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What Amounts to Conveyance on Sale?

posted 2 months ago

Earlier in the case of Havi Logistic (M) Sdn Bhd v Pemungut Duti Setem [2022] MLJU 2801, the High Court (“HC”) held that an asset purchase agreement which does not involve transfer of properties or interest legally or equitably attracts nominal stamp duty.

To recap, the HC held, inter alia, that since goodwill has been specifically excluded, the Asset Purchase Agreement clearly fell within the ambit of Item 4 of the First Schedule to the Stamp Act 1949 as there are no properties legally or equitably transferred being transferred, ad valorem stamp duty was not imposable Our article which provides the analysis of the HC’s judgement can be found here.

However, the HC’s decision has since been overruled by the Court of Appeal (“CoA”) in Pemungut Duti Setem v Havi Logistics (M) Sdn Bhd [2023] MLJU 2247 but based on different grounds.

The CoA held that the issue turned upon (a) the proper construction of the Asset Purchase Agreement and (b) whether property in the acquired assets passed to the Taxpayer by the Asset Purchase Agreement (in which case it was a “conveyance on sale” within the meaning of the Stamp Act 1949 chargeable with ad valorem duty or whether some other act was required in order to effect delivery of the acquired assets).

The CoA considered Clause 2.3(c)(i) of the Asset Purchase Agreement:

“2.3 Closing

(c) As of and at Closing:

(i) title to the Acquired Assets and all risk of loss as to the Acquired Assets shall be deemed to have passed to the Purchaser and deemed delivered at the place at which the Acquired Assets are located; and…”

In overturning the HC’s decision, the CoA held that:

(a) The goodwill was excluded from the Asset Purchase Agreement. The Acquired Assets are as follows:

i. Acquired Assets

a) Computer software;

b) Computer hardware;

c) Fittings;

d) Renovations; and

e) Plant, machinery and equipment.

ii. Inventory

(b) The definition of “goods” in Section 21(1) of the Stamp Act 1949 includes both capital goods (plant, machinery, office furniture, implements and utensils) as well as inventory (described as stock-in-trade).

(c) However, whether the consideration paid for the goods subject to ad valorem duty or nominal duty under Section 21(1) of the Stamp Act 1949, the consideration is whether it is a “conveyance on sale” or whether some other act was required in order to effect delivery of the acquired assets.

(d) In this appeal, since the title to and risk in the Acquired Assets passed automatically by way of the deeming provision (i.e. Clause 2.3(c)(i) of the Asset Purchase Agreement) – such assets were deemed delivered where they are located. Thus, it amounted to a conveyance on sale within the meaning of the Stamp Act 1949 and chargeable with ad valorem duty under item 32 of the First Schedule since no other act was required to be carried

In determining whether an agreement for the sale of property attracts ad valorem duty or nominal duty, the Court of Appeal laid down the following test:

Firstly, in assessing the duty payable in respect of an agreement for the sale of property, if the sale relates to an equitable estate or equitable interest in property, then the duty payable would be at the ad valorem rate specified under item 32 of the First Schedule;

If the agreement relates to the sale of a legal estate or legal interest in property, then it must be ascertained if any of the exceptions in Section 21(1) apply. If none apply, then duty would be payable ad valorem pursuant to item 32 of the First Schedule;

If the sale relates to legal estate or legal interest in property, and the property in question comes within one of the exceptions in section 21(1), the next question to be asked is whether the agreement or contract in question is a conveyance on sale i.e., does property in assets pass to the purchaser by virtue of the agreement or contract in question? If so, then duty would be ad valorem pursuant to item 32 of the First Schedule;

If one of the exceptions applies and the agreement is on its proper construction not a conveyance on sale, then the agreement or contract ought to be stamped as an “agreement” pursuant to item 4 of the First Schedule to the Stamp Act 1949, ad valorem duty is not imposable.

(hereinafter defined as “Test”).

Comment

This is, perhaps, the first local case law wherein our Court of Appeal (a) examined the interpretation and application of section 21(1) of the Stamp Act 1949, (b) determine the definition of “Goods” – does not discriminate between goods held as inventory or stock, and goods that were capital in nature, and (c) what amounts to conveyance of sale. Most importantly, the CoA laid down the Test which is very useful for taxpayers in determining whether an agreement for the sale of property attracts ad valorem duty or nominal duty.

Meanwhile, the Court of Appeal also made comment on the interpretation principle in relation to tax statutes wherein tax statutes that impose any tax, duty levy or charge are to be read strictly, with any ambiguity to be construed in favour of a taxpayer, including the Stamp Act 1949. However, when the provision to be construed is one that provides relief to the taxpayer (rather than one that imposes upon the taxpayer a tax), the foregoing principle does not apply.

About the Author

Desmond Liew Zhi Hong
Partner
Tax
Halim Hong & Quek
[email protected]

Boey Kai Qi
Associate
Tax
Halim Hong & Quek
[email protected]

Author

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