Tax>Malaysia and Singapore Tax Cases>2011 CASES>MALAYSIA CASES>MALAYSIA SPECIAL COMMISSIONERS CASES STATED 2011>BDHDSB v Ketua Pengarah

Hasil Dalam Negeri

BDHDSB v Ketua Pengarah Hasil Dalam Negeri

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Appeal No PKCP(R) 15/2009
(2011) MSTC 10-017
Special Commissioners of Income Tax, Malaysia.
Case stated delivered on 28 June 2011.
Revenue Law Deduction Expenses claimed Loans raised to finance construction and completion
of a building for rental income Expenses such as underwriting and guarantors commissions, agency fee,
annual fee, annual management fee, surveillance fee Whether deductible under s 33 Income Tax Act
1967.
The appellants principal activity was that of the letting of property. The sources of income for the appellant
were rental income. The appellant had raised loans to finance the construction and completion of a building.
The appellant refinanced the above loans in respect of the investment property with a RM30,000,000
Syndicated Fixed Rate Term Loan Facility of RM30,000,000b under a Loan Agreement dated 17 January
2001 and a RM40,000,000 under a GRUF Agreement dated 17 January 2001 for RM40,000,000. In this case
the issuer was the appellant. Under GRUF, the appellant issued notes or paper in the capital market to
the Banks. For this purpose, the issuer (the appellant) had to have the Arranger, the Facility Agent, the
Issuer and Paying Agent and the Underwriters, and Guarantors.
The appellant contended that the monies borrowed under the term loan and GRUF were to refinance existing
loans deployed in the appellants building in the course of the appellants business of renting. The appellant
further contended that the requirements of the GRUF
[739]
without exception entailed the payment of all the expenses claimed, ie the underwriting guarantee fee,
agency fee, annual review fee, annual management fee, and surveillance fee by the appellant for all the
years under appeal. The appellant had relied on s 33 Income Tax Act 1967 (the Act) to submit that the
expenses incurred by the appellant were wholly and exclusively incurred in the production of gross income of
the appellant, ie rental income, and hence qualify for deductions.
The respondent contended that all the expenses claimed by the appellant for the years under appeal
were not wholly and exclusively incurred in the production of gross income, and therefore not allowable as
deductions under s 33(1) of the Act. The respondent further contended that all the expenses claimed were
capital expenditures.
Held: allowing the appeal.
1. In the instant case, all the expenses claimed by the appellant were outgoings or expenses. However, in
order to be deductible under s 33(1) of the Act, the expenses claimed must be revenue expenditure and not
capital expenditure. Expenditure which related to the acquisition of a source of income or a capital asset
would be of a capital nature. Expenditure relating to the performance of profit earning operations would be
of a revenue nature. The question whether a particular payment was capital or revenue was basically a
question of fact. There was no legal criteria which determined whether a particular payment was capital or
revenue (DGIR v Kulim Rubber Plantation Ltd [1981] 1 MLJ 214).

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Tax>Malaysia and Singapore Tax Cases>2011 CASES>MALAYSIA CASES>MALAYSIA SPECIAL COMMISSIONERS CASES STATED 2011>BDHDSB v Ketua Pengarah
Hasil Dalam Negeri

2. The underwriting and guarantors commissions like interest was an integral part of a loan package which
must inevitably come within the ambit of s 33(1) (In support, Special Commissioners of Income Tax in FCD
Sdn Bhd v Ketua Pengarah Jabatan Hasil Dalam Negeri (1995) 2 MSTC 2,181).
3. With regard to the remaining expenses claimed, ie agency fee, annual fee, annual management fee,
surveillance fee, these also fell under revenue expenditure and were hence deductible. There was a nexus
interconnecting each item of expense claimed to the other, as if they were inseparable and indivisible.
[Headnote by CCH Tax Editors]
Dr Arjunan Subramaniam for the appellant.
Neng Juliana binti Ismail, Encik Mohamad Harzani bin Tahir (Legal Officers, Inland Revenue Board) for the
respondent.
Before: Mohamed Saman bin Mohd Ramli, Othman bin Abdullah, Dato Abu Hassan bin Md Akhir.

Mohamed Saman bin Mohd Ramli, Othman bin Abdullah, Dato Abu Hassan bin Md Akhir:
1. At a hearing held in Putrajaya on 20 and 21 September 2010, the Special Commissioners of Income Tax
heard the appeal by BDHDSB (hereinafter referred to as the Appellant) against the assessments made by
the Director General of Inland Revenue (hereinafter referred to as the Respondent) under the Income Tax
Act 1967 (hereinafter referred to as the Act) as follows
Year of Assessment

2000 (STTS)
2001
2002
2003
2004

Type of Assessment

Additional
Additional
Additional
Additional
Additional

Date of Assessment

31-3-2008
31-3-2008
31-3-2008
31-3-2008
31-3-2008

Amount (RM)

736,476.69
593,323.51
312,965.14
265,360.83
235,123.93

2. The issues for determination by the Special Commissioners of Income Tax in this appeal are as follows
[740]

(a) Whether the following expenses incurred by Appellant are wholly and exclusively incurred under
section 33, Income Tax Act, 1967 in the production of gross income of the Appellant viz:

Underwriting
& Guarantors
Commission
Agency Fee
Annual Review Fee
Annual Management
Fee
Surveillance Fee
TOTAL

Y/A 2000
1,813,982

Y/A 2001
1,430,166

Y/A 2002
887,356

Y/A 2003
Y/A 2004
Total
615,521 522,123 5,269,147

21,000

21,000
7,000

40,000
7,000

40,000
7,000

1,834,982

3,222
1,461,388

12,000
946,356

10,800
673,321

40,000
7,000

120,00
42,000
28,000

10,000
36,022
579,123 5,495,169

(b) Whether

(i) The Notice of Additional Assessment dated 31/03/2008 in respect Year of Assessment
2000 is statue barred under section 91(1), Income Tax Act 1967, and has no grounds to
be brought under section 91(3), Income Tax Act 1967.
(ii) The Notice of Additional Assessment dated 31/03/2008 in respect Year of Assessment
2001 is statue barred under section 91(1), Income Tax Act 1967, and has no grounds to
be brought under section 91(3), Income Tax Act 1967.

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Tax>Malaysia and Singapore Tax Cases>2011 CASES>MALAYSIA CASES>MALAYSIA SPECIAL COMMISSIONERS CASES STATED 2011>BDHDSB v Ketua Pengarah
Hasil Dalam Negeri

(iii) Whether penalty imposed is correct in law?

3. The Appellant was represented by Dr. Arjunan Subramaniam, Advocate and Solicitor, while the
Respondent was represented by Cik Neng Juliana binti Ismail and Encik Mohamad Harzani bin Tahir, Legal
Officers, Inland Revenue Board.
4. The Appellant called the following witness to give evidence
(i)

AW1

Former Group Financial Controller of the

Appellant

The Respondent called the following witness to give evidence

(i)

Cik Norlida binti Mohd Daud -

Penolong Pengarah, Jabatan Cukai Korporat),

Lembaga Hasil Dalam Negeri, Malaysia

5. The following documents were tendered at the hearing

(i)
(ii)
(iii)
(iv)

Issues for Determination

Statement of Agreed Facts
Appellants Bundle of Documents
Appellants Bundle of Authorities

A
B
C1 C11
D

6. The following documents were filed after the hearing

(i) Appellants Written Submission dated 18.10.2010

(ii) Respondents Written Submission undated
(iii) Appellants Written Submission in Reply dated 14.02.2011
(iv) Respondents Bundle of Authorities
(v) Appellants Bundle of Authorities in Reply dated 18.02.2011

7.
[741]
As a result of the evidence adduced before us, both oral and documentary, we found the following facts
admitted or proved

7.1 Facts Admitted

Agreed Facts:

th

(i) The Appellant is a company incorporated on 10 August 1990. Its initial name was
TMSB and this was changed to BDHDSB On 24/11/1990.
(ii) The principal business activities of the Appellant are:

Underwriting
& Guarantors
Commission
Agency Fee
Annual Review Fee

(a) Letting of investment property (Year Ending 30/06/2000)

(b) Investment holding and letting of investment property (Year Ending
30/062001 30/06/2004)
(iii) The Appellant incurred the following expenditure in the Years of assessment as
shown in the table below viz:
Y/A 2000
1,813,982

Y/A 2001
1,430,166

Y/A 2002
887,356

21,000 -

21,000

40,000
-

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Y/A 2003 Y/A 2004 Total

615,521 522,1235,269,147
40,000
-

40,000
-

120,00
42,000

Tax>Malaysia and Singapore Tax Cases>2011 CASES>MALAYSIA CASES>MALAYSIA SPECIAL COMMISSIONERS CASES STATED 2011>BDHDSB v Ketua Pengarah
Hasil Dalam Negeri

Annual
Management Fee
Surveillance Fee
TOTAL

7,000

7,000

1,834,982

3,222
1,461,388

12,000
946,356

Underwriting
& Guarantors
Commission
Agency Fee
Annual Review Fee
Annual
Management Fee
Surveillance Fee
TOTAL

7,000

28,000

10,800 10,000 36,022

673,321 579,1235,495,169

(iv) The Respondent disallowed the above mentioned expenses incurred and raised the
following assessments with penalty:

(a) Y/A 2000 JA dated 31/03/2008

(b) Y/A 2001 JA dated 31/03/2008

(c) Y/A 2002 JA dated 31/03/2008

(d) Y/A 2003 JA dated 31/03/2008

(e) Y/A 2004 JA dated 31/03/2008

(v) The Appellant aggrieved with the said assessments filed appeals by way of Form Q as
follows:

7.2 Proved Facts

7,000

(a) Form Q Y/A 2000 dated 29/04/2008

(b) Form Q Y/A 2001 dated 29/04/2008
(c) Form Q Y/A 2002 dated 29/04/2008
(d) Form Q Y/A 2003 dated 29/04/2008
(e) Form Q Y/A 2004 dated 29/04/2008

(a) The Appellant incurred the following expenses:

Y/A 2000
1,813,982

Y/A 2001
1,430,166

Y/A 2002
887,356

21,000

21,000
7,000

40,000
7,000

1,834,982

3,222
1,461,388

12,000
946,356

Y/A 2003 Y/A 2004 Total

615,521 522,1235,269,147
40,000
7,000

40,000
7,000

120,00
42,000
28,000

10,800 10,000 36,022

673,321 579,1235,495,169

(b) The Appellants principal activity is that of letting of property.

(c) The sources of income for the appellant are rental income.
(d) The appellant received rental income from investment property, namely Wisma S, at
HSD 100327, PT 5748, 85-B, Mukim of Kuala Lumpur, Wilayah Persekutuan, amounting
to:
RM17,686,477 (30.06.1999)
RM13,946,189 (30.06.2000)
RM13,268,589 (30.06.2001)
RM12,459,317 (30.06.2002)

RM10,139,271 (30.06.2003)
(e) The total construction of the building Wisma S was RM72,377,154 and the building
was completed in 1996 (Certificate of Fitness dated 12.1.1996).
(f) The Appellant raised the following loans to finance the construction and completion of
the building Wisma S.

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Tax>Malaysia and Singapore Tax Cases>2011 CASES>MALAYSIA CASES>MALAYSIA SPECIAL COMMISSIONERS CASES STATED 2011>BDHDSB v Ketua Pengarah
Hasil Dalam Negeri

(i) RM70,000.000 under Guaranteed Revolving Underwriting Facility (GRUF)

dated 27/1/1994.

(ii) RM10,000,000 under Bridging Loan dated 6/6/2000.

(g) The Appellant refinanced the above loans in respect of the investment property as
follows:

(i) RM30,000,000 Syndicated Fixed Rate Term Loan Facility of RM30,000,000b

under a Loan Agreement dated 17/1/2001.

(ii) RM40,000,000 under GRUF Agreement dated 17/1/2001 for RM40,000,000.

(h) In this case the issuer is the Appellant, Under GRUF, the Appellant issued notes or
paper in the capital market to the Banks. For this purpose, the issuer (the Appellant)
has to have the Arranger, the Facility Agent, the Issuer and Paying Agent and the
Underwriters, and Guarantors. Briefly the function of the above are:

(i) Arranger:

The Arranger in this case is RHB Sakura Merchant Bankers Berhad.

The Arrangers duty is to arrange on behalf of the Appellant GRUF for
RM40,000,000.
(ii) Underwriter:

(a) The function is if Banks do not take up the notes or commercial

papers the underwriters have to take up the notes i.e. the
RM40,000,000 but to the extant to their commitment.

E.g. Mayban Discount Berhad RM 9,000,000

(b) The underwriters agreed to make available to the Issuer (the
Appellant) up to RM40,000,000 only, i.e. the underwriters have to lend
to the Appellant to the amounts committed, if Banks do not lend.
(iii) Guarantors:

(a) The Guarantors granted to the Appellant up to the limit of each

guarantors commitment but not exceeding RM40,000,000.
(b) The Guarantors and their commitments are as follows:

SCHEDULE 1 GUARANTORS AND COMMITMENT

Guarantors

Commitment (RM)

10,000,000.00
Mayban Finance Berhad 17
Floor Dataran Maybank No.
1 Jalan Maarof 59200 Kuala
Lumpur
RHB Bank Berhad Level 7
15,000,000.00
Tower Three RHB Centre
Jalan Tun Razak 50400 Kuala
Lumpur
RHB Sakura Merchant
15,000,000.00
Bankers Berhad Level 8 Tower
Three Jalan Tun Razak 50400
Kuala Lumpur
th

Proportion(%)
25.00

37.50

37.30

(c) The Guarantors agreed to guarantee the payment of the Face

amount of the notes up to

[743]
RM40,000,000 i.e. if the appellant fails to pay the Guarantors have to
pay the sum Guaranteed to the lenders.
(iv) The expenses claimed are in respect of the following:

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Tax>Malaysia and Singapore Tax Cases>2011 CASES>MALAYSIA CASES>MALAYSIA SPECIAL COMMISSIONERS CASES STATED 2011>BDHDSB v Ketua Pengarah
Hasil Dalam Negeri

(i) The underwriting & Guarantors commissions are in respect of

GRUF.
(ii) The Agency fee is composed of:

RM30,000 in respect of GRUF

RM10,000 in respect Fixed Rate Term Loan Facility

(v) The Appellant must pay 0.25% on the amount of the Underwriting
commitment of the Underwriters, payable semi-annually in advance.
(vi) The Appellant must also and had paid a Guarantee Commission of 1.5% of
the Guaranteed amounts, RM40,000 for 2002, RM40,000 for 2003, RM30,000
paid to RHB Sakura Merchant Bankers for 2004; plus RM10,000 for Term Loan
paid to RHB Sakura Bankers for 2004.
(vii) RM21,000.00 was paid in respect of Review of GRUF. This was paid to
Rating Authority Malaysia (RAM); whose job is to note the credit worthiness of
borrowers.
(viii) RM7,000.00 was paid in respect of Trustee management, RM3,000 for
2000, RM7,000 for 2001, RM7,000 for 2002; RM7,000, for 2003; RM7,000 for
2004.
(ix) RM10,000 paid to RAM for 2004; RM10,800 paid to RAM for 2003,
RM12,000 paid to RAM for 2002. this is also the review fee paid to RAM.

8. Contention

8.1 By the Appellant

(i) The Appellant contends that the monies borrowed under the term loan and GRUF
were to refinance existing loans deployed in the Appellants building in the course of the
Appellants business of renting;

(ii) The Appellant further contends that the requirements of the GRUF without exception
entails the payment of all the expenses claimed i.e. the underwriting guarantee fee,
agency fee, annual review fee, annual management fee, surveillance fee by the Appellant
for all the years under appeal;

(iii) Next, the Appellant argues that the monies borrowed and loans under GRUF should
be regarded as a business transaction in the course of the Appellants business;

(iv) As such, all the expenses claimed are outgoing and expenses wholly and exclusively
incurred in the production of gross income under section 33(1) of the Act, as they
facilitated the operation of the Appellants business of producing rental income;

(v) The Appellant further contends that all the expenses claimed are revenue in nature
and fall squarely under section 33(1)(a)(ii) of the Act.
8.2 By the Respondent

(i) The Respondent contends that all the expenses claimed by the Appellant for the years
under appeal were not wholly and exclusively incurred in the production of gross income,
and therefore not allowable as deductions under section 33(1) of the Act;
(ii) The Respondent further contends that all the expenses claimed are capital
expenditures;
(iii) The additional assessment for YA 2000 and YA 20001 were both raised as
the Appellant was negligent in declaring or reporting its income and as such, the
assessments are not time barred;
(iv) The Respondent contends that the penalties imposed have been justly and rightly
imposed under section 113(2)(a), of the Act as the Appellant had submitted incorrect
returns.

9.
[744]

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Tax>Malaysia and Singapore Tax Cases>2011 CASES>MALAYSIA CASES>MALAYSIA SPECIAL COMMISSIONERS CASES STATED 2011>BDHDSB v Ketua Pengarah
Hasil Dalam Negeri

We were referred to the following authorities

9.1 By the Appellant

Statue

(a) Section 33, Income Tax Act 1967

Tax Cases

(a) FCD Sdn Bhd v Ketua Pengarah Jabatan Hasil Dalam Negeri Rayuan PKR
No 502 (Kuala Lumpur) Reported in [1995] 2 MSTC 2, 181

(b) Fernite Sdn Bhd v KPHDN Tax Appeal No. R2-14-02-01. [2004] MSTC
4,065

(c) Ben-Odeco LTD v Powson (Inspector of Taxes) [1978] STC 1110

(d) Bombay Steam Navigation Co. v I.T. Bombay [1965] 56 ITR 52

(e) Commissioners Inland Revenue v Rakyat Berjaya Sdn Bhd [1968] 25 TC 18

(f) Ketua Pengarah Hasil Dalam Negeri v Kim Thye & Co. [1992] 2 MLJ 708

(g) ML & 2 Ors v Ketua Pengarah Hasil Dalam Negeri [2000] MSTC 3804

(h) Vallambrosa Rubber Co. Ltd v Farmer (Surveyor of Taxes) [1910] 5 TC 529

(i) Government of Malaysia v Chong Woo Yit [1988] 2 MLJ 524

(j) American Leaf Blending C. Sdn Bhd v DGIR [1979] 1 MLJ 1

9.2 By the Respondent

(a) ABC v Comptrolle of Income Tax, Singapore [1995] MLJ 162

(b) Nicholson v Morris (Inspector of Taxes) [1976] STC 269
(c) Aspac Lubricants (Malaysia) Sdn Bhd v KPHDN [2007] 5 CLJ 533
(d) Section 33 & 39 Income Tax Act 1967
(e) DGIR v LTS [1974] 1 MLJ 187
(f) DGIR v Rakyat Berjaya Sdn Bhd [1984] 1 MLJ 248
(g) Margaret Luping & Ors v KPHDN [2000] 3 CLJ 409
(h) Syarikat Jasa Bumi (Woods) Sdn Bhd v KPHDN [2000] 2 CLJ 481
(i) Vallambrosa Rubber Co. Ltd v Farmer [1910] 5 TC 529
(j) Hallstroms Pty Ltd v FC of T [1946] 72 CLR 634
(k) New State Areas Ltd v IRC (SA)
(l) C of T v Nchanga Consolidated Copper Mines Ltd [1964] A.C. 948
(m) Robert Addie & Sons Collieries Ltd v CIR
(n) Beauchamp (Inspector of Taxes) v FW Woolworth Pic [1989] STC 510
(o) British Insulated & Helsby Cabies Ltd v Atherthon [1926] AC 205
(p) Bennet and White Construction C. Ltd v Minister of National Revenue DTC 1052
(q) KT & Co v KPHDN [1996] MSTC 2,594
(r) KTSM Sdn Bhd v KPHDN (unreported Case Stated)
(s) UCM S & S Sdn Bhd v KPHDN (unreported Case Stated)

10. We, the Special Commissioners of Income Tax who heard the appeal, took time to consider the case and
gave our decision on 4 March 2011 as follows
Having heard the facts, the evidence adduced and the written submission of both parties and having
read the documentary exhibits tendered and the authorities cited, our findings are as follows:
Foremost, we observe in the Statement of Agreed facts (exhibit B) in item 3 that each and everyone
of the items claimed as expenses by the Appellant, as well as their respective amounts incurred for
all the tax years under appeal, have been agreed by the parties. As such, we accept as having been
agreed the respective nature of all the expenses claimed as well as their respective amounts incurred
and paid for, (all totalling RM5,495,169) in the instant case before us, as we are bound by the following
authority.
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Tax>Malaysia and Singapore Tax Cases>2011 CASES>MALAYSIA CASES>MALAYSIA SPECIAL COMMISSIONERS CASES STATED 2011>BDHDSB v Ketua Pengarah
Hasil Dalam Negeri

[745]
In Fernrite Sdn. Bhd. v. PHDN [2004] 2 MSTC 4065 at page 4072, the learned Judge said:
The learned Special Commissioners have no authority to go behind a Statement of Agreed
Facts. See Chua Lip Kong v. Director General of Inland Revenue [1982] 1 MLJ 235 where it is
held.
The Special Commissioners, in their Lordships view, were not entitled to go behind this
statement. It was not merely part of the evidence before them which they were entitled to accept
or to reject as they thought fit.
Next, and in the same vein, we also accept that the principal business activities of the Appellant
include letting of investment property, in item 2 in the Statement of Agreed Facts. In the instant case,
the investment property that the Appellant rented out is Wisma S, and the evidence shows that the
Appellant received rental income for each of the relevant year under appeal, see item (ii) under proved
facts above. As revenue has not disputed the said rental income, we accept the quantum of all the
rental income received by the Appellant.
At this point, to revert to the first issue for our determination. The Appellant has relied on section 33
Income Tax Act 1967 to submit that the expenses incurred by the Appellant are wholly and exclusively
incurred in the production of gross income of the Appellant i.e. rental income and hence qualify for
deductions.
Section 33(1) provides:

(i) Subject to this Act, the adjusted income of a person from a source for the basis
period for a year of assessment shall be an amount ascertained by deducting from
the gross income of that person from that source for that period all outgoings and
expenses wholly and exclusively incurred during that period by that person in the
production of gross income from that source, including

In other words, all outgoings and expenses must be incurred during that relevant period wholly and
exclusively in the production of gross income. In our view in the instant case all the expenses claimed
by the Appellant are outgoings or expenses. But in order to be deductible under section 33(1) Income
Tax Act 1967, the expenses claimed must be revenue expenditure and not capital expenditure.
Expenditure which relates to the acquisition of a source of income or a capital asset would be of
a capital nature. Expenditure relating to the performance of profit earning operations would be of
a revenue nature. The question whether a particular payment is capital or revenue is basically a
question of fact. There is no legal criteria which determine whether a particular payment is capital or
revenue. This view is held by our Federal Court in the case of DGIR v. Kulim Rubber Plantation Ltd
[1981] 1 MLJ 214.
Therefore the question before us is whether each and every item of the expenses claimed is revenue
expenditure or capital expenditure. If it is the former, it is a deductible expenses.
At this juncture, lest we forget, it is worthwhile to re-itemise the expenses claimed for our due
consideration. They are

(i) Underwriting and guarantors commissions

(ii) Agency fee
(iii) Amount Review fee
(iv) Annual management fee
(v) Surveillance fee

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Tax>Malaysia and Singapore Tax Cases>2011 CASES>MALAYSIA CASES>MALAYSIA SPECIAL COMMISSIONERS CASES STATED 2011>BDHDSB v Ketua Pengarah
Hasil Dalam Negeri

Before a discussion proper on what subheading the expenses claimed fall under or represent (either
revenue or capital) we need to say that we accept the Appellants evidence that he raised the initial
(first) loans to finance the construction and completion of Wisma S, through GRUF for RM70,000,000
and RM10,000,000 through a Bridging Loan. Subsequently he raised further loans through GRUF
for RM40,000,000 and RM30,000,000 through a Syndicated Fixed Rate Term Loan Facility, in order
to refinance the initial (first) loans in respect of Wisma S, as per the testimony of AWI in his written
statement (AWIs) under the subheading no. 5. Investment Property. AWI said the
[746]
purpose of the GRUF facility and loan of RM30 million was to redeem the notes issued by the
Appellant under existing GRUF and repay amounts disbursed under the existing bridging loan. He was
not challenged on this.
Thus, we conclude that the refinancing loans and facility under GRUF had been used bona fide in the
business interest of the Appellant in producing gross income, and this is recognised by law, Bombay
Steam Navigation Co. (1965) 56 1.TR.52.
Thereafter, we accept AWIs testimony that the design of GRUF involved the participation of the
various participants such the arranger, underwriter, paying agent, guarantor, trustee and agent with
the consequential payment of their respective fees under the scheme pursuant to and under the
contractual obligation on the Appellants part. Revenue has not challenged AWIs evidence on this.
Indeed the expenses claimed by the Appellant for the relevant years under appeal in respect of
payments to the relevant participants are set forth in the Statement of Agreed Facts, (exhibit B).
Consequently, we are minded to accept the Respondents counsels submission that the monies
borrowed and loans under GRUF should be regarded as a business transaction in the course of
Appellants business in producing rental, and we so find. In our view, the said expenses incurred and
paid for facilitated the operation of the Appellants business because without exception they had to be
incurred and paid in order for the Appellant to obtain refinancing loans and facility under GRUF, in the
production of rental income.
At this point, for clarity of purpose, we will discuss the items of expenses claimed for deduction under
section 33(1) I.T.A. 1967.

(a) First, the underwriting and guarantors commissions (which is synonymous with the
term guarantee fee). In our view, guarantee fee, like interest, is an integral part of a loan
package which must inevitably come within the ambit of section 33 (1). In support, we cite
with approval the remarks of the Special Commissioners of Income Tax in FCD Sdn. Bhd. v.
Ketua Pengarah Jabatan Hasil Dalam Negeri [1995] 2 MSTC 2,181, inter alia, as follows:
Indeed the nexus linking all the three interest guarantee fee commitment fee is
so integral to the loan package in that they represent different facets of the loans so
crucial and critical to the realisation of this income through the timely completion of
each of the 20 floors of the office complex.
If interest expense was already acknowledge as wholly and exclusively incurred in
producing the income, surely guarantee fee which not only stand on the same footing
with interest and commitment fee but on a much stronger ground and justification
and enumerated above must inevitably come within the opening paragraph of section
33(1).
Our finding is therefore that the guarantee fee payable to Ayala and Universal life
are deductible from the gross income of the appellant for the years of assessment
1984 and 1986 being expenses wholly and exclusively incurred in the production of
the appellants gross income during the respective basis periods.

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Tax>Malaysia and Singapore Tax Cases>2011 CASES>MALAYSIA CASES>MALAYSIA SPECIAL COMMISSIONERS CASES STATED 2011>BDHDSB v Ketua Pengarah
Hasil Dalam Negeri

From the extracts above, we observe that the Special Commissioners held the guarantee fees
payable to Ayala and Universal Life to be expenses wholly and exclusively incurred in the production
of the Appellants gross income, and allowed the deductions. It would appear that the Special
Commissioners decision in that case was upheld on appeal. In Fernrite Sdn. Bhd. V. KPHDN [2004]
MSTC 4,065 at page 4,076 the learned Judge said:
In the Malaysian case of FCD Director General [1992] 2 MJTC 2181, the learned Special
Commissioners allowed guarantee fees in respect of bank loans as an expenses wholly and
exclusively incurred in the production of income. This decision was upheld by the High Court in
Ketua Pengarah Hasil Dalam Negeri v. FCD case no. R1-14-3-1993.
[747]
Hence, in the instant case, we have no qualms to rule for the Appellant that the underwriting and
guarantors commissions claimed are expenses wholly and exclusively incurred in the production of
gross income and hence deductible, on the strong authority of FCD Sdn Bhds case, (Supra).
Next, concerning the remaining expenses claimed i.e. Agency Fee, Annual Fee, Annual management
fee, Surveillance fee, for ease of discussion, we group them together and call it the remaining
expenses. Is this group revenue or capital expenses? We have earlier found that in addition to the
underwriting and guarantors commissions, the remaining expenses too, without exception, had
to be incurred and paid under contractual requirements for loans and facility under GRUF. Learned
Appellants counsel has submitted that the The Director General allowed the interest in respect of
the refinancing loans and it follows that the other expenses i.e. Guarantee fee, Agency fee, Annual
Review fee, Annual Management fee, Surveillance fee should also be allowed as falling into the similar
category of interest or outgoing by reason of running parallet to one another.
In the case of FCD Sdn. Bhd. (Supra) in the extracts as quoted above, the Special Commissioners,
inter alia, remarked that there was a nexus linking all the three expenses in that case i.e. interest guarantee fee commitment fee as being so intergral to the loan package in that they represent
different facets of the loans
In Fernrite Sdn. Bhd. V. KPHDN [2004] MSTC 4,065, at page 4,073, the learned Judge said:It is not that bank commission fee was the same as interest which is allowable under section
33(1)(a) of the Income Tax Act 1967 but that the bank commission fees is analogous to interest
payments on loans and should be considered as falling under revenue expenditure under the
general opening section 33(1) Income Tax Act 1967.
His Lordship then referred to and discussed two case authorities and later said:
But those cases show that a bank guarantee is analogous to a loan and it follows interest paid
on loans are analogous to bank commission fees paid on guarantee and fall under a revenue
expenses.
At this point, applying the principles gleaned from the judicial remarks above quoted from the cases
of FCD Sdn. Bhd. (supra) and Fernrite Sdn. Bhd. (Supra) to the unavoidable incurrance of the
remaining expenses claimed in the current case, we, without hesitation, hereby rule that this
remaining expenses also fall under revenue expenditure and hence deductible. We say, without
fear of contradiction, that it is not difficult to discern that this remaining expenses is also, like the
guarantee fee, an intergral part of a loan package, as each item of expense claimed represents a
different facet of the loan package. There is a nexus interconnecting each item of expense claimed to
the other, as if they are inseparable and indivisible. Thus, we conclude the remaining expenses
claimed fall under the general opening section 33(1) Income Tax Act 1967.

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Tax>Malaysia and Singapore Tax Cases>2011 CASES>MALAYSIA CASES>MALAYSIA SPECIAL COMMISSIONERS CASES STATED 2011>BDHDSB v Ketua Pengarah
Hasil Dalam Negeri

Again we find that both the underwriting and guarantors commission and the remaining expenses
claimed by the Appellant were revenue in nature also for the reason that they were recurring expenses
incurred during the tenure of the loans and GRUF facility, in order to facilitate the Appellants business
operation. The Table at item 3 in the Statement of Agreed Facts (exhibit B) demonstrates this.
In conclusion, based on the discussion and our consequent findings aforesaid, we hold that all items
of expenses claimed by the Appellant are wholly and exclusively incurred under section 33 Income
Tax Act 1967 in the production of the gross income of the Appellant, in answer to question 1(a) under
Issues for determination (exhibit A);
As regards question 1 (b)(i) and 1 (b)(ii), we rule in favour of the Appellant. The Appellants sole
witness (AW1) was never
[748]
cross examined on any accounting omission, misreporting or any other accounting irregularity,
including the Respondents contention as reflected by Respondents sole witnesss (RW1) testimony
as follows
Semakan ke atas laporan beraudit, pengiraan cukai dan jadual sekatan faedah mendapati
refinancing expenses tidak diambilkira dalam pengiraan sekatan faedah. Refinancing expenses
sebanyak RM1,461,388.00 telah dituntut sepenuhnya sebagai belanja hasil dalam akuan
untung rugi bagi TT 2001 (m/s 122 Exh C1). Walau bagaimanapun mulai TT 2002, Perayu telah
mengamalkan layanan yang berbeza pula terhadap amaun refinancing expenses. Apa yang
Perayu telah lakukan adalah mengambilkira refinancing expenses dalam pengiraan sekatan
faedah (m/s 126 Exh C1) dan ditambahbalik dalam pengiraan cukai. Belanja faedah ini telah
dibenarkan di bawah pendapatan faedah (m/s 124 Exh C1).
Layanan yang berbeza untuk TT 2001 dan 2002 menyebabkan saya membuat kesimpulan
bahawa pihak Perayu adalah cuai dan ini ditambah lagi dengan pendirian saya bahawa
refinancing expenses tersebut tidak sepatutnya dituntut sebagai belanja hasil langsung.
Lanjutan daripada layanan TT 2001, penemuan dikebelakangkan kepada TT 2000CY. Semakan
mendapati layanan bagi refinancing expenses untuk TT 2000CY adalah sama dengan TT 2001
(m/s 118 dan 120 Exh C1).
Thus, the Appellant was deprived of its right to rebut and tender a counter-explanation to the
Respondents contention.
We, the Special Commissioners too was deprived of an opportunity to evaluate the Appellants
counter-explanation had AW1s been asked the Respondents contention. In the result, we hold
that the Respondent has not discharged the onus of proving the Appellants alleged negligence
under Section 91(3)(b) of the Act. In support, we rely on the article Putting and Suggesting in CrossExamination [1984] 1 MLJ xi at xv where His Lordship Mahader Shanker said:
But as the law stands today, it may not be too far-fetched to say that a lawyer who does not put
his case to his adversarys witnesses at the first opportunity, must so act at his peril
As regards question 1(b)(iii) we also rule in favour of the Appellant. This is because the Appellant has
NOT omitted any material accounting particular in the accounts. At best, we can envisage that there
was only a difference of opinion on the accounting treatment between the parties on this aspect of the
case. We find the Appellant ought not to be penalised for this.
Accordingly, we unanimously allow the appeal and order that the relevant Notices of additional
assessment be amended accordingly.

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Tax>Malaysia and Singapore Tax Cases>2011 CASES>MALAYSIA CASES>MALAYSIA SPECIAL COMMISSIONERS CASES STATED 2011>BDHDSB v Ketua Pengarah
Hasil Dalam Negeri

11. The material parts of the Deciding Order dated 4 March 2011 that we made are in the following terms
RAYUAN INI setelah dibicara di Putrajaya pada 20 dan 21 September dengan kehadiran Dr. Arjunan
Subramaniam, Peguambela dan Peguamcara bagi pihak Perayu manakala Encik Mohamad Harzani
bin Tahir, Pegawai Undang-Undang, Lembaga Hasil Dalam Negeri bagi pihak Responden
ADALAH DIPUTUSKAN bahawa perbelanjaan-perbelanjaan Underwriting & Guarrantors
Commission sebanyak RM5,269,147; Agency Fee sebanyak RM120,000; Annual Review Fee
sebanyak RM42,000; Annual Management Fee sebanyak RM28,000 dan Surveillance Fee
sebanyak RM36,022 dalam Tahun Taksiran 2000 sehingga dan termasuk Tahun Taksiran 2004
adalah layak sebagai perbelanjaan-perbelanjaan yang dibenarkan di bawah peruntukan seksyen 33(1)
Akta Cukai Pendapatan 1967
JUGA ADALAH DIPUTUSKAN bahawa Notis Taksiran Tambahan bertarikh 31 Mac 2008 bagi tahun
taksiran 2000 dan Notis Taksiran Tambahan bertarikh 31 Mac 2008
[749]
bagi tahun taksiran 2001 adalah disekat oleh had masa di bawah seksyen 91(1) Akta cukai
Pendapatan 1967
JUGA ADALAH DIPUTUSKAN bahawa penalti yang dikenakan di bawah seksyen 113(2) Akta Cukai
Pendapatan 1967 dibatalkan
MAKA DENGAN INI ADALAH DIPERINTAHKAN bahawa rayuan ini dibenarkan
DAN DIPERINTAHKAN SELANJUTNYA bahawa Notis-Notis Taksiran Tambahan bagi tahun taksiran
seperti berikut:Tahun Taksiran 2000 JA bertarikh 31.03.2008
Tahun Taksiran 2001 JA bertarikh 31.03.2008
Tahun Taksiran 2002 JA bertarikh 31.03.2008
Tahun Taksiran 2003 JA bertarikh 31.03.2008
Tahun Taksiran 2004 JA bertarikh 31.03.2008
hendaklah dipinda sejajar dengan keputusan di atas
12. The Respondent being dissatisfied with our decision has by a Notice of Appeal dated 5 April 2011
required us to state a case for the opinion of the High Court pursuant to paragraph 34 Schedule 5 of the Act,
which case we have stated and do sign accordingly.
13. The question for the opinion of the High Court is whether on the facts as stated by us, our decision is
correct in law.

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