The High Court in PETRONAS Dagangan Berhad v Ketua Pengarah Hasil Dalam Negeri [2026] 4 CLJ 824 allowed the taxpayer’s capital allowance claim in respect of the canopies and lights for the construction of a new petrol station under the Third Schedule of the Income Tax Act 1967 (“ITA”).

Salient Facts

The taxpayer is a subsidiary of Petroliam Nasional Berhad and has been carrying on the business of domestic marketing of petroleum products and the operation of service stations. At all material times, the taxpayer incurred expenditure on the following items for the construction of the new petrol stations:

a) Petrol station canopies; and
b) Metal halide lights (“halide lights”)

The Revenue disallowed the taxpayer’s capital allowance claim and contended that the petrol station did not qualify as “plant” under the ITA. Thereafter, the notices of assessment for the relevant years of assessment were raised against the taxpayer.

Being aggrieved by the assessment, the taxpayer lodged an appeal to the Special Commissioners of Income Tax (“SCIT”).

Revenue’s Contention

The crux of the Revenue’s contention is summarised as follows:

a) The halide lights and the canopy were part of the general setting of the petrol filling station and thus did not qualify as “plant”;
b) The halide lights did not dictate the nature of the petrol-selling business, which did not require special lighting. With no special features, they were ordinary lights forming part of the business premises, not a means of attracting customers; and
c) The canopy was a permanent structure that functioned like any ordinary building roof, sheltering equipment and customers from the weather.

Taxpayer’s Position

The crux of the taxpayer’s position is summarised as follows:

a) In the absence of the definition of “plant” in the ITA, one should apply the principles enunciated by the Court of Appeal in Ketua Pengarah Hasil Dalam Negeri v Tropiland Sdn Bhd (2013) MSTC 7701. In considering whether an item constitutes “plant”, a holistic approach must be adopted to give due consideration to the business as a whole instead of taking facts in isolation.

b) Even if the canopy was a structure, “plant” could extend to structures that served as an apparatus or tool for carrying on the taxpayer’s business. The canopy did not cease to be “plant” merely because it served an additional function or played a passive role.

c) Given the highly flammable nature of petrol and the safety requirements imposed by the relevant authorities, the taxpayer was not allowed to use any ordinary canopy or normal lights. Thus, for safety reasons, the taxpayer was required to use the canopy and halide lights in its operations.

d) When fitted to the canopy, the halide lights formed a single system for the plant. The canopy was more than a shelter, as it attracted customers to the petrol kiosks beneath it. Every part of the canopy and halide lights provided a safe and secure ambience for the use and enjoyment of the taxpayer’s customers.

Being dissatisfied with the SCIT’s decision, the taxpayer appealed to the High Court.

SCIT’s Decision

The SCIT did not allow the taxpayer’s appeal and held that the canopy and the halide lights did not fall within the ambit of “plant” under the ITA for the following reasons:

a) The canopy and the halide lights formed part of the structure of the taxpayer’s business premises by characterising the canopy as the roof;

b) The canopy’s function was to protect the worker, customers and pump of the petrol station from adverse weather, while the function of the halide lights was to provide sufficient lighting for the taxpayer to carry out its business; and

c) The taxpayer did not use the canopy and halide lights to attract customers, as its advertising focused on quality, service, and the Mesra store. The canopy and halide lights were not factors in attracting customers to the petrol station.

High Court’s Decision

Having considered the parties’ submissions, the High Court allowed the taxpayer’s capital allowance claim on the following grounds:

a) The functional aspect of the canopy and halide lights went beyond that of a mere roof with protective properties. The canopy was very high, and the halide lights kept the area containing the petrol filling kiosks brightly lit, which would make the petrol station recognisable from a distance;

b) Applying the functional test established in Tropiland, the word “plant” in the Third Schedule should be given its widest possible meaning. Without the canopy and the halide lights, the taxpayer could not have generated its income;

c) The passive nature of an item did not disqualify it from being “plant”. The canopy and halide lights were the tools or apparatus used by the taxpayer to carry out its petrol filling business activities daily; and

d) In Sean O’Culachain v McMullan Brothers Limited [1995] 2 IR 217, the Supreme Court held that canopies at the petrol filling station qualified as “plant”. Both the canopy and the halide lights were designed to achieve the safety goal, which was crucial to the taxpayer. They were also specially equipped to promote the taxpayer’s brand and products to attract customers.

Commentary

The High Court’s decision reaffirms the functional approach to determining what constitutes “plant” for capital allowance purposes. This ruling also carries significance for capital-intensive industries where physical structures play an operational role beyond mere shelter. Taxpayers should therefore document the operational and regulatory rationale for such expenditure at the outset, retain evidence of how the items function within the business as a whole, and be prepared to demonstrate that each component plays an active part in income generation.