Ketua Pengarah Hasil Dalam Negeri v SCP ASSETS SDN. BHD. (WA-14-38-10/2023)

This is an appeal by Director General of Inland Revenue (“DGIR”) Ketua against the decision of the Special Commissioners of Income Tax (“SCIT”) dated 22.09.2023 which allowed the appeal filed by SCP Assets Sdn Bhd (“SCP Assets”).

The issue before the SCIT was whether capital expenditure incurred by the SCP Assets on the acquisition of multi-storey car parks qualifies for capital allowances under Schedule 3 of the ITA.

The SCIT held that the multi-storey car parks constituted “plant” within the meaning of paragraph 2(1) of Schedule 3 of the ITA and were therefore eligible for capital allowances.

The DGIR being dissatisfied with the decision of the SCIT now appeals against the said decision. Salient facts

The appeal arises from the following facts which are undisputed:

(i) SCP Assets is a company incorporated in Malaysia whose principal activity is operating car parking facilities. It had been in this activity since 1.12.2016;

Basement Level 1 – 3 at the office complex known as Pusat Dagangan Phileo Damansara 1, No.9, Jalan 16/11, Off Jalan Damansara, 46350

16.12.2013 179,639,000 Petaling Jaya, Selangor

Basement Level 1 – 4 at the office complex known as Pusat Dagangan Phileo Damansara II, No.15, Jalan 16/11, Off Jalan Damansara, 46350 Petaling Jaya, Selangor

16.12.2013 81,369,000

Basement Level 1 – 4 at the office complex known as Megan Phileo Promenade, Jalan Tun Razak, 50400 Kuala Lumpur

16.12.2013 80,254,000

Basement Levels UB1, LG, UB2, LB1, UB3, LB2, UB4 and LB3 at the office complex known as Megan Avenue II, Jalan Yap Kwan Seng, 50450 Kuala Lumpur

16.12.2013 52,203,000

Multi-storey car park at TAIPAN Auto Complex, Pusat Perniagaan USJ 10, 47620 UEP Subang Jaya, Selangor

16.12.2013 19,403,000

Basement levels at the office complex at Dataran Palma, Jalan 16.12.2013 16,927,000 Ampang, 68000 Ampang, Selangor

Level 1 and Basement Levels 1 – 4 at the office complex at Pusat Dagang Setia Jaya, No.9, Jalan PJS 8/9, 46150 Petaling Jaya, Selangor

16.12.2013 19,250,000 8. Multi-storey car park at the office complex at Damansara Intan, No.1, Jalan SS20/27, 47400 Petaling Jaya, Selangor

1.9.2016 24,902,650 Total 494,947,650

(v) The DGIR responded on 23.5.2018 to inform that the said multi-storey car parks are not “plant” but permanent structures of the buildings which were used and served as a business premise or place of business and therefore do not qualify for capital allowance under Schedule 3 of the ITA 1967;

In allowing the appeal of SCP Assets, the SCIT found the facts and circumstances of the appeal were similar to that of Ketua Pengarah Hasil Dalam Negeri v Tropiland Sdn Bhd [2013] MSTC 30-054, a decision of the Court of Appeal.

The similar facts were that firstly, a multi storey car park was used to generate income from operating a car park business. Secondly, the building was not merely a premise in which the business was conducted, but an apparatus to carry out and operate the business.

In view of the similarity, the SCIT considered itself bound by Tropiland, which held that multi storey car parks constituted an apparatus used by the taxpayer for carrying on its business, hence a plant.

The SCIT also considered the functionality test stated Tropiland and applying the test, it then concluded that the multi-storey car parks is a plant. The relevant portion of its judgment is as follows: [53] Berdasarkan penggunaan Ujian Fungsi di atas dan prinsip kes Tropiland dan kes Yarmouth, PKCP mendapati bahawa tempat letak kereta bertingkat yang dimiliki dan dikendalikan oleh Perayu merupakan loji (plant) di bawah skop Perenggan 2(1) Jadual 3 ACP berdasarkan alasan-alasan berikut:

(a) tempat letak kereta bertingkat tersebut merupakan asset tetap Perayu dan digunakan sebagai peralatan syarikat dalam menghasilkan pendapatan perniagaan operasi tempat letak kereta;

(b) tempat letak kereta bertingkat tersebut bukan stok dagangan (stock in trade) Perayu;

(c) pendapatan atau hasil diperolehi daripada penyediaan ruang letak kereta kepada pengguna-pengguna bangunan di mana tempat-tempat letak kereta terletak untuk meletak kenderaan mereka;

(d) tempat-tempat letak kereta bertingkat tersebut merupakan peralatan yang penting untuk Perayu dalam perniagaannya sebagai pengendali tempat letak kereta di mana tanpanya, Perayu tidak dapat menghasilkan pendapatannya;

(e) tempat letak kereta bertingkat tersebut bukan sekadar premis atau tempat perniagaan tetapi merupakan peralatan utama yang digunakan oleh Perayu dalam menjalankan aktiviti perniagaan Perayu sebagai pengendali tempat letak kereta;

(f) tempat letak kereta bertingkat tersebut tidak mempunyai sebarang fungsi lain sebagai peralatan utama dalam perniagaan Perayu;

(g) perjanjian jual beli secara kontrak menyatakan penggunaan struktur tersebut adalah terhad untuk tujuan tempat letak kereta sahaja. DGIR’s contention in this appeal

The DGIR submits that in arriving at the said decision, the SCIT erred in law and in fact, meriting an appellate intervention by this court.

The DGIR’s contention are as follows:

(i) There are material factual differences between Tropiland and the instant case, making it distinguishable and hence, inapplicable. The Court of Appeal in Tropiland, was influenced by the terms of the privatisation agreement which required it to design, build and operate a multi-storey car park on lease for 30 years. The taxpayer did not own the car parks at the end of the lease. The the car parks in Tropiland was the means by which the taxpayer earned its revenue. For this reason, the Court of Appeal found the car park building to be essential to the taxpayer’s business and therefore qualified as a plant. There was in fact no evaluation undertaken on the functional characteristics of the multi storey car park; and

The position taken by the SCP Assets in summary, is as follows:

(i) A holistic approach must be taken in determining what constitutes a plant, where the business of SCP Assets must be considered in its entirety; and

Bearing in mind that these proceedings are an appeal from the decision of the SCIT. The law in this regard is trite. Intervention with the decision of the SCIT is only warranted where there has been:

(i) a misconception of law;

The starting point for discussion is to understand the context in which the present dispute arises.

Generally, no deduction is allowed for capital expenditure incurred in producing gross income when computing the adjusted income from a source for a basis period.

However, paragraph 2(1) of Schedule 3 provides that capital allowance shall be granted in respect of qualifying expenditure on plant or machinery used for the purposes of a business carried on by a person. The provision reads as follows:

(1) Subject to subparagraph (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) expenditure incurred on the alteration of an existing building for the purpose of installing that machinery or plant and other expenditure incurred incidentally to the installation thereof; and…….”

In view of the competing contention of parties, there is only one issue to be resolved in this appeal; whether the multi storey car parks owned by SCP assets qualify as plant for the purposes of capital allowance.

The Court of Appeal in Tropiland recognised that plant is not defined in the Income Tax Act, 1967. Reference was then made to the test in Yarmouth and France [1887] QBD 647 which held as follows: There is no definition of plant in the Act; but in its ordinary sense, it includes whatever apparatus is used by a business man for carrying on his business-not his stock in trade which he buys or makes for sale, but all goods and chattels, fixed or moveable, live or dead, which he keeps for permanent employment in his business: see Blake v Shaw.

The test formulated simply means that if the structure in question is used for the conduct of business, then it would qualify as a plant. It is sometimes referred to as the functionality test or the business- use test. Putting it another way, the question to ask is what is the role or function of the structure in the operation of the business.

The Court of Appeal in Tropiland favoured a liberal and holistic approach in determining the question of plant. It held as follows: [17] The test of what passes as a ‘plant’ in Yarmouth v. France (supra) was coined in a general fashion to give the word the widest possible sense. Lindley J had the foresight that a whole host of considerations must be taken into account in determining what is a `plant’ in any given set of facts and that a restrictive meaning assigned to the word would have disastrous consequences to business enterprise and economic activity since the tools or apparatus of a business man for carrying on his business undergo constant changes with passing time and advancing technology. It comes as no surprise then that Lord Lowry in Commissioners of Inland Revenue v. Scottish & Newcastle Breweries Ltd (supra) considered questions such as the particular industry and the taxpayer’s own trade in determining what constituted a `plant’ in that case. [18] There is thus clearly a need to take a holistic approach in every case and look at the taxpayer’s business in its entirety instead of taking particular facts in isolation. The need to refrain from viewing the taxpayer’s business in a fragmented fashion when determining whether an apparatus is a `plant’ was reinforced by the High Court of Australia in W. Nevill & Co. Ltd. v. Federal Commissioner of Taxation [1937] 56 CLR 290 where it was held: “In my opinion the answer to this contention is to be found in a recognition of the fact that it is necessary for income tax purposes, to look at a business as a whole set of operations directed towards producing income.”

However, the Court of Appeal was also mindful of the fact that the categories of what can constitute a plant is also not closed.

On the proper test to be applied, counsels for both parties are in agreement on the functionality test. It is the application of the test to the facts that both disagree.

In my view, there is a striking similarity between the facts of the present case with Tropiland. Both are engaged in the car park operation business.

The revenue of both taxpayers is derived from its car park operation by the provision of car park bays in the car park. Parking fees are charged on the use of the car park bays provided. The multi-storey car parks are not the taxpayer’s stock in trade. Nor can it be considered a setting, taking into account the taxpayer’s operations in the service industry. Further, the car parks are used exclusively for the parking business.

I am also of the view that it is immaterial in whether the multi storey car parks were held under lease by the taxpayer as in Tropiland, or whether as in the instant case, SCP Assets acquired the buildings outright. It is not a distinguishing fact which would preclude the application of Tropiland.

The Court of Appeal in Tropiland also referred to several cases which served as useful illustrations. A structure which is permanent and large can nevertheless be held to be a plant. They are as follows:

(i) In Commissioners of Inland Revenue v Barclay Curle & Co Ltd [1969] 1 All ER 732, a dry dock which played an essential part in getting large vessels into position for work on the outside of the hull to begin and holds the ship into position while repairs are done was considered a plant. It was considered a tool of the taxpayer’s trade;

Ultimately, the real test is the use to which the multi storey car park is put. If it is the means by which business is conducted, then it is a plant. If it merely serves as a place in which the business in conducted, then it is not.

Bearing in mind the principles in determining if a structure is a plant, I am of the view that the multi storey car park buildings of SCP Assets are an integral part of the car park operation business. Without the buildings, the car park operation cannot be carried out. The building is used as a means to generate income for the business. They are more than just premises for the business to be conducted, but an essential apparatus for the business.

The criteria for the multi storey car parks to qualify as a plant is therefore satisfied. The SCIT had correctly characterised it as a plant. Conclusion

Premised on the foregoing reasons, I find no reason to intervene in the decision of the SCIT.

In the circumstances, the appeal of the DGIR is dismissed. I order that costs of RM 3,000.00 be paid to the Respondent. Dated: 2nd July 2026 -sgd-Alice Loke Yee Ching Judge High Court Kuala Lumpur Counsel for Appellant: Pn. Azrul Safinas binti Rosli Senior Revenue Counsel (Pn. Norhamizah binti Ab. Han, Revenue Counsel & Pn. Munirah binti Abd Wahid, Revenue Counsel together with her) Lembaga Hasil Dalam Negeri Counsel for Respondent: En. S. Saravana Kumar (Pn. Felicia Wong Sie Xing & Cik Dharsini Kumar together with him) Tetuan Rosli Dahlan Saravana & Partnership