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www.ipsofactoJ.com/archive/index.htm [1997] Part 6 Case 4 [HCM] |
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Judgment
H.B. Low J
BACKGROUND
On 21 June 1996, I granted leave pursuant to two notices of motion, viz the first by applicant Bandar Utama City Corp Sdn Bhd, to apply for an order of mandamus, in Originating Motion No 25–27–1996 (‘the first application’) directed to the respondent, to provide the reasons and the basis for computations, in which the respondent had raised additional assessments for the years 1979, 1980, 1981, 1984, 1985, 1986, 1987, 1988, 1989 and 1990 for ordinary assessment; and the second, by First Nationwide Security Sdn Bhd in Originating Motion No 25–29–1996, (‘the second application’) to apply for an order of mandamus, directed to the respondent, to provide the reasons and the basis for computations for imposing additional assessments for the years of assessment 1984 to 1986 inclusive and the ordinary assessment imposed for the year of assessment 1990. The respondent in the aforesaid notices of motion did not file any notice of appeal against my decision in granting the aforesaid leave. Pursuant thereto, the applicants filed the present two substantive notices of motion.
PRELIMINARY OBJECTION
Learned counsel for the respondent raised a preliminary objection to these two substantive notices of motion. He stated that these two notices of motion are supported by a statement under O 53 r 1(2) of the Rules of the High Court 1980 dated 8 May 1996 and two affidavits affirmed by one Teo Chiang Hong on 5 April 1996 and 30 April 1996 respectively. He contended that pursuant to O 53 r 3, no grounds shall be relied upon at the hearing of the motion except the grounds set out in the statement under O 53 r 1(2). On this basis, the applicants must, perforce, rely on those grounds viz that, by failing to provide the reasons and basis for the tax computations, the respondent:
did not follow proper procedure and had acted unfairly; and
has made it impossible for the applicants to have a fair hearing before the Special Commissioners to appeal against the additional assessments.
He added that s 140 of the Income Tax Act 1967 (‘the Act’), which is the crux of the applicants’ submissions now, was never cited in the applicants’ statement and in the title to these applications. (Unless the context otherwise requires, any reference to any section hereinafter is a reference to that section in the Act). Hence, according to him, the applicants’ submissions on s 140 are irrelevant and that on this ground alone, these applications should be dismissed.
Learned counsel for the applicants contended that in these two substantive notices of motion, the applicants are seeking an order of mandamus each to require the respondent to carry out an express statutory duty under s 140(5), i.e. to provide the reasons and basis for tax computations.
DECISION OF THE COURT ON THE PRELIMINARY OBJECTION
The relevant portion of s 140(5) reads:
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Where in consequence of any adjustment made under this section an assessment is made .... particulars of the adjustment shall be given with the notice of assessment .... |
Section 140(5) is relied upon by the applicants to support these two substantive notices of motion. In advancing the grounds of application, the applicants are, in my judgment, perfectly entitled to rely on any written law in support thereof, including s 140(5) and all judicial authorities which provide the necessary illuminations on the provision of s 140(5) and the fundamental rules of natural justice.
Section 140(5) sets out the legal obligations of the respondent to furnish the ‘particulars’. The word ‘particulars’ has not been defined in the Act and so it is to be construed by reference to its popular, ordinary dictionary meaning. The word ‘particulars’ means ‘points of information; a detailed account’ (see The Concise Oxford Dictionary (9th Ed, 1995). It means the items or details or points: Royal Bank of Canada v Inland Revenue Commissioners [1972] Ch 665. I am of the view that any submissions relating thereto is relevant and material and ought to be considered on their merits.
I therefore have no difficulty in holding that the respondent’s preliminary objection is devoid of merits and is hereby overruled.
MERITS ON THE TWO SUBSTANTIVE MOTIONS
Applicants’ submission
In essence, the submission advanced for the applicants is to the effect that in the light of the applicants’ appeals to the Special Commissioners of Income Tax (‘the Special Commissioners’), the applicants required the reasons and the basis which the respondent is legally bound to provide to the applicants under s 140(5) and also pursuant to the rules of natural justice.
Respondent’s submission
The respondent, on the other hand, is of the view that s 140 is a power given to the respondent to disregard certain transactions, and not a provision for making an assessment but for making adjustments as the respondent thinks fit, with a view to counteracting the whole or any part of any such direct or indirect effect of the transaction.
On the fundamental rules of natural justice, in particular, audi alteram partem (hear the other side), learned counsel for the respondent contended that it had no application in relation to the respondent in the circumstances of this case, although he conceded that the maxim would apply before the Special Commissioners.
DECISION OF THE COURT
Statutory duty under s 140
In the instant case, the applicants have filed notices of appeal (‘the appeals’) in Form Q under s 99 to appeal to the Special Commissioners against the abovesaid additional and ordinary assessments (‘the assessments’).
Before the Special Commissioners, the applicants will have to discharge the burden of proof placed upon them, by para 13 of Sch 5 which provides:
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The onus of proving that an assessment against which an appeal is made is excessive or erroneous is on the appellant. |
In order to enable the applicants rightfully to discharge the burden of disproving the assessments, the applicants require particulars thereof. These particulars are crucial to the applicants to enable them to prepare their appeals against the respondent. The respondent’s failure to provide these particulars to the applicants would not only be a breach of its statutory duty under s 140(5) but also a breach of the rules of natural justice, if not an outright denial of justice itself. The applicants are seeking to ensure that the hearing of its appeals before the Special Commissioners does not turn out to be an exercise in futility. The appeals would be futile if the applicants are not given the particulars of the said additional assessments, which inevitably is tantamount to allowing the respondent’s default to cause manifest injustice to the applicants.
The assessments were raised by the respondent against the applicants under s 140(1)(c) purportedly on the grounds that the applicants have evaded or avoided liability which would otherwise have been imposed under the Act and has raised the assessments by way of an adjustment under s 140. Of particular importance is s 140(1)(c) which reads:
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(1) |
The Director General, where he has reason to believe that any transaction has the direct or indirect effect of – ....
.... may, without prejudice to such validity as it may have in any other respect or for any other purpose, disregard or vary the transaction and make such adjustments as he thinks fit with a view to counter-acting the whole or any part of any such direct or indirect effect of the transaction. [emphasis added] |
The word ‘adjustment’ has been judicially considered by Raja Azlan Shah FJ (now HRH) in UHG v Director General of Inland Revenue [1974] 2 MLJ 33 where it was stated that (at p 35):
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To carry out these adjustments, he may make such assessments or additional assessments as he deems necessary .... |
It is eminently clear that an adjustment would necessarily and inevitably encompass an additional assessment or an ordinary assessment. Hence, where an assessment has been raised under s 140 in general and s 140(1)(c) in particular, the law imposes a duty on the respondent to furnish the applicants with ‘particulars’ of the adjustment which as stated above includes ‘assessment’. In addition, the respondent is also required by the rules of natural justice to give notice and make an adequate disclosure of the particulars of the adjustment against the applicants in order to give the applicant a reasonable opportunity to set out its case and appeal against the assessments.
The respondent alleged that the applicant has evaded or avoided liability which would otherwise have been imposed under the Act, by way of account irregularities and under declaration of income (see the respondent’s letter dated 17 December 1993 (exh ‘TCH-2’), specifically addressed to Mr Teo Soo Cheng, a director of the applicant company). The relevant passage in exh TCH–2 states as follows [translation]:
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[Your] company has been found to have committed account irregularities for the above period. A summary of these irregularities together with the unassessed profit is attached for your attention. [emphasis added] |
The applicants’ request to stand-over the payment of additional tax was refused and immediate payment was required by the respondent.
The above allegations are of a very serious nature as they relate to account irregularities and under declaration, or in general terms ‘tax evasion’.
In my judgment, s 140(5) imposes a duty on the respondent to give ‘particulars’ of the adjustments which include assessments.
The respondent’s statutory duty under s 140(5) was judicially enunciated by the (then) Supreme Court in Director General of Inland Revenue v Hup Cheong Timber (Labis) Sdn Bhd [1985] 2 MLJ 322 at pp 326–327 where Wan Hamzah SCJ examined s 140 at length and concluded at p 327H–I that:
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If from evidence the Revenue was satisfied that the transaction whereby the taxpayer paid the sum of $1.4m to the Persatuan was a transaction made for the purpose of evading or avoiding liability to pay income tax, the Revenue should take action pursuant to s 140 to make adjustment with a view to counter-acting the effect of the transaction, and in that event the Revenue should under sub-s (5), give to the taxpayer particulars of the adjustment together with the notice of assessment. [emphasis added] |
In Director General of Inland Revenue v Rakyat Berjaya Sdn Bhd [1984] 1 MLJ 248 at p 255H–I, H.H. Lee CJ (Borneo) said, obiter, that if the Director General wishes to invoke his power under s 140, then s 140(5) requires that particulars of the assessment shall be given with the notice of assessment.
The respondent before me had made allegations, against the applicants, of ‘fictitious purchases’ but had not provided any basis for saying they were ‘fictitious’. It is apparent, on the facts of this case and the state of the law in regard to additional assessments raised under s 140(1)(c), that the respondent is under a statutory duty to provide the applicant with the ‘reasons and basis of computations’, or in other words ‘particulars’ of the said additional assessments of income tax. The statutory duty imposed upon the respondent under s 140(5) is consistent with the fundamental rules of natural justice, in particular the audi alteram partem rule.
Fundamental rules of natural justice
The applicants have the right to know the nature of the case against them. Bennion on Statutory Interpretation (1984, Butterworths) at pp 762–163 says:
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Unless the contrary intention appears, an enactment by implication imports the principle of the maxim audi alteram partem (hear the other side) .... Inform the party of the case he has to meet. It is obvious that a party cannot have a reasonable opportunity to be heard unless he is made aware of what it is that he is being heard about. As Lord Fraser of Tullybelton said:
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Hence, over and above the imperative and peremptory provisions of s 140(5), the principles of statutory interpretation necessarily imply that the rules of natural justice must be observed when dealing with the rights of individuals and, in this case, the taxpayers. Without the respondent forwarding the particulars by way of the reasons and the basis of computations for the said additional assessments, this cardinal principle of natural justice had been violated by the respondent.
In this context, the judgment of Lord Denning in the Privy Council case of Surinder Singh Kanda v Government of the Federation of Malaya [1962] MLJ 169 at pp 172I–173B is also instructive:
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If the right to be heard is to be a real right which is worth anything, it must carry with it a right in the accused man to know the case which is made against him. He must know what evidence has been given and what statements have been made affecting him: and then he must be given a fair opportunity to correct or contradict them. This appears in all the cases from the celebrated judgment of Lord Loreburn LC in Board of Education v Rice [1911] AC 179 at p 182; 27 TLR 378 (HL) down to the decision of their Lordships’ Board in Ceylon University v Fernando [1960] 1 WLR 223; [1960] 1 All ER 631 (PC). |
Lord Denning’s judgment was affirmed by the House of Lords, principally in the judgment of Lord Mustill in R v Secretary of State for the Home Department, ex p Doody [1994] 1 AC 531 at p 563E–H:
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It has frequently been stated that the right to make representations is of little value unless the maker has knowledge in advance of the considerations which, unless effectively challenged, will or may lead to an adverse decision. The opinion of the Privy Council in Kanda v Government of Malaya [1962] AC 322 at p 337 is often quoted to this effect. This proposition of common sense will in many instances require an explicit disclosure of the substance of the matters on which the decision-maker intends to proceed. |
Lord Mustill refers to the right of an accused person to know the case against him as a principle of ‘common sense’ which requires an ‘explicit disclosure ....’ of the case against him. A fortiori, in the case before me, as a matter of common sense, the applicants have a right to be furnished with the particulars of the case against them, and not just allegations of the same.
The principle enunciated in cases like Kanda’s case and Ex p Doody are also refIected in the following practitioners’ textbooks which are of the highest repute:
De Smith, Woolf & Jowell on Judicial Review of Adminitrative Action (5th Ed) pp 431–444, in particular p 441 which states:
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If prejudicial allegations are to be made against a person, he must normally, as we have seen, be given particulars of them before the hearing so that he can prepare his answers. In order to protect his interests, he must also be enabled to controvert, correct or comment on other evidence or information that may be relevant to the decision; indeed, at least in some circumstances, there will be a duty on the decision maker to disclose information favourable to the applicant, as well as information prejudicial to his case. |
MP Jain’s Administrative Law of Malaysia and Singapore (2nd Ed) pp 269–280 and in particular at p 269 which reads:
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The general principle is that all the relevant material which is being relied upon by an adjudicating authority for giving its decision against a person, should be brought to his notice and he be given an opportunity to comment, criticise, explain or rebut the same. For the right of hearing to be effective, it is necessary that the authority should not rely on any material against a person without apprising him of the same. The right of hearing may be of little value if the individual is kept in the dark as to the evidence against him and is not given an opportunity to deal with it. The right to know the materials on which the authority is going to take a decision forms part of the right to defend. If without disclosing any evidence to the party, the authority takes it into consideration, and decides the matter against the party, then the decision is vitiated for it amounts to a denial of a real and effective opportunity to the party to meet the case against him. |
MP Jain & SN Jain on Principles of Administrative Law (4th Ed) pp 247–253 and in particular at p 247 which contains the following passage:
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The general principle is that an adjudicatory body is to decide the matter on the basis of materials placed before it in the course of proceedings. It cannot take extraneous matters into consideration; it cannot base its decision on any material unless the person against whom it is sought to be utilized has been given an opportunity to rebut or to explain the same. |
If the adjudicator is going to rely on any material, evidence or document for basing his decision against the individual, then the same must be placed before him for his comments and rebuttal. It is regarded as a fundamental principle of natural justice that no materials should be relied on against a party without giving him an opportunity of explaining the same. The right to know the materials on which the authority is going to make a decision is a part of the right to defend oneself. The principle can be seen operating in several judicial pronouncements where non-disclosure of the evidence to the affected party has been held to be fatal to the hearing proceedings.
Mandamus in tax cases
In C v Comptroller of Income Tax [1967] 2 MLJ 137, it was held that mandamus will lie against the comptroller if he is under a statutory obligation to perform a duty towards the taxpayer. In the circumstances of this case, there was such a duty imposed upon the comptroller and mandamus was the only effective and expeditious remedy open to the taxpayer – therefore an order of mandamus was issued directed to the comptroller compelling him to comply with the provisions of s 93(3) of the then Income Tax Ordinance by causing repayment to be made to the taxpayer of the sum of $5,573.45 being income tax paid by the taxpayer in excess of the amount payable by him. Delivering the decision of the then Federal Court, Buttrose J said at p 140D:
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The comptroller has been entrusted by the Legislature with wide and far reaching powers, no doubt with very good reason, but it is of paramount importance that they should be exercised with circumspection and within the limits prescribed. If there has been an abuse of these powers, it is the duty of the court to interfere and to ensure a strict and proper compliance with the provisions of the Ordinance. |
CONCLUSION
In my view, s 140(5) clearly imposes a duty on the respondent to give ‘particulars’ of the assessment together with the notice of assessment where there have been allegations of ‘tax evasion’ under s 140(1)(c). Where the respondent is under a duty to give particulars, the applicant has a correlative right to be furnished with such particulars. An order of mandamus does not determine the case once and for all, but merely requires the respondent to furnish the applicants with the particulars of the assessments made by the respondent in order to facilitate an appeal by the applicants to the Special Commissioners.
On the foregoing grounds, I allow both the substantive motions and make an order in terms in respect of all the additional assessments, and with costs to the applicants.
Cases
C v Comptroller of Income Tax [1967] 2 MLJ 137
Director General of Inland Revenue v Hup Cheong Timber (Labis) Sdn Bhd [1985] 2 MLJ 322
Director General of Inland Revenue v Rakyat Berjaya Sdn Bhd [1984] 1 MLJ 248
R v Secretary of State for the Home Department, ex p Doody [1994] 1 AC 531
Royal Bank of Canada v Inland Revenue Commissioner [1972] Ch 665
Surinder Singh Kanda v Government of the Federation of Malaya [1962] MLJ 169
UHG v Director General of Inland Revenue [1974] 2 MLJ 33
Legislations
Income Tax Act 1967: s.99, s.140
Rules of the High Court 1980: Ord.53
Representations
S Woodhull (Siva Baskaran with him) (Shearn Delamore & Co) for the applicant.
K.F. Kok (Noradidah Ahmad with him) (Senior Federal Counsel) for the respondent.
Notes:-
This decision is also reported at [1998] 7 MLJ 303.
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