Shafee files to stay RM9.41m tax suit, pending Najib’s tax appeal outcome

Lawyer Muhammad Shafee Abdullah is seeking to stay the Inland Revenue Board’s (IRB) RM9.41 million tax suit against him.

He contended that the tax proceedings against him ought to be temporarily suspended, pending the outcome of Najib Abdul Razak’s appeal at the Federal Court against a tax ruling targeting the former prime minister.

Through the stay application filed at the Kuala Lumpur High Court on Nov 3, Shafee claimed that this is because the outcome of Najib’s appeal could impact the tax suit against the lawyer, thus serving as one among a few special circumstances warranting the stay.

Before the Federal Court, Najib and his son Mohd Nazifuddin are appealing to nullify summary judgment rulings against them in relation to the RM1.69 billion and RM37.6 million tax suits against them.

Najib and Nazifuddin contended that the High Court summary judgment rulings led to deciding the tax suits in favour of IRB, while disregarding any defence the father and son could have raised via full trial.

Relying on the summary judgment rulings, IRB has commenced bankruptcy proceedings against Najib and Nazifuddin to recover the tax arrears.

'Rubber stamp'

However, on Oct 21, the Court of Appeal allowed an application by Najib and Nazifuddin to stay the tax-related summary judgments against the duo, pending their appeal to the Federal Court. The Federal Court is set to hear the father-son’s appeal on Feb 16 next year.

Shafee’s law firm, Shafee & Co, is also acting for Najib and Nazifuddin in the Federal Court appeals.

According to a copy of an affidavit in support of the stay application seen by Malaysiakini, Shafee (above) contended that the tax suit against him needed to be stayed because the outcome of the appeals by Najib and Nazifuddin centres on the validity of Section 106 (3) of the Income Tax Act 1967.

The lawyer said that the apex court appeals' outcome could affect the tax suit against him, as there is an issue whether the provision reduces the court to a mere “rubber stamp” when hearing the IRB’s summary judgment application against him.

Shafee said the outcome of the appeals by Najib and Nazifuddin can help determine “whether the trite law of proving triable issues to defeat a summary judgment application is not applicable when the claiming party is the (Inland) Revenue (Board)”.

Among the central issues in the appeals by Najib and Nazifuddin is whether Section 106(3) is invalid for contravening Article 121 of the Federal Constitution.

Special circumstances

Section 106, in general, empowers the IRB to institute a civil action in court to recover tax arrears and penalties from taxpayers.

Section 106 (3) specifically states that when in relation to IRB's civil action to recover taxes, the court “shall not entertain any plea that the amount of tax sought to be recovered is excessive, incorrectly assessed, under appeal or incorrectly increased”.

Article 121 is in relation to the powers of the judiciary in Malaysia.

In their appeals, Najib and Nazifuddin contended that Section 106(3) is unconstitutional as it takes away the court’s power (as per Article 121) to consider the defence of a taxpayer against the IRB’s civil actions to recover the tax.

“It is pertinent for this court to take into consideration that in the event a stay is not granted, then I will suffer an ‘irreparable damage’ to my career and livelihood.

“IRB suffers no prejudice in monetary terms because the judgment granted by the High Court includes an order for payment of post-judgment interest,” Shafee said in the affidavit.

Rendered nugatory

The lawyer also cited other special circumstances for the stay, such as his pending tax-reassessment appeal before the IRB’s Special Commissioners of Income Tax; that there are alleged errors in the additional tax assessment against him; and that there are alleged elements of mala fide (bad faith), abuse of process and collateral attack by the tax authority against him in relation to the tax suit.

“I am advised and verily believe that a successful appeal to the Special Commissioners of Income Tax would be rendered nugatory (pointless) by a refusal to stay this proceeding, and I could not be restored to my original position should the judgment of this action be entered against me.

“This is especially when the total amount claimed by the plaintiff (IRB) will indeed cause colossal financial damage and the risk on the part of me being declared bankruptcy via (enforcement) proceedings is likely to be imminent.

“This is evident from the fact that the plaintiff has already filed their summary judgment against me and should my application for stay of proceedings be rejected by this honourable court, the plaintiff is most ready to enter the summary judgment against me,” Shafee contended.

When contacted by Malaysiakini, Shafee’s counsel confirmed the filing of the application to stay the tax suit against the lawyer. - Mkini