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2026 MarsdenLR 2295
HIGH COURT MALAYA JOHOR BAHRU
MANIRA MOHD NOR, JC
KETUA PENGARAH HASIL DALAM NEGERI – Appellant
Versus
SENAI AIRPORT CITY SDN BHD – Respondent
[Civil Appeal No: JA-23NCVC-13-09/2021]
Appellate courts cannot disturb a tribunal's factual findings unless perverse. A call option constitutes a 'disposal of rights' for tax exemption purposes, and administrative interpretations cannot retrospectively narrow tax incentives to reach past transactions without explicit, clearly expressed language in the instrument.
Headnote:(A) Income Tax Act 1967 - Section 113(2) and Section 127(3A) - Income tax exemption - Scope of 'disposal of rights' - Tax incentives - Penalty for incorrect return - Taxpayer granted an exemption for income derived from disposal of rights over land - Authority challenged whether a call option fee qualified as such disposal and whether a later letter clarified or retrospectively amended the exemption scope.
(B) Appellate Jurisdiction - Scope of review under paragraph 34 of Schedule 5 - Appellate court shall not interfere with findings of fact and factual inferences unless there is a clear error of law, misdirection, or the conclusion is unsupported by evidence - Appellate court does not sit as a court of first instance to reweigh evidence or substitute its own perspective if a different inference was reasonably open on the evidence. (Paras 29-33)
(C) Interpretation of Tax Exemptions - Strict construction of tax legislation does not justify rewriting the terms of an exemption to insert conditions not present in the original instrument - Subsequent administrative correspondence cannot retrospectively alter established tax treatment of income already derived and assessed under prior valid approval unless clear retrospective language is present. (Paras 48, 63-66)
Facts of the case:
The taxpayer received a fee for granting a call option over land as part of a large-scale development project. The tax authority assessed this fee as taxable income, denying the benefit of an exemption granted by the government in 2016. A subsequent letter issued in 2019 was argued to limit the original exemption to outright sales or leases. The lower tribunal set aside the additional assessment and penalty, finding the fee exempt under the 2016 approval.
Findings of Court:
The tribunal's finding that the call option constituted a disposal of rights was a reasonable commercial inference derived from the contractual evidence. The 2019 letter lacked the necessary clarity to retrospectively affect the tax treatment of income clearly earned in the prior period.
Issues: The main issues were whether the grant of a call option qualifies as a 'disposal of rights' under the relevant tax exemption, the scope of appellate interference with factual findings of the tribunal, and whether subsequent administrative letters can retrospectively narrow tax exemptions.
Ratio Decidendi: A call option, when viewed in its commercial context, effectively restricts a grantor's rights and confers value upon a grantee, thus qualifying as a 'disposal of rights'. Retroactive tax changes require explicit legislative or instrument-based language; standard administrative clarifications cannot impair accrued rights or change the tax treatment of income that had already materialized under a previous, validly operative exemption package.
Result: Appeal dismissed; decision of the special commissioners affirmed.
JUDGMENT
Introduction
[1] This is an appeal by the Ketua Pengarah Hasil Dalam Negeri ("the appellant" or "DGIR") against the decision of the Special Commissioners of Income Tax ("SCIT") delivered on 19 December 2025, whereby the SCIT allowed the appeal by Senai Airport City Sdn Bhd ("the respondent" or "the taxpayer") against the Notice of Additional Assessment raised for the Year of Assessment ("YA") 2016.
[2] The Additional Assessment was raised in respect of a Call Option Fee amounting to RM1,400,000.00 received by the respondent from Hershey Malaysia Sdn Bhd ("Hershey"). The DGIR took the position that the said sum was taxable income and did not fall within the tax exemption granted by the Minister of Finance. A penalty was also imposed under s 113(2) of the Income Tax Act 1967 ("ITA").
[3] The SCIT held that the Call Option Fee was exempt from income tax under the Minister of Finance's exemption approval dated 27 December 2016 and that the subsequent letter dated 8 July 2019 did not operate retrospectively so as to affect the tax treatment of the transaction in YA 2016. The SCIT accordingly set aside the Additional Assessment and the penalty.
[4] The DGIR now appeals against the whole of the SCIT's decision. Having considered the Record of Appeal, the Grounds of Decision of the SCIT, the written submissions of the parties and the authorities relied upon, this court dismisses the appeal for the reasons set out below.
Background Facts
[5] The respondent is a company incorporated in Malaysia on 25 January 2005 under the name Enigma Harmoni Sdn Bhd and subsequently changed its name to Senai Airport City Sdn Bhd on 20 May 2015.
[6] The respondent is the master developer of an integrated industrial development on land measuring approximately 2,718 acres in Johor known as Senai Airport City.
[7] On 20 September 2013, the respondent entered into a Lease Agreement with Hershey. Under the Lease Agreement, the respondent agreed to grant and Hershey agreed to take a lease of approximately 41 acres of land in Johor for a period of 99 years.
[8] The Lease Agreement also granted Hershey a Call Option in respect of a further 16.24 acres of land adjacent to the leased land ("the Adjacent Land"). The Call Option gave Hershey the right to call upon the respondent to lease the Adjacent Land within the stipulated Call Option Period.
[9] On 27 December 2016, the Minister of Finance granted a Special Tax Incentive Package for the Senai Airport City Project pursuant to s 127(3A) of the ITA. The exemption included full income tax exemption on statutory income derived from the disposal of rights over plots of land that add value to areas within the Senai Airport City node.
[10] On 8 July 2019, the Ministry of Finance issued a subsequent letter concerning the Special Tax Incentive Package.
[11] The DGIR took the position that the Call Option Fee received by the respondent from Hershey did not fall within the scope of the 2016 exemption, particularly because the Adjacent Land was neither sold nor leased to Hershey in YA 2016. The DGIR further contended that the 2019 letter clarified or amended the exemption and limited the exempt income to disposal by way of sale or lease only.
[12] The respondent, however, maintained that the Call Option Fee was derived from the disposal of rights over value-added land and was therefore exempt under the 2016 exemption approval. The respondent also contended that the 2019 letter could not apply retrospectively to a transaction that had already occurred in YA 2016.
Proceedings Before The SCIT
[13] Before the SCIT, the parties agreed that the following two issues were to be tried:
(a) whether the Call Option Fee received by the respondent from Hershey in YA 2016 was exempt from income tax under the ITA; and
(b) whether the DGIR had any legal or factual basis to impose penalty against the respondent for YA 2016 under s 113(2) of the ITA.
[14] The SCIT heard evidence from two witnesses. The respondent called Johari bin
