KUALA LUMPUR: The High Court here today was told that the two cheques totalling RM9.5 million which lawyer Tan Sri Muhammad Shafee Abdullah received from Datuk Seri Najib Tun Razak were not a loan.

Instead, former Inland Revenue Board (IRB) tax officer Syed Nasrul Fahmi Syed Mohamad, said based on documents and investigation findings, the cheques were advanced payments for legal services rendered by the lawyer to the former prime minister.

"To say that it is a loan is a mistake and can prompt the public to change their invoices to loans to avoid paying taxes."

The seventh prosecution witness said this during cross-examination by lawyer Harvinderjit Singh in the trial of Muhammad Shafee who was charged with receiving RM9.5 million from Najib which were proceeds from unlawful activities, and submitting incorrect tax returns to the IRB.

Earlier, Harvinderjit showed the witness the letter between Muhammad Shafee and Najib which stated that the lawyer's legal fees would only be determined after all cases related to the election petitions were concluded.

The letter also stated that Muhammad Shafee had requested Najib to issue a cheque of RM4.3 million to him as advanced payment or a loan for his immediate use before the final bill is issued, and then asked for another cheque of RM5.2 million for the same purpose.

The two cheques totalling RM9.5 million deposited into the lawyer's personal bank account were the discounted amount from the original legal fees of RM11.5 million.

The witness also agreed to Harvinderjit's suggestion that if the RM9.5 million received by Muhammad Shafee were a loan, it need not be declared as income to the IRB.

Since it was not a loan, the witness said the lawyer was considered to have failed to declare the income of RM9.5 million to the IRB as it was not stated in Form B for the assessment years of 2013 and 2014.

"Tan Sri Shafee has failed to submit the form in accordance with Section 77 (1) of the Income Tax Act (ITA) 1967. The form was submitted about nine months later from the deadline of June 30, 2014, and he only declared a business income of RM3,173,007 and paid the tax of RM264,720 for the assessment year 2013," he said.

"For the assessment year 2014, he only declared a business income of RM3,391,108 and paid the tax of RM319,959," he said.

On September 13, 2018, Muhammad Shafee pleaded not guilty to two charges of receiving RM9.5 million which were proceeds from unlawful activities through two cheques issued by former Prime Minister Datuk Seri Najib Razak which were deposited into his CIMB Bank Berhad account.

He was also charged with two counts of engaging in transactions resulting from illegal activities, namely submitting incorrect tax returns, which is in violation of paragraph 113 (1) (a) of the Income Tax Act 1967 for the financial years ending December 31, 2013, and December 31, 2014.

-- BERNAMA