KUALA LUMPUR (Feb 8): The Inland Revenue Board (IRB) has failed in its tax claim of RM1.8 billion for the year 2018 against Tenaga Nasional Bhd (TNB).
This follows the High Court here allowing TNB's judicial review application to challenge the tax imposed as the court agreed that the sum is considered reinvestment allowance (RA).
The decision was made on Tuesday (Feb 8) by Justice Datuk Noorin Badaruddin.
Tuesday's decision is considered a landmark decision as it may have a favourable impact on the other ongoing tax appeals lodged by TNB. It is understood that this is in relation to its RA for the earlier years of assessment 2003 to 2007 and 2009 to 2017 which amounts to RM5.8 billion in additional taxes and refund.
TNB was seeking to quash the IRB decision dated July 13, 2020, to impose a sum of RM1.812 billion as additional assessment, as it disallowed the utility company's contention that it was a claim for RA.
The High Court had first allowed leave and stay of the proceedings in August and September 2020, and a hearing of its merit was carried out prior to this before the decision was delivered on Tuesday.
Justice Noorin in her judgment ruled that TNB is entitled to the reinvestment tax allowance as it last claimed it in the year ending 2003.
While IRB had argued that TNB is not entitled to the RA as it is classified as not in the business of manufacturing electricity and that TNB is just a service provider and thus should claim investment allowance under Schedule 7B of the Income Tax Act 1967, the court disagreed with this.
Court rules TNB manufactures electricity
Justice Noorin said the court is of the view that TNB's business relates to manufacturing of electrical energy or that the generation of electricity is a manufacturing activity.
“The applicant (TNB) has particularised its project to be the transmission project consisting of installation of new lines and reinforcement of existing lines to facilitate the increase in transmission of electricity to new development areas as well as increasing efficiency and reducing interruption during the transmission. The distribution project consists of installation of new lines and substations to increase capacity for distribution to new areas.
“TNB cannot be said to be a utility or service provider company per se. It has expanded and diversified its business activity into manufacturing for it has to. Otherwise, the distribution of electrical supply in this country will never attain efficiency,” said Justice Noorin.
In arriving at her decision, Justice Noorin quoted the case of Canada (Deputy Minister of National Revenue, Customs and Excise-MNR) v Quebec (Hydro-Electric Commission).
The court added since TNB claimed RA in 2003, it is entitled to claim in 2018 — 15 years later — as it is the company's vested right.
Justice Noorin further said the definition of manufacturing that came into effect in the year ending 2009 cannot be imposed on TNB.
Hence, she ruled that manufacturing of electricity is not excluded under paragraph seven of Schedule 7A and the Income Tax (Prescription of Activity Excluded from the Definition of Manufacturing) Rules 2012.
She further ruled that IRB's internal interpretation and policy, including its public ruling, do not bind TNB and that it must be executed in conformity not only with the express words of the statute but also certain implied legal requirements.
“In balancing the need of the government to realise taxes and the need of the taxpayers to be protected from incorrect assessments and in light of the above view and interpretation of the laws, this court finds that the balance tilts towards the applicant (TNB),” she said in allowing the judicial review application.
Justice Noorin also ordered IRB to pay RM5,000 costs to TNB.
The company was represented by counsel S Saravana Kumar from Messrs Rosli Dahlan Saravana Partnership, who confirmed the decision with theedgemarkets.com.
Saravana Kumar appeared with Nur Amira Ahmad Azhar while the IRB was represented by Hazlina Hussain, Ashrina Ramzan Ali and Nordiana Sham.
It is understood that a statement will be issued by TNB to Bursa Malaysia later this evening.