Ketua Pengarah Lembaga Hasil dalam Negeri v Maxis Berhad (WA-14-10-05/2022)

After considering all the cause papers and the respective 25 written submissions of the parties on a balance of probabilities, I find that the SCIT did not misdirect herself on the facts and the law, and I see no reason to disturb her findings.

In the circumstances, L1 is dismissed with no order for costs.

2.1 Dissatisfied, KPHDN filed this appeal, and my reasons are as follows: 30/06/2025 17:21:30 Kand. 55 S/N WvlWs1obEGQdmuc8RAg BRIEF FACTS 35 [3] The brief facts discerned from the cause papers are as follows:

The respondent Maxis Berhad (Maxis) is a Malaysian investment holding company listed on Bursa.

Maxis’s principal activities, comprising Maxis and its subsidiaries, are the provision of mobile, fixed line and 40 international gateway telecommunication services as well as internet and broadband services and corporate support functions for the Group.

Sometime between 16.05.2016 and 26.05.2016, KPHDN carried out an audit on Maxis (s.91 ITA). This audit led to the 45 issuance of a written notice on 17.8.20116 of its findings:

The factor of total dividend shortages should be taken into account in the formula for apportioning the interest restricted under Section 33(2) of the Income Tax Act 1967 (ITA) for Year of Assessment (YA) 2013 and 2014; and 50

Maxis was alleged to have been negligent in the preparation of the tax computation in its tax returns for the YAs 2009 and 2010, not in accordance with Section 60FA of the ITA.

3.1 On 28.09.2016:

Maxis responded with explanations as follows:

The method of interest restriction calculation applied by KPHDN is per the formula prescribed in Public Ruling No. 60 2/2011; and

Maxis was not negligent in the preparation of the tax computation for the YAs 2009 and 2010, as Maxis had relied on Section 60FA of the ITA and treated the interest income received as its business income. Accordingly, it 65 claimed a deduction for the expenses incurred.

On 06.10.2016, KPHDN:

disregarded Maxis's explanation and maintained its position on the method of interest restriction calculation for the YAs 2013 and 2014 by utilizing the factor of total dividend 70 shortages to be taken into account in the formula for apportioning the interest restricted, and

(ii) maintained that consequently, Maxis had been negligent in its tax submission for the YAs 2009 and 2010. 75

On 13.10.2016, Maxis further responded to KPHDN:

Reiterating that the method of interest restriction calculation applied by Maxis follows the formula prescribed in Public Ruling No. 2/2011.

Maxis was not negligent in its tax submission for the YAs 80 2009 and 2010.

KPHDN had also informed Maxis that the loan upfront fees are not deductible under s.33(1) ITA and maintained its position on the method of interest restriction calculation, and that Maxis had been negligent in its tax 85 submission.

3.2 On 28.12.2016, Maxis continued to respond and explained that the loan upfront fees are equivalent to interest expense (revenue in nature) and are wholly and exclusively incurred in the production of 90 interest income and maintained its position on the method of interest restriction calculation and was not negligent in its tax submission.

3.3 On 26.01.2017, KPHDN stood its ground and raised the impugned notice of assessment (Form J) for the YA 2009 and notices of 95 S/N WvlWs1obEGQdmuc8RAg additional assessment (Forms JA) for the YAs 2010 to 2014, as follows: YA Amount (RM) 2009 10,928. 29 2010 686, 608.35 2011 941, 116.70 2012 853, 835.76 2013 968, 402.80 2014 1,182,347. 76

3.4 On 13.02.2017, aggrieved by the impugned Form J and Form JA, Maxis filed notices of appeal (Forms Q) dated 13.02.2017 for the 100 YAs 2009 to 2014 to the Special Commissioner for Income Tax

3.5 The SCIT registered it as Rayuan No. PKCP (R) 979/2017.

During the proceeding before the SCIT, KPHDN elected not to 105 dispute the assessment for YA 2009 that involved s.60FA of the ITA, leaving only YAs 2010-2014 for determination.

On 25.04.2022, in its Deciding Order, the SCIT allowed the appeal by Maxis.

The Notices of Assessment dated 26.01.2017 for YAs 2009, 110 2010, 2011, 2012, 2013 and 2014, and the penalties imposed were set aside.

Aggrieved, KPHDN appealed to this Court against the whole of the SCIT Deciding Order dated 25.04.2022. 115 THE PARTIES ARGUMENTS [4] I had examined and considered the parties’ arguments as follows:

4.1 KPHDN and Maxis argued in a nutshell:

KPHDN took the position on raising several issues to be 120 determined by the Court, by firstly addressing the issue of limitation, on the purported Time Bar for YAs 2010 & YA 2011.

That KPHDN had purportedly discharged its burden to establish that Maxis were negligent (s.91(3) ITA) in the tax computation for the year of assessment (YA) 2010- 2014 125 to mitigate the issue of limitation.

Therefore, the six-year limitation under s.91(1) ITA do not apply to bar the present re-evaluation by KPHDN. Maxis allegedly failed to segregate loan costs between investment holding and non-investment holding 130 (business) under s.60FA ITA in determining adjusted income and statutory income from the source of investment holding and are therefore not deductible under s.33(1) ITA.

Maxis had supposedly conceded that the time bar issue 135 does not apply for YA 2009.

Notwithstanding the explanation by Maxis that the method of interest restriction calculation was in line with the prescribed formula in the Public Ruling No.2/2011, and that they were not 140 negligent in any way in the preparation of the tax computation for the Yas 2009 & 2010 in reliance on s.60FA of the ITA in treating the receipt of the interest income as its business income to justify the claimed deduction for expenses incurred. Maxis alluded the Court to:

The Court of Appeal in Multi-Purpose Holdings Berhad v Ketua Pengarah Hasil Dalam Negeri [2006] 1 CLJ 112151, CA; Ketua Pengarah Hasil Dalam Negeri v NV Alliance Sdn Bhd [2011] 10 CLJ 345 52, HC, observing that public rulings are merely the KPHDN/appellant’s 150 interpretation of the law and are not binding on the Courts.

Maxis took the position that the formula used in apportioning the interest restricted is prescribed in the Public Ruling No.2/2022 (affirmed by RW1).

KPHDN had exercised discretion that he did not have by 155 electing to incorporate an additional factor of total dividend shortages into its method of apportioning the interest restricted:

Section 33(2) of the ITA merely prescribes that the interest expense may not be allowed a full deduction if, in the opinion 160 of the appellant, the borrowed money was not used for business purposes.

(ii) It does not accord latitude for the modification of the formula.

(iii) The law is clear that when there is no such additional factor of total dividend shortages imposed under the formula.

(iv) The Supreme Court in Vengadasalam v Khor Soon Weng & Ors [1985] 2 MLJ 449, SC had made it clear that you can’t read deeming provisions in a statute.

Section 138A (2) of the ITA only allows KPHDN to withdraw a public ruling but not to modify it.

(vi) Citing in support Titular Roman Catholic Archbishop of Kuala Lumpur v Menteri Dalam Negeri & Ors [2014] 4 MLJ 76549, FC, that referred to and agreed with the observation in Pengarah Tanah dan Galian, Wilayah Persekutuan v Sri Lempah Enterprise Sdn Bhd [1979] 1 MLJ 13550 that a 175 public authority does not have uncontrolled discretion to impose conditions

Regardless, KPHDN maintained its take on the method of interest restriction calculation for the YAs 2013 & 2014 and 180 also maintained that Maxis had been negligent in its tax submission.

Similarly, despite Maxis’s explanation that the loan upfront fees (loan arrangement fees & legal fees of RM26,420, 214 to 185 secure a loan of USD750m were expense) were similar to an interest expense (which is revenue in nature) incurred in the production of interest income, KPHDN maintained its position S/N WvlWs1obEGQdmuc8RAg that the loan upfront fees were not deductible under s.33(1) of the ITA for YAs 2010-2014.

Consequently, KPHDN issued the Forms J (for 2009) and JA against Maxis (YAs 2010-2014) for RM 4,632,311.37.

4.2 KPHDN argued, the limitation does not apply to YAs 2010-2011:

It was argued that the supposed negligence was only 195 discovered after KPHDN conducted an audit for YA 2009 (issue dropped at the SCIT hearing), which then led to the discovery of issues in this appeal for YAs 2010 & 2011.

KPHDN took the position that since Maxis had acknowledged 200 that the loan arrangement fees were paid for obtaining the USD750m loan to create a source of income, it constitutes a capital expenditure that’s not deductible under s.31(1) of the ITA. Yet, Maxis elected to claim a deduction on it. 205

Maxis acknowledged that dividend payment is not part of its business activities and is of a capital nature, but it elected to claim a deduction on it.

It was argued that these are cogent evidence of negligence on 210 Maxis’s part leading to the submission of erroneous tax returns for YAs 2010 & 2011 and thereby breaching its duty of care concerning the matter. Regardless of Maxis having appointed a tax agent to prepare and submit the impugned returns, they were still in error. The said tax agent was not called to testify 215 as an expert witness at the trial. S/N WvlWs1obEGQdmuc8RAg

SCIT was allegedly in error for holding that there was no evidence to establish negligence. 220 4.3 Maxis, however, took the position that:

KPHDN was wrong in asserting that RW1’s evidence was not challenged at the trial. He was cross-examined on several issues, including the upfront loan fee, and it was established that the legal fees were paid solely to obtain the loan. It was 225 also erroneous on the part of KPHDN to allege that the loan upfront fee and legal fees were paid before the loan was approved. This argument was challenged at the trial.

Maxis argued that they have successfully established that:

Out of the USD750 million loan obtained (approximately RM2.55 billion then), RM1.2 billion was on-lent to Maxis Mobile Sdn Bhd to earn interest income (revenue in nature).

The balance of RM1.35 billion was utilised for part 235 financing the acquisition of identified subsidiaries of Maxis Communications Berhad (capital in nature).

They had therefore only deducted the portion of RM1.2 billion, and the RM1.35 billion was not deducted in the circumstances.

AW1 gave evidence that the RM1.2 billion loan was not used to create any permanent asset or enduring benefit for Maxis.

RW1 admitted in evidence that Maxis/Respondent was already an ongoing business at the time the RM1.2 billion 245 loan was obtained.

RW1 also acknowledged in his cross-examination that it was wrong for KPHDN to assert that Maxis failed to exclude the interest expense on the loan used for dividend payment: 250

The position taken by KPHDN that Maxis failed to exclude the interest expense on the loan used for dividend payment was incorrect.

(ii) Maxis asserts that it has more than one loan and that the USD750m was not used to pay dividends to shareholders.

Maxis argued that Form JA raised by KPHDN for YAs 2010 and 2011 are time-barred:

KPHDN failed to adduce compelling evidence to establish that Maxis breached its duty of care and was negligent 260 (s.91(1) of the ITA) in its tax submissions for the impugned years.

It was argued that in electing to adopt a different interpretation from KPHDN, it can’t amount to negligence in the context of s. 91(1) of the ITA. It is a well-established 265 principle that the burden lies on KPHDN: Etiqa Family Takaful Berhad v KPHDN [2022] 1 LNS 2745, HC. It was observed that a reasonably different interpretation of the relevant provisions in the ITA can hardly be held as negligence within the meaning of s.91 (3) of the ITA. 270 There is nothing cogent in the notes of proceedings that shows that there was a breach of the duty of care on the part of the appellant. Also cited is the Court of Appeal’s observation in Keysight Technologies Malaysia Sdn Bhd v Ketua Pengarah Hasil Dalam Negeri [2025] 1 275 CLJ 883, CA, that the taxpayer cannot be said to be negligent for making a return on a tax position, they engaged professional advice and services (tax agent).

4.4 KPHDN took the position that the SCIT misdirected herself 280 between capital and revenue expenditures:

In this regard, it was argued that Maxis had claimed deductions on “arrangement fee” and “legal fee” expenses to obtain the USD750 million loan that evinced a capital expenditure that does not fall under s.33(1) of the ITA.

AW1 evidence during cross-examination had agreed that an arrangement fee and legal fees were payments made by S/N WvlWs1obEGQdmuc8RAg Maxis to bring about the source of income that is capital expenditure in nature.

The loan upfront fee and professional fee were costs incurred 290 to create a source of income (interest income) and are not deductible, as they are capital expenditures.

KPHDN cited Robinson (Inspector of Taxes) v Scott Bader Co. Ltd [1981] 2 All ER 1116, which held that the test to determine the nature of expenditure is subjective and not an 295 objective one. The question to be asked is what was the object of the person making the disbursement? Not, “What was the effect of the disbursement when made? Therefore, a distinction should be made in determining whether such expenses were capital or revenue in nature.

4.5 Maxis asserted that financing expenses are deductible. As a general rule, expenditure incurred in the course of business is deductible if it falls under Section 33(1) of the ITA, which is commonly referred to as the “basket provision”:

In support, they cited Ketua Pengarah Hasil Dalam Negeri v ABTP Marketing Sdn Bhd [2024] 3 MLJ 1, CA, which observed that commission expenses and interest on loans are deductible expenses. 310

Also cited was the Court’s determination in Kulim (Malaysia) Bhd v Ketua Pengarah Hasil Dalam Negeri (PKCP(R) 14/2006; PKCP(R) 22/2007; PKCP(R) 25/2008; PKCP(R) 36/2009) holding that borrowing costs are deductible under Section 33(1) of the ITA.

Maxis alluded the Court to the fact that the Court of Appeal had reversed the High Court’s determination that financing expenses are not deductible under s.33(1) of the ITA: Petron S/N WvlWs1obEGQdmuc8RAg Oil (M) Sdn Bhd & Anor v Ketua Pengarah Hasil Dalam 320 Negeri (W-01(A)-766-12/2021), CA and Persatuan Nelayan Kebangsaan v Ketua Pengarah Hasil Dalam Negeri (W- 01(A)-548-09/2021), CA.

Maxis further argued that the loan upfront fees are not capital 325 in nature, contrary to the position taken by KPHDN. It was argued that Maxis had incurred upfront loan fees to procure the RM1.2 billion loan, which was used for the day-to-day operations of its ordinary business activities, rather than to create any permanent asset or enduring benefit for Maxis.

Citing in support the Supreme Court of India’s observation in The India Cements Ltd v The Commissioner of Income-tax, Madras (1966) AIR 1053 SC, that the purpose of the loan and the usage of the borrowed funds for the company's 335 business determines that loans are not an asset or an advantage. The Indian SC found no distinction between interest on a loan and an expenditure incurred for obtaining the loan:

Maxis, in the circumstances, submitted that the character 340 of the loan is to be determined by the purpose of the loan, where the deductibility of a financing expense would depend on the purpose of the loan itself.

Therefore, it was submitted that loan upfront fees are not of a capital nature:

KPHDN failed to distinguish the usage of the USD750m (RM2.5b), where RM1.2b was on-lent to Maxis Mobile Sdn Bhd to earn interest income, while the balance RM1.35b was used to part-finance the acquisition of identified subsidiaries of Maxis Communications Berhad. 350

(ii) In securing the RM1.2b loan (for the day-to-day operations of Maxis’ ordinary course of business activities), it had to pay upfront fees.

(iii) It was not used to create any permanent asset or enduring benefit for Maxis.

In the circumstances, Maxis took the position that if the interest expense is already acknowledged as wholly and exclusively incurred in the production of income, surely the loan upfront fees (integral to the loan package) should not only stand on an 360 equal footing as interest but would inevitably fall under Section 33(1) of the ITA.

4.6 KPHDN took the position that the 45% penalty imposed on Maxis is correct under s. 113(2) of the ITA because incorrect tax returns 365 were filed for YAs for 2010-2011 by Maxis, although this was strongly denied. Maxis gave evidence that it had been cooperative and submitted all documents throughout the audit process by

Maxis argued that the dispute was caused by the different 370 interpretations of the legal position by the parties concerning the deductibility of loan upfront fees and methods of apportioning interest restriction.

Maxis ought not to be faulted for the choices it has made (within the confine of the legal requirement concerning the 375 matter) and in such circumstances, the penalty-imposed ought to be set aside.

The SCIT Deciding Order should be affirmed as the SCIT did not misdirect herself on the law and the facts. 380 S/N WvlWs1obEGQdmuc8RAg THE LAW [6] In a nutshell:

6.1

Paragraph 34 of Schedule 5 to the Income Tax Act 1967 gives 385 “either party to proceedings before the SCIT a right of appeal against the deciding order: IBM Malaysia Sdn Bhd v Ketua Pengarah Hasil Dalam Negeri [2018] AMTC 469; [2018] MLJU 433, HC; Kerajaan Malaysia v Mudek Sdn Bhd [2017] AMTC 61; [2017] 5 MLJ 390 133, FC; Ketua Pengarah Hasil Dalam Negeri v Mudah.my Sdn Bhd [2017] AMTC 104; [2017] 2 MLJ 197, CA.

However, not every deciding order is appealable because a deciding order under Schedule 5 is defined to mean one made 395 under paragraph 23 and this paragraph contemplates a deciding order made “on an appeal” after completing the hearing (merits) thereof: Schedule 5, para 48.

Paragraph 34 does not provide for an appeal against “just any 400 grievance”: Crane Port Systems Sdn Bhd v Ketua Pengarah Hasil Dalam Negeri [2018] AMTC 162; [2017] 7 MLJ 449, HC.

6.2 Section 91 ITA 1967: 405 Assessments and additional assessments in certain cases

The Director General, where for any year of assessment it appears to him that no or no sufficient assessment has been made on a person chargeable to tax, may in that year or within five years after its expiration make an assessment or additional assessment, as the case may be, in 410 respect of that person in the amount or additional amount of chargeable income and tax or in the additional amount of tax in which, according to the best of the Director General’s judgment, the assessment with respect to that person ought to have been made for that year.

Where the Director General discovers that the whole or part of any tax 415 repaid to a person (otherwise than in consequence of an agreement S/N WvlWs1obEGQdmuc8RAg come to with respect to an assessment pursuant to subsection 101(2) or in consequence of an assessment having been determined on appeal) has been repaid by mistake whether of fact or law, the Director General may make an assessment in respect of that person in the amount of that 420 tax or that part of that tax, as the case may be: Provided that no such assessment shall be made—

If the repayment was in fact made on the basis of, or in accordance 425 with, the practice of the Director General, generally prevailing at the time when the repayment was made; or

In respect of any tax, more than five years after the tax has been repaid 430

The Director General, where it appears to him that—

any form of fraud or wilful default has been committed by or on behalf of any person; or

any person has been negligent, in connection with or in relation to tax, may at any time make an 435 assessment in respect of that person for any year of assessment for the purpose of making good any loss of tax attributable to the fraud, wilful default or negligence in question.

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….. In a nutshell:

Section 91 of the ITA deals with assessments and additional assessments in certain instances. It empowers the DGIR to make or amend the tax assessments under specific circumstances. It provides the Inland Revenue Board (IRB) with the legal authority to ensure that the correct amount of 450 tax is assessed and collected, even in cases where there were initial errors, omissions, or deliberate attempts to evade tax. It's a crucial section for tax enforcement and ensuring compliance.

(ii) If the DGIR believes that no or insufficient assessment has 455 been made on a person chargeable to tax for a year of assessment, they can make an assessment or additional S/N WvlWs1obEGQdmuc8RAg assessment within six years after the expiration of that year. This is the general time limit for reviews and adjustments.

(iii) If there has been any form of (a) fraud, wilful default, or (b) 460 negligence committed by or on behalf of any person in connection with their tax affairs, the DGIR can assess at any time (i.e., there is no time limit) to recover any loss of tax attributable to that fraud, wilful default, or negligence.

(iv) If the DGIR discovers that a tax repayment was made to a 465 person by mistake (whether of fact or law), they can recover that amount by making an assessment within six years after the expiration of the year of assessment in which the repayment was made.

Blacks Law Dictionary, 10th Edition, defines negligence in a 470 nutshell as follows:

The failure to exercise the standard of care that a reasonably prudent person would have exercised in a similar situation.

Any conduct that falls below the legal standard established to protect others against unreasonable risks of harm, except for 475 conduct that is intentionally, wantonly, or wilfully disregardful of others’ rights.

The doing of what a reasonable and prudent person would not do under the circumstances, or a failure to do what such a person would do under those particular circumstances.

(vi) The Court in Idaman Harmoni Sdn Bhd v Ketua Pengarah Hasil Dalam Negeri (2022) MSTC 30-489, HC, in reversing the decision of the SCIT and ruling in favour of the taxpayer, cited and followed Chong Woo Yit v Government of Malaysia [1989] 1 MLJ 473, HC, in observing:

The burden lies on the Director General of Inland Revenue (DGIR) to prove wilful default or negligence under Section 91(3) of the ITA.

On the facts, the DGIR failed to prove wilful default or negligence by the taxpayer.

The notices of assessments were already time-barred.

In the context of negligence in tax matters, the DGIR would have to prove that the taxpayer had failed to exercise the degree of care that someone of ordinary prudence would have exercised under the same circumstances. 495

The DGIR had to prove that the taxpayer was recklessly careless in the sense of not caring whether his act or omission was a breach of his duty.

In the circumstances, it was determined that the taxpayer could not be said to have been negligent, as the DGIR could not prove 500 that there was any failure to provide any other information required by the CKHT 1 Form. The failure of the DGIR to challenge the CKHT 1 Form submitted (if they were of the view that the taxpayer was not entitled to the RPGT exemption granted under P.U.(A) 170/2003) further diluted the DGIR’s argument that the 505 taxpayer had committed wilful default or negligence within the meaning of Section 91(3) concerning assessments for YAs 2009 &

2010.

6.3 Section 33 (1) and (2) ITA: 510 Adjusted income generally

Subject to this Act, the adjusted income of a person from a source for the basis period for a year of assessment shall be an amount ascertained by deducting from the gross income of that person from that source for that period all outgoings and expenses wholly and exclusively incurred during 515 that period by that person in the production of gross income from that source, including—

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Where a person, being a person to whom paragraph (1)(a) applies in relation to gross income from a business of his for the basis period for a year of assessment and in relation to borrowed money, has made (otherwise than for the purpose of producing that gross income) any loan 525 of money or any investment in movable or immovable property, and the loan or any part thereof is outstanding at any time in that period or the investment or any part thereof is held by him at any time in that period and it appears to the Director General that the loan or any part thereof or the investment or any part thereof has been financed wholly or partly or 530 directly or indirectly out of the borrowed money—

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….. 535 S/N WvlWs1obEGQdmuc8RAg In a nutshell:

Section 33(2) of the ITA deals with the restriction on interest 540 expense deductions where borrowed money is used for both business and non-business purposes.

(ii) It aims to prevent taxpayers from claiming a full deduction for interest expenses on borrowed money when a portion of that money is diverted for non-business activities, ensuring that 545 only interest truly attributable to income-generating business activities is allowed as a deduction.

(iii) The general rule under s.33(1)(a) stipulates that interest expenses are tax-deductible if the borrowed money is "wholly and exclusively incurred in the production of gross income" 550 from a business source.

(iv) S.33(2) comes into play when a person has borrowed money for their business but then uses a portion of that borrowed money for non-business purposes that may include making personal loans or investments in movable or immovable 555 property that are not related to the core business activities.

If the DGIR determines that a loan or investment has been financed, wholly or partly, directly or indirectly, out of the borrowed money intended for business, then the interest expense deduction will be restricted whereby you are not 560 allowed to claim the full interest expense as a deduction against your business income.

(vi) The restricted portion of the interest expense is typically calculated using a formula that considers the cost of investments and loans financed by the interest-bearing 565 borrowed money, based on the outstanding balance of the borrowed money.

6.4 Director General of Inland Revenue v Kulim Rubber Plantations Ltd [1979-1996] AMTC 1052; [1981] MLJ 214; T 570 Beynon and Co. Ltd v Ogg 7 TC 125: In a nutshell:

Whether a particular payment is revenue or capital is a question of fact. 575 S/N WvlWs1obEGQdmuc8RAg

In determining whether profits from a transaction is capital as profits from an investment or revenue as being from a trading transaction, it is “largely” a question of fact.

In T Beynon, Sankey J observed that in his view, the question whether the profits made from the sale of wagons purchased 580 by the taxpayer (in business as coal merchants, ship and insurance brokers which bought wagons on behalf of its customers) for speculation, was capital on the sale of an investment, there was no question of law really in issue there. “The law seems to me to be perfectly well settled,” his Lordship 585 said, “and the only question one has to determine is which side of the line this transaction falls on.

Is it like capital profit on the sale of an investment? Or is it a profit made in the operation of the appellant’s business?

That is a question of fact.

6.5 Section 60FA ITA: Investment holding company listed on Bursa Malaysia

The provisions of this section shall apply notwithstanding any other provisions of this Act.

Where an investment holding company is a company resident for the basis year for a year of assessment and listed on the Bursa Malaysia in the basis period for that year of assessment, income of that investment holding company from the holding of investment in that basis period shall be treated as gross income of that investment holding company from a 600 source consisting of a business for that year of assessment.

For subsection (2)—

In ascertaining for a year of assessment the adjusted income of an investment holding company from a source referred to in that subsection, any amount of deduction to be made under this Act in 605 arriving at that income shall only be allowed against the gross income from that source, but—

where in that year of assessment that source does not produce any income, any deduction in respect of that source shall be disregarded for the purposes of this Act; or 610

(ii) where that amount of deduction exceeds the gross income from that source for that year of assessment, the excess shall be disregarded for the purposes of this Act; and

In ascertaining for a year of assessment the statutory income of an investment holding company from a source referred to in that 615 subsection, any allowance for that year of assessment falling to be made to that company under Schedule 3 in respect of that source shall only be available against the adjusted income of that person from that source and if by reason of an absence or insufficiency of adjusted income from that source for the basis period for that year 620 of assessment, effect cannot be given or be given in full to any allowance for that year of assessment in relation to that source, that allowance which has not been so made shall not be made to that company for subsequent years of assessment.

If it is shown that it has been established between the Director General 625 and the company for any tax purposes that the company is an investment holding company for the basis period for any year of assessment it shall be presumed until the contrary is proved that the company is an investment holding company for the purpose of this Act for the basis period for every subsequent year of assessment.

In this section, “investment holding company” has the same meaning assigned to it under section 60F. In a nutshell:

Section 60FA of the Income Tax Act 1967 (Malaysia) deals 635 explicitly with the tax treatment of Investment Holding Companies (IHCs) that are listed on Bursa Malaysia. It provides a distinct tax framework for such companies, differing significantly from the treatment of unlisted IHCs under Section 60F.

(ii) Section 60FA provides a specific tax regime for Investment Holding Companies listed on Bursa Malaysia, treating their investment income as business income. This allows for a more liberal deduction of expenses compared to unlisted IHCs but comes with the limitation that any losses or unabsorbed capital 645 allowances cannot be carried forward to subsequent years. The aim is to differentiate between passive investment holding and a more active business of holding investments, particularly for companies that are publicly traded.

(iii) A listed IHC, income derived from the holding of investments 650 (such as dividends, interest, and rental income from properties where maintenance/support services are actively provided) shall be treated as gross income from a business source. S/N WvlWs1obEGQdmuc8RAg

(iv) For unlisted IHCs (under Section 60F), generally have their investment income treated as non-business income.

Because the income is treated as business income, listed IHCs can generally fully deduct expenses incurred to generate that income, compared to unlisted IHCs, which are subject to a 5% cap on permitted expenses under Section 60F. 660 FINDINGS OF THIS COURT [7] I have examined all-cause papers, the evidence, the parties' respective submissions, and it is my considered judgment that: Negligence 665 7.1 I find no compelling materials from KPHDN to successfully establish negligence on the part of Maxis for YAs' 2010-2014:

I agree with the finding of the SCIT that elections in differing interpretations of the provisions in completing and submitting YAs 2010-2014 submissions do not amount to negligence in 670 the context of s.91(3) of the ITA, save in cases where there has been fundamental incompliance with the legal requirements. I find none in the present proceeding that warrants appellate intervention in the findings of the SCIT, and her appreciation of the facts and circumstances set out in her 675 grounds of judgment.

It is trite law that the burden throughout the proceeding rests on KPHDN to establish negligence, failing which, limitation would apply to bar the impugned audit for the YAs 2010-2014: 680 Idaman Harmoni Sdn Bhd v Ketua Pengarah Hasil Dalam Negeri (2022) MSTC 30-489, HC, in reversing the decision of the SCIT and ruling in favour of the taxpayer, that the burden lies on the Director General of Inland Revenue (DGIR) to prove S/N WvlWs1obEGQdmuc8RAg wilful default or negligence under Section 91(3) of the ITA on 685 the part of the taxpayer otherwise the notices of assessments were already time-barred.

KPHDN, must persuasively and with cogent evidence establish Maxis's default in its duty to exercise a reasonable 690 degree of care and prudence in the YAs 2010-2014, to support an irrefutable conclusion that Maxis was reckless in the preparation of the impugned tax submissions for the impugned years. 695

In failing to do so, KPHDN cannot circumvent the limitation that had crystallised for the impugned assessments (YAs 2010- 2011) over time.

As I had observed earlier, that in electing to adopt a different 700 interpretation from KPHDN, it does not amount to negligence in the context of s. 91 of the ITA. A reasonably different interpretation of the relevant provisions in the ITA can hardly be held as negligence within the meaning of s.91 (3) of the ITA: Boulay v Canada [2003] TCJ No. 126; Etiqa Family 705 Takaful Berhad v KPHDN [2022] 1 LNS 2745, HC.

In 2025, the Court of Appeal in Keysight Technologies Malaysia Sdn Bhd v Ketua Pengarah Hasil Dalam Negeri [2025] 1 CLJ 883, CA, had appropriately espoused that the 710 taxpayer cannot be said to be negligent in making a return on a tax position when they engaged professional advice and services (tax agent). It indicates that the taxpayer took care to prepare those submissions, save where the formula elected by S/N WvlWs1obEGQdmuc8RAg the tax agent had fundamentally departed from the required 715 legal requirements. Similarly, in the present proceedings, I find no compelling evidence save for the slanted interpretations by KPHDN.

In light of the foregoing, I agree with the SCIT findings that the 720 impugned reassessments by KPHDN on YAs 2010-2011 are barred by limitation under s.91(1) ITA. Deductibility of Loan Upfront & Legal Fees: RM26,420,214.00 7.2 To determine deductibility of the impugned expense, the 725 requirements under Section 33(1) of the ITA must be fulfilled, and it must not be disallowed under Section 39(1) of the ITA:

KPHDN took the position that the items claimed are disallowed under s.39(1)(b) of the ITA.

In stipulating on adjusted income, s.33(1) of the ITA provides 730 that it shall be an amount ascertained from the deduction from the gross income of:

All outgoings and expenses wholly and exclusively.

Incurred.

During the basis year/period.

In the production of the gross income. It includes interest payable on borrowed money and rental of premises or property.

While s.39(1)(b) of the ITA disallowed any deduction in determining the adjusted income expenses not being money 740 wholly and exclusively laid out or expended to produce the gross income:

As rightly pointed out by the SCIT, it is trite law that in determining expenses not being money wholly and S/N WvlWs1obEGQdmuc8RAg exclusively used to produce the gross income is the 745 appreciation of the question of fact on the commercial trading involved.

The SCIT referred to Rober Addie & Son’s Collieries Ltd v The Commissioners of Inland Revenue 8 TC 671, which observed that money wholly and exclusively laid 750 out for the trade is to be determined upon the principle of ordinary commercial trading:

Is it part of the company’s working expenses?

(ii) Is it expenditure laid out as part of the profit-earning process?

(iii) Or is it capital outlay necessary for the acquisition of property 755 or rights of a permanent character, the possession of which is a condition of carrying on the trade?

(iv) To make a deduction permissible, it must be made for the purpose of earning profits. 760

The SCIT also referred the Court to the UK COA’s observation in Bentley’s, Stokes and Lowless v Beeson (Inspector of Taxes) (1952) 2 All ER 82, which ruled that the sole question is whether the expenditure in question was exclusively laid out for business purposes. 765 What was the motive or objective in the minds of the decision maker? (Purpose of the expense laid out). See also the Indian Supreme Court in The India Cements Ltd v The Commissioner of Income-tax, Madras (1966) AIR 1053 SC.

From the evidence:

It is irrefutable that out of the USD750 million loan obtained (approximately RM2.55 billion then), RM1.2 billion was on-lent to Maxis Mobile Sdn Bhd to earn 775 interest income (revenue in nature). While the balance of RM1.35 billion was utilised for part-financing in the acquisition of subsidiaries of Maxis Communications Berhad (capital nature).

They had therefore only deducted the portion of RM1.2 780 billion, and the RM1.35 billion was not deducted in the circumstances. Maxis had incurred upfront loan fees to S/N WvlWs1obEGQdmuc8RAg procure the RM1.2 billion loan, which was used for the day-to-day operations of its ordinary business activities.

The RM1.2 billion loan was not used to create any 785 permanent asset or enduring benefit for Maxis.

In the foregoing circumstances, I am inclined not to accept KPHDN's position that the “arrangement fee” and “legal fee” expenses to obtain the USD750 million loan had evinced a capital expenditure that does not fall under 790 s.33(1) of the ITA. I also disagree with KPHDN on his position that the loan upfront fee and professional fee were costs incurred to create a source of income (interest income) and are therefore not deductible, as they are capital expenditures.

I take legal cognisance of the authorities alluded to by Maxis that financing expenses are deductible under s.33(1) ITA:

Ketua Pengarah Hasil Dalam Negeri v ABTP Marketing Sdn Bhd [2024] 3 MLJ 1, CA.

Kulim (Malaysia) Bhd v Ketua Pengarah Hasil Dalam Negeri (PKCP(R) 14/2006; PKCP(R) 22/2007; PKCP(R) 25/2008; PKCP(R) 36/2009).

Petron Oil (M) Sdn Bhd & Anor v Ketua Pengarah Hasil Dalam Negeri (W-01(A)-766-12/2021), CA.

Persatuan Nelayan Kebangsaan v Ketua Pengarah Hasil Dalam Negeri (W-01(A)-548-09/2021), CA.

The SCIT, in her findings, duly considered the parties' differing arguments on the issue. As she pointed out, it stems from the 810 position taken by KPHDN that the loan of USD 750 m was secured to generate business capital; thereby, the impugned fees (capital expenditure) arising are not allowable deductions under s. 33(1) of the ITA. While Maxis, on the other hand, took the position that the purpose of the impugned loan was 815 twofold. First, RM1.3 billion for asset acquisition (capital S/N WvlWs1obEGQdmuc8RAg expenditure) for Maxis Communication Berhad, and second, was to be lent to Maxis Mobile Sdn Bhd (RM1.2 billion) for its day-to-day operation:

I find no error in the SCIT’s assessment of the loan of 820 RM1.2 billion to Maxis Mobile Sdn Bhd as money wholly and exclusively laid out for trade under the principle of ordinary commercial trading to generate income.

Therefore, I find that she correctly concluded that there exists a legitimate nexus between the fees incurred to 825 secure the loan of RM1.2 billion and the generation of income for Maxis Mobile Sdn Bhd.

Therefore, it was correctly determined that the impugned expenses warrant deduction under s.33(1) of the ITA. 830

In light of the foregoing circumstances of the present case, the loan upfront fee and legal fees concerning the RM1.2 billion are legitimate allowable deductions. There is no valid basis to disturb the SCIT Deciding Order in this regard. 835 Methodology on Apportioning Interest Restriction.

7.3 The SCIT considered the position taken by Maxis that it was wrong for KPHDN to incorporate the additional factor of total dividend shortages into its method of apportioning the interest restricted under Section 33(2) of the ITA for the YAs 2013 and 2014, when 840 such a factor did not exist in the formula announced in the Public

Maxis took the strong position that they had used the method of interest restriction calculation that was in line with the prescribed formula in the Public Ruling No.2/2011. 845 S/N WvlWs1obEGQdmuc8RAg

By KPHDN inserting the additional factor in the formula and imposing it on Maxis, it had exercised a discretion that it did not have the power to make.

Therefore, in Maxis's compliance with the approved formula 850 sans the additional factor, they could not be said to have been negligent in the preparation of the tax computation of the tax return.

The SCIT finds that:

Section 33(2) of the ITA merely prescribes that the 855 interest expense may not be allowed a full deduction if, in the opinion of the appellant, the borrowed money was not used for business purposes.

It does not accord latitude for the modification of the formula.

It is trite law that when there is no such additional factor of total dividend shortages as KPHDN had suddenly imposed in the formula. Parties cannot simply read deeming provisions when they are not present.

Section 138A (2) of the ITA only allows KPHDN to 865 withdraw a public ruling but not to modify it.

In this regard, I find that Maxis had correctly cited Titular Roman Catholic Archbishop of Kuala Lumpur v Menteri Dalam Negeri & Ors [2014] 4 MLJ 76549, FC, that referred to and agreed with the observation in 870 Pengarah Tanah dan Galian, Wilayah Persekutuan v Sri Lempah Enterprise Sdn Bhd [1979] 1 MLJ 13550 that a public authority does not have uncontrolled discretion to impose conditions.

The SCIT simplified the issue concerning this impugned 875 section of the ITA appropriately when she surmised:

If the taxpayer can establish that the investment/loan to others did not use the borrowed funds, no interest restriction will be imposed.

(ii) On the other hand, if the taxpayer could not establish that the 880 investment/loan to others did not use the borrowed funds, interest restriction would be imposed.

The parties require strict compliance with the formula on the application of the interest restriction. KPHDN does not 885 have the discretion to alter this formula by adding the additional dividend shortages factor in the impugned Public Ruling: Palm Oil Research and Development Board of Malaysia & Anor v Premium Vegetable Oils Sdn Bhd [2004] 2 CLJ 265, FC had observed that words 890 are to be given their ordinary meaning. There is no room for any intendment. The Court of Appeal in Exxon Chemical (Malaysia) Sdn Bhd v Ketua Pengarah hasil Dalam Negeri [2005] 4 CLJ 810, CA reaffirmed the maxim that, in revenue law, "no clear provision, no tax."

The SCIT found that the KPHDN witness (SR1) at the SCIT proceeding failed to appropriately establish with cogent evidence how the facts of the tax appeal there fit into s.33(2)(b) and (c) that KPHDN anchored their arguments on.

Based on the above, I find no reason to disturb but to affirm the SCIT findings of fact when she held that the interest restriction used by the KPHDN by inserting an additional factor S/N WvlWs1obEGQdmuc8RAg of dividend shortages in YAs 2013 and 2014 was erroneous 905 under s.33(2) of the ITA. Penalty 7.4 The SCIT had examined the position taken by KPHDN that the 45% penalty imposed on Maxis is correct under Section 113(2) of the ITA because incorrect tax returns were filed for YAs for 2010-2011 910 by Maxis, although this was strongly denied:

The SCIT alluded to the requirements of s.113(2) ITA before a penalty on the taxpayer can be imposed.

The taxpayer had submitted incorrect tax returns or 915 provided inaccurate information, thereby impacting the assessment.

(ii) No prosecution had been taken under s.113(1) ITA.

She observed that the adoption of differing interpretations on 920 the legal requirements on the impugned matter cannot be taken that the taxpayer had submitted inaccurate information in the tax returns. On the premise, it was wrong for the KPHDN to impose the said penalty. 925 [8] I take cognisance that Maxis asserts that it had all the while been cooperative and submitted all documents throughout the audit process by KPHDN. Similarly, I find no reason to disturb, but rather to affirm, the findings by the SCIT on the issue of penalty. KPHDN failed to discharge its burden, and the penalty imposed is set aside. 930 S/N WvlWs1obEGQdmuc8RAg CONCLUSION 935 [9] By and large, on the balance of probabilities, 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. KPHDN’s appeal is dismissed with no order for costs. 940 Dated 26.06.2025. 945 HAYATUL AKMAL ABDUL AZIZ JUDGE 950 HIGH COURT OF MALAYA KUALA LUMPUR 955 Parties: Abdul Aziz bin Harun together with Elina binti Abdul Rashid Revenue Counsels 960 Inland Revenue Board of Malaysia (KPHDN) S. Saravana Kumar together with Lim Chin Wei Messrs Rosli Dahlan Saravana Partnership 965 For the Respondent S/N WvlWs1obEGQdmuc8RAg