Commission expenses in Takaful business are not deductible under s 33(1) ITA as s 60AA provides specific regulations for Takaful operators, affirming the principle that specific provisions override general ones.

See Mee Chun JCA (Majority):

Introduction

[1] There are two appeals being heard together. Appeal 726 is the appeal of Etiqa Family Takaful Berhad (Taxpayer) against the decision of the High Court (HC) dismissing its appeal for Year of Assessment (YA) 2011, 2012 and 2013. Appeal 746 is the appeal by the Director General of Inland Revenue (Revenue) against the decision of the HC in allowing the Taxpayer's appeal for YAs 2008, 2009 and 2010.

[2] The Taxpayer is in the principal business of managing the general and family takaful business. From 1 December 2007, the Taxpayer also commenced managing Takaful investment-linked business upon the transfer of the Takaful assets, liabilities and business of Mayban Takaful Berhad to it.

Background Facts

[3] The Revenue raised notices of additional assessment (Form JA) for YAs 2008 to 2013 with additional tax payable and penalties as set out below:

The Taxpayer being aggrieved by the Revenue's decision filed notices of appeal (Form Q) for the YAs in question.

[4] On 19 February 2021, the Special Commissioners of Income Tax (SCIT) disallowed the Taxpayer's appeal. An appeal to the HC ensued. On 14 September 2022, the HC allowed in part the Taxpayer's appeal.

Decision Of The HC

[5] The Grounds of Judgment (GOJ) of the HC Judge dated 15 November 2022 is to be found in encl 27/10-25.

[6] The HCJ dealt with the 1st issue of whether the SCIT was right in holding that the commission expenses on the Wakalah Fee could not be deducted as the expenses of the Shareholders Fund under s 33 Income Tax Act 1967 ( ITA ). It was accepted in para 27 that the Taxpayer must have incurred the commission expenses paid to the Takaful agents but the question was whether s 33(1) automatically applies.

[7] The HCJ had no problem accepting the Taxpayer's submission that s 33(1) ITA is a basket provision where all outgoings and expenses exclusively incurred in the production of gross income are tax deductible (paras 28 and 32). In the same para 32, the HCJ posed the real question to be "will this basket provision cover the commission expenses in the context of a Takaful business" to which the HCJ answered "I do not think so".

[8] This was next stated in paras 33, 34 and 35:

"[33] The learned SRC submitted that the ITA treats the Takaful business as a separate and distinct business. It is for this reason, according to the learned SRC, that Parliament inserted s 60AA of the to deal with the specific business of a Takaful operator. Thus, the issue of the allowable expense of a takaful operator must be construed in light of the purpose and intention behind the specific provisions contained in s 60AA of the that governs the takaful business.

[34] I find merits in this line of argument. If indeed s 33(1), the so-called basket provision, is sufficient to cover the commission expenses incurred by the appellant, why is the necessity for Parliament to enact s 60AA of the ITA in the first place? It is trite that Parliament is assumed to know the law that it enacts. Parliament does not act in vain by legislating for the sake of legislating.

[35] I find support in the said proposition in the judgment of Abdoolcader SCJ in Foo Loke Ying & Anor v. Television Broadcasts Ltd & Ors; 1985 MarsdenLR 608 ; [1985] CLJ (Rep) 122 SC, who held that:

The Court however is not at liberty to treat words in a statute as mere tautology or surplusage unless they are wholly meaningless. On the presumption that Parliament does nothing in vain, the Court must endeavour to give significance to every word of an enactment, and it is presumed that if a word or phrase appears in a statute, it was put there for a purpose and must not be disregarded."

[9] The HCJ then went to consider whether the SCIT had correctly concluded that the Taxpayer was negligent within the meaning of s 91(3) ITA . It was noted in para 38 that the Taxpayer's returns were filed within the statutorily prescribed time and the documents requested by the Revenue were duly p