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Revision of Estimatesand Tax ComputationsThe ‘Ruling’ in paragraph 10 outlines the following:(a) no revision of past assessment is allowed where thereis a revision resulting in a reduced estimated grossprofit. Such revisions are only for current and ensuingyears of assessment.(b) where the revision is from an estimated gross profit toa loss situation, no adjustments of past years areallowed until the final amount is ascertained at theend of the project.The comment that these rulings draw are as follows:In respect of both (a) and (b) above, it is neitherlogical nor supported by any statutory authority thatpast assessments cannot be reviewed where InlandRevenue Board already accepts the revision ofestimates.Conclusions(1) The Inland Revenue Board does not accept the CCMmethod. Housing developers need then to payattention to how the transactions are presented inaccounting procedures adopted.(2) The percentage of completion method is accepted bythe Inland Revenue Board. But this does not mean theInland Revenue Board would allow all interestexpenditure incurred to date. The tax treatmentaccorded in the Public Ruling No 3/2006 to housingdevelopers as investors is not investor friendly, sincethe Inland Revenue Board in its ‘Ruling’ would notallow interest costs as and when ‘incurred’.(3) It is recommend that housing developers adopt anaccounting system, if that is allowed by accountingstandards, to claim (i) all expenses, including interestcosts in the basis period incurred, and include (ii) allsales of units in the basis period, (iii) and includework in progress. This satisfies the provisions of theIncome Tax Act 1967.Capital allowance under s 3 Income Tax Act 1967must be allowed in arriving in statutory income in the taxcomputation. And if losses arise applying of all these ruleswhich follow the provisions of the Income Tax Act 1967,then such losses can be carried forward or allowed againstother income in the current years pursuant to theprovisions of the Income Tax Act 1967.That precisely was what was decided in YF Development.The Courts must be cautious of accepting the CCM methodon grounds that the Inland Revenue Board accepted thatmethod. There is no such law. And accounting practicecannot infringe the provisions of the Income Tax Act 1967,a principle much forgotten in Sarawak Properties.This paper was written by Dr Arjunan SubramaniamBA(hons) (Mal), LLB (hons) (Lond), LLM (Lond) PhD (Mal), CLP (Mal)Advocate & Solicitor, Malaya, Adjunct Professor, University Utara andformerly Adjunct Professor of Law the Northern Territory Univesity,Darwin AustraliaSource; Malayan Law Journal [2006] 6i-cxl, November-December 2006.Produced with kind permission.1 [1996 MSTC 2526.] But see the proposals in the 2007 Budget whereeffective from year of assessment 2006, the following principles, interalia, are proposed to be gazetted under section 36, Income Tax Act, 1967:(i) The gross income from a property development or constructioncontract business for a basis period for a year of assessment shallbe determined using the percentage of completion method;(ii) Revision of estimates of gross profit from a property developmentproject or construction contract can be allowed where there is anincrease in development or construction costs due to escalatingcost of materials, a reduction in selling price or contract sum orother commercial reasons acceptable to the Director General;(iii) Expenses incurred during the defect liability or warranty periodshall be allowed against the income of the year of assessment inwhich the expenses are incurred or shall be carried forward to thefollowing years of assessment. However, the property developeror construction contractor may elect to carry back the expensesto the basis period for the year of assessment in which the projector contract is completed.(iv) On submission of the final accounts upon the completion of theproject or contracts special rules are to be enacted to compute profits.The proposal is effective from year of assessment 2006.2 River Estate Sdn Bhd v Director General of Inland Revenue [1981] 1MLH 99.3 Nathan v FC of T 25 CLR 183.4 See Mamor Sdn Bhd v Director General of Inland Revenue [1981]1 MLJ 117 and Airspace Management Services Sdn Bhd v Col (B)Harbans Singh a/l Chingar Singh [2000] 3 MLJ 714.5 [1997] 4 AMR 31816 [1984 – 1985] 1 SLR 2.7 See Perwira Habib Bank Malaysia Bhd v Pengkalan Enterprise SdnBhd [1992] 2 MLJ 35.8 [1961] 2 All ER 167.9 [1988] 1 MSTC 2085.10 See Exxon Chemical (M) Sdn Bhd v Ketua Pengarah Hasil DalamNegeri [2006] 1 MLJ 428, where it was held that an expense isincurred when there is a present liability to pay. See also RACVInsurance Pty Ltd v Federal Commissioner of Taxation [1974] 4ATR 610; 14 TC 4169 where actuarially estimated provisions forclaims in relation to accidents which occurred during the year ofincome but which occurred during the year of income but whichgave rise to claims in the following years were considered14 | The Malaysian Accountant | June/August 2007 www.micpa.com.my