Ketua Pengarah Hasil Dalam Negeri
v.
Richard Allen Sonnet & Anor 455
High Court Malaya, Kuala Lumpur
The respondents, Richard Allen Sonnet and Patricia Ann Sonnet, husband and wife, entered Malaysia on 1 August 1991.
They were teachers contracted with the International School, Kuala Lumpur.
Their stay in Malaysia during the relevant basis years are as follows:
Richard Allen Sonnet alone attended a work-related conference held in Singapore, leaving Malaysia on 23 April 1992 and returning on 25 April 1992. The two respondents departed together from Malaysia on 18 June 1992 for their summer vacation and returned to Malaysia on 10 August 1992.
The appellant, the Director General of Inland Revenue, treated the respondents as non-resident for tax purposes for the year of assessment 1992, for which an assessment of RM9,721.25 dated 27 October 1992 and an additional assessment of RM10,905.40 dated 8 August 1996 respectively were raised against Richard Allen Sonnet and Patricia Ann Sonnet.
It is to be noted that the advantage of having tax residence status is that a resident individual is eligible for personal relief. In contrast, a non-resident will be liable to income tax at a flat rate of 32%.
The dispute, in this case, is on the interpretation of s. 7(1)(b) of the Income Tax Act 1967 (the Act) which provides:
7(1) For the purpose of this Act, an individual is resident in Malaysia for the basis year for a particular year of assessment if -
...
he is in Malaysia in that basis year for a period of less than one hundred and eighty-two days, and that period is linked by or to another period of one hundred and eighty-two or more consecutive days (hereinafter referred to in this paragraph as such a period) throughout which he is in Malaysia in the basis year for the year of assessment immediately preceding that particular year of assessment or in the basis year for the year of assessment immediately following that particular year of assessment;
Provided that any temporary absence from Malaysia -
connected with his service in Malaysia and owing to service matters or attending conferences or seminars or study abroad;
owing to ill health involving himself or a member of his immediate family; and
in respect of social visits not exceeding fourteen days in the aggregate shall be taken to form part of such period.
The respondents have relied on s. 7(1)(b) of the Act to make them qualify for the tax residence status.
In their appeal before the Special Commissioners of Income Tax (the Special Commissioners), they contended that they were residents in Malaysia for the year of assessment 1992 under the said provision on the ground that their stay in Malaysia during the basis year 1991 is linked to a period of 184 days in the basis year 1992 made up of:
their 170-day presence in Malaysia from 1 January 1992 to 18 June 1992, in combination with
their 14-day temporary absence from Malaysia from 19 June 1992 to 2 July 1992 regarding social visits under s. 7(1)(b)(iii) of the Act.
On the other hand, the appellant argued that since the respondents did not return to Malaysia after the fourteenth-day i.,e. 3 July 1992, the proviso (iii) cannot be applied; therefore, the 14 days absence from Malaysia cannot be added to the 170 days in the basis year 1992.
Further, it was argued that since the 14 days absence from Malaysia is part of the 52 days during which the respondents were away, the 14 days period cannot be considered.
The appellant's argument on the construction of the section did not find favour with the Special Commissioners.
The majority of the Special Commissioners (comprising the Chairman, Special Commissioner Noor Azian binti Shaari and Special Commissioner Kamarudin bin Mohd. Noor) held "the contention of the respondent (appellant) that since the appellants (respondents) did not return to Malaysia on 3 July, 1992 and therefore the first 14 days of the appellants' (respondents') absence cannot be taken into account to make up the 182 days or more under s. 7(1)(b) of the Act, tantamount to putting conditions or stipulations into the law, and this would be contrary to the principle of interpretation of any law, more so taxing law which must be strictly interpreted and the words given their plain and ordinary meaning …. where the meaning of a statute is in doubt the ambiguity must be construed in favour of the subject."
The minority view of Special Commissioner Toong Chooi Poh on this point is in line with the majority view when he ruled that the basis of the respondents' argument appears to be sound in law since it is not refuted by, or in contradiction of s. 7 or any other provision of the Act.
On this particular issue, I agree with the views of the Special Commissioners that any conditions or stipulations, unless they are specifically provided, must not be read into the law, as tax laws are strict and must be construed strictly.
Consequently, the majority decision of the Special Commissioners found that the respondents have satisfied the requirements of s. 7(1)(b) of the Act and held that the appellant was erroneous and therefore allowed the appeal.
The sole dissenting Special Commissioner, Toong Chooi Poh, disagreed with the conclusion of the majority view that the respondents' absence from Malaysia from 19 June 1992 to 2 July 1992 should be taken to form part of the period of 182 or more days prescribed under s. 7(1)(b) of the Act to qualify them as tax residents for the year of assessment 1992. His dissenting decision on p. 16 of the case stated as follows:
In my view, the Appellants (Respondents) have merely alluded to their absence from Malaysia during that period regarding social visits.
Still, no evidence whatsoever was adduced to prove that for a fact.
It has been established as an agreed fact that they departed Malaysia on 18 June 1992 for their summer vacation and returned to Malaysia on 10 August 1992.
However, section 7(1)(b)(iii) refers specifically to "social visits", which is just one of the many varied activities (like, for instance, being a full-time couch potato!) the Appellants (Respondents) could have indulged in during their summer vacation.
It follows then that if the appellants want to invoke that provision of the law, they surely would have to produce some evidence, or at least testify in person at the hearing, to show that while on summer vacation, they were both actively involved in social visits at least on each of the days from 19 June 1992 to 30 June 1992.
This evidence of the fact is critical to the outcome of the present appeal because even if one single day within the period from 19 June 1992 to 30 June 1992 is not found to have been spent on social visits, there would be a break in the continuity of the Appellants' (Respondents') deemed presence in Malaysia short of the minimum 182 days prescribed under section 7(1)(b), and this appeal would then have to be rejected.
Before me, Encik KF Kok, for the appellant, argued strongly that the respondent was not resident for Malaysian tax purposes for years of assessment 1992 as the respondent was away for 52 days from 19 June 1992 until 9 August 1992. Therefore the first 14 days of their absence cannot be taken to form part of the 182 days under s. 7(1)(b) of the Act . According to him, the 52 days absence cannot be considered a temporary absence as the word "temporary" presupposes that the respondents must return to Malaysia on the 15th day.
With respect, I cannot agree with that proposition.
I agree with the submission of Dr Arjunan Subramaniam, counsel for the respondents, on this point that s. 7(1)(b) allows 14 days of absence to be counted to make 182 or more consecutive days.
The 14 days need not be consecutive; nor need they be at the beginning, middle or end of the period making 182 or more consecutive days.
Proviso (iii) to s. 7(1)(b) allows temporary absence from Malaysia so long as the period is in respect of social visits, and the absence must not exceed 14 days in the aggregate.
In my view, what is important in proviso (iii) is that the period of absence must not exceed a total number of 14 days and that 14 days of absence must be in respect of social visits.
In other words, the 14 days of absence and social visits need not be taken together at one time; they may be taken at intervals, and if so, the total number of days of absence for the social visits must not exceed 14 days.
The next question to be asked is whether the respondents' first 14 days out of 52 days of absence can be considered in respect of social visits.
This appears to be an issue which troubles the respondents.
It is agreed that the respondents left Malaysia on 18 June 1992 for their summer vacation and returned to Malaysia on 10 August 1992, a period of 52 days.
Dr. Arjunan Subramaniam quite rightly pointed out that this case falls or stands on whether a "summer vacation" is a "social visit" within the meaning of s. 7(1)(b) of the Act .
He urged the court to give a broad definition of the term "social visits" to mean that "summer vacation" is a "social visit". The Act, however, does not define "social visits".
It is trite law that taxing statutes must be strictly interpreted and the words given their plain and ordinary meaning.
Rowlatt J, in Cape Brandy Syndicate v. IRC, which was applied with approval in National Land Finance Co-operative v. DGIR [1993], said:
... it means that in taxation, you have to look simply at what is clearly said. There is no room for any intendment; there is no equity about a tax; there is no presumption as to tax; you read nothing in; you imply nothing, but you look fairly at what is said and at what is said clearly, and that is the tax.
Applying the above principle to the interpretation of the proviso (iii) to s. 7(1)(b), it is my considered judgment, and I so hold that "summer vacation" is not synonymous with "social visits".
They are the different sets of words having different sets of meanings. They mean what they say.
The words used are ordinary, and their plain and ordinary meaning should be adopted.
Jessel MR in Re Levy, ex parte Walton [1881] 17 Ch D 746, said of the principle used in such construction that the grammatical and ordinary sense of the words should be adhered to unless that would lead to some absurdity.
One cannot imply "summer vacation" is a "social visit".
To imply such a meaning, it would then be in breach of the principle that "you read nothing in; you imply nothing", as laid down in Cape Brandy, supra.
supra is used in academic or legal texts to refer to someone or something mentioned earlier or earlier. It is not in dispute that the respondents left Malaysia for summer vacation.
It is an admitted fact.
But there is no fact admitted, proved or found by the Special Commissioners that the respondents went on social visits while on summer vacation.
Without supporting evidence, social visits cannot be presumed to have been made during the summer vacation.
They have to be proven.
Surely, if the respondents wish to take advantage of that provision of the law, they would have to produce some evidence, or at least testify in person at the hearing, to show that while on summer vacation, they were both actively engaged in social visits at least on each of the days from 19 to 30 June 1992.
With great respect, I agree wholly with the dissenting judgment of Special Commissioner Toong Chooi Poh that this piece of evidence of the fact is critical to the result of the present appeal because even if one single day within the period from 19 to 30 June 1992 is not found to have been spent on social visits, there would be a break in the continuity of the respondents' deemed presence in Malaysia short of the minimum 182 days prescribed under s. 7(1)(b) of the Act .
Under para. 13 of schedule 5 of the Act, the onus is on the respondents to prove their tax assessments are excessive or erroneous.
Thus, the onus is on them to prove by adducing evidence to substantiate that the entire 14-day period was indeed a temporary absence regarding social visits.
They have failed to do so.
Therefore, the respondents were not residents in the basis year 1991 on the ground that their stay in Malaysia in that basis year was not linked to another period of at least 182 consecutive days throughout which they were in Malaysia in the following basis year 1992.
Hence, s. 7(1)(b) is not applicable.
The court is always conscious of the principle that it can only interfere with the finding of the Special Commissioners if there is no evidence upon which they could conclude at they did (see per Finlay J, in St Aubyn Estates, Ltd. v. Strick (H.M. Inspector of Taxes) 17 TC 412 at p. 419).
In the present case, it is clear beyond doubt that the majority decision of the Special Commissioners is erroneous.
They have misdirected themselves on the point of law in that the respondents have met the requirements of s. 7(1)(b) of the Act .
Such a conclusion is contrary to evidence which was not before them; hence their determination is wrong in law, for which this court is obliged to interfere.
Their decision cannot be allowed to stand.
Accordingly, I allow the appeal with costs, set aside the deciding order dated 21 July 1997 and the tax assessments which Special Commissioner Toong Chooi Poh upheld are hereby affirmed.
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