7-member bench to hear if Income Tax Act trumps lawyer-client privilege

 

LHDN says the Malaysian Bar had applied to the Federal Court for an enlarged bench to hear the board’s appeal.

PUTRAJAYA: A seven-member Federal Court bench will hear the Inland Revenue Board’s (LHDN) appeal tomorrow on its right to check on law firms and conduct audits on their clients’ accounts.

LHDN senior revenue counsel Hazlina Hussain said the Malaysian Bar, who is the respondent, had applied to the court for an enlarged bench.

She said a copy of the letter was sent to LHDN yesterday.

Since 2018, it had been the practice of the Federal Court to assemble a nine or seven-member panel if the appeal touched on constitutional and public interest issues.

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In this case, the court allowed LHDN’s leave to appeal the matter by framing four legal questions of public importance.

FMT understands that the Sabah Law Society and the Advocates Association of Sarawak will appear as amicus curiae (friends of the court) as the final outcome may also affect lawyers in those states.

The issue started in 2016 when several legal firms complained to the Bar that LHDN had been carrying out raids on law firms to conduct audits on their clients’ accounts.

The firms also claimed that LHDN had insisted on having sight of accounting books and records pertaining to these accounts.

On Nov 3, 2016, the Bar wrote to the director-general of LHDN and expressed its objections and its view that the documents and information sought were protected by solicitor-client privilege.

A month later, the board replied that the audits were necessary to ensure “tax compliance” by taxpayers.

It maintained that the audits were also not in breach of any solicitor-client privilege as Section 142(5) of the Income Tax Act 1967 overrode the provisions of the Evidence Act 1950 and the Legal Profession Act 1976.

The Bar then filed a judicial review in 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.

As such, the privilege provided under the Evidence Act precluded LHDN from insisting on documents or information relating to clients’ accounts.

A three-member Court of Appeal also upheld the High Court ruling on Oct 27 last year. - FMT