Judicial Review against LHDN tax assessment

Income Tax Assessment by Tax Authority

Under the self-assessment regime, it is the duty of the taxpayer in submitting income tax return, and any incorrect return of the income will be assessed under section 113(2) of the Income Tax Act 1967 (ITA 1967).

Section 113(2) states that the Director General of Inland Revenue (DGIR) may imposed penalty equal to the amount of incorrect tax submitted. A notice of additional assessment (form JA) may be issued against the taxpayer.

Apply Judicial Review against the decision of the Tax Authority 

Judicial review is an application to the court to review the decision of the DGIR, ie, in issuing the tax assessment notice. 

Judicial review involves two stages:

1. leave stage; and
2. merit stage

Under Order 53 r. 6 of the Rules of Court 2012, the judicial review has to be applied within three [3] months from the date of receipt of the decision.

The Leave stage of Judicial Review

The leave stage is where an ex-parte application has to be applied to the Judge in Chambers. At the leave stage, the tax authority will be represented by the solicitor from the Attorney General’s Chambers.

The applicant has to show that it has a prima facie case to review the decision on the tax assessment of the DGIR.

In Metacorp Development v Ketua Pengarah Hasil Dalam Negeri [2011] AMTC 268, it was held by Justice Rohana Yusuf that:

“It is settled law that the availability of an alternative internal remedy in the form of an appeal process would not bar an application for judicial review”.

In the House of Lords of Preston v IRC [1985] 2 ALL ER 327, it was held that:

1. Inland Revenue Commissioners were not immune from the process of judicial review;
2. the remedy by way of judicial review was not to be available where an alternative remedy existed except where an exception exists;
3. The exception was where there existed very exceptional circumstances

Lord Templeton said:

“Judicial review is available where a decision-making authority exceeds its powers, commits an error of law, commits a breach of natural justice, reaches a decision which no reasonable tribunal could have reached or abuses its powers”.

At the leave stage, the onus is on the taxpayer to prove that the tax authority has acted illegally and in breach of natural justice in issuing the notice of assessment.

The Substantive or Merit stage of Judicial Review

At the substantive stage, the court will hear whether the applicant's application for judicial review has its merits. Usually, when there is a decided case law on a particular point of law, and LHDN refuses to follow, it becomes a strong ground to win at the Merit Stage. This happens to:

1. tax deductibility cases;
2. the inconsistency in the application of Public Ruling against the case laws and/or section of the ITA 1967;
3. failure to follow the decided case law

Conclusion

If you have any aggrieved tax assessment, it is proper to apply for judicial review against the assessment of the LHDN within three [3] months from the date of the decision being informed to you. Otherwise you are time barred, and is deemed to agree with the tax imposed by the tax authority.