DALAM MAHKAMAH RAYUAN MALAYSIA (BIDANG KUASA 5 dalam mahkamah rayuan malaysia (bidang kuasa rayuan)

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  • DALAM MAHKAMAH RAYUAN MALAYSIA 5 (BIDANG KUASA RAYUAN)

    RAYUAN SIVIL NO. W-01-428 TAHUN 2010

    ANTARA

    10 KETUA PENGARAH HASIL DALAM NEGERI PERAYU

    DAN 15 1. ALCATEL-LUCENT MALAYSIA SDN BHD (DAHULUNYA DIKENALI SEBAGAI ALCATEL NETWORK SYSTEMS (MALAYSIA) SDN BHD) RESPONDEN 2. ALCANET INTERNATIONAL ASIA PACIFIC RESPONDEN 20 PTE. LTD.

    [Dalam Mahkamah Tinggi Malaya Di Kuala Lumpur 25 Dalam Wilayah Persekutuan, Malaysia

    (Bahagian Rayuan dan Kuasa-Kuasa Khas) Permohonan bagi Semakan Kehakiman No.: R1-25-166-2008]

    Antara 30

    1. Alcatel-Lucent Malaysia Sdn Bhd (Dahulunya Dikenali Sebagai Alcatel Network Systems (Malaysia) Sdn Bhd) 35 Pemohon 2. Alcanet International Asia Pacific Pemohon Pte. Ltd.

    Dan 40 Ketua Pengarah Hasil Dalam Negeri Responden

  • 2

    5 Coram:

    A. Samah Nordin, JCA Azhar @ Izhar Hj Maah, JCA

    Alizatul Khair bt. Osman Khairuddin, JCA 10

    JUDGMENT

    [1] The issue in this appeal is whether the decision of the 15

    Director General of Inland Revenue (the appellant) in

    treating the payments made by the 1st respondent to the 2nd

    respondent, in consideration of certain services provided by

    the latter, as royalty and thus subject to payment of

    withholding tax under section 109 and/or section 109B of the 20

    Income Tax Act 1967 (the ITA) is liable to be quashed by

    way of judicial review on the grounds that he had acted in

    excess of his powers under the ITA and/or without jurisdiction

    and/or unreasonably in the circumstances of the case.

    25

    [2] The appellant did not object to the respondents

    application in the High Court to challenge his decision by way

    of judicial review instead of appealing to the Special

    Commissioners of Income Tax against his decision in treating

    the said payments as royalty. 30

  • 3

    5

    [3] The facts are not in dispute. The 2nd respondent is a

    non-resident. It operates a global network for voice, data

    and video communication. By a Service Agreement dated

    1.1.2003, the 2nd respondent agreed to allow the 1st

    respondent to have connection to its data traffic and to 10

    access the global services provided by the 2nd respondent

    subject to payments at a fixed rate. Payments were made to

    the 2nd respondent for services provided by the latter. But

    the 1st respondent did not make any provision for withholding

    tax under section 109 of the ITA. The 1st respondent was of 15

    the view that section 109 was not applicable as the said

    payments were for services performed from outside Malaysia

    and that all the servers for the network were located outside

    Malaysia.

    20

    [4] The appellant only discovered that no withholding tax

    was paid by the 1st respondent in respect of the payments

    made to the 2nd respondent, after it conducted a withholding

    tax audit at the 1st respondents business premises. Pursuant

    to the said auditing the appellant by letter dated 31.10.2007 25

    informed the 1st respondent that it had omitted to pay

    withholding tax in respect of payments made to a non-

    resident for the years of assessment 2001 2005 totalling

    RM4,891,747.00 and demanded that payment for that

  • 4

    amount be made, failing which no deduction would be 5

    allowed under section 39(1)(f) and (j) of the ITA and that the

    appellant would commence an action under section 106(1) of

    the ITA to recover tax due and payable from the 1st

    respondent. After several meetings and exchanges of

    correspondence between the appellant and 10

    PricewaterhouseCoopers (the 1st respondents tax agent) the

    amount of withholding tax was reduced to RM1,781,274.00.

    After further representation by the respondents tax agent,

    the appellant by letter dated 14.4.2008 finally reduced the

    amount of withholding tax to RM1,507,674.80. 15

    [5] The appellant treated the payments made by the 1st

    respondent to the 2nd respondent in consideration of services

    rendered by the latter as royalty and subject to payment of

    withholding tax under section 109 and/or section 109B of the 20

    ITA. The payments for services which the appellant

    considered as royalty and subject to withholding tax are

    particularised in Appendix 1 of the appellants letter, which

    we reproduce below for convenience:

    25

  • 5

    Lampiran I 5

    (i) Perbelanjaan SAP License and Maintenance Fees.

    Bil

    Tahun Kewangan Berakhir/ Tahun Taksiran

    Belanja Yang Dituntut (RM)

    Cukai Pegangan Yang Sepatutnya Dibayar (RM)

    Kenaikan Cukai Pegangan (RM)

    Catatan

    1. 31.12.05/TT 2005 42,960 4,296.00 4,296.00 Seksyen 109, ACP 1967

    2. 31.12.05/TT 2005 83,020 8,302.00 8,302.00 Seksyen 109, ACP 1967

    Jumlah 125,980 12,598.00 12,598.00

    (ii) Perbelanjaan Utilities Leased Communication 10

    Facilities.

    Bil

    Tahun Kewangan Berakhir/ Tahun Taksiran

    Belanja Yang Dituntut (RM)

    Cukai Pegangan Yang Sepatutnya Dibayar (RM)

    Kenaikan Cukai Pegangan (RM)

    Catatan

    4. 31.12.05/TT 2005 1,524,844 116,334.95 116,334.95 Seksyen 109 dan/atau 109B, ACP 1967

    5. 31.12.05/TT 2004 1,426.444 108,827.72 108,827.72 Seksyen 109 dan/atau 109B, ACP 1967

    6. 31.12.05/TT 2003 1,634,004 124,663.09 124,663.09 Seksyen 109 dan/atau 109B, ACP 1967

    7. 31.12.05/TT 2002 1,721,736 131,356.43 131,35.43 Seksyen 109 dan/atau 109B, ACP 1967

    8. 31.12.01/TT 2001 1.562,670 119,220.81 119,220.81 Seksyen 109 dan/atau 109B, ACP 1967

    Jumlah 7,869,698 600,403.00 600,403.00

  • 6

    (iii) Bayaran Pelbagai kepada Pegawai Latihan, 5

    Pekerja Luar Malaysia dan sebagainya.

    Bil

    Tahun Kewangan Berakhir/ Tahun Taksiran

    Belanja Yang Dituntut (RM)

    Cukai Pegangan Yang Sepatutnya Dibayar (RM)

    Kenaikan Cukai Pegangan (RM)

    Catatan

    9. 20.04.05/TT 2005 44,596 1,459.60 4,459.60 Seksyen 109 ACP 1967

    10. 20.04.05/TT 2005 14,446 1,444.60 1,444.60 Seksyen 109 ACP 1967

    11. 07.04.05/TT 2005 236,949 23,694.90 23,694.90 Seksyen 109 ACP 1967

    19. 22.12.05/TT 2005 1,000,497 100,049.70 100,049.70 Seksyen 109 ACP 1967

    20. 29.11.05/TT 2005 111,876 11,187.60 11,187.60 Seksyen 109 ACP 1967

    Jumlah 1,408,364 140,836,40 140,836.40

    [6] Learned counsel for the appellant explained that the 10

    amount of RM1,507,674.80 was arrived at as follows:-

    (i) Perbelanjaan SAP License and Maintenance Fees

    (a) Withholding tax - RM 12,598.00 15

    (b) Increased - RM 12,598.00 Withholding tax Total RM 25,196.00 ========= 20

  • 7

    (ii) Perbelanjaan Utilities Leased Communication 5

    Facilities.

    (a) Withholding tax - RM 600,403.00

    (b) Increased - RM 600,403.00 Withholding tax 10 Total RM1,200,806.00 ==========

    (iii) Bayaran Pelbagai kepada Pegawai Latihan,

    Pekerja Luar Malaysia dan sebagainya 15

    (a) Withholding tax - RM 140,836.40

    (b) Increased - RM 140,836.40 Withholding tax Total RM 281,672.80 20 ==========

    Total amount: (i) + (ii) + (iii) = RM1,507,674.80.

    The increased withholding tax was payable under either

    section 109(2) or section 109B(2) of the ITA. 25

    [7] The 1st respondent maintained its view that the above

    said payments were not royalty and not subject to

    withholding tax as they were payments made to a non-

    resident for services wholly performed outside Malaysia. 30

  • 8

    Thus, by letter dated 11.4.2008, the 1st respondent sought 5

    clarification from the appellant as to which withholding tax

    provisions under the ITA apply to the specific payments as

    listed in Appendix 1. The appellant in his reply letter dated

    14.4.2008 did not however state which particular provisions

    of the ITA apply to payments made by the 1st respondent but 10

    insisted that the 1st respondent pay the withholding tax. The

    1st respondent reluctantly paid the withholding tax under

    protest and challenged the decision of the appellant by way of

    judicial review.

    15

    [8] In its joint application with the 2nd respondent for

    judicial view under Order 53 of the Rules of the High Court

    1980 they sought the following reliefs

    (a) an Order of Certiorari to quash the appellants 20

    decision, contained in the appellants letter dated

    14.4.2008 (the decision) that the payments made

    by the 1st respondent to the 2nd respondent in the

    years of assessment 2001 to 2005, for services

    provided by the 2nd respondent to the 1st 25

    respondent relating to the provision of a global

    network for voice, data and video communication

    referred to under the sub-heading Perbelanjaan

    Utilities Leased Communication Facilities in the

  • 9

    appellants letter, are subject to withholding tax 5

    under Sections 4A and 109B and/or Section 109 of

    the Income Tax Act 1967 (ITA) and are further

    subject to increased withholding tax under Sections

    109(2) and/or 109B(2) of the ITA;

    10

    (b) a Declar