Federal Court Affirms The Stamp Duty Remission Obtained By Taxpayer

Recently, the Federal Court dismissed the Revenue’s application to seek leave to appeal against the Court of Appeal’s decision in Pemungut Duti Setem v Ann Joo Integrated Steel Sdn Bhd [2025] 1 MLJ 141. The Federal Court affirmed the decision of the Court of Appeal and High Court in allowing the taxpayer to claim stamp duty remission of stamp duty pursuant to the Stamp Duty (Remission) (No. 2) Order 2012 (the Remission Order).

The taxpayer was successfully represented at the Federal Court, Court of Appeal and High Court by the firm’s Tax, SST & Customs Partner, S. Saravana Kumar together with associate, Nur Hanina Mohd Azham.

Brief Facts

The taxpayer executed a letter of offer with Alliance Bank Malaysia Berhad for various credit facilities amounting to a limit of RM105 million. These facilities included trade financing instruments such as letters of credit, trust receipts, foreign currency trust receipts, bankers’ acceptances and foreign currency promissory notes, collectively amounting to RM100 million, as well as a forward foreign exchange facility of RM5 million.

The Revenue adjudicated the instrument for stamp duty under item 22(1)(a) of the First Schedule of the Stamp Act 1949 and imposed an ad valorem duty amounting to RM 525,000. The taxpayer, however, argued that the instrument fell under item 22(1)(b) and qualified for stamp duty remission under the Remission Order.

Legal Position

The First Schedule to the Stamp Act provides for the instruments chargeable with stamp duty and the respective stamp duties.

Item 22(1) of the First Schedule reads:

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

Being the only or principal or primary security for any annuity (except upon the original (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	The same ad valorem duty as a charge of 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	RM 1.00

High Court’s Decision

The High Court ruled in favour of the taxpayer, holding that the instrument did not fall under item 22(1)(a) because it was not for a “definite and certain period” such that the total amount to be ultimately payable could be ascertained. Instead, the High Court found that the instrument should fall under item 22(1)(b) and accordingly, the taxpayer was entitled to remission under the Remission Order. As a result, the Revenue’s assessment was set aside.

Aggrieved by the decision, the Revenue appealed to the Court of Appeal, arguing that the instrument should have been assessed under item 22(1)(a) and that the taxpayer was not entitled to the remission.

Appeal Before The Court Of Appeal

The primary issue before the Court of Appeal was the proper classification of the facility agreement under the Stamp Act and whether the taxpayer was entitled to remission of stamp duty. Accordingly, the key question was whether the instrument fell under item 22(1)(a), which attracts a higher ad valorem duty, or item 22(1)(b), which qualifies for remission under the Remission Order.

Classification Under Item 22(1)(a) Or 22(1)(b)

In determining the applicable stamp duty, the Court of Appeal affirmed the principle that the focus must be on the instrument itself rather than the underlying transaction. Although referred to as a “Letter of Offer”, the document in question functioned as a loan instrument. Under the Stamp Act, an instrument qualifies for remission under item 22(1)(b) if the credit facilities are for an indefinite period rather than a fixed term. The court found that the document did not specify a repayment period, making it eligible for remission.

The Revenue, however, contended that the document stipulated a tenure of up to 180 days, indicating a definite period. Additionally, they contended that the imposition of overdue interest implied fixed repayment terms, placing the instrument under item 22(1)(a), which attracted a higher stamp duty. The court rejected this argument, clarifying that:

(a) The phrase “for a definite and certain period” under item 22(1)(a) refers to a fixed duration with an ascertainable total repayment amount.

(b) The credit facilities had no fixed term and could be recalled or cancelled at the bank’s discretion.

(c) The “usance tenure” of up to 180 days merely set the maximum credit period but did not create a fixed repayment schedule. Since the facilities lacked a definite repayment period, they fell under item 22(1)(b) and qualified for stamp duty remission.

(d) The credit facilities were for an indefinite period until the bank exercised its right to recall them. Consequently, the instrument was classified under item 22(1)(b) and was eligible for remission under the Remission Order.

Application For Remission

First, in order to qualify for stamp duty remission under the Remission Order, four conditions must be met:

(a) The stamp duty must be chargeable under item 22(1)(b) of the First Schedule of the Stamp Act.

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

(d) The repayment terms must be on demand or made in a single bullet repayment.

The main contention revolved around the fourth condition, whether the loan was “repayable on demand or in a single bullet repayment.” The Revenue argued that the Remission Order applied only when repayment was strictly due upon demand from the lender. Since the loan agreement did not explicitly state that repayment was due only when demanded, the Revenue maintained that the Remission Order should not apply.

The Court of Appeal rejected this narrow interpretation, clarifying that “repayable on demand or in a single bullet repayment” encompasses two possible repayment structures:

(a) A loan where the lender has the contractual right to demand full repayment at any time.

(b) A loan where repayment was structured as a lump sum, without requiring an explicit demand from the lender.

The Court of Appeal emphasised that ordinarily, no financial institution would provide a loan with repayment strictly upon demand. Instead, all loans require repayment either in instalments or as flexible payments. Since the bank reserved its right to recall or cancel the credit facility at any time, thus making the outstanding amount immediately repayable, the facility met the final condition for remission.

Calculation Of The Refundable Amount Under The Remission Order

The taxpayer paid RM 525,000 in stamp duty based on the Collector’s assessment under item 27(a)(iii) of the First Schedule to the Stamp Act, which imposes a duty rate of 0.5% on the chargeable amount of RM 105 million.

The taxpayer, however, argued that the correct provision was item 22(1)(b), which imposes a 1% duty on periodic payments but is subject to the Remission Order. Crucially, the Order provides that any amount of duty exceeding 0.1% of the chargeable sum is to be remitted. On that basis, the taxpayer calculated the duty payable to be 0.1% of RM 105 million, i.e. RM 105,000 and sought a refund of RM420,000.

The High Court accepted this position and allowed the refund.

However, the Court of Appeal took a different view on the interpretation of the Remission Order. It held that the phrase “amount of stamp duty that is chargeable” must be understood as referring to the duty payable under the relevant provision (i.e. 1% under item 22(1)(b)) and not the underlying chargeable amount.

Accordingly, the proper calculation, as endorsed by the Court of Appeal, was as follows:

Description	Amount (RM)
Amount chargeable for duty	105,000,000
Stamp duty rate under Item 22(1)(b)	1%
Stamp duty payable before remission	1,050,000
Amount to be remitted under the Remission Order (i.e., amount exceeding 0.1%)	1,048,950
Stamp duty payable after remission	1,050

As the taxpayer had already paid RM 525,000 in duty, the correct refund should have been RM 523,950. Nevertheless, the Court of Appeal declined to amend the High Court’s refund order, as the taxpayer did not file a cross-appeal.

Commentary

In light of the foregoing, the Court of Appeal ultimately ruled in favour of the taxpayer, affirming that the Remission Order applied. The court found that the taxpayer’s letter of offer satisfied all the necessary conditions, including the final requirement concerning repayment terms. The restrictive interpretation advanced by the Revenue was deemed commercially unrealistic and inconsistent with the legislative intent behind the Remission Order. Significantly, the judgment also clarified the proper method for calculating stamp duty under the Remission Order. By doing so, the Court avoided the confusion between the value subject to duty and the amount of duty legally payable.

This decision reflects a broader and more commercially sensible interpretation of loan repayment terms under the Remission Order. It reinforces the principle that eligibility for stamp duty relief should turn on the substance of contractual repayment rights, rather than the presence or absence of specific demand clauses. The court’s approach to computing the refundable amount further promotes consistency in the application of statutory reliefs and provides greater certainty to taxpayers in assessing their entitlements under remission provisions.

16 April 2025