Professional Documents
Culture Documents
August
1980 and the area acquired was 121,204.61 sq. ft.
and
accordingly assessed that sum.
dismissed. The
Appellant took up the appeal to the High Court and again it was
dismissed
and now, the appeal was heard before the Court of Appeal.
Decision By The Court
Ø The Court of Appeal on 20 April 2006 had decided that the
proceeds of
which the Appellant, Penang Realty Sdn. Bhd. received
were not subject
to income tax.
Ø The Court of Appeal had allowed the appeal where it was
decided that the compulsory acquisition by the Government
of the Appellant’s land could not constitute a sale, the
proceeds of which were subject to tax as the element of
compulsion vitiated the intention to trade.
Ø The Court had heavily relied upon the case of Lower Perak Co-
Operative
Housing Society Berhad v. Ketua Pengarah Hasil Dalam
Negeri (1994) 3
CLJ 540 as opposed to the case of F. Housing Sdn. Bhd. v.
Director
General of Inland Revenue (1976) 2 MLJ 183 which was
relied by the
Special Commissioners of Income Tax in which the Court of
Appeal had
ruled out that case since facts of both cases are different,
so it can be
easily distinguished and therefore, the Special
Commissioners of Income
The Element of Trading
Section 4 of Income Tax Act 1967 list classes of income subject to
income tax.Insolar as a business is concern, it is the gain and
profit from the business that are chargeable to income tax
Thus under section 4, which outline the type of income chargeable,
not all income is chargeable to income tax
Our courts have on more than one occasion held that where a
property is compulsorily acquired, the element of trading is
vitiated
The proceeds from the compensation should not be subjected to
income tax as such proceeds do not fall within the ambit section
4.
The fact that a taxpayers land was compulsorily acquire vitiates
the element of trading.
This was clearly established by court of appeal in Penang Realty
Cont..
The court of appeal in Penang Realty was influenced and guided by
the supreme court decision in Lower Perak Co-operative Housing
Society Berhad V Ketua Pengarah Hasil Dalam Negeri
Justice Moktar Sidin endorsed the principle that a force sale cannot
constitute a sale. His Lordship rightly observed that the element
of compulsion vitiates the intention to trade
In Lower Perak, justice Edgar Joseph Jr. referred to English cases
and provided a thorough analysis of the concept of intention to
trade
Cont..
His Lordship came to the conclusion that there cannot be a
sale or intention to sell where there is an element of
“force” sale and articulated the following principle:
a)The paramount object of the transaction must have a
commercial purpose
b)A transaction that has all the attributes of trade must still
have a commercial purpose
c) The sale must be based on a profit-making operation
d)The relevant transaction entered into by the parties had a
commercial or object from the taxpayer point of view
e)Non-commercial motivation may effect the nature of trading
transaction that they cease to be normal trading
f) A mere sale at a profit is not a trading activities
g)A sale must be consensual and one own free will before the
proceeds can be chargeable to income tax
h)The circumstances necessitating the realisation of an assets
may afford an explanation for the realisation that negates
the idea that any plan of dealing motivated the original
purchased
i)
The Decision Impact
Statement
The DIS states the decision enunciated in Penang Realty was
heavily relied upon by the Lower Perak case and did not consider
section 24(1)(a) of the ITA 1967
The DIS is effectively treating the court of appeal decision in
Penang Realty as per incuriam
Per incuriam is the legal term used by lawyers to describe an
instance where a statute which would have affected the decision
was not brought to attention of the court
It must be appreciated that section 24(1)(a) deals with
circumstance when a debt owed by a relevant person constitutes
gross income for a relevant period
In Penang Realty Case , there was no direct relevance to this issues
Cont..
Furthermore, the high court in Perak Construction came to
the same conclusion as in Lower Perak and Penang Realty
despite being well aware of section 24(1)(a)
Section 24 (1) (a) of the ITA provides as follows -
“24. (1) Where in the relevant period a debt owing to the