ABD Pte Ltd v Comptroller of Income Tax

• Jurisdiction: Singapore
• Judge: Andrew Phang Boon Leong JA
• Judgment Date: 08 April 2010
• Neutral Citation: [2010] SGHC 107
• Court: High Court (Singapore)
• Docket Number: Income Tax Appeal No 2 of 2009
• Published date: 12 May 2010
• Year: 2010
• Hearing Date: 03 March 2010
• Plaintiff Counsel: Nand Singh Gandhi and Delphie Ann Gomez (Allen & Gledhill LLP)
• Defendant Counsel: Foo Hui Min and Usha Chandradas (Inland Revenue Authority of Singapore)
• Subject Matter: Revenue Law,Income Taxation
• Citation: [2010] SGHC 107

Andrew Phang Boon Leong JA: Introduction

Tax raises – not surprisingly, perhaps – contrasting responses. On the one hand, – and particularly from the taxpayer’s perspective – it is often viewed negatively. As Hubert Monroe QC put it at the commencement of his 1981 Hamlyn Lectures (Intolerable Inquisition? Reflections on the Law of Tax (Stevens & Sons, 1981)) (“Intolerable Inquisition?”) at p 1 (see also at p 15):

Tax is scarcely a favourite topic. … Objections to the topic, some articulated and some no more than impressions, would range from the complexity and obscurity alleged to surround it to an uneasy feeling that the topic is somehow distasteful and in an indeterminate way alien to those principles of reason and fairness which distinguish the common law.

But there is, as alluded to above, another side to the coin, which is (in my view) reflected in the question mark placed after the main title of the lectures just referred to. In other words, whilst, on one view, tax may be viewed as an “intolerable inquisition”, there is another view that can be adopted; in the learned author’s words (Intolerable Inquisition? at p 1):

Disagreeable topic though it may be, tax has a widespread relevance. Economists will happily devote time to discussing the form which tax should take since tax and the system adopted for its collection have profound economic effects. Those whose interests lie in the area of public finance and public administration will share with economists their interest in the consequences of this or that form of tax. For accountants tax is of particular relevance since it is pervasive in relation to their clients’ affairs: all property and all sources of income have at some stage to come to terms with the demands of tax. Is not the Inland Revenue a partner in every trade, business or enterprise?

Indeed, one cannot gainsay the well-established public necessity for tax in general and tax law in particular which centres on, inter alia, the raising of revenue for the financing of public infrastructure and redistribution (see also, for example, John Tiley, Revenue Law (Hart Publishing, 6th Ed, 2008) (“Revenue Law”) at pp 7−10). In this respect, the legal regime is statutory in nature. The modern income tax regime in the local context dates back more than five decades. The traditional starting-point is located in R B Heasman, Income Tax: A Report to Their Excellencies the Governors of the Malayan Union and Singapore, with Recommendations, including a Draft Bill and Proposals for Administration and Staffing (Kuala Lumpur, Malayan Union Government Press, 1947) (popularly known as “the Heasman Report”, and hereafter referred to as such) as well as the Report of the Joint Committee appointed by Their Excellencies the Governors of the Malayan Union and Singapore to consider Mr. Heasman’s recommendations for the institution of an Income Tax and to report whether, if the policy of Income Tax were adopted, the principles of the legislation, a draft of which is annexed to Mr. Heasman’s Report, would, in their opinion, be suitable for the purpose (Kuala Lumpur, Malayan Union Government Press, 1947). Much has, of course, happened since but the present Income Tax Act (Cap 134, 2008 Rev Ed) (“the Act”) finds its roots in this historical setting (see also generally Halsbury’s Laws of Singapore – Revenue and Taxation vol 16(2) (LexisNexis, 2008 Reissue) (“Halsbury’s Laws of Singapore”) at paras 205.004–205.009 as well as Andrew Halkyard and Stephen Phua Lye Huat, “Common Law Heritage and Statutory Diversion – Taxation of Income in Singapore and Hong Kong” [2007] SJLS 1 at 1−3 (which, as the title itself suggests, contains comparative aspects as well)).

Interestingly, perhaps, when income tax legislation was first being considered in the local context, it was noted thus (see the Heasman Report at para 15):

The possibility of the re-introduction of Income Tax in Malaya was forecast early in 1946. Press and public comment tended on the whole, but more noticeably in Singapore, towards acceptance of the principle that the taxation of income is the fairest and most equitable method of raising revenue, and there seems to have been little disposition in the Colony to question the need for the provision of social services on an adequate scale. [emphasis added]

Apart from the historical context, the Act itself embodies a coherent system that seeks to balance the contrasting views as well as expectations referred to briefly above. For example, whilst income tax is levied (see generally s 10 of the Act), deductions are also permitted (see generally s 14 of the Act as well as below at [39]–[40] in so far as the various categories of deductions within that particular section are concerned). However, deductions of a capital nature are generally not permitted (see, in particular, s 15(1)(c) of the Act, a provision that will, in fact, figure prominently in this appeal, and which was accorded a broad scope by the Singapore Court of Appeal in T Ltd v Comptroller of Income Tax [2006] 2 SLR(R) 618). In order, however, to meet any unfairness to the taxpayer concerned in this last-mentioned regard (in particular, where the capital asset concerned is a depreciating one), the Act permits – in specific situations – capital allowances in favour of the taxpayer (see generally Pt VI of the Act). However, as already mentioned, the entire income tax regime is embodied wholly within a statutory framework. Hence, where the situation concerned is not provided for by the Act, just as no tax can be levied, by the same token, no tax concession operates in favour of the taxpayer (a clear instance of this in the context of capital allowances can be found in the Singapore Court of Appeal decision of In re A B Ltd [1957] MLJ 143 (“A B Ltd”) (affirming the Singapore High Court decision in In re A B Ltd [1956] MLJ 197), which we will, in fact, have occasion to consider in more detail below; see also the Heasman Report at para 32, where proposed provisions in respect of capital allowances were said to “[modify] to some extent one of the cardinal principles of Income Tax Law, namely, that outlay of a capital nature, however desirable from the point of view of the trade or business, is not deductible in computing the amount of income to be taxed”). Monroe echoes the same sentiments made at the outset of the present paragraph. Although referring to the UK context, the following observations by the learned author are, it is suggested, equally applicable to the Singapore context (see Intolerable Inquisition? at pp 35−36):

But there does seem to me to be a general failure of nerve: panache is missing. By that I mean this: we are insufficiently interested in basic principles. Who teaches tax as a coherent branch of the law? What interests the profession? They will tell you all there is to know – and more – about the law and the practice … But when will they base advocacy on the potential coherence of the tax code? When will judges be invited to construe provisions in taxing statutes as part of a scheme designed, however imperfectly, to produce a reasonable result? When, in short, will confidence return that, within the familiar limits of our legal system, it is no less possible to predict how a tax question will be answered than to suggest how a problem in the common law will be resolved? When will it be possible for the practitioner to look with confidence at his client, straight in the face, and say: “You know, the law on occasions may be an ass, but the tax law is not currently as assinine as that!” The outlook is not entirely gloomy. Largely thanks to the heroic pioneering efforts of Professor Wheatcroft tax is more widely taught than ever before and not just as a practical craft. Systematic and comparative study must lead to increasing comprehension, comprehension to coherence. In any individual case the taxpayer’s advocate may well strive to win the taxpayer’s case by whatever argument is to hand. But it would do less than justice to those responsible for putting the Revenue’s cases to doubt their concern to present the tax code as a coherent whole. If those outside the inner circle sometimes hear the theme but faintly, their listening or hearing may be at fault. The Courts’ cooperation with Parliament may also be on the way towards achieving more sensible results.

To be sure, the very nature of tax legislation entails some measure of legal technicality, although it should also be pointed out that the presence of legal technicality does not necessarily mean that justice and fairness cannot therefore be achieved. In this regard, the following candid observations by Mr Heasman (commenting on what was to become, historically, the first piece of income tax legislation in the local context) are apposite (see the Heasman Report at para 39):

I was enjoined during my informal talks to make the draft Bill simple, and not difficult to understand. Simplicity and intelligibility are undoubtedly most desirable objectives, but it is an unfortunate fact that Income Tax legislation must, by its nature, be abstract and technical, and can never be easy reading. It is concerned with the principles and methods of calculation which it is difficult to express in words without an appearance of complication, or the presentation of loopholes whereby tax can be avoided or evaded. The intricacy of this type of legislation seems to have been a matter of concern from the outset, for when Income Tax was first introduced into the United Kingdom in 1799, the Government of the day sought to allay the dismay which the measure might occasion by issuing as a separate publication “A Plain, Short and Easy Description of the Different Clauses of the Income Tax, so as to render it familiar to the meanest capacity”. The extent to which this well-meant effort achieved its purpose is not officially recorded. However, I think the main principles of the present...