KUALA LUMPUR (Feb 28) The High Court (Appellate and Special Powers division) has overturned a previous decision of the Special Commissioner of Income Tax (SCIT) by ruling on Wednesday that the Inland Revenue Board (IRB) does not have the authority to apportion contributions claimed as deductions under the Petroleum (Income Tax) Act 1967 (PITA).

Judge Datuk Ahmad Kamal Md Shahid, in allowing Petronas' appeal, ruled that SCIT had erred in allowing apportionments, and that this had led to the issuance of Notices of Additional Assessment on Petronas.

SCIT initially did not address whether the IRB had the power to apportion part of Petronas' contribution to the National Trust Fund and Advertising and Promotion expenses which Petronas had considered as valid deductions.

While SCIT agreed with Petronas that these deductions could not be apportioned, the comissioner concluded that there was an agreement on the apportionment between the IRB and relevant Petronas companies, although Petronas' counsels S Saravana Kumar and Nur Amira Azhar from Messrs Rosli Dahlan Saravana Partnership disputed such an agreement.

Petronas claimed that its contribution to the National Trust Fund amounted to RM140 million, while its Advertising & Promotional expenses were RM112.321 million.

Here the SCIT allowed the deduction for the National Trust Fund contribution, but only to an amount of 65%. Similarly, it allowed the Advertising and Promotion expenses at a ratio of 30:70 for upstream and downstream activities.

Saravana had argued that the Petroleum (Income Tax) Act 1967 (PITA) allowed for total deductions and that the IRB and SCIT should not apportion it.

The decision on Wednesday was confirmed by Saravana to The Edge.

Petronas had named the director-general of the IRB in the judicial review appeal and the board was represented by lawyers Noor Faezah Zainodin and Munirah Abd Wahid.

Saravana, commenting on the decision, said this is the first case in Malaysia which pertains to an appeal against SCIT over its decision to allow the apportionment of deductible expenses under PITA.