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Court of Appeal Affirms Taxpayer’s Leave To Challenge Section 44(6) Tax Exemption Revocation

The Court of Appeal unanimously dismissed the appeal by the Director General of Inland Revenue (DGIR) to challenge the granting of leave by the High Court to the National Kidney Foundation (NKF) to commence judicial review proceedings against the DGIR. The Court of Appeal affirmed the High Court’s ruling that the taxpayer is allowed to proceed by way of judicial review to set aside the DGIR’s decision to revoke their Section 44(6) tax exemption status.


TheNKF was successfully represented by our firm’s Tax, SST & Customs Partner, S. Saravana Kumar together with tax associate, Nur Hanina Mohd Azham.


Brief Facts


The taxpayer is a non-profit charitable organisation established in Malaysia in 1969. Vide a letter dated 20.6.1970, the DGIR granted the taxpayer approval for tax exemption status by virtue of Section 44(6) of the Income Tax Act 1967 (ITA).


Following a tax audit in 2019, the DGIR claimed that it had found non-compliance with the conditions of approval of tax exemption under Section 44(6). On 17.6.2020, the DGIR then informed the taxpayer that its tax exemption status under Section 44(6) of the ITA has been revoked. Subsequently, the DGIR raised tax assessments for the years of assessment 2017 and 2018 amounting to nearly RM 10 million against the taxpayer.


Being aggrieved by the DGIR’s decision, the taxpayer had filed a judicial review application at the High Court.


The High Court’s Ruling


On 26.8.2022, the High Court dismissed the DGIR’s objection to the taxpayer’s leave application and allowed the taxpayer’s application for the following reasons:


(a)      The taxpayer’s leave application was made within the time period stipulated in Order 53 of Rule 3(6) of the Rules of Court 2012.


(b)      The appeal to the Special Commissioner of Income Tax (SCIT) would not be applicable in this case as the issue at hand was regarding the withdrawal of the taxpayer’s tax exemption status and it was not an appeal against an assessment.


(c)      The other grounds raised by the DGIR can be ventilated at the substantive stage.


(d)      The taxpayer’s leave application was not frivolous and vexatious.


Dissatisfied with the High Court’s ruling, the DGIR appealed to the Court of Appeal.


The Taxpayer’s Contention


The arguments for the taxpayer can be summarised as follows:


(a)            The taxpayer’s judicial review application was made within time because the taxpayer had filed its judicial review application on 17.9.2020 which is within the three months time period under Order 53 of the ROC 2012.


(b)      In a letter dated 17.1.2020, the DGIR informed the taxpayer that the taxpayer is subject to income tax under the ITA and is responsible for forwarding the “Borang Nyata Cukai Pendapatan” to the DGIR pursuant to sections 77 and 77A of the ITA. Thus,  the DGIR’s letter dated 17.1.2020 is considered to be the final decision in relation to the taxpayer’s tax exemption status pursuant to Section 44(6) of the ITA.


(c)      The Singaporean Court of Appeal in Per Ah Seng Robin and another v Housing and Development Board and another [2015] SGCA 62 held that in a judicial review application, time may start to run later where the public authority’s conduct indicates a willingness to reconsider its earlier decisionIn the present matter, the DGIR’s letter dated 29.8.2019 was not a final decision made regarding the matter. Both parties had engaged in further discussions on the matter after the letter dated 29.8.2019, namely that on 24.12.2019, the DGIR issued another letter to the taxpayer asking for further information. In addition, there was a meeting held between the parties on 12.2.2020.


(d)      The jurisdiction of the SCIT in hearing tax disputes pursuant to Section 99(1) of the ITA is only limited to the hearing of appeals against the assessment of income tax made by the DGIR pursuant to the ITA.


(e)      In Ketua Pengarah Jabatan Hasil Dalam Negeri v Rheem (Far East) Pte Ltd [1998] 2 CLJ Supp 351, the High Court, in referring to the case of Korean Development Corporation v Government of Malaysia & Anor [1986] 2 MLJ 53, recognised and affirmed the limited jurisdiction of the SCIT. The court further held that the SCIT are creatures of statute which can only exercise jurisdiction to the extent as expressly provided by the ITA.


(f)       There is no statutory appeal procedure and/or domestic remedy provided in the ITA to challenge the DGIR’s decision to withdraw the tax exemption status granted to the taxpayer pursuant to Section 44(6) of the ITA vide its letter dated 17.6.2020.


The DGIR’s Contention


The DGIR’s main argument in its appeal is that the DGIR’s decision to withdraw the taxpayer’s tax exemption status was issued earlier via the letter dated 29.8.2019 and not through the DGIR’s letter dated 17.6.2020. Thus, the taxpayer’s judicial review application was not made within time as it was filed on 17.9.2020 which is not within three months from 29.8.2019. In addition, there was no application to extend the time to file an application for judicial review made by the taxpayer.

During the course of the hearing, the DGIR withdrew its argument that the taxpayer should exhaust the domestic remedy available prescribed under the ITA.


The Court Of Appeal’s Ruling


The Court of Appeal dismissed the DGIR’s appeal and affirmed the High Court’s decision. The Court of Appeal held that there were no merits to the DGIR’s appeal as the taxpayer’s leave application was made within time.


In arriving at its decision, the Court of Appeal took into account the Singaporean case of Per Ah Seng Robin, which was relied on by the taxpayer, in ruling that the taxpayer’s leave application was not time-barred. In Per Ah Seng Robin, the Singaporean Court of Appeal held that even though the public authority indicated in its first rejection letter that its decision was “final”, its later conduct was a clear indication that it was open to reconsidering its decision. According to the Court of Appeal, it was evident that both parties had engaged in further discussion after the letter dated 29.8.2019 was issued by the DGIR. The conduct of the DGIR in requesting further information from the taxpayer via a letter dated 24.12.2019 and by holding a meeting with the taxpayer on 12.2.2020 shows that the letter dated 29.8.2019 did not contain the final decision.




It is notable that this is the first case of its kind in Malaysia where the Singaporean case of Per Ah Seng Robin was examined and applied by our courts. The relevant excerpt from Per Ah Seng Robin reads:


“[51]  For the purposes of calculating the three-month period stipulated in O 53 r 1(6), time generally starts to run from the date of the decision sought to be impugned (see Teng Fuh Holdings at [16]-[17]), or, where the decision is borne out of a multiple-step decision process, from the date of the final step in that process (see Chiu Teng at [36]). But, this is not an inflexible or unyielding rule. Time may start to run later where the respondent’s conduct indicates a willingness to reconsider its earlier decision, and in cases where there is delay, it is always open to the applicant to attempt to persuade the court that it has a satisfactory explanation for the delay…”


This recent decision is encouraging as it shows that the time period stipulated under Order 53, Rule 3(6) of the Rules of Court 2012 is not rigid. Furthermore, this decision also serves as a reminder that the right of judicial review remains in tax cases.


24 April 2024


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