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Stay Granted Against Payment Of Disputed Taxes

July 17, 2020

On 16 July 2020, the High Court allowed an application for a stay of proceedings filed by a taxpayer pending the determination of the taxpayer’s appeal either before the Court of Appeal or the Special Commissioners of Income Tax.

The taxpayer was successfully represented by the firm’s Tax, SST & Customs partner S. Saravana Kumar, together with associate Ng Kar Ngai.

Brief Facts

The Director General of Inland Revenue (DGIR) had raised tax assessments for a large sum of money against the taxpayer consequent to a tax audit. The taxpayer is an investment holding company, which issued Islamic redeemable preference shares (RPS) worth about RM 1 billion. The share of profits pay out for the RPS was targeted at 12% per annum with a 5 year commitment period. As the RPS were issued in accordance with the Syariah principles, the pay out was termed as share of profits instead of interest. The taxpayer in preparing its tax return treated the share of profits pay out being akin to interest payment and deducted the same as a business expense. This treatment was also consistent with the prevailing accounting treatment.

However, the DGIR disagreed with the taxpayer and varied the character of the share of profits to that of a dividend instead of treating the same as a business expense. The DGIR disallowed the taxpayer’s claim for tax deduction. Being aggrieved by the DGIR’s decision, the taxpayer filed an application for judicial review to challenge the legality of the disputed tax assessments.

Unfortunately, the High Court did not allow the taxpayer’s leave application to commence judicial review on the basis that the tax question raised by the taxpayer should be ventilated before the Special Commissioners of Income Tax. It must be noted that the High Court did not make any ruling to affirm the disputed tax assessments.

Nevertheless, upon hearing the submission of our tax partner on behalf of the taxpayer, the High Court granted a stay of proceedings pending the determination of the taxpayer’s appeal to the Court of Appeal or the Special Commissioners of Income Tax.

High Court’s Oral Decision

In delivering the decision immediately after the hearing, the High Court explained that the stay of proceedings was granted to preserve the taxpayer’s pending appeal, which otherwise would be rendered nugatory. The High Court also added one must also take into account the present economic climate as the disputed taxes will cause additional financial burden on the taxpayer.

The other argument advanced on behalf of the taxpayer was that Section 103(1) and Section 106(3) of the Income Tax Act 1967 do not bar the High Court from exercising its inherent jurisdiction to grant a stay. Accordingly, the High Court may grant a stay even in a tax matter.


The fact that the taxpayer’s leave application for judicial review was disallowed does not mean the DGIR’s tax assessments were affirmed by the High Court. In this matter, the High Court only held that the taxpayer should commence its appeal before the Special Commissioners of Income Tax. No ruling was made by the High Court on the merits or the correctness of the disputed tax assessments. Moving forward, the granting of the stay of proceedings will allow the taxpayer the opportunity to have its appeal to be determined first before any payment is made in relation to the disputed taxes.

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