Petroliam Nasional Berhad (Petronas) v Ketua Pengarah Hasil dalam Negeri (W-01(A)-294-04/2024)

The appellant (Appellant) is a "chargeable person" as defined in s 2(1) of the Petroleum (Income Tax) Act 1967 (PITA).

By way of a letter dated 26.12.2014 by the respondent, Director General of Inland Revenue (DGIR), to the Appellant, the DGIR issued a tax audit finding of the Appellant [DGIR's Tax Audit Finding (YA/2010/PYB)] for the Year of Assessment (YA) 2010 Preceding Year Basis (PYB).

The DGIR issued a tax audit finding for the YA 2010 on Current Year Basis (CYB) to the Appellant in a letter dated 27.11.2015 [DGIR's Tax Audit Finding (YA/2010/CYB)].

The Appellant sent a letter dated 11.12.2015 to the DGIR which replied to the DGIR's Tax Audit Finding (YA/2010/PYB). The Appellant also replied to the DGIR's Tax Audit Finding (YA/2010/CYB) in a letter dated 18.12.2015.

The DGIR issued the following two Notices of Additional Assessment (Form JA) to the Appellant:

Form JA dated 30.12.2015 for the YA 2010 on PYB [Form JA (YA/2010/PYB)]. According to Form JA (YA/2010/PYB), the Appellant had to pay a sum of RM989,753,391.50 due to the DGIR under PITA; and

Form JA dated 31.12.2015 for the YA 2010 on CYB [Form JA (YA/2010/CYB)]. Form JA (YA/2010/CYB) stated that an amount of RM693,174,244.00 from the Appellant pursuant to PITA. B. Proceedings before the Special Commissioners of Income Tax (SCIT)

The Appellant appealed to the SCIT against both Form JA (YA/2010/PYB) and Form JA (YA/2010/CYB) [Appeal (SCIT)].

By way of a Deciding Order dated 14.4.2023 (Deciding Order), the SCIT dismissed the Appeal (SCIT) on the following grounds:

premised on the judgment of Azizah Nawawi J (as she then was) in the High Court case of Opus International (M) Bhd v Ketua Pengarah Hasil Dalam Negeri [2019] MLJU 598, the DGIR had proven on a balance of probabilities that the Appellant was negligent in submitting an incorrect income tax return for the YA of 2010 (2010 Tax Return) as understood in s 39(3) PITA when the Appellant did not correct the errors in the 2010 Tax Return without an unreasonable delay [Alleged Appellant's Negligence (2010 Tax Return)];

in view of the Alleged Appellant's Negligence (2010 Tax Return), the DGIR was empowered to issue Form JA (YA/2010/PYB). Consequently, the DGIR was not time-barred under s 39(1) PITA from issuing Form JA (YA/2010/PYB); and

with regard to Form JA (YA/2010/CYB) -

the SCIT applied the following decisions-

the judgment of Azmi J (as he then was) in the High Court in Ampat Tin Dredging Ltd v Director General of Inland Revenue [1982] 2 MLJ 46;

(ii) Abdul Hamid bin Said J's decision in the High Court case of Esso Production Malaysia Inc v Ketua Pengarah Hasil Dalam Negeri [2003] MSTC 4016; and

(iii) the judgment of the Federal Court delivered by Lee Hun Hoe CJ (Borneo) in Director General of Inland Revenue v Rakyat Berjaya Sdn Bhd [1984] 1 MLJ 248;

in view of the definitions of "petroleum" and "petroleum operations" in s 2(1) PITA, the Appellant's "Country Office" expenses (Country Office Expenses) had no direct relationship (kaitan langsung) with the production of the Appellant's income from its petroleum operations;

by reason of paragraph 11 in the Third Schedule to PITA (Paragraph 11), the Appellant had the burden to prove that Form JA (YA/2010/CYB) was excessive or erroneous. The Appellant failed to discharge this burden as there was no evidence to show that the source of income from the Country Office Expenses was solely due to the source of income from the Appellant's petroleum operations (Panel PKCP berpandangan tanpa fakta yang menyokong fakta bahawa sumber pendapatan bagi [Country Office Expenses] ialah semata-mata daripada sumber pendapatan petroleum maka Perayu tidak berjaya membuktikan rayuan Perayu) - paragraphs 53 to 56 of the SCIT's "Grounds of Deciding Order" (SCIT's Grounds); and

in paragraphs 57 to 61 SCIT's Grounds, the SCIT decided that the Appellant had failed to prove that the Country Office Expenses could be deducted under s 15 PITA because the Country Office Expenses were not incurred wholly and exclusively for the production of the Appellant's gross income under PITA (Panel PKCP berpandangan Perayu telah gagal untuk membuktikan bahawa perbelanjaan bagi Country Office ditanggung sepenuhya dan secara eksklusif bagi menghasilkan pendapatan kasar Perayu di bawah [PITA]). C. Proceedings in the High Court

An appeal to the High Court had been lodged by the Appellant against the Deciding Order [Appeal (High Court)].

The Appeal (High Court) was dismissed with no order as to costs (High Court's Decision). According to the "Grounds of Judgment" (GOJ) in respect of the High Court's Decision-

the SCIT did not commit an error of law with regard to the Alleged Appellant's Negligence (2010 Tax Return) - paragraphs 18 to 25 GOJ;

in paragraphs 26 to 33 GOJ, the learned High Court Judge (as he then was) decided that the DGIR had discharged the burden to prove the commission of the Alleged Appellant's Negligence (2010 Tax Return);

once the DGIR had established a "prima facie" case of the Alleged Appellant's Negligence (2010 Tax Return), according to Paragraph 11, the burden shifted to the Appellant to prove that the sum stated in Form JA (YA/2010/PYB) was excessive or erroneous - paragraph 34 GOJ;

the Appellant had failed to discharge the burden to prove that the sum stated in Form JA (YA/2010/CYB), was excessive or erroneous - paragraphs 35 and 36 GOJ;

in paragraph 57 GOJ, the High Court held that, among others, the Appellant had "deliberately" reported income tax "incorrectly"; and

in respect of Form JA (YA/2010/CYB) -

ss 15(1) and 18(1) PITA are in pari materia with ss 33(1) and 39(1) of the Income Tax Act 1967 (ITA) - paragraphs 37 to 41 GOJ;

the Appellant could not deduct the Country Office Expenses under ss 15(1) and 18(1) PITA because the Country Office Expenses (for the Appellant's offices outside Malaysia) were not expenses "wholly and exclusively incurred" in the production of the Appellant's gross income from the Appellant's "petroleum operations" as understood in s 6 PITA paragraphs 42 to 48 and 56 GOJ; and

the High Court explained in paragraphs 49 to 55 GOJ that the Appellant had failed to discharge the burden under Paragraph 11 to prove that the sum stated in Form JA (YA/2010/CYB) was excessive or erroneous. D. Issues to be determined in this appeal (This Appeal)

This Appeal to the Court of Appeal had been filed by the Appellant against the High Court's Decision.

This Appeal discusses the following three questions:

whether the DGIR was barred by the five-year time period in s 39(1) PITA from issuing Form JA (YA/2010/PYB) to the Appellant. The resolution of this issue depends on the meaning of the term "negligence" in s 39(3) PITA;

if the DGIR was not time-barred from issuing Form JA (YA/2010/PYB) to the Appellant, with regard to both Form JA (YA/2010/PYB) and Form JA (YA/2010/CYB), had the Appellant discharged the legal burden under Paragraph 11 to prove on a balance of probabilities that the Country Office Expenses constituted "outgoings and expenses wholly and exclusively incurred" by the Appellant "in the production of the gross income" of the Appellant as understood in s 6 read with ss 15(1) and 18(1)(a) PITA?; and

if the DGIR was time-barred from issuing Form JA (YA/2010/PYB) to the Appellant, the validity of Form JA (YA/2010/CYB) would depend on the answer to the above issue stated in the above sub-paragraph (2). OUR DECISION E. Whether the DGIR was time-barred by the five-year time period in s 39(1) PITA from issuing Form JA (YA/2010/PYB)

We reproduce below s 39(1) and (3) PITA: "s 39. Assessments and additional assessments in certain cases

The [DGIR], where for any year of assessment it appears to him that no or no sufficient assessment has been made on a chargeable 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 respect of that chargeable 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 [DGIR's] judgment, the assessment with respect to that chargeable person ought to have been made for that year.

The [DGIR], where it appears to him that any form of fraud or wilful default has been committed by or on behalf of a chargeable person, or that any chargeable person has been negligent, in connection with or in relation to tax, may at any time make an assessment in respect of that chargeable 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." (emphasis added).

It is not disputed that the Appellant is a "chargeable person" as defined in s 2(1) PITA.

As a general rule, where for any YA it appears to the DGIR that-

no assessment has been made on a chargeable person under PITA; or

no sufficient assessment has been made on a chargeable person pursuant to PITA the DGIR may make -

an assessment (where no assessment had been previously made); or

an additional assessment (where a previous assessment had already been made) within five years after the expiration of the YA (Five-Year Time Bar).

By reason of s 39(3) PITA, the DGIR can issue an assessment or additional assessment after the lapse of the Five-Year Time Bar in any one of the following three circumstances:

where "any form" of "fraud" had been "committed by or on behalf of a chargeable person" "in connection with or in relation to tax";

where "any form" of "wilful default" had been "committed by or on behalf of a chargeable person" "in connection with or in relation to tax"; or

where a chargeable person had been "negligent" "in connection with or in relation to tax".

Form JA (YA/2010/PYB) had been issued after the effluxion of the Five-Year Time Bar. Consequently, the issue that arose was whether the DGIR could rely on s 39(3) PITA to issue Form JA (YA/2010/PYB) on the ground that the Appellant had been "negligent" in submitting the 2010 Tax Return.

The terms "negligent" and "negligence" in s 39(3) are not defined in s 2(1) PITA or any other provision in PITA.

Section 91(3) ITA states as follows:

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 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." (emphasis added).

As s 91(3) ITA is substantially similar to s 39(3) PITA, we will refer to cases on s 91(3) ITA.

In Chong Woo Yit v Government of Malaysia [1989] 1 MLJ 473, at 474, Gunn Chit Tuan CJ (Malaya) had delivered the following judgment of the Supreme Court: "We would agree that by virtue of the proviso to s 33(1) of the Limitation Act 1953, limitation does not apply to the commencement of any proceedings by the government for the recovery of any tax or interest thereon, although for the purposes of an assessment or additional assessment of tax under s 91 [ITA] not made in any year of assessment or within 12 years after its expiration, the Revenue would still have to show that fraud or wilful default has been committed or that any person has been negligent in connection with or in relation to tax for that year of assessment." (emphasis added). It is clear from Chong Woo Yit that the DGIR has the initial burden to prove the application of s 39(3) PITA, namely, the existence of fraud, wilful default or negligence on the part of the taxpayer (Initial Burden). We are of the following view regarding the Initial Burden-

the Initial Burden on the DGIR is supported by s 103 of the Evidence Act 1950 (EA) which states as follows- "s 103. Burden of proof as to particular fact The burden of proof as to any particular fact lies on that person who wishes the court to believe in its existence, unless it is provided by any law that the proof of that fact shall lie on any particular person." (emphasis added). In accordance with s 103 EA, the DGIR has to discharge the Initial Burden to prove the existence of a "particular fact", ie., fraud, wilful default or negligence on the part of the chargeable person; and

the DGIR has to discharge the Initial Burden on a balance of probabilities.

In respect of the meaning of the terms "negligent" and "negligence" in s 39(3) PITA, we rely on the following trilogy of Court of Appeal judgments on s 91(3) ITA (Trilogy):

in Keysight Technologies Malaysia Sdn Bhd v Ketua Pengarah Hasil Dalam Negeri [2024] 5 MLJ 276, at [166], [167], [170] to [172], [177] to [182] and [187] to [189], Collin Lawrence Sequerah JCA (as he then was) decided as follows- [166] At no time did the respondent request for the valuation report during the audit phase. There was therefore no failure to produce the valuation report as alleged. [167] The appellant cannot therefore be said to have been negligent within the meaning of s 91(3) [ITA]. [170] It is clear from the wording of the section that the fraud, wilful default, or negligent act complained of must be attributable to the loss of tax in question to the respondent. [171] Since it would not have altered the respondent's decision to bring the receipt from the sale of IP rights to tax, we do not see how the nonproduction of the valuation report can be said to be attributable to any loss of tax to the respondent and cannot therefore amount to a negligent act. [172] Since the respondent did not raise the reason for the negligence being the failure to produce the valuation report at the time of issuing the time-barred assessment, they cannot now rely on it to raise it as a reason for lifting the time bar. [177] The appellant's employed a tax agent namely, PricewaterhouseCoopers, who had noted in the appellant's tax computation regarding the RM821,615,000 gain as follows: [178] The respondent's allegation of negligence was based entirely upon their disagreement with the appellant's tax treatment of the said sum as a capital gain in its tax returns. [179] The appellant was obviously advised by its solicitors and PricewaterhouseCoopers that the RM821,615,000 gain was a non-taxable capital gain. [180] The appellant thus had not willy-nilly classified the sum received as capital without the benefit of the relevant advice from specialists in the field. [181] We do not see how therefore the appellant can be said to be negligent for making a return on a tax position by relying upon professional advice. [182] See the cases of Ketua Pengarah Hasil Dalam Negeri v Procter & Gamble (Malaysia) Sdn Bhd [2022] MLJU 743; [2022] 1 LNS 754 and Infra Quest Sdn Bhd Iwn Ketua Pengarah Hasil Dalam Negeri [2016] 8 MLJU 680 which took the position that the mere act of claiming a tax treatment, which the revenue disagrees with, cannot amount to negligence. [187] It is therefore difficult to see how the appellant's act of declaring the same as 'other income' in its income tax returns for YA 2008 under the circumstances described above, to be a negligent act. [188] The lifting of the time bar by the respondent therefore were under the circumstances and for the reasons given above, unjustified. [189] The SCIT and the HC [High Court] had therefore erred by misdirecting themselves accordingly." (emphasis added);

the above judgment in Keysight Technologies Malaysia had been followed by a 2-1 majority decision of the Court of Appeal delivered by See Mee Chun JCA in Etiqa Family Takaful Bhd (previously known as Etiqa Takaful Bhd) v Ketua Pengarah Hasil Dalam Negeri & another appeal [2025] 2 MLJ 536, at [58]. According to Etiqa Family Takaful, at [53] to [57], [59] to [61], [65] and [66] - [53] The notices of additional assessment were issued beyond five years from YAs 2008 to 2010. Section 91(1) [ITA] allows such additional assessment to be made within five years. However, where there has been fraud, wilful default or negligence on the part of the taxpayer, such assessment may be made at any time. ... It may be recalled that the HCJ [High Court Judge] noted that the taxpayer's returns were filed within the statutorily prescribed time and the documents requested by the Revenue were duly provided despite the tax audit being conducted six years upon the expiration of YAs 2008 to 2010. The HCJ found the only fault, if at all, of the taxpayer to be the different interpretation of the law which was an erroneous impression but a reasonable one and did not amount to negligence. [55] The taxpayer is said to be negligent in preparing its tax computation and reporting its income in its tax returns for YAs 2008 to 2010. The HC had found that the only fault of the taxpayer was in having a different interpretation of the law. [56] Negligence has not been defined in ITA. Whiteman on Income Tax (3rd Ed) has often been relied on for the meaning of neglect as follows: 'neglect' means negligence or a failure to give any notice, make any return, statement or declaration or to produce or furnish any list, document or other information required by the Income Tax Act, but a person is not deemed to have failed to do anything required in a limited time if he does it within such extended time as the Commissioner or officer concerned may allow, where a person has a reasonable excuse for not doing anything required he is deemed not to have failed do it if he does it without any reasonable delay. It should be noted that even though an incorrect return was not made fraudulently or negligently originally, a subsequent failure to remedy it without reasonable delay may result in the return being treated as having been made negligently ab initio. [57] The taxpayer relied on a recent decision of this court in Keysight Technologies Malaysia Sdn Bhd v Ketua Pengarah Hasil Dalam Negeri [2024] MLJU 1271. On the other hand, the Revenue relied on Opus International (M) Berhad v Ketua Pengarah Hasil Dalam Negeri [2019] MLJU 598. [59] On the other hand, Opus essentially stated that reliance on professional advice was not sufficient to absolve the taxpayer of negligence nor technical adjustment. We refer to the following paras 33 and 34 where the HCJ [High Court Judge] had considered the very same type of reasons raised: [33] The appellant had submitted that there was no negligence on their part as they had acted in good faith, had made full and frank disclosure, cooperated with the DGIR at all material times and had engaged the services of an independent and professional tax agents in preparing and submitting their income fax returns. However, the SCIT has made a finding of fact that the balance sum of RM19,473,324.13, which the appellant only received vide the Invoice No ST 2019 dated 24 December 1999 and Invoice No ST 2069 dated 6 April 2000 was not for post construction works, but the amount was ascertained for works already done, which can only be ascertained upon the finalization of Linkedua and the appellant's account. Therefore, the failure of the appellant to make amendments to the actual recognition of income for YA 1999 amounts to negligence. (Emphasis added.) [60] There are grounds for the Opus decision in the HC. Although the decision of the HC was affirmed by this court on 7 September 2020, there are no grounds of judgment by this court. Thus, we cannot be certain as to the reasoning behind the decision. [61] There are however grounds of decision given by this court in Keysight Technologies. We agree with the cogent reasons given. It was said that the taxpayer could not be negligent by relying upon professional advice and had not willy-nilly classified the sum received without the benefit of relevant advice from specialists. Coincidentally, the tax specialist advising the appellant in Keysight Technologies and the taxpayer here is the same, PricewaterhouseCoopers and PWC. [65] There thus seems to be a recognition that differing views and taking a more favourable view to a taxpayer is acceptable and reasonable care is regarded as being taken when there is consultation with a competent advisor. Here the differing view is whether s 33(1) [ITA] applies rather than s 60AA(9)(b) where the taxpayer had been advised by a renowned tax specialist. [66] Under the circumstances, we find that the taxpayer was not negligent and the Revenue has not successfully discharged its burden of proof under s 91(3) in relation to the notices of additional assessment for YAs 2008 to 2010." (emphasis added); and

in Merimen Online Sdn Bhd v Ketua Pengarah Hasil Dalam Negeri [2025] 1 MLJ 743, at [39], [41] to [43] and [45], Ahmad Kamal JCA decided as follows- [39] We also find that the SCIT failed to take into account the legal principle that a taxpayer is not automatically said to have committed negligence by virtue of merely claiming for deductions that were not allowed by the DGIR. [41] It is to be noted that the test to determine whether the appellant has committed negligence is the test of 'what a reasonable man would do or would not do'. [42] In the present case, we find that the appellant at all materials times:

obtained professional service of a tax agent in filing of its tax returns;

provided full cooperation by providing all documents requested by the respondent;

made full and frank disclosure to its tax treatment;

filed the tax returns within prescribed statutory time frame for YA 2010 onwards;

was not given an opportunity to explain otherwise nor the respondent gave any reasons at all to justify the basis for raising the time-barred assessments;

only learned the reasons of time-barred assessment in the course of hearing before the SCIT;

did not attempt at any time to evade or avoid tax;

was a good corporate tax payer that duly paid all payable taxes within prescribed statutory time frame; and

never been investigated or reprimanded by the respondent on the past time. [43] Given the above, we are of the view that the appellant could not be said to have acted negligently. Based on the facts in the present case, we are of the view that if there had been any loss of tax, this was not attributable to any negligence on the appellant's part, but rather to the respondent's own delay. We find that the respondent had led no evidence whatsoever to justify the reason for its delay in acting between 2012 and 2014, or between 2014 and 2016. Where the respondent is entitled as of right to raise an assessment within the limitation period, once the limitation period is exceeded, the burden shifts to the respondent to bring itself within the exceptions set out in s 91(3) [ITA]. However, we find that they have failed to do so (see Seiwa Podoyo).” (emphasis added).

We express the following opinion regarding the meaning of "negligence" in s 39(3) PITA:

whether a chargeable person (X) was negligent or otherwise with regard to X's tax return, depends on what a hypothetical "reasonable chargeable person" (Y) would have done or refused to do in X's circumstances. If Y would have done or refused to do what X did or omitted to do respectively, X was not negligent regarding the tax return. Conversely, if Y would not have done or would have done what X did or omitted to do respectively, X had been negligent with regard to the tax return;

premised on the Trilogy-

X was not negligent in submitting a tax return when-

X had appointed a tax agent to advise on the tax return;

(ii) X had filed the tax return within the stipulated time;

(iii) upon the DGIR's request, X had provided all documents and information as requested by the DGIR. In this regard, the DGIR has vast powers under s 31 PITA which provides as follows- "s31. Power to call for specific returns and production of books For the purpose of obtaining full information for ascertaining whether or not a chargeable person is chargeable to tax, the [DGIR] may by notice under his hand require any person

to complete and deliver to the [DGIR] within a time specified in the notice (not being less than thirty days from the date of service of the notice) any return specified in the notice;

to attend personally before the [DGIR] and produce for examination all books, accounts, returns and other documents which the [DGIR] deems necessary; or

to make a return in accordance with paragraph (a) and also to attend in accordance with paragraph (b).” (emphasis added);

(iv) X's disagreement with the DGIR regarding the contents of the tax return, in itself, was not tantamount to X's negligence in respect of X's tax return (X's Negligence); and

X had duly paid all taxes within the stipulated time periods; and

if the DGIR can prove X's Negligence on a balance of probabilities, the DGIR should further prove on a balance of probabilities that the loss of tax was "attributable" to X's Negligence within the meaning of s 39(3) PITA; and

from the view point of the doctrine of stare decisis, a court's findings on the following two issues-

the existence or non-existence of X's Negligence; and

if X's Negligence existed, whether the loss of tax was caused by X's Negligence - are findings of fact (not law) which have no binding effect on other cases.

Firstly, we are of the view that the Appellant had not been negligent in respect of the 2010 Tax Return. This decision is based on the following evidence and reasons:

the Appellant had appointed a tax agent, Messrs Ernest and Young (Messrs EY), to advise the Appellant on the 2010 Tax Return. Hence, as advised by Messrs EY, a hypothetical "reasonable chargeable person" in the Appellant's circumstances, would have submitted the 2010 Tax Return;

the 2010 Tax Return had been filed within stipulated time;

the Appellant had given full co-operation to the DGIR in this case;

the disagreement between the Appellant and DGIR regarding the Appellant's liability under Form JA (YA/2010/PYB), in itself, did not amount to negligence on the part of the Appellant in this case; and

the Appellant had duly paid all taxes due from the Appellant to the DGIR within the stipulated time periods.

Secondly, in view of the evidence and reasons stated in the above sub-paragraphs 23(1) to (5), the DGIR had not discharged the burden under s 103 EA to prove on a balance of probabilities the Appellant's negligence regarding the 2010 Tax Return.

Thirdly, both the SCIT and High Court had committed an error of law in relying on the High Court's judgment in Opus International. This is because the material facts in Opus International are easily distinguishable from the present case. In Opus International-

the taxpayer company had -

completed project management services in a construction project (Project);

finalised the accounts regarding the Project; and

received payment for the taxpayer company's services; and

notwithstanding the facts stated in the sub-paragraphs (1)(a) to (c), the taxpayer company under-declared its income. In such circumstances, the High Court decided that there was negligence on the part of the taxpayer company when the taxpayer company did not correct its income tax return. As explained in the above sub-paragraph 22(3), the factual finding of the negligence of the taxpayer company by the High Court in Opus International, could not bind the SCIT and the learned High Court Judge in this case.

Fourthly, even if there existed the Appellant's negligence regarding the 2010 Tax Return, both the SCIT and High Court had erred in law by not deciding on whether such negligence on the Appellant's part had caused the tax loss.

Lastly, the High Court in this case, had erred in law by deciding in paragraph 57 GOJ that the Appellant had "deliberately" reported income tax "incorrectly". The DGIR had relied on the Appellant's negligence to issue the Form JA (YA/2010/PYB) and not the wilful default of the Appellant.

In view of the reasons stated in the above paragraphs 21 to 27, especially the errors of law committed by both the SCIT and High Court-

the DGIR was barred by s 39(1) PITA from issuing the Form JA (YA/2010/PYB); and

we set aside the Form JA (YA/2010/PYB). F. Could the Appellant lawfully deduct Country Office Expenses?

We reproduce below -

the definitions of "petroleum" and "petroleum operations" in s 2(1) PITA;

ss 6(1), 15(1) and 18(1) PITA; and

Paragraph 11- "s2(1) "petroleum" means any mineral oil or relative hydrocarbon and natural gas existing in its natural condition and casinghead petroleum spirit including bituminous shales and other stratified deposits from which oil can be extracted; petroleum operations" means -

searching for and winning or obtaining of petroleum in Malaysia by or on behalf of any person for his own account or on a joint account with any other person by any drilling, mining, extracting or other like operations or process, in the course of a business carried on by that person engaged in such operations, and all operations incidental thereto, and any sale or disposal by or on behalf of that person of petroleum so won or obtained, and includes the transportation within Malaysia by or on behalf of that person of petroleum so won or obtained to any point of sale or delivery or export, but does not include -

any transportation of petroleum outside Malaysia;

(ii) any process of refining or liquefying of petroleum;

(iii) any dealings with products so refined or liquefied; or

(iv) service involving the supply and use of rigs, derricks, ocean tankers and barges; and

any sale or disposal by Petroliam Nasional Berhad within Malaysia of petroleum obtained from outside of Malaysia and includes the transportation within Malaysia by, or on behalf of, Nasional Berhad of such petroleum to any point of sale or delivery within Malaysia; s 6. Ascertainment of gross income Subject to this Act, the gross income of a chargeable person for the basis period for a year of assessment from his petroleum operations shall be the gross income for that period ascertained in accordance with the following provisions of this Chapter (that chargeable person and that period being referred to in those provisions as the relevant chargeable person and the relevant period respectively). s15. Deduction in respect of outgoings and expenses

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

subject to subsection (2), any sum payable for that period (or for any part of that period) by way of interest upon any money borrowed by that chargeable person and -

employed in that period in the production of the gross income; or

(ii) laid out on assets used or held in that period for the production of the gross income: Provided that any sum deductible under this paragraph shall not exceed the amount which in the opinion of the Director General would have been the fair amount of interest in a similar borrowing transaction made by independent parties dealing with one another at arm's length;

rent payable for that period (or for any part of that period) by that chargeable person in respect of any land or building or part thereof occupied by that chargeable person in that period for the purpose of producing the gross income;

expenses incurred during that period for the repair of premises, plant, machinery or fixtures employed in the production of the gross income or for the renewal, repair or alteration of any implement, utensil or article so employed (being one of a class of implements, utensils or articles which as a class have a working life under normal conditions of use of less than two years or are subject to substantial wastage or loss annually or more frequently), excluding the cost of reconstructing or rebuilding-

any premises, buildings, structures or works of a permanent nature;

(ii) any plant or machinery (other than an implement, utensil or article of such a class); or

(iii) any fixtures;

assessment rates payable for that period (or for any part of that period) by that chargeable person under any law relating to local authorities, in respect of any property used for his petroleum operations;

such other deductions as may be prescribed. s 18. Deductions not allowed

Subject to any express provision of this Act, in ascertaining the adjusted income of any chargeable person for the basis period for a year of assessment no deduction from the gross income for that period shall be allowed in respect of-

any disbursements or expenses not being money wholly and exclusively laid out or expended for the purpose of producing the gross income;

any capital withdrawn or any sum employed or intended to be employed as capital;

any amount in respect of any payment to any pension, provident, savings, widows and orphans or other similar fund or society which is not an approved scheme;

(Deleted by Act A353);

rent of, or cost of repairs to, any premises or any part thereof not used for the purpose of his petroleum operations;

the depreciation of any premises, buildings, structures, works of a permanent nature, plant, machinery or fixtures;

any expenditure incurred in relation to petroleum operations, being expenditure which is qualifying expenditure for the purposes of the First Schedule or the Second Schedule and which but for this paragraph would be deductible in ascertaining the adjusted income;

interest, royalty, services, technical advice assistance, rent or other payments made under any agreement or arrangement for the use of moveable property derived from Malaysia or contract payment to a non-resident contractor from which tax is deductible under the provisions of the law for the time being in force in Malaysia relating to income tax, if tax has not been deducted therefrom and paid to the Director General in accordance therewith: Provided that -

this paragraph shall not apply if the payer has paid the amount of deduction of tax and the increased amount which is equal to ten per cent of that deduction which are due and payable under the provisions of that law; and

(ii) where such tax is deducted or such amount is paid after the due date for the furnishing of a return for a year of assessment that relates to such payment, the tax or amount so paid shall not prejudice the imposition of penalty under subsection 52(2) if a deduction on such payment is made in such return or is claimed in the information given to the Director General in arriving at the adjusted income of the payer;

(Deleted by Act A381);

any amount of chargeable tax payable under this Act;

any amount of income tax or of any identical or substantially similar tax;

(Deleted by Act 619);

any sum paid by way of rentals in respect of a motor vehicle, other than a motor vehicle licensed by the appropriate authority for commercial transportation of goods or passengers, in excess of fifty thousand ringgit: Provided that if the motor vehicle has not been used by any person for any purpose prior to the rental and the total cost of the motor vehicle does not exceed one hundred and fifty thousand ringgit, any sum paid by way of rental in excess of one hundred thousand ringgit: Provided further that the maximum amount of deduction in respect of the rentals of such motor vehicle in the year of assessment and subsequent years of assessment shall not in the aggregate exceed fifty thousand ringgit or one hundred thousand ringgit, as the case may be, in respect of that motor vehicle;

a sum equal to fifty percent of any expenses incurred in the provision of entertainment including any sums paid to an employee of that chargeable person for the purpose of defraying expenses incurred by that employee in the provision of entertainment: Provided that this paragraph shall not apply to the expenses incurred in the provision of entertainment to his employees except where such provision is incidental to the provision of entertainment for others;

notwithstanding the proviso to paragraph (n), any expenditure incurred in the provision of a benefit or amenity to an employee consisting of a leave passage within or outside Malaysia;

any amount paid or to be paid in respect of goods and services as input tax by the chargeable person if he is liable to be registered under the Goods and Services Tax Act 2014 and has failed to do so, or if he is entitled under that Act to credit that amount as input tax; or

any amount of output tax paid or to be paid under the Goods and Services Tax Act 2014 which is borne by the chargeable person if he is registered or liable to be registered under the Act. Paragraph 11. The onus of proving that an assessment against which an appeal is made is excessive or erroneous shall be on the appellant." (emphasis added).

The Appellant, as a chargeable person, could only deduct the Country Office Expenses (incurred outside of Malaysia) if the Appellant can prove the following two cumulative conditions [2 Conditions (Allowable Deduction)]:

as required by s 6 read with ss 15(1) and 18(1)(a) PITA, the Country Office Expenses were expended overseas by the Appellant for the purpose of producing the Appellant's "gross income" [1 $ ^{1 \mathrm{st}} $ Condition (Allowable Deduction)]; and

reading together ss 15(1) and 18(1)(a) PITA, the Country Office Expenses constituted expenses which had been "wholly and exclusively" expended outside of Malaysia for the purpose of producing the Appellant's gross income $ [ 2 ^{nd} $ Condition (Allowable Deduction)]. F(1). Had the Appellant fulfilled the $ 1^{\mathrm{st}} $ Condition (Allowable Deduction)?

Reading together ss 6, 15(1) and 18(1)(a) PITA, the Appellant had to prove that the Country Office Expenses were expended outside of Malaysia for the purpose of producing the Appellant's "gross income".

According to s 6 PITA, "gross income" of the Appellant is derived from the Appellant's "petroleum operations". We will now turn to the wide definition of "petroleum operations" in s 2(1) PITA. This definition of "petroleum operations" has the following four separate limbs [4 Limbs (Petroleum Operations)]:

"searching for and winning or obtaining of petroleum in Malaysia" in s 2(1)(a) PITA $ [1^{\mathrm{st}} $ Limb (Petroleum Operations)]. The term "petroleum" is defined widely in s 2(1) PITA;

"all operations incidental" to the $ 1^{\mathrm{st}} $ Limb (Petroleum Operations) in s 2(1)(a) PITA $ [2^{\mathrm{nd}} $ Limb (Petroleum Operations)];

"any sale or disposal by or on behalf of that person of petroleum so won or obtained" in s 2(1)(a) PITA $ [3^{rd} $ Limb (Petroleum Operations)]. The $ 3^{rd} $ Limb (Petroleum Operations) excludes matters stated in sub-paragraphs (a)(i) to (iv) of the definition of "petroleum operations" in s 2(1); and

"any sale or disposal by [Appellant] within Malaysia of petroleum obtained from outside of Malaysia" in s 2(1)(b) PITA [ $ 4^{\mathrm{th}} $ Limb (Petroleum Operations)].

Both the SCIT and High Court committed two errors of law as follows:

the SCIT and the learned High Court Judge did not allude to the 4 Limbs (Petroleum Operations); and

the SCIT and High Court should have decided that the Country Office Expenses had been expended by the Appellant outside Malaysia and fell within all the 4 Limbs (Petroleum Operations) in the following manner-

the $ 1^{\mathrm{st}} $ Limb (Petroleum Operations) was satisfied because the Appellant had to expend the Country Office Expenses overseas so as to attract foreign entities to enter into joint ventures with the Appellant for the purpose of "searching for and winning or obtaining of petroleum in Malaysia";

upon the fulfilment of the $ 1^{\mathrm{st}} $ Limb (Petroleum Operations), the Country Office Expenses were incurred outside Malaysia for "all operations incidental to the $ 1^{\mathrm{st}} $ Limb (Petroleum Operations). In other words, the $ 2^{\mathrm{nd}} $ Limb (Petroleum Operations) had been satisfied by the Country Office Expenses;

after the extraction of "petroleum", the Country Office Expenses had to be expended overseas for "any sale or disposal by or on behalf of that person of petroleum so won or obtained", namely, the fulfilment of the $ 3 ^{rd} $ Limb (Petroleum Operations); and/or

the 4th Limb (Petroleum Operations) was satisfied with regard to the Country Office Expenses incurred outside of Malaysia because of the Appellant's "sale or disposal ... within Malaysia of petroleum obtained from outside of Malaysia". F(2). Did the Appellant satisfy the $ 2^{\mathrm{nd}} $ Condition (Allowable Deduction)?

Section 33(1) ITA is similar to ss 15(1) and 18(1)(a) PITA. According to s 33(1) ITA- "s 33. 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 that period by that person in the production of gross income from that source, including -...” (emphasis added).

In Aspac Lubricants (M) Sdn Bhd v Ketua Pengarah Hasil Dalam Negeri [2007] 6 MLJ 65, at 68 and 69 to 70, Gopal Sri Ram JCA (as he then was) delivered the following judgment of the Court of Appeal regarding s 33(1) ITA: "The appellant is a private limited company. It blends and sells lubricants for motorised vehicles. It also sells some equipment and other products. During the years of revenue assessment 1989,1990,1991 and 1992 the appellant gave away certain promotional items to its customers and dealers. There were two categories of promotional items. First, those given to dealers ('the dealers' items') who marketed the appellant's products to members of the public. These did not carry the appellant's logo on them. They were such items as electrical appliances and beverages. Nothing turns on the dealers' items as the appellant taxpayer does not challenge the decision by Revenue in respect of these. Second, those given away to customers ('the customers' items') who purchased the appellant's products. These included such items as mugs, 'T' shirts and umbrellas which carried the appellant's logo. So, if you went along to a petrol kiosk and bought one of the appellant's products, say, a can of 'Castrol' engine oil, for your motor car, you would receive one of the customers' items. The appellant deducted the expenses incurred on all these promotional items from its gross income for each year of assessment because - and this is the nub of the appellant's case - it took the view that these were expenses wholly and exclusively incurred in the production of its gross income. Revenue, after initially allowing these deductions, declined to permit them because - and this is the nub of Revenue's case - they were entertainment expenses and hence liable to be taxed without the benefit of any deduction. Both the Commissioners and the High Court found for Revenue. The appellant has now appealed to us. The appellant relies on what is commonly referred to as 'the basket provision' to support its deduction of the expenses in question. This is in fact the opening paragraph of s 33(1) [ITA] which reads as follows: The issue before the Commissioners and the court below was this. Were the monies incurred by the appellant taxpayer in providing the customers items - to quote the words of the Act - expenses wholly and exclusively incurred during that period by that person in the production of gross income? Or were they 'expenses incurred in the provision of entertainment' as contended by Revenue. If the former, then the appellant would be entitled to deduct them: if the latter it would not. Upon this rather simple question we were regaled with authorities which, in my view, did not assist in the resolution of the question. Turning now to this appeal, I think that the proper approach in determining whether the expenses in respect of the customers' items were incurred in the production of income, is to examine the true nature of the transaction between the appellant and its customers. In my judgment the expenses incurred in respect of the customers' items did not amount to entertainment within s 39(1)(l). In arriving at my conclusion on this point, I find it unnecessary to go further than Romer LJ's judgment in Bentleys, Stokes & Lowless v Beeson [1952] 2 All ER 82 where he said this: Entertaining involves inevitably the characteristic of hospitality. Giving to charity or subscribing to a staff pension fund involves inevitably the object of benefaction. An undertaking to guarantee to a limited amount a national exhibition involves inevitably supporting that exhibition and the purposes for which it has been organised. But the question in all such cases is: Was the entertaining, the charitable subscription, the guarantee, undertaken solely for the purposes of business, that is, solely with the object of promoting the business or its profit earning capacity? It is, as we have said, a question of fact. And it is quite clear that the purpose must be the sole purpose. The paragraph says so in clear terms. If the activity be undertaken with the object both of promoting business and also with some other purpose, for example, with the object of indulging an independent wish of entertaining a friend or stranger or of supporting a charitable or benevolent object, then the paragraph is not satisfied though in the mind of the actor the business motive may predominate. For the statute so prescribes. Per contra, if in truth the sole object is business promotion, the expenditure is not disqualified because the nature of the activity necessarily involves some other result, or the attainment or furtherance of some other objective, since the latter result or objective is necessarily inherent in the act. Now, apply the proposition in that passage to the facts here. The appellant expended the monies in question for the sole object of promoting its business. At the end of the day, the dominant, if not the sole object or purpose of the customers' items is to promote the appellant's business. So it is not, and cannot be described as, entertainment within s 39(1)(l)." (emphasis added).

Premised on Aspac Lubricants, the sole object of the Country Office Expenses expended overseas, was to promote -

the production of the Appellant's gross income; and

the Appellant's business. As explained above, both the SCIT and High Court had erred in law by not deciding that the Appellant had satisfied the $ 2^{n d} $ Condition (Allowable Deduction).

The SCIT and learned High Court Judge had wrongly relied on the High Court's judgment in Esso Production Malaysia. This is because Esso Production Malaysia concerned the cost of restructuring of the appellant company's six regional offices outside of Malaysia. The sole object of such restructuring, could not be for the promotion of the production of the appellant company's gross income and business. G. Whether the Appellant had proven errors in both Form JA (YA/2010/PYB) and Form JA (YA/2010/PYB)

As explained in the above Part E, the DGIR was time-barred from issuing the Form JA (YA/2010/PYB). Alternatively, even if the DGIR had lawfully issued the Form JA (YA/2010/PYB) under s 39(3) PITA, due to the reasons stated in the above Parts F, F(1) and F(2), the Appellant was entitled to deduct the expenses in question pursuant to s 6 read with ss 15(1) and 18(1)(a) PITA.

We have no hesitation to decide that the Appellant has succeeded to discharge the burden under Paragraph 11 to show that both Form JA (YA/2010/PYB) and Form JA (YA/2010/PYB) had been issued erroneously by the DGIR.

Premised on the above evidence and reasons-

This Appeal is allowed;

both the High Court's Decision and Deciding Order are set aside;

both Form JA (YA/2010/PYB) and Form JA (YA/2010/CYB) are set aside;

the DGIR shall refund the following sums of money to the Appellant-

with regard to Form JA (YA/2010/PYB), a sum of RM11,392,044.00; and

an amount of RM4,280,556.00 in respect of Form JA (YA/2010/CYB) - within six (6) months from 29.1.2026; and

with the agreement of both parties, no order as to costs for This Appeal, proceedings in the High Court and before the SCIT.

I have previously forwarded a draft copy of this judgment (Draft) to Ravinthran a/l Paramaguru and Nadzarin bin Wok JJCA. Both my learned brothers had concurred with the Draft. DATE: 29 JANUARY 2026 WONG KIAN KHEONG Judge Court of Appeal Counsel for Mr. S. Saravana Kumar & the Appellant: Puan Nur Amira bt. Ahmad Azhar (Messrs Rosli Dahlan Saravana Partnership) Counsel for Puan Ashrina bt.Ramzan Ali (Senior Revenue Counsel), the Respondent: Puan Nik Amyrah Syarinie binti Mohd Dusuki (Revenue Counsel) & Puan Siti Aisyah binti Md Nasir (Revenue Counsel) (Lembaga Hasil Dalam Negeri)