MB VEST SDN BHD v Ketua Pengarah Hasil Dalam Negeri

Case Significance

Instructive on the primacy of the statutory appeal to the Special Commissioners of Income Tax over judicial review of a tax assessment, and on the badges-of-trade characterisation of a property disposal as income taxable under section 4(a) of the Income Tax Act 1967.

This High Court decision at Johor Bahru is a judicial review by a company challenging an income tax assessment, and turns on the availability of a domestic remedy and the characterisation of a property disposal as trade. The applicant, MB Vest Sdn Bhd, sought certiorari under Order 53 of the Rules of Court 2012 to quash a Notice of Assessment for the year of assessment 2018, in a substantial sum including a penalty, issued by the Director-General of Inland Revenue, contending that the decision was ultra vires, unlawful, in excess of power, in breach of natural justice and Article 96 of the Federal Constitution, and irrational, and that its gains from realising apartment units should have been taxed under the Real Property Gains Tax Act 1976 rather than the Income Tax Act 1967, and that the section 113(2) penalty for an incorrect return did not apply because it had not furnished an incorrect return. The court, per Manira binti Mohd Nor JC, dismissed the application. It held that judicial review could not proceed where a domestic remedy, an appeal to the Special Commissioners of Income Tax, was available and had in fact been invoked and used by the applicant, distinguishing the Federal Court authority relied on. On the merits, applying the badges of trade, it held that the disposal of 72 apartment units was a trading transaction, an adventure in the nature of trade, taxable under section 4(a) of the Income Tax Act 1967, and that the penalty under section 113(2) for an incorrect return, being a strict-liability provision requiring no mens rea, was validly imposed. It rejected the complaint under Article 96, since the tax was imposed under written law, and held there had been no breach of the audi alteram partem rule, the applicant having been given sufficient notice and a right of appeal to the Special Commissioners. It also declined a stay, finding no exceptional circumstances and that the public interest in the collection of tax outweighed the applicant's interest, and it refused to admit an additional affidavit that raised a new, time-barred and unpleaded issue as an impermissible attempt to expand the case. The application was dismissed with costs of RM3,000. The judgment is instructive on the primacy of the statutory tax-appeal remedy and the badges-of-trade characterisation of a property disposal.