Lord Diplock

(delivering the judgment of the Board): This appeal is against an additional assessment of income tax for the year of assessment, 1967, made upon the appellant ("the taxpayer") on March 11, 1972, in respect of the profit of $176,774 made by him upon the sale on October 25, 1966, of an area of 6,666 acres of land ("the land") in the District of Kinabatangan, Sabah, which he had purchased in April 1964. The statute in force at the period to which the additional assessment related was the Income Tax Ordinance, 1956, (Sabah) and the section under which the assessment was made was section 9(1)(a) which reads: —

"9(1) Income tax shall, subject to the provisions of this Ordinance, be payable at the rate or rates specified hereinafter for each year of assessment upon the income of any person accruing in or derived from the Colony or received in the Colony from outside the Colony in respect of —

(a) gains or profits from any trade, business, profession or vocation, for whatever period of time such trade, business, profession or vocation may have been carried on or exercised."

The taxpayer appealed to the Special Commissioners of Income Tax against the additional assessment upon the ground that the profit in question was capital appreciation and not a profit chargeable to tax. The Special Commissioners decided against the taxpayer and, for good measure, ordered that a sum of $23,703, which had been allowed by the Revenue as expenses incurred in connection with the sale and transfer of the land by the taxpayer in arriving at the net profit of $176,774, should be added back upon the ground that they were not expenses wholly and exclusively incurred by the taxpayer in the production of income.

From this decision the taxpayer appealed to the High Court in Borneo (B.T.H. Lee J.) by way of Case Stated under paragraph 34 of Schedule 5 to the Income Tax Act, 1967, which had by then replaced the Income Tax Ordinance, 1956. The judge dismissed the taxpayer's appeal and so did the Federal Court (Lee Hun Hoe C.J. Borneo, H.S. Ong F.J. and Charles Ho J.) upon the further appeal by the taxpayer to that court. It is from the judgment of the Federal Court that this appeal to His Majesty the Yang di-Pertuan Agong is brought.

Much of the difficulty that has arisen in the instant case — which, in their Lordships' view, is basically a simple one — has been caused by the confused way in which the case for the opinion of the High Court was stated by the Special Commissioners. At the hearing before the Commissioners there had been submitted a Statement of Agreed Facts relating to: (a) the original purchase of the land by the taxpayer on April 22, 1964, and its transfer to and registration in his name on October 7, 1964; (b) the expenses incurred by him in making improvements on the land between that date and its subsequent sale, consisting mainly of the construction of three and a half miles of narrow gauge railway from a jetty on the Kinabatangan River to the elevated portion of the land; and (c) the sale and transfer of the land to one Chin Yin Khee ("Chin") on October 25, 1966, and its registration in Chin's name on December 23, 1966. In addition to the Statement of Agreed Facts oral evidence had been given at the hearing by the taxpayer and by two witnesses called on behalf of the Revenue.

In their Case Stated the Special Commissioners, after disposing of two preliminary objections made on behalf of the taxpayer, started quite properly and conventionally by stating in paragraph 8: —

"The following facts were admitted or proved:—"

There followed a series of paragraphs lettered (a) to (t) and containing what on the face of them appear to be statements of fact about the taxpayer's and Chin's dealings with the land, what the taxpayer had done upon the land in the two-and-a-half years between the time he bought it and the time he sold it; and in particular that his intention when he bought it had been to develop it as a cattle ranch but he had fou