Industrial Building Allowance: School building

The question of who can claim for Industrial Building Allowance (IBA) on school buildings was brought forward in the case of TSD  Sdn Bhd v Ketua Pengarah Hasil Dalam Negeri [(2014):

The appellant’s principal activities were property development, investment in real properties, renting and leasing of real estate. The appellant specifically constructed and owned a building rented out to a private school approved by the Minister of Education. The appellant subjected the annual rental received from the school as its business income under s 4(a) of the Income Tax Act 1967 (the Act).

The issue to be determinated by the Special Commissioners of Income Tax was whether the appellant was entitled to claim industrial building allowance pursuant to Paragraph 42B of Schedule 3 when read together with Paragraph 60 of the same Schedule of the Act. 

The respondent contended that the appellant was not entitled to claim industrial building allowance as the appellant was not in the business of education or his business was merely that of renting the said building to the third party..This case is interesting as the IRB took the stand that for the taxpayer to qualify to claim IBA he/she must own and operate the building. It can be argued that since the principle activity of the taxpayer is of property development then the entitlement to claim IBA should be with the owner. 

It seems that the IRB is taking an aggressive stand and causing considerable confusion. In the interim what stand should companies with similar conditions take? If the High Court favours the taxpayer then revisions to tax forms may be needed to avoid incorrect returns.

We will wait and see what the decision of the High Court will be.

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