EXPENSES

Malayan Weaving Mills Sdn Bhd v Director General of Inland Revenue

The Case Issues:
Whether the provision made for retirement benefits that had been taken into account in the sale of the appellant’s printing and dyeing mill was allowable or not allowable (capital expenditure or revenue expenditure) under s33(1) of the Income Tax Act 1967.

The Facts:
In Malayan Weaving Mills Sdn Bhd vs Director General of Inland Revenue [(2000) MSTC 3778], the taxpayer owned and operated three types of mills, namely, a spinning mill, two weaving mills and a dyeing and printing mill. The dyeing and printing mill was sold to Textile Corp (M) Sdn, Bhd. (“TCM”). The taxpayer also transferred all its employees working in the dyeing and printing mill to TCM. The provision for retirement benefits for the employees was agreed at RM1, 885, 529. This amount was set off against the actual sale price to TCM. The taxpayer claimed that this amount was tax deductible under Section 33(1) of the Act. The respondent disallowed the taxpayer’s claim.

The Argument:
Appellant
It is the appellant’s case that: * The provision for retirements benefits which was transferred upon the sale of the mills deductible as expense in the appellant’s gross income, * It was bound to make the payments under the collective agreement with the employees, * The appellant used relevant formulae in the computation of the retirement benefit, * The payments had in fact been paid out in the sense that the consideration for the purchase would have been far higher than what had been received had it not been for the fact that the payments had not been taken into account, * The amount of RM 1885 529 is crystallised at the time the purchase price was finalized according to the purchase agreement.

Respondent

The respondent argued that Section 33(1) of the Act provided that only