Tropical Land Property Sdn Bhd v Ketua Pengarah Hasil Dalam Negeri (JA-25-29-10/2020)

This is a Judicial Review application by the Applicant seeking inter alia, a declaration that the Respondent is bound by and shall give effect to the decision of the High Court Decision in Prima Nova Harta Development Sdn. Bhd. v Ketua Pengarah Hasil dalam Negeri (WA-14-7-12/2019) (“Prima Nova”) which held that the Bumiputera Quote Release Expenditure is allowed for tax deduction under subsection 33(1) of the Income Tax Act 1967 [Act 53]. [2] After having read the parties’ written submissions, and after having heard the oral submissions of the parties, I allowed the Applicant’s Judicial Review application with costs of RM5,000.00 to be paid by the Respondent to the Applicant.

Below are the grounds of my decision.

The background facts in this suit are gathered from the cause papers and submissions filed by the parties and stated in chronological order.

In 1971, Bumiputera Quotas were introduced in Malaysia under the New Economic Policy. Developers are required to allocate a certain percentage (%) of units which may only be sold to Bumiputera buyers (“Bumiputera Units”) at a discounted price (“Bumiputera Discount”). There are specific regulations and mechanism which the State Authorities operate to enforce these Quotas vary from state to state.

When the developers are unable to sell all or part of the Bumiputera Units to Bumiputera buyers, the developers has to obtain prior release from such Quotas, subject to the specific conditions imposed by the State Authorities. For this purpose, the developers need to pay certain contribution to the State Authorities. The contribution is usually equivalent to the amount of the Bumiputera Discount that would have applied to the units.

In this case, the Applicant, Tropical Land Property Sdn. Bhd. is a property development company which completed a few projects in Johor, on which the State Government had imposed a Bumiputera Quota.

The Applicant has applied to the Johor State Government for the release of the allocated Bumiputera lots since the Applicant was unable to sell those lots. In order to obtain ths release, the Applicant has paid contributions of approximately RM5 million (the “Bumiputera Quota Release Expenditure”) to the Johor State Government.

The Applicant claimed a deduction on the expenditure as it was wholly and exclusively incurred in the production of its income. Without incurring this expenditure, the Applicant would not have been able to sell the Bumiputera Units.

A few years later, the Revenue conducted an audit and disallowed the Applicant’s deduction and consequently demanded almost RM2 million in additional taxes from the Applicant. The reasons for imposed additional tax as follows:

the expenditure is the cost of applying for release of the Bumiputera Units to the public. This is a payment to obtain release of the Applicant’ s obligation to sell to Bumiputeras. It is capital in nature and not made in the production of income . In support of this proposition, the Respondent cited the SCIT’s decision in Prima Nova; and

the expenditure also cannot be claimed as a donation to the State Government under subsection 44(6) because it was made for the release of the condition to sell to Bumiputeras. Donations are made without conditions and without consideration (“balasan ”) in return. [11] In this Judicial Review application, the Applicant sought inter alia, the following reliefs:

an order for Certiorari to quash the Respondent’s decision in the form of the Notices of Additional Assessment for the Years of Assessment (“YAs”) 2017 dan 2018, both dated 10.07.2020 (“the Respondent’s Decision”) on the grounds that the Respondent’s Decision was illegal, void, unlawful and/or in excess of authority, and had been irrational and/or unreasonable;

a declaration that the Respondent is bound by and shall give effect to the decision of the High Court in Prima Nova which held that the Bumiputera Quote Release Expenditure is allowed for tax deduction under subsection 33(1) of Act 53;

a declaration that the Bumiputera Quota Release Expenditure is in any event allowed for tax deduction under subsection 44(6) of Act 53;

a declaration that there is no basis in law or in fact for the Respondent to arrive at its Decision by applying the decision of the Special Commissioners of Income Tax (“SCIT”) in Prima Nova when the SCIT’s decision has already been reversed by the High Court; and

a declaration that the Respondent had in any event, failed to take into account all the circumstances and facts of the case in adding back the Bumiputera Quote Release Expenditure incurred by the Applicant in YA 2017. ISSUES TO BE DETERMINED [12] The issues for the determination of this Court are as follows:

whether the Applicant’s Judicial Review can be sustained; and

whether monies paid by the Applicant to the Johor State Government to obtain a release of Bumiputera Units can be tax deductible under subsection 33(1) and/or subsection 44(6) of Act 53. COURT ANALYSIS AND FINDINGS Whether the Applicant’s Judicial Review can be sustained [13] In order to determine the issues raised by both parties, I will examine the evidence presented via the Affidavits filed by the parties. [14] The Respondent contended a Judicial Review should only look at the decision-making process of the Respondent and not the merit of the Respondent’s decision. [15] Therefore, the Respondent argues, in order for the Applicant to succeed in a Judicial Review application, the Applicant must show that the process of decision making on part of the Respondent is tainted with illegality, irrationality, unreasonableness, void, unlawful or in excess of authority which enables the Applicant to apply for the decision to be quashed by the Court. [16] The Respondent claims that the Applicant had failed to do so. The Respondent heavily and strictly denies that the Respondent’s decision was tainted with illegality, irrationality, unreasonableness, void, unlawful or in excess of authority and that the Applicant had merely cited principles of laws derived from a case without looking into the facts and circumstances of the case and its applications to the same. [17] The Respondent states that it had always acted within the jurisdiction given to the Respondent under Act 53. [18] The Respondent further argues that the merits of the assessments falls within the purview of the SCIT thus is for the SCIT to determine whether the expenses is deductable under subsection 33(1) of Act 53 as claimed by the Applicant in their return forms. [19] The Respondent submits that there is no exceptional circumstances present herein warranting judicial review as facts are being disputed and there is no elements of illegality, irrationality, unreasonableness, void, unlawful or in excess of authority present herein. [20] The Respondent submits that fact finding was needed to establish the purpose of the payments to Tabung Perumahan Negeri Johor for the release of the Bumiputera Units to the public and whether it is an expense claimable under subsection 33(1) or subsection 39(1). The Applicant would also need to prove on facts whether the so-called contribution payments made by them falls under subsection 44(6) Act 53. The purpose, intention and substance of the said payments needed to be established through facts. [21] The Applicant cannot bypass the SCIT especially since the case in issue involves questions of facts. Thus, the Respondent submits that the mode under Order 53 Rules of Court 2012 is unsuitable for cases in this nature as facts findings through witnesses needed to be done and the application of the principles of laws are based on facts as decided in the cases of Ketua Pengarah Hasil Dalam Negeri v Alcatel-Lucent (M) Sdn. Bhd. & Anor. [2017] 2 CLJ 1 and Tio Chee Hing v United Overseas Bank

(M) Bhd. [2013] 3 MLJ 212. [22] For income tax cases, the statutory appeal remedy is available under section 99 of Act 53 which reads as follows: “Right of appeal

(1) A person aggrieved by an assessment made in respect of him may appeal to the Special Commissioners against the assessment by giving to the Director General within thirty days after the service of the notice of assessment or, in the case of an appeal against an assessment made under section 92, within the first three months of the year of assessment following the year of assessment for which the assessment was made (or within such extended period as regards those days or months as may be allowed under section 100) a written notice of appeal in the prescribed form stating the grounds of appeal and containing such other particulars as may be required by that form.”. [Emphasis added] [23] From the facts found by the SCIT in the cases of Prima Nova and Sovereign Teamwork (M) Sdn. Bhd. v Ketua Pengarah Hasil Dalam Negeri [PKCP(R) 476-477/2016] (“Sovereign Teamwork”), the payments relating to Bumiputera Quota are not expenses deductable under section 33 of Act 53. Thus, the Respondent submits that if the Applicant is still contesting the decision of the Court of Appeal which set aside the decision of the High Court in Prima Nova, thus there is still dispute of facts which then needs to be determined by the SCIT. [24] The Applicant, on the other hand, contended that the Court should considered the principles laid down in the case Exxon Chemical (Malaysia) Sdn. Bhd. v Ketua Pengarah Hasil Dalam Negeri [2005] 4CLJ 810 where Justice Gopal Sri Ram stated the followings: “8. It is clearly established by the Federal Court in the Majlis Perbandaran Pulau Pinang that an application for a judicial review is not barred by the non exercise of its internal appeal procedure . As stated by Edgar Joseph Jr. FCJ in that case, whilst in theory the court often been recited with incantation that alternative remedy must be exhausted, in practice the courts are often much kinder to an Applicant with good case. Having analysed the various conflicting decisions of the English cases in that case the Federal Court states that generally, if an Applicant can demonstrate illegality or unlawful treatment then it would be wrong to insist on exhaustion of local remedy . The Federal Court acknowledged that in certain cases such as tax cases, appeal procedure is provided under the statute but if the Applicant can demonstrate excess or abuse of power or a breach of natural justice, judicial review would still be granted .

Thus relying on the principle laid down in Majlis Perbandaran Pulau Pinang I hold that the availability of an alternative internal remedy in the form of an appeal process will not bar an application for judicial review . This is so especially where the complaint made to the court is one on error of law or abuse of power that goes to the legality of the conduct of the decision - making authority as in this case.

The Applicant here had demonstrated illegality and unlawful treatment, thus it would be wrong to insist that it exhausts its statutory right of appeal, even if it is available. In fact a complaint that raises a question of law, as in the present case, would preferably be referred to the court, being a more appropriate forum .”. [Emphasis added] [25] I am guided by the Court of Appeal case of Muhibbah Engineering (M) Bhd. v Ketua Pengarah Hasil Dalam Negeri [2022] 4 MLJ 660 where it was held as follows: …“[11] It was acknowledged by the appellant themselves that s 99 of the ITA provides an alternative remedy for aggrieved Applicants to appeal to the SCIT against an assessment issued by the respondent. However, the appellant took the position that the provision for the said alternative remedy was not a bar to the aggrieved tax payer. In this regard, the appellant reiterated that the Supreme Court in Government of Malaysia & Anor v Jagdis Singh [1987] 2 MLJ 185 [1987] CLJ Rep 110 had recognised that judicial review is available even where there is an alternative remedy in the following exceptional circumstances:

clear lack of jurisdiction; or

blatant failure to perform statutory duty; or

a serious breach of the principles justice of natural justice. [12] Upon being brought to our attention, we have noted that the Court of Appeal had unanimously upheld the High Court’s decision in Ketua Pengarah Hasil Dalam Negeri v Metacorp Development (Civil Appeal No W-01–239–11) (unreported) that the High Court has the jurisdiction to hear the Applicant’s application notwithstanding the existence of a domestic remedy of an appeal to the SCIT. The Director General of Inland Revenue (‘DGI’)’s leave application was dismissed by the Federal Court. [13] On the law as it stands, leave for judicial review should be granted in tax cases in various circumstances despite the existence of an appellate structure in the legislative structure before recourse to judicial remedies. The non-exercise of the internal appeal procedure is no bar to a judicial review application. This was made clear in Government of Malaysia & Another v Jagdis Singh which in our view, is still good law… … [21] We must pause here to note that the decision being challenged in this appeal is the dismissal of the application for leave to apply for JR and not a decision at the substantive hearing of the action. According to the respondent even at the leave stage, the appellant is required to prove a breach of natural justice. Reference was made to Majlis Perbandaran Pulau Pinang v Syarikat Berkerjasama-Sama Serbaguna Sungai Gelugor dengan Tanggungan [1999] 3 MLJ 1, where the Federal Court held:

There are certain classes of cases such as planning, employment and tax cases whereby a statute provides for a special appeal procedure, and so the courts understandably may not grant judicial review. However, this is always subject to the grant of review in certain cases, for example, where an applicant is able to demonstrate excess or abuse of power, or breach of natural justice. [22] In this case, as the appellant had been given ample opportunity to explain why the respondent should not raise the assessments which is the subject of the appellant’s dissatisfaction, the latter’s argument was that there was no question of denial of natural justice to the appellant. As such, it was submitted that there was no flaw in the respondent’s decision-making process to warrant a JR application and the correct recourse available to the appellant to seek a remedy was the appeal route under s 99 of the ITA 1967. Any decision of the SCIT is subject to appeal to the High Court, thereby, providing an avenue to the appellant to seek redress. [23] As there was an alternative remedy available to the appellant, the respondent further argued that the JR application should not be allowed to proceed beyond the leave stage unless where exceptional circumstances are shown (see Iskandar Coast Sdn Bhd v Ketua Pengarah Hasil Dalam Negeri [2019] MLJU 429). Also, that the court would rarely intervene in the respondent (‘DGIR’)’s decision and that there were only two critical decisions where the court did intervene and the facts of the said cases were distinguishable from the present facts. Among these is the Court of Appeal case of Society of La Salle Brothers v Ketua Pengarah Hasil Dalam Negeri [2018] 1 MLJ 376 where the Court of Appeal held that the DGIR has no basis in law to issue the notices of assessment and the decision to issue the notices was illegal and without jurisdiction… … [25] With respect, we are unable to agree with the contention of the respondent that the court hearing the JR should determine at the leave stage itself whether this is an exceptional case for judicial intervention when the alternative remedy had not been exhausted. To our minds, an important issue of law has been raised as to the correctness of the respondent’s to decision impose the penalty in question on the appellant and as to whether this is an exceptional case amenable to JR and this is a question that should properly be addressed and decided at the substantive stage on merits. Contrary to the respondent’s contention, we are in agreement with the appellant that its case as presented is patently an arguable case that should succeed at least at the leave stage. We are inclined to allow the appellant to proceed to the substantive stage to ventilate the issues of law raised for serious consideration and not to be shut out at the preliminary stage...”. [Emphasis added] [26] Based the the abovementioned cases, I find that this application for a Judicial review is not barred by the non-exercise of its internal appeal under section 99 of Act 53. [27] In the instant case, there is no dispute of facts that the Bumiputre Quota Release Expenditure were made to obtain the release Bumiputera Units to the public and the said expenditures were not penalties or fines. This has been averred by the Revenue’s officer in her affidavit that “sifat pembayaran dalam kes Prima Nova berbeza kerana ianya pembayaran penalti/denda sementara sifat pembayaran kes Pemohon bukan penalti/denta” (see paragraph 10(b) of Enclosure 45). [28] I find the contentions of the Respondent are contradictory. On one hand, the Respondent argued that the principles of Prima Nova applies nonetheless argued that disallowance of the expenses are not solely premised on the case of Prima Nova per se. Merely labelling the said payments without looking into the substance of the payments tantamount to application of precedence without determining the facts. The contradictory stance of the Respondent showed that the Respondent failed to take into account the difference payment mechanism between the Selangor State Government and Johor State Government in making its decision. The audit of Revenue should have examine the documents produced by the Applicant to justify the deduction claimed by the Applicant and to investigate the matter by asking the Applicant to produce further evidence to prove the payment to the Johor State Government is a contribution or penalty before imposing th additional tax of RM2 million. [29] I find that the Respondent’s decision to impose additional tax of RM2 million solely based on the decision of Prima Nova was flawed as the SCIT in Prima Nova decided that the penalty or fine imposed against the developer for the redemption is capital in nature and not deductible under subsection 33(1) of Act 53, whereas in the instant case, the payment is in the form of contributions to the Tabung Perumahan Negeri Johor. The decision of the Respondent is irrational and/or unreasonable. [30] Further, the Respondent has failed to appreciate the different payment mechanisms between the Selangor’s 2007 Circular and the Dasar Perumahan Rakyat Johor in relation to the release of Bumiputera Qoata when they decide the payment of contribution to the Tabung Perumahan Negeri Johor is capital in nature which is not deductible under subsection 33(1) of Act 53. Hence, there is a need of judicial intervention to correct the decision of the Respondent. [31] Further, the contention of the Respondent that the nature of the payments made, the substance and its purpose of payment need to be determined by SCIT is devoid of merits as the nature of payments made and the purpose of payment were decided by the State Authorities and all have been stated by the Applicant in their assessment forms. Hence, there is no necessity for it to be determined by SCIT. [32] Therefore, I find the Applicant has raised an important issue of law as to the correctness of the Respondent’s decision to impose the additional tax on the Applicant based on the decision of SCIT in the case of Prima Nova. Hence, I am of the considered view that the issues involved the interpretation of the relevant provisions under Act 53 and this Court is the appropriate forum to determine the issues compared with SCIT. Whether monies paid by the Applicant to the Johor State Government to obtain a release of Bumiputera Units can be tax deductible under subsection 33(1) and / or subsection 44(6) of Act 53 [33] The Applicant contended that—

the payment of contributions is allowed for deduction under subsection 33(1) of Act 53 as the payment is to enable the taxpayers to sell the Bumiputera Units;

the expenditures satisfied the principles for deductibility under subsection 33(1) of Act 53 as the expenditure has been “ wholly and exclusively” incurred “in the production of income. The sole “motive” and “object” of in making the payments were to enable the Applicant sell the Bumiputera Units and to thereby to generate income. It is a necessary part of the Applicant’s working expenses and laid out as part of the process of its profit-earning activities and it is so closely connected to the performance of the Applicant’s business operations that it its indisputably part of the cost of performing it;

the expenditure is not capital in nature and thus is not prohibited for deductions under subsection 39(1) as the Applicant does not obtain any enduring benefit from the payments or bring into existence any asset for the trade;

the expenditure in this case is not a lump sum capitation fee for the entire development, but rather on a per unit basis only for the units which the Applicant seeks to sell to non-Bumiputera. They are made on a recurring basis whenever the Applicant has to apply for such release from the State Authorities. Each payment is specifically attributable to each unit for which release is granted and permission obtained for sale to the general public;

the Respondent has pursuant subsection 138A(1) of Act 53, issued Public Ruling (“PR”) 1/2009 and 9/2022 in respect of the tax treatment to be adopted by property development companies such as the Applicant;

based on PR 1/2009, the Applicant is entitled to deduct all costs that are directly attributable to the development activities or that can be reasonably allocated to such activities. Property development is not restricted to the act of acquiring land for development and construction but also encompasses the act of selling the completed buildings;

the Bumiputera Quota Release Expenditure are costs that are directly attributable to its development activities i.e., the sale of completed building units. This expenditure facilitated the sale of the Bumiputera Units;

as the Applicant comes within the principles set out in PR 1/2009, the Respondent is bound by and must give effect to the Applicant’s claim for deduction pursuant to subsection138 A(3);

under Bumiputera Quota Release mechanism in Johor, the property developers may obtain approval from the Johor State Government for the release of Bumiputera Units. This approval is subject to contributions being paid by the developer to the Tabung Perumahan Negeri Johor (a division of the Johor State

the Applicant has paid the contribution for the Bumiputera Quota Release Expenditure and then claim for tax deduction in the YAs 2014, 2015 and 2016. The Respondent has accepted that the expenditure was paid as contributions. The Respondent has further averred on affidavit that these payments were not penalties/fines ;

Court of Appeal in the case of Prima Nova and Ketua Pengarah Hasil Dalam Negeri v Taman Equine (W-01(A)- 337-06/2021) (“Taman Equine”) have decided penalty or fine imposed under Selangor’s 2007 Circular were not deductible whereas the High Court in the case of Soverign Teamwork decided that contribution paid under Selangor’s 2007 Circular was deductible. This case is pending hearing in Court of Appeal;

from the decided cases, it appears that Judicial trend is generally against allowing deductibility of payments made penalties or fines on the basis that penalties or fines are not incurred in the production of income and/ or capital in nature, and hence, disallowed for deduction under section 39 ;

however, payments made in the nature of contributions would be allowed as such payments are made to enable the Applicant to sell the Bumiputera units. Without making such payments, the Applicant would not be able to generate income from these units. These payments are closely connected to the taxpayers’ income generating activities; and

it is not disputed that Bumiputera Quota Release Expenditure are expenses which have been incurred by the Applicant in the relevant period. The Respondent’s position is that they were not incurred in the production of income and are capital in nature under paragraph 39(1)(c) as it was made for the release of the Applicant’ s obligation to sell the Bumiputera Units. [34] The Respondent contended that –

the basis of the disallowance of the expenses under subsection 33(1) of Act 53 is because the said expenditure is not incurred wholly and exclusively during that period in the production of gross income from that source and should not just be premised on the case of Prima Nova per se;

the principles of law in Prima Nova should apply but both the facts of the case of Prima Nova and this case should be distinguished as it is different;

the payments made for the release of the Bumiputera Quota is not an expense deductable under subsection 33(1) of Act 53 as the nature of the expenses incurred is for the purpose to get the permission or consent of the State Authority to enable the reserved quota for the Bumiputera to be released so that the Applicant can sell it to the non-Bumiputera and thus enduring benefit of the business. Thus, it is capital in nature and the expenditure or payment was not incurred wholly and exclusively in the production of income;

the payments made created intangible assets for the Applicant and as such they were capital expenditure in nature;

by claiming the expenses under section 33 of Act 53, the Applicant had elected to claim the said expenses under section 33 of Act 53 and is now estopped from claiming under subsection 44(6) of Act 53;

the Applicant did not make any application under section 131 of Act 53 to amend their return form to claim under subsection 44(6) of Act 53. The Respondent asserts that this is a self-assessment regime and therefore the onus lies on the Applicant to make their respective claims in their return forms and do the respective amendment, if need be, in their return form. Since the Applicant did not make a claim in their return form for subsection 44(6) of Act 53 and thus it was not entitled to it;

paragraph 97(1)(c) of Act 53 clearly states that an assessment is final and conclusive when an assessment has been determined on appeal and there is no right of further appeal; and

the decision of the learned High Court Judge in the case of Prima Nova was set aside by the Court of Appeal (Civil Appeal No: W-01(A)-318-07/2020) thus the assessments in the Prima Nova case are now final and conclusive. [35] In determining this issue, I take guidance from the Court of Appeal’s decision in the case of Margaret Luping & Ors. v Ketua Pengarah Hasil Dalam Negeri [2000] 3 CLJ 409 where the following was held: “…Held: Per Mokhtar Sidin JCA [1] For a Applicant to qualify for deduction of any expenditure incurred by him, he must first ascertain that the expenditure is an allowable deduction under s. 33 of the Act. Once that is ascertained, he has to find out if the expenditure is barred by the provisions of s. 39(1) of the Act from being so deductible. [2] The net proceeds in the present case were something unique to the State of Sabah used to describe payments made by the licensees for the extraction of commercial timber under the licenses given to them. [3] The net proceeds payment was a compulsory condition imposed in granting the timber license. They were outgoings and expenses wholly and exclusively incurred during that period for the production of gross income from timber operations and hence qualified for deductions under s. 33(1) of the Act.”. [Emphasis added] [36] In this regard, subection 33(1) of Act 53 is referred— “Adjusted income generally

(1) 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…” [Emphasis added] [37] I am of the considered view that the Respondent’s argument is misconceived. It cannot be disputed that without the payments being made, the Applicant would not have been able to sell the Bumiputera Units to the non-Bumiputera purchasers and generate its income. By selling the Bumiputera Units to non-Bumiputera, it directly generates the Applicant’s income as a property developer. [38] The Court is further guided by the case of Strong & Co of Romsey Limited v Woodifield [1906] AC 448 where it was held that in order for an expense to be deductible, it must be closely connected or incidental to the business. Lord Lorebun said as follows: “In my opinion, however, it does not follows that if a loss is in any sense connected with the trade, it must always be allowed as a deduction; for it may be only remotely connected with the trade, or it may be connected with something else quite as much as or even more than with the trade. I think only such losses can be deducted as are connected with in the sense that they are really incidental to the trade itself. They cannot be deducted if they are mainly incidental to some other vocation or fall on the trader in some character other than that of trader. The nature of the trade is to be considered.”. [Emphasis added] [39] I am further guided by the case of British Insulated and Helsby Cables Limited v Atherton [1926] AC 205 where at page 212 of the report, Viscount Cave LC of the House of Lords had stated as follows: “It was made clear in the above cited cases of Usher’s Wiltshire Brewery v Bruce (1) and Smith v Incorporated Council of Law Reporting for England and Wales (2) that a sum of money expended, not of necessity and with a view to a direct and immediate benefit to the trade, but voluntarily and on the grounds of commercial expediency, and in order indirectly to facilitate the carrying on of the business, may yet be expended wholly and exclusively for the purposes of the trade.”. [Emphasis added] [40] The House of Lords in the same case further stated at pages 213–214 of the report that: “…when an expenditure is made, not only once and for all, but with a view to bringing into existence an asset or an advantage for the enduring benefit of a trade … there is very good reason (in the absence of special circumstances leading to an opposite conclusion) for treating such an expenditure as properly attributable not to revenue but to capital…” [Emphasis added] [41] The above principles laid down by the House of Lords in British Insulated and Helsby Cables Limited (supra) is explained in the textbook, Malaysian Taxation by Chin Yoong Kheong at pages 151–152 as follows: “(a) The expression ‘once and for all’ does not mean that the payment should be made in one single sum and at one time. The expression is directed at an expenditure which is made once and for all for procuring an enduring benefit to the business as distinguished from a recurring expenditure in the nature of operational expenses;

An asset or an advantage need not be something material. It may consist of the enrichment of or the improvement to an item of fixed capital.

The expression ‘with a view’ suggests intention. If the intention at the time the expenditure was incurred was to bring into existence an asset or an advantage or enduring nature, the expenditure will be regarded as capital in nature.

The word ‘enduring’ means ‘enduring in the way that a fixed asset endures’. Enduring, therefore, suggests that the asset or advantage acquired must have enough durability to justify its being treated as a capital asset or advantage.”. [Emphasis added] [42] The test is further supported by the case of Vallambrosa Rubber Co. Ltd. v Farmer (Surveyor of Taxes) (1910) 5 TC 529 at page 536, which explains that an indication that an expense is capital expenditure instead of income expenditure is whether the capital expenditure is paid once and for all or whereas income expenditure is recurring. The Lord President stated the criteria as follows: “…Now, I don't say that this consideration is absolutely final or determinative, but in a rough way I think it is not a bad criterion of what is capital expenditure as against what is income expenditure to say that capital expenditure is a thing that is going to be spent once and for all, and income expenditure is a thing that is going to recur every year. Therefore prima facie weeding, which does occur every year, seems to me to be an income expenditure. In the present appeal the payments had been imposed every time timber extractions were done depending on the size of each timber extracted. We agree with counsel for the respondent that the net proceeds were not royalties. Though they were not royalties, the payments were somewhat similar to royalties in the sense that the payments to be made depended on the extracted timber from the concession. It is clear that the payments did not create any intangible asset. They were incurred to produce income.”. [Emphasis added] [43] The Applicant, being unable to sell the Bumiputera Units, opted to obtain the release of the units to sell to non-Bumiputera purchasers. It is clearly necessary and integral for the Applicant to do so and it cannot be disputed that the payment flowed from the act forming the essence of the Applicant’s business and done for the purpose to earn revenue. The payment is therefore unavoidable for otherwise the Applicant will not be able to generate its income. So it is obvious that the Applicant’s purpose or object behind the payment is to procure a benefit, which is purely a business one. As such, such payment is an income expenditure as it is made on recurring basis whenever the Applicant has to apply for such release from the State Authorities. [44] There is another aspect of the test in which the Court has touched upon in the case of Taman Equine ie the fixed capital against circulating capital test. The same type of asset may be either a fixed asset or stock-in-trade according to the nature of the business. What is capital asset in the hands of one person, may be a trading asset in the hands of another, and the nature of a receipt may consequently vary according to the nature of the trade in connection with which it arises. The units that a property developer builds is part of its stock-in-trade. In the instant matter, the Bumiputera Units are the stock-in-trade of the Applicant’s trade and cannot be said to be related to capital asset. The payment was made in order to sell the Bumiputera Units. The effect of the payment was to achieve sales of the stock-in-trade. [45] In Taman Equine’s case, I am of the considered view that the SCIT had failed to appreciate that nowhere in subsection 39(1) of Act 53 stipulates that the payment is non-deductible. Subsection 39(1) of the Act 53 provides for the disallowance of the deduction of certain expenses. So, when there is no express provision stipulating that expenses such as the payment herein is non-deductible, it is trite, more so in tax law, that one can only look at what is clearly stated in the Act and nothing is to be read in nor implied. [46] Upon further perusal of the parties’ written submissions, I am of the considered view that the payment is not of capital in nature since the Applicant has all along, the right to sell. The payment was made so as to enable the Applicant to widen its group or class of people it can sell to. The payment was therefore business normal payment in order to produce income. [47] It is not disputed that without making the payment the Bumiputera units cannot be transferred or released to the non-Bumiputera. It cannot be disputed that without the payments being made, the Applicant would not have been able to sell the Bumiputera Units to the non-Bumiputera purchasers and generate its income. By selling the Bumiputera Units to non-Bumiputera it directly generates the Applicant's income as a property developer. [48] I am of the considered view that the SCIT's finding in Prima Nova is flawed. The payment paid was the penalties or fines imposed by the Selangor State Authority under paragraph 3.2.1 of the Selangor’s 2007 Circular as the Respondent failed to obtain the approval to release the Bumiputera Units prior to the sale. [49] In the instant case, the payment was made to the Tabung Perumahan Negeri Johor under the Johor State Government by way of contribution in order for the relase of Bumiputera Units. [50] It is pertinent to note that the difference between Bumiputera Quota Release mechanism Selangor and Johor are as follows: Selangor Johor Three (3) circulars were issued in 2007 , 2011 and 2019 respectively by the Pengarah Tanah dan Galian Negeri Selangor and the Lembaga Perumahan Hartanah Selangor (“LPHS ”) pertaining to the Bumiputera Quota Release and the mechanism for such payments specifically distinguishes between:

Contributions

Penalties/ Fines • Paid when developers apply for and obtain release prior to sale of the Bumiputera Units. • Equivalent to the % of Bumiputera Discount applicable to the units • Paid to the LPHS • Imposed on and paid by develpers who sold Bumiputera Units without obtaining prior approval or release . • Consists of the applicable % of Bumiputera Discount and an additional % of the unit sale price • 2019, Pejabat Setiausaha Kerajaan Johor issued the First Edition of Dasar Perumahan Rakyat Johor (with take effect on 01.

4.2019) • developers who wish to obtain approval for Bumiputera Quota Release will be imposed with the condition of paying a “Caj Gantian Kelulusan Pelepasan ”. • Paid to Tabung Perumahan Negeri Johor • No mechanism for imposition of penalties [51] It is clear that there is no imposition of penalties against the developers if they fail to obtain the approval prior to the sale of the Bumiputera Units to non-Bumiputera in the State of Johor. Hence, the arguments of the Respondent that the payment of the contribution by the Applicant be it prior to or after obtainingthe approval or consent from the State Authorities for the release of the Bumiputera Units is capital in nature and not deductible under subsection 33(1) of Act 53 is unjustifiable and devoid of merits. [52] The payment was in fact made in the course of operating the Applicant's business. The expenses or payments incurred by the Applicant are not just "wholly and exclusively" borne for the purpose of generating income, it is also closely related, incidental and relevant to the Applicant's business. Thus, such expenses or payment should be made deductible under s. 33(1) ITA. [53] The cases of Prima Nova and Taman Equine bears striking similarities to the case at hand but as I do not have the benefit of the grounds of judgment for both these cases, and in the premise it cannot be gainsaid that the doctrine of stare decisis applies to bind this Court to these earlier decisions. Though the applicable general principles are the same, each tax case would have to be decided on its peculiar contextual facts and circumstances. [54] Therefore, I am guided by principles enunciated in the case of Ketua Pengarah Hasil Dalam Negeri Malaysia v. Mitraland Kota Damansara Sdn. Bhd. [2023] 6 CLJ 701 [2023] 1 LNS 932 where the Court of Appeal stated the following: “[33] In this case, the total amount of refund of Bumiputera discount paid by the respondent to LPHS for the Bumiputera units released and sold to the non-Bumiputera purchasers was RM4,468,090/- (the 10% Bumiputera discount) and the additional amount of penalty paid for breaching the circular was RM1,050,497/- (the 5% penalty), thus making a total of RM5,518,597, which the respondent had claimed as deductible expenses under s. 33(1) of the ITA and which forms the subject of the additional notice of assessment. [34] We are of the view that the payment or refund of the sum of RM4,468,090/- to the LPHS, which is equivalent to the Bumiputera discount, is a revenue expense that is deductible under s. 33(1) of the ITA. As illustrated above, the net sales income to the developer when a Bumiputera unit is sold to a Bumiputera purchaser or to a non-Bumiputera purchaser after LPHS approval is the same. There is no additional gain to respondent, and contrary to the SCIT's finding, the respondent in this case has not profited by selling any Bumiputera unit to a non-Bumiputera purchaser. [35] The effect of the payment of the sum equivalent to the Bumiputera discount to the LPHS was to achieve sales. The payment is exclusively related to business operations, in order to generate income. In fact, it is common ground that without making the payment to LPHS, the Bumiputera units cannot be transferred or released to the non-Bumiputera purchasers. And it cannot be disputed that without the payments being made, the appellant would not have been able to sell the Bumiputera units to the non-Bumiputera purchasers and generate its income. By selling the Bumiputera lots to non-Bumiputera purchasers it directly generates the appellant's income as a property developer…”. [Emphasis added] [55] This is not a case where the Applicant had filed an incorrect return by omitting or understating its income or gave incorrect information relating matter affecting its chargeability to tax. The Applicant had taken reasonable and genuine position in submitting its returns. It is of the considered view that the Respondent would have known the deduction as the Applicant had filed its tax returns and it cannot be gainsaid that the deduction was only known after the audit was carried out on the Applicant. [56] Based on the forgoing authorities, in the present case, I find that it has been established, that the Applicant had acted in good faith and had made full disclosure and hence I stand guided by the Court of Appeal cases as demonstrated above. [57] I further ruled that based on PR 1/2009, the business actitivies of the Applicant fall within the definition of the development activites and the property development is not limited to the act of acquiring land for development and construction but also encompasses the act of selling the completed buildings. Therefore, the Applicant is entitled to deduct all costs that are directly attributable to the development activities or that can be reasonably allocated to such activities. [58] Regarding the issue whether the Applicant is entitled to claim the payment of contribution is a donation under subsection 44(6) of Act 53, I am agreeable with the Respondent’s contention that since the Applicant did not make a claim in their return form for subsection 44(6) of Act 53 and did not make any application under section 131 of Act 53 to amend their return form to claim under subsection 44(6) of Act 53 thus it was not entitled to it. [59] Further, the Applicant had elected to claim the said expenses under section 33 of Act 53 and thus the Applicant is estopped from claiming under subsection 44(6) of Act 53. [60] In the upshot, I rule that the decision of the Respondent is wrong in law in light of the clear statutory provisions that supports the fact that the payment made by the Applicant is deductible. There are merits in this Judicial Review application. The Judicial Review application is hereby allowed and the decision of the Respondent, reversed. CONCLUSION [61] Based on the abovementioned, I allowed the Applicant’s Judicial Review application against the Respondent and gave the following orders:

an order for Certiorari to quash the Respondent’s decision in the form of the Notices of Additional Assessment for the YAs 2017 dan 2018, both dated 10.07.2020 on the grounds that the Decision of Respondent was irrational and/or unreasonable; and

costs of RM5,000.00 to be paid by the Respondent to the Applicant. Dated 31 March 2025. Signed by: ………………….. Wong Mee Ling Judge High Court of Malaya Johor Bahru Johor Darul Ta’zim. Counsel/Solicitor: For the Applicant Nitin Nadkarni together with Chris Toh Pei Roo Messrs Lee Hishammuddin Allen & Gledhill Level 6, Menara 1 Dutamas , Solaris Dutamas, No. 1, Jalan Dutamas 1, 50480 Kuala Lumpur. For the Respondent Ashrina Ramzan Ali together with Surani binti Che Ismail Senior Revenue Counsel Ibu Pejabat Lembaga Hasil Dalam Negeri Malaysia, Jabatan Rayuan Khas, Menara Hasil, Aras 16, Persiaran Rimba Permai, Cyber 8, 63000 Cyberjaya, Selangor Darul Ehsan. Cases referred to:

Ketua Pengarah Hasil Dalam Negeri v Alcatel-Lucent (M) Sdn.

Tio Chee Hing v United Overseas Bank (M) Bhd [2013] 3 MLJ 212

Exxon Chemical (Malaysia) Sdn. Bhd. v Ketua Pengarah Hasil

Muhibbah Engineering (M) Bhd. v Ketua Pengarah Hasil Dalam

Margaret Luping & Ors. v Ketua Pengarah Hasil Dalam Negeri [2000] 3 CLJ 409

Strong & Co. of Romsey Limited v Woodifield [1906] AC 448

British Insulated and Helsby Cables Limited v Atherton [1926] AC 205

Vallambrosa Rubber Co. Ltd. v Farmer (Surveyor of Taxes) (1910)

Ketua Pengarah Hasil Dalam Negeri Malaysia v Mitraland Kota Damansara Sdn. Bhd. [2023] 6 CLJ 701 [2023] 1 LNS 932 Legislation referred to:

Income Tax Act 1967 [Act 53]