Federal Court rules in favour of IRB over RM1.8 billion tax appeal against TNB

Sinar Daily

2 days ago

The court held that TNB's claim for reinvestment allowance under Schedule 7A of the Income Tax Act 1967 was misconceived and not in accordance with the provisions of the Act.
02 Jul 2025 05:21pm
The Federal Court allowed the Inland Revenue Board's appeal to reinstate an additional tax assessment of RM1.8 billion against Tenaga Nasional Berhad for the 2018 assessment year.
PUTRAJAYA - The Federal Court today allowed the Inland Revenue Board's (IRB) appeal to reinstate an additional tax assessment of RM1.8 billion against Tenaga Nasional Berhad (TNB) for the 2018 assessment year.
A five-member panel chaired by Court of Appeal President Tan Sri Abang Iskandar Abang Hashim unanimously overturned the earlier decisions of both the High Court and the Court of Appeal, which had ruled in favour of TNB and quashed the IRB's tax assessment.
The other members of the panel were Federal Court judges Tan Sri Nallini Pathmanathan, Datuk Zabariah Mohd Yusof, Datuk Rhodzariah Bujang and Datuk Abu Bakar Jais.
No order as to costs was made, with the court noting that the matter involved issues of public interest.
Delivering the court's judgment, Justice Rhodzariah held that TNB's claim for reinvestment allowance (RA) under Schedule 7A of the Income Tax Act 1967 (ITA) was misconceived and not in accordance with the provisions of the Act.
She added that TNB ought to have applied for an investment allowance under Schedule 7B of the ITA, rather than seeking RA under Schedule 7A.
She explained that the legislative intent behind Schedule 7A was to incentivise manufacturing companies to reinvest in their existing operations in Malaysia.
In contrast, Schedule 7B provides for investment allowance incentives specifically tailored to companies in the services sector, as approved by the Finance Minister.
Justice Rhodzariah further noted that TNB is authorised to impose a service charge under the Service Tax Act 2018, which reinforces its status as a service provider.
As such, the court found that TNB falls within the ambit of the services sector and is therefore subject to Schedule 7B, not Schedule 7A.
The IRB argued that TNB, as a utility provider, does not qualify as a manufacturer and is thus not entitled to the RA granted to entities engaged in manufacturing activities.
On July 21, 2020, TNB filed a judicial review application seeking, among others, to quash the IRB's decision dated July 13, 2020, which had disallowed its RA claim amounting to RM1,812,506,384.64.
The company also sought a declaration that it was entitled to claim the RA under Schedule 7A of the ITA.
TNB had included its RA claim for the year of assessment 2018 in its tax return. However, the IRB informed the company that the claim had been disallowed in a letter dated July 3, 2020.
Subsequently, on July 13, 2020, the IRB issued a notice of additional assessment against TNB for RM1,812,506,384.64 in tax.
TNB then initiated judicial review proceedings to challenge the assessment. In February 2022, the High Court allowed the application and set aside the IRB's additional assessment for the year 2018.
The Court of Appeal, in a decision delivered in May 2023, affirmed the High Court's ruling. Despite the dispute, TNB has already paid the assessed sum.
At today's hearing, the IRB was represented by Datuk Dr Cyrus Das and senior revenue counsel Ashrina Ramzan Ali, while counsels Datuk D. P. Naban and S. Saravana Kumar appeared for TNB. - BERNAMA
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