Petroliam Nasional Bhd. (Petronas) v Ketua Pengarah Hasil Dalam Negeri

Appellant(s): Petroliam Nasional Berhad (Petronas)

Respondent(s): Ketua Pengarah Hasil Dalam Negeri

• YA Datuk Ravinthran a/l Paramaguru
• YA Datuk Wong Kian Kheong
• YA Dato' Nadzarin Bin Wok Nordin

• The appellant, a "chargeable person" under the Petroleum (Income Tax) Act 1967 (PITA), was issued two Notices of Additional Assessment for the Year of Assessment 2010, one of which was issued after the five-year limitation period.
• The respondent justified the time-barred assessment by alleging the appellant was negligent under section 39(3) of PITA, while also disallowing deductions for "Country Office Expenses" incurred by the appellant outside of Malaysia.
• The Special Commissioners of Income Tax and the High Court dismissed the appellant’s appeals, finding that the appellant was negligent in its tax reporting and that the overseas expenses were not "wholly and exclusively" incurred in the production of gross income.

• Whether the respondent was time-barred under section 39(1) of PITA from issuing an additional assessment, and specifically, the legal definition of "negligence" required to lift the limitation period under section 39(3).
• Whether the appellant discharged its burden of proof to show that "Country Office Expenses" constituted outgoings wholly and exclusively incurred in the production of gross income from "petroleum operations" as defined in section 2(1) of PITA.
• Whether the lower courts erred in law by applying factual findings of negligence from distinguishable precedents and by failing to determine if the alleged negligence was "attributable" to the loss of tax.

• The Court allowed the appeal, holding that the respondent failed to prove negligence; a taxpayer is not negligent if they rely on professional tax advice, file returns on time, and cooperate with the respondent, as a mere disagreement over tax treatment does not constitute negligence.
• The Court ruled that the "Country Office Expenses" were deductible as they fell within the broad four-limb definition of "petroleum operations" in PITA, being expenses necessary to attract foreign joint ventures and facilitate the sale or disposal of petroleum.
• The Court emphasized that the respondent bears the initial burden of proving negligence on a balance of probabilities to lift a time bar, and the Court must further find that the loss of tax was specifically attributable to that negligence.