Comptroller of Income Tax v VJ

• Jurisdiction: Singapore
• Judge: Andrew Ang J
• Judgment Date: 01 December 2008
• Neutral Citation: [2008] SGHC 224
• Date: 01 December 2008
• Subject Matter: Section 10E Income Tax Act (Cap 134, 2001 Rev Ed),Applicability of s 10E Income Tax Act,Whether company was in the business of letting immovable properties,Revenue Law,What income was to be treated as income derived from the business of letting immovable properties,Income taxation,Construction of s 10E Income Tax Act (Cap 134, 2001 Rev Ed)
• Docket Number: Income Tax Appeal No 3 of 2007
• Published date: 02 April 2009
• Defendant Counsel: Ong Sim Ho and Yang Shi Yong (Drew & Napier LLC)
• Court: High Court (Singapore)
• Plaintiff Counsel: Foo Hui Min and Lim David (Inland Revenue Authority of Singapore)

1 December 2008 Judgment reserved

Andrew Ang J:

1 This was an appeal by the Comptroller of Income Tax (“the Appellant” or “Revenue”) against the decision of the Income Tax Board of Review (“the Board”) allowing the appeal of the taxpayer company “X” Property Pte Ltd, a company incorporated in Singapore (“the Respondent”) against the Comptroller’s Notices of Assessment for Years of Assessment 1999, 2000 and 2001.

Factual background

2 The facts based on the Agreed Statement of Facts settled between the parties are as follows:

(a) The Respondent is and was at all material times the owner, developer and manager of AB Shopping Centre (“AB”) and CD Serviced Apartments (“CD”) (collectively known as “the Property”). AB is a two-level shopping mall and CD comprises 161 units of serviced apartments.

(b) In 1995, the Respondent commenced the development of the Property.

(c) On 15 January 1998, Temporary Occupation Permit (“TOP”) was issued for the Property.

(d) On 1 April 1998, the Respondent began leasing out the Property.

(e) The Respondent obtained an interest-bearing loan from its parent company to finance the construction of the Property and to provide working capital for its operations. Interest expenses incurred on the loan before the issuance of the TOP were capitalised as construction costs of the Property, and those which accrued on or after the TOP were brought directly into the Respondent’s profit and loss account. The Respondent claimed deduction under s 14 of the Income Tax Act (Cap 134, 2001 Rev Ed)[note: 1] (“the Act”) of the interest expenses that were incurred on the loan on and after the issuance of TOP for the Years of Assessment 1999, 2000 and 2001. Further, the Respondent sought to carry forward the excess of the said expenses from the Year of Assessment 1999 to subsequent years of assessment under s 37 of the Act.

(f) In 1996, the Respondent began marketing, promoting and advertising for the rental of the Property. The Respondent accounted for the expenditure of marketing, promotion and advertisement of the Property as deferred expenditure and amortized them over three-year periods. The first deferred expenditure on the Property was brought into the Respondent’s accounts on 1 October 1997. The Respondent claimed deduction under s 14 of the Act in respect of the deferred expenditure for the Years of Assessment 1999, 2000 and 2001. Further, the Respondent sought to carry forward the excess of the said expenses from the Year of Assessment 1999 to subsequent years of assessment under s 37 of the Act.

(g) During the construction of the Property, the Respondent incurred capital expenditure on the electrical installation. The capital expenditure comprised the costs of switchgear and sub-main station, transformers and lighting installation which include emergency and feature lightings. The Respondent claimed annual capital allowances under s 19A of the Act for the electrical installation in CD for the Years of Assessment 2000 and 2001, and annual capital allowances for the electrical installation of AB from Year of Assessment 2003 onwards.

(h) In his letter dated 22 September 2000, the Revenue took the position that the Respondent was in the business of the making of investments under s 10E of the Act.

(i) On the basis that s 10E of the Act applied, the Revenue disallowed the Respondent’s claims of interest expenses and deferred expenditure incurred before 1 April 1998, the date of the first rental, on the ground that any excess outgoings and expenses over the income derived from the investments in any year were disregarded under s 10E. Further, the Revenue disallowed the carrying forward of the excess expenses from the Year of Assessment 1999 to subsequent years of assessment. The details are as follows:

	CD ($)	AB ($)	Total ($)
15 January 1998 (TOP date) to; 31 March 1998 (before date of rental)	649,077	365,999	1,015,076
1 January 1997 to 31 March 1998; (before date of first rental)	1,187,687	329,197	1,516,884

(j) The Revenue further disallowed the Respondent’s claims of the annual capital allowances for the Years of Assessment 2000 and 2001 on the basis that the electrical installation formed part of the premises and setting of the Respondent’s business and hence did not qualify as “plant” and “machinery” within the meaning of s 19A of the Act.

(k) The Respondent raised objections to the relevant Notices of Assessment for the Years of Assessment 1999, 2000 and 2001.

(l) On 12 January 2006, the Revenue issued Notices of Refusal to Amend for the Years of Assessment 2000 and 2001. There being no chargeable income for the Year of Assessment 1999, no Notice of Refusal to Amend was issued for that year of assessment.

3 The Respondent took the matter up on appeal before the Board.

4 There were initially three issues before the Board. However, the issue whether the electrical installation qualified as plant and machinery for the purposes of s 19A of the Act was resolved.

5 In the result, the only two issues before the Board were:

(a) whether the Respondent’s income from its operation of AB and CD was derived from the “business of the making of investments” within the meaning of s 10E of the Act; and

(b) whether the expenses (including the interest expenses) incurred prior to the date of first rental were deductible under s 14(1) of the Act.

6 The Board decided that s 10E of the Act did not apply to the Respondent’s income derived from the operation of AB and CD. On the second issue, it again decided in favour of the Respondent holding that the Respondent’s business, commenced on the date of the TOP (15 January 1998) and not on the date of first rental.

7 This led to the Revenue’s appeal against the Board’s decision.

8 It is common ground between the parties that the income derived by the Respondent from the operation of the Property are chargeable under s 10(1)(a) as income from a business. But the parties disagree on the application of s 10E. The Appellant says the section applies; the Respondent says it does not. The issue in this appeal, therefore, is whether the profits of the Respondent from the operation of the Property are subject to s 10E in addition to s 10(1)(a).

9 Section 10(1)(a) which is the charging section reads:

10. — (1) Income tax shall, subject to the provisions of this Act, be payable at the rate or rates specified hereinafter for each year of assessment upon the income of any person accruing in or derived from Singapore or received in Singapore from outside Singapore in respect of –

(a) gains or profits from any trade, business, profession or vocation, for whatever period of time such trade, business, profession or vocation may have been carried on or exercised;

10 Section 10E (as it stood at the relevant time) read:

10E. — (1) Notwithstanding any other provisions of this Act, in determining the income of a company or trustee of a property trust derived from any business of the making of investments the following provisions shall apply:

(a) any outgoings and expenses incurred by the company or trustee of a property trust in respect of investments of that business which do not produce any income shall not be allowed as a deduction under section 14 for that business or other income of the company or trustee of a property trust;

(b) any outgoings and expenses incurred by the company or trustee of a property trust in respect of investments of that business which produce any income shall only be available as a deduction under section 14 against the income derived from such investments and any excess of such outgoings and expenses over such income in any year shall be disregarded; and

(c) the allowances under sections 19, 19A, 20 and 21 relating to that business shall only be available as a deduction against the income derived from investments of that business which produce any income and the balance of the allowances in any year shall be disregarded.

(2) In this section –

“business of the making of investments” includes the business of letting immovable properties;

“immovable property-related assets” means debt securities and shares issued by property companies, mortgaged-backed securities, other property trust funds, and assets incidental to the ownership of immovable properties;

“investments” means securities, immovable properties and immovable property-related assets;

“property trust” means a trust which invests in immovable properties or immovable property-related assets.

11 It can thus be seen that whilst s 10(1)(a) charges to tax income from any business, inter alia, s 10E applies to a particular type of business income, viz, “income of a company … derived from any business of the making of investments”.

“Any business of the making of investments”

12 The key question in this appeal is what the above-quoted words in s 10E mean.

13 It is first of all a “business”. In the well-known Singapore Court of Appeal case of DEF v Comptroller of Income Tax (1961) 27 MLJ 55, Buttrose J held that “business” implies or connotes “a series or repetition of acts” in carrying on, or carrying out, a scheme for profit making. He also said at 59:

[T]he word “business” in section 10(1)(a) of the Ordinance is used in association with “trade”, “profession” or “vocation”, all of which connote habitual and systematic operations, a continuity or repetition of acts or similar operations.

14 In that same case, Ambrose J said at 61:

[T]he fundamental idea underlying the three words “trade, … profession or vocation” in section 10(1)(a) of the Singapore Income Tax Ordinance is the continuous exercise of an activity. Considering the context, it seems to me that the same fundamental idea underlies the word “business” which appears between the word “trade” and the words “profession or vocation”; and that the word “business” must, therefore, be given its ordinary meaning, namely, an occupation habitually engaged in, especially for livelihood or gain.

15 Thus, the...