The Court of Appeal has ruled in favor of Penang-based manufacturer Keysight Technologies Malaysia Sdn Bhd, ordering the Inland Revenue Board (LHDN) to refund a substantial sum of RM286 million.
This refund pertains to additional taxes and penalties imposed for the year 2008. The decision, delivered by Justice Collin Lawrence Sequerah on behalf of a three-member bench, highlighted that both the High Court and the Special Commissioners of Income Tax (SCIT) had erred in upholding LHDN's tax assessment.
The crux of the dispute revolved around the nature of the proceeds from Keysight's sale of intellectual property (IP) rights. The court concurred with Keysight's argument that such proceeds constitute a capital receipt rather than income. Justice Sequerah emphasized that revenue from the sale of capital assets falls outside the purview of taxable income, thereby refuting LHDN's assessment.
Chaired by Justice Kamaludin Said, the appellate bench, which also included Justice Abu Bakar Jais, acknowledged Keysight's contention that the sale of its IP formed part of a global restructuring initiative. Consequently, the bench deemed LHDN's assessment as flawed and ordered the refund, along with an additional RM20,000 in costs awarded to Keysight.
The dispute originated when LHDN initiated an audit following Keysight's sale of its IP. Subsequently, LHDN assessed the proceeds from the sale as income, alleging that they represented compensation for the loss of the taxpayer's income. Despite Keysight's appeal to the SCIT, which was dismissed in March 2020, and an affirmation of the decision by the High Court in May 2021, the Court of Appeal overturned these judgments.
In addition to the substantive issue of the tax treatment, the Court of Appeal also addressed procedural irregularities. It determined that LHDN's assessment was time-barred under the Income Tax Act 1967, as it was issued beyond the five-year limitation period. Despite LHDN's attempt to invoke the negligence exception to lift the time bar, the bench found insufficient evidence to support this claim. The court emphasized that mere disagreement with the taxpayer's tax treatment does not constitute negligence, especially when the taxpayer has made full and transparent disclosures and sought professional advice.
Legal representation in the case included lawyers Cyrus Das, Jason Liang, Yeoh Yao Huang, Jeff Sum, and Tan Wen Ying for Keysight, while senior revenue counsels Normareza Mat Rejab and Syazana Safiah Rosman represented LHDN.
Overall, the Court of Appeal's decision not only rectifies the erroneous tax assessment but also underscores the importance of upholding procedural fairness and transparency in tax administration.
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