The gains from the disposal of land were deemed business income taxable under subsection 4(a) of the Income Tax Act 1967, indicating an adventure in the nature of trade.

JUDGMENT

Ahmad Kamal Md Shahid J:

Introduction

[1] This is an appeal by the appellant by way of case stated against the Deciding Order of the Special Commissioners of Income Tax (SCIT) dated 12 October 2017 pursuant to para 34 of Schedule 5 of the Income Tax Act 1967 (ITA 1967).

[2] The SCIT had unanimously disallowed the appellant's claim and/or appeal against the respondent's decision to raise additional assessment on the appellant for the Year of Assessment (YA) 2010. The SCIT had maintained the decision of the respondent to subject the gains obtained by the appellant pursuant to the sale of six pieces of land on 6 August 2010 to income tax under s 4(a) of the ITA 1967.

Background Facts

[3] The established facts found by the SCIT are as stated at paras 7.1 to 7.13 at pp 4 to 7 of the Case Stated as follows:

(i) Ziranhao Agricultural Sdn Bhd was incorporated in Malaysia on 16 October 2002 under the Companies Act 1965. The original directors of the company when it was formed were Chee Kin Heng, Law Boon Hak and Chee Siew Ping. The company closes its accounts every 31 December. The company from the day it was established has been in the business of operating a bee farm and selling honey and obtaining revenue related to bee farms. The company has leased Temporary Occupation Lease ("TOL") land for 15 years to operate the bee farm business (Respondent's Bundle of Documents D, pp 3-11);

(ii) Ziranhao Sdn Bhd had purchased six lots of land farm from Lingbena Development Sdn Bhd in Mukim Ulu Tenom, Cameron Highlands District, Pahang for RM3,300,000.00 through a Sale and Purchase Agreement dated 12 March 2004 (Appellant's Bundle of Documents, C1 pp 72-173). Lingbena Development Sdn Bhd is a housing development company that held the land for development purpose (Respondent's Bundle of Documents D, p 12);

(iii) The appellant has obtained the services of Saudagar Sistem Sarjana to prepare an initial design for the proposed hotel construction project on the six lots of land. The initial design prepared by Saudagar Sistem Sarjana was received by the appellant through a letter dated 30 June 2004 (Respondent's Additional Bundle of Documents, D1, pp 4-6). Based on para 4 of the letter's enclosure, the appellant had plans to develop the land as a well-known tourist centre such as Sunway Lagoon and Genting Highlands (Respondent's Additional Bundle of Documents, p 5);

(iv) The purchase of the land was financed with a Malayan Bank Bhd bank loan of RM1,620,000.00 through a Loan Agreement dated 11 March 2005 (Respondent's Bundle of Documents, D, p 1371) and capital injection from shares amounting to RM1,680,000.00;

(v) The company changed its company name to Ziranhao Sdn Bhd on 1 April 2005 (Respondent's Bundle of Documents, p 4). The original directors resigned and they were replaced by new directors as follows:

(vi) On 10 May 2005, the company increased its paid-up ordinary share capital to RM1,000,000.00. The new directors, Teon Woon Kuai and Chong Kin Sin joined the appellant and injected funds (through ordinary share capital holdings) into the appellant to finance the purchase of the land;

(vii) After the purchase of the land was completed and the land was registered in the name of the appellant on 17 March 2005 (Respondent's Bundle of Documents, D, pp 78-90), the appellant through its consultant, ANR Planning Consultant applied to Cameron Highlands District Council by letter dated 20 March 2006 (Respondent's Bundle of Documents, D p 91) for planning permission for proposed mixed development on the land. The Cameron Highlands District Council responded through a letter dated 24 April 2006 confirming that the application involved the conversion of land from agriculture to buildings (residential and business) and sub-division of the land simultaneously (Respondent's Bundle of Documents, p 92). Approval of the application for surrender and re-alienation from agriculture to building was obtained from the Cameron Highlands District and Land Office on 19 Apri