The Taxpayer’s Dilemma
In 2004, a promising transaction involving 1,000,000 shares in Gagah Makmur Sdn Bhd set the stage for a tax dispute that would unfold years later. Gagah, the beneficial owner of a vast 906.6-acre agricultural property, had entered into a sale and purchase agreement to acquire the land for RM6,799,500. To fund this, the company secured a RM4,000,000 loan from Public Bank Berhad (PBB).
Later that year, the taxpayers, as shareholders of Gagah, decided to sell their shares. A Share Sales Agreement (SSA) was executed with two purchasers for a price of RM6,799,500. The deal seemed straightforward, but complications arose when the payment was structured into parts: an immediate RM2,799,500 to the shareholders, while the remaining RM4,000,000 tied to Gagah’s loan remained an unresolved responsibility.
The Argument Over Numbers
The taxpayers’ counsel argued passionately before the Court of Appeal. “Your Honours, the additional RM4,000,000 linked to Gagah’s loan was optional under the SSA. The purchasers didn’t settle this amount—it remained with Gagah. The disposal price should therefore be RM2,799,500.”
But the tax authorities disagreed. “Under Paragraph 34A(4), Schedule 2 of the RPGTA, the disposal price includes the value of all benefits received, whether in money or money’s worth. By transferring the responsibility for the loan to the purchasers, the taxpayers gained a benefit worth RM4,000,000. Thus, the total disposal price must be RM6,799,500,” the DGIR’s representative argued.
The Revenue cited clauses from the SSA to reinforce their case, highlighting how the loan responsibility was shifted entirely to the purchasers. “This constitutes a tangible benefit, aligning with prior rulings such as Mulpha Pacific Sdn Bhd v. Paramount Corn Bhd.”
The Verdict
On 19 June 2024, the Court of Appeal delivered its judgment. “The taxpayers benefited from the transfer of liability for the loan. This benefit constitutes consideration in money’s worth under Paragraph 34A(4). The disposal price of RM6,799,500 stands.”
With this unanimous decision, the taxpayers’ appeal was dismissed. They were ordered to pay RM10,000 in costs to the Revenue.
The Lesson Learned
This case serves as a critical reminder that tax law evaluates not just direct payments but also benefits conferred through agreements. In transactions involving real property companies, liabilities transferred as part of a sale may be treated as consideration, affecting tax computations.
For taxpayers, the takeaway is clear: careful attention to the structuring of agreements and a deep understanding of tax provisions are essential to avoid surprises. For practitioners, it underscores the importance of documenting all elements of a transaction to ensure compliance and clarity.
In the world of taxation, every detail matters, and the true cost of a deal may go far beyond the numbers on a cheque.
