Penang Realty Sdn. Bhd. v. Ketua Pengarah Hasil Dalam Negeri The fact in this case, Penang Realty Sdn. Bhd. had bought two pieces of land in 1956 namely, Heintz Estate in Penang and Heintz Estate in Perak. The company was incorporated on 5 July 1965 and was carrying out the business of housing development and businesses relating to realties. The evidence shows that a portion of the land in Tanjong Bungah was compulsorily acquired by the Government in August 1980 and the area acquired was 121,204.61 square fit. In May 1982, the taxpayer was paid RM 1,035,762.91 as compensation.
The Inland Revenue Board (IRB) assessed the amount to income tax. The taxpayer was unhappy with the assessment and appealed to the Special Commissioners. The counsel for the taxpayer contended it was unfair for the Government to forcibly acquire the taxpayer’s land and then back 30% of the compensation as trading profit. The Special Commissioners were of the opinion that the compulsory acquisition by the State Government only involved a “change of customer” for the taxpayer since the taxpayer had bought the subject land with the view of selling parts of it at a profit. It did not change the colour of transaction which constituted trading in land within meaning of section 4(a) of the ITA. The Special Commissioners the compensation received by the taxpayer as a result of compulsory acquisition of a portion of their land is taxable under section 4 of the Income Tax Act 1967 (ITA). The Special Commissioners dismissed the appeal of taxpayer after hearing the appeal. The taxpayer appealed to the High Court.
The High Court allowed the appeal where it was decides that the compulsory acquisition by the Government of the appellant is land could not constitute a sale, the proceeds of which were subject to tax as the element of compulsion vitiated the intention to trade, so the taxpayer of the land should not be taxed.
The IRB was dissatisfied with this decision and appealed to the Court of Appeal. In the court of Appeal, the judges felt the compulsory acquisition by the Government in the instant case cannot constitute a sale in the normal course of business. The profits should not be assessed to income tax because the element of compulsion negates the intention to trade. Therefore the appeal by the IRB was dismissed unanimously with costs. In my opinion, The High Court decision correct it is important to establish a motive for transaction, failing which it become difficult to tax the profit.
In this case the decision the judges felt the compulsory acquisition by the Government in the instant case cannot constitute a sale in the normal course of business. The profits should not be assessed to income tax because the element of compulsion negates the intention to trade and it did not change the colour of transaction which constituted trading in land within meaning of section 4(a).
Ketua Pengarah Hasil Dalam Negeri v Multi-Purpose Holdings Bhd
The summary of this case, the taxpayer of Multi-Purpose Company incorporated in 1975 that has its principal business activity as a holding and investment company. It received income as divided income from the holding of share in various companies. It also received income as interest income from the giving of loan to related companies and from the placing of fund on short-term deposits. In additional, the taxpayer received rental income and plantation income.
The issue in the matter is the chargeability of the taxpayer under the Income Tax Act 1967 to income tax on the various types of income the taxpayer that received for the year 1982 to 1988.Ketua Pengarah Hasil Dalam Negeri was adopted a method of computation of such income which dissatisfy to the taxpayer. The problem arises because the Ketua Pengarah Hasil Dalam Negeri was treat each counter of the share investment, loan given by the taxpayer and deposit placed by the taxpayer as separate sources of the income...
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