JUDGMENT

Edgar Joseph Jr. SCJ:

Preliminary

This is an appeal from the judgment of the High Court, at Ipoh, dismissing an appeal by the Lower Perak Cooperative Housing Society Bhd. ("the taxpayer") by way of case stated by the Special Commissioners of Income Tax ("the Special Commissioners") who had dismissed its appeal against notices of assessment dated 16 August 1975 and 11 September 1982, in respect of the years of assessment 1972 and 1974, respectively.

More particularly, the taxpayer challenged the inclusion in its income tax assessments of sums of RM4,596.40 and RM118,994.50 representing profits received by the taxpayer for the disposal in 1971, of 41 subdivided building lots, and in 1973, of 407 building lots, which profits the revenue claimed to be of a revenue nature, being gains or profits from trading and therefore assessable to tax under the Income Tax Act 1967, ("the Act") and the Supplementary Income Tax Act 1967. For purposes of the assessment to income tax, the revenue considered that the proper value to be placed on the subdivided lots as stock-intrade should be based on the cost to the taxpayer for the land in 1956, that being the year when it acquired the land.

So far as material for purposes of the present appeal, the provisions of the Income Tax Act 1967 , which it would be convenient to reproduce are as follows:

Section 4 : Subject to this Act, the income upon which tax is chargeable under this Act, is income in respect of:

(a) gains or profits from a business, for whatever period of time.

Under para 12(a) of Schedule 6 to the Income Tax Act 1967, then applicable, the taxpayer, being a co-operative society, was exempted from income tax if the principal activities of the taxpayer consist of:

(a) transactions with its members or other cooperative societies so registered; or (b) ... (c) ...

The findings of fact by the Special Commissioners

The circumstances in which the sums of money aforesaid were included in the notices of assessment concerned may be taken, in substance, from the case stated, by the Special Commissioners pursuant to paras 34 and 35 of Schedule 5 to the Act, wherein they made the following findings of fact:

(i) the taxpayer is a co-operative housing society registered on 8 September 1955, under s. 7 of the Co-operative Societies Ordinance 1948; (ii) the objects of the taxpayer as set out in by-law 3(1) of its By-laws, inter alia are:

(a) to buy or acquire land by purchase, mortgage, lease, exchange, gift or otherwise; (b) to lay out land to suit the requirements of the society in the shape of roads, parks, playgrounds, schools, hospitals, markets, post offices, cinemas and other social amenities etc.; (c) to lay out land as house sites for the benefit of the members of the society; (d) to construct or cause to be constructed building or other works of a common utility to the society;

(e) (1) to build or cause to be built residential houses or other buildings for the members; (2) to build houses for members on land owned by them and recover the cost thereof in instalments within a period not exceeding twenty years; (3) to purchase land for members, build houses thereon and recover the cost in instalments within a period not exceeding twenty years; (4) to build houses on land belonging to the society and to rent or lease them to members;

(f) to hold, sell, mortgage, lease out on hire or hire-purchase system, or otherwise dispose of land, house, house-sites, buildings and all other properties movable and immovable as may be necessary for carrying out the objects of the society; and (g) to raise funds required for the business of the society;

(iii) in order to achieve its objects the taxpayer, by by-law 3(2), could proceed with all or any of the following:

(a) to accumulate funds by raising loans and deposits from members and non-members; (b) to purchase, to sell, to transfer Q.T., to build, to let, to lease or to mortgage and to own movable or immovable properties like land, build