Tax Case Study: Pemungut Duti Setem v. Ann Joo Integrated Steel Sdn Bhd

Whether the impugned document, the Letter of Offer, falls under item 22(1)(a) of the First Schedule of the Stamp Act 1949 (“Act”), or item 22(1)(b).  

The subject-matter in this case was a Letter of Offer from Alliance Bank Malaysia Berhad to the Respondent, offering various credit facilities to the Respondent up to the limit of RM105,000,000.  

The Respondent claimed to be entitled to a remission of stamp duty under the Stamp Duty (Remission) (No.2) Order 2012 [P.U.(A) 258] (the “Remission Order”), under item 22(1)(b) of the First Schedule of the Act. Under the Remission Order, the Respondent was entitled to remission of stamp duty in excess of 0.1%. 

On the other hand, the Appellant claimed that item 22(1)(a) of the First Schedule was applicable, and not item 22(1)(b). As such, the Remission Order was not applicable to the Respondent. 

The relevant provisions of Item 22(1)(a) and (b) read as follows:- 

22. BOND, COVENANT, LOAN, SERVICES, EQUIPMENT LEASE AGREEMENT OR INSTRUMENT of any kind whatsoever: 

(1) Being the only or principal or primary security for any annuity (except upon the original creation thereof by way of sale or security, and except a superannuation annuity), or for any sum or sums of money at stated periods, not being interest for any sum secured by a duly stamped instrument, nor rent reserved by a lease or tack- 

(a) for a definite and certain period so that the total amount to be ultimately payable ascertained | the same ad valorem duty as a charge or mortgage for such total amount. 

(b) for the term of life or any other indefinite period—  for every RM100 and also for any fractional part of RM100 of the annuity or sum periodically payable | RM1.00. 

The COA addressed two key issues: 

1. Does the Letter of Offer qualify as an instrument described in item 22(1)(b) of the First Schedule of the Act?  

The Letter of Offer was substantially a loan instrument or loan agreement. In order to qualify as an instrument under item 22(1)(b), the credit facilities must be “for the term of life or any other indefinite period”. The Letter of Offer must not specify a fixed loan period, or limit the period for repayment. 

The Appellant argued that the Letter of Offer was for a definite and certain period, as it specified a tenure of 180 days for the credit facilities, and allowed for the imposition of overdue interest.  

In finding that the Letter of Offer qualified as an instrument under item 22(1)(b) of the First Schedule, the Court of Appeal held as follows:  

• No fixed period of repayment: The Letter of Offer did not set out a definite and certain period for repayment of the credit facilities. Rather, the total amount only fell due and became ascertainable if the Bank exercised its right to recall the credit facilities. 
• Indefinite tenure: The usance tenure of up to 180 days was the maximum credit period which the Respondent could enjoy. This was in contrast to a fixed term loan with a specified repayment amount to be paid over a fixed period.
• No fixed credit amount: It was open to the Respondent to decide the amount of the available credit facilities of up to RM105,000,000 it wished to utilize. The credit amount was therefore not necessarily the actual loan amount. The payable amount could only be ascertained if the Bank exercised its right to recall the utilized facilities. 

2. Does the Remission Order apply to the Letter of Offer?

The Respondent has the burden of proving four conditions in order to qualify to enjoy the benefit of the Remission Order:  

(a)  The stamp duty is chargeable under item 22(1)(b) of the First Schedule.  

(b)  The document must be a loan agreement or loan instrument.

(c)  The entire loan sum or credit facility is unsecured.

(d)  The sum owing is repayable on demand or in a single lump sum payment.  

The Court of Appeal construed the fourth condition disjunctively. The outstanding sum only had to be either repayable on demand, or payable in a lump sum payment, and not both.  

 In the circumstances, the Court of Appeal found that the Letter of Offer fulfilled all four conditions. As such, the Remission Order applied.  

What was the amount to be refunded under the Remission Order?  

The Court of Appeal clarified the distinction between “the amount chargeable for duty” and “the amount of stamp duty that is chargeable”.  

The former refers to the amount used to calculate the stamp duty payable. The latter refers to the stamp duty payable. 

The Remission Order clearly referred to the latter, as it begins with “the amount of stamp duty that is chargeable”. This was translated as “amaun duti setem yang boleh dikenakan” in the Malay version of the Remission Order. 

Therefore:  

• the amount chargeable for duty was RM105,000,000;
• the stamp duty payable was RM1,050,000 (1% of every RM100, based on item 22(1)(b) of the First Schedule); 
• the stamp duty payable after remission was RM1,050; and  
• the correct amount to be refunded was RM523,950, as opposed to the sum of RM420,000 ordered by the High Court to be refunded to the Respondent.  

However, as the Respondent had not filed a cross-appeal on this error, the Court of Appeal did not disturb the Order granted by the High Court.