Decision and Discussion (conclude with your opinion which is substantiated with

relevant section of the Act or principles laid down by past cases or compare the
legislation of other countries)

The Malaysian Bar should not be held liable as supported under section 142 of the
Legal Profession Act.The section 142 of the Legal Profession Act states that no estate
duty payable for bequest to the Bar. Section142(1) states that no estate duty shall be
payable of any amount of any bequest to the Malaysian Bar, and the value of the
property passing on the death of a deceased donor shall not be deemed to include the
amount of the bequest for the purpose of assessing the rate of estate duty.
Section142(2) stated that The Board and the Malaysian bar shall each be deemed to be
an institution specified in the First Schedule to and under paragraph (e) of the
subsection (1) of section 13 of the Income Tax Act 1967. This is defined by the
Income Tax Act as any amount received by the employee,whether before or after his
employment ceases by way of compensation for loss of the employment inclusive any
amount in respect of a covenant entered into by the employee restricting his right after
leaving the employment of a similar kind or any agreement or arrangement having the
like effect. Besides that, under Section142(2) also stated that The Board and the
Malaysian Bar shall each be deemed to be an institution of a public character
approved by the Minister fr the purposes of paragraph (c ) of subsection (2) of section
37 of the Income Tax Act 1967. Section 37 of the Income Tax Act has been deleted
by Act 624 of 2002 s10, shall have effect for the year of assessment 2003 and
subsequent years of assessment.Thus, The Bar is not held liable to income tax by
virtue of section142(2) of the Legal Profession Act. The Malaysian Bar should be
exempt from income tax by operation of Section 142(2) of the Legal Profession Act
1976 (LPA) from the time the LPA was passed right up to the present day,
notwithstanding the drafting errors contained in Section 142(2) LPA.

The Malaysian Bar shall be a body corporate with perpetual succession and a
common seal and with power subject to this Act to sue and be sued in its corporate
anme and to acquire and dispose of property both movable and immovable and to do
and to perform such other acts as bodies corporate by law perform as defined under
Section 41(2) of the Legal Profession Act. Therefore, the Malaysian Bar is not a trade
association as claimed by the Director General of Inland Revenue. Section 53(3) of
the Income tax Act 1967 define trade association as any association of persons,of
partnerships or of persons and partnerships formed with the main object of
safeguarding or promoting the businesses of its members, and notwithstanding any
other provision of this Act, a trade association shall for the purpose of this section be
deemed to be a body of persons and not a partnership. As seen in the definition of
Section 53(3) of the Income Tax act 1967, it is clear that the Malaysian bar is not a
trade association as it was created by the statute and not by advocates and solicitors.

This is proven whereby in the case it is clearly states that Malaysian Bar was
primarily formed to uphold the cause of justice without regard to its own interest of
that its members. It was also clearly stated that the Malaysian bar was not formed to
safeguard or promote the interest of the advocated and solicitors but to regulate the
conduct of the legal profession. This falls under the Section 42 of the Legal
Profession Act which states the purpose of the Malaysian Bar. Section 42(1) of the
Legal and Profession Act states the purpose of the Malaysian bar shall be to uphold
the cause of justice without regard to its own interests or that of its members;
uninfluenced by fear or favor, to maintain and improve the standards of conduct and
learning of the legal profession in Malaysia; to facilitate the acquisition of legal
knowledge by member of the legal profession and others; where requested so to do, to
express its view on matters affecting legislation and the administration and practice of
the law in Malaysia ; to represent, protect and assists members or of the legal
profession in Malaysia and to promote in any proper manner the interests of the legal
profession in Malaysia ; to establish libraries and to acquire or rent premises to house
the libraries and offices of the Malaysian Bar or amenities for the use of members
either alone or in conjunction with any other body or society; to protect and assists the
public in all matters touching ancillary or incidental to the law; to make provision for
or assists in the promotion of a scheme whereby impecunious may be represented by
advocates and solicitors; to award prizes and scholarships and to establish and
subsidies lectureship in educational institutions in subjects of study relating to law; to
grant pecuniary or other assistance to any association,institute,board or society in
Malaysia in the interest of the legal profession or of the law students; to afford
pecuniary and other assistance to members or former members of the Malaysian Bar
and to the wives,widows,children and other dependent, whether of members,former
members, or deceased members who are in need of any such assistance; to promote
good relation and social intercourse amongst members and between members and
other persons concerned in the administration of law and justice in Malaysia; to
encourage,establish and maintain good relation with professional bodies of the legal
profession in other countries and to participate in the activities of any local or
international association and become a member thereof and lastly to establish a
Compensation Fund. Thus this implies that Section 53 of the Income Tax act 1967
which falls under trade association can not be applied on this case.In conclusion, the
Malaysian Bar is not a trade association within the meaning of Section 53(3) of the
Income Tax Act 1967

It is one of the purpose of Malaysian Bar to establish a Compensation Fund as defined

under Section 42 of the Legal Profession Act. The interest from the Compensation
Fund should be exempted as supported under Section 80 (13) Compensation Fund of
the Legal Profession Act states that the income derived from the Compensation Fund
shall be exempt from income and all other taxes, and the Fund shall be an institution
approved for the purpose of Section 45 of the Income Tax Act 1967 payments to
which shall be good deductions for income tax purposes in arriving at the aggregate
income of the person making the payments for the relevant year. Malaysian Bar
received Compensation Funds from its members as such it is not taxable as it was
exempted from the tax under substantive provision of Section 80(13) of the Law and
Property act.

If Malaysian bar were held to be a trade association, the Director General of Inland
Revenue has no power to deny the right of Malaysian Bar to claim all or any of its
expenses and allowances available for deductions under the Income Tax Act 1967 in
computing the appellant income chargeable to tax.
This can be supported by Section 53(2) of the Income Tax act. Section 53(2) trade
association for the purpose of subsection (1) of the Income tax act states that the gross
income,adjusted income or adjusted loss and statutory income of a trade association
relating to its transactions with its members shall be ascertained on the same
principles as those on which its gross income, adjusted income or adjusted loss and
statutory income relating to its transactions with non-members, if any, would be
ascertained; and any outgoings or expenses connected with the sums receivable on
revenue account referred to in subsection (1) shall be deemed to have been incurred

in the production of its gross income relating to its transactions with its members if
they would have been so incurred if the sums deemed by that subsection to be gross
income had in fact been gross income of the association.Thus, the Malaysian Bar is
entitled to claim all capital allowances in full in the event the Malaysian Bar is
judicially determined to be a trade association within the meaning of s 50(13) of the
Income Tax Act.

The appeal by the Director General of Inland Revenue against the decision of the
High Court was dismissed with costs by the Court of Appeal on 27 August 2009. The
Malaysian Bars appeal against the assessments for the year of assessment 1979 to
1991 was heard in the first instance by the Honorable Special Commissioners of
Income Tax, who unanimously decided in favour of the Malaysian Bar the following
issues which are the Malaysian Bar is exempt from income tax by operation of
Section 142(2) of the Legal Profession Act 1976 (LPA) from the time the Legal
Profession Act 1976 was passed right up to the present day, notwithstanding the
drafting errors contained in Section 142(2) of the Legal Profession Act 1976 ,the
Malaysian Bar is not a trade association within the meaning of Section 53(3) of the
Income Tax Act 1967 ,interest derived from the Compensation Fund is exempt from
tax under Section 80(13) of the Legal Profession Act and even if the Malaysian Bar
was held to be a trade association, within the meaning of Section 53(3) Income Tax
Act, the Malaysian Bar is entitled to claim all capital allowances in full on its
qualifying assets. The Director General of Inland Revenue thereafter appealed against
the Special Commissioners of Income Taxs decision by way of Case Stated for the
opinion of the High Court. The Malaysian Bar again succeeded on all 4 issues when
the learned High Court Judge, Y.A. Puan Wan Afrah binti Dato Paduka Wan
Ibrahim, upheld the decision of the Special Commissioners of Income Tax. The
Director General of Inland Revenue appealed further to the Court of Appeal.

In finding in favour of the Malaysian Bar, the Court of Appeal unanimously affirmed
the decision of the High Court and the Special Commissioners of Income Tax. The
Court of Appeals decision was delivered on 27 August 2009, and Tuan Haji
Sulaiman and Lim Chee Wee were present for the Bar Council.