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2023 MarsdenLR 1837
COURT OF APPEAL PUTRAJAYA
KETUA PENGARAH HASIL DALAM NEGERI – Appellant
Versus
TCY JAYA SDN BHD – Respondent
[Civil Appeal No: W-01(A)-347-06-2021]
Tax deductions for payments related to timber concessions are disallowed under the Income Tax Act, reinforcing the principle that taxpayers cannot alter their claims to evade tax liabilities.
Headnote:(A) Income Tax Act 1967 - Sections 33(1) and 39(1)(g) - Additional assessments for Years of Assessment 2004 and 2005 challenged by taxpayer - Special Commissioners of Income Tax (SCIT) allowed appeal on basis of tax deductions for timber purchases - High Court upheld SCIT's decision - Court found no error in SCIT's application of law to facts - Court identified inconsistencies in SCIT's findings regarding nature of disputed payments - Deductions disallowed under para 39(1)(g) due to payments for timber concession - Penalty under s 113(2) upheld for incorrect returns. (Paras 7, 10, 36, 41)
(B) Appeals - Taxpayer's entitlement to deductions - Court clarified that 'incurred' includes obligations not yet paid - Taxpayer cannot change position to avoid tax liability - Legal principle of estoppel applied to prevent contradictory claims. (Paras 10, 31, 39)
Facts of the case:
TCY Jaya Sdn Bhd contested additional assessments by DGIR amounting to RM186,636.11 and RM295,818.85 for YA 2004 and 2005 respectively, after a tax audit revealed payments linked to timber concessions.
Findings of Court:
The SCIT's decision allowing deductions was based on an erroneous interpretation of the nature of the payments, which were determined to be for a timber concession, thus disallowing deductions under the relevant tax provisions.
Issues: Whether the payments were for timber purchases or timber concessions and the applicability of penalties for incorrect tax returns.
Ratio Decidendi: The court ruled that deductions could not be claimed for payments made for timber concessions as per para 39(1)(g) of the Income Tax Act, emphasizing the importance of consistent factual findings by tax authorities.
Result: DGIR's appeal allowed; SCIT's decision set aside.
| Table of Content |
|---|
| 1. tax audit and additional assessments. (Para 1 , 2 , 3 , 4 , 5 , 6) |
| 2. scit decision on tax deductions. (Para 7 , 8 , 9) |
| 3. high court's review of scit decision. (Para 10 , 11 , 12) |
| 4. grounds of appeal from dgir. (Para 13 , 14 , 20 , 22) |
| 5. nature of agreement and payments. (Para 24 , 25 , 27 , 29 , 31) |
| 6. application of estoppel and tax law. (Para 32 , 33 , 36) |
| 7. penalty under section 113 of ita. (Para 37 , 38 , 39 , 40) |
Introduction
[1] Aggrieved by the additional assessment made by the Director General of Inland Revenue (DGIR) in respect of Year of Assessment (YA) 2004 and 2005 in the amount of RM186,636.11 and RM295,818.85 respectively, TCY Jaya Sdn Bhd (TCY) appealed to the Special Commissioners of Income Tax (SCIT) pursuant to s 99 of the Income Tax Act 1967 (ITA 1967). By a majority decision, the SCIT allowed TCY's appeal. Dissatisfied with the decision, the DGIR appealed to the High Court. At the High Court, the learned High Court Judge (LHCJ) found that the SCIT had considered the testimonies of witnesses and all documents tendered in deciding the obligation of TCY to pay the additional assessments and there was no error in its determination on the questions of law based on the evidence before it and in its application to the facts to warrant intervention by the Court. The LHCJ dismissed the DGIR's appeal with cost. Aggrieved by the said decision, the DGIR appealed to this Court.
Brief Facts
[2] TCY is a taxpayer. The principal business activity of TCY is connected with logging and the buying and selling of timber logs. It has business premises in Segamat, Johor. From 5 November 2007 to 7 November 2007, the DGIR conducted a tax audit at TCY's business premises.
[3] As a consequence of the tax audit, DGIR issued an additional Notice of Assessment dated 16 July 2009 which disallowed TCY's claim for the deduction in the sums of RM1,148,000.00 for the payment made to Keck Eng Timber (KET) in YA 2004, and the additional assessment and penalty charged against TCY was RM186,636.11.
[4] For the same reason, the DGIR issued another additional Notice of Assessment dated 25 March 2010 against TCY for the amount of RM896,000.00 for YA 2005, and the additional assessment and penalty charged was RM295,818.85.
[5] Dissatisfied with the additional assessments, TCY filed Notices of Appeal in Form Q to SCIT dated 16 July 2009 and 25 March 2010 respectively. Both TCY's appeals were heard together on 1 April 2012, 23 August 2012, 19 September 2012 and 19 October 2012, and the decision of the SCIT was delivered on 22 August 2014.
[6] The findings of facts by the SCIT as mentioned in para 8 of the Case Stated dated 29 June 2020 are as follows:
(i) Responden telah menjalankan audit di tempat perniagaan Perayu di Segamat pada 5 November 2007 sehingga 7 November 2007.
(ii) Semasa audit dijalankan Responden dimaklumkan oleh Perayu bahawa tiada perjanjian bertulis diantara Perayu untuk membeli balak dengan Keck Eng Timber.
(iii) Perayu mendakwa bahawa perbelanjaan berjumlah RM1,148,000.00 pada tahun TT 2004 dan RM896,000.00 pada tahun TT 2005 adalah kos pembelian balak daripada Keck Eng Timber.
(iv) Perayu mendakwa bahawa ujudnya perjanjian lisan untuk membeli balak daripada Keck Eng Timber atas dasar persahabatan dalam perniagaan.
(v) Perayu telah menjadikan perjanjian lisan untuk membeli balak dengan Keck Eng Timber kepada perjanjian bertulis yang telah dimatikan setem hasil.
(vi) Keck Eng Timber memperolehi hak untuk memotong balak daripada konsesi balak kepunyaan KDYMM Sultan Pahang.
(vii) Perayu memasuki perjanjian lisan untuk membeli balak daripada Keck Eng Timber.
(viii) Perayu telah mengupah kontraktor Kemajuan Sinar Trading Sdn Bhd untuk memasuki kawasan konsesi balak untuk memotong balak.
(ix) Perayu tidak mempunyai konsesi balak dan untuk menjual balak Perayu telah membeli konsesi balak daripada Keck Eng Timber.
(x) Saksi Responden bersetuju wujudnya kos untuk membeli balak dan mengatakan anggaran yang
