SOCIETY OF LA SALLE BROTHERS v KETUA PENGARAH HASIL DALAM NEGERI [2018] 1 MLJ 376

 

SOCIETY OF LA SALLE BROTHERS v KETUA PENGARAH HASIL DALAM NEGERI [2018] 1 MLJ 376

Court of Appeal (Putrajaya)

Retrospective Effect of Law

Facts

1.  The Appellant is recognized as a visitor in the Federation of the Malaya of the Christian’s Brothers School and was involved in establishing a number of La Salle Schools in Malaysia.  The Appellant has been in Malaysia for more than 160 years.

2.   The Appellant’s goal in establishing the schools is to guarantee that Malaysians of all races, religions, and creeds have access to education.  The Appellant was and continues to be a charitable organisation. Only fixed deposits, units, and other types of investments are held by the Appellant in which the income from these investments provides enough for the Appellant’s income to be self-financing.

3.   Pursuant to a letter from the Ketua Pengarah Hasil Dalam Negeri (“Respondent”) dated 26 January 1970, it was confirmed that the Appellant is a charitable institution and therefore is not liable to income tax, confirming that the Appellant enjoys tax exemption status.

4.  Nevertheless, the Respondent by its letter dated 25 July 1995 had informed the Appellant of the requirement to re-apply the tax exemption status, in which the Appellant had failed to do as required.

5.  On 27 March 2015, the Appellant then was served with the notices of assessment dated 16 March 2015 with penalties for the years of assessment 2004, 2006, 2007, 2010, 2011, 2012 and 2013 (collectively referred to as “Notices of Assessment”). The assessment raised which includes the penalties were more than RM40,000,000.00.

6.  Dissatisfied with the Notices of Assessment issued by the Respondent, the Appellant filed a judicial review to the High Court.

7.   The findings of the High Court was against the Appellant as the learned trial judge held that the tax exemption enjoyed by the Appellant has ceased to have effect from the date where the Respondent had required for the re-application by the Appellant for the tax exemption status due to few amendments made to the law.

Issue

Whether the learned High Court judge erred in holding that the Appellant has lost its right of exemption by merely considering the amending provisions made to the ITA 1967 without considering that the Appellant did not obtain the right of exemption under the ITA 1967 but under the 1947 Ordinance.

Ratios

1.     The Appellant’s rights for tax exemption were derived from the Income Tax Ordinance 1947 (“1947 Ordinance”) where Section 13(1)(g) provides as follows:

“13(1) There shall be exempt from tax —

(g) the income of any charitable institutions or of any body of persons or trust established for charitable purposes only:

Provided that where a trade or business is carried on by any such institution, body of persons or trust, the income derived from such trade or business shall be exempt from tax only if such income is applied solely for charitable purposes and either —

(i)    the trade or business is exercised in the course of the actual carrying out of a primary purpose of such institution, body of persons or trust; or

(ii)   the work in connection with the trade or business is mainly carried on by persons for whose benefit such institution, body of persons or trust was established.”

2.     The whole of the 1947 Ordinance was repealed and replaced by the Income Tax Act 1967 (“Act 53”) where Act 53 provides for tax exemption in Section 127 which is as follows:

“127(1) Notwithstanding any other provision of this Act-

(a)    any income specified in Part 1 of Schedule 6; and

(b)    the income of any institution, person, authority or fund specified in Part II of that Schedule,

 shall, subject to this section, be exempt from tax.”

3.     The question before the Court is whether the Appellant had enjoyed the tax exemption under the 1947 Ordinance or under Act 53, as what held by the learned trial judge in holding that the Appellant is no longer qualified for the tax exemption due to the failure to reapply for the exemption under Act 53.

4.     In this regard, the Court agreed with the submission of the learned counsel for the Appellant as he has directed the Court to Section 30 of the Interpretation Acts 1948 and 1967 (“Act 388”) which reads-

“30 Matters not affected by repeal

(1)    The repeal of a written law in whole or in part shall not —

(c)       affect any right, privilege, obligation or liability acquired, accrued or incurred under the repealed law;”

5.     As explained in paragraph 4, the Court found that the amendments to Act 53 did not affect the Appellant’s right pursuant to Section 30 of Act 388.

6.     The Court further held that as the learned trial judge did not directed his mind to this provision, the failure was an error of law.  In the mind of the Court, the authorities set out in Section 30 of Act 388 are clearly in support of the Appellant’s position.

7.     The Court agreed that while Act 53 had wholly repealed 1947 Ordinance, there is nothing expressly stating that the Appellant’s right under the 1947 Ordinance had been taken away from the Appellant.

8.     In the premises, the Court found that the Respondent had no basis in law to issue the Notices of Assessments and the decision to issue such notices were illegal and without jurisdiction.

Decision The Court of Appeal allowed the appeal.
Key Take Away

1. The Oxford Dictionary of Law defines retrospective or retroactive legislation as “legislation that operates on matters taking place before its enactment, e.g. by penalising conduct that was lawful when it occurred.

2.     There are few factors that are taken into account in determining whether a law may be passed to be retrospective which reads as follows:

(a)      Balancing the public interests

(b)      Protection of human rights and fundamental freedoms

 

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