The following case illustrated how the Inland Revenue Board (IRB) in Malaysia looked at the function of assets claimed and their eligibility of claiming capital allowances.I found it very interesting as to how the Special Commissioners looked and allowed the appellant's claim as opposed to how the IRB handled the case in the first place.
In the case of HHM Sdn Bhd v Ketua Pengarah Hasil Dalam Negeri, the appellant had claimed reinvestment allowance for the following projects under appeal:
- oil pump; and
In respect of the piston machine project the appellant had also claimed capital allowance in addition to the claim on reinvestment allowance.
The claim for reinvestment allowance was rejected by the (IRB) for the respective items on the following grounds:
- for forklifts and ramps on the grounds that they were not in use in the production area but used outside the production area;
- the production of sprocket, oil pump, crankshaft project on the grounds that they were component parts in the manufacturing process of motorcycle engines;
- for piston machines on the grounds that they were not used for an expansion or a modernisation project but used for trial runs (both the reinvestment allowance and capital allowance claimed by the appellant was rejected by the IRB).
The case was decided by the Special Commissioners of Income Tax, allowing the appeal of the appellant to claim reinvestment allowance on the following grounds:
- the forklifts,ramps,sprocket, oil pump and crankshaft projects all performed functions necessary to the whole manufacturing and production process of the motorcycle engine.
- The piston machine project claim for capital allowance through trial runs could be considered to be “used for the purpose of the appellant’s business”.Therefore, trial runs were indeed part and parcel of the process of manufacturing pistons.