Revenue and Tax Law
| Author | TAN Kay Kheng LLB (Hons) (National University of Singapore), CDipAF (Association of Chartered Certified Accountants), MAcc (Charles Sturt University), MTax (University of New South Wales); FCPA (Australia), FTIA, FSIArb; Advocate and Solicitor (Singapore). Leonard GOH MA (Cambridge); Advocate and Solicitor (Singapore); Legal Officer, Accounting and Corporate Regulatory Authority. |
| Date | 01 December 2008 |
| Citation | (2008) 9 SAL Ann Rev 455 |
| Published date | 01 December 2008 |
21.1 Similar to the previous year, the Supreme Court cases on revenue law which were decided in 2008 arose from the following tax types: income tax, stamp duty and property tax. In addition, there were three cases which did not deal with substantive tax laws but rather a ‘miscellany of sorts’ of issues, namely, whether the deputy chairman of a particular Income Tax Board of Review (as constituted) ought to have recused himself from hearing the tax appeal, whether foreign revenue laws ought to be enforced in Singapore under conflict of laws principles, and lastly, whether evidence of tax evasion had an impact within the context of a partnership dispute.
21.2 On substantive tax laws, the sole income tax case involved issues concerning the taxation of income arising from serviced apartments. In the realm of property tax, as in 2007, the cases involved floating dry docks, district cooling plants, development sites and a strata-titled shop unit, as the 2007 cases went on appeal to the Court of Appeal. It is interesting to note that all property tax cases were, therefore, those decided by the highest court in the land. As for stamp duty, the High Court dealt with the issue whether relief from duty was available to a taxpayer who had entered into a joint venture and who contended that there was a reconstruction on the facts.
21.3 The Supreme Court decided nine cases in 2008 which had relevance to revenue law:
| Tax Type | High Court | Court of Appeal |
| Income tax | 1 | nil |
| Stamp duty | 1 | nil |
| Property tax | 0 | 4 |
| Miscellaneous issues | 3 (One of these cases went on appeal and was decided by the Court of Appeal in 2008) | 1 |
21.4 Just like last year, there was only one decision this year: Comptroller of Income Tax v VJ[2008] SGHC 224. This decision considered s 10E of the Income Tax Act (Cap 134, 2001 Rev Ed).
21.5 The issue was whether s 10E of Income Tax Act (Cap 134, 2001 Rev Ed) applied to the taxpayer. The Comptroller said it did, whereas the taxpayer disagreed. If s 10E applied, the taxpayer could not deduct certain expenses from its income which was liable to tax. Section 10E provides:
(1) Notwithstanding any other provisions of this Act, in determining the income of a company or trustee of a property trust derived from any business of the making of investments the following provisions shall apply:
(a) any outgoings and expenses incurred by the company or trustee of a property trust in respect of investments of that business which do not produce any income shall not be allowed as a deduction under section 14 for that business or other income of the company or trustee of a property trust;
(b) any outgoings and expenses incurred by the company or trustee of a property trust in respect of investments of that business which produce any income shall only be available as a deduction under section 14 against the income derived from such investments and any excess of such outgoings and expenses over such income in any year shall be disregarded; and
(c) the allowances under sections 19, 19A, 20 and 21 relating to that business shall only be available as a deduction
against the income derived from investments of that business which produce any income and the balance of the allowances in any year shall be disregarded.
(2) In this section—
“business of the making of investments” includes the business of letting immovable properties;
“immovable property-related assets” means debt securities and shares issued by property companies, mortgaged-backed securities, other property trust funds, and assets incidental to the ownership of immovable properties;
“investments” means securities, immovable properties and immovable property-related assets;
“property trust” means a trust which invests in immovable properties or immovable property-related assets.
[emphasis added]
21.6 The taxpayer owned, developed and managed a property. It comprised a two-level shopping mall and 161 units of serviced apartments.
21.7 In 1995, the taxpayer started developing the property. The taxpayer took an interest-bearing loan from its holding company to finance construction and provide working capital.
21.8 In 1996, the taxpayer commenced marketing the property. On 15 January 1998, the taxpayer obtained the temporary occupation permit for the property. On 1 April 1998, the taxpayer started leasing out the property.
21.9 The Comptroller decided that the taxpayer was in the ‘business of the making of investments’ under s 10E of Income Tax Act (Cap 134, 2001 Rev Ed). He therefore disallowed:
(a) the taxpayer”s interest expenses and deferred expenditure incurred before 1 April 1998 (the date the taxpayer first rented out the property); and
(b) the taxpayer”s excess expenses it had carried forward from year of assessment 1999 to subsequent years.
21.10 The taxpayer succeeded before the Income Tax Board of Review. On the Comptroller”s appeal, the High Court had to decide whether the taxpayer came within s 10E. In other words, the issue was whether the taxpayer was in the ‘business of the making of investments’. Andrew
Ang J answered the issue in the affirmative (and therefore allowed the Comptroller”s appeal).
21.11 Andrew Ang J analysed what the phrase ‘any business of the making of investments’ meant. Firstly, he said a ‘business’ was not one of passively deriving income (eg, merely letting out properties and collecting rental, or simply holding shares in a company and receiving dividends). Instead, it connoted a series or repetition of acts for profit making, or an occupation habitually engaged in especially for livelihood or gain: Comptroller of Income Tax v VJ[2008] SGHC 224 at [13]—[17], citing the Court of Appeal”s decision in DEF v Comptroller of Income Tax[1961] 27 MLJ 55.
21.12 Secondly, ‘making of investments’ meant ‘investing’: Comptroller of Income Tax v VJ[2008] SGHC 224 at [18]. It was not buying and re-selling investments for profit. Instead, the emphasis was on acquiring, holding or retaining an investment: at [20].
21.13 Thirdly, Andrew Ang J accepted that a company in the business of making investments could simultaneously have another separate and distinct business. However, ancillary or incidental activities to the ‘business of the making of investments’ would form part of such business (of making investments): Comptroller of Income Tax v VJ[2008] SGHC 224 at [27].
21.14 Section 10E(2) expressly includes ‘business of letting immovable properties’ as part of the ‘business of the making of investments’. To come under this, Andrew Ang J said a company needed to do more than just let out properties. It also had to carry out systematic, habitual or repetitive activities with respect to letting the properties; otherwise the company would just be a passive investor: Comptroller of Income Tax v VJ[2008] SGHC 224 at [29].
21.15 Andrew Ang J went on to hold that the taxpayer was in the ‘business of letting immovable properties’. First of all, the taxpayer”s directors” report (accompanying its audited accounts) stated: ‘The principal activity of the Company is the derivation of rental income from its investment properties.’ This was the taxpayer”s singular principal activity: Comptroller of Income Tax v VJ[2008] SGHC 224 at [46]—[47].
21.16 Secondly, the taxpayer had provided services to tenants, marketed and advertised the property for rental, and maintained and
managed the property. The taxpayer was not merely passively deriving income: Comptroller of Income Tax v VJ[2008] SGHC 224 at [48].
21.17 Andrew Ang J held that income derived from business of letting immovable properties was not limited to rental income only. He accepted the Comptroller”s argument that income from services the taxpayer provided to tenants (eg, service fees and service charges) also qualified as income: Comptroller of Income Tax v VJ[2008] SGHC 224 at [54], [55] and [58].
21.18 Andrew Ang J therefore held that s 10E applied to the taxpayer and allowed the Comptroller”s appeal.
21.19 There were four property tax cases in 2008, all decided by the Court of Appeal.
21.20 The decisions considered the following provisions of the Property Tax Act (Cap 254, 1997 Rev Ed) (‘PTA 1997’) and (Cap 254, 2005 Rev Ed) (‘PTA 2005’):
(a) long title of the PTA 1997;
(b) section 2(1) of the PTA 1997 — whether the definition of ‘buildings’ include a floating dry dock;
(c) section 2(1) of the PTA 2005 — whether in determining the annual value, pipelines connected to and extending beyond a property should be excluded;
(d) section 2(1) of the PTA 2005 — determining the treatment of contributions to the sinking fund and special levy of a management corporation when deriving the annual value of a lot;
(e) section 2(2) of the PTA 1997 — determining whether a dry dock is machinery which should be excluded from the annual value for the property on which it is located;
(f) Section 2(2) of the PTA 2005 — determining whether machinery in a district cooling plant should be excluded from the annual value for the property on which it is located;
(g) Section 2(3) of the PTA 1997 — whether the Chief Assessor”s option under this provision may be challenged.
21.21 In Chief Assessor v First DCS Pte Ltd[2008] 2 SLR 724, the Chief Assessor and Comptroller of Property Tax appealed unsuccessfully against the High Court”s decision (see First DCS Pte Ltd v Chief Assessor[2007] 3 SLR 326) to allow the taxpayer”s appeal. The High Court decision (Andrew Ang J) was reviewed in (2007) 8 SAL Ann Rev 390 at 397—401, paras 21.36—21.49.
21.22 To recapitulate, the...
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