In KT & Co. v Ketua Pengarah Hasil Dalam Negeri (1991) MSTC 2594 the Special Commission of Income Tax (SCIT) determined that good faith as a defense is not applicable under Section 113(2) of the Income Tax Act (ITA) 1967 on the ground that there is nothing in Section 113(2), unlike Section 113(1) which says that good faith is a defense. This determination is however not followed in subsequent determination by the SCIT. For example, in OPD Sdn Bhd v KPHDN (2009) MSTC 3846 the SCIT ruled that since the incorrect return or information was made in good faith the penalty imposed was to be waived. Similarly, in NVA Sdn Bhd v KPHDN (2009) MSTC 3897 the SCIT also determined that if a deduction of an expenditure is claimed in good faith any penalty imposed is wrong in law.
Although good faith is not provided for in Section 113(2), the section if interpreted literally could lead to taxpayers acting on professional advice which the Inland Revenue Board (IRB) does not accept as correctly being liable to penalty. It should be noted that Section 113(2) talks about submitting incorrect return or giving false information. It is submitted that difference of opinion cannot be the basis of falsehood, particularly where a taxpayer acts on professional advice.
The 2009 determinations are under appeal and it is hoped that the superior courts will provide some guiding principles in this area.
Source: Francis LK Tan and Janice Kon, "Case Commentaries", Tax Guardian (Vol. 2/No. 3/2009/Q4), p. 41
Detail of Section 113, ITA 1967 : Please click - http://www.kpmg.com.my/kpmg/publications/tax/22/a0053s0113.htm
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