Chief Assessor and Comptroller of Property Tax v Keppel Corp Ltd

• Jurisdiction: Singapore
• Judge: Warren Khoo L H J
• Judgment Date: 24 February 1994
• Neutral Citation: [1994] SGHC 42
• Date: 24 February 1994
• Subject Matter: 'Annual Value',s 2 Property Tax Act (Cap 254),Annual value,Property tax,Appeals,Words and Phrases,Determination,Revenue Law,s 35(2) & (5) Property Tax Act (Cap 254),Applicability of market conditions,Valuation Review Board,Whether court can revise allowance accepted by Board,Whether court can vary order of Board to include interest,Allowance,Contractor's basis of valuation
• Docket Number: Originating Motion No 24 of 1991
• Published date: 19 September 2003
• Defendant Counsel: Michael Khoo (Michael Khoo & BB Ong)
• Court: High Court (Singapore)
• Plaintiff Counsel: Leung Yew Kwong and Tan Kay Kheng (Chief Assessor and Comptroller of Property Tax)

Introduction

Cur Adv Vult

This is an appeal against a decision of the Valuation Review Board on an appeal against: (a) a decision of the chief assessor in respect of the annual value of a shipyard owned by the respondent owners; and (b) a decision of the Comptroller of Property Tax to recover property tax on the basis of the annual value decided by the chief assessor.

With certain exceptions, property tax is payable under the Property Tax Act (Cap 254) on the basis of the annual value of a property assessed by the chief assessor. A valuation list is maintained by him which shows the ownerships and annual values of all taxable properties in Singapore. Section 20(1) of the Act provides that where it appears to the chief assessor that the valuation list is or has become inaccurate in any material particular, he may amend it after notifying the owner of the proposed amendment in manner provided in s 20(2) and hearing any objections from the owner. That includes any inaccuracy in the annual value arising from improvements to a property. On 31 October 1983, the chief assessor issued a notice to the owners under s 20(2) [then s 18(2)] proposing to revise the annual value of the property to $11,852,000 with effect from 1 January 1983 to take account of improvements which had been made to the shipyard. The then existing annual value of the property was $5,658,300, with effect from 16 September 1981.

Under s 21(3) of the Act, where improvements have been made to a property and no action is taken to amend the valuation list for the year in which the improvements were completed, the property tax in respect of the property shall be payable from the date of completion of the improvements. The tax is computed on the revised annual value subsequently ascribed to the property in a subsequent valuation list. Under s 22, the Comptroller of Property Tax, after notifying the owner under sub-s (1) and hearing any objections, may recover property tax on the basis of the revised annual value. On 31 October 1983, the Comptroller issued a notice under s 22(1) [then 19A(1)] to the respondent owners proposing to recover property tax for the period 16 February 1982 to 31 December 1982 on the basis of the proposed revised annual value of $11,852,000, treating the improvements attracting the enhanced tax as having been completed on 16 February 1982.

The owners, being dissatisfied with the proposed annual value of $11,852,000, appealed to the Board. The Board, at a hearing on 22 February 1991, allowed the appeal and fixed the annual value for the period 16 February 1982 to 31 December 1986 at $9.5m. This figure was arrived at after allowing a 20% discount on the figure determined by the chief assessor, to take into account the depressed state of the shipping industry at the relevant time. The Board also ordered that the recovery of tax by the Comptroller of Property Tax for the period from 16 February 1982 to 31 December 1982 be on the basis of the annual value of $9.5m as determined by the Board. It goes without saying that the property tax payable for the period 1 January 1983 to 31 December 1986 would be based on the $9.5m annual value determined by the Board. At 23% rate of tax, the amount payable per year was $2,725,960.

The appellants, being dissatisfied with the Board`s decision, appealed to the High Court under s 35(2) of the Act.

The appeal raises the question of the proper application of what is commonly called the contractor`s test as a method of valuation for the purpose of ascertaining the annual value for the purpose of the Act, in particular whether the Board was right in taking into account the depressed state of the shipping industry at the relevant time.

The definition of `annual value`

Section 2 of the Act defines the annual value of a house, building, land or tenement to mean `the gross amount at which the same can reasonably be expected to be let from year to year, the landlord paying the expenses of repair, insurance, maintenance or upkeep and all taxes.` In the case of a wharf, pier, jetty or landing-stage, `annual value` means `the gross amount at which the same can reasonably be expected to be let from year to year, the tenant paying the expenses of repair, insurance, maintenance or upkeep.` It seems to be common ground that the first part, rather than the second part, of the definition is applicable in the instant case.

Assessment of annual value

Under both the first and second part of the definition, annual value is what the hypothetical tenant might reasonably be expected to pay by way of rental on a yearly tenancy upon the terms stipulated under the relevant part of the definition.

There are various methods of valuation to arrive at the annual value. The most commonly used is what is known as the rental comparison method. It is used as far as possible, as rents negotiated at arms` length have been tested by the supply and demand forces of the market and are the best evidence of value. Where rental comparables are not available, because the property concerned is of a type rarely let, something loosely called the contractor`s basis of valuation is used. It is essentially based on the cost of producing the property, ie cost of the land and cost of construction.

Lord Dunedin in Port of London Authority v Assessment Committee of Orsett Union at p 295, put it as follows:

Another way is to see what it would cost an owner to produce the hereditament in its present form and then to see what a tenant, who had not himself the money to be an owner, would give the owner yearly, it being assumed that that sum must bear some relationship at ordinary rates of interest to what has been spent.

The Solicitor General of England in the Lands Tribunal case of Dawkins (valuation officer) v Royal Leamington Spa Council and Warwickshire County Council at p 251 explained the concept thus:

As I understand it, the argument is that the hypothetical tenant has an alternative to leasing the hereditament and paying rent for it; he can build a precisely similar building himself. He could borrow the money, on which he would have to pay interest; or use his own capital on which he would have to forego interest, to put up a similar building for his owner-occupation rather than to rent it, and he will do that rather than pay what he would regard as an excessive rent - that is, a rent which is greater than the interest he foregoes by using his own capital to build the building himself. The argument is that he will, therefore, be unwilling to pay more as an annual rent for a hereditament than it would cost him in the way of annual interest on the capital sum necessary to build a similar hereditament. On the other hand, if the annual rent demanded is fixed marginally below what it would cost him in the way of annual interest on the capital sum necessary to build a similar hereditament, it will be in his interest to rent the hereditament rather than build it.

The Solicitor-General`s exposition has been described by Lord Denning as the `classic explanation` in Cardiff City Council v Williams .

It is common ground between the parties that the contractor`s basis is the appropriate basis for ascertaining the annual value in this case, because there are no or insufficient comparable rental data available.

The five stages in the contractor`s basis

In Ryde on Rating (13th Ed) at p 518, the learned authors say that in the modern practice of applying the contractor`s basis, it is possible to discern five stages, as follows:

The first stage is the estimation of the cost of construction of the building.

The second stage is to make deductions from the cost of construction to allow for age, obsolescence and any other factor necessary to arrive at the `effective capital value`.

The third stage is to estimate the cost of the land in accordance with the principle of `rebus sic stantibus`.

The fourth stage is to apply the market rate or rates at which money can be borrowed or invested to the effective capital value of the building...