Is rental income a business income?

Is rental income a business income?

Tax Case - BCSB v. DIRECTOR GENERAL OF INCOME TAX

Income is received from the letting of the properties. Taxpayer declared and taxed under section 4(a) ITA 1967 as a business income from YA 2001 to 2011.

Tax audit finding

Income received from letting the properties from YA 2011 is to be taxed under section 4(d) of the ITA as rental income pursuant to Public Ruling No. 4/2011.

Tax audit action

1. Withdrew Capital Allowance for the properties

2. Capital Allowance for the properties

3. Added back the same in the tax computation for YA 2011.

4. Raised the Notices of Additional Assessment for YA 2010 and 2011.

The Company’s opinion

1. The rental income is the business income under section 4(a) of the ITA since its commencement in 2001.

2. The Public Ruling No 4/2011 has no force of law.

IRB argument

1. The Company had failed to provide comprehensive & active maintenance to the properties.

2. The Company only provided maintenance upon request by the tenants.

3. Public Ruling 4/2011 offers guidelines for the tax treatment of the rental income.

4. The Company is disallowed to claim the administration expenses and capital allowance for this non-business income.

5. The interest expenditure for the term loan and bank overdraft claimed by the Company are also not permitted.

6. Section 4 does not determine whether an income falls under subsection (a),(b),(c), (d),(e) or (f).

7. Therefore, the DGIR is authorized under s.138A of the ITA to issue a public ruling.

Decision

The Special Commissioners of Income Tax" (SCIT) agreed with the IRB submission and totally dismissed the Company appeal.

The assessment and penalty imposed by the IRB for YA 2010 and 2011 are confirmed and maintained.

Source:

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

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