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COA upholds leave granted to Petronas unit to start judicial review against IRB

4 April 2023

PUTRAJAYA (April 4): A three-member Court of Appeal (COA) bench has upheld the High Court’s decision in granting leave to Petronas Trading Corporation Sdn Bhd (Petco) to commence judicial review against the Inland Revenue Board's (IRB's) decision to impose additional tax on the company.

COA judge Datuk Has Zanah Mehat led the bench, comprising judges Datuk Che Mohd Ruzima Ghazali and Datuk See Mee Chun, in dismissing IRB's appeal in the unanimous decision.

The issue came about when IRB imposed tax assessments on Petco for a sum close to RM34 million for the years between 2013 and 2018.

The IRB did it by invoking Section 140A of the Income Tax Act 1967 (ITA) to disregard the transfer of Petco’s business to Petco Trading Labuan Company Ltd to take advantage of the Global Incentive for Trading (GIFT) programme for tax incentive granted to Petco Labuan.

The IRB used Section 140A to disregard the sum of RM636.706 million that was recognised as a part of Petco Labuan’s income, and treated the sum as Petco's income.

This prompted Petco to apply for leave to initiate a judicial review to challenge the IRB's assessments. High Court judge Datuk Noorin Badaruddin, who granted Petco's leave application to do so in 2021, decided the issues raised by Petco on the legality in applying Section 140A were not frivolous and vexatious and further held that the Special Commissioners of Income Tax's existence did not bar taxpayers from initiating a judicial review.

In judicial review cases, leave has to be gained first before the full merits of the matter is to be heard against the authority (IRB).

Section 140A of the ITA stipulates the IRB director general’s authority that allows it to substitute prices and prohibit interest transactions or financial assistance between associated persons.

The decision was confirmed by Petco's tax counsel S Saravana Kumar from Messrs Rosli Dahlan Saravana Partnership to The Edge. He appeared with Nur Amira Ahmad Azhar.

Commenting on the decision, Saravana Kumar said Petco is challenging the usage of Section 140A of the ITA by the IRB in disregarding the transactions between Petco and Petco Labuan.

“Clearly, Section 140A does not empower the IRB to recharacterise and disregard the transaction. Instead, the IRB should have invoked Section 140 to do so”.

IRB was represented by Ashrina Ramzan Ali and Suriani Che Ismail.

Edited by Kathy Fong

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