Ang Boon Chye and Another v Ang Tin Yong

• Jurisdiction: Singapore
• Judge: Tan Lee Meng J
• Judgment Date: 21 October 2008
• Neutral Citation: [2008] SGHC 177
• Court: High Court (Singapore)
• Published date: 21 October 2008
• Year: 2008
• Plaintiff Counsel: Mak Kok Weng (Mak & Partners)
• Defendant Counsel: Andrew Tan Tiong Gee / Anna Png (Andrew Tan Tiong Gee & Co)
• Subject Matter: Partnership,Partners inter se
• Citation: [2008] SGHC 177

21 October 2008 Judgment reserved.

Tan Lee Meng J:

1 The plaintiffs, Mr Ang Boon Chye (“Chye”) and Mr Wong Kee Yock (“Wong”), and the defendant, Mr Ang Tin Yong (“Yong”), are three of several partners of “All Family Food Court” (“the partnership”). Chye and Wong asserted that Yong is liable to them for additional income tax levied on them by the Inland Revenue Authority of Singapore (“IRAS”) with respect to their share of the partnership’s profits for the Years of Assessment 2000 to 2005 and interest on the additional tax payable by them. They also sought, inter alia, an account and inquiry of all transactions between them and Yong from 1999 to 2004 as well as the payment to them of their rightful share of the partnership’s profits. Yong, who denied that he was liable to pay the additional tax levied on Chye and Wong, sought the dissolution of the partnership on the ground that it is just and equitable for this to be done.

Background

2 The partnership, which was registered on 19 December 1996, is a food court operator and a retailer of beverages and tobacco. Its principal place of business is at Block 258 Pasir Ris Street 21, #02-333A, Loyang Point Shopping Centre, which is leased from the Housing and Development Board.

3 Yong, the manager of the partnership, and his brothers, Mr Ang Ting Chun (“Chun”) and Mr Ang King Keong, hold 50% of the shares in the partnership. Chye and Wong, who like Yong, are experienced investors in the food court business, hold the remaining 50% in equal shares.

4 It was agreed at the outset that the partnership would operate only one account, namely DBS current account no 020-XXXXXX-X. It was further agreed that partnership’s cheques had to be signed by two partners, one of whom was to be Yong or any of his brothers and the other either Chye or Wong.

5 From 1999 to 2004, the partnership made profits which were distributed to the partners. It was not disputed that from 1999 to 2004, Chye and Wong each received the following amounts as “profits”, “bonuses” or “advances” that were never paid back to the partnership. The amounts paid out to each partner for 1999, 2000, 2001, 2002, 2003 and 2004 were $51,000, $57,500, $55,000, $51,000, $47,000 and $13,000 respectively.

6 Although profits were made between 1999 to 2004, the partnership’s accounts were falsified for the purpose of evading income tax. As such, from 1999 to 2004, the partnership either declared to the IRAS that it had made a loss or under-declared its profits.

7 Despite having pocketed the profits distributed to them, Chye, Wong and Yong relied on the falsified partnership accounts to evade personal income tax when submitting their own income tax returns to the IRAS. All of them lied to the IRAS about the amount each of them received from the partnership from 1999 to 2004.

8 Following an investigation into the financial affairs of the partnership, the IRAS found that the partnership did not declare income amounting to $2,146,141.85 for the Years of Assessment 2000 to 2005.

9 All the partners were served with Notices of Additional Assessment. As Chye had a 25% share of the partnership, the IRAS informed him that he would be taxed on his additional income of $536,535.00. Wong, who also had a 25% share of the partnership, was also taxed in the same manner.

10 Chye and Wong asserted that Yong should pay the additional income tax levied on them by IRAS because they had entrusted the “entire management of the partnership” to Yong. In addition they sought the following:

(i) an account and inquiry of all transactions of the partnership for the years 1999 to 2004;

(ii) an account and inquiry of all dealings and transactions between them and Yong for the years 1999 to 2004;

(iii) payment of their rightful share of the partnership’s profits after taking into account the omitted income and interest thereon less the additional income tax claimed; and

(iv) interest on the additional tax paid by them to the IRAS.

11 Yong, who asserted that both Chye and Wong participated in the management of the partnership, counterclaimed for the dissolution of the partnership. Relying on s 35(e) of the Partnership Act (Cap 391) (“the Act”), Yong also sought an order that he sell his minority shares in the partnership to the other partners as well as an order that there be an inquiry on the partnership’s financial position to ascertain the fair and market value of his share in the partnership.

The plaintiffs’ claim for the additional income tax paid by them

12 Whatever other claims Chye and Wong may have against Yong in relation to the partnership’s affairs, their claim for reimbursement of the additional income tax payable by them to the IRAS did not get off the ground.

13 At the outset, it must be stressed that Chye and Wong were just as deeply involved as Yong in the illegal scheme to hide the partnership’s profits from the IRAS in order to evade tax. In fact, Chye approved and signed the false accounts that had been submitted to the IRAS. This led Wong to assert that Chye and Yong were more culpable than him. What was rather startling was that Ms Sally Ong Leh Khim (“Ms Ong”), the book-keeper who prepared the partnership’s accounts, testified that all the parties to the present suit were parties to a fraudulent scheme to deceive the IRAS in order to evade income tax and that they knew the consequences of their actions.

14 Both Chye and Wong admitted that they knew that the accounts submitted to the IRAS had been tempered with to hide the partnership’s profits. Notwithstanding this, both of them submitted their personal income tax returns on the basis of the false figures in the partnership’s accounts. Chye and Wong must have known that Notices of Additional Assessment might be sent to them by the IRAS but they were shocked when the IRAS made a finding that the partnership had hidden far more profits than what they themselves had perceived to have been hidden from the IRAS. It would be an affront to justice if Chye and Wong succeed in their claim against Yong for the additional taxes that they paid to the IRAS, and especially so when part of the additional tax is in relation to the amounts that they and Yong had tried to hide from the IRAS.

15 More importantly, even if there had been no illegality involved, a person cannot, without more, expect his partners to pay his personal income tax. This is clear from the decision of the Court of Appeal in Chiam Heng Chow & Anor (executors of the estate of Chiam Toh Say, deceased) v Mitre Hotel (Proprietors)(sued as a firm) & Ors [1993] 3 SLR 547 (“Mitre Hotel”). In that case, a partnership ran a hotel at Killiney Road. One of the partners, C, was taxed by the IRAS on the basis of his share of the partnership’s profits from 1976 to 1983 even though he had not received any profit for the stated period. In November 1984, C sued the partnership and his partners, claiming his share of the profits from 1976 to 1983 or, alternatively, a refund of the income tax that he paid on his unpaid share of the profits for the stated period. C died in February 1990 and his executors were added as plaintiffs to the action. The trial judge, who dismissed C’s claim for profits on the ground that he had ceased to be a partner as from March 1975, held that as C had paid income tax on a share of the partnership’s profits, he could recover this amount from the defendants. The Court of Appeal held that as C had not ceased to be a partner as from March 1975, he was entitled to recover his share of the partnership’s profits subject to the defence of limitation of action with respect to profits that should have been claimed more than 6 years ago. More pertinent to the present case, the Court of Appeal also held that C’s alternative claim for reimbursement of the income tax paid by him on his share of the partnership’s profits from 1976 to 1983 was not tenable. LP Thean JA, who delivered the judgment of the Court, explained at p 559 as follows:

We agree … that there was no legal obligation on the part of the respondents to refund to the appellants the tax [C] had paid. The Comptroller had raised the tax on [C] directly on his share of profits and if there was any claim for a refund that claim should be directed towards the Comptroller. The respondents would have no knowledge of the basis and rate of tax on which the Comptroller raised the assessment on [C] and such assessment would not be made on the same basis and at the same rate as those raised on the second and third respondents.

16 It follows that instead of claiming a refund of the income tax paid with respect to the IRAS Notices of Additional Assessment from Yong, Chye and Wong should focus on the recovery of their rightful share of the partnership’s profits.

17 For the reasons stated, the claim of Chye and Wong against Yong for the additional tax levied on them by the IRAS in relation to their share of the partnership’s profits is dismissed.

Order for an account to be taken and payment of share of profits

18 The plaintiffs’ application for an account to be taken and their claim for their rightful share of the profits of the partnership will next be considered. Chye and Wong relied on s 28 of the Act, which provides as follows:

Partners are bound to render true accounts and full information of all things affecting the partnership to any partner or his legal representatives.

19 Yong asserted that Chye and Wong are not entitled to an order for an account to be taken for two reasons. First, in [13] of his Defence, he pleaded as follows:

[T]he Defendant states that he is discharged to give account and an inquiry to the 1^st Plaintiff by virtue of accord and satisfaction through the payment and acceptance of monetary profits by the 1^st Plaintiff as well as the 2^nd Plaintiff.

20 With respect to accord and satisfaction, in British Russian Gazette and Trade Outlook Limited v Associated Newspapers Limited [1933] 2 KB 616, Scrutton LJ stated as follows:

Accord and...