The interpretation of tax laws must favor clarity, preserving taxpayer rights against ambiguous provisions.

Abdul Malek Ahmad JCA:

The notice of appeal to the Special Commissioners of Income Tax by the respondent against the appellant dated 26 January 1988 listed the following grounds:

1. That losses incurred in preceding years should be brought into account in determining the Society's chargeable gain or adjusted loss;

2. That unabsorbed capital allowances should be carried forward in the computation of the Society's chargeable gain or adjusted loss; and

3. That the deductions from total income in arriving at chargeable income for a particular year of assessment as provided for in Section 65A (1)(a) and (b) of the Income Tax Act, 1967 (as amended) form part of the unabsorbed losses for preceding years available as a deduction from aggregate income for each year of assessment including year of assessment 1986 and subsequent years of assessment in accordance

with Section 43 (2) of the Income Tax Act, 1967 (as amended).

Section 65A of the Income Tax Act 1967 (hereinafter "the Act") was introduced by the Income Tax (Amendment) Act 1977 (Act A 380) and had effect for the year of assessment 1977 and subsequent years of assessment. The new s. 65A of the Act then read:

65A. (1) In arriving at the chargeable income of a co-operative society for a year of assessment, there shall be deducted from the total income for that year such sum as has been transferred or paid during the basis period for that year to a statutory reserve fund or to any educational institution or any co-operative organisation established for the furtherance of co-operative principles, or to both, or to a Co-operative Education Trust Fund, as may be required under the provisions of any written law relating to the registration of co-operative societies in Malaysia:

Provided that the maximum sum to be deducted shall not exceed one-fourth of the audited net profits for that basis period of such co-operative society.

(2) The provisions of section 3A shall not apply to the income of a cooperative society.

Subsection (1) of the said section was amended again by virtue of the Income Tax (Amendment) Act 1978 (Act A 429) and, having effect for the year of assessment 1978 and subsequent years of assessment, read as follows:

(1) In arriving at the chargeable income of a co-operative society for a year of assessment, there shall be deducted from the total income for that year:

(a) such sum as has been transferred or paid during the basis period for that year to a statutory reserve fund or to any educational institution or co-operative organisation established for the furtherance of cooperative principles, or to both, or to a Co-operative Education Trust Fund, as may be required under the provisions of any written law

relating to the registration of co-operative societies in Malaysia:

Provided that the maximum sum to be deducted shall not exceed onefourth of the audited net profits for that basis period of such cooperative society; and

(b) an amount equal to six per cent (or such percentage as may be prescribed) of the members' funds (as defined in paragraph 12(2) of Part I of Schedule 6) as at the first day of the basis period for the year of assessment.

Subsequently, pursuant to s. 18 of the Finance Act 1991, (Act 451), the said section was amended by renumbering s. 65A(1) as s. 65A and by deleting sub-s. (2) thereof. This had effect from the year of assessment 1991 and subsequent years of assessment. The existing section now reads:

65A. In arriving at the chargeable income of a co-operative society for a year of assessment, there shall be deducted from the total income for that year:

(a) such sum as has been transferred or paid during the basis period for that year to a statutory reserve fund or to any educational institution or co-operative organisation established for the furtherance of cooperative principles