LOST IN THE MAZE OF TAX ASSESMENT: A SHORT NOTE

1. INTRODUCTION

   Often a letter from IRB ( “ Inland Revenue Board”) will be greeted with profound trepidation, real or imagined. A tax payer ’ s next course of action once the letter from IRB is received is often predicated by whether the amount assessed is acceptable or otherwise. This short note will discuss on the options available to a taxpayer who is dissatisfied with the tax assessment.

2. EFFECTS OF RECEIPT OF A NOTICE OF ASSESSMENT

   1. Upon receiving a notice of assessment from IRB, a taxpayer who is aggrieved by such assessment may either: -

      1. file a judicial review to the High Court of Malaya; or

      2. file a written notice of appeal to the Special Commissioners of Income Tax ( “SCIT”).

   2. Notwithstanding the above, Section 103 of Income Tax Act 1967 ( “ ITA”) stipulates that the tax payable under an assessment for a year of assessment shall be due and payable on the due date whether or not that person appeals against the assessment.

   3. In Lim Tian Huat v. Ketua Pengarah Hasil Dalam Negeri ^[1], the plaintiff was appointed as a receiver and manager of a company. When a notice of assessment was issued to the company by the defendant, the plaintiff applied to the High Court for directions regarding the priority to be accorded to the defendant's claim for payment of income tax due. The trial judge held that the receiver and manager should pay federal tax before making payments to the debenture holders. Dissatisfied, the plaintiff appealed.

      Abdul Hamid Mohamad JCA (as his Lordship then was) held:

      “All it says is that the tax assessed, upon the service of the notice of assessment, becomes due and payable. How is it to be recovered? The most common method is provided by s. 106^[2] . True that in any proceeding for the recovery of the tax assessed the court shall not entertain any plea that the amount of the tax sought to be recovered is excessive, incorrectly assessed, under appeal or incorrectly increased s. 106(3)^[3] . That is because there is a different forum for such challenges. But the fact remains that the tax only becomes due and payable upon service of the notice of assessment. That is all. It has nothing to do with priority.”

   4. This case establishes the legal principle that once a notice of assessment is served to a person, the tax payable thereto becomes due and payable to the government notwithstanding any appeal initiated against the tax assessment.

   5. Non-payment of tax upon service of notice of assessment constitutes an offence under Section 103(3) of ITA shall without any further notice being served be increased by a sum equal to ten per cent of the tax so unpaid, and that sum shall be recoverable as if it were tax due and payable under ITA.

3. APPEAL TO SCIT

   1. Section 99 of ITA states that a person who is aggrieved by such assessment may file a written notice of appeal to the SCIT using Form Q together with the grounds of the appeal within 30 days from the date of service of the assessment or in the case of an appeal against an assessment made under Section 92 of ITA, within the first three months of the year of assessment following the year of assessment for which the assessment was made.

   2. In the event that the time to file Form Q has lapsed, Section 100 of ITA enables a taxpayer to apply for an extension of time to file the appeal against the notice of assessment by submitting Form N. The taxpayer must provide a reasonable ground to justify the delay.

   3. If the application for extension of time is allowed, IRB will issue Form CP15A informing the taxpayer of the extended date for submission of Form Q, which is thirty days from the date of Form CP15A.

4. REVIEW BY DIRECTOR GENERAL OF INLAND REVENUE (DGIR) BEFORE REGISTRATION OF APPEAL

   1. Under Section 101(1) of ITA, DGIR has 12 months to review the assessment against which the appeal is made upon receipt of Form Q.

   2. Section 101 (1A) of ITA states that where the DGIR requires a period longer than twelve months to carry out the review, the DGIR may apply to the Minister^[4] for an extension of that period not later than thirty days before the expiry of the twelve-month period.

   3. During the 12-month review period, an agreement pursuant to Section 101(2) of ITA may be concluded between the DGIR and the taxpayer on the proper amount of taxes payable by the taxpayer thus signifying settlement between the taxpayer and the DGIR.

   4. If there is no agreement concluded during the review period, the Form Q will be forwarded to the SCIT for registration of the appeal under Section 102 of ITA.

5. HEARING BEFORE THE SCIT

   1. Section 102(4) of ITA provides that where an appeal is sent to the SCIT, Schedule 5 of ITA shall have effect regulating the hearing.

   2. Before the hearing is conducted, a case management will be held, during which directions are given for filing of cause papers and for a hearing date to be fixed.

   3. Item 23 of Schedule 5 of ITA stipulates that SCIT shall hear the case and give its ’ Deciding Order ’ ^[5] for the assessment to be confirmed or discharged.

6. POST APPEAL

   1. Under Item 34 of Schedule 5 of ITA, either party being dissatisfied with a Deciding Order made in the proceeding before the SCIT may appeal to the High Court on questions of law.

   2. Further, Item 39 of Schedule 5 of ITA states that upon hearing and determining the question of law in such an appeal, the High Court may, inter alia , order such assessments to be confirmed, discharged or amended.

7. APPEAL AGAINST THE DECISION OF HIGH COURT

   1. Item 41 of Schedule 5 of ITA provides that either party being dissatisfied with the High Court's decision has a further right of appeal to the Court of Appeal.

   2. As the High Court is given the jurisdiction to hear the appeal from SCIT in its appellate civil jurisdiction, the appeal against the High Court ’ s decision to the Court of Appeal shall be final. A tax payer has no further appeal to the Federal Court for a matter originating at the SCIT.

   3. Below are the advantages and disadvantages of appealing the tax assessment before the SCIT:

      No.	ADVANTAGE(S)	DISADVANTAGE(S)
      1	The DGIR and the appellant may come to an agreement in writing as to the amount of the chargeable income and the tax chargeable thereon or if there is no chargeable income or tax.	Pending appeal, SCIT has no power to grant stay on the obligation to pay the tax due.
      2	The appellant during the appeal process may be represented either by an advocate or a tax agent who may have deeper understanding this tax matters.	An appeal against the Deciding Order made by SCIT may be appealed up to Court of Appeal only.
      3	The grounds of appeal so stated in Form Q are not confined to questions of law only.

8. APPLICATION FOR JUDICIAL REVIEW

   1. An alternative avenue available to a taxpayer upon being served with a notice of assessment from IRB, is to apply for a judicial review.

      1. When an application for judicial review is made against the tax assessment by IRB, an application for stay of the notice of assessment pending the fll disposal of the judicial review application may be made to the High Court.

      2. In Re Ex Parte Application For Leave To Apply For Judicial Review By Shell People Services Asia Sdn. Bhd.^[6], an ex parte application was made to obtain leave for judicial review against decision of DGIR. The legal question posed to the court is whether the court can stay the decision of DGIR under ITA pending full disposal of the substantive application.

         1. Wong Kian Kheong J held that

            “[45] If the court allows the Leave Application regarding DGIR’s assessment or additional assessment of income tax, I am of the following view regarding the Stay Application:

            (1) as a general rule, the court should not grant a stay of DGIR’s decision under O 53 r 3(5) RC pending the disposal of the Substantive Application (General Rule). Exceptionally, the court can only grant a stay of DGIR’s decision pending the disposal of the Substantive Application when there are special circumstances which can justify the stay (Exception)...”

      3. In Flextronics Shah Alam Sdn Bhd v Ketua Pengarah Hasil Dalam Negeri ^[7], the applicant filed for judicial review against the DGIR ’ s decision who issued a Notice of Additional Assessment and to declare such notice as invalid. The applicant had also sought stay of proceedings against the respondent in respect of the disputed NOAAs pending disposal of this judicial review.

         1. Vazeer Alam Mydin Meera J held that

            “[34] I was not prepared to consider the stay application on an ex parte basis and had directed that the respondent be served with the cause papers and affidavits be filed by both parties, and that the stay application would then be heard on an inter partes basis. In the interim, upon the application for counsel for the applicant, I granted an interim stay pending the hearing of the stay application on an inter partes basis. I had exercised my discretion to allow an interim stay primarily upon the consideration of the large amount of tax that had been raised by the respondent, ie, approximately RM62.9 million, which according to counsel would cause severe cash flow problems to the applicant and would adversely affect its financial position as a going business entity…”

      4. Based on the cases above, an interim stay may be granted during leave application stage pending the hearing for stay on an inter-partes basis.

         1. The applicant must prove special circumstances for the Court to grant a stay pending the disposal of substantive application for judicial review.

9. CONCLUSION

   1. Upon service of a notice of assessment to a taxpayer, a dissatisfied taxpayer may still appeal against the assessment either by filing a judicial review to the High Court or appealing to the SCIT.

   2. Payment of tax in accordance to the amount in the notice of assessment must be made within the stipulated time notwithstanding any appeal made either to the SCIT or by way of judicial review.

   3. Application for stay of the tax payment under a notice of assessment is only granted if a tax payer opts to apply for judicial review against the assessment and the court would only grant a stay when there are special circumstances to justify such stay pending disposal of the substantive application.

Written by:

• Nur Anisatul Ashikin Binti Abdul Rauf,
• Hana Nadia Binti Zhari, and
• Sharifah Nur Asilah Jasmine Binti Syed Mohamed Noor Azmi.