tax cases 1 - ctimctim.org.my/topic 6 - tax cases update (pn zaleha adam).pdf · case statistics...

TAX CASES 1

ZALEHA ADAM

Director of Tax Litigation Division

Legal Department

Inland Revenue Board of Malaysia

TAX CASES 2

REGISTRATION OF CASES

BEFORE THE SPECIAL COMMISSIONERS OF INCOME TAX

FOR YEARS 2015, 2016 & UNTIL 30 JUNE 2017

TAX CASES 3

271

356

290

0

50

100

150

200

250

300

350

400

2015 2016 2017 @ 30 JUNE

CASE STATISTICS

TAX CASES 4

TAX CASES

L a b u a n O f f s h o r e Ac t i v i t i e s

▪ Positive Vision Labuan Limited v Ketua Pengarah Hasil Dalam Negeri and

other appeals [2017] 2 MLJ 421

W i t h h o l d i n g Ta x I s s u e s O n R o y a l t i e s

▪ Ketua Pengarah Hasil Dalam Negeri v Mudah.my Sdn Bhd [2017] 2 MLJ

197

▪ Ketua Pengarah Hasil Dalam Negeri v Thomson Reuters Global Resources

[2016] 10 MLJ 1

▪ Ketua Pengarah Hasil Dalam Negeri v Alcatel Lucent Malaysia Sdn Bhd &

Anor [2017] 1 MLJ 563

5

TAX CASES

I n t e r e s t Wa i v e d

▪ Ketua Pengarah Hasil Dalam Negeri v. Bandar Nusajaya Development Sdn

Bhd (2016, unreported)

C a p i t a l A l l o w a n c e

▪ Infra Quest Sdn Bhd v Ketua Pengarah Hasil Dalam Negeri (unreported,

2017)

D G I R ’s Au d i t F i n d i n g L e t t e r

▪ Flextronics Shah Alam Sdn Bhd v Ketua Pengarah Hasil Dalam Negeri

(unreported, 2017)

6

TAX CASES

E x e m p t i o n o f I n c o m e

▪ Society of La Salle Brothers v Ketua Pengarah Hasil Dalam Negeri

(unreported, 2017)

R e v e n u e R e c e i p t v C a p i t a l R e c e i p t

▪ Ketua Pengarah Hasil Dalam Negeri v Toxicol Sdn Bhd (unreported, 2017)

7

TAX CASES

P a y m e n t O f S u b s i d y

▪ Chantika Kilang Beras Sdn Bhd v Ketua Pengarah Hasil Dalam Negeri

(unreported, 2017)

▪ Utara Seeds Sdn Bhd v Ketua Hasil Dalam Negeri (unreported, 2017)

I n c o m e Ta x Ac t 1 9 6 7 v R e a l P r o p e r t y G a i n s Ta x 1 9 7 6

▪ Insaf Tegas Sdn Bhd v Ketua Pengarah Hasil Dalam Negeri (unreported,

2017)

8

TAX CASES

Labuan Offshore Activities

▪ Positive Vision Labuan Limited v Ketua Pengarah Hasil Dalam

Negeri and other appeals [2017] 2 MLJ 421

9

TAX CASES

P o s i t i v e V i s i o n L a b u a n L i m i t e d v K e t u a P e n g a r a hH a s i l D a l a m N e g e r i a n d o t h e r a p p e a l s [ 2 0 1 7 ] 2 M L J4 2 1

F A C T S

▪ The Taxpayers (i.e. Positive Vision Labuan Limited, GA Investment Limited andAvenues Zone Inc.) are offshore companies in the business of investment holding:• Incorporated under the Offshore Companies Act 1990• Also known as Labuan company under Labuan Business Activities Tax Act 1990

(LBATA).

▪ Profits subject to tax under LBATA.

▪ The LBATA was amended via the Finance Act 2007 allowing Labuan companies tomake irrevocable election to be charged under the Income Tax Act 1967 (ITA).Amendment effective YA 2009.

▪ On 18.12.2007, the Income Tax (Exemption)(No.22) Order 2007 [P.U.(A) 437/2007](“Exemption Order”) was issued, exempting various types of income from tax.

▪ Dividends received by an offshore company exempted w.e.f. YA 2007.10

TAX CASES

P o s i t i v e V i s i o n L a b u a n L i m i t e d v K e t u a P e n g a r a h H a s i lD a l a m N e g e r i a n d o t h e r a p p e a l s [ 2 0 1 7 ] 2 M L J 4 2 1

F A C T S

▪ In YA 2011, these 3 taxpayers received dividends and made irrevocable electionsunder section 3A of LBATA.

▪ In 2012, tax consultant wrote to DGIR:• Can a Labuan company which has made an election under section 3A be

exempted from tax on dividends under the Exemption Order?

▪ DGIR informed the Taxpayer that MOF decided starting from 12.2.2010, theExemption Order does not apply to a Labuan company which has made electionunder section 3A LBATA.

▪ Judicial Review applications were filed to quash DGIR’s decision, declare thatTaxpayers entitled for exemption, and DGIR’s decision null and void & dividendsshould be exempted.

▪ Notices of Assessment were issued on 2.8.2012 respectively.

11

TAX CASES


Can MOF by policy or administrative decision declarethat the Exemption Order has ceased to apply from astipulated date without revoking it?

Whether a Labuan Offshore Company which elects tobe taxed under section 3B ITA is entitled to exemptionunder the Exemption Order?

Whether a Labuan Offshore Company which electsunder section 3A LBATA to be taxed under ITA isentitled to tax exemption under the ExemptionOrder?

12

TAX CASES


▪ The High Court and the Court of Appeal dismissed the Taxpayers’ judicial review applications.

▪ At the Federal Court, the Taxpayers’ appeals weredismissed. It was decided that the Exemption Order mustbe read in harmony with sections 3A and 2(3) LBATA and 3BITA:

• A Labuan company that has made an election cannotcontinue to enjoy the exemption. The Exemption Orderintended to apply to offshore companies. The Taxpayerswere “chargeable offshore companies” and were nolonger within the terms of the order. There is no need torevoke the order.

D E C I S I O N S

13

TAX CASES

Withholding Tax Issues On Royalt ies

▪ Ketua Pengarah Hasil Dalam Negeri v Mudah.my Sdn Bhd [2017] 2

MLJ 197

▪ Ketua Pengarah Hasil Dalam Negeri v Thomson Reuters Global

Resources [2016] 10 MLJ 1

▪ Ketua Pengarah Hasil Dalam Negeri v Alcatel Lucent Malaysia Sdn

Bhd & Anor [2017] 1 MLJ 563

14

TAX CASES

K e t u a P e n g a r a h H a s i l D a l a m N e g e r i v M u d a h . m y S d nB h d [ 2 0 1 7 ] 2 M L J 1 9 7

F A C T S

▪ The DGIR’s letter of audit findings notified Taxpayer that some of the accountsand documents showed that it had not remitted withholding taxes for YA 2010,2011 and 2012.

▪ In the letter of findings, the DGIR, inter alia:• requested the Taxpayer to attend at the DGIR’s office to

discuss the audit findings.• cautioned that legal action would be taken if the Taxpayer

failed to attend the meeting.

▪ Three meetings were held with Taxpayer to discuss the audit findings andfurnish documents and information required by the DGIR but after the fourthmeeting was fixed, the Taxpayer cancelled it and filed a judicial reviewapplication in the High Court in order to quash the DGIR’s ‘decision’ in the letterof findings.

15

TAX CASES


Whether DGIR’s letter to Taxpayer was ‘decision’amenable to judicial review?

Whether DGIR’s letter merely notified Taxpayer ofinitial finding of DGIR’s field audit?

Whether the Taxpayer’s move to file for judicialreview was premature and abused court’s process?

16

TAX CASES


▪ The High Court agreed with the Taxpayer and granted the reliefs it sought andfurther decided that a payment for right to use or operate a copyright software orprogramme is a not royalty payment, thus not subject to withholding tax underSection 109B of the ITA.

▪ DGIR filed an appeal and Court of Appeal allowed the DGIR’s appeal and held that-• Letter of finding is not a decision.• Domestic remedy is preferred as opposed to judicial review.• Payment for the use or right to use ‘software’ falls within the scope of royalty.

D E C I S I O N S

17

TAX CASES

K e t u a P e n g a r a h H a s i l D a l a m N e g e r i v T h o m s o nR e u t e r s G l o b a l R e s o u r c e s [ 2 0 1 6 ] 1 0 M L J 1

F A C T S

▪ Taxpayer is in the business of compiling, producing,developing and selling ‘information services and dealingservices’.

▪ Taxpayer entered into a distribution agreement with its subsidiary, ThomsonReuters Malaysia Sdn Bhd (TRM) where the latter was appointed to marketand sell the taxpayer’s products i.e. ‘information services’ and ‘dealingservices’ in Malaysia in return for a distribution fee.

▪ TRM was said to have erroneously paid withholding tax and requested to theDGIR for a tax refund. The DGIR rejected the application as the payment(distribution fee) was royalty and subject to withholding tax in Malaysia.

▪ The Taxpayer appealed to the SCIT.

18

TAX CASES


Whether the distribution fee was royalty under Article12(4) of the Malaysia-Swiss Federal Council DoubleTaxation Agreement 1974 (‘DTA’)?

Whether the distribution fee was Taxpayer’s businessprofit and thus, pursuant to Article 7(1) of the DTA,the distribution fee was only taxable in Switzerland?

19

TAX CASES


D E C I S I O N S

▪ The SCIT allowed the Taxpayer’s appeal and thedecision was affirmed by High Court.

▪ DGIR’s further appeal was dismissed by the Court ofAppeal-• Distribution payment was not subject to

withholding tax.• Payment for service rendered not a royalty.• Payment not related to special commercial knowledge.• No transfer or grant of know how or property rights.• No permanent establishment in Malaysia, thus no tax.• Definition of ‘royalty’ in DTA prevails over ITA.

20

TAX CASES

K e t u a P e n g a r a h H a s i l D a l a m N e g e r i v A l c a t e l L u c e n tM a l a y s i a S d n B h d & A n o r [ 2 0 1 7 ] 1 M L J

▪ Alcatel Lucent Malaysia Sdn Bhd (ALMSB) entered into ServiceAgreement with Alcatel International Asia Pacific Pte. Ltd. (APPL)-

• APPL to provide services to ALMSB from overseas• Provision of global network for voice, data and video

communication

▪ Upon audit, it was discovered that no withholding tax (WHT) had been paid byALMSB for payments made to APPL-

• DGIR of the view that payments were royalty payments• WHT sum reduced after negotiations• Letter dated 14.4.2008 issued confirming sum and referred to sections 109

and 109B of ITA

F A C T S

21

TAX CASES


▪ ALMSB argued:• By stating both sections in his letter, DGIR uncertain whether

to apply section 109 or 109B.• DGIR failed to provide reasons.

▪ ALMSB paid WHT under protest but said that services were not royalty as theywere performed outside Malaysia:• No Form Q filed, ALMSB instead filed a judicial review application.

▪ DGIR argued:• Not bound under the ITA to give reasons.• Tax payer knew about the WHT issues as they were raised during negotiation

meetings.• Payments were royalties as consideration for use of software.

F A C T S

22

TAX CASES


Whether the DGIR’s letter dated 14.4.2008 referringto both sections 109 and 109B of ITA is bad in law?

Are payments made by ALMSB to ALLP royalties undersection 109 of ITA?

23

TAX CASES


D E C I S I O N S

The High Court and the Court of Appeal allowed the Taxpayers’ judicial reviewapplication:

▪ Demand letter illegal▪ DGIR not sure which sections apply▪ No reason given by DGIR in making the demand;▪ Payment is not royalty under ITA.▪ It is wrong to rely on draft agreement.

24

TAX CASES


D E C I S I O N S

The Federal Court allowed the DGIR’s appeal:

▪ DGIR’s letter dated 14.4.2008 referring to both sections109 and 109B of ITA is not bad in law.

▪ No statutory provisions demanding DGIR to provide reasons.▪ Federal Court noticed that no appeal was filed under section 99 of ITA and said

that an appeal would give the Taxpayer the opportunity to rebut that thepayments were royalty and to rebut section 15A of ITA.

▪ Failure to appeal has established that the payments were royalty and incomederived from Malaysia.

25

TAX CASES

Interest Waived

▪ Ketua Pengarah Hasil Dalam Negeri v. Bandar Nusajaya

Development Sdn Bhd (2016, unreported)

26

TAX CASES

K e t u a P e n g a r a h H a s i l D a l a m N e g e r i v . B a n d a rN u s a j a y a D e v e l o p m e n t S d n B h d ( 2 0 1 6 , u n r e p o r t e d )

F A C T S

▪ UEM Land Berhad (the Taxpayer’s holding company) provided a loan of up to amaximum of RM875 million with interest rate at 12% p.a.

▪ In 1995, the interest rate was reduced to 5% per annum.▪ In 2000, the rate was further reduced to 2% per annum.

▪ The Taxpayer had claimed tax deduction on the total amount of interest underSection 33(1) of the ITA.

27

TAX CASES


F A C T S

▪ The interest was claimed against two sources of income namely –

• interest amounting to RM40,198,833.00 as deductible expense againstTaxpayer’s business income (the Taxpayer’s development account); and

• interest amounting to RM181,863,826 as deductible expense against theTaxpayer’s interest income.

▪ In 2006, UEM Land Sdn. Bhd. decided to waive the total amount of interestaccrued under the loan facility.

▪ The interest in respect of the business income (development account) amountingRM40,198,833 which had been waived by UEM Land Sdn Bhd was brought toincome tax for the YA 2006 by the Taxpayer.

28

TAX CASES


F A C T S

▪ However, the interest amounting to RM181,863,826 which had also been waivedby UEM Sdn Bhd was not brought to tax.

▪ The DGIR took the stand that the interest waived (RM181,863,826) by UEM LandSdn Bhd in respect of interest income source must also be brought to tax underSection 22(2)(a)(i) of the ITA.

29

TAX CASES


Whether misinterpretation of subparagraph 22(2)(a)(i)of the ITA 1967 by the DGIR (if there is) amounted toan error of law, and a clear lack of jurisdiction whenthe decision to raise the additional assessment wasmade.

30

TAX CASES


▪ The High Court’s decision was affirmed by the Court of Appeal in allowing leave forTaxpayer’s judicial review application.

D E C I S I O N S

▪ DGIR appealed to the Federal Court.

▪ Federal Court allowed DGIR’s appeal with costs and setaside the decision of the courts below.

▪ Misinterpretation of paragraph 22(2)(a) of ITA is not an error of law thatamounts to lack of jurisdiction, therefore, Judicial Review is not the correctprocedure for the Taxpayer to challenge the assessment. The proper process isby filing an appeal to the SCIT.

31

TAX CASES

Capital Allowance

▪ Ketua Pengarah Hasil Dalam Negeri v Infra Quest Sdn Bhd

(unreported, 2017)

32

TAX CASES

K e t u a P e n g a r a h H a s i l D a l a m N e g e r i v I n f r a Q u e s tS d n B h d ( u n r e p o r t e d , 2 0 1 7 )

F A C T S

▪ Taxpayer, a wholly-owned subsidiary of Permodalan Kelantan Berhad (which waswholly owned by Perbadanan Kemajuan Iktisad Negeri Kelantan).

▪ Taxpayer is in the business of providing telecommunication towers licensed tocompanies that provide telecommunication services for the latter to affixantennas to the towers.

▪ Taxpayer owned 193 towers in Kelantan and its customers includetelecommunication service providers such as Celcom, Maxis and Digi.

33

TAX CASES


▪ Towers were all manufactured by 3rd party and installed for the purpose ofTaxpayer’s business.

▪ Taxpayer claimed capital allowance for telecommunication towers in its tax returnbut was disallowed by the DGIR upon audit.

▪ On 9.2.2011, DGIR issued notices of assessment for YA 2003 - 2008.

▪ The Taxpayer appealed to the SCIT.

F A C T S

34

TAX CASES


Whether the notices of assessment for YA 2003 and2004 were time-barred?

Whether the Taxpayer was entitled to claim capitalallowances on capital expenditure incurred to buildtelecommunication towers?

35

TAX CASES


D E C I S I O N S

The SCIT dismissed the Taxpayer’s appeal on these grounds:

▪ DGIR had power to invoke section 91(3) of ITA:• negligence of Taxpayer• omitting to file correct returns by wrongfully claiming capital allowances for

the tower.

▪ Towers were premises where the Taxpayer conducted its business activities.

▪ Towers were not apparatus by which the business activities of the Taxpayerwere carried on.

36

▪ Taxpayer appealed to High Court and the appeal was allowed on these grounds:

• DGIR did not satisfy section 91(3) of ITA

➢DGIR failed to prove the negligence of the Taxpayer.

• Taxpayer satisfied the requirement that the telecommunication towers wereplants.

➢used for the purpose of its business of providing telecommunication towers.

▪ DGIR then appealed against the High Court’s decision to the Court of Appeal.The Court of Appeal upheld the High Court’s decision.

TAX CASES


D E C I S I O N S

37

TAX CASES

DGIR’s Audit Finding Letter

▪ Flextronics Shah Alam Sdn Bhd v Ketua Pengarah Hasil Dalam

Negeri (unreported, 2017)

38

TAX CASES

F l e x t r o n i c s S h a h A l a m S d n B h d v K e t u a P e n g a r a hH a s i l D a l a m N e g e r i ( u n r e p o r t e d , 2 0 1 7 )

F A C T S

▪ Taxpayer is a contract manufacturer of electrical/electronic components includingLCD panels for mobile phones, watches etc.

▪ Taxpayer affiliated with other Flextronics group of companies all over the world.

▪ In 2007, desk and field audit for YA 2000 – 2005 were conducted:

• 20.8.2014, DGIR issued field audit findings for YA 2000 – 2006.• Taxpayer responded to the field audit findings via letters dated 19.9.2014 and

5.12.2014.

39

TAX CASES


F A C T S

▪ DGIR issued a letter dated 10.12.2014 stating that notices of assessment for YA2000 – 2006 will be issued under section 140(2) of ITA .

▪ Taxpayer filed an application for Judicial Review to quash the DGIR’s letter dated10.12.2014 on grounds of -• Illegality• Irrationality• Procedural Impropriety

40

TAX CASES


Whether or not the DGIR’s letter dated 10.12.2014amounts to a decision ?

41

▪ High Court dismissed the Taxpayer’s application on the ground that the applicationwas premature as the letter dated 14.12.2014 from DGIR was not a decision or anaction which had adversely affected the Taxpayer’s rights.

▪ Taxpayer’s appeal to the Court of Appeal was dismissed.

TAX CASES


D E C I S I O N S

42

TAX CASES

Exemption of Income

▪ Society of La Salle Brothers v Ketua Pengarah Hasil Dalam Negeri

(unreported, 2017)

43

TAX CASES

S o c i e t y o f L a S a l l e B r o t h e r s v K e t u a P e n g a r a h H a s i lD a l a m N e g e r i ( u n r e p o r t e d , 2 0 1 7 )

F A C T S

▪ Taxpayer is a charitable institution with the sole objective of ensuring thateducation is accessible to all races, religion and creed.

▪ Taxpayer established a number of La Salle Schools in Malaysia.• 39 schools still in operation

▪ Letter dated 26.1.1970 - Taxpayer obtained tax exemption status from theComptroller of Inland Revenue Malaysia

▪ Letter dated 25.7.1995 - DGIR notified Taxpayer for requirement to re-apply fortax exemption status:• pursuant to amendments to para 13 Sch 6 of the ITA vide section 13 of the

Finance Act 1988.• to-date the tax payer had not done so.

44

TAX CASES


F A C T S

▪ On 16.3.2015, notices of assessment for YAs 2004, 2006, 2007, 2011, 2012 and2013 were issued to Taxpayer.• Taxpayer requested for payment by 28 monthly instalments.

▪ Taxpayer filed application for Judicial Review dated 9.4.2015 -• quash the notices of assessment• decision made by DGIR is null, void and unconstitutional.

45

TAX CASES


Whether Taxpayer is still entitled for tax exemptionunder Income Tax Ordinance 1947 which has gonethrough numerous amendments, i.e. Finance Act 1988& Finance Act (No.2) 2000 in line with section 127 ofITA?

46

TAX CASES


D E C I S I O N S

High Court dismissed Taxpayer’s application on these grounds:

▪ Any tax exemption obtained by tax payer prior to the amendments shall ceasefrom YA 2004 onward unless an application is made and approved by DGIRpursuant to section 44(6) of ITA.

▪ To qualify for exemption, it is mandatory for Taxpayer to re-apply for approvalfrom DGIR as per DGIR’s letter dated 29.7.1995. Application for Judicial Reviewis inappropriate and an abuse of the court’s process.

▪ Taxpayer bluntly refused to resort to appeal procedure under section 99 of ITA.

▪ The fact that Taxpayer requested to make payment by way of instalmentsimplied that tax payer recognized that it was no longer entitled for exemption.

47

TAX CASES


D E C I S I O N S

Taxpayer’s appeal to the Court of Appeal was allowed.

▪ Its tax exemption status as a charitable institution never withdrawn by DGIR.

▪ Amendments via the Finance Acts do not in law have any effect on the vestedright of the Taxpayer.

▪ right acquired before the amendments which have no retrospective effect.

DGIR has filed application for leave to appeal to the Federal Court.

48

TAX CASES

Revenue Receipt v Capital Receipt

▪ Ketua Pengarah Hasil Dalam Negeri v Toxicol Sdn Bhd (unreported,

2017)

49

TAX CASES

K e t u a P e n g a r a h H a s i l D a l a m N e g e r i v T o x i c o l S d nB h d ( u n r e p o r t e d , 2 0 1 7 )

F A C T S

▪ The Taxpayer was in the business of management, handling, removal and disposalof toxic waste.

▪ In 1999, the Taxpayer had entered into contract with Kualiti Alam Sdn Bhd to be aSpecial Purpose Vehicle to collect and transport toxic waste to the WasteManagement Centre of Kualiti Alam.

▪ During the initial period of the agreement, the relationship betweenTaxpayer and Kualiti Alam went on smoothly until the newmanagement took over as a result of takeover by Khazanah.

▪ The new management was not interested in hearing Taxpayer’sgrievances and resolving outstanding issues.

50

TAX CASES


F A C T S

▪ Due to change, the Taxpayer has no choice but to surrender the 1999 Agreementwith Kualiti Alam.

▪ On 7.2.2005 Taxpayer and UEM Environment Sdn Bhd entered into an agreementfor the novation of contract.

▪ Pursuant to the Novation Agreement, Taxpayer has to transfer all rights andliabilities to UEM. Taxpayer ceased its business in 2005 and had no otherbusiness.

▪ Taxpayer received RM23,000,000 under the Novation Agreement in respect oftermination of its business by transferring to UEM all its rights and liabilities.

51

TAX CASES


Whether the sum of RM23 million received by theTaxpayer in consideration of sale of contracts by wayof “Agreement of Novation of Contracts” should betreated as income/revenue receipt or capital receipt?

Whether upon the facts and circumstances, there wasa forced sale of Taxpayer’s entire business andtherefore the proceeds are not in the course ofbusiness?

52

TAX CASES


D E C I S I O N S

At the SCIT level, the Taxpayer’s appeal was dismissed and the SCIT found that :

▪ The payment was compensation for loss of income under section 22(2) of ITAand chargeable to tax under section 4(a) of ITA.

▪ The effect of Novation Agreement did not amount to transfer of rights butmerely transfer of obligations and benefits.

▪ There was never a forced sale of the agreement and the Taxpayer voluntarilysold the contract.

53

TAX CASES


D E C I S I O N S

▪ The Taxpayer had appealed to the High Court and the High Court allowed theappeal on the ground :

• Pursuant to Novation Agreement, the Taxpayer lost its business rights. Thedisposal of Taxpayer’s rights and liabilities was a capital receipt and not taxable.

• There was a forced sale of the Taxpayer’s entire business as the Taxpayer wasfrustrated with the new management.

▪ DGIR then appealed against the decision of the High Court to the Court ofAppeal, where it was dismissed.

54

TAX CASES

Payment Of Subsidy

▪ Chantika Kilang Beras Sdn Bhd v Ketua Pengarah Hasil Dalam

Negeri (unreported, 2017)

▪ Utara Seeds Sdn Bhd v Ketua Hasil Dalam Negeri (unreported,

2017)

55

TAX CASES

C h a n t i k a K i l a n g B e r a s S d n B h d v K e t u a P e n g a r a h H a s i lD a l a m N e g e r i ( u n r e p o r t e d , 2 0 1 7 )

▪ Taxpayer’s principal activity is as a rice miller.

▪ Taxpayer is not involved in the business of planting paddy.

F A C T S

▪ In YA 2008, 2009 and 2010, Taxpayer received subsidypayments from Ministry of Agriculture and Agro BasedIndustry Malaysia (MOA) for rice and paddy seedlings

▪ There were 2 types of subsidies -• subsidize the price of paddy seedlings for paddy

farmers to obtain good quality seedlings which cangive better yield.

• reduce the burden of the public due to the sharpincrease in the price of rice.

56

TAX CASES


▪ Payments of subsidy by MOA were calculated based on the difference betweenthe selling price and market price of paddy seedlings and ST15 rice.

▪ Taxpayer declared the payment of subsidy received as its income under section4(a) of ITA in YA 2008, 2009 and 2010.

▪ Taxpayer submitted CP15C in 2013 for relief under section 131(1) of ITA.

▪ Exemption Order No. 22/2006.

F A C T S

57

TAX CASES


Whether or not there is a mistake on part of Taxpayerwhen it declared the subsidy payments received asbusiness income under section 4(a) of ITA?

Whether the payments of subsidy received by taxpayer from MOA were correctly brought to tax asbusiness income by the Taxpayer?

Whether Exemption Order No. 22/2006 applies to theTaxpayer?

58

TAX CASES


D E C I S I O N S

▪ The SCIT found that the scheme of subsidy introduced by the government throughMOA was meant for paddy farmers to purchase good quality paddy seedlings atsubsidised price, and to enable the public at large to purchase ST15 at a lower price.

▪ The SCIT also found that the word “subsidy” in MOA’s letter to theTaxpayer is to denote the Taxpayer’s participation in the subsidyprogramme only and not that the subsidy was meant for theTaxpayer in its capacity as a rice miller.

▪ SCIT also made a finding that regardless of the word “subsidy” used in MOA’sletter to the Taxpayer, the real character of the payments received by the taxpayer was not subsidy but compensation.

59

TAX CASES


D E C I S I O N S

▪ The High Court on appeal upheld the findings made by SCIT and dismissed theTaxpayer’s appeal.

▪ Taxpayer appealed to the Court of Appeal against the decision of the High Court.

▪ The Court of Appeal decided in favour of the Taxpayer and overturned thedecisions of the High Court and SCIT.

60

TAX CASES

Income Tax Act 1967

v Real Property Gains Tax 1976

▪ Insaf Tegas Sdn Bhd v Ketua Pengarah Hasil Dalam Negeri

(unreported, 2017)

61

TAX CASES

I n s a f T e g a s S d n B h d v K e t u a P e n g a r a h H a s i l D a l a mN e g e r i ( u n r e p o r t e d , 2 0 1 7 )

▪ Taxpayer involved principally in property investment.

▪ In 1997, Taxpayer purchased 50 acres of land in Mukim Batang Kali, Selangor.

▪ The land was later disposed in 2004.

▪ Certificate of exemption under RPGT was issued in 2009.

▪ In 2010, after field audit on the Taxpayer was conducted, the DGIR issued aNotice of Assessment with penalty as the disposal was treated as a disposal ofstock in trade subject to income tax.

F A C T S

62

TAX CASES


Whether the disposal is subject to tax under ITA orRPGT?

Whether penalty is rightly imposed under section 113of ITA?

63

TAX CASES


D E C I S I O N S

▪ The SCIT and the High Court dismissed the Taxpayer’s appeal:

• Intention for the purchase of the land was not for investment.• SPA to develop the land within 2 years. Taxpayer was also required to submit

building plan within 1 year.• Memorandum allows Taxpayer to enter into contract to build buildings, other

construction, and to carry on property development activities.• Taxpayer appointed the buyer as a developer.• Two company resolutions prior to and consequent to the SPA.• Reasons for sale due to unfavorable market conditions and debt settlement

exercise were disregarded.

▪ Taxpayer’s appeal to the Court of Appeal was dismissed with costs.

64

Thank [email protected]

TAX CASES 65

tax cases 1 - ctimctim.org.my/topic 6 - tax cases update (pn zaleha adam).pdf · case statistics...

Documents