Centralfields Sdn Bhd v Ketua Pengarah Hasil Dalam Negeri

Case Significance

Illustrates the prospective application of a declaration that a taxing provision is unconstitutional and its consequences for the recovery of tax paid on assessments validly raised before the declaration.

This High Court decision at Shah Alam concerns a taxpayer's application for judicial review seeking a refund of tax paid under a provision of the Income Tax Act 1967 that had subsequently been declared unconstitutional, and it turns on whether that declaration operates prospectively or retrospectively. The applicant company had paid tax of RM7,692,569.04 assessed under section 4C of the Income Tax Act 1967, a provision that the Federal Court in Wiramuda (M) Sdn Bhd v Ketua Pengarah Hasil Dalam Negeri held to be unconstitutional as offending the constitutional protection of property. Relying on that decision, the applicant applied under Order 53 of the Rules of Court 2012 for declarations that the tax collected under section 4C was unconstitutional, illegal and unlawful and amounted to unjust enrichment, and sought its refund. The sole issue for determination was whether the Director General of Inland Revenue had erred in law in disallowing the refund, which in turn depended on whether the Federal Court's declaration of unconstitutionality was to be given prospective or retrospective effect. The court's analysis addressed the temporal reach of a declaration of unconstitutionality and the extent to which past assessments, valid when raised, are disturbed by a later constitutional ruling. Bound by the doctrine of stare decisis, the court took the considered view that the declaration in Wiramuda that section 4C is unconstitutional was to be applied prospectively, so that section 4C was a valid law during the relevant year of assessment, which was the 2016 assessment, and the tax collected under it at that time was validly raised. On that footing the court concluded that there was no error of law in refusing the refund and dismissed the application for judicial review, making no order as to costs. The judgment is a useful illustration of the prospective application of a declaration of unconstitutionality and its consequences for the recovery of tax paid on assessments raised before the declaration.