KERAJAAN MALAYSIA 1. ) BGOG HOLDING SDN BHD 2. ) MUSALUDDIN BIN MUHAMMD YUSOF 3. ) MUSTAFFA KAMAL BIN MUHAMMAD YUSOF

IN THE HIGH COURT OF MALAYA AT KUALA LUMPUR IN THE FEDERAL TERRITORY, KUALA LUMPUR IN THE MATTER OF CIVIL SUIT NO: WA-21NCVC-14-03/2018 BETWEEN KERAJAAN MALAYSIA ..-PLAINTIFF AND 1. BGOG HOLDING SDN BHD (818540-M) (formerly known as Blackgold Oil & Gas Sdn Bhd.) 2. MUSALUDDIN BIN MUHAMMAD YUSOF (NRIC NO: 670418-71-5015) 3. MUSTAFFA KAMAL BIN MUHAMMAD YUSOF (NRIC NO: 731203-01-5077) ... DEFENDANTS JUDGMENT The Background Fact The Plaintiff is Government of Malaysia having its address at Lembaga Hasil Dalam Negeri Malaysia, Cawangan Guaman Kuala Lumpur, Tingkat 1 (Kanan), Blok 10, Kompleks Bangunan Kerajaan, Jalan Tuanku Abdul Halim, 50600 Kuala Lumpur. Whereas the 1° Defendant 1 is a company registered under the Companies Act 2016 and having its registered address at 13B, Jalan Sg. 2/4, Pusat Bandar Sri Gombak, 68100 Batu Caves, Selangor (“the Company’). The Company's business address is at Suite 6-7-2, Queen’s Avenue, Jalan Shelly Off Jalan Peel, 55100 Kuala Lumpur. At the material time, the 2"° and 3” Defendants who are brothers, are also the directors of the Company since 11.8.2008 and 7.11.2012 respectively. The 2"! Defendant holds ordinary share capital of 1,999,980.00, more than 50% of the ordinary share in the Company. The 3° Defendant on the other hand holds ordinary share capital of 20.00 and he is also an “associate” within the scope of Section 139(7) of the Income Tax Act 1967 (“the Act”). Therefore, the 2" and 3 Defendants are jointly and severally liable for the tax payable by the 1° Defendant to the Plaintiff. For the assessment years of 2013, 2014 and 2015, the Defendants’ the tax basis period is from 1.1.2013 until 31.12.2013, from 1.1.2014 until 31.12.2014 ad from 1.1.2015 until 31.12.2015. The 1°* Defendant had submitted to the Plaintiff of its tax estimation for 2013 and 2015 vide Tax Estimation Forms on 31.5.2012 and 29.11.2014. The tax estimation for the said two years was stated as RMO.00. The 1° Defendant failed to submit Form C (the Retum Form of A Company) to the Plaintiff for the assessment years of 2013, 2014 and 2015 on or before the last day to submit the form, i.e. seven months after the closing of the 1 Defendant’s accounting period. Hence, the 1% Defendant's tax for 2013, 2014 and 2015 had been assessed to the sum of RM234,436.85, RM416,998.50 and RM491,698.20 (“the 2 Assessments”). The notice for the Assessments was mailed and served on the 1% Defendant to its last known address at that time. Tax increment of 10% from the Assessments was imposed on the 1“ Defendant due to its failure to pay the tax payable within 30 days from the date of the service of the Notice of Assessments on the 1st Defendant. The 10% increment was added to the balance of the tax payable to the Plaintiff. The 1* Defendant then made part payment in the sum of RM31,823.66 being the tax payable 2014, leaving the balance of RM426,874.69 which the 1° Defendant was unable to pay. As a result, a 5% tax over the Assessments amounting to RM12,894.02, RM21,343.73 and RM27,043.40 each was imposed on the 4% Defendant and these sums were added to the balance of the tax payable to the Plaintiff. Apart from that, there was difference between the tax payable and the tax estimation for the years of 2013, 2014 and 2015 submitted by the 1* Defendant in which the tax estimation is 30% higher than the tax payable for the said three years. Hence, an increment of 10% under Section 107C(10) of the Act amounting to RM13,999.79, RM34,749.87 and RM28,682.39 was imposed in the 1 Defendant for those years. Subsequently, the 1*' Defendant paid a sum of RM322,000.00 for the tax payable under the assessment year of 2014, leaving the balance of RM160,968.29. Since the Defendants failed to make payment of the tax payable to the Plaintiff, on 21.3.2018 the Plaintiff filed this action against the Defendants claiming for the same. The Plaintiff pleaded that since the 2™ and the 3° Defendants are the directors of the 1% Defendant 3 pursuant to Section 75A of the Act, the 2™ and 3” Defendants are also jointly and severally liable for the tax payable by the 1% Defendant to the Plaintiff. The Defendants entered appearance on 4.4.2078. The Defences The 1° and 2™ Defendants pleaded the followings in their defences, inter alia: i) they had never received the notice for the Assessments. ii) the 10% increment imposed by the Plaintiff is unfair and prejudicial to the 1* and 2™ Defendants. iii) the 1% and 2™ Defendants had never referred or admitted to the tax assessment issued by the Plaintiff for the year of 2014. On the other hand, the 3% Defendant stated in his defence, inter alia, that: i) the 3° Defendant had never been given the power either directly or indirectly in the administration of the 1° Defendant. ii) the 3° Defendant is incapable of acquiring a greater part of share capital or greater voting power and/or in any way to do or to get involved in any way that entitles him to enjoy any of the advantages listed in Section 139(1)(a), (b), (c), (2), (3), (4), (6) or (6) of the Act. iii) The 3 Defendant is not a signatory to the 1** Defendant's cheques. iv) The 3” Defendant has no knowledge on the 1° Defendant’s default as stated in the Statement of Claim until he received the Writ of Summon. v) The 3% Defendant denies that he is an “associate” within the scope of Section 139(7) of the Act. The Trial When the case was still at case management stage, the Plaintiff had on 23.5.2018 filed an application for a summary judgment against all o fthe Defendants (Enclosure 17) pursuant to Order 14 rule 1 of the Rules of Court 2012 (“ROC”). The learned High Court Judge S. Nantha Balan after hearing from the solicitors for the Plaintiff and Defendants allowed for summary judgment be entered against the 1“! and the 2" Defendants for the sum of RM1,042,336.44 with costs of RM5,000.00. The decision was delivered on 10.8.2018. As for the 3% Defendant, the learned High Court Judge found that there is triable issue that warrants a trial, among others, on the interpretation of Section 75A and 139 of the Act. The trial date was then fixed on 28.11.2018. It is to be noted that there was no appealed by the 1 and 2"4 Defendant against the said decision. On the day when the trial was supposed to commence, both solicitors of the Plaintiff and the 3 Defendant informed the Court that having perused the bundle of documents that have been filed including the Bundle of Pleadings, they would invoke Order 33 rule 5 of the ROC to determine the legal issues without the need to call for witnesses to testify in Court. The issues to be determined by the Court are: i) Whether the 3” Defendant is a director within the meaning of s.2, s.75A and S.139 of the Income Tax Act 1967; ii) If the answer to paragraph (i) is in affirmative, whether the 3° Defendant will be liable to the overall sum or will only be liable limited to the shares that he holds in the Company. Hence the Court directed parties to file their respective submissions on the issues stated above and adjourned the case to 4.1.2019 for oral submissions. The Plaintiff's Submission First Issue: Whether the 3 Defendant is a director within the meaning of s.2, s.75A and S.139 of the Income Tax Act 1967 The learned counsel for the Plaintiff referred to the interpretation of the word “director” under Section 2 of the Act in which the provision provides five criteria of a director under two different categories, that are: First category, director includes: i) any person occupying the position of director (by whatever name called); or ji) any person in accordance with whose directions or instructions the directors are accustomed to act; or iii) is a manager of the company/concerned in the management of the company’s business; or iv) is remunerated out of the fund of that business. Second category — director is, either on his own or with one or more associates within the meaning of Section 139(7) of the Act, the beneficial owner of 20% or more of the ordinary share capital of the company. 6 It was argued that the word “includes” in the first category should be given its plain and ordinary meaning in which the 3 Defendant is clearly “occupying the position of director’ as stated in paragraph (i) of the first category. This is supported by the following documents included in the Common Bundle of Documents and Supplementary Common Bundle of Documents, all in Part A, namely: i) Form 49 of 2012 for Blackgold Oil & Gas Sdn Bhd’s dated 7.11.2012; ii) Form 49 of 2017 for Blackgold Oil & Gas Sdn Bhd’s dated 18.7.2017; iii) Companies Commission of Malaysia (CCM) search for BGOG Holding Sdn Bhd dated 19.10.2017. For paragraph (iii) of the first category, the learned counsel for the Plaintiff submitted that based on the Agreed Facts, the 3% Defendant indeed plays a role in the management of the Company when he together with the 2.’ Defendant had approved the Company's Board of Directors’ Resolutions dated 18.3.2013, 17.3.2014, 30.6.2014, 25.9.2014 and 25.9.2014. It can been seen from the documenis in the Common Bundle of Documents that had been filed. The 3” Defendant is also remunerated out of the funds of the Company in which he has been paid salaries as Director (Special Operation and Tasks) of the Company. His remuneration is RM10,000.00 per month and also allowance of RM3,000.00 per month. The 3” Defendant’s Letter of Appointment and proof of his pay were also referred to in the Common Bundle of Documents. Hence, paragraph (iv) of the first category has also been satisfied. In respect of the second category, it is a criterion that must be fulfilled for a person to fit within the definition of “director” under Section 2 of the Act. Even though the 3% Defendant holds only 20 units from the total 2,000,000 unit of the ordinary share capital of the Company, the 3% Defendant is actually the beneficial owner of all ordinary share capital in the Company. This is because the 3 Defendant, holds the 100% of Company's ordinary share capital jointly with the 2™ Defendant who is also his brother. Therefore, the 3 Defendant clearly holds more than 20% of the ordinary share capital in the Company. In furtherance to that, the learned counsel for the Plaintiff also submitted that Section 2 of the Act has to be read in harmony with Section 75A of the Act as Section 75A provides for a specific definition of “director”. The definition of “director” under Section 75A strictly applies and prevails any other law since the present action is an action against a director under Section 75A. The learned counsel referred to the Court of Appeal case of Tebin bin Mostapa (as administrator of the estate of Hj Mostapa bin Asan, deceased) v Hulba-Danyal bin Balia & Anor (as joint administrators of estate of Balia bin Munir, deceased) (2017) 5 MLJ 771. Under Section 75A(2) of the Act, the word “director” means: (a) is occupying the position of director (by whatever name called), including any person who is concerned in the management of the company’s business; and (b) is, either on his own or with one or more associates within the meaning of subsection 139(7), the owner of, or able directly or through the medium of other companies or by any other indirect means to control, not less than twenty per cent of the ordinary share capital of the company...” The learned counsel for the Plaintiff submitted that the 3 Defendant also falls under these two categories and the learned counsel reiterates his earlier submissions in relation to definition of “director” under Section 2 of the Act to support his argument. Therefore, since the word “associate” is embedded in both Section 2 and 75A of the Act, it is pertinent to read these two provisions with Section 139(7) of the Act. Section 139(7) of the Act which defines “associate” as: “associates means, in relation to a person — (a) a person in any of the following relationships to that person, that is to say, husband or wife, parent or remoter forebear, child or remoter issue, brother, sister and partner” Thus, the 3% and 2" Defendants who are brothers, are associates within the definition in Section 75A and therefore, the 3 Defendant has automatically satisfied the definition of “director” under Section 139(7) of the Act. Second Issue: If the answer to the first issue is in affirmative, whether the 3 Defendant will be liable to the overall sum or will only be liable limited to the shares that he holds in the Company. In addressing this issue, the learned counsel for the Plaintiff submitted that the general principle is that a company holds a separate legal identity with the shareholder, with reference to among others, the case of 9 Abdul Aziz Atan & Ors v Ladang Rengo Malay Estate Sdn Bhd (1985) 2 MLJ 165. Having submitted so, that general principle is not an absolute protection for the 3 Defendant since the Court has the power to lift the corporate veil of a company in certain circumstances when there is fraud, or when it was established to avoid existing obligation, or even to prevent the abuse of corporate legal personality, as decided in | the Federal! Court case Gurbachan Singh Bagawan Singh & Ors v Vellasamy Pennusamy & Other Appeals (2015) 1 CLJ 719. Relying on the above decided case, the learned counsel submitted that the 34 Defendant cannot arbitrarily adopt the general principle to avoid his liability to pay the tax despite he holds nominal share in the Company. He also has the responsibility to ensure that the Company pay its tax. Therefore, the Court should lift the corporate veil of the Company so that the principle of separate legal entity is not abused. Apart from that, the 3 Defendant failed to show to the Court that the 3” Defendant’s liability limited only to the shares that he holds in the Company. The Plaintiff on the other hand referred to Kumpulan Wang Simpanan Pekerja v Suasa Kristal (M) Bhd & Ors (2009) 8 CLJ 236 in support of its contention to say that that the 3 Defendant being the director of the Company is jointly and severally liable to the tax payable by the Company to the Plaintiff. The 3" Defendant’s Submission The 3% Defendant disputed the amount claimed by the Plaintiff that is RM1,042.336.66 as well as the interest and cost on the following reasons: 10 ii) The 3 Defendant was only being the employee of the Company from January 2015 onwards. Prior to that he was an employee of Ranhill Global Systems Sdn Bhd until 24.12.2014 and the Company has since 20.7.2018 been wound up. Therefore, he could be held liable for the tax assessment for 2013 and 2014. He had been working with the Company as an employee starting from January 2015 until 2017 and he had submitted Form BE i.e. Income Tax returns as an employee. The 3% Defendant had no authority either directly or indirectly in respect of all issues pertaining to the administration or management of the Company. It can be seen from not only cheques of the Company but also other document such Application Remittance Form in which they were all signed by the 2" Defendant solely. The 3% Defendant did not posses nor was he allowed to possess a greater part of share capital or greater voting power or entitlement as provided under Section 139(1)(a),(b),(c), (2), (3) (6) or (6) of the Act. The 3% Defendant is not a signatory to the cheques issued by the Company. In respect of whether or not the 3 Defendant was the “director” of the Company within the ambit of Section 2 and 75A of the Act, the learned counsel for the 3% Defendant argued that the 3 Defendant was not occupying the position of a director as he was at all material times until 24.12.2014 employed by Ranhill Global Systems Sdn Bhd and he had 11 only worked at the Company since January 2015. Thus he could not be held accountable for the years assessment claimed by the Plaintiff. Further, it was also contended that the 3 Defendant did not concern with the management of the Company as he at all material times he was gainfully employed by Ranhill Global Systems Sdn Bhd. At most, the 3” Defendant did assist the 2" Defendant to sign the resolutions to open bank accounts for the Company as required by the 2™ Defendant but he was not a signatory for those accounts. The 3 Defendant was only an employee of the Company who earned a fixed salary with monthly deductions for tax and EPF paid for by the Company. The 3 Defendant also submitted the relevant Form BE with Plaintiff annually. The learned counsel for the 3% Defendant also argued that the 3” Defendant was not remunerated out of the funds of the Company simply because he was just like all employee who has been paid a salary. Apart from that, none of the provisions of Section 139(1) of the Act applies to the 3 Defendant. Therefore, based on the foregoing, it was submitted that the 3 Defendant should not be made party to this action and that the Plaintiff's claim against the 3% Defendant be dismissed. Observation and Decision of the Court This was a hearing pursuant to Order 33 rule 5 of ROC, which was a trial of an action after decision of preliminary issue. The preliminary issues which the Court had to decide were: (i) Whether the 3 Defendant is a director within the meaning of Section 2, Section 75A and Section 139 of the Act. 12 Definition in Section 2 of the Act: A director includes: i) any person occupying the position of director, who is a manager of the company or otherwise concerned in the management of the company. ii) any person who is remunerated out of the fund of that business. iii) any person who is either on its own or with one or more associates within the meaning of Section 139(7) of the Act is the beneficial owner of 20% of the company. As far any person who is a manager of the company or otherwise concerned in the management of the company’s business, there are about four resolutions passed by the Company whereby the 3” Defendant as a director passed the resolutions together with the 2" Defendant where it authorizes the Company to open accounts at various banks and also 3% Defendant together with the Company passed resolutions authorizing the 2" Defendant to be the signatory to the cheques. The 3” Defendant also received renumeration as director of the Company from the fund of the business. The Court was of the considered view that the 3 Defendant though was only appointed a director of the Company with only 20.00 shares, he was instrumental in passing the four resolutions to enable the Company to open an account at the various financial institutions without whom it was not possible for the Company and the 2" Defendant to open and operate the accounts. !n that respect the Court considered the 34 Defendant was concerned in the management of the Company. 13 The CCM search showed that the 3% Defendant was appointed as director in 2012 and the Plaintiff was right in putting a claim against the 3" Defendant for taxes for the accounting year of assessment for 2014, 2015 and 2016. ii) Whether the 3% Defendant’s liability should only be limited to his shareholding and not for the entire share in the Company The Court is of the view that the interpretation of an “associate” in Section 139(7) of the Act refers to an “associate” to those having blood relationship e.g. between brothers. Using this, it is a basis of finding that being the brother of the 2"! Defendant who holds the majority of the shares in the 1% Defendant, the 3 Defendant has the beneficial interest in the entire share of the 1% Defendant. The definition of “associates” means: “(a) a person in any of the following relationships to that person, that is to say, husband or wife, parent or remoter, forebear, child or remoter issue, brother, sister and partner” In this context, the 3 Defendant being the brother of the 2° Defendant makes him the beneficial owner of the entire 100% shares. The Court was of the further opinion that the tax liability of the 3” Defendant is no longer governed by the provisions in the Companies Act but it is covered by the provisions in the Income Tax Act. That being the 14 case, the liability of the 3 Defendant is not limited to the 20.00 shares held by him but also to the entire shares holding in the company. In conclusion, the Court allowed the Plaintiffs claim against the 34 Defendant on the balance of probabilities with cost of RM5,000 and 4% allocator. Dated: 9.3.2020 Dato’ Indera Mohd S an Sri Abd Razak ge High Court of Malaya, Kuala Lumpur 15 PARTIES For the Plaintiff: AlHummidallah Idrus & Mohamad Ezmeer Zulkarnain Bin Asnizar Lembaga Hasil Dalam Negeri (LHDN), Cawangan Guaman Kuala Lumpur. Aras 3 Kiri Blok 10 Kompleks Bangunan Kerajaan Jalan Tuanku Abd Halim 50600 Kuala Lumpur For the Defendants: S Kumaresun Tetuan Francis Pereira & Shan 8A, 8" Floor Wisma TCT Batu 3 % Jalan Ipoh 51200 Kuala Lumpur Cases Cited 1. Tebin bin Mostapa (as administrator of the estate of Hj Mostapa bin Asan, deceased) v Hulba-Danyal bin Balia & Anor (as joint administrators of estate of Balia bin Munir, deceased) (2017) 5 MLJ 771. Abdul Aziz Atan & Ors v Ladang Rengo Malay Estate Sdn Bhd (1985) 2 MLJ 165. Gurbachan Singh Bagawan Singh & Ors v Vellasamy Pennusamy & Other Appeals (2015) 1 CLUJ 719. Kumpulan Wang Simpanan Pekerja v Suasa Kristal (M) Bhd & Ors (2009) 8 CLJ 236. 16