In landmark decision, court allows TNB to quash LHDN’s RM1.8bil tax claim

 

The ruling is expected to have a favourable impact on other ongoing tax appeals lodged by Tenaga Nasional Bhd.

KUALA LUMPUR: The High Court today allowed Tenaga Nasional Bhd’s (TNB) judicial review application to set aside the Inland Revenue Board’s (LHDN) RM1.8 billion tax assessment for the year 2018.

In her ruling, judge Noorin Badaruddin agreed that the amount was considered a reinvestment allowance (RA).

TNB’s counsel S Saravana Kumar, who confirmed the matter, said the dispute arose when LHDN disallowed the energy company’s RA claim under Schedule 7A of the Income Tax Act 1967 on the basis that TNB’s generation, distribution and transmission of electricity was not manufacturing of electricity, and argued that it was only a service provider.

“The judge in disagreeing with LHDN’s argument held that TNB is in the business of manufacturing electrical energy and that the generation of electricity is a manufacturing activity.

“The judge observed that because it was the transformation issue that turns electrical energy into a form that can be used by customers, this transformation must be considered to be part of the manufacture and production of electricity.

“The court also commented that electricity was not precluded as a manufacturing activity both under Schedule 7A and also in the gazette order issued by the finance minister.

“The court went on further to rule that LHDN’s internal interpretation is not binding on taxpayers,” said the counsel.

Saravana said today’s ruling was considered a landmark decision as it may have a favourable impact on other ongoing tax appeals lodged by TNB.

“It is understood that this is in relation to its RA for the years of assessment 2003 to 2007 and 2009 to 2017 which amounts to RM5.8 billion in additional taxes and refund,” he said.

TNB was also represented by Nur Amira Ahmad Azhar, while LHDN was represented by its deputy solicitor Hazlina Hussain.

On July 21, 2020, TNB filed a judicial review application to, among others, quash LHDN’s decision dated July 13, 2020. In essence, the respondent disallowed the applicant’s RA claim of RM1,812,506,384.64.

The company also sought a declaration that it was entitled to claim the RA under Schedule 7A of the Income Tax Act 1967.

TNB also claimed RA for the year of assessment 2018 in its tax return, only to be informed by LHDN on July 3, 2020, that the claim was disallowed.

“On July 13, 2020, LHDN issued the notice of additional assessment for additional tax amounting RM1,812,506,384.64,” TNB said in its application. - FMT