Income Tax Cases 2024

Datuk Oh Chong Peng v KPHDN [2024] CLJU 331

High Court, 20.02.2024, 

Ahmad Kamal Md Shahid J

This is a High Court matter reversed the decision of the Special Commissioners of Income Tax (SCIT) which decided against the taxpayer (individual). The issue arose was related to director fees, allowance and consultancy fees from the period of 2002 to 2012 of the taxpayer - whether it should be subjected to employment income (s.4(b) of ITA) or business income under s.4(a) of ITA].

The taxpayer incorporated two management companies - OCP Holding Sdn Bhd & Garzania Sdn Bhd. After the taxpayer retired from his professional practice, the taxpayer continued to sit as non executive directors in several listed companies    ( 7 to 8 companies). From time to time, the taxpayer also provided consultancy services for his services. 

All these director fees, allowances and consultancy fees received from December 1997 to date were remitted to the two Management Companies. They were treated as business income (s.4(a)) under ITA. The Management Companies then paid him a monthly salary which the taxpayer subjected to s.4(a) as business income since 1998 until 2015.

The issue was whether the income received as non independent executive is subjected to employment income [s.4(b)]?

The SCIT has interpreted the definition of employee to include "non-executive independent director".

In this case, the Court had held that:

• the income received was not subjected to s.4(b) ; not employment income, as there is no relationship of master and servant.
• Bursa Malaysia Securities Berhad Practice Note 13 sets out 7 requirements of an independent director that led to a clear position that an independent director cannot be taken as an employee.
• the absence of a master-servant relationship is one of many factors raised by the Appellant as to the reason why the Appellant is not an employee.
• One of the factors to be considered in determining if a person is an employee is the employee's contribution to the Employee Provident Fund (EPF) and PERKESO.
• evidence shows that the Appellant as an independent director does not receive his director's fees monthly.
• His fees will only be paid upon approval during the Annual General Meeting of a company and the approved fees will be segregated among the board of independent non-executive directors.
• On the other hand, an employee's salary is usually paid on a daily, weekly or monthly basis. Most importantly, the salary of an employee will be known prior to the employment, and in the event that an employee is not paid after providing their service, the employee could seek a remedy through Industrial Court.
• The duties of the non-executive director vis-a-vis the company are performed on an intermittent basis as he meets with the other non-executive directors and executive directors at the quarterly meeting of the Board or more often as may be necessary. Whilst they receive director's fees for being non-executive directors, they do not draw a salary unlike executive directors who are expected to work in a normal 9-5 job.
• there are possibilities of occasions where the Appellant won't even be remunerated - but this does not make the Appellant any less of an independent director than he already is.
• the Respondent had failed to understand the position and status of a company secretary and failed to appreciate the role and functions of a company secretary under the Companies Act 1965.
• the letters issued and signed by the company secretary should be treated as issued and signed by the board of directors. 
• EA Form is merely an administrative form prepared by the IRB to obtain necessary information on taxpayers. The Form certainly does not supersede the laws enacted by Parliament. This has been stated by RW in his evidence.

Tee Lee Heng v KPHDN [2024] CLJU 211

High Court, 13.02.2024, 

Wan Ahmad Farid Wan Salleh J

This case related to 5 co-owners of a piece of land who received 13 units of houses from developer and subsequently disposed 12 out of 13 of their units and got assessed for income tax (s.4(a) of ITA).

The taxpayers (individuals) argued that it should be subjected to Real Properties Gains Tax (RPGT). They have entered into a Joint Venture Agreement with the developer.

The tax authority argued that the taxpayers are trading, but the court held otherwise. The Court held that it is merely realization of gains:

• 12 houses were received as consideration under the JVA as one consideration
• land was held more than 20 years
• the land was unsuitable for agriculture
• the taxpayers did not put up any advertisement to dispose off the 12 units of houses. no opening of office to advertise sale extensively.