Chief Justice Tengku Maimun Tuan Mat said the LHDN had failed to comprehend that information in such accounts was protected by solicitor-client privilege.
“The content of the client’s accounts belongs to the clients of the solicitor and not the solicitor,” said Tengku Maimun, who led a seven-member bench which unanimously dismissed the appeal.
Therefore, she said, there was no necessity to audit the accounts to determine the quantum of tax to be imposed on a solicitor’s firm.
There was no other credible reason to justify LHDN checking the accounts, the top judge said.
Tengku Maimun said the bench was of the view that Section 142(5) of the Income Tax Act 1967 did not oust Section 126 of the Evidence Act, which specified that money belonging to a client was covered by solicitor-client privilege.
“It is therefore not for a solicitor to divulge the content of his client’s accounts by reason of Section 126.
“That privilege belongs to the client and not the solicitor. Only the client can waive the privilege to make available the content of the account to the LHDN,” she added.
However, Tengku Maimun said, an exception in Section 126 allowed a lawyer to report the commission of a crime or any other illegal activity involving his client to the authorities.
She said the LHDN should not be allowed to go through a law firm’s client’s accounts to prevent the authority from embarking on “a fishing expedition” of transactions involving that firm’s clients.
A legal tussle between the Malaysian Bar and LHDN started in 2016 when several legal firms complained to the Bar that LHDN had been raiding law firms to conduct audits on their client’s accounts.
The firms also claimed that LHDN had insisted on looking at accounting books and records pertaining to those accounts.
On Nov 3, 2016, the Bar wrote to the LHDN’s director-general expressing its objections and contending that the documents and information sought were protected by solicitor-client privilege.
A month later, the board replied to say that audits were necessary to ensure “tax compliance” by taxpayers.
LHDN contended that the audits did not breach solicitor-client privilege as Section 142(5) of the Income Tax Act overrode the provisions of the Evidence Act and the Legal Profession Act.
The Bar then filed a judicial review at the High Court in Kuala Lumpur, seeking several declarations on the issue.
On April 2, 2018, the High Court ruled in favour of the Bar and held that Section 142(5) did not override Section 126 of the Evidence Act.
A three-member Court of Appeal panel unanimously upheld the High Court’s ruling on Oct 27 last year.
Senior revenue counsel Hazlina Hussain represented LHDN while Anand Raj appeared for the Bar.
The Sabah Law Society and the Advocates Association of Sarawak attended the proceedings as amicus curiae (friends of the court).