Judgment

Abdul Malek Ahmad JCA

(delivering the judgment of the court)

1. The notice of appeal to the Special Commissioners of Income Tax by the respondent against the appellant dated January 26, 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 s 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 s 43(2) of the Income Tax Act, 1967 (as amended).

2. Section 65A of the Income Tax Act 1967 (hereinafter "the Act") was introduced by the Income Tax (Amendment) Act 1977 (Act A3 80) 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 3 A shall not apply to the income of a co-operative society.

3. Subsection (1) of the said section was amended again by virtue of the Income Tax (Amendment) Act 1978 (Act A429) 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 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; 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.

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

5. The order of the Special Commissioners of Income Tax on August 1, 1994 was that by consent of both parties, the deduction under paras (a) and (b) of subsection (1) of s 65A of the Act for the year of assessment 1986 amounting to RM16,347,475 is allowed and the respondent shall not demand that the deduction be brought to the subsequent years of assessment if there is no overall or sufficient income against which a deduction may be made.

6. It also held that the respondent is not exempted from paying income tax for the year of assessment 1986 under the Act but can bring forward any adjusted loss together with capital allowances from previous years irrespective of whether in or out of the period of exemption from income tax under the Act, to determine the amount of chargeable income tax for the subsequent years of assessment including the year of assessment 1986. Accordingly, it held that the notice of assessment for the year of assessment 1986 dated April 13,1987 be amended to accord with their order.

7. The respondent is a co-operative society which had been registered on August 2, 1954 under the Co-operative Societies Ordinance 1948. By virtue of subparagraph (ii) of paragraph (f) of subsection (1) of s 13 of the Income Tax Ordinance 1947 (hereinafter "the Ordinance") its income had been exempted from tax up to the year of assessment 1967. The whole of the Ordinance was repealed by s 155 of the Act with effect from January 1, 1968.

8. Thereafter, its income had been exempted from tax for the years of assessment 1968 up to 1976 in line with paragraph 12 of Schedule 6 to the Act which reads:

   12.	The income of any co-operative society registered under any written law relating to the registration of co-operative societies, if the principal activities of the society consist of-
   	(a)	transactions with its members or other co-operative societies so registered;
   	(b)	marketing the produce or products of its members; or
   	(c)	selling to its members goods purchased for the purpose of being so sold.

9. In the appeal in the court below, the learned High Court Judge held that following the exemption from paying income tax enjoyed by the respondent under the Ordinance, the respondent continued to enjoy the exemption even when the Ordinance was repealed and replaced by the Act by virtue of the transitional provision given by s 156 of the Act read together with paragraph 33 of Schedule 9 to the Act.

10. Section 156 of the Act states that the transitional and saving provisions in Schedule 9 to the Act shall have effect notwithstanding s 155, which is the repealing section, or any other provision of the Act.

11. The problem arose in 1986 when the Income Tax (Amendment) Act 1977 (Act A380) was promulgated and paragraph 12 of Schedule 6 to the Act was amended to read as follows:

    12.	(1)	The income of any co-operative society -
    		(a)	in respect of a period of five years commencing from the date of registration of such co-operative society; and
    		(b)	thereafter where the members' funds of such co-operative society as at the first day of the basis period for the year of assessment is less than five hundred thousand ringgit.

12. Subparagraph (2) of paragraph 12 of Schedule 6 to the Act was again amended by the Income Tax (Amendment) Act 1978 (Act A429) by substituting for the words "shares, subscriptions and entrance fees" the words "shares and subscriptions".

13. Also, to paragraph 33 of Schedule 9 to the Act was added, by the Income Tax (Amendment) Act 1980 (Act A471) which was deemed to have effect for the year of assessment 1968 and subsequent years of assessment, a new paragraph (a) to the proviso and reproduced below is the said paragraph as amended:

    33.	Any exemption from any previous tax or from any provision of a repealed law shall, if it was made under a repealed law and was effective on 31st December, 1967, be deemed to have been made by an order under section 127 in relation to tax imposed by this Act or in relation to the corresponding provision of this Act, as the case may be: Provided that this paragraph shall not apply in relation to -
    	(a)	any such exemption for which provision is made, with or without modification, in this Act; or
    	(b)	section 44(3) of the Sarawak Ordinance.

14. It is because of this amendment that the appellant had issued the notice of assessment dated April 13, 1987 assessing the income tax payable by the respondent at RM1,352,378.44 for the year of assessment 1986.

15. As to the order made by the Special Commissioners of Income Tax, the respondent had appealed against that part not exempting them from paying income tax for the year of assessment 1986 while the appellant had cross appealed against the other parts of the order relating to the bringing forward of the adjusted losses and capital allowances from previous years of assessment.

16. The learned High Court Judge allowed the respondent's appeal based on the decision of the Supreme Court in National Land Finance Co-operative Society Ltd v Director General of Inland Revenue [1993] 2 AMR 3581 (hereinafter "the NLFCS case") as the proviso withdrawing the exemption is hazy whereas a statutory proviso intending to withdraw an exemption should be stated clearly leaving no room for doubt as to its meaning.

17. As for the carrying forward of the adjusted losses and capital allowances from previous years of assessment, the learned High Court Judge ruled that subsection (5) of s 127 of the Act only specially mentions "income which is exempt from tax" and this does not cover adjusted losses or capital allowances. Accordingly, in view of subsections (2) of both s 43 and s 44 of the Act respectively read together with paragraph (b) of s 42 and paragraph 75 of Schedule 3 to the Act, he held that the finding of the Special Commissioners of Income Tax was correct.

    The aforesaid provisions are reproduced below for ease of reference:

    42.	Subject to this Act, the statutory income (if any) of a person from a source for a year of assessment shall consist of-
    	(b)	the amount of-
    		(i)	any balancing charge or the aggregate amount of the balancing charges;
    		(ii)	any agriculture charge or the aggregate amount of the agriculture charges; and
    		(iii)	any forest charge or the aggregate amount of the forest charges,
    	falling to be made for that year under Schedule 3 in relation to that source, reduced by the amount of any allowance or the aggregate amount of the allowances falling to be made for that year under that Schedule in relation to that source.

    43.

    (2)

    Subject to subsections (3) and (5), there shall be deducted under subsection (1)(a) pursuant to this subsection from the aggregate of the relevant person's statutory income from each of his sources consisting of a business for the relevant year the amount ascertained under section 44(4) or (5) for any particular year of assessment preceding the relevant year or, where that amount exceeds that aggregate, so much of that amount as is equal to that aggregate: Provided that, where a deduction has been made or may be made pursuant to this subsection from the aggregate of the relevant person's statutory income from each of his sources consisting of a business for a year of assessment following the particular year in question or for more than one year of assessment following that particular year and in either such case ending prior to the relevant year, then, for the purposes of the application of this subsection for the relevant year, there shall be substituted in place of the amount ascertained under section 44(4) or (5) for that particular year so much, if any, of that amount as has not been deducted for the year of assessment following that particular year or, as the case may be, for those years of assessment following that particular year and ending prior to the relevant year.

    44.	Total income.
    	(2)	Subject to subsections (3) and (5), there shall be deducted pursuant to this subsection from the aggregate income of the relevant person for the relevant year the amount of any adjusted loss from a source of his for the basis period for the relevant year or, where there is an adjusted loss from each of two or more sources of his for the appropriate basis period for each source for the relevant year, the aggregate of the adjusted loss from each of those sources for its appropriate basis period for the relevant year.

    Schedule 3

    75.

    Where, by reason of an insufficiency or absence of adjusted income of a person from a business of his for the basis period for a year of assessment or by reason of the existence of an adjusted loss from the business for that period, effect cannot be given or cannot be given in full to any allowance or to the aggregate amount of any allowances falling to be made to him for that year in relation to the source consisting of that business, that allowance or that aggregate amount, as the case may be, which has not been so made (or so much thereof as has not been so made to him for that year) shall be deemed to be an allowance to be made to him for the first subsequent year or assessment for the basis period for which there is adjusted income from that business, and so on for subsequent years of assessment until the whole amount of the allowance or that aggregate amount to be made to him has been made to him.

18. We are of the unanimous view that this appeal falls on all fours with the NLFCS case (supra) where the concluding paragraphs of the landmark judgment state:

    There are ample authorities to show that courts have refused to adopt a construction of a taxing Act which would impose liability when doubt exists. In Re Micklewait (1855) 11 LJ Ex 452 it was held that a subject was not to be taxed without clear words. We realize that revenue from taxation is essential to enable the Government to administer the country and that the courts should help in the collection of taxes whilst remaining fair to taxpayers. Nevertheless, we should remind ourselves of the principle of strict interpretation as stated by Rowlatt J in Cape Brandy Syndicate v Inland Revenue Commissioners 12 TC 358: .... in a taxing Act one has to look merely at what is clearly said. There is no room for any intendment. There is no equity about a tax. There is no presumption as to a tax. Nothing is to be read in, nothing is to be implied. One can only look fairly at the language used .... It has also been said by the Judicial Committee in Oriental Bank Corp v Wright (1880) 5 App Cas 842 'that the intention to impose a charge upon a subject must be shown by clear and unambiguous language'. On the retrospective operation of Acts, the presumption is that an enactment is not intended to have a retrospective operation unless a contrary intention appears. In this case, that presumption has been rebutted because s 1(5) of the Amendment Act states in clear terms that the amendment was intended to be retrospective. But a retrospective operation should no be given to a statute to impair an existing right and it has been stated by the UK Court of Appeal in EWP Ltd v Moore [1992] 1 All ER 880 at p 891: .... that those who have arranged their affairs, as the saying is, in reliance on a decision of these courts which has stood for many years should not find that their plans have been retrospectively upset .... Moreover, one should avoid a construction that inflicts a detriment and as Lord Brightman has said in Yew Bon Tew v Kenderaan Bas Mara [1983] 1 MLJ 1 [at p 2]; [1982] 3 All ER 833: A statute is retrospective if it takes away or impairs a vested right acquired under existing laws, or creates a new obligation, or imposes a new duty, or attaches a new disability, in regard to events already past. In this case it is clear that the taxpayer had an acquired right to exemption from tax under the Ordinance, when the Act came into force on September 20, 1967. That acquired right which was confirmed by the Special Commissioners of Income Tax in case No PKR 256 should only be overruled prospectively and not retrospectively. Admittedly, the legislature had made its intention clear ins 1(5) of the Amendment Act that s 16 therein which amended Schedule 9 of the Act shall be deemed to have effect for the year of assessment 196 8 and subsequent years of assessment. But the Amendment Act did not also expressly provide that Part I of the Interpretation Acts 1948 and 1967 which includes the said s 30 of that Act shall not apply. Therefore, following the decision of Viscount Dilhorne, Lord Diplock and Lord Edmund-Davies in the House of Lords case of Floor v Davis (Inspector of Taxes) [1980] AC 695; [1979] 2 All ER 677; [1979] 2 WLR 830 the provisions of the Act must be construed having regard to the Interpretation Act 1948 and 1967. There is therefore a doubt whether the legislature had intended to impair the existing right of the taxpayer and inflict a detriment to it as it takes away a vested right under the existing law to exemption from tax. As there is a doubt, the ambiguity must be construed in favour of the taxpayer as the said exemption from tax has not been removed by sufficiently clear words to achieve that purpose. We therefore allowed the appeal with costs here and below, set aside the decision of the learned Judge and restored the deciding order of the Special Commissioners that the assessment be discharged. We also ordered that the deposit be refunded to the tax payer.

19. Accordingly, we hold that the learned High Court Judge had made the correct decision. The appeal is dismissed with costs and the deposit is to go to the respondent to account of their taxed costs.

Cases

National Land Finance Co-operative Society Ltd v DGIR [1993] 2 AMR 3581

Legislations

Co-operative Societies Ordinance 1948

Finance Act 1991: s.18

Income Tax Act 1967: s.42(b), s.43, s.44, s.65A, s.127(5), s.155, s.156, Sch 3 para75, Sch 6 para12, Sch 9 para 33

Income Tax (Amendment) Act 1977

Income Tax (Amendment) Act 1980

Income Tax Ordinance 1947: s.13(1)(f)(ii)

Representations

Abu Tariq Jamaluddin (Legal Officer, Internal Revenue Board) for Appellant

Cyrus Das, Arjunan Subramaniam and John Mathew (Shook Lin & Bok) for Respondent

Notes:-

This case is also reported at [2000] 1 AMR 1040; [2000] 2 CLJ 149; [2000] 1 MLJ 561