High Court clarifies Item 22(1) of the First Schedule of the Stamp Act and Stamp Duty (Remission) (No. 2) Order 2012
16 January 2023
In Ann Joo Integrated Steel Sdn Bhd v Pemungut Duti Setem [2022] 10 CLJ 722, the High Court was called to determine whether a letter of offer issued by a bank to the plaintiff (‘LO’) granting RM105 million of trade facilities (‘TF’) and forward foreign exchange facilities (‘Forex’) qualified for remission of stamp duty under the Stamp Duty (Remission) (No. 2) Order 2012 (‘Remission Order’) of the Stamp Act 1949 (the ‘Act’).
Relevant facts
On 27 December 2018, the plaintiff accepted the LO from the bank. On 31 January 2019, upon submission of the LO for stamping, the plaintiff was informed by the defendant that the LO did not qualify for remission of stamp duty under the Remission Order.
On 13 February 2019, the plaintiff received a notice of stamp duty assessment from the defendant stating that stamp duty was payable at 0.5% of the total facilities amount of RM105 million under the LO pursuant to item 22(1)(a) of the First Schedule of the Act.
The plaintiff filed a notice of objection against the assessment pursuant to section 38A(1) of the Act, paid the stamp duty under protest in accordance with section 38A(7), and appealed by way of a case stated under section 39 of the Act, seeking the opinion of the High Court as to whether the LO falls within the Remission Order.
The relevant law
Before proceeding to discuss the decision of the High Court, we set out below, the legal provisions that are relevant to this case.
The Remission Order
Paragraph 2 of the Remission Order 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.
Item 22(1) of the First Schedule of the Act
Item 22(1) of the First Schedule of the Act, as amended by the Finance Act 2018, reads as follows:
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
|
The same ad valorem duty as a charge or 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 |
RM1.00 |
The Decision of the High Court
The High Court first highlighted that the material difference between item 22(1)(a) and item 22(1)(b) of the First Schedule of the Act is that item 22(1)(a) applies to a bond, covenant or instrument for a definite and certain period of time so that the total amount which is ultimately payable can be ascertained; whereas item 22(1)(b) applies where the bond, covenant or instrument is for the term of life or any other indefinite period.
Upon perusal of the LO, the High Court found that the availability of the facility is subject to the bank’s right to recall/cancel the facility or any part thereof at any time the 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 Court then cited the relevant provisions of the LO, namely:
“Specific Conditions For TF
(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.
...
2. 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 found that there is in fact no definite or certain period of time prescribed under the LO for the TF and Forex, and held that the LO fell under item 22(1)(b), thus qualifying for remission of stamp duty under the Remission Order.
The High Court rejected the defendant’s contention that the LO did not contain any 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 the 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, “[t]here is no specific requirement under the remission order for the sums of money to be paid under the letter of offer to be by way of demand or single bullet repayment in the ordinary course.”
Her Ladyship added that:
“The letter of offer clearly states that the security is on clean basis:
Security/Support
On clean basis.”
Accordingly, the High Court concluded that the LO fell within the ambit of item 22(1)(b) 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 TF and Forex facilities are granted on clean basis i.e. without any security, and that the 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 and held that the LO qualified for remission of stamp duty under the Remission Order and ought to be stamped at the rate of 0.1%.
Comments
Although the decision of the High Court in this case is a relatively straightforward interpretation of item 22 and the Remission Order, it is a much welcomed decision by borrowers of credit facilities as it provides clear guidance to the Collector of Stamp Duty on the following points:
- first, that to come within the ambit of item 22(1)(b), there is no requirement for a letter of offer or agreement for credit facilities to state that the facilities are to be repaid in the ordinary course by bullet repayment or upon demand and that it will suffice that the credit facilities are repayable on demand at the discretion of the lender; and
- second, that a letter of offer or agreement for credit facilities in respect of which stamp duty is payable under item 22(1)(b) will qualify for remission of stamp duty under the Remission Order if the credit facilities are granted without any security.
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