Knowledge Highlights 30 October 2025
Federal Court reaffirms principle against double taxation in same transaction
The Federal Court in Ketua Pengarah Dalam Negeri v Kind Action (M) Sdn Bhd (Appeal No. 01(f)-18-05/2024(J)) held that the Director General of Inland Revenue (“DGIR”) is not empowered to subject a taxpayer to tax under both the Real Property Gains Tax Act 1976 (“RPGTA”) and the Income Tax Act 1967 (“ITA”), as doing so would amount to double taxation.
This article provides an overview of the Federal Court’s decision.
Snapshot
In 2004, Kind Action Sdn Bhd (“Taxpayer”) acquired plantation land (“Land”) from its parent company as fixed assets for its plantation business. At all material times, the Taxpayer paid income tax on the income derived from plantation business conducted on the Land.
In 2007, the Taxpayer ceased its plantation business and shifted focus to chemical manufacturing due to a change in the managerial direction of its ultimate holding company. The Land was subsequently sub-divided and disposed of in 10 transactions. The gains from the disposal of the Land (“Gains”) were subject to real property gains tax (“RPGT”), where assessments were raised, and RPGT certificates of clearance were issued under the RPGTA.
A tax investigation was conducted on the Taxpayer in 2019, where the DGIR raised notices of additional assessment amounting to more than RM81 million, including penalties at the rate of 60%, on the basis that the Gains ought to be subjected to income tax under section 4(a) of the ITA as the Taxpayer’s realisation of its investments was in the nature of trade.
The Taxpayer filed, among other things, a judicial review application to challenge the Assessments.
Judgment
The High Court ruled in favour of the DGIR, while the Court of Appeal ruled in favour of the Taxpayer. The DGIR appealed to the Federal Court.
The Federal Court held that it was crucial that the DGIR had accepted the RPGT returns filed by the Taxpayer and had issued the assessments and certificates of clearance. The assessments became final and conclusive by virtue of section 20 of the RPGTA, as the Taxpayer did not appeal against them.
Section 20 of the RPGTA provides, among other things, that an assessment becomes final and conclusive regarding the amount of the tax assessed (a) upon the expiry of the time allowed to appeal the assessment; or (b) where an appeal is made, upon the appeal being disposed of.
It is against the principle of double taxation for the DGIR to tax the Gains under the ITA when those Gains have already been taxed under the RPGTA and the assessments have become final and conclusive. Doing so would amount to taxing the same land transaction twice under two different laws, which is an illegality.
The Federal Court also explained that the Court of Appeal’s decision in Teruntum Theatre Sdn Bhd v Ketua Pengarah Hasil Dalam Negeri [2006] 3 CLJ 123 (“Teruntum Theatre”) cannot be understood as implying that estoppel cannot be invoked against the DGIR. The decision in Teruntum Theatre does not mean that the DGIR is entitled to issue a notice of assessment under the ITA while maintaining a notice of assessment under the RPGTA for the same transaction.
The Federal Court further held that the correct interpretation and application of Teruntum Theatre is that the DGIR may issue an assessment under the ITA if the facts and circumstances warrant it, but only after discharging the RPGTA assessment.
The fact that the RPGT assessments and certificates of clearance were not discharged or revoked in the preceding seven years created a legitimate expectation on the part of the Taxpayer that its tax treatment was correct, and the DGIR was estopped from changing its position.
Comment
The Federal Court decision clarifies the operation of the double taxation principle between the RPGTA and ITA. The court also explained the correct application of the Court of Appeal’s findings in Teruntum Theatre and asserted that the DGIR was estopped from going against its own assessment.
However, it is worth noting that the Federal Court’s decision does not mean that a land transaction cannot be taxed under the ITA after the gains arising from the disposal of a real property have been taxed under the RPGTA. The DGIR may still assess tax under the ITA if justified by the facts, but must first discharge the RPGTA assessment before issuing a new assessment under the ITA.
The Federal Court also provided an important clarification on the doctrine of legitimate expectation and estoppel, ruling that assurances implied by the DGIR’s actions or omissions may create legitimate expectation, thereby estopping the DGIR from unfairly changing its position when the taxpayer has acted in reliance on that expectation.
Further Information
This article was prepared with the assistance of Associate Matthew Wong.
