Chang Min Tat FJ (delivering the judgment of the Court):

The taxpayer's long and somewhat involved history of tax litigation stemmed from a Revenue raid on his offices and the discovery of at least two sets of accounting books for the same transactions. Following this discovery, Revenue conducted what it described as "a back-duty investigation" and served notices of additional assessments on him. From these assessments, he appealed to the Special Commissioners who after a lengthy hearing conducted over a period of months made further increases by a Deciding Order made on 27 September 1975 (qv [1976] 4 MLJ 95). His appeal by way of case stated to the High Court was dismissed, [1977] 1 MLJ 67 as was his appeal to the Federal Court, [1977] 2 MLJ 63. An appeal to His Majesty the Yang di-Pertuan Agong is now awaiting the advice of their Lordships of the Privy Council.

The taxpayer had in the appeal in the High Court and the Federal Court not attempted to contend as a matter of law that neither the Director-General nor the Special Commissioners had the power to make the additional assessments. Neither did he seriously argue, since he could not deny the existence of the several sets of accounts, against the finding of fraud or wilful default in his returns which removed the time-bar of twelve years in s. 91(1) of the Act and in 1975, re-opened the assessments from the year 1953: s. 91(3). Consequently, he could not contend that his returns were other than incorrect and that the information given by him was similarly incorrect. Nor did he challenge the additional assessments made by the Director-General and the Special Commissioners which were clearly made on the information derived from that set of his own books of accounts which, in the finding of the Special Commissioners, reflected a truer picture of the income derived by the taxpayer than the other set. What he argued at his appeal to the High Court was mainly that the hearing before the Special Commissioners had been vitiated by breaches of natural justice, but on this point, both the High Court and this Court found against him.

The matter before us concerns the further steps taken by Revenue on the additional assessments raised by the Special Commissioners. Section 91(1) of the Income Tax Ordinance, 1947 (the Ordinance) which was the legislation applicable to the years of assessment (hereinafter called simply the years) previous to 1968 and s. 113(2) of the Income Tax Act, 1967 (the Act), which was in force for the years from 1968, provide the Comptroller under the Ordinance and the Director-General under the Act with powers to impose a penalty equal to the amount of tax undercharged in consequence of an incorrect return or information by a taxpayer. Such a penalty is by law recoverable as tax.

Further, s. 103(4) of the Act provides that in the event of default in the payment of the tax within 30 days after the service of the notice of the additional assessments, the Director-General may impose an increase on the amount or balance of tax payable by 10% of this amount or balance. The corresponding section in the Ordinance was s. 84(1)(a). The increase is also recoverable as if it were tax due and payable.

In exercise of his powers under these sections, and acting on the additional assessments made by the Special Commissioners, the Director-General imposed the penalties and levied the increases for the years 1953, 1957-1962, 1966-1972, except that for the year 1972, he did not appear to have imposed the increase. All the notices of these additional demands were issued on 24 January 1976.

A tabulation, first, of the Special Commissioners' figures in their Deciding Order (Table A) and, then, of the penalties and increase, (Table B) may be of some assistance in the understanding of the arithmetics of this case.

TABLE A

TaxTax under-

Tax revised previously assessed

by SCs assessed & payable

1953 166,068.80 5,006.00 161,062.80

1957 132,338.20 18,900.20 113,438.00