top of page

Judicial Review: Leave & Stay To Challenge The IRB

 September 1, 2020

HHD Sdn Bhd v Ketua Pengarah Hasil Dalam Negeri

On 27 August 2020, the High Court allowed a leave application to commence judicial review proceedings against the tax assessments issued by the Director General of Inland Revenue (DGIR). Despite the DGIR attempting to rely on the recent Bintulu Lumber Development case, the High Court was persuaded that there were exceptional circumstances for the taxpayer to challenge the DGIR’s tax assessments by way of judicial review.

The taxpayer was successfully represented by the firm’s Tax, SST & Customs partner, S. Saravana Kumar. He was assisted by pupil, Nur Hanina binti Mohd Azham.

Brief Facts

The taxpayer, a property developer based in Johor, is mainly involved in property development business. The taxpayer had entered into agreements with the Johor State Government, whereby the taxpayer is required to allocate a portion of the properties developed as Bumiputera lots, which must be sold to Bumiputera purchasers. However, in the event the taxpayer is unable to sell the Bumiputera lots to Bumiputera purchasers, the Johor State Government will allow the taxpayer to release the Bumiputera lots allocation. The release is 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 amounting to nearly RM 30 million as a tax deductible expense.

Consequent to a tax audit, the DGIR disagreed with the taxpayer and claimed that the cash contribution is capital in nature. The DGIR disregarded the taxpayer’s explanation that the cash contribution is a business expense payment under Section 33(1) of the Income Tax Act 1967 (ITA) as it allows the taxpayer to generate income by selling the unsold Bumiputera lots to non-Bumiputera buyers. Alternatively, the taxpayer submitted that the cash contribution is deductible under Section 44(6) of the ITA as it is cash payment to a State Government. The DGIR rejected the taxpayer’s explanation and proceeded to raise tax assessments for a large sum of money against the taxpayer.

Being aggrieved by the DGIR’s decision, the taxpayer filed an application for judicial review to challenge the legality of the disputed tax assessments. The taxpayer also applied for a stay order against the payment of the disputed taxes which amounted to nearly RM 10 million.

The Taxpayer’s Contention

Our Tax, SST & Customs partner successfully submitted on behalf of the taxpayer that:

  1. Judicial review is available notwithstanding the availability of domestic remedy if there are exceptional circumstances. In the present matter, the taxpayer argued that the tax assessments raised by the DGIR is unlawful because the DGIR is bound by the Prima Nova case which ruled that cash contribution to obtain the release of Bumiputera lots allocation is a deductible expense.

  2. Even if the taxpayer had exhausted the domestic remedy under Section 99(1) of the ITA, the Prima Nova case is still binding on the DGIR. The fact remains that by not following the decision in the Prima Nova case, the DGIR had acted illegally in raising the disputed tax assessments.

  3. Judicial review is the quicker, more convenient route as compared to the domestic remedy available.

The DGIR’s Response

The DGIR argued that due to the existence of domestic remedy, the taxpayer’s judicial review application is frivolous and vexatious. It was also submitted that the taxpayer has not shown that there are exceptional circumstances in the present matter.

The High Court’s Oral Decision

In delivering the decision immediately after the hearing, the High Court, held that judicial review is the appropriate forum to determine whether the cash contribution can be deducted under Section 33(1) or Section 44(6) of the ITA. On this basis, the High Court granted leave to the taxpayer to commence judicial review proceedings to challenge the legality of the DGIR’s decision in raising the disputed tax assessments. The High Court also granted interim stay against the payment of the disputed taxes.


The Federal Court’s ruling in the Bintulu Lumber Development case does not change the fact that in exceptional circumstances, a taxpayer remains entitled to seek recourse by way of judicial review instead of going through the Special Commissioners of Income Tax route.

Further, this High Court decision amplifies the position that the High Court is empowered to grant a stay even in a tax matter.


bottom of page