The court determined that a respondent's decision to revoke tax exemption was unlawful due to failure to communicate conditions necessary for compliance, establishing principles of illegality and irrationality in judicial review.

Introduction

[1] The Applicant, vide encl 33, applied for judicial review to primarily quash a decision of the Respondent, the Director General of Inland Revenue. The decision of the Respondent is in relation to a letter dated 17 June 2020 which had withdrawn the tax exemption status granted to the Applicant under sub-section 44(6) of the Income Tax Act 1967 (" ITA 1967") and the issuance of notices of assessment for the years of assessment ("YA") 2017 and 2018 dated 22 June 2020 thereafter.

Reliefs Sought

[2] The main reliefs sought by the applicant are:

"a) An order for Certiorari to quash the Respondent's decision in the form of a letter dated 17 June 2020 withdrawing the Applicant's tax exemption status under s 44(6) of the Income Tax Act 1967 on the grounds that the said Decision of the Respondent in this respect was illegal, void, unlawful and/or in excess of authority, had been irrational and/or unreasonable, and resulted in a denial of the Applicant's legitimate expectations;

b) A Declaration that the Respondent is not entitled in law to impose arbitrary and unilateral conditions on a charitable organization such as the Applicant when such conditions are not contained in the approval letter and/or communicated to the Applicant; and

c) A Declaration that the Applicant is a tax-exempt charitable organization pursuant to s 44(6) of the Income Tax Act 1967 ."

Factual Background

[3] The Applicant was founded on 2 December 1969. It is a charitable foundation.

[4] The Respondent is the Director General of Inland Revenue who has the statutory obligations for the care and management of the ITA 1967.

[5] On 8 December 1969, the Applicant through the Rotary Club of Petaling Jaya made an application to the Ministry of Finance for all donations made to the Applicant to be exempted from income tax. The Applicant's aim was to raise public awareness and improve medical care and treatment for those suffering from kidney-related diseases.

[6] On 20 June 1970, a letter was issued on behalf of the Comptroller General of the Inland Revenue, Malaysia to the Applicant, stating that the Applicant has been approved for the purposes of para 44(6)(a) of the ITA 1967.

[7] In a letter dated 11 March 2019, the Respondent informed the Applicant that an audit would be conducted on 8 April 2019. The purpose of this audit was to ensure compliance with the Applicant's Financial Statement made pursuant to the ITA 1967 and other Income Tax Rules.

[8] Pursuant to the audit visit, vide a letter dated 24 May 2019, the Respondent informed the Applicant of its non-compliance with the conditions of approval of tax exemption under sub-section 44(6) of the ITA 1967. On 12 June 2019, the Applicant provided the Respondent with an explanation pertaining to the findings raised by the Respondent. A meeting was then held between both parties on 14 June 2019.

[9] On 29 August 2019, the Respondent informed the Applicant that:

(i) there was non-compliance on the part of the Applicant as follows:

(a) donation receipts were used for the purpose of purchase of assets and are conditional;

(b) existence and functions of unclear funds;

(c) no separation of donation account;

(d) amendment of Constitution without approval;

(e) no prior information and approval to open up dialysis centre and branches (partners);

(f) active operation of business (dialysis centre);

(g) minimal aids on benefit recipients;

(h) excessive deposition of monies in Fixed Deposits;

(i) learning and training programme being offered to outsiders;

(j) exces