Whether interest waived from a debt is taxable?

KETUA PENGARAH HASIL DALAM NEGERI v. BANDAR NUSAJAYA DEVELOPMENT SDN. BHD. Court of Appeal [2018] AMTC 19

Issue:	Whether the sum of RM181,863,826 waive by UEM Land which was claimed by Bandar Nusajaya as interest expenses under Section 33(1) of the ITA comes under subsection 22(2)(a) of the ITA? (whether the sum of RM181million, which is an interested payment waived by UEM Land is still taxable?)
Answer:	No. The sum of RM181 million is neither receivable nor a receivable that is deemed to have been received as such Section 22(2)(a) ITA does not apply.
Facts/Case Study :	UEM Land agreed to provide a loan of RM875 million to Bandar Nusajaya; However the interest on the loan was subsequently reduced by agreement; In 2003 and 2005 Bandar Nusajaya claimed a tax deduction on the premium accord at RM222 million. Bandar Nusajaya brought RM40 million to income tax pursuant to Section 30(4) ITA; but did not bring RM181 million to income tax as it did not fall under Section 30(4) ITA; 22.09.2011 – Inland Revenue brought the sum of RM181million to income tax under Section 22(2)(a) ITA (i.e. treated as income received or receivable) and raised penalty.
Decision:	It is not disputed in this case that the release of interest in the sum of RM181 million by UEM Land was from a non-business source of Bandar Nusajaya. Section 22(2)(a) relied by Inland Revenue does not apply in this case. The release of debt by UEM Land involves a waiver of interest owed by Bandar Nusajaya. UEM had written off this debt from its books AND Bandar Nusajaya withdrew this debt from its books. Other issue. Whether Bandar Nusajaya should have exhausted the domestic remedy available under Section 99 of the ITA (e.g. filing form Q) The law in this area has been settled in the case of Ketua Pengarah Hasil Dalam Negeri v. Metacorp Development where it was held that the Courts have jurisdiction to hear a tax payer’s application for judicial review – despite the existence of an alternative remedy IF the tax payer can show it FALLS WITHIN THE EXCEPTIONAL CASES RECOGNISED BY THE COURTS. Exceptional cases include cases where there is a clear lack of jurisdiction or a blatant failure to perform some statutory duty or in appropriate cases a serious breach of principles of natural justice. As such, the appeal by the Inland Revenue was dismissed by High Court and RM30,000.00 cost to be paid by Inland Revenue.
Judge:	Court of Appeal : Mohd Hishamudin, Linton Albert, Lim Yee Lan.

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Whether incentive trips for dealers reaching sales targets are allowable deductions (under Section 33) or just deductions as entertainment expenses?

Ketua Pengarah Hasil Dalam Negeri v. Khind-Mistral (Borneo) Sdn. Bhd. 2018 AMTC 83 

Issue:	Whether incentive trips for dealers reaching sales targets are allowable deductions (under Section 33) or just deductions as entertainment expenses?
Answer:	Incentive trips were not entertainment within the meaning of Section 18 Income Tax Act 1967 as it was given to dealers who have achieved their sales target. So it is fully deductible.
Facts/Case Study :	1.      The Company appointed dealers to sell their products; 2.      The Company introduced a scheme to motivate and reward dealers who have reached their sales target by awarding them with incentive trips. 3.      These incentive trips were on top of commissions to the dealers; 4.      The Company had deducted ALL THE EXPENSES for these incentive trips. 5.      Inland Revenue Board (IRB) argued that these expenses were in fact “entertainment” expenses under Section 18 of the Income Tax Act.
Decision:	1.       The incentive trips where not merely given to the dealers but ONLY THOSE WHO HAVE ACHIEVED THEIR SALES TARGET. 2.       The aim of the incentive trip scheme was to boost the sales of the Company therefore its income. 3.      The incentive trips were not “entertainment” within the meaning of Section 18 of the Income Tax Act. 4.       The Judge in this case was of the view that the trips where no in the nature of “hospitality” mentioned in Section 18. 5.       The Company was not being hospitable. 6.       The dealers had to “earn” those incentive trips. There were not given to all the dealers but only to those who have achieved the sales target. Only those who contributed to and have generated more income for the Company.
Cases referred:	Aspac Lubricants v. Ketua Pengarah Hasil Dalam Negeri 2007 AMTC 238 [2007] 5 CLJ 353 Court of Appeal
Judge:	Rhodzariah Bujang J