IRB Must Consider All Relevant Matters In Making Decisions

• Published date: 21 January 2021
• Subject Matter: Real Estate and Construction, Tax, Real Estate, Income Tax
• Law Firm: SKRINE
• Author: Mr Dickson Chia Chung Ming

Recently, Evrol Mariette Peters JC of the Johor Bahru High Court has in the case of Seaport Worldwide Sdn Bhd v Ketua Pengarah Hasil Dalam Negeri [2020] 8 AMR 88 ('Seaport') ruled that the Inland Revenue Board ('IRB') must take into consideration relevant matters in making decisions.

Introduction

In the case of Seaport, the Johor Bahru High Court allowed a taxpayer's application for judicial review against the Director General of Inland Revenue ('DGIR').

However, the Johor Bahru High Court did not quash the decision of the DGIR but instead, granted a prohibitory order to prohibit the DGIR from taking any steps to enforce its decision against the taxpayer pending further appeals on the High Court's decision and/or the determination of the merits of the DGIR's decision by the Special Commissioners of Income Tax.

Background

The Applicant was appointed by the Johor State Government as the Master Developer of the Tanjung Bin Petrochemical and Maritime Industrial Centre and was the registered proprietor of five plots of 99-year leasehold land measuring a total of 912 hectares in Tanjung Bin Johor ('TBPMI Centre Lands') which were alienated by the Johor State Government in 2005.

Pursuant to a Lease Agreement dated 26 September 2008 ('Lease Agreement'), the Applicant disposed of its leasehold interest in a 50-hectare portion of one of the plots of the TBPMI Centre Lands ('Johor Land') to ATT Tanjung Bin Sdn Bhd for RM 107.60 million for a period of 30 years, with an option to renew for an additional 30 years ('disposal of Johor Land').

The DGIR initially took the position that the sum of RM 93.8 million thus far received by the Applicant from the disposal of the Johor Land was rental income under Section 4(d) of the Income Tax Act 1967 ('ITA') and disallowed the Applicant from deducting property development expenses incurred against its income from the disposal of the Johor Land.

After correspondences back and forth between both parties, the DGIR agreed to treat the proceeds from the disposal of the Johor Land as 'business income' under Section 4(a) of the ITA but averred that the income from the disposal of the leasehold interest arose from the business of letting out and not a business of property development. Therefore, the DGIR disallowed the Applicant from deducting property development expenses incurred against the 'rental' income from the disposal of the Johor Land.

Issues

The issues to be determined by the Johor Bahru High Court were as follows:

1. ...