Mohd. Azmi J:

This is an appeal by way of case stated against the decision of the Special Commissioners of Income Tax in holding that, in the ascertainment of the taxpayer company's income for the year of assessment 1971, the sum of RM247,838 paid by way of retrenchment benefits was not deductible under the provisions of s. 33(1) of the Income Tax Act 1967.

In accordance with the evidence and statement of agreed facts, the appellant taxpayer is a tin mining company which has gone into liquidation because of the exhaustion of its tin ore reserve. Mining operation ceased on 24 July 1970 and the company went into voluntary liquidation on 29 April 1971. (See AB19). Payments of retrenchment benefits were made to the various employees between July and November 1970 in accordance with the terms of two agreements between the Malayan Mining Employers' Association, of which the company was a member, and two trade unions representing the employees, entered into by the parties in 1967. The taxpayer company claims that for the assessment year 1971, it is entitled to deduct those 1970 payments from its gross income as being "outgoings and expenses wholly and exclusively incurred in the production of gross income" within the meaning of s. 33(1) of the Income Tax Act 1967. However, the Special Commissioners have disallowed these deductions on the ground that these sums were not paid out in order to produce income but because the taxpayer was going out of business.

The sole question for determination in this appeal is whether the sum of RM247,838 paid by way of retrenchment benefits is deductible from the taxpayer's gross income as being "outgoings and expenses wholly and exclusively incurred in the production of gross income". The question of law for the opinion of this Court is whether on the facts before the Special Commissioners, there was evidence to support their decision and whether it was correct in law.

It is necessary to stress at this stage that it is for the taxpayer company to show by evidence that the payment of RM247,838 (hereinafter referred to as "the disputed sum") are outgoings and expenses wholly and exclusively incurred in the production of gross income. The evidence disclose that the payments in the form of retrenchment benefits were made in 1970 pursuant to contractual obligation incurred in 1967 which stipulated that an employee "shall qualify for retirement benefit:

(a) if he has fully attained the age of 55 and has completed not less than 10 years' continuous service with the company or

(b) if he has completed 5 years' continuous service with the company but not having attained the age of 55 and is certified by the company's medical officer as incapable of carrying out his employment and permanently unfit for any further employment within the mining industry or

(c) if he dies whilst in the service of the company or

(d) if he is retrenched due to the closure of a mine or redundancy.

It is pertinent to note that except for the first limb of eventuality (d), all the other situations pose no real problem since any retrenchment benefit made under them may in appropriate cases be proved to have been incurred wholly and exclusively in the production of the taxpayer's gross income. It seems to me that (a), (b) and (c) have one thing in common, viz.the payment would be made not with a view of cessation of business but rather for continuation of business in the production of income, whereas the first limb of (d) is expressly for the purpose of cessation of business although the second limb, as regards redundancy, it might be envisaged that the business would still continue. Thus, when we talk retrenchment benefits under the two agreements in this appeal, we are in fact talking about five eventualities when the taxpayer company was obliged to make payments. Further, in the present case, a retrenchment could occur either due to closure of the mine, i.e. closure of business (which is the relevant part of the agreements wi