In UDI Sdn Bhd v Ketua Pengarah Hasil Dalam Negeri (1997) MSTC 2926, the taxpayer was in the business of manufacturing, selling and distributing detergent products. As part of its business strategy, the taxpayer gave customers consumer premium items such as glass tumblers, glass bowls and other items which were not products of the taxpayer.

The issue was whether the expenses incurred in respect of the taxpayer╠s consumer premium items were allowable as a deduction or disallowed for tax purposes.

The Special Commissioners held that consumer items came within the ambit of 'entertainment' and were disallowed for tax purposes. Further, the object of the taxpayer in giving away the consumer premium items was to increase sales and this would amount to soliciting customers. Since entertainment is defined in the Income Tax Act, 1967 to include hospitality ╬of any kind', the items given away fall within the definition of ╬entertainment'.
 
   
  In Director General of Inland Revenue v Sebangun Sdn Bhd (1998) MSTC 3641, the High Court confirmed the Special Commissioners decision that high grade silica sand amounted to a manufactured product under Section 36(1) of the Promotion of Investments Act, 1986.

The Inland Revenue Board had disallowed the abatement of the taxpayer's adjusted income arising from the processing of raw silica into high grade silica. On appeal, the Special Commissioners found that high grade silica sand that was produced had gone through changes in its physical characteristics. The raw silica must go through a specialised process manned by specialists to become a high grade silica that is commercially useful.

Therefore, the high grade silica sand amounted to a ╬manufactured' product under Section 36(1) of the Promotion of Investments Act, 1986 and the abatement of adjusted income was allowed.
   



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