Federal Court to answer the position of domestic remedy in a judicial review application

The Court of Appeal in Muhibbah Engineering (M) Bhd v Ketua Pengarah Hasil Dalam Negeri (Civil Appeal W-01(A)-349-08/2020had overturned the decision of the High Court in dismissing the taxpayer’s application for leave to commence judicial review against the Director General of Inland Revenue Board (“DGIR”). The DGIR then appealed to the Federal Court and the Federal Court had granted leave to appeal by finding that the questions framed by the DGIR warrant the apex court’s attention determination. 

The case is now pending before the Federal Court for the substantive hearing of the appeal. 


The taxpayer is in the business of providing oil and gas, marine, infrastructure, civil and structural engineering work. Pursuant to a tax audit conducted, the DGIR disallowed the taxpayer’s treatment of the Project Accrued Expenses deductions because they are provisional in nature. Consequently, the DGIR adjusted the losses surrendered by the taxpayer to its related company and issued notices of assessment for the years of assessment (“YA”) 2015 and 2016 and notice of non-chargeability (“NONC”) for YA 2017.

The taxpayer filed a judicial review application and protested the notices of assessment and NONC issued by the DGIR on two main grounds:

    1. The Project Accrued Expenses are deductible under Section 33(1) of the Income Tax Act 1967 (“ITA”); and
    2. The DGIR does not have any basis in law to invoke both subsections of Section 44A(9) of the ITA. 

The High Court dismissed the taxpayer’s application for judicial review. The salient points of the High Court’s reasons are as follow:

    1. There is a dispute on facts and the matter should be referred to the Special Commissioners of Income Tax (“SCIT”); and
    2. There are no exceptional circumstances that would warrant the grant of leave as there is a statutory appeal provided under Section 99 and Section 44A(9)(b) of the ITA.

At the Court of Appeal 

The Court of Appeal reversed the decision of the Learned High Court Judge and allowed the appeal. In upholding the principle in Majlis Perbandaran Pulau Pinang v Syarikat Bekerjasama-Sama Serbaguna Sungai Gelugor Dengan Tanggungan [1999] 3 CLJ 65, the Federal Court held that judicial review should be available where the applicant can demonstrate illegality or unlawful treatment, as the case was in this instant.

Although there is no hard and fast rule in determining when should the argument of alternate remedy be ventilated in a judicial review application, the Court of Appeal upheld the principles in QSR Brands Bhd v Suruhanjaya Sekuriti & Anor [2006] 2 CLJ 532 and Chin Mee Keong & Ors v Pesuruhjaya Sukan [2007] 6 MLJ 193 where the issue of the existence of an alternate remedy should be decided during the substantive stage. In coming to this decision, the Court of Appeal held that:

It is to prevent the merits of the substantive application from being dealt with at the early stage of the leave application wherein the Applicant is merely required to show on arguable case as to any error of law, excess of jurisdiction or procedural irregularity committed by the public body concerned.”

Furthermore, the Court of Appeal was categorical that the threshold for judicial review is low. Since the Learned High Court Judge did not find that the judicial review application was frivolous or vexatious, the refusal to grant leave for judicial review is flawed. 

Appeal to the Federal Court 

The DGIR had subsequently applied for leave to appeal to the Federal Court and proposed three questions to be answered by the apex court: 

    1. Whether the issue of domestic remedy may only be canvassed and decided at the substantive stage?
    2. Whether any dispute relating to the merits of an assessment raised under a taxing legislation involving question of law or mixed question of law and facts may be determined by way of Judicial Review?
    3. (Subsequently added)Whether a stay order granted by the Court of Appeal after allowing the leave application is contravene with the tax recovery scheme pursuant to Section 103 and 106 of the Act?

It is further understood that the jurisdiction of the newly enacted Section 103B of the Act will be ventilated before the Federal Court as part of the question canvassed in Question 3.  

The Federal Court had allowed questions 1 and 3 but dismissed question 2. This is the first tax case post-Bintulu Lumber to proceed to the highest court in Malaysia in close to two years and should be worth giving attention to.