Chief Assessor and Another v First DCS Pte Ltd

• Jurisdiction: Singapore
• Judge: Chan Sek Keong CJ
• Judgment Date: 27 March 2008
• Neutral Citation: [2008] SGCA 15
• Docket Number: Civil Appeal No 77 of 2007
• Date: 27 March 2008
• Year: 2008
• Published date: 28 March 2008
• Plaintiff Counsel: Ong Keng Loon and Joanna Yap (Inland Revenue Authority of Singapore)
• Citation: [2008] SGCA 15
• Defendant Counsel: Leung Yew Kwong and Tan Kay Kheng (WongPartnership)
• Court: Court of Appeal (Singapore)
• Subject Matter: Whether pipelines part of machinery,Revenue Law,Whether broad interpretation should be adopted,Construction of statute,Purpose of provision to encourage investment in machinery,Provision excluding machinery used for "making", altering" and "adapting for sale" of articles from annual value assessment of premises,"Made", "alter" and "adapt for sale",Section 2(2) Property Tax Act (Cap 254, 2005 Rev Ed),Annual value,Statutory Interpretation,Provision drafted 140 years ago,Purposive approach,Words and Phrases,District cooling machinery on subject property,Property tax,Whether machinery assessable,Pipelines carrying chilled water to customers outside subject property

27 March 2008

V K Rajah JA (delivering the grounds of decision of the court):

1 The respondent, First DCS Pte Ltd, owns a district cooling plant (“the Cooling Plant”) on the subject property, which is located in Changi Business Park (“the Business Park”). The respondent’s business involves the distribution of chilled water to its customers (“the Customers”), other businesses on neighbouring properties in the Business Park, for the purposes of their air-conditioning needs. Water is first chilled by district cooling machinery (“the Cooling Machinery”) located in the Cooling Plant, and then distributed via a network of underground pipelines (“the Pipelines”) to the Customers. The chilled water becomes heated in the Customers’ buildings, and returns to the Cooling Plant for re-chilling via the Pipelines.

2 For the purposes of determining the property tax payable on the subject property, the appellants, namely, the Chief Assessor and the Comptroller of Income Tax, had assessed the annual value of the subject property to include: (a) the Cooling Machinery located on the subject property, as well as (b) the Pipelines, which extended beyond the boundaries of the subject property into neighbouring properties in the Business Park.

3 The question before us was whether the appellants were right to include these two items in the assessment of the subject property’s annual value. The respondent appealed against the appellants’ decision to the Valuation Review Board, which agreed with the appellants (see First DCS Pte Ltd v Chief Assessor [2006] SGVRB 2). On further appeal by the respondent, the High Court judge (“the Judge”) took the contrary view and held that the Cooling Machinery and the Pipelines should not have been taken into account (see First DCS Pte Ltd v Chief Assessor [2007] 3 SLR 326 (“the Judgment”)). After hearing arguments, we agreed with the Judge, except for one particular aspect of his decision (see [28] below), and dismissed the appeal. We now give our reasons for that decision.

The issues on appeal

4 We will consider the following issues in these grounds of decision:

(a) whether the Cooling Machinery fell under the exemption for certain kinds of “machinery” in s 2(2) of the Property Tax Act (Cap 254, 2005 Rev Ed) (“PTA”), such that the Cooling Machinery ought not to have been considered in assessing the annual value of the subject property; and

(b) if the Cooling Machinery was exempted under s 2(2) of the PTA, whether the Pipelines were part of the Cooling Machinery, such that they too were exempted from inclusion in the annual value assessment.

Whether the Cooling Machinery was exempt under section 2(2) of the PTA

5 To answer this question, it is very important to understand the distinct processes occurring in the Cooling Plant. The Cooling Machinery consists of generators, transformers, centrifugal chillers, switchgears, switchboards, pumps and a cooling tower system. As alluded to earlier, it is disputed whether the Cooling Machinery also includes the Pipelines.

6 In the Cooling Plant, water is chilled in the centrifugal chillers to a temperature of 4ºC, which is the temperature at which water reaches its maximum density. The chilled water is then channelled to the bottom of a concrete storage tank (“the Storage Tank”), where it remains because of its high density. The chilled water at the bottom of the Storage Tank is then pumped out of the Cooling Plant by reticulation pumps to the heat exchangers in the Customers’ buildings via the Pipelines. This chilled water is supplied at a slightly higher temperature of 7ºC. In the heat exchangers, the water then becomes heated to a temperature of 14ºC, whereupon it returns to the Cooling Plant via the Pipelines. The heated water is then pumped into the top of the Storage Tank, but, because water has a lower density when it is at a higher temperature, the heated water does not mix with the chilled water at 4ºC, which remains at the bottom of the Storage Tank. The water in the Storage Tank is thus stratified according to temperature and density, and this phenomenon is essential for the efficient and proper functioning of the Cooling Plant and for the supply of water to the Customers at 7ºC.

A purposive interpretation of section 2(2) of the PTA

7 Section 2(2) of the PTA reads:

In assessing the annual value of any premises in or upon which there is any machinery used for any of the following purposes:

(a) the making of any article or part thereof;

(b) the altering, repairing, ornamenting or finishing of any article; or

(c) the adapting for sale of any article,

the enhanced value given to the premises by the presence of such machinery shall not be taken into consideration, and for this purpose “machinery” includes the steam engines, boilers and other motive power belonging to that machinery.

8 It was undisputed that the relevant “article” here for the purposes of s 2(2) of the PTA was the chilled water. It was also undisputed that the Cooling Machinery was “machinery”. The only question was whether the Cooling Machinery was used for any of the purposes listed in ss 2(2)(a)–2(2)(c).

9 The Judge found that although the chilled water could not be said to have been “made” under s 2(2)(a) (see the Judgment at [29]), it had been “altered” and “adapted for sale” under ss 2(2)(b) and 2(2)(c) respectively by the Cooling Machinery (id at [36]–[37]). We agreed that there had been an “adaptation for sale”.

10 When construing statutory provisions, it is important to consider the purpose for which Parliament enacted the provision in question. It would be incorrect to read the provision as if it existed in a vacuum. Indeed, by virtue of s 9A of the Interpretation Act (Cap 1, 2002 Rev Ed), the courts must prefer an interpretation which supports the intended purpose of a provision over an interpretation that does not. The effect of that section is to make the purposive approach the paramount rule of construction in our jurisprudence: PP v Low Kok Heng [2007] 4 SLR 183.

11 In coming to his conclusions, the Judge took the right approach in considering the purpose behind s 2(2) of the PTA. He noted that while there was no express indication of Parliament’s intended purpose, “it seem[ed] to be likely that the object behind s 2(2) was to encourage investments in plant and machinery for manufacturing, processing and other industrial purposes” (see the Judgment at [28]). We agreed that that appears to be the likely purpose of the subsection.

12 The three terms used in s 2(2) of the PTA – viz, “making”, “altering, [etc]” and “adapting for sale” – have a long history. The terms first appeared in UK legislation which had nothing to do with property tax at all. These words were used in statutes which arose as a reaction to the Dickensian smog-and-smokestack hell of Britain’s Industrial Revolution, and were the result of growing humanitarian efforts to improve the lot of the most vulnerable in society. The first of such Acts was the Preservation of the Health and Morals of Apprentices Act 1802 (c 73) (UK), which regulated the working conditions of children (and later women) in the textile industry. Subsequent Acts provided varying degrees of protection to these vulnerable groups. For our purposes, the most significant Act was the Factory Acts Extension Act 1867 (c 103) (UK) (“the 1867 UK Extension Act”), which further extended the existing laws to, inter alia, all factories employing over 50 persons.

13 Section 3 of the 1867 UK Extension Act defined the term “[m]anufacturing [p]rocess” as:

[A]ny Manual Labour exercised by way of Trade or for Purposes of Gain in or incidental to the making [of] any Article or Part of an Article, or in or incidental to the altering, repairing, ornamenting, finishing, or otherwise adapting for Sale [of] any Article.

By virtue of s 12 of the same Act, “any Premises in or on which a manufacturing Process is carried on shall, until the contrary is proved, be deemed to be a Factory”. These provisions constituted the first legislative usage of the terms “making”, “altering” and “adapting for sale”.

14 The terms were then re-enacted, with few changes to the phraseology thereof, in a series of consolidating Factory and Workshop Acts, culminating in s 149(1) of the Factory and Workshop Act 1901 (c 22) (UK) (see the definition of “non-textile factory” in that subsection). This was where the laws aimed at improving the lives of workers intersected with the law on property tax. The Rating and Valuation (Apportionment) Act 1928 (c 44) (UK) (“the 1928 UK Rating Act”) sought to provide relief from rating to certain classes of hereditaments, including “industrial hereditament[s]”. By s 3(1) read with s 3(2)(b) of that Act, an “industrial hereditament” was defined as, inter alia, a “factory or workshop” under the Factory and Workshop Acts enacted between 1901 and 1920, provided that certain conditions were satisfied. (The 1928 UK Rating Act has since been repealed by s 33(2) of the Local Government and Rating Act 1997 (c 29) (UK).)

15 The Factory and Workshop Act 1901 was repealed by s 159(1) of the Factories Act 1937 (c 67) (UK), but s 159(3) of the latter Act provided that nothing in that Act should affect the definition of the expressions “factory” and “workshop” for the purposes of the 1928 UK Rating Act. When the Factories Act 1937 was repealed by the Factories Act 1961 (c 34) (UK) (“the 1961 UK Factories Act”), a similar savings provisions was contained in s 184(1) of the latter Act.

16 The terms “make”, “alter” and “adapt for sale” were hence originally used in the UK to define what sort of premises needed to comply with the regulations set out in the various Factory and Workshop Acts and, consequently, which employees could benefit from the protection therein. The same terms were later adopted in the law on derating. It was this connection that led the English courts to adopt a generous interpretation of provisions containing the three terms....