Lim Hian Yu Sdn Bhd Ketua Pengarah Hasil Dalam Negeri

PA-14-3-08/2023 Kand. 38 03/10/2025 11:09:02 DALAM MAHKAMAH TINGGI DI PULAU PINANG NEGERI PULAU PINANG, MALAYSIA RAYUAN SIVIL NO: PA-14-3-08/2023 Antara 1. LIM HIAN YU SDN BHD ... PERAYU-PERAYU Dan KETUA PENGARAH HASIL DALAM NEGERI... RESPONDEN (DI DALAM PESURUHJAYA KHAS CUKAI PENDAPATAN RAYUAN NO: MOF.PKCP.700-7/1/591 RAYUAN NO: MOF.PKCP.700/1/592) Antara 1. LIM KIA KEE 2. LIM HIAN YU SDN BHD ... PERAYU-PERAYU Dan KETUA PENGARAH HASIL DALAM NEGERI … RESPONDEN 1 S/N uJlNalW9/0KVsoisVYf9ag **Note : Serial number will be used to verify the originality of this document via eFILING portal DIDENGAR BERSAMA DALAM MAHKAMAH TINGGI DI PULAU PINANG NEGERI PULAU PINANG, MALAYSIA RAYUAN SIVIL NO: PA-14-2-08/2023 Antara 1. LIM KIA KEE …. PERAYU-PERAYU Dan KETUA PENGARAH HASIL DALAM NEGERI... RESPONDEN (DI DALAM PESURUHJAYA KHAS CUKAI PENDAPATAN RAYUAN NO: MOF.PKCP.700-7/1/591 RAYUAN NO: MOF.PKCP.700-7/1/592) Antara 1. LIM KIA KEE 2. LIM HIAN YU SDN BHD ... PERAYU-PERAYU Dan KETUA PENGARAH HASIL DALAM NEGERI … RESPONDEN 2 S/N uJlNalW9/0KVsoisVYf9ag **Note : Serial number will be used to verify the originality of this document via eFILING portal JUDGEMENT 1. This is an appeal by the taxpayers (“the Appellants”) against the Deciding Order of the Special Commissioners of Income Tax (“SCIT”) dated 28.7.2023, in relation to the Notices of Assessment and Notices of Additional Assessment for the Year of Assessment (“YA”) 2016, collectively dated 5.4.2019 (“the Assessment”). The SCIT had, by its decision, dismissed the Appellants’ appeal filed via Form Q against the said Assessment issued under the Real Property Gains Tax Act 1976 (“RPGTA 1976”) by the Respondent. 2. The Appellants seek an order of this Court to allow the appeal, set aside the SCIT’s Deciding Order dated 28.7.2023, and discharge the Assessments issued by the Respondent. B. BACKGROUND CASE 3. On 6.11.1998, the Second Appellant acquired 100,000 shares in Freight Consulting Sdn Bhd (“FCSB”). FCSB was incorporated on 24.9.1980 with its principal business activity being the provision of shipping and freight consultancy services, as well as acting as forwarding agents. In 1988, FCSB purchased nine (9) contiguous parcels of land identified as Lot Nos. 854, 856, 857, 1161, 1162, 1163, 1164, 1165 and 1166, all situated in Mukim 6, Daerah Barat Daya, Pulau Pinang. Following this 3 S/N uJlNalW9/0KVsoisVYf9ag **Note : Serial number will be used to verify the originality of this document via eFILING portal acquisition, FCSB changed its principal activity to the operation of a durian estate. Subsequently, by way of a Share Sale Agreement dated 16.12.2016, the shareholders of FCSB (including the Appellants) disposed of their entire interest comprising 600,000 shares to Teow Ee Meng and Teow Mooi Leng for a total consideration of RM15,600,000.00. 4. Pursuant to the disposal of shares in FCSB, the First Appellant submitted to the Respondent on 14.2.2017 Borang CKHT 1B, Borang CKHT 2A, together with a copy of the Share Sale Agreement dated 16.12.2016. Thereafter, the Respondent, by letter dated 5.4.2019 enclosing Form K, raised a tax assessment for YA 2016 against the First Appellant in respect of his disposal of 10,000 shares in FCSB. Year Disposal Acquisition Disposal Gain to Tax to be of share price (RM) Price be taxed paid (RM) (unit) (RM) (RM) 2016 10,000 20,000.00 260,000 216,000. 64,800.00 .00 00 5. Similarly, following the disposal of shares in FCSB, the Second Appellant submitted to the Respondent on 14.2.2017 Borang CKHT 1B, Borang CKHT 2A, the Share Sale Agreement dated 16.12.2016, a Payment Form dated 2.7.2015, as well as Directors’ Resolutions dated 6.11.1998 and 2.2.2016. 4 S/N uJlNalW9/0KVsoisVYf9ag **Note : Serial number will be used to verify the originality of this document via eFILING portal Subsequently, the Respondent, by letter dated 5.4.2019 enclosing Forms K and KA of the same date, raised three separate tax assessments against the Second Appellant for YA 2016 in respect of the disposal of 190,000 shares in FCSB.The assessments raised are as below: - Year Disposal Acquisition Disposal Gain to be Tax to be of share price (RM) Price (RM) taxed (RM) paid (RM) (unit) 2016 10,000 10,000.00 20,000.00 10,000.00 550.00* 2016 100,000 200,000.00 2,600,000.00 2,400,000.00 720,000.00 2016 90,000 90,000.00 2,340,000.00 2,250,000.00 112,500.00 *Penalty under Section 29(3) RPGT 1976 on RM500.00 tax=RM50.00 6. Dissatisfied with the assessments raised by the Respondent, the Appellants, through their tax agent, filed an appeal by way of Form Q dated 24.4.2019. The appeal was premised on the ground that the assessments issued by the Respondent were inaccurate and/or erroneous. C. APPELLANTS’ SUBMISSION 7. The SCIT had erred when it had failed to consider the evidence of the Appellant that the method of apportionment of the gains following the number of shares distinctively is not found in the RPGT. The Respondent had utilised a simplistic approach in 5 S/N uJlNalW9/0KVsoisVYf9ag **Note : Serial number will be used to verify the originality of this document via eFILING portal raising the assessment, le. by merely dividing the disposal price according to the number of shares. The Appellant submits that the Respondent has no legal basis/statutory formula to rely on in the RPGT Act to apportion the disposal price for share acquisition at different years indistinctively. The formula used by the Respondent is nowhere to be found in the RPGT Act and was merely relied on based on the administrative discretion of the Respondent, which the Appellant does not agree to. It is patently clear that there is nowhere in the Act or even in the administrative documents of the Respondent which provide for such formula. 8. The Appellants submit that the SCIT erred in law by misconstruing paragraph 9 of Schedule 2 to the Real Property Gains Tax Act 1976 (“RPGTA”). The SCIT held that paragraph 9 applies only where there is an element of gift. On that basis, the Respondent raised the Assessments against the Appellants under paragraph 4 of Schedule 2, which provides as follows: Paragraph 4 — Acquisition Price (1) Subject to subparagraphs (2), (3) and (4) and the other provisions of this Schedule, the acquisition price of an asset is the amount or value of the consideration in money or money’s worth given by or on behalf of the owner wholly and exclusively for the acquisition of the asset (together with the incidental costs to him of the acquisition) less— (a) any sum received by him by way of compensation for any kind of damage or injury to the asset or for the 6 S/N uJlNalW9/0KVsoisVYf9ag **Note : Serial number will be used to verify the originality of this document via eFILING portal destruction or dissipation of the asset or for any depreciation or risk of depreciation of the asset; (b) any sum received by him under a policy of insurance for any kind of damage or injury to or the loss, destruction or depreciation of the asset; and (c) any sum forfeited to him as a deposit made in connection. 9. The Appellants respectfully contend that the Respondent had applied the wrong paragraph. The proper provision governing the present case is paragraph 9 of Schedule 2, which stipulates: Paragraph 9 — Certain Transactions Deemed to be at Market Value The acquisition or disposal of an asset by a person shall be deemed to be for a consideration equal to the market value of the asset— (a) where he acquires or disposes of the asset otherwise than by way of a bargain made at arm’s length and, in particular, where he acquires or disposes of it by way of gift. 10. The SCIT further erred by attributing to the Appellants a submission that the share transfer from FCSB to the Appellants involved an element of “gift.” This was never raised by the Appellants at any stage. A proper appreciation of the testimony and documentary evidence would show that the contention that “paragraph 9 applies only where there is a gift” originated from 7 S/N uJlNalW9/0KVsoisVYf9ag **Note : Serial number will be used to verify the originality of this document via eFILING portal the Respondent, not the Appellants. By adopting the Respondent’s construction without due consideration, the SCIT misdirected herself in law. 11. The Appellants’ actual ground of appeal was that the rights issue of shares by FCSB, being a controlled company (i.e. majority of shares controlled by two persons), was not a bargain made at arm’s length. Accordingly, under paragraph 9(a), the transaction ought to be deemed to be for consideration equal to the market value of the asset. It is submitted that the applicability of paragraph 9(a) is not confined to instances involving a gift. The provision clearly envisages two distinct circumstances: [a] a disposal or acquisition otherwise than by way of a bargain made at arm’s length; and [b] a disposal or acquisition by way of gift. Thus, the SCIT erred in law in restricting paragraph 9(a) solely to transactions involving a gift. D. RESPONDENT’S SUBMISSION 12. The Respondent submits that paragraph 4 of Schedule 2 to the Real Property Gains Tax Act 1976 (“RPGTA 1976”) is the correct provision to determine the acquisition price for the 10,000 and 100,000 shares in FCSB acquired by the First and Second Appellants on 2.7.2015 and 15.2.2016 respectively. It is common ground that FCSB became a Real Property Company (“RPC”) on 31.12.1988 (per the accounting report ended 31.12.1988). Under 8 S/N uJlNalW9/0KVsoisVYf9ag **Note : Serial number will be used to verify the originality of this document via eFILING portal paragraph 34A(2)(b) and paragraph 34A(3)(b) of Schedule 2, the acquisition and disposal of shares in an RPC must be valued in accordance with either paragraph 4 or paragraph 9 of that Schedule. It is also an undisputed fact that the First Appellant received 10,000 shares from the Second Appellant for RM20,000, and the Second Appellant received 100,000 shares for RM200,000. 13. Because paragraph 34A(3)(b) applies, the Respondent submits that paragraph 4(1) of Schedule 2 governs the acquisition price. Paragraph 4(1) provides that the acquisition price of an asset is “the amount or value of the consideration in money’s worth given by or on behalf of the owner wholly and exclusively for the acquisition of the asset.” On that basis the Respondent relies on the actual prices paid by the Appellants — RM2.00 per share — as the acquisition price for the relevant shares. Concretely:  10,000 shares × RM2.00 = RM20,000 (First Appellant — acquisition price).  100,000 shares × RM2.00 = RM200,000 (Second Appellant — acquisition price).  110,000 shares × RM2.00 = RM220,000 (aggregate acquisition price). 14. The Respondent contends the SCIT was correct to apply paragraph 4 rather than paragraph 9. The disposal values under the Share Sale Agreement dated 16.12.2016 are equally clear: 9 S/N uJlNalW9/0KVsoisVYf9ag **Note : Serial number will be used to verify the originality of this document via eFILING portal the total consideration for 600,000 shares was RM15,600,000, which yields RM26.00 per share (15,600,000 ÷ 600,000 = 26). Thus:  Disposal value — First Appellant: 10,000 × RM26.00 = RM260,000.  Disposal value — Second Appellant: 100,000 × RM26.00 = RM2,600,000. Accordingly, the SCIT correctly found that both Appellants disposed of their FCSB shares for amounts in excess of their acquisition prices and that the resulting gains fall within the charge under the RPGTA (Schedule 5). 15. Finally, the Respondent submits that the tax calculations were correctly performed in accordance with paragraph 34A of Schedule 2. In particular:  Capital gains — First Appellant: RM260,000 − RM20,000 = RM240,000.  Capital gains — Second Appellant: RM2,600,000 − RM200,000 = RM2,400,000. 16. The First Appellant was assessed at the higher rate applicable to holdings of less than two years (30%), a fact acknowledged in cross-examination. The Respondent’s computations (exhibited to the court) therefore reflect the statutory framework and the actual consideration paid and received. By contrast, the Appellants’ alternative formula — described by the Respondent as an “appreciation-rate” approach 10 S/N uJlNalW9/0KVsoisVYf9ag **Note : Serial number will be used to verify the originality of this document via eFILING portal over the holding period — has no basis in paragraph 34A or paragraph 4 and is therefore unfounded. E. ANALYSIS AND DECISION 17. The power of the high court to review the findings of the SCIT has been well decided by the COA in the case of KETUA PENGARAH HASIL DALAM NEGERI MALAYSIA V MITRALAND KOTA DAMANSARA SDN BHD [2023] 6 CLJ 701 as follows: - "First Issue - Whether the Findings Of The SCIT Are Unassailable? (23) The law is well-settled in that the findings of fact made by the SCIT are generally unassailable. However, there are exceptions to this general rule. The courts can and will embark on curial intervention in some limited circumstances. Paragraph 34 of Schedule 5 of the ITA clearly stipulates that an appeal from the SCIT against a deciding order may be made to the High Court only on a question of law. So, what then amounts to a question of law for the purposes of para. 34 of Schedule 5 of the ITA? This was answered concisely by the Federal Court in Director-General of Inland Revenue v. Rakyat Berjaya San Bhd (1984) 1 CL 219; (1984) 1 CL (Rep) 108 as follows: Appeals from the decisions of the Special Commissioners in tax cases are made by way of case stated under the 11 S/N uJlNalW9/0KVsoisVYf9ag **Note : Serial number will be used to verify the originality of this document via eFILING portal income Tax Act 1967 Schedule 5, para 34. The paragraph states clearly that any appeal is on a question of law. Hence, pure findings of fact may not be challenged on an appeal. However, the Court has clear and undoubted jurisdiction to reverse a decision on question of law. The term "Question of law" includes the correctness of (a) pure statement of law (eg, as to the correct interpretation of a statutory provision), and (b) the inferring of a conclusion from the primary facts (where the process of inference involves assumptions as to the legal effect or consequences of the primary facts). In Chu Lip Kong's case the Privy Council reversed the Commissioners' decision on the ground that it was wrong in law. The approach is similar to that of the House of Lords in Edwards v. Bairstow & Harrison [1956] AC 14; (1955) 3 All ER 48; [1953) 36 TC 207, a case universally acknowledged as the leading authority on the distinction between questions of fact and questions of law. It was also referred to by the learned Judge. He was fully conscious of the critical distinction between questions of fact and law. He stated the position succinctly and accurately before citing a passage from the above case. At p. 54 of the Appeal Record he reminded himself in the following words: The power of the Court to interfere is quite limited where the findings of the Special Commissioners are basically findings of facts. The Court will interfere only if there is no evidence to justify the finding or where they have applied 12 S/N uJlNalW9/0KVsoisVYf9ag **Note : Serial number will be used to verify the originality of this document via eFILING portal erroneous tests in arriving at their conclusions or have drawn a wrong inference on the facts or have misdirected themselves in law. 18. The primary issue before this Court is whether the acquisition price of the Appellants’ shares in FCSB ought to have been determined under paragraph 4 or paragraph 9 of Schedule 2 to the Real Property Gains Tax Act 1976 (“RPGTA 1976”). The resolution of this issue has a direct bearing on the computation of chargeable gains arising from the disposal of the shares by the Appellants in 2016. 19. The Appellants argue that the SCIT misconstrued paragraph 9 by restricting its application to cases involving gifts. In their submission, paragraph 9(a) is wider in scope and covers not only disposals by way of gift, but also transactions that are “otherwise than by way of a bargain made at arm’s length.” On this basis, the Appellants contend that the rights issue of shares in FCSB, being a controlled company, did not involve an arm’s length bargain, and therefore the correct acquisition price should have been deemed to be the market value of the shares. 20. The Respondent, on the other hand, maintains that paragraph 4 applies squarely to the present case. The evidence shows that the First Appellant acquired 10,000 shares for RM20,000 and the Second Appellant acquired 100,000 shares for RM200,000, both on the basis of actual monetary 13 S/N uJlNalW9/0KVsoisVYf9ag **Note : Serial number will be used to verify the originality of this document via eFILING portal consideration paid. The Respondent further contends that paragraph 9 has no application since the transactions were supported by real monetary consideration and do not fall within the category of acquisitions “otherwise than by way of a bargain made at arm’s length.” 21. Having considered the rival submissions, I am of the view that the SCIT fell into error in her interpretation of paragraph 9. A plain reading of paragraph 9(a) demonstrates that it contemplates two distinct situations: (i) acquisitions or disposals otherwise than by way of a bargain made at arm’s length; and (ii) acquisitions or disposals by way of gift. To confine its application solely to transactions involving gifts is unduly restrictive and contrary to the express wording of the provision. 22. The Appellants’ contention that the rights issue of shares in a closely-held company such as FCSB may not constitute an arm’s length bargain is not without force. The commercial reality of controlled companies is that share allocations and valuations may not reflect open market values. In such circumstances, paragraph 9(a) provides a statutory safeguard by deeming the consideration to be equal to the market value. 23. The Respondent’s reliance on paragraph 4 is correct in principle where there is clear and objective consideration in money or money’s worth given wholly and exclusively for the acquisition. However, this is subject to the overriding application 14 S/N uJlNalW9/0KVsoisVYf9ag **Note : Serial number will be used to verify the originality of this document via eFILING portal of paragraph 9 in cases where the transaction falls outside the arm’s length paradigm. The SCIT, by accepting the Respondent’s submission that paragraph 9 is confined to gifts, misdirected herself in law and thereby failed to properly evaluate the applicability of paragraph 9(a) to the present facts. The applicability of paragraph 9(a) cannot be determined solely by the presence of the gift element. There are two parts of the section 9(a), one is the disposal of asset otherwise that by way of a bargain made at arm’s length and second is the disposal by way of gift. The following case had clearly demonstrated the same: - M Corporation Sdn Bhd v. Ketua Pengarah Hasil Dalam Negeri - Rayuan No. PKR 25/97(1998) MSTC 2983 - “The transfer of the asset was between two companies, which are connected persons as envisaged in paragraph 23(5) of Schedule 2 of the Act. That being so, the disposal of the said property by the Appellant is regarded as one under paragraph 23(1) of Schedule 2 of the Act, as a disposal otherwise than by way of a bargain made at arm's length. Under the circumstances, the disposal of the said property by the Appellant is deemed to be for a consideration equal to its market value vide paragraph 9 (a) of Schedule 2 of the Act....” CS (M) Sdn Bhd v. Director General of Inland Revenue - Appeal No. P.K.R. 513 (Kuala Lumpur). (1992) 1 MSTC 457 15 S/N uJlNalW9/0KVsoisVYf9ag **Note : Serial number will be used to verify the originality of this document via eFILING portal "As the disposal and acquisition was not at arm's length, the respondent has referred to para. 9(a) of the Second Schedule to the Real Property Gains Tax Act 1976 which provides that the value of the consideration for an asset being disposed or acquired not at arm's length will be considered the same as that of the asset's current market value… 24. Based on the above authorities, it is definite that the right issue of share shall be deemed to be for a consideration equal to the market value in accordance with paragraph 9. 25. It is trite that taxing statutes must be construed strictly, and where there is ambiguity, the interpretation more favourable to the taxpayer must prevail. To allow an assessment based solely on the Respondent’s apportionment formula, without express statutory basis, would run contrary to this principle. Further, I find that the SCIT erred in failing to consider the evidence adduced by the Appellants that a similar method of calculation — consistent with the formula proposed by the company — had previously been accepted by the Respondent. This evidence demonstrates that the Respondent’s current rejection of the Appellants’ method is inconsistent and arbitrary, thereby further undermining the validity of the Assessments. 16 S/N uJlNalW9/0KVsoisVYf9ag **Note : Serial number will be used to verify the originality of this document via eFILING portal 26. The failure of the SCIT to take into account this evidence amounts to a failure to consider material and relevant evidence, which constitutes an error of law. It is well-established that where a tribunal disregards material evidence capable of affecting the outcome, its decision cannot be sustained. In the present case, the prior acceptance by the Respondent of a similar computation method was directly relevant to the Appellants’ contention that their approach was legitimate and ought not to have been rejected. The omission to evaluate this evidence renders the SCIT’s decision legally flawed and warrants appellate intervention. 27. In light of the foregoing, I find that the Appellants have established that the SCIT erred both in law and in fact in dismissing their appeals. The Assessments raised on the Appellants under paragraph 4 of Schedule 2 cannot stand, as the correct provision to be applied is paragraph 9. Accordingly, the appeal is allowed and the Assessments dated 5.4.2019 are hereby set aside. 28. Based on the abovementioned reasons, I allow the Appellant appeal with cost RM3,000.00 to be paid by the Respondent to the Appellant. 17 S/N uJlNalW9/0KVsoisVYf9ag **Note : Serial number will be used to verify the originality of this document via eFILING portal Bertarikh 3 Oktober 2025 SGD (Rozana binti Ali Yusoff) Hakim Mahkamah Tinggi Pulau Pinang Kompleks Mahkamah Pulau Pinang Pulau Pinang Peguam bagi pihak Perayu: TF Leow Leow Min Shiuan Tetuan TF Leow & Associates Peguam bagi pihak Responden: Muhammad Arif bin Zaini Amir Syafiq bin Abdul Karim Lembaga Hasil Dalam Negeri 18 S/N uJlNalW9/0KVsoisVYf9ag **Note : Serial number will be used to verify the originality of this document via eFILING portal