City Developments Ltd v Chief Assessor

• Judge: Tay Yong Kwang J
• Judgment Date: 27 December 2007
• Neutral Citation: [2007] SGHC 227
• Plaintiff Counsel: Tan Kay Kheng and Teo Lay Khoon (Wong Partnership)
• Published date: 28 December 2007
• Subject Matter: Section 2(3) Property Tax Act (Cap 254, 2005 Rev Ed),Property tax,Annual value,Appeals,Whether Chief Assessor entitled to apply policy of discouraging land hoarding,Whether Chief Assessor exercising discretion fairly in selecting basis for assessing annual value of property,Revenue Law
• Citation: [2007] SGHC 227
• Court: High Court (Singapore)
• Defendant Counsel: Liu Hern Kuan and Joyce Chee (Inland Revenue Authority of Singapore)
• Year: 2007

27 December 2007

Tay Yong Kwang J:

Introduction

1 By this Originating Summons, the appellant appealed to the High Court against the decision of the Valuation Review Board (“VRB”) given on 3 October 2006, pursuant to s 35 of the Property Tax Act (Cap 254) read with O 55 of the Rules of Court (Cap 322 R 5). The grounds for the appeal as set out in the Originating Summons were:

(a) that the VRB erred in law and fact when it decided that it was not ultra vires for the Chief Assessor to have regard to wider planning considerations and to treat developers (such as the appellant) differently when determining the annual value of the subject property at No. 5 Balmoral Park, Singapore.

(b) that the VRB erred in law and fact when it decided that the Chief Assessor had not acted unfairly when he exercised his discretion under s 2(3) of the Property Tax Act in determining the annual value of the subject property.

The proceedings before the VRB

2 The VRB in question comprised Ms Valerie Thean, Deputy Chairman of the VRB, and Mr Christopher Lee and Mr Tan Boon Leong, members of the VRB. The appeal to the VRB was in relation to the property tax assessment of a property consisting of 12 apartments situated at Nos 5A to 5H and 5J to 5M, Balmoral Park (“the subject property”). The subject property was freehold land comprising two 3-storey blocks built in July 1984. The land area was 3,517.10 sq m.

3 The subject property was purchased by the appellant, a major property developer in Singapore, in an en bloc sale in November 1999 for $42m. Completion of the sale and purchase took place on 15 February 2000.

4 The appellant then applied to the Urban Redevelopment Authority (“URA”) for written permission to redevelop the subject property to two 12-storey blocks comprising 37 residential units, with a basement car park, swimming pool and communal facilities. In February 2001, the appellant paid a development charge of some $6.74m to increase the development intensity for the plot of land on which the subject property stood. On 2 March 2001, the appellant was granted written permission to redevelop.

5 Before 1 January 2002, the annual value of the subject property was assessed on the basis of the hypothetical rent for each of the 12 apartments. However, by a notice dated 29 November 2002, the Chief Assessor informed the appellant that the annual value of the subject property would be assessed based on 5% of the estimated market value of the land with effect from 1 January 2002. The Chief Assessor purported to do this in exercise of the discretion conferred on him by s 2(3)(b) of the Property Tax Act. The annual value was proposed at $1,604,000 for the period 1 January 2002 to 31 December 2005. At a tax rate of 10%, the property tax payable per year was $160,400 for the subject property. If the annual value was assessed on the basis of rental for the individual units, using monthly rental of $2,600 or $2,700, the annual property tax payable would have been about $38,000 only, less than a quarter of $160,400.

6 The appellant filed notice of objection to the new annual value. The Chief Assessor disallowed the objection. The appellant then appealed to the VRB against the decision of the Chief Assessor. Its main ground of appeal was that the apartments were tenanted for certain periods from 2002 to 2005, a period of 4 years. 5A to 5H, 5J, 5L and 5M were tenanted to Waterlite Engineering Systems Pte Ltd (“Waterlite”) from 1 June 2003 for 3 years. The tenancy was subsequently extended to 31 December 2006. 5K was tenanted to Millennium & Copthorne Limited (“Millennium”) from 1 November 2001 to 30 September 2005 and then to Waterlite from 1 October 2005 to 31 December 2006. The appellant contended that the basis of assessment of property tax for the 4 years should be the annual value as defined in s 2(1) of the Property Tax Act.

7 During the hearing before the VRB, which took place over 3 days, it was confirmed that the apartments were rented out at $1,500 per month. However, the appellant and the Chief Assessor had agreed, prior to the hearing, that the hypothetical rent would be $3,000 per month should the VRB decide that the correct basis of assessment ought to be the hypothetical rental method. It was accepted that Millennium was a company related to the appellant. Further, it appeared that one unit in the subject property was tenanted to an individual from 1 October 2001 to 31 August 2002.

8 The Chief Assessor cited various reasons for the use of s 2(3)(b) of the Property Tax Act. Firstly, there were several applications for redevelopment made to the URA in respect of the subject property. On 20 December 1999, prior to the completion of the sale and purchase, the appellant applied for planning approval to redevelop the site. On 7 January 2000, provisional permission to redevelop was granted. Such an early application, as admitted by the appellant, was to “lock in” the development charge (so that the site would not be subject to any subsequent upward revision of the said charge). After completion of the sale and purchase, the appellant made two applications for extension of the provisional approval. These were on 29 June 2000 and 3 February 2001. On 2 March 2001, the appellant applied for written permission to build two 12-storey blocks on the site. This was granted. However, the written permission was allowed to lapse because, according to the appellant, its redevelopment plans were not finalised at that time.

9 The Chief Assessor was not aware of the grant of the various approvals until later. By a letter in March 2001, the Chief Assessor asked the appellant whether it had any development plans for the subject property. On 6 April 2001, the appellant replied that it had no immediate plans. This was despite the grant of written permission and the requirement of s 19(12) of the Property Tax Act. The Chief Assessor was informed by the URA about the grant of written permission only on 20 November 2002.

10 Secondly, the Chief Assessor argued that the land value of the subject property was significantly enhanced when the gross plot ratio was increased from 1.036 to 1.6 with the payment of the development charge on 23 February 2001.

11 The third reason proffered by the Chief Assessor was that the appellant was an established property developer. This fact could hardly be disputed by anyone.

12 The fourth reason was that the subject property was vacant when the Chief Assessor reassessed it. Although the apartments were subsequently tenanted, the relatively low rentals collected by the appellant confirmed that the subject property was not being held primarily for rental income. The rentals represented only 0.4% returns per annum on the appellant’s investment (of $42m for the purchase price and $6.74m for the development charge) compared to the 4 to 5% returns generally expected for local residential tenancies.

13 The Chief Assessor’s views were reinforced by subsequent events. In February 2005, the appellant applied to the URA for permission to redevelop the subject property in conjunction with an adjoining parcel of land situated at 40 Stevens Road. The latter property was purchased by the appellant in August 2003. The detached house thereon was subsequently demolished in March 2006 so that a show flat for a new condominium could be erected thereon. The amalgamated plots of land were now being used by the appellant to build a condominium known as the Solitaire, a project comprising two 12-storey blocks containing 70 residential units.

14 The Chief Assessor maintained a policy of encouraging development of land instead of hoarding it until the appropriate time to launch a building project. In invoking s 2(3)(b) of the Property Tax Act, the Chief Assessor wished to accord the same treatment to all developers who were holding land, whether vacant or with buildings thereon. The issue was whether the property in issue was a redevelopment site. With an increase in plot ratio, the value of a parcel of land was enhanced. A developer owning the land could sell it at the enhanced market value (thereby realising quick returns) or redevelop it. If the developer chose the latter course but held back redevelopment until some time in the future, the increased tax burden was merely part and parcel of the holding costs, a factor to consider in the commercial decision to maintain a land bank. The Chief Assessor therefore could not...