Profound Reliance Sdn Bhd Ketua Pengarah Hasil Dalam Negeri

WA-14-13-05/2022 Kand. 61 WA-14-12-05/2022 WA-14-13-05/2022 02/09/2025 15:25:44 5 DALAM MAHKAMAH TINGGI MALAYA DI KUALA LUMPUR DALAM WILAYAH PERSEKUTUAN, MALAYSIA (BAHAGIAN RAYUAN DAN KUASA-KUASA KHAS) RAYUAN SIVIL NO.: WA-14-12-05/2022 10 ANTARA KETUA PENGARAH HASIL DALAM NEGERI …PERAYU DAN 15 PROFOUND RELIANCE SDN BHD …RESPONDEN DIDENGAR BERSAMA 20 DALAM MAHKAMAH TINGGI MALAYA DI KUALA LUMPUR DALAM WILAYAH PERSEKUTUAN, MALAYSIA (BAHAGIAN RAYUAN DAN KUASA-KUASA KHAS) RAYUAN SIVIL NO.: WA-14-13-05/2022 25 ANTARA PROFOUND RELIANCE SDN BHD …PERAYU DAN 30 KETUA PENGARAH HASIL DALAM NEGERI …RESPONDEN JUDGMENT 35 (Enclosure 1/L.1) 1 S/N zwhgf0tmQU6t0LJ8jYxOA **Note : Serial number will be used to verify the originality of this document via eFILING portal WA-14-12-05/2022 WA-14-13-05/2022 INTRODUCTION [1] The parties in this proceeding have filed two (2) separate appeals against the same decision of the Special Commissioners of Income Tax 40 (SCIT) dated 28.04.2022, as follows: (A) WA-14-12-05/2022 1.1 This is an appeal by the Ketua Pengarah Hasil Dalam Negeri (DGIR) against the Deciding Order of the Special Commissioners 45 of Income Tax (SCIT) dated 28.04.2022, that favoured the respondent (Profound Reliance Sdn Bhd). It concerns Profound’s application for relief over a supposed error or mistake in the Year of Assessment (YA) 2009, 2010, and 2011, dated 20.03.2013, under s.131 Income Tax Act 1967. 50 (B) WA-14-13-05/2022 1.2 This is an appeal by Profound against part of the SCIT panel of three's decision that had unanimously and on its motion denied Profound's appeal for YA 2011 over a supposed error or mistake in its tax submission. 55 [2] On 03.07.2025, after considering all the cause papers and the respective written submissions of the parties on a balance of probabilities, I find as follows: (A) WA-14-12-05/2022: 60 The DGIR’s Appeal against the decision of the SCIT is allowed fee. (B) WA-14-13-05/2022: Profound’s Appeal against the decision of the SCIT is dismissed. Global costs of RM10,000.00 is awarded to the DGIR, to be paid within 65 30 days from the date of this order 2 S/N zwhgf0tmQU6t0LJ8jYxOA **Note : Serial number will be used to verify the originality of this document via eFILING portal WA-14-12-05/2022 WA-14-13-05/2022 2.1 Dissatisfied, Profound has filed the present two (2) appeals against my decisions above. Since the issues pertain to similar facts and circumstances, I will be writing a single judgment to avoid duplicity, and my reasons are as follows: 70 AGRRED ISSUES FOR APPEAL [3] Parties agreed for only two issues to be canvassed and ventilated before this Court, as follows: (1) Does the DGIR have the legal foundation to reject 75 Profound’s application for relief under s.131 of the ITA 1967? (2) Are the financial gains in the disposal of the impugned eleven (11) pieces of land belonging to Profound taxable under RPGT 1976 as capital gains or under the ITA 1967 80 as business income? BRIEF FACTS [4] The brief facts discerned from the cause papers are as follows: 4.1 Profound is a company with one of its objectives being property 85 investment. It is the registered proprietor of the impugned 11 pieces of vacant land measuring approximately 8,946 acres acquired between 2002 and 2007 for RM189,463,221.00. The impugned lands were classified as non-current assets in Profound’s audited accounts from 2002 to 2008. 90 4.2 Profound entered a Development Agreement with a group company, Naza TTDI Sdn Bhd, on 24.03.2008, which allowed the 3 S/N zwhgf0tmQU6t0LJ8jYxOA **Note : Serial number will be used to verify the originality of this document via eFILING portal WA-14-12-05/2022 WA-14-13-05/2022 latter to mixed develop the impugned lands for the consideration as follows: (1) RM82,870,000.00 as a fixed entitlement over a staggered 95 basis, and (2) 15.7% of the net sales proceeds as the percentage entitlement. 4.3 Profound: 100 (1) Received the staggered consideration/gains in the YAs 2009- 2011, where it was treated as gains under business income under the ITA 1967 in the impugned tax returns. (2) However, Profound claimed that, sometime in 2012, it received legal advice that the said gains ought to be treated as capital 105 gains taxable under the RPGT Act 1976. (3) Acting on that supposed advice, it applied for relief under s.131 of the ITA 1967 but was rejected by the DGIR on the premise that: (a) There was no error or mistake in Profound’s tax returns 110 for the impugned years. (b) For YA 2011, Profound failed to comply with the requirement in s.131(1), i.e., there must be no outstanding tax due and payable for the year concerned. In this case, there was an outstanding sum of RM3,755,653.65. 115 (c) In the present circumstances, the appropriate remedy was by an appeal on the impugned assessments under s.99 of the ITA 1967 (right of appeal for an aggrieved taxpayer by the DGIR’s assessment). 4 S/N zwhgf0tmQU6t0LJ8jYxOA **Note : Serial number will be used to verify the originality of this document via eFILING portal WA-14-12-05/2022 WA-14-13-05/2022 4.4 Dissatisfied with the DGIR’s rejection of its application for relief 120 under s.131(1), Profound requested from the DGIR under s.131(5) to appeal to the SCIT, and it was registered by the SCIT as PKCP (R) 50-52/2014. Profound filed revised tax returns for YA 2010 on 19.12.2011, where the DGIR subsequently issued a Notice of Additional Assessment for YA 2010. An appeal by Profound was 125 lodged with the SCIT and registered as PKCP(R) 473/2016. THE PARTIES ARGUMENTS [5] I had considered and observed the parties’ arguments as follows: 130 THE DGIR’s ARGUMENTS WA-14-12-05-2022 (Profound’s Appeal allowed by the SCIT: YAs 2009-2010) 5.1 The DGIR, in appealing the SCIT’s decision, argued as follows: (1) YAs 2009-2011 submitted by Profound concerning the 135 financial gains were correctly assessed under s.4(a) of the ITA 1967 (financial gains from a business) from a series of activities by Profound to realise its business income. There was no error or mistake in the self-assessment and submissions of those impugned tax returns. 140 (2) The DGIR asserted that for Profound to ground its s.131 application on its supposed misplaced belief coming into existence three years after the due and appropriate submission of the impugned tax returns that the gains were 145 taxable as business revenue is untenable. 5 S/N zwhgf0tmQU6t0LJ8jYxOA **Note : Serial number will be used to verify the originality of this document via eFILING portal WA-14-12-05/2022 WA-14-13-05/2022 5.2 It was asserted by the DGIR that: (1) The SCIT misdirected itself when it finds that the DGIR had no 150 lawful basis to reject Profound's application for relief for YAs 2009-2010 (with 2011 already having been dismissed by the SCIT). In its impugned decision, the SCIT held that: (a) Profound is only the landowner that supplied the impugned lands to be developed by their Group 155 Company, NAZA TTDI. (b) Profound is not empowered to determine the nature, path and management of the development project. (c) Profound is not responsible for the financial affairs of the said project. 160 (d) Profound is not responsible for project funding and expenditure. (e) Profound is only responsible for securing a third-party charge over the said lands for borrowings or bridging funding concerning the project. 165 (f) Profound is to ensure that there are no encumbrances on the said lands. (2) I take cognisance of the fact that the DGIR alluded the Court to the Public Ruling 1/2009 (Property Development) issued 170 under section 138A ITA 1967, prevailing at the material time of the impugned YA: 15.3 Generally, the income tax treatment in respect of a joint venture project is as follows: (a) Where the landowner does not take an active part in the 175 development activities of the project (notwithstanding the fact that he may involve himself in the marketing of units allotted to him by the developer), the landowner is not undertaking a business; and 180 (b) Where the landowner actively participates in the development activities of the project together with the property developer, the landowner is deemed to be undertaking the business of property development. 6 S/N zwhgf0tmQU6t0LJ8jYxOA **Note : Serial number will be used to verify the originality of this document via eFILING portal WA-14-12-05/2022 WA-14-13-05/2022 (3) The DGIR takes the position that the impugned Development 185 Agreement (24.03.2008) between the parties (Profound and NAZA TTDI) was not an outright sale of land agreement. Profound had played an active role in the development project by NAZA TTDI, and the DGIR pointed out that: (a) Profound willingness to share financial risks; and 190 (b) Uncertainties and potential losses indicate that Profound was involved in the nature of a trade. (c) The Development Agreement shows that it was not for investment, but to trade for profit, and an adventure in the nature of a trade that would vitiate elements of capital 195 gains: (i) The willingness to wait for eight years or such other extended period for the development to be completed. (ii) The right to be informed every quarter by NAZA TTDI of the sales, collections, and status of the construction. 200 (iii) The right to determine the sales price. (iv) Willingness to create a third-party charge over the said lands to secure funding or bridging financing for the development. (v) No transfer of beneficial or legal ownership of the said lands to NAZA TTDI. 205 (vi) Percentage of entitlement varies as NAZA TTDI undertook the mixed development. (vii) Increase in revenue and costs of sales as reflected in the Financial Statements of profound at 31.12.2008. (viii) No evidence was adduced to show that Profound had elected 210 to receive the percentage by way of units in the mixed development for the investment objective. (4) In the circumstances, the DGIR argued that the SCIT fell into error in concluding that there was no intention to trade by 215 Profound vis-à-vis the impugned Development Agreement: (a) No evidence had been adduced to show that Profound intended to hold the said lands for long-term investment as an investment holding company. 7 S/N zwhgf0tmQU6t0LJ8jYxOA **Note : Serial number will be used to verify the originality of this document via eFILING portal WA-14-12-05/2022 WA-14-13-05/2022 (b) There is no evidence of generated income since the 220 acquisition of the said lands from 2002 to 2007 (as reflected in the financial statements for YA 2004-2007). (c) There was simply no recorded revenue since 2002 in the holding of the said lands. (d) The DGIR also pointed out that the minimal cash and 225 bank balances in the Financial Statement for the years 2004-2007 indicate that the said lands were not for investment purposes, but rather to be resold at a profit. (e) From the financial statements, there is no indication that payments have been made to settle advances received 230 from its related group companies in connection with the acquisition of the said lands. (f) Profound and NAZA TTDI are part of the NAZA Group of Companies. 235 (5) The SCIT fell into error when it accepted the arguments by Profound that the disposal of the said lands was to increase NAZA TTDI’s project portfolio and overall valuation of the proposed public listing exercise that was halted due to the demise of its founder. However, the DGIR asserted that the 240 Development Agreement had nothing to do with the listing exercise and was nowhere mentioned in the minutes of NAZA TTDI regarding the Development Agreement being for the listing exercise. 245 (6) The SCIT also fell into error when it disregarded trite legal principles that accounting evidence is not final and conclusive and must be considered with other available evidence. 8 S/N zwhgf0tmQU6t0LJ8jYxOA **Note : Serial number will be used to verify the originality of this document via eFILING portal WA-14-12-05/2022 WA-14-13-05/2022 Although the said lands were treated as non-current assets, this does not constitute conclusive evidence of the taxpayer's 250 intention: (a) The question of what capital is and what revenue is, is a question of law for the courts to determine. (b) They are not to be deflected from the proper course by evidence of accountants, however eminent. 255 (c) Even an isolated one-off transaction can be rendered as an adventure in the nature of a trade: Kelana Muda Sdn Bhd v Ketua Pengarah Hasil Dalam Negeri, Rayuan Sivil No: R1-14-26-12-2011. (d) In International Naturopathic Bio-Tech (M) Sdn Bhd v 260 KPHDN [2024] 2 MLJ 706, it was held that a short period of ownership of property (less than one year) supports a finding that the disposal was for trading purposes. It is a question of facts and circumstances. 265 5.3 Profound: (a) Had grounded its arguments fundamentally on a Kuala Lumpur High Court’s decision on 10.01.2013 in KPHDN v Gracom Sdn Bhd (Civil Appeal No. R2-14-21-11) that ruled in favour of the SCIT in that case by holding that the disposal 270 of land therein was subject to the RPGT Act 1976 and not the ITA 1967. (b) Apart from the general submission above, the grounds of judgment have not been made available for legal examination and to find how and why it applies to the present case. 275 9 S/N zwhgf0tmQU6t0LJ8jYxOA **Note : Serial number will be used to verify the originality of this document via eFILING portal WA-14-12-05/2022 WA-14-13-05/2022 In the circumstances, I observed: (1) It is trite law that this 2013 decision from a court of coordinate jurisdiction does not bind this court but is merely persuasive. 280 As alluded to by the DGIR, when Profound prepared and submitted the YAs 2009-2010 by their professional O&W Tax Consultants Sdn Bhd, it predates the 2013 court judgment by approximately three years. 285 (2) Since the grounds have not been made available for examination, I find no compelling arguments in this 2013 decision to support Profound's position. (3) I agree that if it is purely an outright disposal of land with no 290 business elements, it should be taxable under the RPGT Act 1976 as capital gains. (4) In determining the existence of badges of trade in a particular transaction, the focus is on the dominant purpose for which the 295 specific property was initially acquired and disposed. (5) In contrast, however, if the disposal of land is interwoven with business dealings that lean into a commercial arrangement, the facts are to be scrutinised strictly to unmask the actual 300 intention of the landowner at the point of disposal. (6) This is a group business endeavour (NAZA Group of Companies), which had come out with this scheme of commercial arrangement in the Development Agreement to 305 assist each other to mitigate financial exposure and potential 10 S/N zwhgf0tmQU6t0LJ8jYxOA **Note : Serial number will be used to verify the originality of this document via eFILING portal WA-14-12-05/2022 WA-14-13-05/2022 financial risks involved in the impugned land acquisitions and the pursuit of the mixed development project. (7) I also observed that under s.131(4) of the ITA 1967, it provides 310 that no relief under section 131(1) of the ITA 1967 shall be given if the tax returns containing the alleged error or mistake was made under the practice (Public Ruling) of the DGIR at the time when the tax returns were made or filed. 315 (8) In compliance with the Public Ruling No. 1/2009 and the DGIR’s position and practice prevailing at that time, O&W Tax Consultant Sdn Bhd had correctly recognised that the entitlements received under the Development Agreement were taxable under section 4(a) and section 24 of the ITA 320 1967, bearing in mind that this predates the High Court decision in 2013. 5.4 The DGIR also argued that the SCIT panel erroneously took the position from the facts that there were no “badges of trade” 325 (Leeming v Jones, NYF Realty Sdn Bhd [1974] 1 MLJ 182, HC) in the supposed disposal of the impugned lands. Therefore, the supposed capital gains are to be taxable under the RPGT ACT 1976 instead of under section 4(a) ITA 1967: 330 (1) The DGIR alluded the Court to the case of N.Y.F Realty Sdn. Bhd. v Comptroller of Inland Revenue [1974] 1 M.L.J. 182, that the focal point of enquiry is the dominant purpose for which the particular property was initially acquired. If it is established that the dominant purpose in the acquisition of 335 property was its resale at a profit, the presence of other 11 S/N zwhgf0tmQU6t0LJ8jYxOA **Note : Serial number will be used to verify the originality of this document via eFILING portal WA-14-12-05/2022 WA-14-13-05/2022 purposes, such as the rental of that property, does not remove any profit on ultimate sale from the taxable area. The DGIR asserts that, in the circumstances, Profound was involved in an adventure in the nature of a trade. 340 (2) DGIR further argued that the SCIT panel had failed to consider that although the Profound claimed that they are carrying on the business of a property investment company, there was nothing tendered to show any characteristic of a property 345 investment company, such as any income received or generated from the assets to realise its objectives. (3) This shows the true intention of Profound about the purchase of the impugned lands was to acquire the lands, and at the 350 appropriate time, sell them at a profit and in the present case, by entering the Development Agreement in 2008. (4) The SCIT panel misdirected itself in deciding that the gains derived from the disposal of the Lands to Naza TTDI were a 355 realisation of investment when there was no evidence to prove that Profound has the means and long-term capacity to invest in the impugned lands. (5) The SCIT had ignored the principle that the evidence of 360 accounting is not final and conclusive. The mere fact that the impugned lands were classified as “non-current assets” must be weighed with other evidence. Income tax does not necessarily follow the system of accounting or account- keeping of the taxpayer at all. 365 12 S/N zwhgf0tmQU6t0LJ8jYxOA **Note : Serial number will be used to verify the originality of this document via eFILING portal WA-14-12-05/2022 WA-14-13-05/2022 (6) The method of disposal of the impugned lands is within the Naza Group of Companies, which does not require the engagement of sales agents to dispose of the impugned lands. 370 (7) It is settled law that a single transaction concerning land disposal may be enough, provided it is shown to the satisfaction of the court that the transaction is made with the purpose of trade. Therefore, the mere fact that there is only one transaction does not preclude the possibility that the 375 transaction is in the nature of a trade. (8) The impugned Development Agreement is not an outright sale agreement as argued by Profound. 380 5.5 The DGIR has also pointed out that Profound had proceeded on the wrong mode of application under the ITA 1967, leading to the rejection by the DGIR on the 20.03.2013 application, since there are no mistakes or errors committed at the time the tax return was submitted. The Court was alluded to the difference between: 385 Appeal Process when aggrieved with Notice of Assessment (1) Under section 90(1) ITA 1967, the taxpayer is responsible for determining and computing its chargeable income and tax liability for YAs 2009-2011 (Self-Assessment System: SAS). 390 The YAs are deemed as assessments in respect of the taxpayer made by the DGIR: (a) Where a taxpayer is aggrieved with the assessments by the DGIR, section 99(1) ITA 1967 allows an appeal within thirty days after the service of the Notice of Assessment 395 by the DGIR. 13 S/N zwhgf0tmQU6t0LJ8jYxOA **Note : Serial number will be used to verify the originality of this document via eFILING portal WA-14-12-05/2022 WA-14-13-05/2022 (b) Section 100 ITA 1967 empower the DGIR to grant an extension of time to file an appeal for late submissions. (c) Where there is no appeal on the assessment within the stipulated time, it shall be final and conclusive under 400 section 97(1)(a) ITA 1967. Relief/refund Applications in cases of errors or mistakes in tax returns. (2) Section 131 ITA 1967: 405 (a) Facilitate a mechanism for taxpayers to seek relief/refund for overpaid taxes due to an error or mistake in their income tax return (arithmetical errors, misinterpretation of the tax laws, reporting income in the wrong year). (b) The application by a letter or using Form CP15C within 410 five years after the end of the YA in which the assessment was made, the taxpayer must have already paid the tax for the impugned YA. (c) The DGIR will not consider the application if the error or mistake was made following the known practices, rules 415 and stands (Public Guideline) of the DGIR at the time the assessment was made. It prohibits a deliberate attempt to seek a relief/refund after a change of that practice by applying relief for a previous year of assessment on the basis that the initial practice was an error or mistake. It 420 ensures that a taxpayer cannot seek a benefit from both an earlier adherence to a particular practice and a later change to that practice: section 131(4) ITA 1967. 14 S/N zwhgf0tmQU6t0LJ8jYxOA **Note : Serial number will be used to verify the originality of this document via eFILING portal WA-14-12-05/2022 WA-14-13-05/2022 (d) Any aggrieved taxpayer with a decision of the DGIR may request that the matter be referred to the SCIT for a 425 determination. 5.6 The DGIR pointed out that there was no error or mistake committed by Profound for the impugned YAs as claimed to warrant a revisit under section 131 ITA 1967: 430 (1) It had followed the Public Guidelines in its submission of the YAs. (2) It was argued that the error must pertain to fact and not the law. Profound was at all times counselled by a qualified and certified tax consultant. 435 (3) In KPHDN v Gracom Sdn Bhd (Civil Appeal No. R2-14-21- 11), the basis for Profound’s application for refund was an issue ventilated via Form Q under an appeal process in section 99 ITA 1967, and it is not a relief application under section 131 ITA 1967. 440 (4) The facts showed that: (a) There is no mistake or error for YAs 2009-2010 that warrants the use of section 131(1) ITA 1967 as claimed by Profound. (b) As for YA 2011, Profound failed to satisfy the condition of 445 section 131(1) by having no arrears in tax payment before an application can be made. It is irrefutable that taxes were outstanding at the material time. (c) The legal issue as to whether the disposal of the 11 lots of the said lands by Profound via the Development 450 Agreement 2008 within the NAZA Group companies falls under the RPGT Act 1976 or the ITA 1967 is an issue that 15 S/N zwhgf0tmQU6t0LJ8jYxOA **Note : Serial number will be used to verify the originality of this document via eFILING portal WA-14-12-05/2022 WA-14-13-05/2022 should be canvassed and ventilated as an appeal under section 99 ITA 1967, as it does not concern any issue of error or mistake. In this regard, the Court was alluded to 455 the fact that: (i) Profound had already filed Form N under section 100 ITA 1967 for an extension of time to appeal 01.08.2013. (ii) But Profound subsequently withdrew the Form N. 460 (iii) Proceeded with a relief application under section 131(1) ITA 1967. 5.7 I had observed that: (1) Section 131 provides for relief to taxpayers who have paid tax 465 due to excessive assessment by reason of some error or mistake in their return or statement made for the Act. (2) This mistake was held in Ketua Pengarah Hasil Dalam Negeri v Rapid Growth Technology Sdn Bhd [2017] AMTC 552; [2017] 6 AMR 68 to extend to misplaced confidence in 470 the law arising from the interpretation of the Act at the time of submission of the return. (3) The “Practice of the Director General” in section 131(4) is understood in its ordinary meaning to include public rulings made by the DGIR. It remains silent on the issue of the 475 interpretation of the law. 480 16 S/N zwhgf0tmQU6t0LJ8jYxOA **Note : Serial number will be used to verify the originality of this document via eFILING portal WA-14-12-05/2022 WA-14-13-05/2022 PROFOUND’s ARGUMENTS [6] Profound in contesting DGIR’s appeal and in support of the SCIT’s decision, argued as follows: 485 6.1 Contrary to the position taken by the DGIR, Profound argued that they were correct to proceed under section 131 ITA 1967 and alluded to the fact that: (1) The DGIR had forwarded Profound’s issue to the SCIT, stating that it had been done in conformity with section 131 (b) ITA 490 1967. The DGIR cannot be allowed to shift the goalposts at will. (2) The DGIR has failed to consider that: (a) A taxpayer cannot generally appeal against a deemed 495 assessment under section 90(1) or section 91A except where there is a grievance by the public ruling (section 138A) prevailing at the time. (b) The High Court in Sime Darby Ara Damansara Development Sdn Bhd v KPHDN [2022] MLJU 2997, 500 HC had ruled that s.99(1) ITA and section 131(1) ITA apply in different circumstances. Section 99(1) ITA applies where the taxpayer is aggrieved by the Revenue’s assessment, whereas section 131(1) ITA is applicable where the matter concerns the taxpayer’s own mistake. 505 (c) In addition, section 99(4) ITA 1967 deemed it final and conclusive as an assessment where no appeal had been lodged within 30 days after the receipt of the notice of assessment. However, I had observed that section 100 of 17 S/N zwhgf0tmQU6t0LJ8jYxOA **Note : Serial number will be used to verify the originality of this document via eFILING portal WA-14-12-05/2022 WA-14-13-05/2022 the ITA 1967 allows for an extension of time for justified 510 cases. (d) Therefore, it was argued that Profound had to avail itself of section 131(1) ITA 1967. It entitles the taxpayer to apply for relief within 5 years after the YA of which the assessment was made. 515 (e) Ultimately, Profound pointed out that whether the mode of proceeding was an appeal under section 99(1) or an application for relief under section 131(5) of the ITA 1967, the matter would end up with the SCIT for determination. (f) Section 131 ITA 1967 is not only confined to matters of 520 fact as it stands. As was decided in Sime Darby Ara Damansara Development Sdn Bhd v KPHDN [2022] MLJU 2997, HC, issues regarding the classification of income from revenue to capital are eligible for an application under section 131(1) ITA 1967. 525 (3) I examined the cited authority, the Sime Darby Ara Damansara case, and I observed as follows (briefly): (a) It is a case that concerned the contumacious conduct of LHDN over the refusal to acknowledge and conform to a 530 judicial decision declaring it illegal to tax gains on compulsory acquisition of property by the authorities, pre- 2014 incorporation of section 4C ITA 1967. (b) The LHDN denied a refund of tax monies unlawfully collected before the coming into force of section 4C, 535 grounded on a non-existing public ruling and the appropriate legislation. 18 S/N zwhgf0tmQU6t0LJ8jYxOA **Note : Serial number will be used to verify the originality of this document via eFILING portal WA-14-12-05/2022 WA-14-13-05/2022 (c) The High Court decided that it was not about an appeal over an assessment by the DGIR under section 99, but by a mistake of the aggrieved party in acceding to the 540 unlawful demand from the DGIR to pay taxes that are not due by law, since tax on compulsory acquisition of land is not legal. In such circumstances, the HC ruled that section 131 is the appropriate mode to proceed with. 545 On a separate note, it is to be noted that: Approximately 9 years after, section 4C came into force (2014), the Federal Court held in Wiramuda (M) Sdn Bhd v Ketua Pengarah Hasil Dalam Negeri (Civil Appeal No.01 (f) -38-08/2022 (W)), reported in [2023] 5 MLRA 285, FC 550 that: (i) The aggrieved landowner had earned no profit from the adequate compensation under a compulsory acquisition exercise. (ii) Therefore, section 4C ITA 1967 had affected the 555 safeguard of adequate compensation as guaranteed under Article 13(2) of the Federal Constitution. (iii) It had the effect of reducing the compensation paid to the landowner/taxpayer, and therefore, contravened Article 13(2) of the Federal Constitution and is struck 560 down as unconstitutional) 6.2 In the circumstances, Profound took the position that there is no infirmity in their elected mode of proceeding to address their concern on the impugned YAs, as it does not pertain to an 565 assessment issue, as argued by the DGIR. 19 S/N zwhgf0tmQU6t0LJ8jYxOA **Note : Serial number will be used to verify the originality of this document via eFILING portal WA-14-12-05/2022 WA-14-13-05/2022 6.3 Profound raised the following arguments: (1) Profound did not consult any tax professionals on the initial tax treatment for the disputed gains. Regardless, it is untenable to 570 take a position that a taxpayer who had their returns filed by a tax consultant can never be mistaken or wrong. (2) This is the very first time that the DGIR is raising the issue that the matter ought to have been moved as an appeal under 575 section 99 of the ITA 1967, instead of an application under section 131(1) for errors or mistake, refer Bintulu Lumber Development Sdn Bhd v Ketua Pengarah Hasil Dalam Negeri [2020] 4 MLJ 1, FC. 580 (3) Similarly, the DGIR never raised the point of law in section 131(4) of the ITA 1967 before the SCIT. (4) The DGIR had already elected to refer Profound’s relief application to the SCIT, and, therefore, it would not be 585 appropriate to take the position now that the mode of proceeding was wrong. Profound cited in support of the Court of Appeal in Lakefront Residence Sdn Bhd v Tribunal Tuntutan Pembeli Rumah & Anor & Other Appeals [2023] CLJU 2146, CA for the proposition that it was unjust to shift 590 the goalpost as and when it was convenient to its interest. Profound argued that, under s.131(5)(c) ITA, a relief application forwarded to the SCIT shall be deemed to be an s.99 appeal and disposed of accordingly. 20 S/N zwhgf0tmQU6t0LJ8jYxOA **Note : Serial number will be used to verify the originality of this document via eFILING portal WA-14-12-05/2022 WA-14-13-05/2022 595 6.4 Profound maintains the assertions that the SCIT panel did not misdirect itself and correctly applied the law to the facts before the Court. In such circumstances, it is trite law that an appellate court would not disturb the findings of fact by the SCIT panel: (1) The SCIT panel opined that Profound does not actively 600 participate in the development of the impugned lands. Profound had intended to hold the impugned land for long-term investment (6 years before the disposal in 2008). The mere fact that the impugned lands were not income-producing is not a determinative factor that it was meant for trade. It was held 605 by the SCIT on the issue of badges of trade as follows: (a) Profound’s intention was to acquire the impugned lands for investment, holding the said lands for an indefinite period. The property does not cease to be an investment 610 because the taxpayer envisages that it might be sold at a profit later. (b) It rejected the DGIR position that Profound’s intent for investment had changed, and the fact that the said lands were not revenue-generating was not a definitive factor on 615 the issue. (c) The period of ownership by Profound over the impugned lands (1-6 years) is not, on its own, a determinative factor. A period of 4-12 months may be sufficient to justify an intention for investment, depending on the circumstances 620 and facts of the case. The SCIT found that the disposal of the impugned lands was regarded as a single transaction (under one agreement: the Development Agreement) rather than 11 separate transactions. In 21 S/N zwhgf0tmQU6t0LJ8jYxOA **Note : Serial number will be used to verify the originality of this document via eFILING portal WA-14-12-05/2022 WA-14-13-05/2022 KPHDN v Hock Lee Holdings Sdn Bhd [2008] 2 MLJ 625 547, HC it was held that even a disposal involving 94 houses was a capital receipt. (d) Profound did not alter the impugned lands or carry out any improvement to make them more saleable, which was indicative that they were held for investment. 630 (e) The SCIT had considered that it was a transaction involving the Naza Group of companies. However, it held that the lack of a systematic method in the disposal of the impugned land was indicative that the lands were for investment purposes. It was considered that the disposal 635 was intended to assist Naza TTDI's (valuation) listing exercise, which was eventually aborted due to the death of the company’s founder. Any change in intention on the part of Profound over the fate of the impugned lands must be identified with precision. 640 (f) It was also found by the SCIT that there was no urgent need for Profound to dispose of the impugned lands to repay the Maybank loan, which indicates that it was held for investment. (g) The categorisation of the said lands in the financial papers 645 as “non-current asset” of Profound is an indication that it was for investment purposes. It was asserted that the SCIT had correctly weighed this factor against the other badges to hold that Profound had not been trading. 650 (3) The SCIT had found that it was probable that Profound had made an error or mistake in subjecting the disputed gains to 22 S/N zwhgf0tmQU6t0LJ8jYxOA **Note : Serial number will be used to verify the originality of this document via eFILING portal WA-14-12-05/2022 WA-14-13-05/2022 income tax in its initial tax treatment. There was no evidence to say otherwise. 655 (4) Profound made a legal argument that: (a) The Kuala Lumpur High Court decision on 10.01.2013 that predates Profound’s tax return issue by three years in KPHDN v Gracom Sdn Bhd (Civil Appeal No. R2-14- 21-11), which ruled in favour of the SCIT in that case by 660 holding that the disposal of land therein was subject to the RPGT Act 1976 and not the ITA 1967, had a retrospective effect to benefit Profound impugned YA 2009-2011. In support, Profound cited the Federal Court decision in Semenyih Jaya Sdn Bhd v Pentadbir Tanah Daerah 665 Hulu Langat [2017] 5 CLJ 526, FC that amongst other things said: (7) As a matter of principle, a court judgment is ‘retrospective in effect unless a specific direction of prospectivity is expressed’. Since the court found s.40D to be ultra vires the Constitution, 670 it should be invalid. By precedent, declarations of invalidity were made prospectively so as not to affect previous decisions made under the invalid law. Therefore, all proceedings involving compensation in land acquisition matters which had taken place and been determined 675 under this provision before the date of this judgment will remain status quo. For the avoidance of any doubts, such a declaration will bind pending cases at first instance or at the appellate stage (paras 127, 132, 133 & 134) 680 I had observed that, as highlighted in the Semenyih Jaya case, courts in Malaysia have recognised and applied the doctrine of prospective overruling. This is an exception to the general rule and is used in exceptional circumstances to prevent legal chaos and injustice. The 2013 High Court case relied on, that I had observed 685 that apart from Profound’s general statement, the grounds of 23 S/N zwhgf0tmQU6t0LJ8jYxOA **Note : Serial number will be used to verify the originality of this document via eFILING portal WA-14-12-05/2022 WA-14-13-05/2022 judgment have not been made available for legal examination to determine how and why it applies to the present case. Profound further argued that there are no legal principles barring the use of that High Court case in fighting for its position. 690 6.5 Premised on the foregoing, Profound prays that the DGIR’s appeal on the SCIT’s findings for YAs 2009-2010 ought to be dismissed. 6.6 The relief applications for YAs 2009-2011 were filed upon the 695 advice of counsel based on the 2013 High Court decision: (1) The SCIT accepted Profound's explanation that it committed mistakes or errors in the preparation and submission of the YAs for 2009-2010, while rejecting YA 2011 for purported breach of s.131(1) of the ITA 1976. 700 (2) Profound argued that the SCIT held that “error” or “mistake” only means that there was a misconception on the Taxpayer’s part as to a fact, and the misconception caused the Taxpayer to take an action which it thought was correct. (3) It was further argued that it was “probable” that Profound had 705 acted upon an “error” or mistake” in filing the impugned tax returns. (4) The DGIR failed to offer reasons for the rejection of YAs 2009- 2011 in the relief application under s.131(1) of the ITA 1967. If the public decision maker does not provide any evidence that 710 it has properly exercised its discretion, the public decision maker will be regarded as having abused its discretionary power. 24 S/N zwhgf0tmQU6t0LJ8jYxOA **Note : Serial number will be used to verify the originality of this document via eFILING portal WA-14-12-05/2022 WA-14-13-05/2022 6.7 Profound argued that the issue of failing to satisfy the requirements 715 of s.131(1) of the ITA 1967 (no outstanding tax payable) before a relief application is made was never argued before the SCIT that decided on its own to dismiss it outright for the supposed non- compliance without hearing the parties: 720 (1) Therefore, it is argued that since this issue was not raised at the SCIT, it should not be raised in the present appeal. (2) The DGIR is not allowed to read deeming provision in s.131(1) that is not there. There is no requirement that all taxes must be fully settled before a relief application can be made. 725 (3) To allow it would lead to an unjust conclusion for the taxpayer. 6.8 Profound only played a passive role in the land development agreement as it merely assisted NAZA TTDI in securing a third- party charge on the impugned lands for financing and ensuring that 730 the lands were free from encumbrances: (1) Therefore, the SCIT panel correctly concluded that there were no badges of trade on Profound. (2) The burden lies on Profound to establish that the impugned lands were disposed of as a realisation of investment. 735 (3) In the circumstances, Profound’s Relief Applications for all YAs 2009-2011 ought to be allowed by this Court, since all conditions under s.131(1) of the ITA 1967 had been met. Therefore, Profound prays that the DGIR’s appeal be dismissed. 740 25 S/N zwhgf0tmQU6t0LJ8jYxOA **Note : Serial number will be used to verify the originality of this document via eFILING portal WA-14-12-05/2022 WA-14-13-05/2022 WA-14-13-05-2022 (Profound’s Appeal dismissed by the SCIT: YA 2011) 745 6.9 Profound in appealing the SCIT’s decision, argued as follows: (1) Profound agreed that there are no disputed facts or findings to be disturbed. (2) It acknowledged that when the Relief Application for YA 2011 was made on 20.03.2013, there were outstanding tax 750 balances for YA 2011 that were settled 9 days later, on 29.08.2013. That said, it was argued that the SCIT committed errors: (a) S.131 (1) does not require full payment of taxes before a relief application can be made for the impugned YA 2011. 755 (b) Tax legislation must be construed strictly without any intendment. Any ambiguity must be read in favour of the taxpayer. (c) S.131 (3) mandates that all relevant circumstances be considered. 760 (d) It is neither just nor reasonable for the rejection of the Relief Application solely on the basis that there was outstanding tax payable at the time when the Relief Application was made. (e) It would produce an unjust result, something which the 765 Courts are duty-bound to avoid. 6.10 The DGIR, in contesting Profound’s appeal and in support of the SCIT’s decision, argued as follows: (1) Profound failed to prove that it has fulfilled the pre- 770 requirements of s 131(1) of the ITA 1967, which requires no 26 S/N zwhgf0tmQU6t0LJ8jYxOA **Note : Serial number will be used to verify the originality of this document via eFILING portal WA-14-12-05/2022 WA-14-13-05/2022 outstanding tax payment before any relief application can be made, and in this case, it concerns only YA 2011. (2) The SCIT had correctly rejected the appeal outright since the legal requirement under s.131 had not been complied with. 775 The SCIT had not misdirected itself on the facts or the law in dismissing Profound’s appeal for YA 2011. THE LAW [7] In a nutshell: 780 7.1 SPECIAL COMMISSIONER FOR INCOME TAX (SCIT): s.98 ITA (1) Paragraph 34 of Schedule 5 to the Income Tax Act 1967 gives “either party to proceedings before the SCIT a right of appeal against the deciding order: 785 (2) However, not every deciding order is appealable because a deciding order under Schedule 5 is defined to mean one made under paragraph 23 and this paragraph contemplates a deciding order made “on an appeal” after completing the hearing (merits) thereof: Schedule 5, para 48. 790 (3) Paragraph 34 does not provide for an appeal against “just any grievance”: Crane Port Systems Sdn Bhd v Ketua Pengarah Hasil Dalam Negeri [2018] AMTC 162; [2017] 7 MLJ 449, HC. 795 INCOME TAX ACT 1967 (ITA) 7.2 Classes of income on which tax is chargeable Section 4 Subject to this Act, the income upon which tax is chargeable under 800 this Act is income in respect of— (a) gains or profits from a business, for whatever period of time carried on; 27 S/N zwhgf0tmQU6t0LJ8jYxOA **Note : Serial number will be used to verify the originality of this document via eFILING portal WA-14-12-05/2022 WA-14-13-05/2022 (b) gains or profits from an employment; (c) dividends, interest or discounts; (d) rents, royalties or premiums; 805 (e) pensions, annuities or other periodical payments not falling under any of the foregoing paragraphs; (f) gains or profits not falling under any of the foregoing paragraphs. 810 Section 4 outlines the classes of income on which tax is chargeable, and it is a fundamental section that defines what constitutes taxable income. 7.3 Section 90 815 (1) Where a person has furnished a return in accordance with section 77 or 77A to the Director General for a year of assessment, the Director General shall be deemed to have made, on the day on which the return is furnished, an assessment in respect of that person in the amount of tax on the chargeable income, the tax and the chargeable income being 820 the respective amounts as specified in the return. (2) For the purposes of this Act, where the Director General is deemed to have made an assessment under subsection (1)— (a) the return referred to in that subsection shall be deemed to be a 825 notice of assessment; and (b) the deemed notice of assessment shall be deemed to have been served on the person on the day on which the Director General is deemed to have made the assessment. 830 (3) Where a person for a year of assessment has not furnished a return in accordance with section 77 or 77A, the Director General may, according to the best of his judgment, determine the amount of the chargeable income of that person for that year and make an assessment accordingly: 835 Provided that the making of an assessment in respect of a person under this subsection shall not affect any liability otherwise incurred by that person by reason of his failure to deliver the return. 840 28 S/N zwhgf0tmQU6t0LJ8jYxOA **Note : Serial number will be used to verify the originality of this document via eFILING portal WA-14-12-05/2022 WA-14-13-05/2022 7.4 Section 91: Assessments and additional assessments in certain cases 845 (1) The Director General, where for any year of assessment it appears to him that no or no sufficient assessment has been made on a person chargeable to tax, may in that year or within five years after its expiration make an assessment or additional assessment, as the case may be, in respect of that 850 person in the amount or additional amount of chargeable income and tax or in the additional amount of tax in which, according to the best of the Director General’s judgment, the assessment with respect to that person ought to have been made for that year. 855 (2) Where the Director General discovers that the whole or part of any tax repaid to a person (otherwise than in consequence of an agreement come to with respect to an assessment pursuant to subsection 101(2) or in consequence of an assessment having been determined on appeal) has been 860 repaid by mistake whether of fact or law, the Director General may make an assessment in respect of that person in the amount of that tax or that part of that tax, as the case may be: Provided that no such assessment shall be made— 865 (a) If the repayment was in fact made on the basis of, or in accordance with, the practice of the Director General, generally prevailing at the time when the repayment was made; or (b) In respect of any tax, more than five years after the tax has 870 been repaid (3) The Director General, where it appears to him that— (a) any form of fraud or wilful default has been committed by or on behalf of any person; or (b) Any person has been negligent, 875 in connection with or in relation to tax, may at any time make an assessment in respect of that person for any year of assessment for the purpose of making good any loss of tax attributable to the fraud, wilful default or negligence in question. 880 (4) - (7) ….. 29 S/N zwhgf0tmQU6t0LJ8jYxOA **Note : Serial number will be used to verify the originality of this document via eFILING portal WA-14-12-05/2022 WA-14-13-05/2022 The Court in Idaman Harmoni Sdn Bhd v Ketua Pengarah Hasil 885 Dalam Negeri (2022) MSTC 30-489, HC, in reversing the decision of the SCIT and ruling in favour of the taxpayer, cited and followed Chong Woo Yit v Government of Malaysia [1989] 1 MLJ 473, HC, and held (briefly): (a) The burden lies on the DGIR to prove wilful default or negligence 890 under Section 91(3) of the ITA. (b) On the facts, the DGIR failed to prove wilful default or negligence by the taxpayer. (c) The notices of assessments were already time-barred. (d) In the context of negligence in tax matters, the DGIR would have 895 to prove that the taxpayer had failed to exercise the degree of care that someone of ordinary prudence would have exercised under the same circumstances. (e) The DGIR had to prove that the taxpayer was recklessly careless in the sense of not caring whether his act or omission was a 900 breach of his duty. (f) In the circumstances, it was determined that the taxpayer could not be said to have been negligent, as the DGIR could not prove that there was any failure to provide any other information required by the CKHT 1 Form. The failure of the DGIR to challenge the 905 CKHT 1 Form submitted (if they were of the view that the taxpayer was not entitled to the RPGT exemption granted under P.U.(A) 170/2003) further diluted the DGIR’s argument that the taxpayer had committed wilful default or negligence within the meaning of Section 91(3) concerning assessments for YAs 2009 & 2010. 910 7.5 Finality of assessment Section 97 (1) Where: (a) no valid notice of appeal against an assessment has been 915 given under section 99 within the time specified by that section (or any extension thereof); (b) an agreement has been come to with respect to an assessment pursuant to subsection 101(2). (c) an assessment has been determined on appeal, and there is no 920 right of further appeal; or 30 S/N zwhgf0tmQU6t0LJ8jYxOA **Note : Serial number will be used to verify the originality of this document via eFILING portal WA-14-12-05/2022 WA-14-13-05/2022 (d)a valid notice of appeal against an assessment has been given, but the appellant dies before the hearing of the appeal by the Special Commissioners is commenced or completed, and no personal representatives of the estate of the deceased appellant applies to 925 the Special Commissioners within two years after his death to proceed with or complete the hearing, the assessment as made, agreed to or determined shall be final and conclusive for the purposes of this Act. 930 (2) Nothing in subsection (1) shall prejudice the exercise of any power conferred on the Director General by section 91, 95 or subsection 143(3). 7.6 Right of appeal Section 99 935 (1) Subject to subsection (1A), a person aggrieved by an assessment made in respect of him may appeal to the Special Commissioners against the assessment by giving to the Director General within thirty days after the service of the notice of assessment or, in the case of an appeal against an assessment made under section 92, within the first three months of 940 the year of assessment following the year of assessment for which the assessment was made (or within such extended period as regards those days or months as may be allowed under section 100) a written notice of appeal in the prescribed form stating the grounds of appeal and containing such other particulars as may be required by that form. 945 (1A) A person who has failed to furnish a return for a basis period for a year of assessment in accordance with subsection 77A(1) may appeal against the assessment made by the Director General under subsection 90(3) by furnishing a return for that basis period for that year of assessment 950 together with the written notice of appeal referred to in subsection (1) within the time stipulated for giving of the notice. (2) Where an assessment has been made in respect of a person appointed under section 68 to be the agent of another person, the agent and that 955 other person shall for the purposes of this section and the other provisions of this Act relating to appeals each be treated as the person in respect of whom the assessment was made and, if they both appeal against the assessment, their appeals shall if possible be dealt with together: 960 Provided that, in the case of a receiver deemed by subsection 68(4) to have been appointed under subsection 68(1) to be the agent of a court, this subsection shall not apply. 31 S/N zwhgf0tmQU6t0LJ8jYxOA **Note : Serial number will be used to verify the originality of this document via eFILING portal WA-14-12-05/2022 WA-14-13-05/2022 (3) Where in a case to which section 67 applies the principal has appealed 965 against an assessment, the representative, whether or not he himself has appealed or is entitled to appeal against the assessment and without prejudice to any power conferred on him by subparagraph 14(c) of Schedule 5, may represent and act generally on behalf of the principal for the purposes of the provisions of this Act relating to appeals (“the 970 principal” and “the representative” here having the same meaning as in section 67). (4) This section shall not apply to an assessment made under subsection 90(1) or section 91A, except where a person in respect of such 975 assessment is aggrieved by the public ruling made under section 138A or any practice of the Director General generally prevailing at the time when the assessment is made. Section 99 is the legal basis for taxpayers' right of appeal to 980 challenge a tax assessment made by the DGIR that they believe to be incorrect. 7.7 Extension of time for appeal Section 100 985 (1) A person seeking to appeal against an assessment after the expiration of the period to make an appeal under subsection 99(1), may within seven years after the end of that period, make to the Director General a written application in the prescribed form for an extension of that period within which a notice of appeal against that assessment may be given 990 under that subsection. (2) On receipt of an application under subsection (1), the Director General— (a) if he is satisfied that, for any reasonable cause, the applicant was prevented from giving notice of appeal within the appropriate period 995 provided by subsection 99(1), shall extend that period as he thinks proper in the circumstances and give written notice of the extension to the applicant; and (b) If he is not so satisfied, he shall forward the application to the Secretary, together with a statement of the reasons for his 1000 dissatisfaction and his address for the purposes of the application. (3) Where the Director General forwards an application and statement pursuant to paragraph (2)(b), he shall inform the applicant in writing that he has done so and shall furnish the applicant with a copy of the 1005 statement; and the applicant may, within twenty-one days of receiving 32 S/N zwhgf0tmQU6t0LJ8jYxOA **Note : Serial number will be used to verify the originality of this document via eFILING portal WA-14-12-05/2022 WA-14-13-05/2022 the information and the copy, forward to the Secretary written representations as to the application and the statement. (4) Any application and statement forwarded pursuant to paragraph (2)(b) 1010 and any representations forwarded pursuant to subsection (3) shall be brought by the Secretary to the attention of one of the Special Commissioners, who shall decide whether or not to extend as he thinks proper in the circumstances the period within which the notice of appeal may be given. 1015 (5) The decision of one of the Special Commissioners refusing an application or granting an extension under subsection (4) shall be notified in writing by the Secretary to the applicant and the Director General and shall be final. 1020 7.8 Relief in respect of error or mistake Section 131 (1) If any person who has paid tax for any year of assessment alleges that an assessment relating to that year is excessive because of some error 1025 or mistake in a return or statement made by him for the purposes of this Act and furnished by him to the Director General prior to the assessment becoming final and conclusive, he may within five years after the end of the year of assessment within which the assessment was made make an application in writing to the Director General for relief. 1030 (2) On receiving an application under subsection (1), the Director General shall inquire into the matter and, subject to this section, shall give by way of repayment of tax such relief in respect of the alleged error or mistake as appears to him to be just and reasonable. 1035 (3) In determining any application under this section, the Director General shall have regard to all the relevant circumstances of the case and, in particular— (a) shall consider whether the granting of relief would result in the 1040 exclusion from charge to tax of income of the applicant; and (b) for that purpose, the applicant may take into consideration the chargeability of the applicant for years of assessment other than the year to which the application relates, and assessment made upon him for those years. 1045 (4) No relief shall be given under this section in respect of an error or mistake as to the basis on which the chargeability of the applicant 33 S/N zwhgf0tmQU6t0LJ8jYxOA **Note : Serial number will be used to verify the originality of this document via eFILING portal WA-14-12-05/2022 WA-14-13-05/2022 ought to have been computed if the return or statement containing the error or mistake was in fact made on the basis of, or in 1050 accordance with, the practice of the Director General generally prevailing at the time when the return or statement was made (emphasize is mine). (5) An application under subsection (1) shall be as nearly as may be in the 1055 same form as a notice of appeal under section 99; and, where the applicant is aggrieved by the Director General’s decision on the application— (a) the applicant may, within six months after being informed of the decision, request in the prescribed form for the Director General to 1060 forward the application to the Special Commissioners. (b) the Director General shall, within three months after receiving the request, send the application forward as if he were sending an appeal forward pursuant to section 102; and (c) the application shall thereupon be deemed to be an appeal and 1065 shall be disposed of accordingly. A taxpayer aggrieved by the DGIR’s decision on the Section 131 application can request that the matter be referred to the SCIT for a hearing. The application for reference to the SCIT shall thereupon 1070 be deemed to be an appeal and shall be disposed of accordingly. 7.9 Errors & defects in assessments, notices & other documents Section 143 (1) No assessment, notice or other document purporting to be made or 1075 issued for the purposes of this Act shall be quashed or deemed to be void or voidable for want of form, or be affected by any mistake, defect or omission therein, if it is in substance and effect in conformity with this Act or in accordance with the intent and meaning of this Act and— (a) In the case of an assessment, the person assessed or intended to 1080 be assessed or affected thereby is designated according to common intent and understanding; and (b) In any other case, the person to whom it is addressed and any other person referred to therein are so designated. 1085 (2) An assessment purporting to be made or issued for the purposes of this Act shall not be impeached or affected by reason of a mistake therein as to: 34 S/N zwhgf0tmQU6t0LJ8jYxOA **Note : Serial number will be used to verify the originality of this document via eFILING portal WA-14-12-05/2022 WA-14-13-05/2022 (a) The name of a person charged to tax. (b) The description of any income; or 1090 (c) The amount of chargeable income assessed, or tax charged, and a notice of assessment purporting to be so made or issued shall not be impeached or affected by any such mistake if it is served on the person in respect of whom the assessment was made or intended to be made (or served in accordance with subsection 67(5)) and 1095 contains in substance and effect the particulars contained in the assessment. (3) Notwithstanding subsection (2), if the amount of tax charged by an assessment has been incorrectly calculated by reference to the amount of the chargeable income and the appropriate rate of tax applicable 1100 thereto, the amount of tax charged as shown in the assessment and the notice of assessment may, if the Director General so directs, be taken to be the amount of tax which ought to have been charged if it had been correctly calculated. (4) A notice of tax payable purporting to be issued for the purposes of this Act 1105 shall not be impeached by reason of a mistake therein as to the name of the person liable to pay the tax if the notice is served on that person. The DGIR can override the conclusive nature of an assessment and make a new one "at any time" if it is found that, among others, that fraud, 1110 wilful default, or negligence was committed by or on behalf of the person being assessed, there was an omission or misrepresentation in the tax return and the facts or conditions upon which a tax ruling was based are later found to be incorrect. 1115 [8] The badges of trade 8.1 A set of characteristics or indicators used in tax law to determine if a person's activity is a taxable "trade" or merely the disposal of a personal investment. 1120 8.2 This distinction is crucial for tax purposes, as profits from a trade are subject to income tax, while profits from selling personal assets may be treated as a capital gain. The concept originated in UK tax 35 S/N zwhgf0tmQU6t0LJ8jYxOA **Note : Serial number will be used to verify the originality of this document via eFILING portal WA-14-12-05/2022 WA-14-13-05/2022 law and was developed through case law and a 1955 Royal Commission report. No single badge is conclusive on its own; 1125 instead, tax authorities and courts consider the overall impression from all the facts and circumstances of a case. 8.3 Tax authorities use the badges of trade to determine if profits should be taxed as income or capital gains. This has significant 1130 financial implications for taxpayers: (1) Income tax vs. capital gains tax: Tax on trading income is often higher than capital gains tax. The characterisation of a transaction as a trade can therefore result in a much larger tax bill. 1135 (2) The badges are critical for distinguishing between a hobby that occasionally turns a profit and a full-fledged business. A profitable activity that displays sufficient "badges" can be reclassified as a trade by tax authorities. (3) Because no single badge is decisive, the tests allow tax 1140 authorities to evaluate each case based on its specific circumstances, preventing rigid rules from being exploited. See application of badges of trade (among the cases): -Ketua Pengarah Hasil Dalam Negeri v Ng Huan Tong [2023] 1 1145 LNS 296, HC: The High Court considered the motive behind a land disposal. It was argued that the taxpayer only advertised the land and appointed agents when financially distressed, rather than with the intention to trade initially. The court ruled that appointing a broker is a common practice and, on its own, is not 1150 conclusive proof of a trading intention. -Dr Zanariah Binti Ramli v Ketua Pengarah Hasil Dalam Negeri (2023: Unreported, Court of Appeal (Appellate Jurisdiction), Civil Appeal No: W-01-711-12/2011): 1155 This case involved frequent buying and selling of bonds. The Malaysian Court of Appeal ruled that the taxpayer's activity constituted an "adventure in the nature of trade" rather than an investment due to the volume and frequency of the transactions. The Court of Appeal observed that: 36 S/N zwhgf0tmQU6t0LJ8jYxOA **Note : Serial number will be used to verify the originality of this document via eFILING portal WA-14-12-05/2022 WA-14-13-05/2022 (a) The court would be concerned with looking at the evidence to see 1160 whether there had existed the badges of trade in the whole scenario as presented before the SCIT. (b) Six criteria need to be considered in that process (NYF Realty Sdn Bhd v Comptroller of Inland Revenue (1974) 1 MLJ 183): (1) The subject matter of the transaction. 1165 (2) The period of ownership. (3) The frequency of the transaction. (4) The alteration of the property to make it more saleable. (5) The methods in disposing of the property, and (6) The circumstances responsible for the resale of the property. 1170 (c) From the evidence adduced before the learned SCIT, it would become apparent that such evidence has shown that the Appellant had hardly held on, for an extended period of time, to all the bonds that she purchased throughout the period under review. (d) In the absence of an express admission, a person’s intention can only, 1175 at most, be deduced or inferred from his conduct, either overtly by his commission or otherwise, by his omission. (e) From the evidence adduced surrounding the market activities of the taxpayer, it would justify a strong inference to be made that the taxpayer had, in fact, been actively trading in bonds during the period under 1180 scrutiny. (f) One single act could amount to doing trade. -Keysight Technologies Malaysia Sdn Bhd v Ketua Pengarah Hasil Dalam Negeri [2024] MLJU 1271, CA: 1185 A landmark ruling by the Malaysian Court of Appeal affirmed that the badges of trade test can apply to intangible assets, such as intellectual property (IP), not just tangible property or land. The court ruled that the sale of IP rights during a corporate restructuring constituted a capital gain, noting that it was a one-time transaction and that the taxpayer was not in the business of selling 1190 IP rights. The Court of Appeal ruled that applying the badges of trade test would have led to the conclusion that the IP Rights were capital assets. FINDINGS OF THIS COURT [9] All things considered, it is my considered judgment, that the scale 1195 of evidence had tilted in favour of the DGIR. 9.1 In considering the facts and the law presented by the parties, I am mindful not to consider a point of law or argument that was not 37 S/N zwhgf0tmQU6t0LJ8jYxOA **Note : Serial number will be used to verify the originality of this document via eFILING portal WA-14-12-05/2022 WA-14-13-05/2022 raised and argued at the trial before the SCIT, save where it is a 1200 question of law where the facts necessary to determine the issue are already in the record. I find that the SCIT had made a conclusion of law that is inconsistent with the primary facts it has seen, or where SCIT has misdirected itself in law when arriving at its findings or inferences. 1205 9.2 It is my findings after observing and considering the arguments of the parties in paragraphs [5] and [6] above, that the SCIT did not appropriately appreciate the circumstances of the case on the facts and the law: 1210 (1) The SCIT panel had misdirected itself, which warrants judicial intervention to correct the supposed error. (2) I find the arguments by Profound in seeking relief under s.131(1) for supposed mistakes or errors in the preparation and submissions of the YAs 2009-2011, are not probable. I 1215 find no compelling evidence to support the arguments of Profound in having made mistakes or errors in its tax return, as I had observed in the arguments of the DGIR. A probability of making mistakes is not sufficient as it is speculative. (3) I see the actions seeking relief under s.131(1) more of an 1220 afterthought, considering the YAs 2009-2011 predates the High Court’s determination in 2013 by several years. Using this position in 2013 as a basis for mistakes in 2009-2011 is untenable in the circumstances. [10] Parties agreed for only two issues to be canvassed and ventilated 1225 before this Court, as follows: (1) Does the DGIR have the legal foundation to reject Profound’s application for relief under s.131 of the ITA 1967: 38 S/N zwhgf0tmQU6t0LJ8jYxOA **Note : Serial number will be used to verify the originality of this document via eFILING portal WA-14-12-05/2022 WA-14-13-05/2022 (a) Based on my observation in the parties' arguments, s.131 ITA 1967 provides a mechanism for taxpayers to seek 1230 relief/refund for overpaid taxes due to an error or mistake in their income tax return (arithmetical errors, misinterpretation of the tax laws, reporting income in the wrong year, etc). The DGIR will not consider the application if the error or mistake was made following the 1235 known practices, rules and stands of the DGIR at the time the assessment was made. (b) The DGIR alluded the Court to the Public Ruling 1/2009 (Property Development) issued under section 138A ITA 1967, prevailing at the material time of the impugned YA. 1240 (c) In compliance with the Public Ruling No. 1/2009 and the DGIR’s position and practice prevailing at that time, O&W Tax Consultant Sdn Bhd had correctly recognised that the entitlements received under the Development Agreement 2008 were taxable under section 4(a) and 1245 section 24 of the ITA 1967, bearing in mind that this predates the High Court determination in 2013 (KPHDN v Gracom Sdn Bhd (Civil Appeal No. R2-14-21-11). (d) I take cognisance of the legal position in section 131(4) ITA 1967 preventing a taxpayer from seeking a tax refund 1250 or relief if the original tax return, which supposedly contained an error or mistake, was prepared and submitted in line with the known prevailing practices, rules, or stand (public rulings, guidelines, case laws, or any other written evidence) of the DGIR at the time. It 1255 prevents taxpayers from deliberately following a known 39 S/N zwhgf0tmQU6t0LJ8jYxOA **Note : Serial number will be used to verify the originality of this document via eFILING portal WA-14-12-05/2022 WA-14-13-05/2022 tax practice and then, after a change in that practice, or a supposedly favourable court decision, applying for relief for a previous year of assessment on the basis that the initial practice was an error or mistake. It ensures that the 1260 taxpayer cannot benefit from both an earlier adherence to a particular practice and a later change to that practice. (e) As rightly pointed out by the DGIR, there was never any mistake in the nature that Profound had suggested in YAs 2009-2011 to warrant the use of s.131 ITA 1967. The 1265 SCIT misdirected itself when it finds that the DGIR had no lawful basis to reject Profound's application for relief for YAs 2009-2010 (with 2011 already having been dismissed by the SCIT). 1270 Therefore, to answer the first question, in light of the foregoing circumstances and facts, it is my considered finding that the DGIR have the legal basis upon which to reject Profound’s application for relief under s.131 of the ITA 1967 for YA 2009- 2011. 1275 (2) Are the financial gains in the disposal of the impugned eleven (11) pieces of land belonging to Profound taxable under RPGT 1976 as capital gains or under the ITA 1967 as business income: 1280 (a) I agree with the position taken by the DGIR that the SCIT fell into legal error in concluding that there was no intention to trade by Profound vis-à-vis the impugned Development Agreement (2008) and the facts and circumstances surrounding it. Ultimately, it is a question 40 S/N zwhgf0tmQU6t0LJ8jYxOA **Note : Serial number will be used to verify the originality of this document via eFILING portal WA-14-12-05/2022 WA-14-13-05/2022 1285 of interpreting the facts and circumstances to arrive at the correct legal conclusion and to recapitulate, that: (1) The Development Agreement is not a straightforward sale of the 11 plots of land. (2) Profound was willing to share financial risks. 1290 (3) The uncertainties and potential losses suggest that Profound was involved in trading activities. (4) The legal construct of the Development Agreement indicates it was meant for trading and profit, not investment: o Profound was willing to wait for the development to be 1295 completed, even if it took eight years or more. o Profound had the right to be informed quarterly by NAZA TTDI about sales, collections, and construction status. o Profound had the right to set the sales price. o Profound was willing to create a third-party charge over 1300 the lands to secure funding. o There was no transfer of ownership of the lands to NAZA TTDI. (5) The percentage of entitlement varied as NAZA TTDI undertook the mixed development. 1305 (6) Profound's financial statements for 2008 showed an increase in revenue and costs of sales. (7) There was no evidence that Profound chose to receive the percentage by way of units in the mixed development for investment purposes. 1310 (8) There was no evidence that Profound intended to hold the lands for long-term investment. Profound did not generate any income from the lands between 2002 and 2007. (9) There was no recorded revenue from holding the lands since 2002. The minimal cash and bank balances in Profound's 1315 financial statements for 2004-2007 indicate that the lands were not held for investment, but rather for resale at a profit. (10) The financial statements do not show any payments made to settle advances received from related group companies for the acquisition of the lands. 1320 (11) It was a Group Company effort, and it is a trite legal principle that accounting evidence (the lands are captured as non- current assets) on its own is not conclusive of the matter and must be read with other evidence. (12) No compelling evidence that the disposal of the said lands 1325 was to increase NAZA TTDI’s project portfolio and overall valuation of the proposed public listing exercise that was halted due to the demise of its founder. 41 S/N zwhgf0tmQU6t0LJ8jYxOA **Note : Serial number will be used to verify the originality of this document via eFILING portal WA-14-12-05/2022 WA-14-13-05/2022 (a) In light of the foregoing, the legal conclusion has to be an adventure in nature, a trade as reflected in the impugned YA 1330 2009-2011. There was no mistake or error as submitted by Profound. (b) I agree that if it is purely an outright disposal of land with no business elements, it should be taxable under the RPGT Act 1976 as capital gains. In determining the existence of badges 1335 of trade in a particular transaction, the focus is on the dominant purpose for which the specific property was initially acquired and disposed of. (c) Where the disposal of the impugned lands is interwoven with business dealings that lean into a commercial arrangement, it 1340 is subject to strict scrutiny of the facts to unmask the actual intention of the landowner. (d) This is a group business endeavour (NAZA Group of Companies), which had come out with this scheme of commercial arrangement in the Development Agreement 2008 1345 to assist each other to mitigate financial exposure and potential financial risks involved in the impugned land acquisitions and the pursuit of the mixed development project. Therefore, to answer the second question, in light of the foregoing 1350 circumstances and facts, it is my considered finding that the financial gains in the disposal of Profound’s impugned eleven (11) pieces of land are taxable under the ITA 967 as business income. CONCLUSION 1355 [11] All things considered, it is my considered judgment as follows: 11.1 (A) WA-14-12-05/2022 The appeal by the DGIR, against the Deciding Order of the SCIT dated 28 April 2022, which favoured the respondent (Profound Reliance Sdn Bhd) for YA2009-2010 be set aside, is allowed with 1360 costs. 42 S/N zwhgf0tmQU6t0LJ8jYxOA **Note : Serial number will be used to verify the originality of this document via eFILING portal WA-14-12-05/2022 WA-14-13-05/2022 11.2 WA-14-13-05-2022 (1) On the evidence before this court, I find that the SCIT panel did not misdirect itself on the facts and the law in rejecting an appeal on the DGIR’s rejection on YA 2009 for relief 1365 application under s.131(1) of the ITA 1967. (2) I am not convinced by the position taken by Profound on the construction of s.131(1). On the one hand, Profound argued that the DGIR could not read deeming provisions into a statute of parliament, but by the same token, neither can Profound. 1370 (3) They are not allowed to take an interpretation slanted to support their arguments. (4) I find no issue or error with the interpretation of the DGIR and the SCIT as to the requirement of s.131(1) as competent authorities in matters of tax and its enforcement. 1375 (5) This appeal in WA-14-13-05-2022 is therefore dismissed with costs. Global costs of RM10,000.00 subject to the allocatur fee, is awarded to the DGIR, to be paid within 30 days from the date of this order, 1380 Dated 02.09.2025. 1385 HAYATUL AKMAL ABDUL AZIZ JUDGE HIGH COURT OF MALAYA KUALA LUMPUR 1390 43 S/N zwhgf0tmQU6t0LJ8jYxOA **Note : Serial number will be used to verify the originality of this document via eFILING portal WA-14-12-05/2022 WA-14-13-05/2022 For the Appellant/Respondent: Azrul Safinas bt Rosli, together with 1395 Anis Afiqah Che Rahim Revenue Counsels Inland Revenue Board of Malaysia For the Respondent/Appellant: Chris Toh Pei Roo, together with Jay 1400 Fong Sia Sheng Messrs Lee Hishammuddin Allen & Gledhill 44 S/N zwhgf0tmQU6t0LJ8jYxOA **Note : Serial number will be used to verify the originality of this document via eFILING portal