Justice Collin Lawrence Sequerah, in delivering the unanimous decision of a three-member bench, held that the High Court and Special Commissioners of Income Tax (SCIT) had erred in upholding the tax assessment issued by LHDN.
The bench agreed with electronics manufacturer Keysight Technologies Malaysia Sdn Bhd that the proceeds from the sale of intellectual property (IP) rights are a capital receipt instead of income.
“The receipt from the sale of such capital assets constitutes capital receipt. It was not income in nature, and therefore not taxable,” Sequerah said in the ruling delivered on Friday.
Justice Kamaludin Said, who chaired the three-member bench, and Justice Abu Bakar Jais were also on the panel that heard the appeal last year.
LHDN was also ordered to pay Keysight RM20,000 in costs.
Keysight had sold its IP in the form of technical know-how under a global restructuring programme.
LHDN then initiated an audit and eventually assessed the proceeds from the sale of IP as income.
LHDN alleged that the proceeds received represented compensation for the loss of the taxpayer’s income.
Keysight paid the RM286 million assessment to LHDN and filed an appeal to the SCIT, which was dismissed in March 2020. The High Court affirmed the decision in May 2021.
The Court of Appeal, in overturning the earlier judgments, further found that LHDN’s assessment was time-barred as it was issued past the expiry of the five-year limitation period under the Income Tax Act 1967.
LHDN issued the tax assessment and demanded payment in 2017, although the five-year limitation expired in 2013.
The bench held that LHDN had failed to establish the negligence exception required to lift the time bar under the Income Tax Act 1967.
The bench also affirmed that the mere act of claiming a tax treatment with which LHDN disagreed could not amount to negligence.
The bench observed that the taxpayer had made full and frank disclosure of the receipt in the tax returns and sought professional advice in preparing its tax returns.
Lawyers Cyrus Das, Jason Liang, Yeoh Yao Huang, Jeff Sum and Tan Wen Ying represented Keysight while senior revenue counsels Normareza Mat Rejab and Syazana Safiah Rosman appeared for LHDN.