[TAX, CUSTOMS & TRADE] Federal Court Clarifies Limits of DGIR’s Powers: Estoppel Applies, Double Taxation is Illegal, RPGT Assessments are Final

April 10, 2025

Ketua Pengarah Hasil Dalam Negeri v Kind Action (M) Sdn Bhd [2025] CLJU 539 (the Kind Action Case)

In a landmark decision[1], the Federal Court (“FC”) has clarified the limits of the Director General of Inland Revenue’s (“DGIR”) powers, holding that:

Estoppel may operate against the DGIR, overturning long-held assumptions based on the Teruntum Theatre Case[2] and other decisions that followed it.
Assessments under the Real Property Gains Tax Act 1976 (“RPGTA”) are final and conclusive under Section 20(1)(a) once no appeal is filed — binding both the taxpayer and the DGIR.
The DGIR cannot impose income tax on a transaction already subject to RPGT without first discharging the RPGT assessment — doing so would amount to double taxation, which is illegal.
Judicial review remains available even where a domestic remedy exists, particularly where the DGIR has acted illegally.

Historically, under the now-defunct official assessment regime of the RPGTA (replaced by self-assessment with effect from 1 January 2025), the DGIR was empowered to accept a taxpayer’s return as filed or to raise an adjusted assessment. Once issued, an assessment became “final and conclusive” under Section 20(1)(a) of the RPGTA if no appeal was filed.

Yet, for nearly two decades following the Teruntum Theatre Case, it was widely thought that estoppel could not operate against the DGIR. This created a lopsided position: while taxpayers were bound by finalised assessments, the DGIR was seen as free to revisit transactions under a different tax regime. As the DGIR’s counsel submitted at the FC in the Kind Action Case, this allowed the DGIR to accept returns “on the surface” while keeping its options open — in effect, to assess first and think later. The concept of finality appeared to apply only to the taxpayer, not to the DGIR.

The Court of Appeal (“COA”) corrected this imbalance[3], and the FC has now affirmed that position.

Brief Facts

Kind Action was engaged in the plantation business. In 2004, it acquired and held plantation land (“Plantation Land”) as fixed assets for its operations and paid income tax on income derived from that business. Later, its parent group decided to exit the plantation sector entirely, and Kind Action began disposing of the Plantation Land.

Between 2007 and 2017, the Plantation Land was subdivided and sold in multiple transactions. Kind Action paid RPGT on the gains from these disposals (“Gains”), receiving RPGT assessments and certificates of clearance from the DGIR.

In 2019, following a tax investigation, the DGIR raised income tax assessments (“ITA Assessments”) under the Income Tax Act 1967 (“ITA”), asserting that the disposals constituted trading activities. However, the DGIR did not revoke the earlier RPGT assessments or the certificates of clearance. A total of RM81 million in tax and penalties was imposed under the ITA.

Kind Action initiated judicial review proceedings to challenge the ITA Assessments.

EXPAND ARTICLE

High Court’s (“HC”) Decision: A Curious View of Public Law?

The HC dismissed the judicial review application[4]. Amongst others, relying on the Teruntum Theatre Case, it held that:

“[21] Since the Respondent and his officers who are holding public offices are tasked with the due and proper administration of tax legislation, and in carrying out tasks of assessing taxes under the relevant tax legislation, they were in fact performing public duties, and as such, neither the doctrines of estoppel nor legitimate expectation applied in the present case.”

(Emphasis added)

The HC’s reasoning provoked curiosity. The doctrine of legitimate expectation has developed precisely within the context of public law, as a safeguard to ensure that public authorities act fairly, predictably, and in accordance with their promises or past conduct — especially where such conduct has been relied upon by members of the public to their detriment[5].

COA’s and FC’s Decision

The COA reversed the HC’s decision, ruling in favour of Kind Action and quashing the ITA Assessments. The DGIR obtained leave to appeal to the FC. At the FC, the DGIR contended that:

1) Double taxation does not arise, as the necessary adjustments would have been made when collecting the taxes due under the ITA Assessments.

2) Following the Teruntum Theatre Case, the DGIR has the right to review and revise any assessment issued under the RPGTA.

3) The complaints on legitimate expectations, and the questions of whether the Gains should be taxed under the RPGTA or the ITA, involve findings of fact that should be determined by the Special Commissioners of Income Tax (“SCIT”).

The FC held:

The RPGT assessments and clearance certificates are final under Section 20(1)(a) of the RPGTA once issued and not appealed. The DGIR cannot accept a return “on the surface” while intending to revisit the matter later. Doing so would undermine legal certainty and violate principles of good administration.
The DGIR’s failure to revoke the RPGT Assessments and Certificates of Clearance rendered the subsequent ITA Assessments illegal. There is no legal basis for taxing the same gains twice under two separate regimes. Double taxation is unlawful.
The doctrines of estoppel and legitimate expectation may apply against the DGIR. The law has evolved since the Teruntum Theatre Case. Where, as here, multiple assurances were given over a sustained period that the gains were capital in nature, the taxpayer is entitled to rely on those representations. To the extent Teruntum Theatre held otherwise, it is no longer good law.
Judicial review remains available notwithstanding the existence of an alternative remedy, particularly where there is clear illegality or abuse of power.

Concluding Thoughts

While RPGT has already transitioned to a self-assessment regime — and stamp duty will follow suit effective 1 January 2026 — the Federal Court’s decision in the Kind Action case will continue to shape the treatment of past assessments issued under the previous official assessment regimes.

Significantly, the COA’s decision of 29 July 2024 in CIMB Bank Bhd v Pemungut Duti Setem [2025] 3 CLJ 807 can no longer be regarded as good law, to the extent that it held estoppel could not apply against the Collector of Stamp Duties.

Moving forward, this decision restores an important measure of legal certainty and taxpayer protection — particularly in cases involving overlapping tax regimes, amended assessments, or attempts by the DGIR to revisit previously settled tax positions.

Dato’ Nitin Nadkarni, Chris Toh Pei Roo, Soon Jia Ying, and Yap Xue You of Lee Hishammuddin Allen & Gledhill’s Tax, Customs & Trade Practice represented the Malaysian Bar, who appeared as Amicus Curiae at the FC.

For further legal advice on tax assessments and dispute resolution, please contact our Partner Chris Toh Pei Roo (tpr@lh-ag.com).

REFERENCES

[1] The decision was delivered on 5 November 2024, with the grounds of judgment issued on 14 March 2025, which can be viewed here.

[2] The decision by the Court of Appeal (COA) in Teruntum Theatre Sdn Bhd v Ketua Pengarah Hasil Dalam Negeri [2006] 3 CLJ 123

[3] The COA’s decision is reported as Kind Action (M) Sdn Bhd v Ketua Pengarah Hasil Dalam Negeri [2025] 1 CLJ 400 and can be viewed here.

[4] The HC’s decision is reported as Kind Action (M) Sdn Bhd v Ketua Pengarah Hasil Dalam Negeri [2021] 1 LNS 522 and can be viewed here.

[5] See the COA’s decision in Darahman Ibrahim & Ors v Majlis Mesyuarat Kerajaan Negeri Perlis & Ors [2008] 4 CLJ 538

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