Malaysia – Landmark Tax Decision By Court Of Appeal Confirming That Databases Constitute “Plant” And Qualify For Capital Allowances.

In 2006, CIMB Bank Berhad (“CIMB Bank”) acquired the core deposit and credit card customers databases (“Databases”) of another bank pursuant to a vesting order of the High Court. The issue was whether the Databases qualify for capital allowances (“CAs”) under Schedule 3 of the Income Tax Act 1967 (“ITA”).

 

The Director General of Inland Revenue (“DGIR”) took the position that the Databases were not “plant” but “goodwill” and would not qualify for CAs. The DGIR disallowed CIMB Bank’s claims for CAs on the Databases and raised assessments against CIMB Bank. The DGIR also imposed penalties under Section 113(2) of the ITA for the alleged incorrect returns.

 

CIMB Bank appealed against the assessments raised by the DGIR to the Special

 

Commissioners of Income Tax (“SCIT”) which allowed CIMB Bank’s appeal in full. The SCIT1 made a finding of fact that the Databases are tools used by CIMB Bank in its banking business and thus the Databases constitute “plant” qualifying for CAs.

 

Being dissatisfied with the SCIT’s decision, the DGIR appealed to the High Court. In the High Court, the DGIR abandoned the “goodwill” argument and focused instead on arguing that the Databases were not “plant” as they did not depreciate and did not suffer wear and tear.

 

CIMB Bank emphasized the wide definition given to the word “plant” in case law and that once the requirements set out in Schedule 3 of the ITA have been satisfied, the Databases qualified for CAs.