The recent case of Kerajaan Malaysia v Dreamedge Sdn Bhd & Anor [2024] MLJU 473 was a straightforward case where the Government of Malaysia (“Government”) sought to recover outstanding income tax amounting to RM3,292,579 from Dreamedge Sdn Bhd (“Taxpayer”) and its director (“Director”) and the High Court held that, amongst others, the defence of limitation cannot be raised in the recovery of tax action.
Background Facts The Government issued Notices of Additional Assessments dated 31.5.2021 for the years of assessment 2011, 2012, 2013, 2014, and 2015.
The Taxpayer and its Director sought to strike out the Government’s claim, relying on Section 91(1) of the Income Tax Act 1967 and/or Section 6(1)(d) of the Limitation Act 1953. The Director also argued that the Notices of Additional Assessments were not properly served on him.
The Government sought to enter summary judgment against the Taxpayer and its Director.
Decision The High Court held that, amongst others: Section 6(1)(d) of the Limitation Act 1953 is an Act of general application, and the proviso in Section 33 of the Limitation Act 1953 clearly states that limitation does not apply to an action by the Government for the recovery of tax.
Matters like fraud, wilful default, or negligence under Section 91(3) of the Income Tax Act 1967 are matters for the Special Commissioners of Income Tax’s (“SCIT”) consideration. Besides, the normal argument of triable issues has no application in tax recovery claims filed by the Government.
On the issue of service, the High Court held that service on the Taxpayer could not be deemed as service on its Director and found that the Director had not been served in accordance with Section 145 of the Income Tax Act 1967.
The summary judgment application against the Taxpayer is allowed but the Director’s striking out application is allowed.
Commentary This case reaffirms that the defence of limitation cannot be raised in the recovery of tax action. However, it is highlighted that the defence of limitation is still a good ground of defence in challenging a notice of assessment where the burden of proof is on part of the Inland Revenue Board of Malaysia to prove fraud, wilful default, or negligence under Section 91(3) of the Income Tax Act 1967 before the SCIT. Hence, it is imperative for the taxpayers to appeal against the notice of assessment within the statutory timeframe.
This case also serves as a reminder that the service of notice of assessment plays a crucial role in proceedings involving income tax, and improper service could (and does) result in a claim being struck out. This is a valid and arguable defence for taxpayers who are otherwise severely handicapped in summary judgment proceedings. Thus, taxpayers are encouraged to be cognizant of the procedural requirements regarding income tax proceedings and consult a tax lawyer on the same (if required).
Defence of Limitation cannot be raised in Recovery of Tax Action?
The recent case of Kerajaan Malaysia v Dreamedge Sdn Bhd & Anor [2024] MLJU 473 was a straightforward case where the Government of Malaysia (“Government”) sought to recover outstanding income tax amounting to RM3,292,579 from Dreamedge Sdn Bhd (“Taxpayer”) and its director (“Director”) and the High Court held that, amongst others, the defence of limitation cannot be raised in the recovery of tax action.
Background Facts
The Government issued Notices of Additional Assessments dated 31.5.2021 for the years of assessment 2011, 2012, 2013, 2014, and 2015.
The Taxpayer and its Director sought to strike out the Government’s claim, relying on Section 91(1) of the Income Tax Act 1967 and/or Section 6(1)(d) of the Limitation Act 1953. The Director also argued that the Notices of Additional Assessments were not properly served on him.
The Government sought to enter summary judgment against the Taxpayer and its Director.
Decision
The High Court held that, amongst others:
Section 6(1)(d) of the Limitation Act 1953 is an Act of general application, and the proviso in Section 33 of the Limitation Act 1953 clearly states that limitation does not apply to an action by the Government for the recovery of tax.
Matters like fraud, wilful default, or negligence under Section 91(3) of the Income Tax Act 1967 are matters for the Special Commissioners of Income Tax’s (“SCIT”) consideration. Besides, the normal argument of triable issues has no application in tax recovery claims filed by the Government.
On the issue of service, the High Court held that service on the Taxpayer could not be deemed as service on its Director and found that the Director had not been served in accordance with Section 145 of the Income Tax Act 1967.
The summary judgment application against the Taxpayer is allowed but the Director’s striking out application is allowed.
Commentary
This case reaffirms that the defence of limitation cannot be raised in the recovery of tax action. However, it is highlighted that the defence of limitation is still a good ground of defence in challenging a notice of assessment where the burden of proof is on part of the Inland Revenue Board of Malaysia to prove fraud, wilful default, or negligence under Section 91(3) of the Income Tax Act 1967 before the SCIT. Hence, it is imperative for the taxpayers to appeal against the notice of assessment within the statutory timeframe.
This case also serves as a reminder that the service of notice of assessment plays a crucial role in proceedings involving income tax, and improper service could (and does) result in a claim being struck out. This is a valid and arguable defence for taxpayers who are otherwise severely handicapped in summary judgment proceedings. Thus, taxpayers are encouraged to be cognizant of the procedural requirements regarding income tax proceedings and consult a tax lawyer on the same (if required).
About the authors
Desmond Liew Zhi Hong
Partner
Tax
Halim Hong & Quek
[email protected]
Boey Kai Qi
Associate
Tax
Halim Hong & Quek
[email protected]
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