Introduction
This case is a stamp duty appeal under Section 39(1) of the Stamp Act 1949 (“Act”) made by way of a case stated pursuant to Section 39(2) of the Act.
The Plaintiff is seeking for inter alia a declaration from the High Court that the Notice of Stamp Duty Assessment dated 13 February 2019 on the letter of offer which was executed between Alliance Bank Malaysia Berhad (“Alliance Bank”) and the Plaintiff (“LO”) issued by the Defendant (“assessment”) is erroneous, null and void.
Background Facts
On 27 December 2018, the Plaintiff accepted the LO for credit from Alliance Bank which offered to the Plaintiff trade facilities amounting to RM105,000,000.00 (“Trade Facilities”). The LO was submitted to the Defendant for adjudication of stamp duty where the Plaintiff sought for the remission of the stamp duty granted under the Stamp Duty (Remission) (No. 2) Order 2012 (“Remission Order”).
On 31 January 2019, the Plaintiff was informed by the Defendant that the LO did not qualify for remission of stamp duty under the Remission Order.
Subsequently, the Defendant took the position that the LO is subject to stamp duty pursuant to Item 22(1)(a) of the First Schedule of the Act. Thereafter on 13 February 2019, the Plaintiff received the assessment from the Defendant..
Unhappy with the assessment, on 14 February 2019 the Plaintiff had paid the stamp duty to the Defendant under protest in accordance with Section 38A(7) of the Act vide letters dated 14 February 2019 and 11 February 2019.
Subsequently, the Plaintiff submitted an application to the Defendant on 28 February 2019 to object against the assessment pursuant to Section 38A of the Act.
However on 8 March 2021, the Plaintiff’s application was rejected by the Defendant with no reasons were provided. Being aggrieved by the assessment, the Plaintiff filed an appeal to the High Court by way of a case stated under Section 39(1) of the Act, to seek the opinion of the High Court as to whether the LO falls within the Remission Order.
Legislation
Stamp Act
Sub-item 22(1) of the First Schedule of the Stamp Act 1949, upon being amended by the Finance Act 2018, states the following:
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 can be ascertained.
(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.
Remission Order
Paragraph 2 of the Stamp Duty (Remission) (No. 2) Order 2012 states that:
The amount of stamp duty that is chargeable under sub-subitem 22(1)(b) of the First Schedule to the Act upon a loan agreement or loan instrument without security for any sum or sums of money repayable on demand or in single bullet payment under that sub-subitem which is in excess of zero point one per cent (0.1%) is remitted.
The Defendant’s Contentions
The Defendant takes the position that there is no error in the assessment and the LO was correctly charged for stamp duty under Item 22(1)(a) of the First Schedule of the Act, and thus the Remission Order is therefore not applicable to the LO. It is contended that the LO does not spell out the sums of money that must be paid by way of demand or single bullet payment and is, therefore, liable to stamp duty as a loan agreement or loan instrument under Item 22(1)(a) of the First Schedule of the Act.
The Plaintiff’s Contentions
The Plaintiff takes the position that the LO clearly states that the loan instrument has no security whatsoever and must be repayable on demand or in a single bullet payment. Therefore, the Plaintiff believed that the LO they had accepted from Alliance Bank was eligible for remission of the stamp duty in excess of 0.1%.
It is contended that the correct approach to be adopted in interpreting a taxing statute is that it should be given a strict interpretation, by giving their plain, natural and ordinary meaning, and no intendment can be made in favour of tax liability.
Findings
The High Court is making a distinction between two different items in the First Schedule of the Act, specifically Item 22(1)(a) and Item 22(1)(b) of the First Schedule to the Act.
The High Court highlights that the material difference between these two Items is that Item 22(1)(a) applies to bond, covenant or instrument within a specific and defined period of time, which allows the total amount payable to be determined.
On the other hand, Item 22(1)(b) applies to bond, covenant or instrument that have an indefinite period of time, such as for the term of life.
Upon perusal of the LO, the High Court found that the availability of the facility granted by Alliance Bank to the Plaintiff is subject to Alliance Bank’s right to recall/cancel the facility or any part thereof at any time Alliance Bank deems fit whereupon the facility of such part thereof shall be cancelled and the whole indebtedness or such part thereof be repayable on demand. The High Court then cited the relevant provisions of the LO, which are as follows:
SPECIFIC CONDITIONS FOR TRADE FACILITIES
(i) Repayment
- Notwithstanding any other provisions herein stated related to the availability of the Facility or any part thereof, the Bank reserves the right to recall/ cancel the facility or any part thereof at any time it deems fit without assigning any reason thereto by giving written notice of the same, whereupon the facility of such part thereof shall be cancelled and the whole indebtedness or such part thereof be repayable on demand.
- ………
(ii) Forward Foreign Exchange (“Forex”) Specific Condition: Repayment
- Notwithstanding any other provisions herein stated related to the availability of the Facility or any part thereof, the Bank reserves the right to recall/cancel the facility or any part thereof at any time it deems fit without assigning any reason thereto by giving written notice of the same, whereupon the facility of such part thereof shall be cancelled and the whole indebtedness or such part thereof be repayable on demand.
Based on the above provisions, the High Court finds that there is in fact no definite or certain period of time prescribed under the LO for the Trade Facilities given to the Plaintiff. The LO thereof, falls under Item 22(1)(b) of the First Schedule of the Act, thus qualifying for remission of stamp duty under the Remission Order.
The High Court rejected the Defendant’s contention that the LO does not spell out the specific provision on how repayment of the loan is to be made in the ordinary course, i.e. if the Trade Facilities or Forex is not recalled or cancelled by Alliance Bank and that in any event the LO must clearly show that under the LO, the mode of repayment of the loan is either upon demand or a single bullet repayment.
According to the learned Judge, there is no specific requirement under the Remission Order for the sums of money to be paid under the LO to be by way of demand or single bullet repayment in the ordinary course. The LO clearly states that the security is on clean basis.
Conclusions
The High Court concluded that the LO fell within the ambit of Item 22(1)(b) of the First Schedule of the Act and that on a plain reading of paragraph 2 of the Remission Order, the Plaintiff had fulfilled all the requirements stipulated thereunder as the LO clearly stated that the Trade Facilities and Forex facilities are granted on clean basis i.e. without any security, and that Alliance Bank reserves the right to recall/cancel the facility or any part thereof at any time it seems fit without assigning any reason by giving written notice of the same, whereupon the facility of such part thereof shall be cancelled and the whole indebtedness or such part thereof be repayable on demand. Premised on the reasons above, the High Court allowed the Plaintiff’s appeal with costs and held that the LO qualifies for remission of stamp duty under the Remission Order and ought to be stamped at the rate of 0.1%. Thus, the assessment raised by the Defendant was held to be erroneous.
Comments
The two (2) material points that can be extracted from the above case are as follows: –
(i) To come within the ambit of Item 22(1)(b) of the First Schedule of the Act, there is no requirement for a LO or agreement for credit facilities to state that the facilities are to be repaid in the ordinary course by bullet repayment or upon demand. Thus, it is sufficient that the credit facilities are repayable on demand at the discretion of the lender.
(ii) A LO or agreement for credit facilities in respect of which the stamp duty is payable under Item 22(1)(b) of the First Schedule of the Act will qualify for remission of the stamp duty under the Remission Order if the credit facilities are granted without any security.
About the author
Senior Associate
Real Estate
Halim Hong & Quek