American Leaf Blending Co SDN BHD v Director-General of Inland Revenue: PC 1979

(Malaysia) The taxpayer company had a cigarette making factory and a bonded warehouse for storing tobacco and cigarettes. Its business proved to be unprofitable, and it came to abandon both its manufacturing and trading businesses. It still owned its factory and warehouse, and let the premises to various licensees. The Board considered whether that income was from a ‘source consisting of a business’ to allow it to adjust losses from the business for previous years of assessment.
Held: Not every isolated act of a kind which was authorised by the Memorandum if done by a company necessarily constituted the carrying on of a business. The Board rejected the idea that because letting was one of the objects of the memorandum, the action was necessarily carrying on a business.
Lord Diplock said: ‘So it is clear that ‘rents’ . . may nevertheless constitute income from a source consisting of a business if they are receivable in the course of carrying on a business of putting the taxpayer’s property to profitable use by letting it out for rent.
[W]hether the company . . was carrying on a business of letting out its premises for rents . . is one of fact
In the case of a private individual it may well be that the mere receipt of rents from property that he owns raises no presumption that he is carrying on a business. In contrast, in their Lordships’ view, in the case of a company incorporated for the purpose of making profits for its shareholders any gainful use to which it puts any of its assets prima facie amounts to the carrying on of a business. Where the gainful use to which a company’s property is put is letting it out for rent, their Lordships do not find it easy to envisage circumstances that are likely to arise in practice which would displace the prima facie inference that in doing so it was carrying on a business.
The carrying on of ‘business’, no doubt, usually calls for some activity on the part of whoever carries it on, though, depending on the nature of the business, the activity may be intermittent with long intervals of quiescence in between. In the instant case, however, there was evidence before the special commissioners of activity in and about the letting of its premises by the company during each of the five years that had elapsed since it closed down its former tobacco business. There were three successive lettings of the warehouse negotiated with different tenants; there was the removal of the machinery from the factory area which made it available for use for storage and a separate letting of that area to a fresh tenant; and as recently as October 1968 there was the negotiation of a letting to a single tenant of both the factory area and the warehouse.
As has been mentioned, the question whether the company was carrying on a business of letting out its premises for rent was one of fact for the special commissioners; . . ‘
Lord Diplock
[1979] AC 676, 684 PC 27
England and Wales
Cited by:
CitedHM Revenue and Customs v Salaried Persons Postal Loans Ltd ChD 7-Apr-2006
The company had ceased trading, but rental income was still generated from its former premises. The Revenue sought to include the receipt in calculations of whether the company was entitled to a small company corporation tax rate. The Revenue . .
AppliedJohn M Harris (Design Partnership) Ltd v Lee SCIT 1997
Mr Harris, an architect, owned more than 75% of the taxpayer company. He also owned all the shares in John M Harris (Properties) Ltd. He wanted to buy a holiday home in France and was advised that the property should, for French legal reasons and . .

Lists of cited by and citing cases may be incomplete.
Updated: 30 July 2021; Ref: scu.242605