PUTRAJAYA (Aug 18): A three-member Court of Appeal bench on Monday dismissed the Inland Revenue Board’s appeal against decisions by the High Court and the Special Commissioner of Income Tax, which had set aside an additional tax assessment imposed on a company that sold a commercial property in 2014 after obtaining a clearance exempting it from the real property gains tax (RPGT).

Delivering the unanimous judgement, Datuk Dr Choo Kah Sing — who sat alongside Datuk Faizah Jamaludin and Datuk Amarjeet Singh Serjit Singh — said the core issue was whether Exceptional Landmark Sdn Bhd's disposal of the property two years after purchasing it constituted revenue gain subject to income tax rather than capital gain under the Real Property Gains Tax Act 1976.

"After considering the decisions of both the SCIT and High Court ... we found the SCIT had, in determining the issue, analysed all the badges of trade in arriving at its findings of fact.

“Likewise, the High Court did not find the SCIT’s findings perverse or unreasonable, unsupported by evidence or inconsistent with the primary facts. This court is not moved to interfere with the decisions of the SCIT and the High Court. The IRB director-general's appeal is dismissed with no order as to costs,” Choo ruled.

The bench ordered, by mutual agreement between the IRB and Exceptional Landmark, the IRB to refund the sum of RM7.231 million to the company by Dec 31, 2026.

Exceptional Landmark was represented by Datuk S Saravana Kumar and Dharshini Shama of Rosli Dahlan Saravana Partnership, while senior revenue counsel Normareza Mat Rejab and Syazana Safiah Rosman appeared for the IRB.

Saravana confirmed the appellate court's decision when contacted.

Property investment firm Exceptional Landmark purchased the three-storey commercial building in Shah Alam on June 23, 2012 for RM23.6 million from OSK Trustee Bhd, the trustee for Axis Real Estate Investment Trust (KL:AXREIT). The company then sold the property, fully tenanted, back to the trust through RHB Trustees Bhd, for RM52.5 million.

Following the sale, the company filed its RPGT return and received a certificate of clearance from the IRB. However, on Oct 3, 2017, the IRB reclassified the transaction as business income under Section 4(a) of the Income Tax Act 1967 (ITA) and issued a notice of additional assessment along with penalties for the 2014 year of assessment.

Exceptional Landmark appealed to the SCIT, which ruled that the proceeds did not qualify as trading receipts under the cited law but rather fell under Section 3(1) of the Real Property Gains Tax Act 1967. Consequently, the SCIT discharges the notice of additional assessment.

The IRB then filed an appeal by way of case stated — a legal challenge focusing solely on a question of law rather than a dispute over facts  — which High Court judge Hayatul Akmal Abdul Aziz dismissed on Sept 3 last year, leading to the current appeal.

Saravana argued that the additional tax assessment and penalties amounted to double taxation and were null and void, given that the IRB had already issued an RPGT clearance. He further argued that the IRB cannot attempt to request a rehearing of facts already established by the SCIT without demonstrating any legal basis or ground for appellate intervention.

In response, Norameza argued that Exceptional Landmark, a company with a paid-up capital of only RM2, made a substantial profit when it sold the high-value commercial property it acquired and held for just two years. In IRB's written submission, it said the respondent then distributed the proceeds to shareholders and became effectively dormant thereafter.

“The present appeal does not concern the primary facts found by the SCIT but rather whether the SCIT and the High Court judge correctly characterised those facts in law through the application of the badges of trade,” Norameza said.

The "badges of trade" refer to established guidelines or tests that IRB uses to decide if a transaction or profit is a taxable business income (revenue gain) or a non-taxable investment return (capital gain).