BFC v Comptroller of Income Tax

JurisdictionSingapore
CourtHigh Court (Singapore)
Judgment Date09 September 2013
Docket NumberIncome Tax Appeal No 2 of 2013
Date09 September 2013

High Court

Lai Siu Chiu J

Income Tax Appeal No 2 of 2013

BFC
Plaintiff
and
Comptroller of Income Tax
Defendant

Tan Kay Kheng, Novella Chan, Tan Shao Tong and Jeremiah Soh (Wong Partnership LLP) for the appellant

Quek Hui Ling, Jimmy Goh and Michelle Chee (Inland Revenue Authority of Singapore) for the respondent.

ABD Pte Ltd v Comptroller of Income Tax [2010] 3 SLR 609 (folld)

ACC v Comptroller of Income Tax [2011] 1 SLR 1217 (folld)

Beauchamp (Inspector of Taxes) v FWWoolworth plc [1987] STC 279 (refd)

Beauchamp (Inspector of Taxes) v FWWoolworth plc [1990] 1 AC 478 (refd)

Chng Gim Huat v PP [2000] 2 SLR (R) 360; [2000] 3 SLR 262 (refd)

Chow Yoong Hong v Choong Fah Rubber Manufactory [1962] AC 209 (refd)

City Hardware Pte Ltd v Kenrich Electronics Pte Ltd [2005] 1 SLR (R) 733; [2005] 1 SLR 733 (folld)

CIR v Genn & Co (Pty) Ltd (1955) 20 SATC 113 (refd)

CIR v Hang Seng Bank Ltd [1991] 1 AC 306 (not folld)

CIR v Thomas Nelson & Sons Ltd (1938) 22 TC 175 (refd)

Coles Myer Finance Ltd v Commissioner of Taxation of the Commonwealth of Australia (1993) 176 CLR 640 (distd)

Comptroller of Income Tax v IA [2006] 4 SLR (R) 161; [2006] 4 SLR 161 (folld)

Ditchfield (Inspector of Taxes) v Sharp [1983] STC 590 (refd)

Dorsey James Michael v World Sport Group Pte Ltd [2013] 3 SLR 354 (folld)

Federal Commissioner of Taxation v Broken Hill Pty Co Ltd (2000) 45 ATR 507 (refd)

Federal Commissioner of Taxation v Energy Resources of Australia Ltd (1996) 185 CLR 66 (refd)

Federal Commissioner of Taxation v Hunter Douglas Ltd (1983) 50 ALR 97 (folld)

Federal Commissioner of Taxation v James Flood Pty Ltd (1953) 88 CLR 492 (refd)

JD Ltd v Comptroller of Income Tax [2006] 1 SLR (R) 484; [2006] 1 SLR 484 (folld)

Kidston Goldmines Ltd v Federal Commissioner of Taxation (1991) 22 ATR 168 (refd)

Kirkness (Inspector of Taxes) v John Hudson & Co Ltd [1955] AC 696 (not folld)

Lomax (Inspector of Taxes) v Peter Dixon & Son, Ltd [1943] 1 KB 671; 25 TC 353 (refd)

Montreal Coke and Manufacturing Co v Minister of National Revenue [1944] AC 126 (refd)

Nicholas Pike v The Commissioners for Her Majesty's Revenue and Customs [2011] UKFTT 289 (TC) (folld)

Pinetree Resort Pte Ltd v Comptroller of Income Tax [2000] 3 SLR (R) 136; [2000] 4 SLR 1 (folld)

RBuchanan & Co v John Macdonald (1895) 23 R 264 (distd)

Unconscionable Transactions Relief Act, Re; Re Sampson and Barfried Entreprises Ltd [1962] OR 1103 (distd)

TLtd v Comptroller of Income Tax [2006] 2 SLR (R) 618; [2006] 2 SLR 618 (folld)

Tasman Forestry Ltd v CIR [1999] 3 NZLR 129 (refd)

Income Tax Act (Cap 134, 2001 Rev Ed) ss 10 (1) (d) , 14 (1) , 14 (1) (a) , 15 (1) (c) (consd) ;s 80 (4)

Income Tax Act (Cap 134, 2008 Rev Ed) s 14 (1) (a)

Income Tax (Amendment No 2) Act 2008 (Act 34 of 2008)

Income Tax (Deductible Borrowing Costs) Regulations 2008 (S 115/2008) reg 2

Interpretation Act (Cap 1, 2002 Rev Ed) s 9 A (1) (consd)

Revenue Law—Income taxation—Deduction—Whether discounts and redemption premium incurred by taxpayer were deductible interest expenses—Whether discounts and redemption premium incurred by taxpayer were deductible revenue expenses—Sections 14 (1), 14 (1) (a) and 15 (1) (c) Income Tax Act (Cap 134, 2001 Rev Ed)

The taxpayer (‘the Appellant’) carried on the business of hospitality, investment holding and property investment. The Appellant also owned and operated a hotel (‘the Hotel’). In 1995 and 1996, the Appellant issued bonds. For the 1995 bonds, the Appellant offered a discount and redemption premium to the bondholders in addition to interest. For the 1996 bonds, the Appellant offered a discount to the purchasers in addition to interest. No redemption premium was offered for the 1996 bonds. The 1995 and 1996 bonds matured in 2000 and 2001 respectively. The Appellant redeemed both sets of bonds at full face value. As regards the 1995 bonds, the Appellant also paid the redemption premium to the bondholders.

In assessing the Appellant's income that was chargeable with tax, the Comptroller had allowed deductions for the interest paid on the 1995 and 1996 bonds. The Appellant then sought similar deductions for the discounts and redemption premium incurred on the 1995 and 1996 bonds. The comptroller disallowed the Appellant's claim on two grounds. First, the Comptroller found that the discounts and redemption premiums were not ‘interest’ and therefore not deductible under s 14 (1) (a) of the Income Tax Act (Cap 134, 2001 Rev Ed) (‘the ITA’). Second, the Comptroller found that the discounts and redemption premiums were not outgoings and expenses wholly and exclusively incurred in the production of the Appellant's income and, therefore, not deductible under s 14 (1) of the ITA. The Appellant's appeal to the Income Tax Board of Review (‘the ITBR’) was dismissed. The Appellant then appealed against the decision of the ITBR to the High Court.

Held, dismissing the appeal:

(1) Discounts and redemption premiums were not necessarily interest. If discounts and redemption premiums were to be regarded as interest by virtue of the fact that they were all borrowing costs, this would make nonsense of each concept individually. It was only where a payment made by a borrower bore the characteristics of interest, discount or a redemption premium that it could be properly called that, notwithstanding the label attached to it: at [30] and [31] .

(2) It was a fundamental feature of interest that it accrued with time. Discount was a deduction from the price fixed once and for all at the time of payment. Similarly, a redemption premium was a once-and-for-all payment made for some right. Therefore, true discounts and redemption premiums did not bear the feature of accrual with time: at [32] , [34] and [35] .

(3) The meaning of ‘interest’ under s 14 (1) (a) of the ITA was a question of statutory interpretation. Reference to the common law or ordinary meaning of ‘interest’ alone would have been wholly inadequate. Section 9 A of the Interpretation Act (Cap 1, 2002 Rev Ed) mandated that a purposive approach be taken in statutory interpretation. Taking such an approach in the present case, the question to be answered was whether ‘interest’, under s 14 (1) (a) of the ITA, when read within its statutory context, included the discount and redemption premium incurred by the Appellant in respect of the 1995 and 1996 bonds: at [38] to [40] .

(4) In interpreting s 14 (1) (a) of the ITA, no reliance was to be placed on the 2008 amendments to the ITA, as contained in the Income Tax Act (Cap 134, 2008 Rev Ed) and the Income Tax (Deductible Borrowing Costs) Regulations 2008 (S 115/2008). Subsequent legislation could not be used to interpret earlier legislation: at [44] to [47] .

(5) The charging provision of the ITA, namely s 10 (1) (d), provided for ‘interest’ and ‘discount’ to be chargeable with income tax. If the concepts of interest and discount were synonymous, Parliament would not have specified both under s 10 (1) (d) of the ITA. Effect had to be given to all the words of a statute. The ITBR was correct in finding that the ITA imported a difference between interest, discounts and redemption premiums, even if they were all examples of borrowing costs. To count as interest under the ITA, a payment had to be consideration paid by the borrower for the use of the lender's money which bore the fundamental feature of accrual with time: at [47] , [48] and [53] .

(6) The discounts and the redemption premium paid by the Appellant in respect of the 1995 and 1996 bonds did not accrue with time. They were one-off obligations, based on a fixed percentage of the principal loan amount. In the circumstances, the discounts and the redemption premium incurred by the taxpayer in respect of the 1995 bonds were not deductible as ‘interest’ under s 14 (1) (a) of the ITA: at [54] .

(7) The discounts and redemption premium incurred by the Appellant, were ‘outgoings and expenses’ under s 14 (1) of the ITA. The 1995 bonds were issued at a discount of 0.4305%, and the Appellant only received $149,354,250 instead of $150,000,000 at the time of issue. In relation to the 1996 bonds, they were issued at a discount of 7.0803%, and the Appellant only received the sum of $153,317,505 instead of $166,000,000 at the time of issue. By redeeming the 1995 and 1996 bonds at their full face value, the Appellant had incurred actual outgoings in the sums of $645,750 and $11,682,495 respectively: at [66] and [67] .

(8) Section 14 (1) of the ITA allowed deductions for expenses that were revenue as opposed to capital in nature. There had to be a close nexus between the incurring of the expenditure and the production of the income. Section 15 (1) (c) of the ITA disallowed the deduction of capital expenses.: at [68] to [70] .

(9) In distinguishing capital from revenue, the concept of ‘purpose’ was a principal legal tool. The question of whether interest or other borrowing costs were capital or revenue in nature would depend on the purpose of the underlying loan. In determining whether the purpose of the underlying loan was capital or revenue in nature, one had to first ascertain whether there was a sufficient relationship or linkage between the loan in question and the main project or transaction for which the loan was taken. One then had to ascertain whether the main project or transaction itself was capital or revenue in nature: at [74] , [76] and [78] .

(10) In determining the purpose of the bond issues, the court was entitled to have regard to the uses to which the bond proceeds were put although that in itself was not conclusive of the purpose of the bond issue. The true focus of the court's enquiry in distinguishing between capital and revenue expenses remained the purpose of the borrowing as opposed to the use of the borrowed funds: at [83] .

(11) The question of whether there was a sufficient linkage between the 1995 and...

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4 cases
  • Public Prosecutor v Lam Leng Hung and other appeals
    • Singapore
    • High Court (Singapore)
    • 7 April 2017
    ...by this argument. Parliament’s intention is to be discerned at or around the time the law is passed (see BFC v Comptroller of Income Tax [2013] 4 SLR 741 at [46]) and merely because Parliament had not amended s 409 of the Penal Code post-Tay Choo Wah does not necessarily indicate that Tay C......
  • Attorney-General v Ting Choon Meng and another appeal
    • Singapore
    • Court of Three Judges (Singapore)
    • 16 January 2017
    ...intent to be discerned is that at or around the time the law is passed: see the High Court decision of BFC v Comptroller of Income Tax [2013] 4 SLR 741 at [46]. It is also well-established that s 9A of the Interpretation Act (Cap 1, 2002 Rev Ed) (“the IA”) mandates that the purposive approa......
  • BFC v Comptroller of Income Tax
    • Singapore
    • Court of Three Judges (Singapore)
    • 25 July 2014
    ...The Appellant says that they are not. The decision below 24 The decision of the Judge is reported in BFC v Comptroller of Income Tax[2013] 4 SLR 741 (‘the Judgment’). On the s 14 (1) (a) issue, she held that the Discounts and the Redemption Premium were not ‘interest’ for s 14 (1) (a) purpo......
  • BFC v Comptroller of Income Tax
    • Singapore
    • Court of Three Judges (Singapore)
    • 25 July 2014
    ...The Appellant says that they are not. The decision below The decision of the Judge is reported in BFC v Comptroller of Income Tax [2013] 4 SLR 741 (“the Judgment”). On the s 14(1)(a) issue, she held that the Discounts and the Redemption Premium were not “interest” for s 14(1)(a) purposes. S......
5 books & journal articles
  • Revenue and Tax Law
    • Singapore
    • Singapore Academy of Law Annual Review Nbr. 2017, December 2017
    • 1 December 2017
    ...a review of this case, see (2009) 10 SAL Ann Rev 455 at 462–463, paras 22.23–22.24. 78 [2017] 1 SLR 373. 79 Cap 256A, 2015 Rev Ed. 80 [2013] 4 SLR 741, cited in Attorney-General v Ting Choon Meng [2017] 1 SLR 373 at [18]. 81 [1993] 2 SLR(R) 354, cited in Attorney-General v Ting Choon Meng [......
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    • Singapore
    • Singapore Academy of Law Journal Nbr. 2015, December 2015
    • 1 December 2015
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  • Revenue and Tax Law
    • Singapore
    • Singapore Academy of Law Annual Review Nbr. 2013, December 2013
    • 1 December 2013
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    • Singapore
    • Singapore Academy of Law Annual Review Nbr. 2014, December 2014
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