A New Chapter in Stamp Duty Appeals – The Case Of Lee Koy Eng

Introduction

Recent amendments to the Stamp Act 1949 (SA 1949), as outlined by the Finance (No.2)Act 2023, have heralded significant shifts in stamp duty law.

The case of Lee Koy Eng v Pemungut Duti Setem (2022) MSTC 30-483 (“Lee Koy Eng”) may have played a pivotal role in shaping legislative responses to amendments in the SA 1949, specifically:

The legal journey regarding stamp duty appeals has been marked by significant rulings and legislative revisions, with a crucial turn occurring in earlier Federal Court decisions such as Pemungut Duti Setem v Muhibbah Engineering (M) Berhad [Civil Application No: 08(F)-163-03/2017(W)] (“Muhibbah”). In 2017, the Muhibbah case tested the appealability of stamp duty matters to the Federal Court, as the duty payer filed a preliminary objection against the Collector of Stamp Duty’s(“Collector”) appeal.

The duty payer argued, amongst others, that the High Court did not hear the matter in its originating jurisdiction thereby rendering the appeal non-compliant with S. 96(a) of the Courts of Judicature Act 1964. Following deliberations on both parties’ submissions, the Federal Court decided in favour of the duty payer. The Collector(the appellant in this case) was denied leave to appeal to the Federal Court.

In 2022, a similar issue arose on whether a stamp duty appeal can be heard in the Federal Court. Challenging the precedent set by earlier cases, the Federal Court in Lee Koy Eng recognised that stamp duty appeals can indeed find their way to the Federal Court, provided certain conditions are met. This marked a departure from the position established in Muhibbah and other trite law.

Consequentially, we saw the SA 1949 undergoing significant amendments providing much-needed clarity on the appeal process and eliminating ambiguities that had persisted in the past.

Background of Lee Koy Eng

In this case, the deceased died intestate, leaving assets, including 5 pieces of land. Co-administrators were appointed by the Shah Alam High Court, and a Deed of Family Arrangement (“DFA”) was executed, transferring the deceased’s interest solely to the duty payer. Subsequently, a Memorandum of Transfer, Form 14A, was completed to transfer a two-thirds portion to the duty payer. The Collector then imposed an ad valorem stamp duty on the forms, citing Item 66(c) of the First Sch of the SA 1949,considering it a "release or renunciation of property by way of gift".

The duty payer objected, seeking review under S. 38A(1) of the SA 1949, and argued for classification under Item 32(i) of the First Sch of the SA 1949 with a fixedRM10 rate, as a "conveyance or transfer not specifically charged with stamp duty”. This was rejected by the Collector, leading to the duty payer paying the stamp duty and filing an appeal to the High Court pursuant to S. 39 of the SA 1949. Both the High Court and the Court of Appeal were in favour of the duty payer, affirming that a memorandum of transfer giving effect to a renunciation of an entitlement to an intestate estate is subject to a nominal duty of RM10under Item 32(i).

The Collector subsequently filed an appeal to the Federal Court as it was not satisfied with the decisions of the learned courts. The Federal Court granted leave to the Collector, prompting the duty payer to file a motion to set aside the leave granted on the ground that the Federal Court lacked jurisdiction to hear the appeal.

Amendments to the First Sch of the SA 1949

As the SA 1949 did not provide for such transfer of interest in Lee Koy Eng, it was amended to provide clarity in the duty imposed. A new Item 32(h) was inserted in the First Sch where the conveyance or transfer of any property “by way of release or renunciation by a beneficiary of a deceased estate to another beneficiary entitled under the same estate” shall be subjected to a fixed rate of “RM10.00”. 

The reasoning behind the amendment may be deduced from the decision of the Court of Appeal. The Court of Appeal agreed with the High Court’s findings that the beneficiaries in Lee Koy Eng had no vested interest or right in the property to make a gift of such interest. This was due to the incomplete administration of the property, and the beneficiaries’ refusal of the inheritance ab initio through the signed DFA. Hence, the Court held that the purpose of the memorandum of transfer was to give effect to the beneficiaries’ renunciation of entitlement pursuant to the DFA.

Although the Courts held that the renunciation falls under Item 32(i), a catch-all provision for conveyances that do not fall under the various heads of charges under Item 32, the legislature introduced the new provision to clearly differentiate between a conveyance by way of gift, which requires actual beneficial and legal right in the estate, and a conveyance by way of renunciation.

Amendments to S. 39 of the SA 1949

In Lee Koy Eng, the judges delved into key principles that led to the Court’s decision. These principles, drawn from various cases, offer crucial insights into the nuanced nature of stamp duty appeals:

1. Limited nature of case stated appeals: The Court emphasised the confined scope of appeals by way of case stated. It reiterated that these appeals solely address questions of law and do not involve a rehearing off actual evidence.
2. Purpose of case stated procedure: The Court underlined the case stated procedure’s purpose, emphasising that it seeks the High Court’s opinion on legal questions based on established facts. It clarified that the High Court’s role is to answer specific legal questions posed in the case stated, not to engage in a comprehensive trial.
3. Clarity in stating facts and questions: The Court expressed concern about the confusion surrounding the jurisdiction and proper procedure for handling case stated appeals. It emphasised the importance of clarity instating facts and questions, directing the focus toward legal issues.
4. Appealability and jurisdiction of the Federal Court: The Court clarified that case stated appeals are indeed appealable to the Federal Court. It affirmed the Federal Court’s jurisdiction to hear such appeals, particularly when questions of law have been granted leave for consideration.
5. Procedural issues: Addressing procedural matters, the Court scrutinised the way appeals by way of case stated were lodged at the High Court. It noted the confusion caused by the absence of an originating motion under the new Rules of Court 2012, which deleted the originating motion process.
6. Affirmation of leave granted: The Court affirmed the decision to grant leave for the appeal based on the questions posed in the case stated. It dismissed a motion to set aside the leave granted, asserting that the case stated falls within the jurisdiction of the Federal Court.

Questions of fact

The Federal Court, in its decision, focused on understanding the function of case stated appeals. Although a notice of appeal is lodged at the High Court and then categorised as an appeal, S. 39(2) requires the Collector to state and sign a case, therefore qualifying it as a case stated appeal. The Federal Court referred to several cases dealing with the income tax regime, given that income tax appeals had also once involved case stated appeals. Citing the Privy Council in Chua Lip Kong v Director-General of Inland Revenue [1982] 1MLJ 235, the Court emphasised that the findings of primary facts by the Commissioners are “unassailable”. The High Court is not in a position to overrule nor supplement and conduct the fact findings themselves. If needed, the case should be remitted to the Commissioners for further findings. The Federal Court also referred to the case of Director-General of Inland Revenue v Rakyat Berjaya Sdn Bhd [1984] 1 MLJ 248, explaining how appeals from the decisions of the Special Commissioners of Income Tax (SCIT) in income tax cases are made by way of case stated under Para 34, Sch 5 of the Income Tax Act 1967(ITA 1967). It is expressly mentioned that any appeal is on a “question of law” and therefore “pure findings of fact may not be challenged on an appeal”.

The Federal Court reinforced that the High Court does not have the jurisdiction to determine questions of fact but only questions of law when exercising its appellate function. It is trite law that appellate courts would not interfere in the trial court’s primary findings and only determine issues of law. Regardless, for a stamp duty appeal specifically, the distinction between an appeal by case stated and a full appeal was outlined. Although the case stated was filed as an appeal, it does not alter the “true nature of proceedings before the High Court”. Essentially, although the SA 1949 refers to ‘appeals’, it does not negate the High Court’s original jurisdiction to hear appeals against decisions of statutory bodies or tribunals.

Originating jurisdiction

The legal saga surrounding stamp duty appeals extends beyond the courtroom, delving into the intricacies of legislative provisions.

S.39(1) and (1A) of the SA 1949, the focal point of such appeals, mention that a duty payer dissatisfied with the Collector’s decision may appeal to the High Court by filing a notice of appeal. This implies that the High Court shall exercise its appellate jurisdiction. However, Order 5 Rule 1(1) of the Rules of Court 2012 provides, amongst others, that an appeal under any written law from any decision of any person to the High Court shall be by way of an originating summons, implying that the High Court is exercising its originating jurisdiction.

This contradiction in modes of commencing an appeal to the High Court has caused significant confusion within the industry. The law governing the High Court’s appellate jurisdiction, S. 27 of the Courts of Judicature Act 1964 further compounds the ambiguity by specifying that the appellate civil jurisdiction of the High Court only covers appeals from subordinate courts. Appeals from statutory bodies or tribunals, such as the SCIT tribunal or the decision of the Collector, are explicitly excluded from its appellate jurisdiction.

Referring to the High Court’s appellate jurisdiction under the Rules of Court 2012, while Order 55 of the Rules of Court 2012 governs appeals from subordinate courts, Order 55A Rule 1 provides the procedure for appeals provided for any decision of any individuals or bodies (i.e., tribunals or statutory bodies) under any written law. Under Order 55, appeals from the subordinate courts are through notices of appeal, while appeals under Order 55A against decisions of tribunals or statutory bodies are by way of filing originating summons. Order 55A further complicates matters by vesting the High Court with jurisdiction to hear appeals from tribunals, as specified in relevant written laws, such as S. 39 of the SA1949. This sets the stage for a contradictory scenario, as Order 55Acontradicts the previous S. 39 of the SA 1949, which mandates filing via a notice of appeal.

On 29 December 2023, the Finance (No. 2) Act 2023 was gazetted, effecting substantial modifications to the SA 1949. Among key amendments to the SA 1949 is the introduction of a provision that purports to eliminate any ambiguity concerning the High Court’s jurisdiction when hearing stamp duty appeals.

Effective1 January 2024, an amended S. 39(1) of the SA 1949 was introduced, stipulating that stamp duty appeals to the High Court made “in accordance with the procedure and practice for the time being in force in the High Court”, without referring to a notice of appeal (as provided for prior to these amendments).

In summary, the Federal Court’s decision in Lee Koy Eng reflects a departure from the restrictive stance adopted in earlier cases on this point. The judges, while acknowledging the limited nature of case stated appeals, provided clarity on procedural matters, and affirmed the Federal Court’s jurisdiction in stamp duty appeals.

In addition to this amendment, a new subsection (6) was inserted:

“Unless it is otherwise provided by rules of court, the rules of court for the time being in force in relation to appeals in civil matters from the High Court in its original jurisdiction to the Court of Appeal and the Federal Court shall apply with the necessary modifications to appeals under this section to the High Court, the Court of Appeal, and the Federal Court respectively.”

Hence, it is now clear that the amended legislation provides that the High Court invokes its original jurisdiction when hearing an appeal against the decision of the Collector. The amendments to the SA 1949 signify a paradigm shift in the realm of stamp duty appeals. By empowering the High Court to hear appeals against the Collector’s decision in its original jurisdiction, the legislature has not only resolved a long-standing jurisdictional debate but has also paved the way for a more streamlined and efficient appeals process.

Conclusion

In summary, the path through stamp duty appeals has been marked by twists and turns, influenced significantly by key cases that have shaped the legal framework. The Muhibbah case initially set a seemingly unassailable precedent, aligning with established laws. However, the decision in Lee Koy Eng brought a fresh perspective to the discussion, introducing nuances and laying the groundwork for legislative changes.

The amendments to the SA 1949, encompassing appeal provisions and the elimination of physical franking, represent a pivotal moment in the development of stamp duty laws. Lee Koy Eng played a crucial role in instigating this legislative intervention, prompting a thorough review of the existing framework. The Federal Court’s departure from the Muhibbah precedent, followed by legislative adjustments, emphasises the dynamic relationship between judicial decisions and statutory amendments.

Lee Koy Eng and subsequent legislative amendments signify a paradigm shift in stamp duty appeals, bringing clarity and streamlining the appeals process. However, they also shed light on broader challenges in harmonising appeal procedures across different statutes. Lee Koy Eng and its aftermath highlight the dynamic nature of tax law, with each case contributing to the evolving tapestry of legal principles. As tax consultants navigate this evolving chapter in stamp duty appeals, understanding the interplay between judicial decisions and legislative responses becomes paramount.

In this ever-changing landscape, tax consultants not only interpret statutes but also discern the underlying principles guiding judicial decisions. The journey continues, and stamp duty appeals are poised for further evolution, shaped by the interwoven threads of legal precedents, legislative amendments, and the unwavering pursuit of justice in tax matters.

If you have any questions or require any additional information, please contact Kellie Allison Yap or the partner you usually deal with in Zaid Ibrahim & Co.

This alert is for general information only and is not a substitute for legal advice.