Section 140 and 140A Income Tax Act 1967 Part 2

In the previous post accessible here, I touched upon the relationship between Section 140 and Section 140A of the Income Tax Act 1967 (“ITA“) and how the lines may be blurred due to the newly enacted Section 140(3a) and (3b). Briefly, Section 140 of the ITA is the anti-tax avoidance provision where the Director-General of Inland Revenue (“DGIR“) is given authority to ignore a certain tax transaction if there is no commercial sense in the arrangement other than to avoid tax. However, the cousin Section 140A is the transfer pricing provision where the DGIR is authorised to make an adjustment to a transaction if it considers that the transaction was not conducted at arm’s length.

The difference in the powers is imperative as it delineates the powers of the DGIR and illegal or without jurisdiction invocation of the said sections will be susceptible to intervention by a court of law.

The High Court had recently made a few landmark decisions on this which provide useful guidance on the jurisdiction of the two sections and the applicability of the same. 

In Ensco Gerudi (M) Sdn Bhd v Ketua Pengarah Hasil Dalam Negeri [2021] MLJU 1229 (“Ensco Gerudi 2021“), the DGIR invoked Section 140A to make the adjustment between Ensco Gerudi (M) Sdn Bhd and Ensco Labuan Limited (“ELL“). The DGIR dismissed the taxpayer’s use of the transactional net margin method (“TNMM Method”) as the transfer pricing methodology and insisted on the application of the transactional profit split method (“Profit Split Method”) instead.

It is apposite to note that in a previous decision of Ensco Gerudi (M) Sdn Bhd v Ketua Pengarah Hasil Dalam Negeri (Application for Judicial Review No.: 25-101- 05/2013) (“Ensco Gerudi 2013“), the DGIR invoked Section 140 on the exact same transactions which were the subject matter of dispute in the case of Ensco Gerudi 2021. The only difference is that the DGIR in this instant case was invoking Section 140A instead of Section 140. Ensco Gerudi 2013 was a matter that went up to the Court of Appeal where the Court of Appeal held that the DGIR did not have any jurisdiction to invoke Section 140 of the ITA on the taxpayer’s transaction with ELL. 

Aggrieved, Ensco Gerudi initiated judicial review against the DGIR for, amongst others, a declaration that the DGIR’s invocation of Section 140A was illegal and void. Counsel for Ensco Gerudi canvassed the following arguments: 

(a) The DGIR acted in excess of its jurisdiction when it failed to act in accordance with previously decided cases by the High Court and the Court of Appeal in Ensco Gerudi 2013; 

(b) The DGIR had unlawfully invoked Section 140A of the ITA when it is clear that the taxpayer and ELL are not ‘associated persons’ with one another within the definition of the ITA (for the relevant years of assessment); and

(c) The DGIR had breached its duty to provide reasons when it issued the notices of assessment without providing any clear reasons and/or justifications as to how the taxpayer and ELL are associated persons or that the transfer pricing methodology was incorrect. They are aggrieved by the DGIR’s failure to perform even the most perfunctory transfer pricing analysis in coming to its incongruous decision. 

The DGIR refuted the points below:

(a) The taxpayer ought to ventilate the matter via appeal to the Special Commissioners of Income Tax; 

(b) The ITA provisions relied upon by the DGIR are different in Ensco Gerudi 2021 and Ensco Gerudi 2013; and 

(c) The reliefs sought in the two cases are different.

Both leave and judicial review applications were allowed. In arriving at the decision, the Learned High Court held as follows:

  1. The taxpayer and ELL are not associated persons as they do not possess or are entitled to acquire the greater part of the share capital or voting power because to be able to have control under Section 139 ITA, the taxpayer has to be at least 51% owned. The only justification that the DGIR had provided in relation to this issue is that the transactions are carried out between the parties within the same group but that is not a requirement under s 140A ITA.;
  2. The Respondent had exceeded its jurisdiction and acted unlawfully when it fails to give due consideration to the earlier decisions of the Superior Courts of Malaysia.
  3. Not only the taxpayer but the Court are deprived of knowing the DGIR’s version of what the transfer pricing report ought to be.
  4. An appeal to the SCIT is not a blanket approach and does not shut out an aggrieved taxpayer from coming to Court seeking for the remedy of judicial review on the premise that there exists an internal appeal process.

In another case of S v KPHDN, the taxpayer had entered into several intragroup services with the taxpayer’s related companies. It was the DGIR’s contention that several of these services provided were duplicative and hence certain services ought to be disallowed deductions. The DGIR invoked Section 140A by alleging that the “duplicative services” were not at arm’s length hence no deductions should be claimed.

Counsel for the taxpayer argued that the DGIR had inappropriately invoked section 140A of the ITA which does not allow the DGIR to disallow the expenses. Only section 140 of the ITA allows the DGIR to make such adjustments. If the DGIR was of the view that a certain transaction was entered to reduce the incidence of tax, the DGIR ought to invoke Section 140 of the ITA and not Section 140A. Section 140A only allows the DGIR to make an adjustment that would be reflective of an arm’s length transaction but not to disregard it completely.  

The DGIR on the other hand argued that the matter includes a dispute of facts that ought to be ventilated with the SCIT and this instant judicial review application is an abuse of the court process. Consequently, contemporaneous documents and examination would be required in order to determine if the services rendered were duplicative or otherwise.

Upon hearing the parties’ submissions, the learned high court had allowed the taxpayer’s application for leave. The matter is now pending for the substantive stage.


Section 140 and 140A has their distinctive difference and operates independently. With the presumption that the Parliament does not legislate laws in vain, Section 140 and Section 140A are not to be used interchangeably. Section 140A of the ITA only allows the DGIR to make an adjustment that would be reflective of arm’s length transaction but not to disregard the same whereas Section 140 gives the DGIR broader powers but not without its restrictions under as held in Port Dickson Power and as stated in Section 140(9).


How to prepare for interviews for law firms in Malaysia

Maybe you’re just starting out a job or maybe you have just completed your CLP and/or Bar and are seeking out employment to start your pupilage in order to be called to the Bar, either way, this post may be useful for you in order to kick start your career.

(Disclaimer: This post may be relevant only to pupilage and junior associate-level positions in Malaysia and I’m merely speaking from experience from the interviews I’ve personally been to.)

A. The screening process

The interview process differs from law firm to law firm. Some may have case studies, others may have aptitude tests and some do have preliminary questions and answers. It’s best to always be prepared for all. The preliminary screening is mostly modelled after the firm’s expertise as well as your personal preferred area of practice.

When I was applying for pupillage, I did apply for a number of firms. Some of my experiences can be summarised as follow:

  • Firm A had a case study test. The test required you to analyse a given situation and how the relevant statutory provisions may apply. The test also requires you to suggest the best possible implementation route. My strategy to answer this test was to angle it from not only a commercial point of view but also the tax considerations which are relevant (obviously because I was going for the tax practice of the firm but also… arbitration was an option too).
  • Firm B had a questions and answers test. Prior to the interview, I was given a sheet of paper with about 20 questions. The questions included legal questions and also IQ questions (i.e. why is a pothole cover round. Legit). The best is don’t return all your legal knowledge to your lecturer after completing your CLP / Bar haha. Most law firms adopt this test to assess your legal knowledge. 
  • Firm C had a “drafting” test. The test consisted of a scenario and the candidate is required to draft the necessary cause paper(s) (i.e. statement of claim/statement of defence/affidavit) asked by the test. This is mainly to assess the candidate’s drafting skills. 

B. The interview

Sometimes, the interview comes once you’ve passed the screening process whilst others it is together with the screening process. For most of the interviews I’ve attended for pupilage, I was interviewed by 2 partners of the firm. Additionally, due to rising competition between law firms, do expect that you’ll be required to attend 2 or more interviews.

It is very important that you indicate at the outset on your cover letter your intended area of practice so that the interviewers chosen for you are the partners of your preferred practice area. They are often very reluctant to interview and select a candidate that is not for their own practice group, i.e. an IP partner would not choose a pupil for the Banking practice.

Other than the common interview questions i.e. “why did you apply here”, “tell us about yourself”, and “what are your strength and weaknesses”, there is an emphasis on your area of preferred practice and choice of the law firm. It is pertinent that you do research on each and every firm prior to applying in order to fully understand the practice areas of the firm. Please do not apply to a litigation firm and inform the interviewers that you would like to do corporate practice where the latter practice is minimal in the firm.

(Brownie points: prior to your interview, familiarize yourself with the partners of your preferred area of practice. Also, ask for their name cards before the interview so you’ll know who interviewed you in the future)

Most interviews are 15 – 60 minutes long, depending on the interests of the partners. For interviews which were only 15 minutes, I had already sensed that they were not interested in my application and would be mentally prepared to be rejected. For litigation firms, one common question is to discuss a case and assessed the correctness of the decision. I would recommend that should you be interested in applying for litigation roles, be well-versed with some novel and trite cases of the practice.

(Warning: for your choice of case for discussion during interviews, have clear reasoning as to why you chose the case, your views and the facts (clearly and precisely). It is better that you do not choose a case that involves your interviewers as the main aim is to facilitate discussion instead of praising how correct they are in the case. Also, be sure to have two sides of the coin in mind).

Remember when I said that some interviews may come right after the screening process? More often than not, the interviewers will go through your answers given in the tests and question you during the interview. Be prepared to be interrogated on some of the answers.

Last of all, although this should be common sense, don’t be late for your interview and dress appropriately and in proper attire. The first impression lasts a long time 😉

C. Starting your pupilage / new job

Once you’ve passed parts A and B and have landed yourself an offer from the firm, congratulations!! And if you’ve received more than 1 offer, double congratulations on the first world problems you’ll have to face.

When it comes to choosing your pupilage, be very careful and know that your pupilage will last for 9 months uninterrupted. Yes, that means no leaves are to be taken during the entire 9 month period. Therefore, it is very important that you are well prepared to enter the workforce with ample mental preparation.

Personally, it’s best to speak to seniors or your circle of friends who did pupilage in the firms you were offered to fully understand the job scope and expectation of the legal industry (Read: 2am deadlines, 5 hours of sleep and admin work to do). The remuneration of the firm, travelling time and house rent are factors you may want to consider when choosing your choice of firm.

Last comments

As someone who had joined (and left momentarily with the possibility of rejoining) the legal industry, the only advice I can part with is that the work is demanding and deadlines are constantly looming. Good mentorship and guidance are something I personally desired in personal growth and development. Do not be shy and do reach out to people on Linkedin who are in the firm to understand more as if you’re starting out your pupilage, you do want to know what you’re getting yourself into.

With that being said, stay strong soldier.