JUDGMENT

Lord Oliver of Aylmerton:

This is an appeal from a judgment dated 14 August 1982 of the Federal Court of Malaysia (Raja Azlan Shah CJ, Salleh Abas FJ and Abdoolcader J) allowing an appeal by the respondent, the Comptroller-General of Inland Revenue, from an order made by Harun J in the High Court on 20 March 1979 which had allowed the appellant's appeal by way of Case Stated by the Special Commissioners of Income Tax who had dismissed the appellant's appeal against two notices of additional assessment dated 1 July 1967 in respect of the years 1963 and 1964 respectively.

As regards the year 1963, the appellant challenged the inclusion in its income tax assessment of a sum of RM2,622,510 representing the profit on the sale by the appellant of certain land forming the site of a hotel, which profit the Revenue claimed to be of a revenue nature. As regards the year 1964, it challenged the inclusion of a sum of RM4,201,000 representing the profit on the sale of the appellant's rights under a lease and a repurchase agreement, a sum of RM494,000 representing its profit on the sale of shares in a subsidiary company to a public company, Merlin Hotels Malaysia Limited, and a sum of RM288,332 representing the profit on the sale of shares in that company to members of the public.

Section 10(1)(a) of the Income Tax Ordinance 1947, which was the provision in force at the time of the assessments challenged by the appellant, provided (so far as material) that:

Income tax shall ... be payable ... upon the income of any person ... 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.

It was the appellant's contention that the four sums in question were not trading receipts but the proceeds of the realisation of capital assets and the essential question raised on the appeal is whether the Federal Court was right in holding, as it did, that there was evidence before the Special Commissioners upon which they could properly reach the conclusion that each of the four sums was a trading profit and taxable accordingly.

The appellant, Lim Foo Yong Sendirian Berhad, is a private limited company incorporated on 8 April 1954 at the instance of Lim Foo Yong. It is a family company and its two directors are Lim Foo Yong and his wife. It is unnecessary to refer in terms to the appellant's objects as set out in its Memorandum of Association. It is sufficient for present purposes to say that they include purchasing property for investment and, equally, the trafficking in real or personal property. It is also worth mentioning that the objects include the carrying on of the business of hotel, restaurant and cafe keepers and other similar objects. At the date of the appellant's incorporation, Lim Foo Yong was the owner of a small hotel called the Harlequin Hotel and of a number of plots of land which he had purchased with a view to its expansion. These were acquired by the appellant in 1955 and 1956 but were subsequently sold in 1958, 1959 and 1964. It is not disputed that the profits on these sales were taxed as trading profits, as were the compensation received from the compulsory purchase of two plots acquired in 1957 and the profit on the sale by the appellant of a shophouse which it had acquired from Lim Foo Yong in 1955.

The relevant history for the purposes of this appeal starts with the acquisition by the appellant in 1956 of five vacant lots upon which, between 1957 and 1959, it caused to be erected a hotel known as the Hotel Merlin. These lots are conveniently referred to as "the Merlin land". In 1959 the appellant caused to be incorporated a wholly owned subsidiary, Hotel Merlin Limited, whose principal object was the carrying on of a hotel and restaurant business and in which it held 98,800 shares, being over 90% of the issued share capital. The hotel was leased to Hotel Merlin Limited which con