Taxing compensation for compulsory land acquisition violates the constitutional right to adequate compensation, as it reduces the actual compensation received by the landowner.

Introduction

[1] This is an appeal by Wiramuda (M) Sdn Bhd (the appellant) against the decision of the Court of Appeal on 7 March 2022 affirming the decision of the High Court. The High Court had dismissed the appellant's application for judicial review to quash the Notice of Assessment for Year Assessment 2018 dated 31 May 2019 issued by the Director General of the Inland Revenue (the respondent).

[2] Leave was granted by this Court to the appellant to appeal on the following 7 questions of law:

(i) Whether s 4C and s 24(1)(aa) of the Income Tax Act 1967 (" ITA 1967") which were enacted through the Finance Act 2014 are unconstitutional, null, void and of no legal effect on the ground that it contravenes art 13(2) of the Federal Constitution ?

(ii) Whether s 4C of the ITA 1967 is in contravention with art 13(2) of the Federal Constitution as it deprives the appellant of adequate compensation granted in accordance with the Land Acquisition Act 1960 (" LAA 1960")?

(iii) Whether art 4(1) of the Federal Constitution is applicable in light of s 4C of the ITA 1967 being inconsistent with art 13(2) of the ?

(iv) Whether the presumption of the constitutionality of s 4C of the ITA 1967 is a rebuttable presumption?

(v) Whether the appellant's land (which was compulsorily acquired under the LAA 1960) was held as stock in trade or as fixed asset is an irrelevant fact to determine the constitutionality of s 4C and s 24(1)(aa) of the ITA 1967?

(vi) Whether by reason of the fact the applicant's land had been consistently held and described as fixed asset in its audited accounts (with no other contrary evidence to suggest otherwise) proves this fact and discharges the burden of proof that the appellant's land is a fixed asset?

(vii) Whether an award of compensation arising from compulsory land acquisition should be subject to real property gains tax under the Real Property Gains Tax Act 1976 (" RPGTA 1976"), instead of income tax under s 4C of the ITA 1967?

[3] On 9 December 2022, after hearing submissions of both sides, we unanimously allowed the appeal by answering Question (ii) in the affirmative. The appellant at the outset had withdrawn Questions (vi) and (vii) and we found no necessity to answer the rest of the Questions posed.

Background Facts

[4] Briefly, the relevant facts are as follows.

[5] The appellant owned four (4) parcels of lands, namely HS(D) 25128, PT25163 ("25163"); HS(D) 25129, PT25164 ("25164"); HS(D) 25130, PT25165 ("25165"); and HS(D) 25132, PT25167 ("25167"), (collectively referred to as the lands).

[6] At some point of time, the appellant had carried out quarrying activities on certain parts of the lands where the appellant received income from the sale of quarry rocks. The quarry activities ended in 2011 and the lands remained dormant since then.

[7] Sometime in 2017, the lands were compulsorily acquired by the State Government of Selangor for the project of SUKE Highway. The amount of compensation awarded by the land administrator for the acquisition was objected to by the appellant. The objection was referred to the High Court under s 38(5) of the LAA 1960. No further issue arose out of the amount of compensation awarded by the High Court.

[8] Nonetheless, after the appellant received the amount of compensation, vide a letter dated 12 February 2019 the respondent requested the appellant to furnish, among others, a complete statement of account for Year-End 2014 unti