The court affirmed that the DGIR failed to prove negligence, RPS qualified as ordinary shareholding, and expenses were deductible, while penalties imposed were unlawful.

JUDGMENT

Amarjeet Singh Serjit Singh J:

Introduction

[1] This is an appeal by the Director General of Inland Revenue ("DGIR") against the decision of the Special Commissioners of Income Tax ("SCIT") dated 8 July 2020 in respect of notices of assessment for the years of assessment ("YA") 2009, 2010, and 2011 and 2012 dated 8 February 2017 raised against the respondent, CIMB Group Holdings Berhad. An appeal lies against the deciding order on questions of law arising from proceedings before the SCIT. In the instant appeal, the questions of law raised by the DGIR were framed as follows:

(a) whether the assessments for the YAs 2009, 2010, and 2011 are time-barred;

(b) whether the redeemable preference shares ("RPS") in CIMB Bank Berhad and SBB Berhad owned by the respondent fall within the definition of "ordinary shareholding" under s 40 of the Finance Act 2007 (" FA 2007");

(c) if the answer to (b) is yes, whether tax deducted from franked dividends paid by CIMB Bank Berhad and SBB Berhad to the respondent in respect of the RPS qualifies for set-off under s 110 of the Income Tax Act 1967 (" ITA ") read together with s 51 of the FA 2007;

(d) whether the interest expenses incurred in acquiring the shares of the respondent's subsidiaries are deductible under s 33(1) of the ITA ;

(e) whether the common expenses incurred by the respondent are deductible under s 33(1) of the ITA ;

(f) whether the DGIR is empowered to further apportion the common expenses to exempt dividends to disallow the same under Malaysian law; and

(g) whether the DGIR's imposition of penalties on the respondent under s 113(2) of the ITA is correct in law.

[2] On 15 August 2023, I dismissed the DGIR's appeal. My reasons are as follows.

Whether The Assessments For YA 2009, 2010 And 2011 Time Barred?

[3] The undisputed facts show that the DGIR made the assessments for the YAs 2009, 2010, and 2011 on 8 February 2017. The assessments were clearly beyond the 5 years limitation period prescribed under s 91(1) of the ITA . However, the DGIR is relying on the exception of negligence provided in s 91(3) of the to overcome the limitation period provision. Section 91 (3) of the provides as follows:

The Director General where it appears to him that:

(a) any form of fraud or wilful default has been committed by or on behalf of any person; or

(b) any person has been negligent, in connection with or in relation to tax, may at any time make an assessment in respect of that person for any year of assessment for the purpose of making good any loss of tax attributable to the fraud, wilful default, or negligence in question.

[4] The DGIR claimed that the respondent was negligent in connection with or in relation to tax and he was justified in making the assessment beyond the 5-year limitation period. The respondent submitted that since the DGIR is alleging that the respondent was "negligent" the burden of proof is on the DGIR to prove that the respondent was negligent and submitted that the DGIR has failed to discharge the evidential burden on him.

[5] On analysing the argument of the DGIR, I find that the allegation of the negligent issue is as follows:

(a) the respondent in making its claim under s 110 of the ITA had disregarded s 40(2) of the FA 2007 which provided that the dividend income allowed is only on ordinary shares and not RPS which state as follows: the dividend paid under subsection (1) shall consist of dividend paid in cash in respect of ordinary shareholding;

(b) in claiming all "interest expense" on dividend income even dividend that falls under RPS when para 12B Schedule 6 of the ITA states that, "any dividend paid, credited or distributed to any person where the company paying such dividend is not entitled to deduct tax under this Act and any deductions in relation to such dividend shall be disregarded for the purpose of ascertaining the chargeable income of the person" and there is no source of funding for shares issued by CIMB Berhad and not from loans as can be found at p 243 C1 and