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2025 MarsdenLR 6080
HIGH COURT MALAYA KUALA LUMPUR
NISHIMATSU CONSTRUCTION CO LTD – Appellant
Versus
KETUA PENGARAH HASIL DALAM NEGERI – Respondent
[Civil Appeal No: WA-14-25-10/2022]
A taxpayer must declare divisible income from joint ventures in accordance with their financial periods, and estimates of income can be used for tax purposes when necessary, with penalties applicable for inaccurate reporting.
Headnote:(A) Income Tax Act 1967 - Sections 5, 21A, 55(3), 55(4), 77, and 113(2) - Taxpayer's appeal against additional assessments and penalties issued by the Director General of Inland Revenue for YAs 2013-2016. The SCIT determined that a taxpayer’s income from a joint venture could be estimated for tax purposes and upheld the penalties imposed for incorrect returns. (Paras 2, 10, 19, 46)
(B) Estimation of Income - Under ITA, divisible income from a partnership can be brought to tax based on estimate in the relevant basis period. (Paras 12, 34)
(C) Penalties - Validity of penalty imposes by the Director General under subsection 113(2) of the ITA when income has been understated. (Paras 46-50)
Facts of the case:
The taxpayer, part of a joint venture for a water transfer project, failed to declare divisible income for specific months across several years. The Director General issued additional assessments based on estimates. The taxpayer argued it could not declare the full income until certain forms were provided. (Paras 4, 6, 8)
Findings of Court:
The SCIT affirmed the Director General's authority to impose additional taxes based on estimates and upheld penalties as the income reported was understated. The court found no error in SCIT’s decision. (Paras 20, 49)
Issues: Whether the JV income can be estimated for tax purposes and the legitimacy of penalty imposition. (Paras 9, 19)
Ratio Decidendi: The court ruled that partnership income must be declared in accordance with the relevant financial periods and estimated as necessary, which does not negate the duty to declare actual income. (Paras 34, 36)
Result: Appeal dismissed.
| Table of Content |
|---|
| 1. introduction and nature of the appeal (Para 1 , 2 , 3) |
| 2. factual background of the taxpayer and appeals (Para 4 , 5 , 6 , 7 , 8 , 9) |
| 3. scit's findings on tax assessment and basis period (Para 10 , 11 , 12 , 13 , 14) |
| 4. legal framework governing tax returns (Para 18 , 20 , 21 , 22 , 23) |
| 5. penalties and legal standard of compliance (Para 24 , 25 , 46) |
| 6. court's stance on good faith in tax compliance (Para 49 , 50) |
Introduction
[1] This is an appeal by Nishimatsu Construction Co Ltd ("the taxpayer") against the deciding order of the Special Commissioners of Income Tax ("SCIT") dated 19 September 2022 ("the deciding order"). The SCIT had dismissed four appeals filed against the assessments made by the Director General of Inland Revenue ("DGIR") against the taxpayer in Forms JA dated 27 September 2018 for the Years of Assessment ("YA") 2013, 2014, 2015 and 2016 together with the imposition of penalties under s 113(2) of the Income Tax Act 1967 (" ITA ") ("the impugned Form JAs"). The four appeals were heard together.
[2] The SCIT decided that under subsections 55(3) and 55(4) of the ITA , the divisible income from a partnership for a YA could be brought to tax based on an estimate. The taxpayer appealed against the decision to this Court. On 2 September 2024, after reserving judgment, I dismissed the appeal.
[3] This judgment contains the reasons for my decision.
The Facts
[4] The facts before the SCIT were as follows. The taxpayer is registered in Malaysia and carries on the business of construction of factories, water supply, sewers, tunnels, and building works. On 30 May 2008, the taxpayer, Shimizu Corporation, UEM Builders Berhad, and IJM Construction Sdn Bhd formed an unincorporated joint venture of Shimizu- Nishimatsu-UEM Builder-IJM ("JV partnership") to carry out the Pahang-Selangor Raw Water Transfer Project.
[5] The taxpayer's financial year end and the basis period for a year of assessment is 1 April of a calendar year to 31 March of the next calendar year. The JV partnership's financial year end and basis period for a YA is 1 January of a calendar year to 31 December of the same calendar year.
[6] The taxpayer filed its tax returns declaring its JV's divisible income for the months of April to December of the YAs 2013 to 2016 on the basis that the JV partnership had yet to determine the divisible income. The taxpayer said that it could only determine its actual income for the 'shortfall' of 3 months from the JV partnership once the JV partnership issued its Form CP30 in July of the following year. The taxpayer submitted its revised tax returns to declare its divisible income for January, February, and March of the said YAs through letters dated:
(i) 11 August 2014 for the YA 2013
(ii) 5 August 2015 for the YA 2014
(iii) 12 August 2016 for the YA 2015
(iv) 7 August 2017 for the YA 2016.
[7] Following an audit, the DGIR issued to the taxpayer four
Notices of Additional Assessment ("Forms JA") for the YAs 2013, 2014, 2015, and 2016. The details of the Forms JA are as follows:
(a) YA 2013 - Additional Tax Payable - RM2,485,665.00
(b) YA 2014 - Additional Tax Payable - RM464,119.25
(c) YA 2015 - Additional Tax Payable - RM1,685,441.00
(d) YA 2016 - Additional Tax Payable - RM675,305.52
together with penalties for each of the said YAs. It was the DGIR's position that the 3-month income ought to have been estimated in the said returns. This was the basis of the additional assessment and the crux of this appeal.
[8] On 5 October 2018, the DGIR issued a letter informing the taxpayer of the additional tax payable and penalties. The DGIR also issued a second letter dated 5 October 2018 informing the taxpayer of the audit findings regarding the taxpayer's divisible income from the JV partnership. The taxpayer appealed to the SCIT against the additional assessment and penalties.
[9] The issues before the SCIT were as follows:
(i) Whether under subsections 55(3) and 55(4) of the ITA , a taxpayer's income der
