Ketua Pengarah Hasil Dalam Negeri v Tenaga Nasional Bhd [2025] 5 MLJ 82

 Federal Court (Putrajaya)

 Application for Judicial Review – Income Tax – Reinvestment Allowance

1. Tenaga Nasional Bhd (‘the Respondent’), had claimed Reinvestment Allowance (‘RA’) under Schedule 7A of the Income Tax Act 1967 [Act 53] for investments made between the Year of Assessment (‘YA’) 2003 and YA 2017. These investments covered various assets crucial to its operations, including PMU switchgear, transmission lines, transformers, capacitors and underground cables.
2. Following an internal audit, the Director General of Inland Revenue (‘the Appellant’), rejected the Respondent’s RA claim. The Appellant’s core argument was that the Respondent’s principal activity of generating electricity classified it under the service sector, making Schedule 7B (for Investment Allowance) the correct legal provision, not Schedule 7A, which pertains to manufacturing. This rejection resulted in the Appellant imposing a substantial additional tax amounting to over RM1.81 billion against the Respondent.
3. Aggrieved by this monumental liability, the Respondent successfully filed for judicial review against the Appellant’s decision in the High Court, a ruling that was subsequently affirmed by the Court of Appeal. The matter then proceeded to the Federal Court for the present appeal by the Appellant.

1. Whether the Respondent was in the business of manufacturing when it generated, transmitted and distributed electricity for sale to its customer.
2. Whether Schedule 7A or 7B of the Act 53 applied.

(1)  Whether the Respondent was in the business of manufacturing when it generated, transmitted and distributed electricity for sale to its customer.

(a) The Federal Court confirmed that the Respondent is unequivocally a public utility vehicle whereby the Court explicitly referenced and agreed with the description established in the Court of Appeal case of Tenaga Nasional Bhd v Syarikat Bekalan Air Selangor Sdn Bhd & Anor [2018] 1 MLJ 810.

(b) Therefore, this classification meant that the Respondent’s claim “must come within the confines of Schedule 7B”, which is the appropriate provision for such entities.

(c)  The Court drew a clear distinction between the Respondent and “other taxpayers who are manufacturing a non-utility product”. Hence, the Respondent’s manufacturing of electricity did not entitle it to Schedule 7A if its identity as a public utility placed it more accurately under Schedule 7B.

(2)  Whether Schedule 7A or 7B of the Act 53 applied.

(a) The Federal Court applied the legal maxim lex posterior derogat (legi) priori (the later or specific law overrides the earlier or general law).

(b) Under the principles of statutory interpretation, Schedule 7B, which specifically addresses the service sector and public utilities, is the governing provision for the Respondent. As a specific provision, it supersedes Schedule 7A, which serves as a general framework for manufacturing activities. Consequently, the law governing utilities prevails over general manufacturing provisions, regardless of whether the utility’s operations involve a manufacturing process.

(c)  While the Respondent may elect to file for a RA under Schedule 7A based on their own characterization of electricity production, the Appellant is not bound by the Respondent’s choice of category. The power to determine eligibility remains with the approving authority. Should a claim be rejected, the Respondent retains the right to seek judicial recourse, subject to the presence of a valid factual and legal basis.

The Federal Court allowed the appeal by the Appellant, effectively upholding the Appellant’s initial rejection of the Respondent’s Reinvestment Allowance claim under Schedule 7A. The question of law posed to the Court was answered in the negative. The Court made no order as to costs, noting the case is a case involving public interest.

1. A company’s status as a “public utility vehicle” dictates the applicable tax incentive schedule, overriding a claim based purely on the nature of the activity (for instance, manufacturing electricity).
2. The principle that a specific provision (Schedule 7B) takes precedence over a general provision (Schedule 7A) is confirmed in the context of tax incentive claims.
3. The Appellant holds the ultimate authority to determine the legal basis for an allowance claim, ensuring the correct application of the relevant tax schedules.