• CCS

DGIR v. KTT [1997]: Legal Owner vs Beneficial Owner

Updated: Nov 28

Since the purpose of this article is to serve as an illustration, all real names and dates have been altered.

High Court Malaya, Johor Bahru Abdul Malik Ishak J [Civil Appeal No: 12-18-1997] 25 September 1997

JUDGMENT Abdul Malik Ishak J: This appeal came up to me because of a case stated by the Special Commissioners of Income Tax ('special commissioners') under para. 34, Sch. 5 of the Income Tax Act 1967 (Act 53).


The then Federal Court in the case of Director-general Of Inland Revenue V. Rakyat Berjaya Sdn. Bhd. [1983] 1 MLRA 281 had this to say regarding a case stated by the special commissioners:

Appeals from the decisions of the Special Commissioners in tax cases are made by way of case stated under the Income Tax Act 1967 Sch. 5, para. 34. The paragraph states clearly that any appeal is on a question of law. Hence, pure findings of fact may not be challenged on an appeal.

However, the court has clear and undoubted jurisdiction to reverse a decision on questions of law.

The Special Commissioners' Findings of Facts

The respondent ("taxpayer") was 40 years old and was at all material times the proprietor of a lorry transport business known as Syarikat Perniagaan dan Perwakilan Pengangkutan KTT which carried on business at Johor;


The taxpayer was assessed in income tax by the Director-General of Inland Revenue ("revenue") on his income from:

  • his lorry transport business; and

  • dividends from shares in Hin Hin Plantations Co. Sdn Bhd as follows:


The taxpayer appealed against the abovementioned assessments because no deductions have been allowed by the revenue in respect of capital allowances which the taxpayer claimed were due to him under Schedule 3 to the Income Tax Act, 1967 (Act 53) on capital expenditure incurred by him on few motor lorries which were used for the purposes of his business.

The revenue conceded that the taxpayer financed the purchase of the motor lorries and trailers (in their generality hereinafter referred to as 'the subject lorries'), but: the registered owners were at all material times the registered haulage permit holder, and not the taxpayer.

Most of the subject lorries were acquired on hire-purchases through finance companies in 1980, whilst one was acquired in 1982 by direct purchase from H Sdn Bhd.


Revenue rejected the taxpayer's claim for initial and annual allowances on the subject lorries because the taxpayer was not the legal owner;


The taxpayer proved that he paid the hire purchase instalments and purchase price of the subject lorries and had thus incurred Capital Expenditure on the provision of the subject lorries, which were used for the purposes of his lorry transport business.


The Registered Owners of the subject lorries merely lent their names in consideration of earning monthly rentals for the Haulage Permits, which were in their respective names; they had no interest in or connection with the day-to-day running of the transport business that the taxpayer solely ran.


Under the Income Tax (Qualifying Plant Annual Allowances) (Amendment) Rules 1980 gazetted as PU(A) 346 dated 4.12.80 and effective from the assessment year 1981 et seq, 'motor vehicles licensed for commercial transportation of goods and passengers - lorries, trucks … etc.' and listed under 'land transport equipment' under the Schedule to the Rules are classified as 'qualifying plant' under the said Rules; the prescribed rate of Annual Allowance is 20%.


High Court's Evaluation

A small but important point of law arose for determination. It was this:


Whether the taxpayer was entitled to capital allowances under schedule. 3 of the Income Tax Act 1967 (Act 53) in respect of the subject lorries acquired and used for the purposes of the taxpayer's business?


The special commissioners heard the taxpayer's appeal regarding the notice of assessment levied by the revenue and gave its decision in a deciding order dated 11 June 1988 in favour of the taxpayer.



The revenue, by a notice dated 29 June 1988, requested a case to be stated for the opinion of this court under para. 34, schedule 5 of the Income Tax Act 1967 (Act 53).


As the taxpayer purchased the said lorries, which necessarily made him incur capital expenditure, the special commissioners were of the view that the taxpayer was entitled to the capital allowances under schedule 3 of the Income Tax Act 1967 (Act 53).


The special commissioners must have arrived at that conclusion as the subject lorries were used for the purposes of the taxpayer's business. At this juncture, it is opportune to refer to the relevant paragraphs to schedule 3 of the Income Tax Act 1967 (Act 53).



Schedule 3 of the Income Tax Act 1967 (Act 53). believed


These paragraphs would be as follows:

1. Subject to this Schedule, qualifying expenditure for the purposes of this Schedule is qualifying plant expenditure or qualifying building expenditure within the meaning of paragraphs 2 to 6.

2. (1) Subject to sub-paragraph (2) and paragraph 67, qualifying plant expenditure is capital expenditure incurred on the provision of machinery or plant used for the purposes of a business, including -

(a) ... (b) ... (c) ...

(2) In the case of a motor vehicle (other than a motor vehicle licensed or permitted, by the appropriate authority, for commercial transportation of goods or passengers, such as lorry, truck, bus, minibus, van, station wagon, taxi cab or hire car) the qualifying plant expenditure incurred on or after the first day of the basis period for the year of assessment 1991 shall be limited to a maximum of fifty thousand ringgit.


10. Subject to this Schedule, where in the basis period for a year of assessment a person has for the purpose of a business of his incurred qualifying plant expenditure, there shall be made to him in relation to the source consisting of that business for that year an allowance equal to one-fifth of the expenditure or such other fraction as may be prescribed.

13. Notwithstanding paragraphs 10 to 12 - (a) no allowance shall be made to a person under paragraph 10 for a year of assessment in relation to an asset and a business of his if at the end of the basis period for that year he was not the owner of the asset or it was not in use for the purposes of the business or, where the asset was disposed of by him in that period, he was not the owner of the asset or it was not in use, prior to its disposal, for the purposes of the business at some time in that period.


15. Subject to this Schedule, where a person has for the purposes of a business of his incurred qualifying plant expenditure in relation to an asset and at the end of the basis period for a year of assessment he was the owner of the asset and it was in use for the purposes of the business, there shall be made to him in relation to the source consisting of that business for that year an allowance equal to such proportion of that expenditure as may be prescribed.


46. Where a person incurs capital expenditure under a hire purchase agreement on the provision of any machinery or plant for the purposes of a business of his, he shall, for the purposes of this Schedule, be taken to be the owner of that machinery or plant; and the qualifying expenditure incurred by him on that machinery or plant in the basis period for a year of assessment shall be taken to be the capital portion of any instalment payment (or, where there is more than one such payment, of the aggregate of those payments) made by him under the agreement in that period.

High Court's Evaluation


The expression "qualifying plant expenditure" is further exemplified in r. 1(2) of the Income Tax (Qualifying Plant Annual Allowances) Rules 1980 vide P.U.(A)80, which states that:

These Rules shall have effect in respect of qualifying plant expenditure incurred from 1 January 1978 to 31 December 1982, which in these Rules is referred to as the relevant period, on the provision of machinery or plant used directly in the manufacture of any product or the subjection of goods or materials to any process.

The Income Tax (Qualifying Plant Annual Allowances) (Amendment) Rules 1980 amends. It substitutes the Schedule to the Income Tax (Qualifying Plant Annual Allowances) Rules 1968 and under category "B" with the caption "Rates For Particular Types of Plant Not Confined To Specific Industries", the prescribed rate of 20% was accorded to:

Motor vehicles licensed for commercial transportation of goods and passengers - lorries, trucks, buses, minibuses, vans, taxicabs and hire cars.

This meant that the subject lorries would be subject to the 20% rate.


But such entitlement would only accrue if the taxpayer legally owned the subject lorries, submitted by the learned legal officer and federal counsel for the revenue.


This highlights the meaning attached to the word "owner" appearing in paras. 15 and 46 of sch. 3 to the Income Tax Act 1967 (Act 53).

In the field of construction of the Income Tax Act 1967 (Act 53), one must not lose sight of the need to see the clear words employed therein to tax the taxpayer.


This seems to be the view echoed by Rowlatt J in The Cape Brandy Syndicate v. The Commissioners of Inland Revenue vol. X11, Reports of Tax Cases at p. 358, especially at p. 366 where his Lordship said:

Now, of course, it is said and urged by Sir William Finlay that in a taxing Act, clear words are necessary to tax the subject.


But it is often endeavoured to give that maxim a wide and fanciful construction.


It does not mean that words are to be unduly restricted against the Crown or that there is to be any discrimination against the Crown in such Acts.


It means this, I think; it means that in taxation, you have to look simply 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; you read nothing in; you imply nothing, but you look fairly at what is said and at what is said clearly and that is the tax.

The facts in The Cape Brandy Syndicate are quite interesting. Rowlatt J summarised the facts in this way:

In this case, the subject appeals against an assessment of Excess Profits Duty.


It appears that three gentlemen, who were members of three firms engaged in the wine trade, entered into speculation independently of their firms, forming together a little syndicate consisting of their three selves for that purpose, and their speculation was this.


They bought a large quantity of Cape brandy in South Africa from the Government there.

They did not buy it all at once because they did not know how much there was for sale, but they ultimately bought all.


I do not think that the circumstances that they bought it piecemeal in that way make very much difference in the case.

Having done so, they succeeded in selling some of it at a profit, as it was, for export to the East, and the remainder they brought home to this country,


I think 'as ships offered' is the wording of the statement in the Case, and when they had got it here, they caused it to be blended with a certain amount of French brandy.


For that purpose they employed their three respective firms and paid them.


They then re-casked it, of course, and re-casked it in more caskets or receptacles than it had originally been in. They then proceeded to dispose of it piecemeal through their three firms, and they disposed of it, I think, in about 100 transactions which lasted fourteen months.


The appellants in The Cape Brandy Syndicate contended that they carried out an isolated transaction of a speculative nature, which was not a trade or business within the meaning of s. 39 of the Finance (No: 2) Act 1915; and, alternatively, that if they carried on a trade or business, the profits arising from a business commencing after 4 August 1914 were not chargeable to Excess Profits Duty.


The special commissioners held that the profits in question arose from a trade or business carried on by the appellants, and excess profits duty was chargeable in respect thereof.


Rowlatt J dismissed the appellants' appeal with costs.


The Court of Appeal (Lord Sterndale MR and Scrutton and Younger L JJ) affirmed the decision of Rowlatt J and dismissed the appeal with costs.

The Court of Appeal held that the question of whether the appellants carried on trade was one of fact and that there was evidence on which the special commissioners could arrive at their conclusion.


The Court of Appeal also held that on a true construction of the Finance (No: 2) Act 1915 and subsequent Acts, a trade or business commenced since the beginning of the war was liable to assessment to excess profits duty.

Chesterman and Others v. Federal Commissioners Of Taxation [1926] AC 128 was an appeal to the Privy Council from the High Court of Australia.


There, the Estate Duty Assessment Act 1914-1916, of the Commonwealth of Australia, by s. 8, sub-s. 5, exempted from the payment of estate duty so much of an estate as was bequeathed "for religious, scientific, charitable or public educational purposes."


A testator bequeathed the residue of his estate upon trusts under which prizes were to be awarded to various classes of persons, military, naval and civil, of both sexes, the merit of the candidate to be ascertained by various physical, moral and literary tests.


Reversing the decision of the High Court, the Privy Council ruled that the word "charitable" in s. 8, sub-s. 5 of the Estate Duty Assessment Act 1914-1916 of the Commonwealth of Australia was used in its technical legal sense and not with the narrower meaning of "eleemosynary," which it has in popular language; and that, accordingly, the residue of the estate was exempted from estate duty.


The Privy Council also held that it was unnecessary to decide whether the bequest was also for "public educational purposes." Lord Wrenbury delivering the judgment of the Privy Council, said on p. 131 of the report:


In approaching this question, the starting point is found in Pemsel's case [1891] AC 531 in the House of Lords, and in Lord Macnaghten's words at p. 580: 'In construing Acts of Parliament it is a general rule ... that words be taken in their legal sense unless a contrary intention appears.

Again on the subject of statutory construction, in construing the Rating and Valuation (Apportionment) Act 1928, Scrutton LJ said in the case of Barton (Revenue Officer For The Stepney Assessment Area) v. R. Twining And Company, Limited (Occupiers) [1931] 1 KB 475 especially at p. 479:

We, however, have not to frame an equitable scheme of relief from taxation; our duty is to endeavour to interpret the words in which Parliament has expressed its intention; if the result does not satisfy Parliament, it can express its intention more accurately by amending legislation.


For guidance, reference should also be made to the case of Ormond Investment Company, Limited v. Betts (H.M. Inspector of Taxes) 13 TC 400 (also reported in [1927] 2 KB 326 and before the House of Lords in [1928] AC 143) in construing the Income Tax Act 1967 (Act 53) .


Ormond Investment Company, Limited


The brief facts, in that case, were these.

The Ormond Investment Company, Limited, was formed in June 1922 and incorporated under the Companies Acts.


It carried on the business of an investment company in Bradford.


In August of the same year, it acquired a large holding in shares in a company incorporated to carry on business in America; and in the course of the same financial year - that was, on 7 December 1922, the appellant company received a dividend of 601,717 pounds on its holding of these shares.


It received no further dividend on these shares or any other income from possessions out of the United Kingdom up to the close of the financial year on 5 April 1923, and it appeared that the sum of 601,717 pounds was a dividend arising from a distribution of two years' profits.


The question that arose for the decision was this:

Was Ormond Investment Company, Limited, liable to assessment to Income Tax in respect of the sum it has received from its foreign investment for these two years?


Lord Hanworth MR, delivering a separate judgment for the Court of Appeal, made pertinent remarks which should be referred to.


In his illuminating judgment, his Lordship said on p. 410 of the report:


Mr Bremner has called our attention to the well-known words used in these Income Tax cases by many noted judges in the past.


It is well always to bear them in mind, and I refer to the passage to which he called our attention to show that in the judgment I am about to deliver I have not overlooked the words, which are the words of Lord Cairns. 'If the person sought to be taxed comes within the letter of the law, he must be taxed, however great the hardship may appear to the judicial mind to be.


On the other hand, if the Crown, seeking to recover the tax, cannot bring the subject within the letter of the law, the subject is free, however apparently, within the spirit of the law, the case might otherwise appear to be, (Partington v. Attorney-General [1869] 4 E. & I. App. 100 at p. 122). Equally, we must bear in mind the words which have been quoted, following those words of Lord Cairns, the words of Lord Justice Cotton (Gilbertson v. Fergusson 1 T.C. 501 at p. 519):


'I quite agree we ought not to put a strained construction upon that section to make liable to taxation that which would not otherwise be liable, but I think it is now settled that in construing these Revenue Acts, as well as other Acts, we ought to give a fair and reasonable construction, and not to lean in favour of one side or the other, on the ground that it is a tax imposed upon the subject, and thereof ought not to be enforced unless it comes clearly within the words.

Lord Hanworth MR, in the same case, continued on p. 414 in these words:


In several cases in the Income Tax Act, it is not easy to give a precise or perfect definition of what the words may mean or do mean.


Still, many of these difficulties are overcome in the actual cases, which must be solved by determining the facts.


That determination of the facts is left to those entrusted with that duty, who are not unacquainted with business, whether of trade or of the receipt of profits from foreign possessions.

It must be noted that the Court of Appeal in the Ormond Investment Company, Limited v. Betts (H.M. Inspector of Taxes) (supra) handed down a unanimous decision in favour of the Crown with costs, thereby reversing the decision of the court below.


The dissatisfied company appealed to the House of Lords (Lord Buckmaster, Viscount Sumner, and Lords Atkinson, Wrenbury and Warrington of Clyffe).


On 24 February 1928, the House of Lords delivered its judgment against the Crown with costs (Lord Buckmaster dissenting), thereby reversing the decision of the Court of Appeal.


Lord Atkinson delivering a separate judgment for the House of Lords observed on p. 434 of the report:

My Lords, when it is remembered that it is well established that one is bound in construing Revenue Acts to give a fair and reasonable construction to their language without leaning to one side or the other, that no tax can be imposed on a subject by an Act of Parliament without words in it clearly showing an intention to lay down the burden upon him, that the words of the statute must be adhered to and that so-called equitable constructions of them are not permissible (Partington v. Attorney-General, 4 E. & I. App. 100 at p. 122; Gilbertson v. Fergusson 1 TC 501, 7 QBD 562; In re Micklethwait 11 Ex. 452; Tennant v. Smith 3 TC 158, [1892] AC 150,


I am, for the reasons I have mentioned, unable to conclude that the different provisions of sch. D of the Act of 1918, to which I have referred, clearly impose the burden of Income Tax on the appellants regarding the dividends they have received from their foreign securities.

Back to this case

Applying these principles of law enunciated by these eminent judges, I shall now proceed to determine whether the word "owner" in paras. 15 and 46 of sch. 3 to the Income Tax Act 1967 (Act 53) must necessarily refer to "Legal Ownership" as opposed to "Beneficial Ownership."


To recapitulate, it must be remembered that the taxpayer paid for the subject lorries.


Undoubtedly, most of the lorries were acquired on hire purchases through finance companies in 1980, whilst one was acquired in 1982 by direct purchase.


Yet, the taxpayer had proved that he paid for the hire purchase instalments and the purchase price of the subject lorries.


The learned legal officer made much fuss that the subject lorries were registered in the names of other personalities.


Consequently, these personalities became the legal owners of the subject lorries.


The learned legal officer argued that the person who incurred the qualifying plant expenditure concerning an asset must be the legal owner of the asset to qualify for the capital allowance.


But since the taxpayer incurred capital expenditure under the hire purchase agreements for most of the lorries, must the taxpayer then "be taken to be the owner of" those lorries within the meaning of para. 46 of sch. 3 to the Income Tax Act 1967 (Act 53)?


Unfortunately, there is no definition of the word "owner" under the Income Tax Act 1967 (Act 53).


It is interesting to note that Strouds Judicial Dictionary at p. 1828 contains a short passage about the meaning of the word "owner". It states as follows:


The 'owner' or 'proprietor' of a property is the person in whom (with his or her assent) it is for the time being beneficially vested, and who has the occupation, or control, or usufruct [sic] of it, e.g., a lessee is, during the term, the owner of the property demised (see judgment of Bramwell LJ, Eglinton v. Norman, 46 LJ QB. 559; see also Chauntler v. Robinson, 4 Ex. 163; Russell v. Shenton, 3 QB 449; Lister v. Lobley, 6 LJ KB 200). So, in Cook v. Humber (31 LJCP 75), Erle CJ spoke of the 'occupation' necessary to the franchise under Representation of the People Act 1832 (c. 45), s. 27, as equivalent to the 'actual exercise of the rights of the owner of a house in possession.' But in Re Crawley, Acton v. Crawley, 28 Ch.D 431), Pearson J, said, 'the owner - that is, the person entitled to the rack-rent.

My research shows that the word "owner" has different meanings in different contexts. I will now proceed to demonstrate it by citing a few authorities.

In the context of s. 14 (1)(l) of the Control of Rent Ordinance No: 25 of 1947, Sir Charles Murray-Aynsley CJ was of the view that the word "owner" had no precise technical meaning, nor was it a term of art.

In construing the Employee's Social Security Act 1969, Tan Chiaw Thong J needed to consider whether the defendant was owned by the State Government of Sarawak.