The appeal process under the Income Tax Act is mandatory, and failure to utilize it limits recourse through judicial review.

[1] The respondents filed a judicial review application under O 53 of the Rules of the High 1980 on 23 May 2008, inter alia, for an order of certiorari to quash the appellant's decision allegedly made in a letter of 14 April 2008 addressed to the respondents' tax agent, a declaration that the appellant's decision in that letter was erroneous in law, and also prayed for a refund of the withholding tax already paid.

[2] The application for judicial review was allowed by the High Court and affirmed by the Court of Appeal. The appellant on 9 August 2015 successfully obtained leave from this Court to determine two questions.

Facts Of The Case

[3] The 1st respondent is a Malaysian company whilst the 2nd respondent is a non-resident.

[4] A Service Agreement dated 1 January 2003 ("the Service Agreement") was executed between the 1st respondent and the 2nd respondent, whereupon the 2nd respondent was to provide services to the 1st respondent from overseas relating to the provision of a global network for voice, data, and video communication (the services). The rates to be paid were fixed.

[5] The appellant, in the course of conducting a withholding tax audit over the 1st respondent's business, discovered that no withholding tax was paid by the 1st respondent to the appellant in respect of payments made to the 2nd respondent.

[6] Pursuant to that discovery, the appellant issued a letter dated 31 October 2007 informing the 1st respondent of its omission to pay the withholding tax for the years of assessment 2001-2005 totalling RM4,489,747.00, and demanded payment. The appellant held the view that the payments made by the 1st respondent to the 2nd respondent, in consideration of the services rendered by the latter, as royalty payments, and hence subject to withholding tax.

[7] Apart from the demand of that withholding tax, the appellant wrote that if no payments were made, it would disallow any deduction under s 39(1)(f) and (j) of the Income Tax Act 1967 ( ITA ), to be followed by a commencement of action under s 106(1) of the to recover tax from the 1st respondent. Hereinafter, any provision referred to refers to a provision in the , unless stated otherwise.

[8] After negotiations were carried out, the amount required to be paid by the 1st respondent was reduced from RM4,489,747.00 to RM1,781,274.00, and after further representation to the appellant, the sum was finally reduced to RM1,507,674.80 vide a letter dated 28 March 2008, which was addressed to the 1st respondent.

[9] Another letter by the appellant to the 1st respondent's tax agent ie Price Water Cooper House Taxation Services Sdn Bhd dated 14 April 2008 reconfirmed the RM1,507,674.80 sum.

[10] The appellant in the above-mentioned letter of 14 April 2008, referred to ss 109 and 109B. Before us, the appellant submitted that the RM1,507,674.80 was withholding tax for royalty payments made to the 2nd respondent by the 1st respondent.

[11] The 1st respondent vide a letter dated 28 April 2008 then registered its dissatisfaction to the appellant.

[12] Despite a lengthy negotiation, exchanges and correspondences, culminating in the reduction of the withholding tax, it was still alleged that the appellant did not supply the reasons why the payments were subject to withholding tax.

[13] The 1st respondent eventually paid the negotiated sum under protest on 28 April 2008 but continued holding the view that the services were not royalties as they were performed outside Malaysia.

[14] Despite having paid the withholding tax under protest, the respondents never filed any appeal to the Special Commissioners, as provided for under the ITA . Why the respondents did not file any appeal is of no concern of ours, thoug