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Speed Modulation Sdn Bhd v Ketua Pengarah Hasil Dalam Negeri
“The so-called rules of natural justice are not engraved on tablets of stone”[1]. However, the courts have consistently held that these principles require public authorities, including tax authorities, to provide reasons for their decisions. This principle was reinforced by the High Court’s (“HC”) recent ruling on 4 November 2024, which quashed real property gains tax (“RPGT”) assessments issued by the Director General of Inland Revenue (“Revenue”), underscoring the Revenue’s obligation to act transparently.
Brief Facts
The taxpayer (“Taxpayer”) disposed of four parcels of land (“Subject Land”) to a related company (“Purchaser”). As the transaction involved “connected persons” under the Real Property Gains Tax Act 1976 (“RPGTA”), it was deemed not at arm’s length and subjected to a “market value” assessment.
In filing its RPGT returns, the Taxpayer relied on an independent valuation report (“Independent Valuation Report”) that valued the Subject Land at RM102 million. Based on this value, the total RPGT payable amounted to approximately RM4.2 million.
The Revenue, however, issued assessments totalling almost RM14 million (“RPGT Assessments”), relying on valuations by the Jabatan Penilaian dan Perkhidmatan Harta (“JPPH”), which valued the land at almost RM200 million. Pertinently, the Revenue did not furnish the Taxpayer with the JPPH’s valuations.
Aggrieved, the Taxpayer initiated judicial review proceedings, challenging the Revenue’s decision.
HC Granted Leave and Stay
The HC granted leave for the judicial review and a stay of the assessments, noting:
a) Lack of Proper Reasons: The Revenue failed to provide any reasons substantiating the substituted market value of the Subject Land. The absence of a proper valuation report, prepared in compliance with Sections 41 to 45 of the Evidence Act 1950, raised exceptional circumstances warranting judicial review.
b) Need to Preserve the Status Quo: A stay was necessary to prevent the Taxpayer from suffering significant financial liabilities and to ensure the full benefit of a successful challenge against the Revenue’s decision.
The HC’s decision to grant leave and stay is reported and can be viewed here.
Substantive Proceedings at the HC
Revenue’s Justifications
The Revenue presented the following evidence:
a) JPPH’s Initial Valuation: The Revenue produced JPPH’s one-page “valuations” for each of the four parcels of land, which summarily stated the JPPH officers’ opinion on the value of the Subject Land.
b) JPPH’s Subsequent Valuation Report: Almost 15 months after the RPGT Assessments were issued, the Revenue filed a supplementary affidavit to produce a fuller valuation report prepared by a different valuer – valuing the Subject Land at RM5 million less than JPPH’s Initial Valuation.
The Revenue argued that the discrepancies between the Independent Valuation Report and JPPH’s valuations were factual matters to be resolved by the Special Commissioners of Income Tax (“SCIT”). It also asserted that the Real Property Gains Tax Act 1976 (“RPGTA”) does not impose a statutory duty on the Revenue to give reasons when issuing RPGT assessments.
The Taxpayer’s Contentions
The Taxpayer contend that the Revenue had:
a) Failed to provide proper reasons for its decision
The Revenue’s refusal to disclose JPPH’s valuation at the time of the decision violated the Taxpayer’s right to know the case against it. Amongst others, the Federal Court in Datuk Bandar Kuala Lumpur v Perbadanan Pengurusan Trellises & Ors[2] and the Court of Appeal in Uniqlo (Malaysia) Sdn Bhd v Ketua Pengarah Kastam dan Eksais[3] affirmed the obligation of public authorities to provide reasons for their decisions.
Without sight of the JPPH valuation, the Taxpayer’s right to appeal to the SCIT would be frustrated and rendered merely perfunctory, as the Taxpayer would not be able to mount a meaningful appeal.
b) Failed to substantiate its decision to substitute the market value
The JPPH’s Initial Valuations relied solely on the valuer’s opinion (“Pada pendapat saya”) without any supporting evidence, such as comparable transactions or methodology. This fell far short of the standards for expert valuations. An expert report which gives no basis is worthless.
The JPPH’s Subsequent Valuation Report was irrelevant as it post-dated the assessments and constituted an afterthought. Further, it did not even support the initial valuation, as it valued the Subject Land at almost RM5 million less than the JPPH’s Initial Valuations.
HC’s Decision
The High Court ruled in favour of the Taxpayer, quashing the RPGT assessments and issuing a mandamus order requiring the Revenue to issue assessments based on the Taxpayer’s RPGT returns.
Conclusion
This decision underscores the importance of transparency and accountability in tax administration. Public authorities must provide timely and sufficient reasons for their decisions to enable taxpayers to understand and, if necessary, challenge them meaningfully. The Revenue’s powers under tax legislation, including the RPGTA, are not absolute and must be exercised with justification and fairness.
The Taxpayer was successfully represented by Dato’ Nitin Nadkarni (nn@lh-ag.com) and Chris Toh Pei Roo (tpr@lh-ag.com) of Lee Hishammuddin Allen & Gledhill’s Tax, Customs & Trade Practice.
For inquiries on RPGT assessments or tax disputes, please contact Partner Chris Toh Pei Roo (tpr@lh-ag.com) or Associate Soon Jia Ying (jys@lh-ag.com).
REFERENCES
[1] Hong Leong Equipment Sdn Bhd v Liew Fook Chuan & Other Appeals [1997] 1 CLJ 665, citing R v Civil Service Appeal Board, ex parte Cunningham [1991] 4 All ER 310 (which in turn, refers to Lloyd v McMahon [1987] 1 AC 625; See LHAG’s Insights dated 27.1.2021 “Duty of Public Decision-Making Bodies to Give Reasons: Does This Apply to the Tax Authorities?”
[2] [2023] 5 CLJ 167
[3] [2020] 9 CLJ 521
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