Nishimatsu Construction Co., Ltd v Ketua Pengarah Lembaga Hasil dalam Negeri (WA-14-25-10/2022)

This is an appeal by Nishimatsu Construction Co Ltd (“the taxpayer’) against the deciding order of the Special Commissioners of Income Tax (“SCIT”) dated 19 September 2022 (“the deciding order’). The SCIT had dismissed four appeals filed against the assessments made by the Director General of Inland Revenue (“DGIR”) against the taxpayer in Forms JA dated 27 September 2018 for the Years of Assessment (“YA”) 2013, 2014, 2015 and 2016 together with the imposition of penalties under section 113(2) of the Income Tax Act 1967 (“ITA”) (“the impugned Form JAs”). The four appeals were heard together.

The SCIT decided that under subsections 55(3) and 55(4) of the ITA, the divisible income from a partnership for a YA could be brought to tax based on an estimate. The taxpayer appealed against the decision to this Court. On 2 September 2024, after reserving judgment, | dismissed the appeal.

This judgment contains the reasons for my decision. THE FACTS

The facts before the SCIT were as follows. The taxpayer is registered in Malaysia and carries on the business of construction of factories, water supply, sewers, tunnels, and building works. On 30 May 2008, the taxpayer, Shimizu Corporation, UEM Builders Berhad, and IJM Construction Sdn Bhd formed an unincorporated joint venture of Shimizu- Nishimatsu-UEM Builder-IJM (“JV partnership”) to carry out the Pahang-Selangor Raw Water Transfer Project.

The taxpayer’s financial year end and the basis period for a year of assessment is 1 April of a calendar year to 31 March of the next calendar year. The JV partnership’s financial year end and basis period for a YA is 1 January of a calendar year to 31 December of the same calendar year. 3

The taxpayer filed its tax returns declaring its JV’s divisible income for the months of April to December of the YAs 2013 to 2016 on the basis that the JV partnership had yet to determine the divisible income. The taxpayer said that it could only determine its actual income for the ‘shortfall’ of 3 months from the JV partnership once the JV partnership issued its Form CP30 in July of the following year. The taxpayer submitted its revised tax returns to declare its divisible income for January, February, and March of the said YAs through letters dated: (i) 141 August 2014 for the YA 2013 (ii) 5 August 2015 for the YA 2014 (iii) 12 August 2016 for the YA 2015 (iv) 7 August 2017 for the YA 2016.

Following an audit, the DGIR issued to the taxpayer four Notices of Additional Assessment (“Forms JA”) for the YAs 2013, 2014, 2015, and 2016. The details of the Forms JA are as follows (a) YA 2013 — Additional Tax Payable — RM2,485,665.00 (b) YA 2014 — Additional Tax Payable — RM464,119.25 (c) YA 2015 — Additional Tax Payable — RM1,685,441.00 (d) YA 2016 — Additional Tax Payable — RM675,305.52 4 together with penalties for each of the said YAs. It was the DGIR’s position that the 3-month income ought to have been estimated in the said returns. This was the basis of the additional assessment and the crux of this appeal.

On 5 October 2018, the DGIR issued a letter informing the taxpayer of the additional tax payable and penalties. The DGIR also issued a second letter dated 5 October 2018 informing the taxpayer of the audit findings regarding the taxpayer's divisible income from the JV partnership. The taxpayer appealed to the SCIT against the additional assessment and penalties.

The issues before the SCIT were as follows: (i) Whether under subsections 55(3) and 55(4) of the ITA, a taxpayer's income derived from a JV partnership could be brought to tax in full when the basis period of a year of assessment of the taxpayer was different from the JV partnership? (ii) Whether the penalties of 15% imposed against the taxpayer for YAs 2013, 2014, 2015, and 2016 under subsection 113(2) of the ITA 1967 were validly imposed? DECISION OF THE SCIT

The SCIT agreed with the DGIR on both issues. The undisputed fact which the SCIT took cognisance of was that the taxpayer has two sources of income. One from its own business activities — the basis period for a YA is 1 April of one calendar year to 31 March of the next calendar year and the other is income derived from the JV partnership — the basis period for a YA being 1 January of a calendar year to 31 December of the same calendar year.

The SCIT held that by virtue of subsection 21A(6) of the ITA, the basis period for the income derived from the taxpayer's own operations, i.e., 1 April to 31 March, shall constitute for the taxpayer’s JV partnership operation the basis period for that year of assessment. In other words, the basis period for the existing operations of a company becomes the basis period of the JV partnership. 6

What the taxpayer did was to file the returns containing the income from the JV partnership for the period 1 April until 31 December for the YAs 2013, 2014, 2015, and 2016, and the income from the JV partnership was filed by way of a revised return. The taxpayer contended that it was impossible to determine the income from the JV partnership for the full twelve months (i.e. from 1 April to 31 March) at the date of the submission of its return under subsection 77(1) of the ITA as the taxpayer is at the same time required to comply with subsections 55(3) and 55(4) of the ITA which provides for the divisible income of a partnership.

Section 55 of the ITA provides for partnerships generally. Subsection 55(3) of the ITA is as follows: “The divisible income of the proprietorship business for the basis period for a year of assessment shall be taken to be an amount found by the deduction from the provisional adjusted income of the sole proprietor from that business for that period of the total amount of — (a) any remuneration payable by virtue of any partnership arrangement of the relevant partnership to any partner therein for that period or for any part thereof; (b) any interest payable to any partner in the relevant partnership for that period or any part thereof in connection with all capital moneys paid or advanced by him (otherwise than in a fiduciary capacity, unless in that capacity he is a partner in the relevant partnership) to the relevant partnership; and (c) any expenses incurred during that period in relation to any partner in the relevant partnership and charged in the relevant partnership accounts (whether or not for that period) which — (i) would have been private or domestic expenses if incurred by that partner; or (ii) are reimbursements of private or domestic expenses incurred by that partner”. While subsection 55(4) provides as follows: “The amount of the divisible income of the proprietorship business for the basis period for a year of assessment ascertained under subsection (3) shall be treated as having accrued evenly over that period and shall be divided between those who were partners of the relevant partnership in that period in accordance with the sharing arrangement (subsisting from time to time during that period) of those partners in like manner as that amount would have been divisible between those partners if that amount had been divisible profits from the business of the relevant partnership accruing evenly over that period; and so much of that divisible income as is thus found to be attributable to the sole proprietor shall be taken to be his share of that divisible income for that period”.

The question that the SCIT directed itself was when is the divisible income is determined. The taxpayer submitted that it was when Form e-P pursuant to subsection 86(1) of the ITA, i.e., a return 9 by a partnership, was submitted. The DGIR submitted that the divisible income can be determined using the management account. The taxpayer disagreed, stating that this would violate subsection 77A(3) of the ITA, which requires ‘chargeable income’ and not ‘estimated income’. The SCIT dealt with the evidence in the award as follows:

“Saya bersetuju dengan Responden berdasarkan penelitian terhadap Hujahan Bertulis Responden, keterangan SP (the taxpayer's tax consultant from Russell Bedford Malaysia Advisory Sdn Bhd) (“SP”) serta analisis seperti yang berikut: (a) SP dalam keterangannya menyatakan, walaupun beliau bukan pihak yang menyediakan atau menyimpan akaun Rakan — kongsi (Usahama Sama), beliau bersetuju bahawa dalam akaun Usaha Sama yang disediakan terdapat penyata untung dan rugi perniagaan. Perayu boleh mendapatkan butiran akaun pengurusan daripada Usaha Sama itu. 10 Saya mendapati keterangan SP ini selari dengan peruntukan dalam perenggan 7.3 Perjanjian Usaha Sama (Eksibit F: muka surat 15) yang menyatakan bahawa Perayu boleh menentukan pendapatan berhubung dengan Usaha Sama secara bulanan khususnya bagi maksud pengistiharan cukai. ... (b) Semasa diperiksa balas, SP bersetuju bahawa untuk mengemukakan Borang e-P, undang- undang tidak mengkehendaki suatu perkongsian untuk mengemukakannya berdasarkan akaun beraudit. Situasi ini tidak sama dengan Syarikat yang mesti mengemukakan penyata cukai berdasarkan akaun beraudit”.

In re-examination, SP testified that the profit and loss statement can be determined, although not audited.

The SCIT considered the history leading to section 77A of the ITA, in particular, subsection 77A(4), and arrived at the conclusion that accounts of a partnership need not be audited, 11 unlike a partnership under Section 77A of the ITA. It was only for the YA 2022 vide Financial Act 2021 [Act 833] that Section 77(4) of the ITA provided for a partnership. The SCIT said that the history of section 77A of the ITA supported the submission of the DGIR. Further, the SP also agreed that the revised return could have been submitted by the taxpayer within six months from the date of the submission under subsection 77B of the ITA, but it was not done by the taxpayer.

Based on the above, the SCIT held that the taxpayer ought to have submitted its returns for the full twelve months from 1 April to 31 March as required by subsection 77(1) of the ITA and reported its estimated income from the JV partnership for the months of January to March for the YAs 2013, 2014, 2015 and 2016. Accordingly, the SCIT concluded: “Justeru, bagi Isu 1 ini saya perpandangan bahawa dalam konteks Seksyen 55(3) dan seksyen 55(4) ACP, pendapatan boleh bahagi (divisible income) suatu perkongsian bagi tempoh asas suatu tahun taksiran boleh dicukaikan (could be brought to tax) oleh rakan kongsi berdasarkan anggaran sebagai asas”. 12

For the second issue regarding penalties, the SCIT held that the criteria to impose penalties under subsection 113(2) of the ITA had been satisfied and the imposition of the penalties was in accordance with the law and circumstances of the case.

The taxpayer appealed against the deciding order of the SCIT to this Court. DECISION OF THE COURT

| will begin with the law of hearing an appeal against the deciding order of the SCIT. The law is settled and is as stated in Lower Perak Co-operative Housing Society Bhd v Ketua Pengarah Hasil Dalam Negeri [1994] 2 MLJ 713, affirming the principles stated in Chua Lip Kong v Director General of Inland Revenue [1982] 1 MLJ 235. It is established that this Court, sitting on appeal of a SCIT’s decision, can only interfere where the SCIT has: (a) acted on a misconception of law 13 (6) arrived at a conclusion which cannot be supported by the primary facts; and (c) arrived at a conclusion on a mixed question of law and fact that no reasonable tribunal similarly constituted could have reached if they had correctly directed themselves.

The general law regarding declaring the chargeable income of a company. First, section 5 of the ITA provides that a taxpayer is required to declare its chargeable income from each source for the basis period for that year. Second, section 20 of the ITA provides that the calendar year coinciding with a year of assessment shall constitute the basis year for a year of assessment.

The question that arose before the SCIT concerned the applicable provision when a company, apart from its income received from its business operation, also receives income from a separate business operation, such as the JV partnership in the instant case. The SCIT correctly identified the relevant provision that governs this situation, namely, section 21A of the ITA. 14

Section 21A of the ITA provides as follows: (1) Except as provided in this section, the basis year for a year of assessment shall constitute, in relation to a source of a company, limited liability partnership, trust body or co-operative society, the basis period for that year of assessment. (2) Subject to subsections (5) and (6), where a company, limited liability partnership, trust body or co-operative society made up the accounts of its operations for a period of twelve months ending on a day other than 31 December in the basis year, that period shall constitute the basis period for that year of assessment for any of its sources of income. (3) Where acompany, limited liability partnership, trust body or co-operative has made up the accounts of its operations for a period of twelve months ending on a day in a basis year and there is a failure to make up the accounts of the company, limited 15 liability partnership, trust body or co-operative society ending on the corresponding day in the following basis year, the Director General may direct that the basis period for the year of assessment in which the failure occurs, or the basis periods for that year and the following year of assessment, shall consist of a period or periods (which may be of any length) as specified in the direction. (3A)... (4) Subject to subsections (5) and (6), where a company, limited liability partnership, trust body or co-operative society commences operation on a day in a basis year for a year of assessment (hereinafter referred to as the "first year of assessment") and makes up its account — (a) for a period of less than twelve months ending on a day in that basis year, that period shall constitute the basis period for the first year of assessment; 16 (b) (c) S/N 6VadJUOpsOSIVdldl7 Injw for any period of months ending on a day in the immediately following basis year (hereinafter referred to as the "second basis year"), that period shall constitute the basis period for the year of assessment (hereinafter referred to as the "second year of assessment") immediately following the first year of assessment, there shall be no basis period in relation to any of its sources of income for the first year of assessment; or for a period of more than twelve months ending on a day in the basis year immediately following the second basis year, that period shall constitute the basis period for the year of assessment immediately following the second year of assessment and there shall be no basis period in relation to any of its sources of income for the first year of assessment and the second year of assessment. 17 (5) Where a company commences operations and — (a) is required under any law of the place of incorporation to make up its accounts ending on a specified day; or (b) being a company within a group of companies makes up its accounts ending on the same day as that of all other companies in that group, the period which begins from the day the company commences operations until the end of the accounting period of the company shall constitute, for those operations of that company, the basis period for a year of assessment. (6) Where a company, trust body or co-operative society on the day on which it commences a new operation is already carrying on one or more operations, the basis period of the existing operation or operations for a year of assessment in which that day falls shall constitute for the new operation the basis period for that year of 18 assessment and there shall be no basis period for the new operation for the year of assessment preceding that year. (7) (8) For the purposes of this section, "operations" in relation to a company trust body or co-operative society means — (a) an activity which consists of the carrying on of a business; (6)

Thus, the position of the provisions, Section 5 and Section 21A of the ITA, is that the full amount of income for the calendar year is to be taken into account when determining the chargeable income.

In this regard, submission of the tax return form shall be made by the last day of the seventh month from the date following the close of the company’s accounting period, which 19 constitutes the basis period, and as provided under subsection 77A(1) of the ITA, which is in the following terms: “Every company, trust body or co-operative society shall, for each year of assessment, furnish to the Director General a return in the prescribed form within seven months from the date following the close of the accounting period which constitutes the basis period for the year of assessment”.

The taxpayer, like all other companies, is required to declare its chargeable income in the tax returns for the complete basis period of each year of assessment. The basis period of the taxpayer was 1 April to 31 March of the next calendar year.

The SCIT found that the taxpayer only declared its JV partnership income for the month of April to December in the tax returns for YAs 2013, 2014, 2015, and 2016 and had not declared the JV partnership income for January to March for each YA for 2013, 2014, 2015, and 2016. The ITA allows, since 2009, companies to amend their tax return forms within 6 months from the due date of submission of the tax return to the DGIR. 20 The amendment of a return is provided by Section 77B of the ITA as follows: (1) Where for a year of assessment a person has furnished a return in accordance with subsection 77(1) or subsection 77A(1) or (1B), that person may make amendment to such return in an amended return as prescribed by the Director General in respect of the amount of tax or additional tax payable by that person on the chargeable income or on the amount of tax which has been or would have been wrongly repaid to him. (1A)... (2) An amended return under subsection (1) shall only be made after the due date for the furnishing of the return in accordance with subsection 77(1) or subsection 77A(1) or (1B), but not later than six months from that date. 21 (3) For the purposes of this section, the amended return shall — (a) specify the amount or additional amount of chargeable income and the amount of tax or additional tax payable on that chargeable income; (b) specify the amount of tax payable on the tax which has or would have been wrongly repaid to him; (c) specify the increased sum ascertained in accordance with subsection (4); or (d) contain such particulars as may be required by the Director General. (4) The tax or additional tax payable under subsection (1) shall be increased by a sum equal to ten per cent of the amount of such tax or additional tax. (5)

It was found that the taxpayer's amended tax returns for the YAs 2013, 2014, 2015, and 2016 were not submitted in 22 accordance with section 77B of the ITA. On this basis, the SCIT found as a fact that the taxpayer had failed to declare the JV partnership income for January to March for the YAs 2013, 2014, 2015, and 2016.

In the circumstances, the SCIT rightly found that the taxpayer had understated its income for the YAs 2013, 2014, 2015, and 2016 by declaring only nine months of income from the JV partnership.

Before me, the taxpayer contended that the JV partnership income cannot be determined until the end of the JV’s accounting period, which constitutes the basis periods. According to the taxpayer, at that time, the JV partnership had yet to determine the divisible income from January to December, and which income was stated in the CP30 Form, i.e., the form that states the divisible income for each partner in the partnership. The CP forms were received: (i) on 18 July 2014 for the YA 2013; (ii) on 22 July 2015 for the YA 2014; on 20 July 2016 for the YA 2015; and (iv) on 31 July 2017 for the YA 2016. This income was then stated by way of revised returns. 23

The taxpayer then attacked the decision of the SCIT for failing to accept that the reason given by the DGIR when issuing the impugned Form JAs vide letter dated 5 October 2018 was a misdirection on the law, which rendered the assessments made in the impugned Form JAs null and void. The error of law alleged committed was that the SCIT accepted the position of the DGIR that the divisible income from the JV partnership for January to March could be estimated and declared in the returns. This was, according to counsel, the crux of the appeal.

Further, the taxpayer claims that there is a lacuna caused by subsections 55(3) and 55(4) of the ITA which requires divisible income to be treated as accrued evenly over the basis period of a YA when on the other hand subsections 5(1), 45(1), 77A(1) and 77A(3), when read together, require chargeable income for the full basis year to be declared. The taxpayer is not in a position to declare its chargeable income for the full basis year because of the requirements of subsections 55(3) and 55(4) of the ITA. 24 My Analysis

The submission of the taxpayer is two-fold: (a) First, the DGIR’s statement that the taxpayer declares an estimated income for the three months’ income that was not declared is not envisaged in the ITA and therefore the assessments made in the impugned Form JAs is wrong in law. (b) Second, while the taxpayer accepts that chargeable income for the full basis year, i.e., 12 months, must be declared under the provisions of the ITA, there is a /Jacuna as a result of subsections 55(3) and 55(4) of the ITA.

The SCIT was correct in its assessment that by virtue of section 21A of the ITA, the basis period for income derived from the operations of the JV partnership is treated as the basis period for the company’s own business operation. Therefore, there is one basis period. As such, all income of the taxpayer from its own business and from the JV partnership must be 25 declared in one return, i.e., from 1 April to 31 March of the next calendar year.

The taxpayer said that it was impossible to state its income from the JV partnership for January to March as the divisible income from the JV partnership is not determined and can only be determined if Form CP30 is ready, and therefore cannot be declared in the return for the said years of assessment. The DGIR said that the income for the three months must as it is required by the provisions of the ITA and as such the estimated income is to be declared.

The provisions, referred to above, require that the income derived from the JV partnership should be brought to tax based on the taxpayer’s own business basis period. In such circumstances, it is imprudent to rigidly still adhere to the JV partnership’s basis period. The taxpayer's obligation is to ascertain and declare the JV partnership’s income for January, February, and March. There was evidence available to determine the said income based on the management’s account. In her cross-examination, SR confirmed that the estimation amount of the JV partnership’s income is based on its management’s 26 account. In this regard, the JV Agreement vide article 7.3 under the heading of “Account” provides as follows: “At the end of each month and on substantial completion of the Work, a true and correct accounting in the form of a balance sheet, profit and loss account, and appropriate schedules shall be made of all expenses and all accounts, vouchers, records, and date relating to the Joint Venture. Copies thereof shall be furnished to the Parties”.

As such, the taxpayer could ascertain the income earned relating to the JV partnership for the months of January, February, and March.

The lacuna point is now addressed. The taxpayer accepts that the law requires that it has to declare its chargeable income for the full basis year when submitting the return to the DGIR, but argues that there is a Jacuna as a result of Sections 55(3) and 55(4) of the ITA. 27

What is the Jacuna? The taxpayer argues that sections 55(3) and 55(4) of the ITA require the divisible income of the JV partnership to be treated as accrued evenly over the period of the basis year for a year of assessment. As a result of this requirement, the taxpayer is unable to declare its chargeable income for the full year of assessment (emphasis added).

Subsection 55(3) of the ITA provides as follows: The divisible income of the proprietorship business for the basis period for a year of assessment shall be taken to be an amount found by the deduction from the provisional adjusted income of the sole proprietor from that business for that period of the total amount of — (a) any remuneration payable by virtue of any partnership arrangement of the relevant partnership to any partner therein for that period or for any part thereof; (b) any interest payable to any partner in the relevant partnership for that period or any part thereof in connection with all capital moneys 28 paid or advanced by him (otherwise than in a fiduciary capacity, unless in that capacity he is a partner in the relevant partnership) to the relevant partnership; and (c) any expenses incurred during that period in relation to any partner in the relevant partnership and charged in the relevant partnership accounts (whether or not for that period) which — (i) would have been private or domestic expenses if incurred by that partner; or (ii) are reimbursements of private or domestic expenses incurred by that partner. While subsection 55(4) of the ITA provides as follows: “The amount of the divisible income of the proprietorship business for the basis period for a year of assessment ascertained under subsection (3) shall be treated as having accrued evenly over that period and shall be divided between those who were partners 29 S/N 6VadJUOpsOSIVdldl7 Injw of the relevant partnership in that period in accordance with the sharing arrangement (subsisting from time to time during that period) of those partners in like manner as that amount would have been divisible between those partners if that amount had been divisible profits from the business of the relevant partnership accruing evenly over that period; and so much of that divisible income as is thus found to be attributable to the sole proprietor shall be taken to be his share of that divisible income for that period”.

Subsection 55(4) of the ITA provides how the divisible income of the partnership business for the basis year is to be dealt with, i.e., treated as accrued evenly over the basis period. This subsection must be read with section 86 of the ITA, which concerns returns by a partnership. Subsection 86(1) of the ITA provides that the partnership is required to furnish to the DGIR a return in the prescribed form not later than 30 June in the year following that year of assessment, while subsection 86(2) of the ITA provides as follows: For the purposes of subsection (1), a return for a year of assessment shall — 30 (a) specify the divisible income or the divisible loss as ascertained under the appropriate provisions of sections 55, 56, 57, 58, and 59 in relation to the partnership for that year;

Thus, subsection 55(4) of the ITA provides for how the divisible income for the basis year is to be treated, and that divisible income is to be specified in the return for the relevant year of assessment. In other words, the divisible income in subsection 55(4) of the ITA is for the purposes of a partnership return that is to be furnished to the DGIR.

Whereas, the JV Agreement requires accounts to be kept accurately for the purposes of examination by parties to the JV partnership, including the taxpayer. The accounts are kept on a monthly basis and is evidence for the purpose of tax declaration in situations where a party like the taxpayer is under obligation to declare such income in its own business return as required by the provisions of the ITA (discussed earlier above). There is no issue of a Jacuna as submitted by the taxpayer. 31

For the sake clarity, | repeat below the finding of the SCIT when treating the taxpayer's misplaced concern: (a) SP dalam keterangannya menyatakan, walaupun beliau bukan pihak yang menyediakan atau menyimpan akaun Rakan kongsi (Usahama Sama), beliau bersetuju bahawa dalam akaun Usaha Sama yang disediakan terdapat penyata untung dan rugi perniagaan. Perayu boleh mendapatkan butiran akaun pengurusan daripada Usaha Sama itu. Saya mendapati keterangan SP ini selari dengan peruntukan dalam perenggan 7.3 Perjanjian Usaha Sama (Eksibit F: muka surat 15) yang menyatakan bahawa Perayu boleh menentukan pendapatan berhubung dengan Usaha Sama secara bulanan khususnya bagi maksud pengistiharan cukai. ... (6) Semasa diperiksa balas, SP bersetuju bahawa untuk mengemukakan Borang e-P, undang-undang tidak mengkehendaki suatu perkongsian untuk mengemukakannya berdasarkan akaun beraudit. 32 Situasi ini tidak sama dengan Syarikat yang mesti mengemukakan penyata cukai berdasarkan akaun beraudit.

| agree with the SCIT on the findings made and the conclusion reached. The issue of lacuna is devoid of merit. PENALTIES UNDER SUBSECTION 113(2) OF THE ITA

Section 113(2) of the ITA empowers the imposition of penalties on a taxpayer who makes an incorrect return or gives any incorrect information in relation to the liability to tax. The subsection provides as follows (emphasis added): Where a person — (a) makes an incorrect return by omitting or understating any income of which he is required by this Act to make a return on behalf of himself or another person; or 33 (b) gives any incorrect information in relation to any matter affecting his own chargeability to tax or the chargeability to tax of any other person, then, if no prosecution under subsection (1) has been instituted in respect of the incorrect return or incorrect information, the Director General may require that person to pay a penalty equal to the amount of tax which has been undercharged in consequence of the incorrect return or incorrect information or which would have been undercharged if the return or information had been accepted as correct; and, if that person pays that penalty (or, where the penalty is abated or remitted under subsection 124(3), so much, if any, of the penalty as has not been abated or remitted), he shall not be liable to be charged on the same facts with an offence under subsection (1).

On the penalties issue, the SCIT said that the DGIR had a discretion to impose penalties. The SCIT said that the DGIT had considered the case as a whole before imposing the penalty. The SCIT stated that on the facts, the imposition of the penalty was valid and in accordance with the law. found that the 34 penalties were validly imposed under Section 113(2) of the ITA 1967. In arriving at this decision, the SCIT had applied the ostablished prinoiple that good faith on the part of the taxpayer is not a defence against the imposition of penalty under subsection 113(2) of the ITA (see Syarikat Ibraco Paremba Sdn Bhd v Ketua Pengarah Hasil Dalam Negeri [2017] 2 MLJ 120, Court of Appeal).

The taxpayer submitted that if this Court is not with it on the main issue, this Court is empowered to remove altogether the penalty imposed or further lower the percentage of penalty imposed for the following reasons: (a) the taxpayer did not file any incorrect return nor give incorrect information; (b) the DGIR refuses to acknowledge the conflict between sections 55 and 77A of the ITA and has made no effort to reconcile these provisions. (c) the taxpayer had diligently and immediately revised the tax returns as soon as the unascertained 3-month divisible income from the JV was ascertained; 35 (d) the DGIR did not discover the incorrect return until after the audit, but rather as a result of the taxpayer's revised tax returns, which were submitted on a voluntary disclosure basis; (e) the taxpayer had made full and frank disclosure as well as provided its assistance to the DGIR during the tax audits; (f) the taxpayer had at the material times engaged a professional tax agent to prepare and submit its tax returns for the relevant YAs; and (g) the taxpayer had duly accounted for taxes for all its incomes (including the 3-month divisible income from the JV) and paid its estimated tax payable and had consistently paid more than its actual tax liabilities, save for YA 2016).

| have considered the reasons given by the taxpayer and find them insufficient to disturb the decision of the SCIT. There is already a finding that the tax returns were incorrectly filed and had understated the income from the JV partnership. 36 The taxpayer says that the returns were filed because of the lacuna existing between Sections 55 and 77A of the ITA. If there was a lacuna, there was no effort by the taxpayer or its tax consultants to inform the DGIR for the correct position. Instead, the taxpayer continued to file returns as though “no lacuna” existed.

| find the other reasons going into the issue of the “good faith” of the taxpayer. The issue of “good faith” is not a consideration under subsection 113(2) of the ITA has again recently been reiterated by the Court of Appeal in Ketua Pengarah Hasil Dalam Negeri v TCY Jaya Sdn Bhd [2024] 1 CLJ 242.

Further, the conduct of making the information available was the reason for the low imposition of the penalty percentage. | have, in the circumstances, after having considered the totality of the facts and the reasons and arguments made, no reason to interfered with the imposition of the penalties. 37 Conclusion

For the above reasons, the taxpayer's appeal was dismissed. Judge High Court Kuala Lumpur Dated: 14 April 2025 Counsel of the Appellant Preetha a/p P.A. Sreedharan Pillai with Low Fui Lin Messrs Skrine Counsel of the Respondents Norsalwani binti Muhd Nor (Senior Revenue Counsel) with Norhamizah binti Ab Han (Revenue Counsel) Revenue Attorney, Inland Revenue Board 38 Cases referred to: 1) Lower Perak Co-operative Housing Society Bhd v Ketua Pengarah Hasil Dalam Negeri [1994] 2 MLJ 713. 2) Chua Lip Kong v Director General of Inland Revenue [1982] 1 MLJ 235. 3) Syarikat Ibraco Paremba Sdn Bhd v Ketua Pengarah Hasil Dalam Negeri [2017] 2 MLJ 120, Court of Appeal. 4) Ketua Pengarah Hasil Dalam Negeri v TCY Jaya Sdn Bhd

1 CLJ 242. 39