Comptroller of Income Tax v BJY and others

• Jurisdiction: Singapore
• Judge: Andrew Ang J
• Judgment Date: 13 September 2013
• Neutral Citation: [2013] SGHC 173
• Court: High Court (Singapore)
• Docket Number: Originating Summons No 184 of 2013
• Year: 2013
• Published date: 11 October 2013
• Hearing Date: 08 April 2013,05 July 2013,07 March 2013
• Plaintiff Counsel: Alvin Chia Ken Li and Patrick Nai (Inland Revenue Authority of Singapore (Law Division)
• Defendant Counsel: The first and second respondents unrepresented,Noelle Seet and Guo Longjin (RHTLaw Taylor Wessing LLP)
• Subject Matter: Revenue law,International taxation,Double taxation agreement,Exchange of information
• Citation: [2013] SGHC 173

Andrew Ang J: Introduction

This was an application in Originating Summons No 184 of 2013 (“OS 184”) by the Comptroller of Income Tax (“the Comptroller”) pursuant to s 105J of the Income Tax Act (Cap 134, 2008 Rev Ed) (“ITA”) for an order that the first respondent bank [BJY] and the second respondent bank [Bank 2] release certain information, documents and bank records concerning the third defendant [BJX]. I allowed the Comptroller’s application in an inter partes hearing in chambers, and now set out the grounds for my decision.

Factual background

The Comptroller made this application following a request for such information by Mr K Ramalingam, the Joint Secretary (Foreign Tax and Tax Research II) of the Central Board of Direct Taxes of the Department of Revenue of India (“the Competent Authority of India”) by way of a letter dated 12 September 2012 (“the EOI Request”). Further correspondence was exchanged between the Comptroller and the Competent Authority of India in order for the Comptroller to clarify uncertainties in the EOI Request. This was done by way of a letter sent by the Comptroller to the Competent Authority of India dated 30 September 2011 to which the Competent Authority of India replied in a letter dated 29 May 2012 (such correspondence exchanged between the Comptroller and the Competent Authority of India being hereinafter referred to as the “Information Request Correspondence”).

The EOI Request was made pursuant to the Agreement between the Government of the Republic of Singapore and the Government of the Republic of India for the Avoidance of Double Taxation and the Prevention of Fiscal Evasion with Respect to Taxes on Income which entered into force on 27 May 1994 (“the Singapore-India DTA”). Specifically, the EOI Request was made under Art 28 of the Singapore-India DTA (“Art 28”), a provision for the purposes of exchange of information (“EOI”) in relation to the administration of tax issues in Singapore and India. Art 28 was amended by the Second Protocol signed on 24 June 2011, which came into force on 1 September 2011.

The Information Request Correspondence was placed before the court by way of an affidavit filed on 26 February 2013 in support of OS 184 by Ms Chan Wei Ting (“Ms Chan”), a senior tax investigator with the Inland Revenue Authority of Singapore (“IRAS”). Ms Chan also recounted certain important claims relating to [BJX] in the main text of the affidavit which were taken from the Information Request Correspondence. I pause at this juncture to note that in the event the supporting affidavit is to be served on the person in relation to whom the information is sought pursuant to O 98 r 2(4) of the Rules of Court (Cap 322, R5 2006 Rev Ed) (“Rules of Court”) (as was the case here), the letter of request made by the foreign competent authority required to be exhibited under O 98 r (2)(b) has to be excluded. This stricture is obviously for the benefit of the foreign competent authority whose investigations might be compromised by disclosure of the text of their letter of request. Therefore, the Comptroller must take care to ensure that only information taken from the letter of request from the foreign competent authority that is necessary for the hearing before the judge is included in the text of its affidavit. If there is any doubt, it would seem sensible to seek the consent of the foreign competent authority.

In the present case, the main text of the supporting affidavit made the following important assertions relating to [BJX] to establish why the EOI Request was made by the Competent Authority of India: The Competent Authority of India stated that [BJX] was running a Ponzi-like scheme in India with another Singapore company, [Company A], under which Indian residents who paid membership fees for e-magazine subscriptions were offered en-cashable reward points for bringing in new customers. [BJX] appointed over 140 distributors in India to operate this scheme, and three Indian companies, [Indian Company 1], [Indian Company 2], and [Indian Company 3] (“the Three Indian Companies”) to collect the subscription fees in India. The Three Indian Companies remitted the moneys to [Company A] but the moneys were eventually paid into [BJX]’s bank accounts in Singapore. There are two banks accounts held by [BJX] in Singapore: [BJY Account] and [Bank 2 Account] (collectively referred to as “the Bank Accounts”). The Three Indian Companies are considered by the Competent Authority of India to constitute permanent establishments for [BJX] in India. As such, the income of [BJX] that is directly or indirectly attributable to the permanent establishments in India is regarded by the Competent Authority of India as taxable under Indian law. However, the moneys remitted to the Bank Accounts have not been subject to tax.

Further to the information found in the Information Request Correspondence, Ms Chan also tendered [BJX]’s financial statements for the financial year ending 31 December 2011 (“the Financial Statements”) as evidence of a business connection between [BJX] and the Three Indian Companies. The Financial Statements, as described by Ms Chan, indicate the following: Under the “ASSETS” column is an item named “Other receivables”. A breakdown of “Other receivables” includes an item named “Net amounts due from collecting representatives”. The item “Net amounts due from collecting representatives” is described as being commission income due to [BJX] from three external collecting representatives who are responsible for the collection and remittance of subscription moneys generated from the sale of e-magazine subscriptions, in regard to which [BJX] acts as distributor for an external party publisher. The balance receivable from the three external collecting representatives consisted of the amounts owing from them, less the amount owing to the external party publisher and allowance for impairment. Importantly, Appendix 2 to the Financial Statements listed the Three Indian Companies as the trade debtors for which the allowance for impairment amounting to US$8,139,454 was made. The reason for the allowance was stated as “Bank account frozen”.

Ms Chan, on behalf of the Comptroller, averred that certain information regarding the Bank Accounts would assist the Competent Authority of India in, inter alia, determining the actual amount of remittances received by [BJX] from India, tracing and identifying the ultimate recipient(s) of the remittances, and identifying any additional Indian or foreign entities involved in the Ponzi-like scheme.

On that basis, the Comptroller’s application in OS 184 sought, inter alia, an order requiring [BJY] and [Bank 2] to produce the following information, documents and bank records: The bank account statements for the Bank Accounts and any other bank account held by [BJX] which had been opened after the closure of the Bank Accounts (“the Bank Account Statements”); and The bank records and documents in relation to the opening of the Bank Accounts and details of the Bank Accounts (including the application forms, account signatory authorisations, identity verification documents for the signatories, names of the account holders and beneficial owners (if any), and the addresses of the account holders and beneficial owners (if any)) (the “Account Opening Documents”).

Procedural framework for EOI requests

Before setting out the grounds of my decision with regard to the application proper, I will first outline the procedural framework for the making of EOI requests and, in particular, how the present application was made.

For the implementation of EOI obligations under tax treaties entered between Singapore and other countries, the Income Tax (Amendment) (Exchange of Information) Act 2009 (No 24 of 2009) amended the ITA to include s 105A to s 105M and the Eighth Schedule. A request for information by a foreign competent authority to the Comptroller, where there is an arrangement for the avoidance of double taxation in force containing an EOI provision, is expressly provided for by s 105D of the ITA:

105D.―(1) The competent authority under a prescribed arrangement may make a request to the Comptroller for information concerning the tax position of any person in accordance with ― (a) if it is an avoidance of double taxation arrangement, the EOI provision of that arrangement; or (b) if it is an EOI arrangement, the provisions of that arrangement.

(2) Unless the Comptroller otherwise permits, the request must set out the information prescribed in the Eighth Schedule. (3) Every request shall be subject to and dealt with in accordance with the terms of the prescribed arrangement. The Singapore-India DTA is an avoidance of double taxation agreement (“DTA”) that falls within s 105D.

The foreign competent authority must provide the information prescribed in the Eighth Schedule when making its request under s 105D, unless the Comptroller otherwise permits. The requirements in the Eighth Schedule are as follows: 1. The purpose of the request. 2. The identity of the competent authority. 3. The identity of the person in relation to whom the information is requested. 4. A statement of the information requested for including its nature, and the form in which the competent authority wishes to receive the information from the Comptroller. 5. The grounds for believing that the information requested for is held by the Comptroller, the Comptroller of Goods and Services Tax, the Comptroller of Property Tax, the Chief Assessor or the Commissioner of Stamp Duties, or is in the possession or control of a person in Singapore. 6. To the extent known, the name and address of any person believed to have possession or control of the information requested for. 7. A statement that the request is in conformity with the law and administrative practices of the country of the competent authority, and that...