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

Whether feasibility study conducted to prepare recommendations to meet regulatory requirements is tax deductible? Whether the costs of the study is considered as revenue expense?

Ketua Pengarah Hasil Dalam Negeri v. Shell Refining Co. (FOM) Berhad [2014] 9 MLJ 689 [2018] AMTC 105

Issue:	Whether feasibility study conducted to prepare recommendations to meet regulatory requirements is tax deductible? Whether the costs of the study is considered as revenue expense?
Answer:	The payment made in conducting the feasibility study on the Company’s refinery was a revenue expense. It was tax deductible.
Facts/Case Study :	1.      The Company was established in 1960. 2.    The Company hired Shell Global Solutions International (SGSI) to conduct a feasibility study on the Company’s plant in Port Dickson. 3.      The Company was of the view that the payment made to SGSI (amounting to RM3,476,716.79) for the feasibility study is tax deductible under Section 33 of the Income Tax Act 1967. The Company was of the view that the payment was made for the purposes of ensuring business profitability and to comply with regulatory requirements and thus qualified for tax deductions under Section 33 (1). It was also argued that a revenue expense qualified for tax deduction even though no profit was generated. 4.      However the IRB was of the view that the payment was capital in nature. Further, feasibility study did not generate any income to the Company. IRB claims the Company had filed its return incorrectly and is subjected to penalty.
Decision:	1.       IRB’s witness committed many errors in imposing the penalty and in rejecting the tax deductions. 2.       The payment made to SGSI was an outgoings and expenses wholly and exclusively incurred during the relevant period by the Company in production of its gross income. 3.       The feasibility study was a revenue expense and it was tax deductible. 4.       The Company argued that the payment to SGSI for the report was to ensure its business remains profitable and to comply with current laws and as such must be allowed to be deducted under Section 33(1) of the Act. 5.    The “common sense test” must be applied to determined whether the expense could be deducted. 6.    The Company also argued that expenses incurred for the purpose to increase the efficiency of the business is tax deductible.
Cases referred:	Syarikat Jasa Bumi v. Ketua Pengarah Hasil Dalam Negeri [2000] 2 MLJ 317
Judge:	Zaleha Yusof J