added land 38. The Appellant submits that the SCIT erred in treating the grant of the Call Option as a disposal of rights over the Adjacent Land. According to the Appellant, the Call Option was merely a contractual right which could only give rise to further legal consequences if exercised by Hershey. Since Hershey did not exercise the Call Option, the Appellant argues that no disposal occurred. With respect, this Court is unable to accept that submission.

The issue before the SCIT was not whether legal title to the Adjacent Land had been transferred. Nor was the issue whether a lease over the Adjacent Land had been registered or whether a registrable interest under the National Land Code had been created.

The more precise issue was whether the grant of the Call Option, viewed in its contractual and commercial context, amounted to a disposal of rights over value-added land within the meaning of the 2016 exemption approval.

The SCIT examined the Lease Agreement and the Call Option clause. The SCIT found that Hershey was granted a right, within a stipulated period, to call upon the Respondent to lease the Adjacent Land. The SCIT also found that by granting that right, the Respondent was no longer free to deal with the Adjacent Land in the same manner during the relevant period.

The SCIT then concluded that the Respondent had effectively disposed of its right to deal with the Adjacent Land, while Hershey acquired a certain degree of rights over that land. That was a factual and commercial inference drawn from the contractual arrangement.

The Appellant seeks to characterise the Call Option narrowly as a mere contractual possibility. However, an option is not without legal or commercial value. It is a right capable of enforcement according to its terms. It limits the grantor’s freedom and confers upon the grantee a valuable commercial advantage.

The Respondent’s authorities, including London and South Western Railway Company v Gomm, Morland v Hales and Wright v Dean, were cited to demonstrate that options may carry enforceable consequences and are not to be dismissed as commercially meaningless. While the present case concerns tax exemption rather than specific performance of land contracts, those authorities support the broader proposition that an option may constitute a valuable right.

In the present case, the Call Option was not an isolated or gratuitous arrangement. It formed part of the broader Lease Agreement between the Respondent and Hershey. It concerned the Adjacent Land located next to the leased land and formed part of the overall commercial development of Senai Airport City.

The Appellant’s argument would effectively require the Court to treat “disposal of rights” as though it meant only “sale or lease of land”. That is not the language of the 2016 exemption approval.

The 2016 exemption approval referred to statutory income derived from the disposal of rights over plots of land that add value to areas within the Senai Airport City node. The phrase “disposal of rights” is broader than “sale of land” or “lease of land”.

The Court accepts that tax exemptions must not be expanded beyond their terms. However, strict construction does not justify substituting the words used in the exemption with narrower words that were not used.

The SCIT’s conclusion was based on the contractual documents and the evidence before it. The SCIT was entitled to find that the Call Option conferred valuable rights on Hershey and correspondingly restricted the Respondent’s rights over the Adjacent Land.

The Appellant also submits that there was insufficient evidence that the Adjacent Land was value-added land. The SCIT considered AW’s evidence that the Adjacent Land had value added when it was zoned for industrial use together with earthworks and basic infrastructure already carried out. The SCIT also considered RW’s evidence and noted that RW had not visited the Adjacent Land and did not possess documentary evidence contradicting AW’s evidence.

That was a classic factual assessment by the SCIT. This Court is not persuaded that the finding was unsupported by evidence or plainly wrong. Applying Gan Yook Chin (supra), Ng Hoo Kui (supra) and Keysight Technologies (supra), this Court finds no basis to interfere. The Appellant has not shown that the SCIT acted on a wrong principle or reached a conclusion that no reasonable tribunal could have reached.

Accordingly, this Court holds that the SCIT did not err in law in concluding that the grant of the Call Option constituted a disposal of rights over value-added land within the meaning of the 2016 exemption approval. Issue (ii) is therefore answered in favour of the Respondent. Issue (iii) : Whether the SCIT erred in holding that the Option Fee was exempt under the 2016 exemption approval and was not displaced by the 2019 letter 53. his is the central issue in the appeal. The Appellant submits that even if the Call Option Fee arose from the Call Option arrangement, it was not exempt because the Minister’s intended exemption was limited to disposal by way of sale or lease only. The Appellant relies on the 2019 letter as clarifying or amending the 2016 exemption approval.

The Respondent submits that the applicable instrument is the 2016 exemption approval because the Option Fee was received in YA 2016. According to the Respondent, the 2019 letter cannot retrospectively alter the tax treatment of income already derived in 2016.

The Court first accepts the general proposition advanced by the Appellant that tax exemption provisions are to be construed strictly. Exemptions are departures from the ordinary charging provisions of the ITA. A taxpayer claiming exemption must bring itself within the language of the exemption.

However, the principle of strict construction must be properly understood. It does not permit the Court to rewrite the exemption. It does not allow the Court to insert conditions which are not expressed. It does not justify converting the phrase “disposal of rights” into “sale or lease” if the exemption approval itself does not use such limiting language.

In Berjaya Times Square Sdn Bhd v Menteri Kewangan Malaysia [2023] MLJU 261 and Littman v Barron [Inpector of Taxes ] 2 AER 393, relied upon by the Appellant, the general principle is that exemptions must be applied according to their terms. That principle assists the Appellant only if the Respondent falls outside the language of the exemption. It does not permit the DGIR to narrow an exemption beyond its wording.

Similarly, cases such as Syarikat Pukin Ladang Kelapa Sawit Sdn Bhd v Ketua Pengarah Hasil Dalam Negeri [2012] 6 MLJ 411 and Syarikat Ibraco-Paremba Sdn Bhd v Ketua Pengarah Hasil Dalam Negeri [2017] 2 MLJ 120 support the proposition that the taxpayer bears the burden of bringing itself within the exemption claimed. In the present case, the SCIT found that the Respondent had satisfied that burden.

The starting point remains the 2016 exemption approval. It is undisputed that the Option Fee was received in YA 2016. The tax consequences of that receipt must therefore be determined by reference to the approval operative at the material time.

Section 127(3A) of the ITA empowers the Minister, in any particular case, to exempt any person from all or any provision of the ITA, either generally or in respect of any income of a particular kind or any class of income of a particular kind. The 2016 exemption approval was granted pursuant to that power. Unless lawfully varied or revoked with clear effect, it must be given effect according to its terms.

The Appellant relies on section 148 of the ITA. Section 148 provides that where the Minister or Director General has power to give an approval or direction, that power is deemed to include the power to give such approval or direction with retrospective effect and to vary or revoke any approval or direction retrospectively or otherwise.

This Court accepts that section 148 recognises that the Minister may, in a proper case, issue or vary approvals retrospectively. However, the existence of power is not the same as its exercise in a particular document.

The question is not whether the Minister had power to issue a retrospective approval. The true question is whether the 2019 letter, properly construed, was intended to retrospectively alter the tax consequences of a transaction completed in YA 2016.

The SCIT answered that question in the negative. In doing so, the SCIT relied on Keith Sellar v Lee Kwang Tenakoon [1980] 2 MLJ 191. That case affirms the well-established principle that written law is not to be applied retrospectively so as to impair existing rights or obligations unless clear language requires such effect. This Court finds no error in the SCIT’s reliance on that principle.

The Option Fee had already been received in 2016. The Call Option rights had already been granted. The relevant Year of Assessment had already arisen. In those circumstances, any subsequent letter which is said to deprive the Respondent of the exemption must contain clear language showing such retrospective intention.

The Appellant has not identified such clear language in the 2019 letter. It is not sufficient to say that the 2019 letter relates to the same incentive package. Nor is it sufficient to describe it as a clarification. If its intended legal effect is to retrospectively narrow the exemption and alter the tax consequences of an income receipt already derived in 2016, the intention must be expressed with sufficient clarity.

This is particularly so in tax law, where certainty is essential. A taxpayer is entitled to arrange its affairs and prepare its return according to the legal position operative at the time the income is derived.

The Appellant’s argument would mean that an exemption granted in 2016 could be narrowed in 2019 so as to retrospectively subject a completed 2016 transaction to tax. Such a result should not be accepted unless clearly authorised by the language of the later instrument.

Section 148 does not automatically make every subsequent approval retrospective. It merely recognises the power to give retrospective effect where such effect is intended. The Court must still construe the particular approval or direction to determine whether that power has in fact been exercised.

On the facts of this case, the SCIT was entitled to conclude that the 2019 letter did not retrospectively apply to the Option Fee received in YA 2016.

The Appellant also argues that the 2019 letter merely confirmed the Minister’s original intention. This Court is unable to accept that submission as a basis for appellate intervention. The SCIT considered the relevant letters and concluded that the applicable exemption during the material time was the 2016 exemption approval. That conclusion was open to the SCIT.

The Court further notes that RW conceded in cross-examination that there was no further letter or document from the Ministry of Finance expressly stating that the Call Option Fee did not fall within the 2016 exemption approval. That was a relevant evidential matter which the SCIT was entitled to take into account.

The Appellant’s reliance on strict interpretation of exemptions does not overcome this difficulty. Strict interpretation does not permit a later letter to be given retrospective effect in the absence of clear language. Nor does it permit the Court to narrow the words “disposal of rights” in the 2016 approval to “sale or lease” merely because the 2019 letter later used narrower language.

Having considered the matter as a whole, this Court is satisfied that the SCIT was correct in treating the 2016 exemption approval as the operative instrument governing the Respondent’s entitlement to the exemption in YA 2016.

The Appellant has failed to demonstrate any legal basis upon which the subsequent 2019 letter could retrospectively deprive the Respondent of the tax treatment that had accrued under the 2016 exemption approval.

Accordingly, this Court finds that the SCIT did not err in holding that the Call Option Fee received by the Respondent in YA 2016 was exempt from income tax. Issue (iii) is therefore answered in favour of the Respondent. Issue (iv) : Whether the penalty imposed under section 113(2) of the ITA can be sustained 77. The final issue concerns the penalty imposed under section 113(2) of the ITA. Section 113(2) empowers the Director General to impose a penalty where a person makes an incorrect return by omitting or understating income or gives incorrect information affecting chargeability to tax.

The Appellant submits that the Respondent omitted or understated the Call Option Fee by treating it as exempt income. On that basis, the Appellant says that the penalty was properly imposed.

The Respondent submits that once the Call Option Fee is properly treated as exempt income under the 2016 exemption approval, there can be no omission, understatement or incorrect return capable of sustaining a penalty under section 113(2). This Court agrees with the Respondent.

The penalty under section 113(2) is not a free-standing liability capable of surviving independently of the underlying assessment. Its validity depends upon the correctness of the premise that the Call Option Fee was taxable income.

In this case, the Additional Assessment was raised on the basis that the Call Option Fee was taxable and did not qualify for exemption. The SCIT rejected that basis. For the reasons already given, this Court finds no error of law in the SCIT’s conclusion that the Call Option Fee was exempt under the 2016 exemption approval.

Once the Additional Assessment is set aside, the legal foundation for the section 113(2) penalty necessarily falls away. The Appellant has not identified any separate legal basis upon which the penalty could remain enforceable notwithstanding the discharge of the Additional Assessment.

Accordingly, this Court finds that the SCIT was correct in setting aside both the Additional Assessment and the consequential penalty. Issue (iv) is therefore answered in favour of the Respondent.

Ultimately, this appeal discloses no appealable error of law. The SCIT identified the correct issues, considered the relevant contractual documents, evaluated the evidence of AW and RW, addressed the 2016 exemption approval and the 2019 letter, and arrived at conclusions that were reasonably open on the evidence.

The Appellant’s complaint is, in substance, directed at the factual findings and factual inferences made by the SCIT. That is insufficient to warrant appellate intervention under Paragraph 34 of Schedule 5 to the ITA.

This Court is satisfied that the SCIT did not err in holding that:

the grant of the Call Option constituted a disposal of rights over value-added land;

the Call Option Fee received in YA 2016 fell within the scope of the 2016 exemption approval;

the 2019 letter did not retrospectively alter the tax treatment of the Call Option Fee received in YA 2016; and

the Additional Assessment and penalty under section 113(2) could not be sustained.

For the foregoing reasons, the appeal is dismissed.

This Court orders as follows:

the Appellant’s appeal is dismissed;

the decision and Deciding Order of the Special Commissioners of Income Tax dated 19.12.2025 are affirmed;

the Notice of Additional Assessment for YA 2016 dated

29.12.2019 and the penalty imposed under section 113(2) of the Income Tax Act 1967 remain set aside;

the Appellant shall pay costs of RM15,000.00 to the Respondent, subject to allocator. DATED 30TH JUNE 2026 t.t MANIRA BINTI MOHD NOR JUDICIAL COMMISSIONER CIVIL 4 HIGH COURT JOHOR BAHRU For the Appellant Muhammad Arif Zaini together with Muhammad Daniel Izzat Lembaga Hasil Dalam Negeri Cyberjaya For the Respondent Nur Hanina binti Mohd Azham Messrs Rosli Dahlan Saravana Partnership, Kuala Lumpur