September 23, 2021

Section 91 (4) (a) of the Income Tax Act 1967: a subtle nod to judicial review?

Over the past year, tax disputes have continued to be the subject of numerous litigation despite the COVID-19 pandemic, notably through the judicial review forum. Although the courts are now more circumspect in granting authorization, they have not hesitated to do so in appropriate cases.1 In such proceedings it has become common practice for the Inland Revenue Board (IRB) To:

(a) Show up at the authorization stage and vigorously oppose the authorization request, often turning what is supposed to be a “quick and cheap”2 a long and expensive process.

(b) The main (and often only) objection of the IRB is that the taxpayer’s claim is an “abuse of process”, as he should instead have resorted to the alternative remedy of a Form Q appeal.3

The moralizing character of such objections becomes evident when one considers that the Rules of Court 2012 (ROCK) have clearly prescribed that the application for authorization is ex parte,4 which means that the IRB has no right to appear.5 In contrast, the ITA itself, the very statute from which the IRB derives its considerable powers and under which it carries out its functions, arguably has explicitly recognized the possibility of judicial review to challenge tax assessments.

IRB ignores the ex parte nature of leave applications

Ordinance 53 r 3 (2) of the ROC clearly stipulates that a request for authorization is made “ex parte”. Regarding the judicial review proceedings at the authorization stage, the Kanawagi High Court stated:

“It is very clear from the terms that this request is only ex parte, which means that the respondent is not entitled to appear.

“Life will be easier for all of us if the parties just follow the rules instead of making it difficult by adopting rules that do not exist.

“The rules have expressly provided for the first stage of judicial review to be ex parte and if the court is left alone to decide the threshold of jurisdiction if the claimant has an arguable case a lot of time, manpower and money would be saved for all parties and the court. If Parliament had intended the respondents to have the opportunity at this stage, the Regulations would have said so, but nevertheless, the Rules expressly state that this request is ex parte with a clear intention to save time and money which normally follows the contested request between the parties. This rule is not a dead letter and is there for compliance by parties. “

In particular, the High Court also urged lawyers to be confident in their competence to decide ex part applications:

The lawyer must be sure that when a judge hears an ex parte request, the judge is competent to decide whether this request should go to the inter parte stage or whether this request should be closed at the ex parte stage. To have counsel for the respondents appear at the ex parte stage is to unnecessarily burden this legal process. which otherwise would be decided very quickly. “

In this context, however, the IRB has publicly stated in the past that “all applications for judicial review will now be challenged by the IRB” and that “the IRB will work with the Office of the Attorney General to oppose the request for judicial review. authorisation ” .6

Of course, all judicial review applications made by taxpayers may not be equal on their merits. However, the purpose of the “leave” step (i.e. authorization) is precisely to eliminate spurious or frivolous challenges,7 and to this end, the judges of the High Court are more than capable of doing it themselves.

An interesting observation to note is that not all tax assessments issued by the IRB are challenged through judicial review. In contrast, the publicly stated position of the IRB is that it would oppose “all applications for judicial review”. It appears to be a promise that taxpayers can expect the IRB to keep.

For example, in T v KPHDN (see our LHAG Insights of March 4, 2021), the IRB rejected certain expenses incurred by the taxpayer which had been expressly found to be deductible by the High Court in an earlier case. The High Court granted leave despite the IRB’s vigorous objection that the dispute should be considered by the SCIT. Nonetheless, the IRB appealed to the Court of Appeal, while maintaining the same objections during the judicial review proceedings on the merits.

This approach (i.e. indiscriminately opposing all applications for authorization) can also be observed in other cases, for example in Magnum Holdings8, where the taxpayer alleged that the IRB no had not followed the decision of the High Court in Multipurpose funds.9 It also seems inconsistent with the stated position of the IRB that “cases when the IRB does not follow a decision of the High Court or does not follow its own public decision would be appropriate cases for judicial review“.ten

Paragraph 91 (4) (a) ITA: Recognition of judicial review?

Contrary to the explicit “ex parte” nature of authorization procedures, the ITA appears to recognize the possibility of judicial review to challenge the tax assessments raised by the IRB. Paragraph 91 (4) (a) of the ITA provides that:

“(4) Or in an evaluation year –

(a) any assessment made under this Act or the Real Estate Gains Tax Act 1976 [Act 169] in respect of a person for any year of contribution has been determined by court on appeal or meet again;

the general manager can in the first mentioned valuation year or within five years after its expiration make an assessment in respect of this person for any year of contribution for the purpose of giving effect to the determination, revocation, withdrawal or annulment, as the case may be.

Our remarks:

(a) At the risk of stating the obvious, the “revision” in Article 91 (4) (a) of the ITA refers to a “revision” “by court“. This differs from a review by the Director General of Taxes, which was provided for separately under Article 101 of the LIR. Note 15 of the explanatory statements of the 2005 budget bill further confirms this.

(b) Section 91 (4) (a) of the ITA appears to specifically recognize that an assessment may be determined by the court of appeal (i.e. via a Form Q appeal under the Article 99 of the LIR) or by judicial review. It should be noted that section 102 and Schedule 5 of the ITA which governs hearings of “appeals” by the SCIT, make no mention of a “review” process.

(c) Comparisons can be made with, for example, Article 143 of the Customs Law of 1967 and Article 47 of the Excise Law of 1976, which also seem to recognize the possibility of an appeal directly to the High Court against the decisions of the Director General of Customs.

(d) Contrasts can be drawn with other legal provisions in Malaysia which expressly exclude judicial review. For example, section 59A of the 1959 Immigration Act is unambiguously titled “Exclusion from judicial review“and begins unequivocally with”there will be no judicial review… “.

Other similar provisions include section 15B of the Crime Prevention Act 1959; Section 120 of the Water Services Industry Act 2006; section 23 of the Witness Protection Act 2009; Articles 17 and 19 of the Strategic Trade Act 2010; section 65 of the Occupational Safety and Health Act 1994; and section 23 of the Fisheries Act 317.

(e) If Parliament had intended to exclude judicial review, it undoubtedly would have done so using the express language it had adopted in provisions such as section 59A of the 1959 immigration. Instead, he had chosen to explicitly recognize the possibility of a “review” of a tax assessment “by the court”.

(f) Even if, which is not the case, the ITA did in fact contain an express exclusion clause, the Federal Court held that “it is settled law that the supervisory jurisdiction of the courts to determine legality an administrative action cannot be excluded even by an express exemption clause “.11

(g) However, at this stage, the interpretation of s 91 (4) (a) remains to be tested, on an appropriate occasion, in our courts.

Conclusion

The current trend of the IRB emerging at the leave stage to oppose “all judicial review applications” has arguably affected “timeliness” and cost effectiveness.12 of the leave phase. This despite:

(a) The clearly ex parte nature of the authorization procedure;

(b) The “very low” threshold for leave even in tax matters;13

(c) Judges of the High Court being more than capable of adjudicating leave applications on an ex parte basis; and

(d) The ITA itself no doubt specifically recognizes the possibility of “review” “by the courts”.

Armed with the “massive and bottomless state purse”14 (except, it seems, with regard to tax refunds15), the IRB may also have several bites of the proverbial apple, i.e. the question of authorization, at the stage of the ‘leave (and subsequent appeals), and again at the merits stage (and subsequent appeals).

With the greatest respect, if the public authorities are truly confident in the correctness of their decisions, allowing the courts to decide the issue directly at the merits stage would certainly increase the speed of resolution of tax disputes, while strengthening the progressive development of the law. tax.


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