Comptroller of Income Tax v ACC

• Jurisdiction: Singapore
• Judgment Date: 24 March 2010
• Date: 24 March 2010
• Docket Number: Civil Appeal No 96 of 2009
• Court: Court of Appeal (Singapore)

Comptroller of Income Tax

Plaintiff

and

ACC

Defendant

[2010] SGCA 13

Chan Sek Keong CJ

,

Andrew Phang Boon Leong JA

and

V K Rajah JA

Civil Appeal No 96 of 2009

Court of Appeal

Administrative Law–Judicial review–Exhaustion of alternative remedies–Whether alternative remedies available under Income Tax Act (Cap 134, 2008 Rev Ed) against Comptroller's determination that taxpayer liable to account for withholding tax–Sections 13 (4) and 92 (2) Income Tax Act (Cap 134, 2008 Rev Ed)

Administrative Law–Judicial review–Locus standi–Taxpayer making interest swap payments to overseas subsidiaries without withholding tax–Comptroller determining that taxpayer was liable to account for withholding tax and pay penalties–Whether taxpayer had standing to apply for quashing order against Comptroller's determination

Administrative Law–Remedies–Quashing order–Whether Comptroller's determination that taxpayer liable to account for withholding tax could be quashed

Revenue Law–Income taxation–Recovery–Powers of Comptroller–Whether Comptroller could unilaterally determine taxpayer's withholding tax liability under s 45 Income Tax Act (Cap 134, 2008 Rev Ed)–Effect of issuance of certificate under s 89 (4) Income Tax Act (Cap 134, 2008 Rev Ed)–Sections 4 (3), 45 and 89 (4) Income Tax Act (Cap 134, 2008 Rev Ed)

The respondent made a series of payments to its overseas subsidiaries pursuant to interest swap agreements, without withholding tax from these payments. The Comptroller of Income Tax ( the Comptroller ) subsequently informed the respondent in a letter that withholding tax requirements under s 45 of the Income Tax Act (Cap 134, 2008 Rev Ed) ( the ITA ) applied and as such, the respondent was required to personally account for the amount of tax which should have been withheld and pay any corresponding penalties. The respondent disputed the Comptroller's interpretation of the ITA and sought leave to apply for a quashing order against the Comptroller's letter.

The High Court judge ( the Judge ) held that the Comptroller's decision (viz, that the respondent was liable to account for withholding tax) was susceptible to judicial review because the Comptroller was exercising its power to assess and collect tax under s 4 (3) of the ITA. The Judge also held that the respondent had sufficient interest in the matter, and that it had an arguable case in favour of granting a quashing order. The Judge accordingly granted leave to the respondent. The Comptroller appealed, contending that (a) the respondent had no locus standito seek judicial review, and (b) in any event, it was an abuse of process for the respondent to commence judicial review proceedings because it could have first sought alternative remedies in the form of tax exemption or remission under the relevant provisions of the ITA.

Held, dismissing the appeal:

(1) The respondent had locus standito apply for judicial review since the Comptroller had determined it was personally liable to pay the withholding tax demanded along with any prescribed penalties: at [12].

(2) There was no abuse of process because the provisions of the ITA dealing with tax exemption and remission were founded on ministerial discretion and did not operate as alternative remedies against the Comptroller's determination: at [13] and [14].

[Observation: The Comptroller's letter informing the respondent that it was liable to account for withholding tax had no actual or ostensible legal effect, whether direct or indirect. Section 4 (3) of the ITA did not empower the Comptroller to make binding determinations of law concerning its provisions. Such a task belonged to the court alone and the issuance of a certificate by the Comptroller under s 89 (4) of the ITA in a suit to recover unpaid tax could not conclusively determine a taxpayer's liability: at [26], [28] and [30].

As the Comptroller's letter was a mere opinion without legal effect, there was nothing for the court to quash and the respondent's proper remedy should have been to apply for a declaration of non-liability. However, since both parties had accepted that the Comptroller's letter was susceptible to a quashing order and the dispute involved a pure question of law, the respondent would be allowed to proceed with its application for a quashing order in the interests of procedural convenience and efficiency: at [28] and [31] to [33].]

Ainsworth v Criminal Justice Commission (1992) 175 CLR 564 (folld)

Borissik Svetlana v Urban Redevelopment Authority [2009] 4 SLR (R) 92; [2009] 4 SLR 92 (folld)

Hot Holdings Pty Ltd v Creasy (1996) 185 CLR 149 (refd)

R v London Waste Regulation Authority,Ex parte Specialist Waste Management LtdThe Times (UK) (1 November 1988) (refd)

R v Panel on Take-overs and Mergers, Ex parte Datafin plc [1987] QB 815 (refd)

R v Secretary of State for Employment, Ex parte Equal Opportunities Commission [1995] 1 AC 1 (refd)

R v Statutory Visitors to St Lawrence's Hospital, Caterham; Ex parte Pritchard [1953] 1 WLR 1158 (refd)

R (on the application of the Association of British Travel Agents Ltd) v Civil Aviation Authority [2007] 2 Lloyd's Rep 249 (refd)

Singapore Airlines Ltd v Inland Revenue Authority of Singapore [1999] 2 SLR (R) 1097; [1999] 4 SLR 731 (distd)

Tan Eng Chye v Director of Prisons [2004] 4 SLR (R) 521; [2004] 4 SLR 521 (refd)

Criminal Procedure Code (Cap 68,1985 Rev Ed)

Income Tax Act (Cap 134,1996 Rev Ed) s 13 (1) (ja)

Income Tax Act (Cap 134,2008 Rev Ed) ss 4 (3) , 13 (4) , 45, 89, 89 (4) , 92 (2) (consd) ;ss 10 (1) (d) , 12 (6) ,12 (7) ,13 (1) (ja) ,45 (3)

Rules of Court (Cap 322,R 5, 1997 Rev Ed) O 15r 16

Rules of Court (Cap 322,R 5, 2006 Rev Ed) O 15r 16, O 53, O 53r 1

Control of Pollution Act1974 (c 40) (UK)

Employment Protection (Consolidation) Act 1978 (c 44) (UK)

Mining Act1978 (WA)

Jimmy Oei and Usha Chandradas (Inland Revenue Authority of Singapore) for the appellant

Leung Yew Kwong and Tan Shao Tong (WongPartnership LLP) for the respondent.

Chan Sek Keong CJ

(delivering the grounds of decision of the court):

Introduction

1 This was an appeal by the Comptroller of Income Tax ( the Comptroller ) against the decision of the High Court judge ( the Judge ) granting leave to the respondent under O 53 r 1 of the Rules of Court (Cap 322, R 5, 2006 Rev Ed) ( the ROC ) to apply for a quashing order against the Comptroller's letter dated 6 February 2009 ( the 6 February 2009 Letter ) informing the respondent that it was liable to account for withholding tax on certain transactions (see ACC v CIT [2010] 1 SLR 273). After hearing the arguments of both parties, we dismissed the Comptroller's appeal and now give the reasons for our decision.

The facts

2 The respondent is a company incorporated in Singapore, with subsidiaries incorporated in the Cayman Islands. The respondent's subsidiaries are in the business of leasing certain machinery. Each subsidiary is a special purpose company that owns only one machine. To finance the purchase of the machines, a number of the subsidiaries entered into loan agreements with offshore banks at a floating interest rate. Some of these subsidiaries later leased out their machines at a fixed rental rate (the subsidiaries which did so will hereafter be referred to collectively as the SPCs and individually as an SPC ). As a result, the SPCs were exposed to interest rate fluctuations since the rental income from their machines would not vary with changes in the interest rate on the bank loans.

3 To minimise the risk of such exposure, the SPCs arranged interest swaps with onshore banks. Under these interest swap arrangements, an SPC would make periodic fixed rate payments to the bank concerned in exchange for the bank making floating rate payments to the SPC. The risk of fluctuating interest rates would thus be passed from the SPC to the onshore bank.

4 For reasons of commercial efficiency, the SPCs did not enter into the interest swap agreements with the onshore banks directly. Instead, the respondent acted as a middleman for all the SPCs by entering into the interest swap agreements with the onshore banks. The respondent then entered into individual swap agreements with each of the SPCs which mirrored the swap agreements entered into between the respondent and the onshore banks. The net effect of this arrangement resulted in the SPCs and the onshore banks making payments to each other as described at [3]above. The actual floating rate payments to the SPCs were made by the respondent.

5 Under s 12 (6) of the Income Tax Act (Cap 134, 2008 Rev Ed) ( the ITA ):

There shall be deemed to be derived from Singapore -

1. (a) any interest, commission, fee or any other payment in connection with any loan or indebtedness or with any arrangement, management, guarantee, or service relating to any loan or indebtedness which is -

   1. (i) borne, directly or...