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Summary Judgement – Tax Recovery Action

The Session Court in Kerajaan Malaysia v Abdul Muhsin bin Abdul Rahman (BA-A51NCvC-137-12/2022) held that, amongst others, when the Government of Malaysia took a tax recovery action under Section 106 of the Income Tax Act 1967 (“ITA”), the ITA permits the court not to entertain any defences or plea set up by the Taxpayer.

The salient facts of Abdul Muhsin (supra) are as follows:

  • a. The Taxpayer failed to submit his tax return within the statutory period for the year of assessment (“YA”) 2019.
  • b. Consequently, the Inland Revenue Board of Malaysia (“IRB”) issued a notice of assessment amounting to RM190,530.00 for YA 2019 (“Notice of Assessment”).
  • c. As the Taxpayer failed to pay the Notice of Assessment within the stipulated period, the IRB imposed a late penalty of RM19,053.00 (i.e. 10% of the unpaid tax amount).
  • d. Subsequently, the IRB commenced the tax recovery action under Section 106 of the ITA as the Notice of Assessment and the late payment penalty remain unpaid (in total RM209,583.00).
  • e. On 13.3.2023, the Taxpayer paid RM20,958.30 so that the travel restriction can be temporarily lifted in order to allow him to travel.
  • f. On 21.6.2023, the Taxpayer filed his tax return for YA 2019 and paid his tax liability -RM76,191.46.
  • g. During the summary judgment hearing, the Taxpayer argued that there are triable issues (amongst others, given that the Taxpayer had made a tax payment) and thus a trial should be conducted to determine the amount of tax payable (i.e. whether is RM209,583.00 or RM55,233.16).

The Session Court held in favour of the Government of Malaysia that, amongst others:

  • a. The court is not the correct avenue for the Taxpayer to raise the issues and facts in relation to the Notice of Assessment.
  • b. Under Section 99(1) of the ITA, the Taxpayer ought to file an appeal to the Special Commissioners of the Income Tax within the stipulated period after being served with the Notice of Assessment.
  • c. Upon the service of the Notice of Assessment, the Notice of Assessment became due and payable at the place specified in the Notice of Assessment, whether or not the Taxpayer appeals against it.
  • d. By virtue of Section 106(3) of the ITA, the court cannot entertain any plea or defences in relation to whether the tax payable amount set out in the Notice of Assessment is excessive or inaccurate.
  • e. The tax payable amount set out in the Notice of Assessment could no longer be questioned once the certificate was issued under Section 142 of the ITA.
  • f. The normal rules for triable issues under Order 14 of the Rules of Court 2012 do not apply because of the provisions of the ITA and thus there exist no triable issues to warrant a full trial.
  • g. The provisions of the ITA permit the court not to entertain any defences or plea set up by the Taxpayer.


Comments

This is not an uncommon tax recovery case. What uncommon in this case was the approach taken by the IRB – the IRB still proceeded to recover the full amount set out in the Notice of Assessment despite the Taxpayer had paid a portion of the amount in order to temporarily uplift the travel restriction and had ascertained the actual tax liability subsequently. Such approach could potentially resulting in the Taxpayer paying more taxes and the IRB appears to be allowed to collect more taxes than otherwise stated in the Notice of Assessment.

Taxpayers are, therefore, advised to always appeal against the Notice of Assessment within the stipulated timeframe. Otherwise, taxpayers run the risk of losing the statutory appeal rights forever and would have to pay more taxes than otherwise stated in the Notice of Assessment.


This article is intended to be informative and not intended to be nor should be relied upon as a substitute for legal or any other professional advice.


About the author

Desmond Liew Zhi Hong
Partner
Tax
Halim Hong & Quek
desmond.liew@hhq.com.my

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