Recently, in ULB v Minister of Finance (MOF), the Court of Appeal allowed the taxpayer’s appeal in challenging the High Court’s decision to disallow the taxpayer’s application for leave to commence judicial review against the MOF’s decision. The Court of Appeal held that the taxpayer was allowed to proceed by way of judicial review to set aside the MOF’s deemed decision made under Section 127(3A) or Section 135 of the Income Tax Act 1967 (ITA).
The taxpayer was successfully represented by our firm’s Tax, SST & Customs practice led by S. Saravana Kumar and Amira Ahmad Azhar.
The taxpayer’s appeal was heard together with 17 other tax appeals involving the same issues. The firm also successfully represented the 17 other taxpayers before the Court of Appeal.
Brief Facts
The taxpayer was mainly involved in property development business. On 10.4.2014, the taxpayer entered into an agreement with the Johor State Government, whereby the taxpayer was required to sell Bumiputera unit lots to Bumiputera purchasers. However, in the event the taxpayer was unable to sell the Bumiputera lots to Bumiputera purchasers, the Johor State Government will allow the taxpayer to release the Bumiputera lots. The release was subject to a cash contribution to the Johor State Government. In the present matter, the taxpayer made the cash contribution to the Johor State Government to obtain the release and deducted the cash contribution as a tax-deductible expense.
Consequent to a tax audit in 2021, the Director General of Inland Revenue (DGIR) disagreed with the taxpayer and claimed that the cash contribution was capital in nature. The DGIR disregarded with the taxpayer’s explanation that the cash contribution was a business expense under Section 33(1) of the ITA and raised tax assessments against the taxpayer amounting to approximately RM 8 million.
Vide a letter dated 6.5.2021, the taxpayer submitted a request to the MOF to issue a direction of a general character to the DGIR under Section 135 of the ITA and/or a tax exemption under Section 127(3A) of the ITA. However, the MOF did not respond to the taxpayer’s letter.
Being aggrieved, the taxpayer filed an application for judicial review at the High Court to challenge the MOF’s non-response. The taxpayer deemed the MOF’s non-response as a decision not favouring the taxpayer.
The High Court’s Ruling
On 13.3.2024, the High Court Judge dismissed the taxpayer’s leave application to commence judicial review proceedings against the MOF based on the following reasons:
(a) There was no decision made by the MOF that was amenable to judicial review;
(b) The order pleaded by the taxpayer was mandamus in nature and not a certiorari;
(c) The power to grant an exemption under Section 127(3A) applied only to 'lawful assessment’;
(d) Section 135 only empowered the MOF to give administrative directions to the DGIR; and
(e) Tax matters should be resolved by way of domestic remedy under Section 99(1).
Issues Before The Court Of Appeal
The issues considered by the Court of Appeal were:
(a) Whether the failure to respond by the MOF amounted to a decision that was amendable to judicial review?
(b) Whether Section 135 and/or Section 127(3A) only applied to unlawfully imposed tax?
(c) Whether Section 135 extended to the exercise of the DGIR’s power?
(d) Whether the appeal procedure under Section 99(1) usurped the taxpayer’s right to commence judicial review?
(e) Whether the taxpayer has failed to exhaust the domestic remedy under Section 99(1)?
(f) Whether the taxpayer’s judicial review application amounted to an abuse of the court process?
(g) Whether the order sought by the taxpayer was a mandamus order?
(h) What was the threshold for leave application?
The Taxpayer’s Contentions
The arguments for the taxpayer can be summarised as follows:
(a) The MOF’s silence amounted to a decision which was amenable to judicial review;
(b) In Members of the Commission of Enquiry on the Video Clip Recording of Images of A Person Purported to be an Advocate and Solicitor Speaking on Telephone on Matters of Appointment of Judges v Tun Dato’
Seri Ahmad Fairuz bin Dato’ Sheikh Abdul Halim [2012] 1 CLJ 805, the Federal Court held that a refusal by the decision maker to make a decision may amount to a decision susceptible to judicial review;
(c) The MOF has absolute discretionary power under Sections 135 and 127(3A) to issue directions to the DGIR and also to exempt taxpayers from income tax;
(d) Section 127(3A) empowers the MOF to grant an exemption, regardless of whether the assessments were lawfully or unlawfully raised. There was no requirement in Section 127(3A) for an assessment to be lawful before an exemption can be granted. While Section 135 allows the MOF to give general directions to the DGIR, provided they were not inconsistent with the ITA;
(e) The relief sought by the taxpayer was in the nature of certiorari and not mandamus. The objective was to quash the Decision made by the MOF, which constituted an improper exercise of statutory authority and/or in excess of their jurisdiction; and
(f) Section 99(1) only covered appeals against notices of assessment and as such, they had no jurisdiction to review the MOF’s decision.
The AGC’s Contention
The AGC’s contention can be summarised as follows:
(a) There was no decision amenable to judicial review and as such, an order of certiorari cannot be granted;
(b) The taxpayer’s remedy lied by way of appeal to the Special Commissioners of Income Tax (SCIT) pursuant to Section 99(1);
(c) Section 135 was for the purpose of directions which were administrative and general in nature and not directions which were specific in nature such as giving direction to the DGIR to set aside an assessment; and
(d) Section 127(3A) was only applicable where there was a liability to pay lawfully assessed tax.
The Court Of Appeal’s Ruling
Upon reading and hearing submissions by both parties, the Court of Appeal unanimously allowed the taxpayer’s appeal and set aside the High Court’s decision. The Court of Appeal held:
Whether the failure to respond by the MOF amounted to a decision that was amendable to judicial review?
The Court of Appeal held that the wordings of the new Order 53, Rule 2(4) of the Rules of Court 2012 were wide enough to cover the non-reply and refusal to make a decision. Thus, the MOF's failure to respond to the taxpayer’s request amounted to a decision, which could be subject to judicial review.
Does Section 127(3A) and/or Section 135 only apply to unlawfully imposed tax?
It was held that pursuant to Section 95 of the Interpretation Acts 1948 and 1967, Section 127(3A) is an enabling provision, granting the MOF the power to issue exemptions, irrespective of the lawfulness of the assessments. There is nothing in Section 127(3A) indicating that the exemption only applies to lawful assessment.
Whether Section 135 extends to the exercise of the DGIR’s power?
The Court of Appeal also ruled that Section 135 was not limited to administrative and general matters. The only caveat imposed was that the directions given must not be inconsistent with the legislative intent and purpose of the ITA. Thus, Section 135 extended to the exercise of the DGIR’s power, with the MOF empowered to direct the DGIR.
Appeal procedure under Section 99(1)
The Court of Appeal rejected the AGC's argument that the existence of an appeal under Section 99(1) precluded judicial review, referring to previous decisions such as Mohd Najib bin Hj Abd Razak v Government of Malaysia & Another Appeal [2023] 10 CLJ 329 and Wiramuda (M) Sdn Bhd v Ketua Pengarah Hasil Dalam Negeri [2023] 4 MLJ 753.
In its decision, the Court of Appeal relied on key statutory provisions and case law, emphasising that the right to judicial review was not barred by the availability of an alternative remedy through the appeal process.
It was also held that the appeal was not an abuse of court process as the SCIT appeal has been made as a matter of prudence and out of abundance of caution in light of the finality of the assessment pursuant to Section 97 of the ITA.
Whether the order sought by the taxpayer a mandamus of certiorari?
The Court of Appeal held that the failure to reply amounted to a refusal to make a decision and certiorari was the correct relief to quash the decision of the MOF.
What is the threshold for leave applications?
The threshold for leave to be granted is extremely low with the sole question being whether or not the application is frivolous and/or vexatious, meaning it is not merely a trivial complaint of an administrative error by a body.
Conclusion
This is the first time the Court of Appeal had considered and ruled on Sections 127(3A) and 135 of the ITA making this decision a landmark ruling. This decision also affirms the position that an omission amounts to a decision which is amenable to judicial review. Furthermore, this decision also serves as a timely reminder that the right of judicial review remains in tax cases.
27 January 2025