The disposal of properties by a company, when sold shortly after acquisition without efforts to rent them out, is deemed trading income subject to tax under the Income Tax Act, not capital gains.

Introduction

[1] This is an appeal against the judgment of the High Court which had by way of case stated affirmed the decision of the Special Commissioners of Income Tax ("SCIT") which had earlier dismissed the appellant's appeal against the assessment raised by the respondent under s 4(a) of the Income Tax Act 1967 ("the ITA ").

[2] Having heard the appeal - which was conducted by way of a remote communication technology via Zoom - examined the appeal records and considered the submissions by parties, we unanimously decided to affirm the decisions of the High Court and the SCIT, and therefore dismiss the appeal, for the reasons which we set out herein.

Key Background Facts

[3] International Naturophatic Bio-Tech (M) Sdn Bhd, the appellant herein, is a locally incorporated company, and has as its main business, the promotion of naturopathic medicine including the provision of training, advice, information, consultancy, guidance and counselling on all aspects of naturopathic medicine. The appellant company's two first shareholders and directors were Dr Fei Chong Ming and Fei Xiao Yun. The appellant operated its health product distribution business from 1986 until the passing of Dr Fei Chong Ming in 2012.

[4] On 8 July 2008 the appellant executed six sale and purchase agreements to purchase six different shop lot units - specifically A-3A-G, A-3A-1 and A-3A- 2 in Block A as well as B-23A-G, B-23A-1 & B-23A-2 in Block B at Zenith Corporate Park located in Kelana Jaya, Petaling Jaya ("the Shop Lots").

[5] Delivery of vacant possession in respect of all the Shop Lots was made in August 2010.

[6] Subsequently, the Shop Lots in Block A were sold on 27 June 2011 and those in Block B, on 1 August 2011.

[7] The respondent is the Director General of Inland Revenue who had raised the notice of assessment dated 18 December 2014 in the requisite Form J on the appellant company in respect of the disposal of the Shop Lots, amounting to RM543,906.00 for the year of assessment 2011.

Principal Issue For Determination In This Appeal

[8] The one central issue in this appeal as it was before the SCIT and the High Court is whether the disposal by the appellant of its Shop Lots is subjected to real property gains tax (RPGT) under s 3 of the Real Property Gains Tax Act 1976 or s 4(a) of the ITA .

[9] The SCIT and the High Court both held that the disposal of the Shop Lots in Block A and Block B were subject to income tax, thereby confirming the assessment made by the respondent dated 18 December 2014 for the year of assessment 2011, with tax payable in the amount of RM543,906.00.

[10] The High Court found no reasons to interfere with the findings of fact made by the SCIT, which were found to be consistent with the evidence produced before it. The High Court also agreed with the SCIT that the appellant is not an investment holding company within the meaning of s 60F of the ITA (although this point was abandoned by the appellant) and also concurred that once the appellant was found to have made an incorrect return, the respondent had every right to impose a penalty. Both the SCIT and the High Court affirmed that the imposition of a 45% penalty on the appellant was allowable and correct.

Principles Governing Appellate Intervention In Appeals Against Decisions OfSCIT

[11] Although the merits of the appeal would require examination on whether the disposals by the appellant of the Shop Lots in Block A and