Lembaga Hasil Dalam Negeri - Cawangan Guaman Lembah Klang v 1. ) TMT Industry Sdn Bhd (WA-21NCVC-5-01/2022)

TMT INDUSTRY SDN BHD

MOU, YU-HUI

CHAN, HSUN-WEI

MD HANIF BIN OTHMAN (NO. K/P: 551218-01-5717) … PERAYU-PERAYU/ DEFENDAN-DEFENDAN DAN KERAJAAN MALAYSIA … RESPONDEN/PLAINTIF [DALAM MAHKAMAH TINGGI MALAYA DI KUALA LUMPUR DALAM WILAYAH PERSEKUTUAN, MALAYSIA GUAMAN SIVIL NO.: WA-21NCVC-5-01/2022 ANTARA 2 KERAJAAN MALAYSIA … PLAINTIF

TMT INDUSTRY SDN BHD

MOU, YU-HUI

CHAN, HSUN-WEI

MD HANIF BIN OTHMAN (NO. K/P: 551218-01-5717) … DEFENDAN-DEFENDAN] GROUNDS OF JUDGEMENT [Interlocutory – Enclosure (12) – Summary Judgement] A. INTRODUCTION [1] This is a case involving a tax recovery action by the Plaintiff, the Government of Malaysia against the Defendants for the outstanding income tax due for the years 2017, 2018 and 2019, with a total amount of RM2,145,713.46. These figures are inclusive of the 10% and 5% penalty imposed for late payment. 3 [2] The First Defendant was wound up and it now befalls on the Second to the Fourth Defendant as Directors of the First Defendant to pay the outstanding amount due (above). [3] The Plaintiff vide Enclosure (12) had made an application to enter a summary judgement against the Defendants. [4] After hearing submissions from both parties, this Court had allowed the Plaintiff’s application with costs and an order in terms was granted. [5] Dissatisfied, the Defendants have filed an appeal to the Court of Appeal. [6] Herewith are the grounds for the decision. B. BRIEF BACKGROUND FACTS [7] In essence, the First Defendant had filed in his return for the Years of Assessment 2017, 2018 and 2019 through its tax agent. (See Sections 90 (1) and 90 (2) of the Income Tax Act. The amount due will automatically be given and payable as debt due to the government (see later). [8] The Plaintiff was informed that the First Defendant was wound up on 12.1.2022. [9] The Second to the Fourth Defendants are Directors of the First Defendant. As the First Defendant was wound up, hence the 4 Plaintiff is pursuing the claim against the Second to the Fourth Defendant. The Second to the Fourth Defendant are disputing this claim. C. THE LAW ON SUMMARY JUDGMENT [10] The law on summary judgment as encapsulated in Order 14, Rule 1 of the Rules of Court 2012 (herein referred as “the ROC 2012”) provides as follows: “Order 14, Rule 1: Application by plaintiff for summary judgment (O. 14, r. 1)

Where in an action to which this rule applies a statement of claim has been served on a defendant and that defendant has entered an appearance in the action, the plaintiff may, on the ground that the defendant has no defence to a claim included in the writ, or to a particular part of such a claim, or has no defence to such a claim or part thereof except as to the amount of any damages claimed, apply to the Court for judgment against that defendant.” [11] In the case of Malayan Insurance (M) Sdn. Bhd. v. Asia Hotel Sdn. Bhd. (1987) 2 MLJ 183 the Supreme Court said: “The underlying philosophy in the Order 14 provision is to prevent a plaintiff clearly entitled to the money from being delayed his 5 judgment where there is no fairly arguable defence to the claim. The provision should only be applied to cases where there is no reasonable doubt that the plaintiff is entitled to judgment. Order 14 is not intended to shut out a defendant. The jurisdiction should only be exercised in very clear cases. We accordingly allowed the appeal and also directed the trial to be before another judge.” D. ANALYSIS AND FINDING OF THIS COURT [12] The Plaintiff has argued that this is a clear-cut case where a summary judgment must be entered against the Defendants without having to go through a full trial. The Defendants have argued otherwise and that at this juncture the task of the Defendants are to raise triable issues. Further, the Defendants should be given the opportunity to explain as the company (First Defendant) was already wound up. [13] In essence the Defendants are disputing the following:

Disputed about the total debts due (above);

(ii) There are triable issues to be tried in a full trial and that it is not a “plain and obvious case” for this matter to be disposed-off summarily through Order 14. 6

(iii) The four (4) Defendants have no access to the documents and that they have no control over the management of the First Defendant. The amount are exceptionally high. Ruling

The ordinary Summary Judgement under Order 14 of Rules of Court 2012 does not apply in tax cases [14] It is pertinent to note that under the tax recovery system of this country, as provided for under the ITA 1967, when the proceedings are commenced under Order 14 ROC 2012, the trite legal principle namely that the Defendant has to raise triable issues in order to avoid a summary judgment being entered, does not operate. [15] Such is the law, is because of the principle of revenue law that when there is a debt due to the government the court shall not entertain any plea whatsoever. This has been expounded in several high authorities, viz, the Supreme Court in the case of Choong Woo Yit v. Government of Malaysia [1989] 1 CLJ (Rep 9) which affirmed the principle enunciated in the case of Government of Malaysia v. Abdul Rahman [1975] 1 MLJ 276 that: “When proceedings are commenced under O. 14 the normal rules for triable issues do not apply to cases of this nature because of the provisions of the Income Tax Act. Normally when defence raised triable issues it is a rule of law that unconditional leave to 7 defend should be given but under s. 106 (3) of the Income Tax Act it clearly states that in any proceedings commenced by the Government under s. 106 (1) of the Act for the recovery of tax by civil proceedings as a debt due to the Government the Court shall not entertain any plea that the amount of tax sought to be recovered is excessive, incorrectly assessed, under appeal or incorrectly increased under s. 103 (4) or (5).” [emphasis added] [16] In view of the decisions of such high authorities to which this Court will allude, this Court ruled that the Defendants’ submission on this issue should fail. Hence, in cases involving recovery of tax due and payable, summary judgement is the proper mode to be used vis-à-vis the provisions of the Act.

Dispute about the amount payable and facts should not be considered by this Court [17] The Defendant disputed about the facts and hence the total amount due. It is trite that any disputes about the facts and eventually the total amount taxable are to be referred to the Special Commissioner of Income Tax (“SCIT”). (This will be discussed later) [18] This Court noted that the tax assessment due issued by the Plaintiff for the 3 years were, following the Defendants’ furnishing of the tax return for that 3 years. This will trigger Section 90 (1) of the Income Tax Act, which literally means once you filed in the returns on that day, you will automatically get the amount due and outstanding. Here the tax returns were filed by the First Defendant 8 through their tax agent, Yap Fatt Lam who was also the Auditor of the First Defendant and the amount of tax due and payable was hence obtained. [19] The First Defendant was negligent when it failed to pay the amount due together with the penalty for late payment. This Court ruled that since no payment was made, the Plaintiff has the right to recover from the First Defendant by virtue of Section 106 (1) Income Tax Act which reads: “(i) Tax due and payable may be recovered by the Government by civil proceedings as a debt due to the Government.”

As Directors, the Second, Third and Fourth Defendants are liable since the First Defendant was wound up [20] As the First Defendant was wound up on 11.3.2022, the Second to the Fourth Defendant being the Directors of the First Defendant are jointly and severely liable for the tax imposed on the First Defendant. [21] This is by virtue of Section 75A Income Tax Act 1967 which reads: “75A. (1) Notwithstanding anything contrary to this Act or any other written law —

where any tax is due and payable under this Act by a company, any person who is a director of that 9 company during the period in which that tax is liable to be paid by that company; or

where any debt is due and payable from an employer under any rules made pursuant to section 107 and the employer is a company, any person who is a director of that company during the period in which the debt is liable to be paid by that company, shall be jointly and severally liable for such tax or debt, as the case may be, that is due and payable and shall be recoverable under section 106 from that person. In this section, ‘director’ means any person who-

is occupying the position of director (by whatever name called), including any person who is concerned in the management of the company’s business; and

is, either on his own or with one or more associates within the meaning of subsection 139 (7), the owner of, or able directly or through the medium of other companies or by any other indirect means to control, not less than twenty per cent of the ordinary share capital of the company (‘ordinary share capital’ here having the same meaning as in the definition of ‘director’ in section 2). 10 [22] This Court observed that as the Second Defendant has 25% shares, Third Defendant has 24% shares and Fourth Defendant has 51% shares, they fulfilled the requirement of Section 75A (1)

and (b) Income Tax Act 1967. Hence, they are liable. [23] In the case of Government of Malaysia v. Takasima Industries

(M) Sdn Bhd & Ors [2018] 10 MLJ 458, the Court held as follows: “... Jelas dari rekod Suruhanjaya Syarikat Malaysia bahawa defendan kedua dan ketiga adalah pemegang saham defendan pertama di mana masing-masing mempunyai 1,500,000 saham bersamaan dengan pegangan 50% saham oleh masing-masing. Oleh itu, menurut s 75A Akta, plaintif juga mempunyai hak menuntut cukai pendapatan tertunggak yang terhutang oleh defendan kedua dan ketiga.” [24] Hence, the 3 Defendants (Second, Third and Fourth Defendants) are liable to pay for the tax due and payable as claimed by the Plaintiff.

Merit of the assessment of amount to be paid or disputed facts should be referred to the SCIT and not to be considered by this Court [25] From the line of authorities, this Court holds that the merits of the assessment which involve questions of facts should be heard by the SCIT as the Court is not the appropriate quorum to decide on issues of assessment. The SCIT are judges of facts. Section 99 11 of ITA 1967 clearly provides that if a person is dissatisfied with the assessment raised, he or she may appeal to the SCIT. [26] In the case of Kerajaan Malaysia v. Abdul Rahim bin Mohd Aki [1994] 4 BLJ 376 the Court ruled: “[1] Section 106(3) of the Income Tax provides that in any civil proceedings to recover income tax allegedly due and payable, the Court must close its ears and shut its eyes to any suggestion or indication that the amount claimed is excessive or incorrectly assessed. The said section has the effect of making the amount claimed conclusively correct and unchallengeable in the civil proceedings to recover it and, consequently, of making the judgment subsequently entered immune from subsequent challenge on the ground that the amount of judgment was excessive or incorrectly assessed.” [27] This position of the law finds support in many other authorities as shown below: [28] In the case of Arumugam Pillai v. Government of Malaysia [1975] 2 MLJ 29, which followed the decision in Sun Man Tobacco Ltd. v. Government of Malaysia [1973] 2 MLJ 163, the Federal Court ruled: “… He would nevertheless be bound by the decision of this Court in Sun Man Tobacco Co. Ltd. v. Government Of Malaysia [1973] 2 MLJ 163 which upheld the view that by reason of the operation of section 106(3) of the Income Tax Act, 1967, the Court, to 12 put it bluntly, had only one function to perform, and that was to give judgment in favour of the Government.” [29] The Court further added as follows: “… To my mind, the learned Judge did not err in law in holding that Section 106(3) of the Income Tax Act, 1967 prevented him from entertaining the defence set up by the Appellant.” [30] This Court had discussed at length on the several related provisions of the Income Tax Act in the case of The Government of Malaysia v. Mohd Najib bin Haji Abdul Razak [2020] 12 MLJ

This Court had allowed the Plaintiff’s claim by entering a summary judgement against the Defendant and the decision was affirmed unanimously by the Court of Appeal. [31] In Najib’s case, this Court had referred to the Federal Court case of Arumugam Pillai. This Court held: “[36] In the case of Arumugam Pillai v. Government of Malaysia [1980] 2 MLJ 283, the Federal Court ruled that: “The tax legislation clearly intends that the tax as assessed should first be paid and therefore makes provisions that such part of the tax paid as shall be determined at the final “accounting” to be not due and payable shall be refunded. This provision of “pay first and talk afterwards” may be arguably a harsh one but it is an intentional provision of the legislature, having regard to the incidence of tax evasion.” 13 [37] Further, the Federal Court strongly stated: “what sympathy there is must be reserved for the innocent, who are made to suffer, along with the tax evaders”.” [32] It is apt for this Court to remind the 3 Defendants of the decision in the case of Sun Man Tobacco Ltd. (supra) where the taxpayer argued that there is no liability to pay, and that the amount was excessive and therefore Section 106 (3) of the ITA 1967 was not applicable. In rejecting the argument of the taxpayer, the Federal Court again has held that, if the taxpayer wishes to dispute the amount of tax claimed against him, he needs to bring his case to the SCIT. The Court held: “The above passage would appear to support the contention of the appellant in this instant suit that s. 106(3) of the ITA 1967 does not apply to a case where the taxpayer contends that no tax whatever is due by him. I regret I am unable to agree with that. In my opinion the learned Judge, was right in this instant case where he said that if the taxpayer wished to dispute that the amount of tax sought to be recovered is excessive, incorrectly assessed, under appeal or incorrectly increased under s. 103(4) or (5) he has to do so by way of appeal to the Special Commissioners. That opinion would appear consistent with the scheme of the Income Tax legislation. It is only in relation to any disputes on questions of law at the hearing before the Special Commissioners that the matter can be brought to the High Court by way of a case stated.” 14 E. CONCLUSION [33] Hence, in the upshot for the foregoing reasons, this Court ruled that Summary Judgement be entered against the Defendants and an order in terms granted. Dated: 2nd December 2022 (DATO’ AHMAD BIN BACHE) Judge Civil High Court NCvC 3 Kuala Lumpur Parties: Solicitor for the Puan Nor Erini Mustapha Kamar Appellants/Defendants: TETUAN RAFAEI & CO No. 781-D, Tingkat 2 Jalan Gajah Mati 15000 Kota Bharu KELANTAN (Ref. No.: RC/C/972(A)/2022) Solicitors for the Encik Shaqirul Ifzam Respondent/Plaintiff: (Puan Nur Farzana with him) LEMBAGA HASIL DALAM NEGERI MALAYSIA Cawangan Guaman Lembah Klang Blok 10 Tingkat 2 Kanan Kompleks Bangunan Kerajaan Jalan Tuanku Abdul Halim 50600 KUALA LUMPUR (Ref. No.: X/C 2045323906)