BCH Retail Investment Pte Ltd v Chief Assessor

• Jurisdiction: Singapore
• Judge: Andrew Phang Boon Leong JA
• Judgment Date: 09 March 2007
• Neutral Citation: [2007] SGCA 15
• Docket Number: Civil Appeal No 97 of 2006
• Date: 09 March 2007
• Year: 2007
• Published date: 12 March 2007
• Plaintiff Counsel: Tan Kay Kheng and Teo Lay Khoon (Wong Partnership)
• Citation: [2007] SGCA 15
• Defendant Counsel: Foo Hui Min and Joyce Chee (Inland Revenue Authority of Singapore)
• Court: Court of Appeal (Singapore)
• Subject Matter: Whether all reasonable advertising and promotion expenses incurred in relation to commercial property may be deducted from gross rental of such property in ascertaining annual value for purposes of property tax,Property tax,Section 2 Property Tax Act (Cap 254, 1997 Rev Ed),Annual value,Revenue Law

9 March 2007 Judgment reserved.

Andrew Phang Boon Leong JA (delivering the judgment of the court):

Introduction

1 This is an appeal by BCH Retail Investment Pte Ltd (“the appellant”) against the decision of the trial judge (“the Judge”) holding, inter alia, that the Chief Assessor of Property Tax (“the respondent”) had been entitled not to allow a “deduction” (the significance of the use of this terminology would be apparent later) of all reasonable advertising and promotion (“A&P”) expenses incurred in relation to the premises known as Parco Bugis Junction (“the Property”) from the gross sums paid by the tenants of the Property when it assessed the Property’s annual value under s 2 of the Property Tax Act (Cap 254, 1997 Rev Ed) (“the Act”) for the purposes of property tax payable by and due from the appellant (see BCH Retail Investment Pte Ltd v Chief Assessor [2006] 4 SLR 73) (“the GD”).

The facts

2 The facts before us are uncomplicated and engender no real dispute. The appellant is a Singapore-incorporated company which was, at all material times, the owner of the Property. The Property had, at the time, been sub-divided into various units and let to 173 tenants. All the tenants of the Property had entered into respective lease agreements with the appellant contracting to pay a monthly sum comprising the following four components:

(a) “Basic rent”, comprising a fixed sum payable monthly and computed on the basis of the number of square metres taken up by the tenant;

(b) “Additional rent”, comprising an agreed percentage of the tenant’s gross sales;

(c) “Tenant’s contribution”, which comprised the tenant’s contribution towards the expenses for cleaning and maintenance; and

(d) “Advertising and Promotional Contribution” (“the tenants’ A&P contributions”), which was payable in relation to advertising and promotion expenses incurred by the appellant.

3 For the purposes of this judgment, the sum of the basic and additional rents (ie, (a) and (b) in [2] above) together with the tenants’ A&P contributions (ie, (d) in [2] above) shall be collectively referred to as “gross rental”.

4 The present appeal arose from the respondent’s decision to reject the appellant’s annual returns for assessment for Financial Year 2003, in particular, the appellant’s calculation of the appropriate annual value of the Property for the purposes of property tax. In arriving at its calculation of the annual value of the Property, the appellant had deducted its actual A&P expenditure, namely some $2,591,707 (“the actual expenditure”), from the gross rental. The respondent contended that the appellant was only entitled to deduct the aggregate of the tenants’ A&P contributions, a sum of $591,677, and rendered an assessment of the tax payable on that basis. For convenience, we shall term the difference between the actual expenditure and the tenants’ A&P contributions collected as “the excess expenditure”.

5 So as to put the consequent discussion in its appropriate context, we pause briefly here to note that this represents the second time that these parties have wound up in court in relation to the appropriate methodology to be utilised in ascertaining the annual value of the Property. In 2002, the parties had appeared before Lee Seiu Kin JC (as he then was) (“Lee JC”) who had to decide whether the appellant should be allowed to deduct the tenants’ A&P contributions from the gross rental in assessing the annual value of the Property for the purpose of levying property tax.

6 Lee JC noted that as the annual value of a property concerned the use and occupation of the heritable subject, a distinction should be made between rent and the cost of the provision of such amenities in the determination of annual value. Observing that the cost of provision of services should not be included in the annual value of a property, he then proceeded to hold that the tenants’ A&P contributions, being analogous to payment for such essential services, should similarly not to be included for the purposes of computing the annual value (see BCH Retail Investments Pte Ltd v Chief Assessor [2002] 4 SLR 844 (“BCH No 1”)). As he reasoned (at [17]):

It is well known that in order for a shopping centre to be successful in these times it has to continually maintain or even renew its image and attractions. This is achieved principally through advertising in various media combined with the holding of a variety of promotions. This would implant in the mind of the public an awareness of the shopping centre and attract shoppers to the premises. Such expenditure is usually of a continuing nature, especially in view of the keen competition between shopping centres. The successful implementation of A&P activities could go a long way in attracting custom to the shops in the premises thus raising the profitability of those shops and in turn the rent that the landlord would be able to charge upon the renewal of the leases. Therefore such services are probably as essential to the tenants as the traditional ones such as watching, cleaning and air-conditioning. In my view the principles of valuation should take into account modern developments so as not to stifle business innovation and creativity.

7 Having found therefore that, in principle, such contributions should not be included in any computation for the purpose of determining annual value, in addressing the Chief Assessor’s contention in that case that such deductions had to be based on bona fide contributions, Lee JC proceeded to observe as follows ([6] supra at [18]):

The Chief Assessor raised the issue, if the A&P contributions were allowed to be deducted, of the evidence necessary to show that these were bona fide A&P contributions. But that is a question of fact, not principle. If the owner can satisfy the Chief Assessor, in relation to the A&P contributions, that: (1) it was reasonable to provide those services; (2) the tenants had agreed to pay for such services; (3) the services were in fact provided; and (4) the costs of providing them were reasonably incurred, then he ought to deduct such sums from the gross rent in arriving at the annual value. It is always open to the Chief Assessor to disallow anything that he deems to be unreasonably incurred. This was done in the Chartered Bank case (supra) where the landlord made a claim of a loading of 25% on the costs of providing watchmen, cleaning, lifts, air-conditioning, supervision, etc. The High Court held that it was proper and reasonable for the landlord to provide those services and want a return on his outlay, but ruled that the claim of 25% was too high and allowed a loading of 15%.

8 The matter before us therefore represents a sequel of sorts to the above decision, with the appellant now contending that above and beyond allowing a deduction for the tenants’ A&P contributions, it should be entitled to a deduction of all reasonable A&P expenses incurred from the gross rental paid by its tenants when the assessment of the Property’s annual value is made.

9 Before the Valuation Review Board (“the Board”), the appellant had contended that the test as to whether the cost of the services should be deductible from the gross rental was threefold, namely the four-stage test articulated by Lee JC (as reproduced at [7] above) sans the second condition, viz, the tenants’ agreement to pay for such a service. We would hasten to add that before the Board, the position adopted by the appellant was that all A&P expenses (whether reasonably incurred or otherwise) should be deductible from the gross rental in ascertaining the annual value of the Property. The respondent, in contrast, highlighted that the four-stage test was cumulative and that in the light of the appellant’s failure to satisfy the second condition, it should not, in principle, be allowed to deduct the actual expenditure from the gross rental in arriving at the annual value for the purposes of property tax.

10 The Board agreed with the respondent and consequently dismissed the appeal. In its view (see BCH Retail Investment Pte Ltd v Chief Assessor [2005] SGVRB 4, hereinafter referred to as “the Board’s GD”), the case before it was analogous to that decided by Lee JC in BCH No 1 ([6] supra) and, accordingly, it would have been “per incuriam to ignore the four conditions and pick and choose only the three deemed to be acceptable by the appellant” (see the Board’s GD at [48]). Instead, applying the four conditions to the A&P expenses incurred by the appellant, the Board agreed with the respondent that such sum could not be deducted from the gross rental as the tenants had not agreed to pay the excess expenditure.

11 This was not the only plank on which the Board justified its decision. In the alternative, the Board dismissed the appeal on the basis that the appellant’s method of computation had been erroneous. The tenants’ A&P contributions had been deducted only because they had initially been added to the sum that comprises the gross rental. In effect, the practical result of such aggregation and deduction would be to exclude the A&P contributions. This was in stark contrast to the method of computation advocated by the appellant, in which there would be a deduction of the actual amount of A&P expenses without there having been an initial imputation of such amounts into the aggregate gross rental. In the Board’s view, the valuation mechanism adopted by the appellant could not be countenanced for it would have depressed the annual value of the Property artificially by factoring in and deducting, without any corresponding credit, an extraneous amount of additional A&P expenses.

12 Dissatisfied with the decision of the Board, the appellant appealed to the High Court. It should be noted that by the time the appeal came before the Judge, the appellant had abandoned the argument that all A&P expenses should be deductible in ascertaining the annual value of the Property. Instead, the appellant was...