nun Ali J:

This is an appeal by way of case stated by the appellant against the decision of the special commissioners of the income tax (hereinafter referred to as "SCIT") made on 5 July 1997, that the provision made for retirement benefits that had been taken into account in the sale of the appellant's dyeing and printing mill was not an allowable deduction under s. 33(1) of the Income Tax Act 1967 (hereinafter referred to as "the Act").

Briefly the facts of this case is that prior to 1 November 1989, the appellant owned and operated three types of mills namely a spinning mill, two weaving mills and a dyeing and printing mill. The appellant subsequently sold the dyeing and printing mill to Textile Corporation (Malaysia) Sdn Bhd (hereinafter referred to as "TCM") in order to rationalise the business and to qualify for pioneer status under the Promotion of Investment Act 1987 whereby it is exempted from payment of income and development taxes.

The appellant then transferred all its employees working in the said dyeing and printing mill to TCM. The provisions for retirement benefits for these employees was adjusted and finalised at a figure of RM1,885,529 which was set-off