APPEAL.

This is an appeal by Ketua Pengarah Hasil Dalam Negeri against the decision of the Court on 27.8.2002, dismissing the appeal against the decision of the Special Commissioners of Income Tax.

BRIEF FACTS.

The Respondent was assessed to income tax for the years of assessment 1991 and 1992 for RM2,824,507.62 and RM1,978,744.94 respectively ("the Assessments") following Notices of Assessment both dated 20.11.1995.

[1]

The Respondent made an appeal pursuant to s. 99 Income Tax Act ("the Act") for the reasons that the Appellant has failed to disregard income exempt from the tax computations in the Assessment in arriving at the Aggregate Income of the Respondent, and further the Appellant has wrongfully apportioned the gifts made as deductions from the Aggregate Income to arrive at the chargeable income of the Respondent.

The Appeal was heard by the Special Commissioners of Income Tax ("the Commissioners") after which the Commissioners agreed with the Respondent when they decided on 30.4.1999 that the computations by the Appellant was wrongfully made and therefore the assessments were ordered to be revised accordingly. The Commissioners ruled that the donation made by the Respondent should only be deducted against the non exempt income.

The Appellant being dissatisfied with the decision has requested the Commissioners to state a case for the opinion of the High Court. Hence this Appeal before the Court.

[2]

DECISION.

After hearing submissions the appeal was dismissed with costs.

ISSUES.

Whether the treatment of income exempt from tax by the Appellant is correct; and

Whether the apportionment by the Appellant of the Gifts as allowable deductions against aggregate income is correct.

FINDINGS.

Counsel for the Appellant submitted that the word "income" must mean chargeable income. He maintained that nowhere in the case ofMCIS v Ketua Pengarah Hasil Dalam Negeri(1995) 2 MSTC 2272 is stated that income means gross income and accepted that there is no law requiring apportionment of income to exempt and non-exempt income.

Counsel for the respondent submitted that the word "income" in section 127(5) of the Act is not defined such that it is not a technical word with specific meaning like Adjusted Income, Statutory Income, Aggregate 3Income, Total Income and Chargeable Income. Section 2(2) of the Act reads:

"reference to this Act to income shall, if the income is not described as being income of a particular kind, be construed as a reference to income generally or to gross, adjusted, statutory, aggregate, total or chargeable income as the context and circumstances may required."

Counsel further contended that by virtue of section 2(2) of the Act, since "income" under section 127(5) is not specified to be either adjusted income, or statutory income, or aggregate income, or total income or chargeable income, then "income" in section 127(5) of the Act must mean gross income.

It is worthy of note that in a letter to the Respondent, the Appellant justifies its reason for the apportionment of the gifts as follows:

"Untuk membuat pengiraan cukai pendapatan keatas punca dividen sahaja (di mana pembayaraya tidak dikecualikan) maka potongan Seksyen 44(6) seharusnya dikadarkan. Walaupun tidak wujud peruntukan khas bagi maksud tersebut[4]pengendalian tersebut adalah logik.Adalah tidak munasabah keseluruhan jumlah derma di bawah seksyen 44(6) dibenarkan dari satu punca dividen sahaja, sedangkan pendapatan aggregate Responden adalah termasuk Punca Perniagaan dan Punca Dividen" (emphasis added)

From the above letter, it would appear that the Appellant admits that there is no special provision for the income to be apportioned. Further it says that despite the lack of such provision, the act of apportionment is logical. It is strange that such reliance on logic should play a part in the discharge of the duties by the Appellant to the detriment of the Respondent. One would have thought that on such an important matter of levying of tax surely r