KC Vohrah J:

This is an appeal by way of a case stated by the special commissioner of Income Tax (SC). It arises from the decision which the SC gave on 12 September 1998 in relation to an appeal by Multi-Purpose Bhd (the taxpayer) in respect of which both Ketua Pengarah Hasil Negeri (Revenue) and also the taxpayer required the SC to submit to this court.

The taxpayer, a company incorporated in 1975, has its principal business activity as a holding and investment company. It received income as dividend income from the holding of shares in various companies. It also received income as interest income from the giving of loans to related companies and from the placing of funds on short-term deposits. In addition 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(the Act) to income tax on the various types of income the taxpayer received for the years 1982 to 1988.

Revenue adopted a method of computation of such income which is challenged by the taxpayer.

What revenue did was to treat each counter of the share investment as a separate source of the taxpayer's income. Revenue also treated each loan given by the taxpayer as a separate source of income of the taxpayer's source of income. Additionally, the revenue treated each deposit placed by the taxpayer as a separate source of income of the taxpayer's income.

Revenue, using its method of computation, accordingly on 2 July 1990, assessed by way of notice of assessment for the years 1982, 1983, 1984, 1985 the following taxes chargeable:

(a) 1982 -RM3,553,747.60

(b) 1983 -RM6,590,434.80

(c) 1984 -RM3,553,460.80

(d) 1985 -RM10,998,096

Revenue issued computations for the years 1986, 1987 and 1988 the following taxes chargeable:

(e) 1986 -RM15,239,192.75

(f) 1987 - RM3,676,567.62

(g) 1988 -RM1,016,784.55

I shall deal with the findings which the SC made in relation to the issues raised by revenue but have dropped those raised by the taxpayer in its cross-appeal relating to interest expenses and management fees since a consent order dated 23 May 2000 has been made in respect of these matters.

Before the SC and before this court it was contended by the taxpayer that the assessments raised by revenue are misconceived in law in that, inter alia:

(a) the dividend income of the taxpayer for each of the years of assessment 1982 to 1988 should be treated as a distinct and singular source of income however or from wherever derived, in arriving at the taxpayer's adjusted income under s. 33 of the Act;

(b) the interest income of the taxpayer for each of the years of assessment 1982 to 1988 should be treated as a separate and singular source of income however or from wherever derived, in arriving at the taxpayer's adjusted income under s. 33 of the Act.

It was also contended that the scheme of the Act by which chargeable income is to be ascertained has been ignored and the sources of income have been arbitrarily fragmented by revenue into further sub-divisions and in a manner unauthorised by law.

It was further contended that there was a failure on the part of revenue to recognise that income from all sources ie, investment sources (dividends) or loan and deposit sources (interest) and other sources will have to be aggregated pursuant to s. 43 of the Act, subject to express restrictions and disallowances as authorised under the Act.

On the other hand revenue contended before the SC and before this court that each of the counters of share investment of the taxpayer, each loan given and all deposits placed by the taxpayer constitute separate sources of income.

This is what the SC decided:

We are satisfied that the Appellant (the Taxpayer) has successfully discharged the onus of proving that the Respondent's (Revenue's) assessments in respect of issues (a) and (b) are erroneous as envisaged in paragraph 13 of Schedule 5 of the Act ...

Accordingly, we unanimously decided that the appeal in respect