CIMB Bank Bhd is a financial institution that provides financial services covering all aspects of commercial banking, including Islamic banking. CIMB acquired, among other things, core deposit databases and credit card customers' databases of another bank, pursuant to a Malaya High Court vesting order dated 6 June 2006.
CIMB wrote to the director general of inland revenue (DGIR) to seek his confirmation on whether the databases qualify for capital allowances under Schedule 3 of the Income Tax Act 1967. The DGIR opined that the databases were not 'plant' but 'goodwill' and would not qualify for capital allowances.
The DGIR issued revised tax computations for the relevant years of assessment to disallow CIMB's claims for capital allowances on the databases.
CIMB appealed against the additional assessments raised by the DGIR to the special commissioners of income tax (SCIT). The main issue for determination was whether CIMB could claim capital allowances on the capital expenditure incurred by CIMB in the acquisition of the databases.
The SCIT allowed CIMB's appeals. It found that the databases were apparatus used by CIMB in its banking business and were 'plant'. Dissatisfied, the DGIR required the SCIT to state a case for the opinion of the High Court.
The DGIR argued that the databases by themselves did not function as a tool in CIMB's banking business and would not come within the meaning of 'plant'.
The High Court rejected the DGIR's argument and held that he had had no basis for his submission.(1)
In support of its decision, the High Court had referred to the Court of Appeal's decision in Ketua Hasil Dalam Negeri v Tropiland Sdn Bhd,(2) where the Court of Appeal took the position that the word 'plant' in Schedule 3 must be given the widest possible meaning.
The High Court quoted the following excerpt of the Court of Appeal's decision in Tropiland: "[17] The test of what passes as 'plant' in Yarmouth v. France (supra) was coined in a general fashion to give the word the widest possible sense."
Applying the test formulated in Yarmouth v France,(3) as adopted by Tropiland, the High Court held that the databases were 'plant' within the ambit of Schedule 3, as they were:
- apparatus that played a vital function in CIMB's banking business; and
- used by CIMB "to reach out to more customers and to sell more products", which "contributed to an increase in the Bank's profits and an enlargement of the Bank's market share in the banking industry".
In response to the DGIR's contention that the databases performed no function per se, the High Court held that the criteria was not decisive in determining whether the databases amounted to 'plant'. In this case, the databases were used by CIMB to provide more banking products to more customers.
The High Court affirmed the decision of the SCIT that the databases were not goodwill but contained the information and data of customers which were used in CIMB's banking business as an apparatus. The High Court agreed with CIMB that it was undisputed that CIMB had incurred capital expenditure to acquire the databases of another bank.
The High Court disallowed the DGIR's appeal with costs to CIMB.
Endnotes
(1) Ketua Pengarah Hasil Dalam Negeri v CIMB Bank Berhad (unreported judgment dated 11 March 2019).
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