KISB vs Ketua Pengarah Dalam Hasil Negeri

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KISB vs Ketua Pengarah Dalam Hasil Negeri

Lesson from Tax Case : KISB vs Ketua Pengarah Dalam Hasil Negeri

1. Expenses incurred by the director (Company Vs Personal).

2. Wrong business code on 2nd business source.

Background information

The Company is operating a clinic.

The income generated from:

1. Consultancy fees and selling medicine for cure the patient.

2. Sales of supplement medicine to patients.

The Company discloses income separately for clinic income and supplement medicine in the tax computation.

Tax Issue 1 - Deductibility of “private” expenses

The Company incurred the following expenses:

- Training expenses,

- Repair,

- Service and maintenance; and

- General expenses.

Are these expenses allowable for tax deduction??

Tax Issue 2 : Wrong business code in tax computation

The Company discloses income separately for clinic income and supplement medicine

Does the presentation of tax computation use 2 business source of income is correct?

The Company’s opinion on Issue 1:

All the expenditures were basic expenses and a necessity in providing beneficial training to its patients as well as the buyers of the vitamin supplements allegedly sold by the Company.

1. All the expenditures were basic expenses and a necessity in providing beneficial training to its patients as well as the buyers of the vitamin supplements allegedly sold by the Company.

2. Presentation of tax computation is allowable as the principal activities include general traders and dealers.

The Company’s opinion on Issue 2:

Presentation of tax computation is allowable as the principal activities include general traders and dealers.

IRB argument on Issue 1:

The expenditures in question were not eligible for deduction under Section 33(1) of the ITA for the following reasons:

a) Expenses were not incurred by the Company but by one of its directors;

b) It was of personal expenses in nature; and

c) Expenses not supported by the relevant documentation.

IRB argument on Issue 2:

The income of “Business 2nd source - supplement medicine” was wrongly declared and reported by the Company as the income was from the multi-level-marketing (MLM) business of one of the Company’s directors

Therefore, it should be declared and reported separately from the Company’s income.

The decision by The Court

The Company expenses were not allowed for deduction due to the following reason:

1) Failed in proving that the expenses incurred are eligible for deduction under Section 33(1) of the ITA;

2) The Company had failed to call any witnesses to support its claim;

3) Failed to show that the expenditure is not capital in nature; and

4) The expenses incurred were found not related to the business of the Company.

Source:

https://phl.hasil.gov.my/pdf/pdfam/KISB_v_KPHDN_31012020.pdf

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