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In a recent tax litigation case, Kompleks Tanjong Malim Sdn Bhd (“KTM”) succeeded in its appeal to the Court of Appeal.
 
KTM is a plantation company and the Director General of Inland Revenue (“DGIR”) had always allowed deductions of quit rent payments made by KTM on its land. However, following the conversion of the land from “agricultural” to “commercial” status, the State Government increased the amount of the quit rent and the DGIR disallowed the deduction on the increased portion of the quit rent. The DGIR also imposed penalties under Section 113(2) of the Income Tax Act 1967 (“ITA”) for alleged incorrect returns.
 
The Special Commissioners of Income Tax (“SCIT”) allowed KTM’s appeal and held, applying the principle in the High Court case of DGIR v Kok Fai Yin, that the DGIR has no power to apportion the claim into allowable and non-allowable portions. Hence, the quit rent payments were deductible in full under Section 33(1) of the ITA and the penalties imposed were discharged in full.
 
Thereafter, on appeal by the DGIR, the High Court reversed the decision of the SCIT. KTM then appealed to the Court of Appeal against the decision of the High Court.
 
The Court of Appeal ruled in favour of KTM — the decision of the High Court was set aside and the decision of the SCIT is restored.  As that was the final round of appeal, the decision of the Court of Appeal is the final decision in this case and no further appeals are possible.
 
The decision of the Court of Appeal is a landmark decision as the Court of Appeal has affirmed the principle in Kok Fai Yin that the DGIR has no power under the ITA to apportion claims into allowable and non-allowable portions and the DGIR cannot arbitrarily disallow expenses on the basis of supposition and speculation as to the taxpayer’s intentions.
 
Further, this decision also reaffirms the principle that the findings of facts made by triers of facts (in this case, the SCIT) cannot be challenged or disturbed so long as they have directed their minds to the relevant issues and acted in accordance with the law and their decision passes the test of reasonableness. This case is also important as it demonstrates that as landowners, plantation companies are free to take steps to revalue their land or convert the status of their land.
 
KTM was represented in this matter by Anand Raj (Partner), Foong Pui Chi (Partner) and Abhilaash Subramaniam (Associate) from our Tax & Revenue Practice Group.