Tax-exempt status: Kidney foundation obtains leave in legal challenge

 

The Shah Alam High Court has granted leave for the commencement of judicial review against the Inland Revenue Board’s (IRB) decision to revoke the National Kidney Foundation’s (NKF) tax-exempt status.

Judge Shahnaz Sulaiman delivered the decision during online proceedings earlier today.

She ruled that NKF’s leave application was not frivolous and that the judicial review is the appropriate forum to determine whether its tax exemption status - under Section 44(6) of the Income Tax Act 1967 (ITA) - can be revoked by the IRB.

With leave granted, the court would later set another date to hear the merits of NKF’s legal action.

S Saravana Kumar, the senior partner of the law firm Rosli Dahlan Partnership that represented NKF, confirmed the outcome with Malaysiakini.

Tax exemption status

In 1970, the IRB granted NKF tax exemption status under Section 44(6)(a) of the ITA.

However, after a tax audit in 2019, the IRB was alleged to have decided to revoke the tax exemption status and raise tax assessments to NKF in July 2020.

NKF had filed the legal challenge on Sept 17 that year, naming the IRB as the respondent.

According to a copy of the judicial review application sighted by Malaysiakini, the foundation seeks a court order to quash IRB’s decision in the form of a letter dated June 17, 2020, that allegedly withdrew its tax-exempt status.

The applicant claimed the decision was illegal, void, unlawful and/or in excess of authority, irrational and/or unreasonable, among others.

NKF seeks a court declaration “that the respondent is not entitled in law to impose arbitrary and unilateral conditions on a charitable organisation such as the applicant when such conditions are not contained in the approval letter and/or communicated to the applicant”.

According to a copy of an affidavit in support of the judicial review affirmed by the foundation’s chairperson Dr Zaki Morad Mohamad Zaher, the applicant contended that the IRB failed to appreciate ITA provisions that the income of an approved charitable organisation, received for charity purposes is exempted from tax, provided that the establishment is not operated primarily for profit.

The ITA provisions in question are Sections 44(6) read together with Paragraph 13 of Schedule 6 of the act.

NKF contended that IRB failed to take into account established legal precedent of superior courts that approved charitable organisations are entitled to tax exemption as the principle of vested rights applies.

“It is not open to the respondent to arbitrarily and unilaterally impose conditions including a points system when the existence of such conditions was never communicated to the applicant and neither were such conditions prescribed by law,” the foundation claimed. - Mkini