WINNING PARAMOUNT SDN BHD v Ketua Pengarah Hasil Dalam Negeri (WA-25-386-11/2024)

On 19 November 2024, | granted leave to the applicant, Winning Paramount Sdn Bhd (“the taxpayer”) to commence judicial review proceedings for an order of certiorari to quash the additional assessments amounting to RM86,006,498.30 for the Year of Assessment 2020 and RM24,950.78 for the Year of Assessment 2021 (“the Decision”) made by the Director General of Inland Revenue (“the DGIR”). The additional assessments iO} 2 subjected gains from the disposal of land to income tax under Section 4(a) of the Income Tax Act 1967 (“ITA”).

The application was made under Order 53 of the Rules of Court 2012 (hereinafter all rules mentioned refer to the Rules of Court 2012). The challenge against the Decision was premised on the established ground of illegality, i.e., the gains from the disposal of the land should not be subject to double taxation and should only fall under the Real Property Gains Tax Act 1976 (“RPGT Act’).

The taxpayer had also in the application for leave sought a stay of the proceedings in question, in particular, the enforcement of the Decision upon leave being granted. The application for stay was heard on an inter partes basis with the participation of the DGIR.

On 16 January 2025, after hearing the parties and considering their written submissions, | allowed the stay of proceedings.

This judgment contains my reasons for granting the stay of the proceedings in question. STAY IN JUDICIAL REVIEW PROCEEDINGS

The application for the stay sought was made under Order 53, Rule 3(5), which is in the following words: “The grant of leave under this rule shall not, unless the Judge so directs, operate as a stay of the proceedings in question”.

The granting of an order to stay proceedings is an interim relief. The order is not made automatically when leave is granted. The order is made at the discretion of the Judge. The effect of the stay of proceedings, if granted, is to temporarily suspend the proceedings under challenge, including the decision itself, until the disposal of the substantive application for judicial review. This means the implementation of the decision challenged is deferred until judicial review proceedings are concluded (see R v Secretary of State for Education and Science, ex parte Avon County Council [1991] 1 All ER 282). 10] 4

Similarly, the effect of a stay of proceedings in the context of Order 53 Rule 3(5) was stated by the Court of Appeal in Sugumar Balakrishnan v Pengarah Imigresen Negeri Sabah and Another and Another Appeal [1998] 3 CLJ 85 as follows: “An order for stay has the effect of temporarily suspending the effect of a public law decision pending the outcome of certiorari or prohibition proceedings brought to challenge the validity of the particular decision”. ANALYSIS AND DECISION

The DGIR opposed the application for a stay of proceedings on the following grounds, which are sought in the alternative: (a) The stay of proceedings was in essence an injunction against the Government, and this Court is not permitted to grant an injunction against the Government by virtue of Section 29 of the Government Proceedings Act 1956. 10] 5 (b) This Court has no jurisdiction to stay the proceedings which would defeat the collection of tax due and payable under the “pay first, dispute later’ system under the ITA. (c) The test for granting a stay is the “special circumstances” test enunciated in Kosma Palm Oil Mill Sdn Bhd & Ors v Koperasi Serbausaha Makmur Sdn Bhd [2003] 4 CLJ 1, and the taxpayer has failed to satisfy the test, and a stay ought not be granted. Whether the stay of proceedings is akin to an injunction

The DGIR contended that the stay of proceedings is akin to an injunction and is therefore not permitted under Section 29 of the Government Proceedings Act 1956. The stay sought was to temporarily suspend the decision of the DGIR which would refrain the DGIR, and by extension the Government, from recovering the tax due and owing from the taxpayer.

However, a close scrutiny of the remedy sought reveals that the DGIR was not being refrained from doing a specific act (prohibitory injunction). It is an error of law to equate a stay of proceedings with an injunction in the realm of public law remedies. An interim injunction is directed at a party to a proceeding restraining him from doing, or requiring him to perform, a specific act. An interim injunction is, therefore, an act in personam, while a stay of proceedings is in effect the temporary suspension of the decision under review. They are two different things. In other words, no injunction was sought against the DGIR.

It is for this reason, and as a matter of law, that Section 54(d) of the Specific Relief Act 1950 and Section 29(2) of the Government Proceedings Act 1956 that deal with injunctions against the Government do not curtail, in any way, the power conferred upon a High Court to grant a stay of proceeding under Order 53 Rule 3(5) (see Sugumar Balakrishnan v Pengarah Imigresen Negeri Sabah and Another and Another Appeal [1998] 3 CLJ 85).

In the instant case, the taxpayer was not seeking an injunction against the DGIR to refrain from doing specific acts, but was specifically asking for the temporary suspension of the decision made by the DGIR pending the challenge in the instant judicial review proceedings. The objection is devoid of merit. Jurisdictional issue: “Pay first, dispute later” principle

It was contended that this Court had no jurisdiction to stay the effect of the decision which would defeat the collection of tax due and payable under the principle of “pay first, dispute later” provided under the following provisions of the ITA: (i) Section 103(1) of the ITA which state — “Except as provided in subsection (2), tax payable under an assessment for a year of assessment shall be due and payable on the due date, whether or not that person appeals against the assessment”. (ii) Section 103B of the ITA, which states — “The institution of any proceedings under any other written law against the Government or the Director General shall not relieve any person from liability for the payment of any tax, debt, or other sum for which he is or may be liable to pay under this Part”. (iii) Section 106(3) of the ITA which state — “In any proceedings under this section, the court Shall not entertain any plea that the amount of tax sought to be recovered is excessive, incorrectly assessed, under appeal, or incorrectly increased under subsection 103(3), (5), or (7)”.

It was submitted that based on the above provisions, it is clear that tax due and payable upon as assessment should be made, regardless of the amount, whether excessive or otherwise, or, notwithstanding that an appeal is made against the assessment or that legal proceedings have been instituted under any other written law. This is known as the “pay first, dispute 9 later” system of tax collection policy. Any errors in the sum so assessed to be due will be refunded to the taxpayer under Section 111 of the ITA, after the full process of adjudication prescribed for objections and appeals in Chapter 2 and Schedule 5 of the ITA is undertaken. The earliest case on the subject is Arumugam Pillai v Government of Malaysia [1980] 2 MLJ 283 clearly held that: “The tax legislation clearly intends that the tax as assessed should first be paid and therefore makes provisions that such part of the tax paid as shall be determined at the final “accounting” to be not due and payable shall be refunded. This provision of “pay first and talk afterwards” may be arguably a harsh one but it is an intentional provision of the legislature, having regard to the incidence of tax evasion”.

This position has not changed and holding true to date, except for one exception which was propounded recently by the Federal Court decision in Mohd Najib bin Hj Abd Razak & Anor v Government of Malaysia and Another Appeal [2023] 10 CLJ 329. In Mohd Najib bin Hj Abd Razak, the Federal Court was 10] 10 dealing with the constitutionality of section 106 of the ITA as taking away the judicial power of the High Court. The Federal Court is setting out the design, operation, and policy of the ITA in relation to tax assessment and collection, said (emphasis added):

Put another way, adjudication of the merits of an assessment falls to be considered by the SCIT (Special Commissioners of Income Tax) under s. 99(1) of the ITA with recourse to the superior courts by way of appeal. However, for purposes of immediate collection and recovery of sums assessed to be due by the DGIR, recourse is made to the courts under s. 106 of the ITA supported by s. 142(1) of the ITA and s. 103B of the ITA and to give effect to the ‘pay first, dispute later’ scheme and operation of the ITA.

The court under s. 106 of the ITA is fulfilling the purpose of recovery or collection only. It is not undertaking a full judicial adjudicatory role. Its full adjudicatory judicial power is deferred to the appeal arising from the decision of the SCIT by way of 11 questions of law, or administrative or constitutional judicial review at a subsequent stage.

And this is consonant with the ‘pay first, dispute later’ mode of tax imposition by the Government. There is no abrogation or suspension of the court's adjudicatory powers because those powers remain to be exercised in the course of the appeal proceedings brought in relation to the assessment itself. The judicial powers of judicial review, as well as powers of judicial intervention in the form of a stay, are also available and not ousted.

The decision is to the effect that when an appeal is made against an assessment to the SCIT under the provisions of the ITA, the DGIR is empowered for the purposes of immediate collection of the tax under Sections 103, 103B and 106 to give effect to the “pay first, dispute later’ scheme and operation of the ITA. 12

However, the “pay first, dispute later” policy under the ITA is ousted when the taxpayer has commenced judicial review proceedings to challenge the assessment. The Federal Court in Mohd Najib bin Hj Abd Razak said that judicial powers of judicial review as well as powers of judicial intervention in the form of a stay are also available and not ousted. Thus, the High Court in judicial review proceedings have jurisdiction to grant a stay of proceedings in appropriate cases as that power is not ousted.

It was for the above reasons that the jurisdictional objection was dismissed. Test for stay of proceedings in judicial review proceedings

The DGIR submitted that the test for granting a stay is the “special circumstances” test enunciated in Kosma Palm Oil, and the taxpayer has failed to satisfy the test; and for this reason, the stay ought not be granted. The taxpayer seemed to submit a fusion of two tests — the Kosma Palm Oil test and the test in Godfrey Philips (M) Sdn Bhd v Timbalan Ketua Pengarah Kesihatan (Kesihatan Awam), Kementerian Kesihatan, Malaysia [2011] 9 CLJ 670. 10] 13

However, it is established by a high authority that the test for stay in judicial review proceedings is similar to the principles applicable when considering whether to grant an interlocutory injunction. The authorities are the Court of Appeal decisions in Tan Bun Teet & Ors v Menteri Sains, Teknologi dan Inovasi Malaysia & Ors [2013] 3 CLJ 1115 and Bursa Malaysia Securities Bhd v Gan Boon Aun [2009] 5 CLJ 698. Tan Bun Teet had approved the principle enunciated in Godfrey Philips (M) Sdn Bhd v Timbalan Ketua Pengarah Kesihatan (Kesihatan Awam), Kementerian Kesihatan, Malaysia [2011] 9 CLJ 670.

In this regard, it is opportune to set out the prerequisites for granting an interlocutory injunction, which would mutatis mutandis apply when seeking a stay in judicial review proceedings. The prerequisites are: (a) the applicant has satisfied the Judge that there is a bona fide serious issue to be tried; (b) if (a) above is satisfied, only then the Judge will consider where the balance of convenience lies; and (c) finally to consider whether there is any policy or equitable ground or public interest ground to refuse the interlocutory injunction (Keet Gerald Francis Noel John v Mohd Noor Abdullah & Ors [1995] 1 CLUJ 293). El 14

Tan Bun Teet applied the above principles, and when considering the balance of convenience, prerequisite took into account the rights of third parties affected by the decision of the public authority.

The relevant paragraph in Bursa Malaysia stated as follows:

The granting of an order of stay in this appeal was granted as an order ancillary to the granting of leave. Hence similar to the consideration of the granting of an application for an interlocutory injunction, the applicant has to satisfy the requirements of establishing an arguable case or a prima facie case. ...”

In Bursa Malaysia, the Bursa had issued to the respondent notices to show cause as to why he should not be penalised for breaching Bursa’s Listing Requirements. Meanwhile, the respondent had also been charged for a criminal offence under the Securities Industry Act 1983. The respondent requested Bursa to defer sine die its enforcement action pending the disposal of the criminal trial on the grounds of sub judice. 15 Bursa refused the request, resulting in the respondent applying for leave to commence judicial review proceedings to quash the decision. The High Court allowed leave and granted a stay of proceedings on an oral application. On appeal, the Court of Appeal held that there was an error of law in granting leave as there could be no arguable case to be investigated at the substantive stage when the application was solely grounded on the sub judice rule and not on any established ground of judicial review.

More importantly, to exercise the discretion whether to grant or not to grant a stay, some material must be placed before the Judge by way of affidavit evidence. There was no affidavit placed before the Judge, but inadmissible oral statements from the bar table. The Court of Appeal in Bursa Malaysia appeared to have set aside the stay on the premise that since no arguable case for leave was demonstrated by the respondent, the first prerequisite was not demonstrated. It would appear that “an arguable case” was equated with “bona fide issue to be tried”.

In Godfrey Philips, an order of prohibition and/or a stay of proceedings was sought in relation to the decision made by 16 the Director General of Health stating that the applicant’s declaration of retail selling price of cigarettes was not in accordance with the subsidiary legislation and required the applicant to withdraw its products and to change the retail selling price according to the subsidiary legislation failing which legal action which would expose the applicant to punishment would be taken. The purpose of the subsidiary legislation was to protect public health against the dangerous threat of smoking.

In the context of the facts and circumstances in Godfrey Philips, the learned Judge stated that in order to obtain stay, the applicant must establish the following prerequisites (paragraph 29 of the judgment): (a) the applicant must establish that the applicant is likely to succeed on the merits; (6) that the applicant is likely to suffer irreparable harm in the absence of a stay and/or prohibition order; (c) that the balance of equities tips in the applicant's favour; and (d) that a stay and/or prohibition order is in the public interest. 17

Looking at the prerequisites, it is clear that (b) and (c) make up the balance of convenience prerequisite. In respect of prerequisite (a), it is clear that the learned Judge had subsequently explained that the words “the applicant must establish that that the applicant is likely to succeed on the merits” is nothing more that “an arguable case” stated in the following paragraph (paragraph [37] of the judgment): “In relation to whether there is an arguable case, the grant of leave is a starting point but it is by no means that the stay and/or prohibition order will be appropriate in all cases in which leave has been granted. Therefore, the balance of convenience dictates that the applicant who challenges the decision of the public body must obey the Impugned Decision pending the court's decision. ...”

The above cases reveal that the prerequisites to determine whether a stay ought to be granted in judicial review proceedings are the prerequisites to be satisfied when seeking an interlocutory injunction. The stay, by its nature, is an interim relief until the judicial review proceedings are concluded. 18 Although different words are used for the first prerequisite, it is also clear that if an arguable case for leave to be granted is equivalent with a “bona fide issue to be tried”. Applying the test to the facts

In this case, since leave has been granted, the first prerequisite, i.e., there is an arguable case or bona fide issue to be tried, has been satisfied. This leaves the following prerequisites to be satisfied: (a) the taxpayer is likely to suffer irreparable harm in the absence of a stay order. (b) thatthe balance of equity tips in the taxpayer's favour; and (c) whether any ground of equity, policy, or public interest to refuse the stay of proceedings.

The facts show that the amount of tax imposed on the plaintiff is a substantial sum amounting to RM86,031 ,449.08 and would, if a stay is not granted to temporarily suspend the effect of the assessment, suffer irreparable damage. The irreparable damage would arise from the financial crisis of the company, cash flow problems, operational disruptions to its business, and 19 consequently damage to its reputation amongst the general public and as a going concern as a business entity. The damage that would arise cannot be compensated merely by the refund of taxes in the event the taxpayer is successful. The balance of equity tips in the taxpayer's favour.

Having found that the balance of convenience tilts in favour of the taxpayer, the next question is whether any ground of equity, policy, or public interest to refuse the stay of proceedings sought. | found there were none. In the circumstances, the stay of proceedings is granted until the disposal of the judicial review application. ~~ Amarjeet Singh/Serjit Singh Judge High Court Kuala Lumpur Dated: 13 May 2025 20 Counsel of the Applicant S.Saravana Kumar with Tan Jass Key Messrs Rosli Dahlan Saravana Partnership Counsel of the Respondent Mohd Haris bin Hanapi (Senior Revenue Counsel) with Azleena binti Md Khairuddin (Revenue Counsel). Revenue Attorney, Inland Revenue Board Cases referred to: 1) Rv Secretary of State for Education and Science, ex parte Avon County Council [1991] 1 All ER 282. 2) Sugumar Balakrishnan v Pengarah Imigresen Negeri Sabah and Another and Another Appeal [1998] 3 CLJ 85. 3) Kosma Palm Oil Mill Sdn Bhd & Ors v Koperasi Serbausaha Makmur Sdn Bhd [2003] 4 CLJ 1. 4) Arumugam Pillai v Government of Malaysia [1980] 2 MLJ 283. 5) Mohd Najib bin Hj Abd Razak & Anor v Government of Malaysia and Another Appeal [2023] 10 CLJ 329. 6) Godfrey Philips (M) Sdn Bhd v Timbalan Ketua Pengarah Kesihatan (Kesihatan Awam), Kementerian Kesihatan, Malaysia [2011] 9 CLJ 670. 10] 21, 7) Tan Bun Teet & Ors v Menteri Sains, Teknologi dan Inovasi Malaysia & Ors [2013] 3 CLJ 1115. 8) Bursa Malaysia Securities Bhd v Gan Boon Aun [2009] 5 CLJ 698. 9) (Keet Gerald Francis Noel John v Mohd Noor Abdullah & Ors [1995] 1 CLJ 293. 10] 22