HZ and Another v Comptroller of Income Tax

• Jurisdiction: Singapore
• Judge: Wong Keen Onn
• Judgment Date: 14 October 2004
• Neutral Citation: [2004] SGDC 253
• Court: District Court (Singapore)
• Published date: 25 May 2005
• Year: 2004
• Plaintiff Counsel: Lim Chor Pee (Chor Pee and Partners)
• Defendant Counsel: Joyce Chee and Liu Hern Kuan
• Citation: [2004] SGDC 253

[EDITORIAL NOTE: The details of this judgment have been changed to comply with s 83(3) Income Tax Act (Cap 134, 2004 Rev Ed)]

14 October 2004

District Judge Wong Keen Onn (Chairman)

Prof Tan Teck Meng (Member)

Ronny Tan Chong Tee (Member)

Background

1 This is an appeal by HZ and B (the First Appellant and Second Appellant respectively) against the Comptroller of Income Tax (Respondent’s) in respect of Notices of Additional Assessment 2001 issued to both HZ and B for Year of Assessment 1995 for tax on the sum of $290,392 each on the basis of each other’s share of profit from the sale of a shop at [xxx] Singapore.

2. On 17 January 2002, the Appellants applied to the Comptroller of Income Tax under section 76(2) of the Income Tax for the assessments to be revised. The Comptroller of Income Tax issued Notices of Refusal to Amend to First Appellant HZ on 21 June 2002 and to the Second Appellant B on 12 August 2002. The First Appellant HZ and the Second Appellant B filed Notices of Appeal to the Board of Review on 27 June 2002 and 12 August 2002 respectively.

3. The issue in these appeals concerns whether the profit derived by the Appellants from the sale of the property are of an income nature and hence liable to tax under section 10(1)(g) of the Income Tax Act. The appeals were heard by the Board on 13 May, 14 May, 7 July, 8 July, 3 September, 23 September 2004 and 14 October 2004.

Facts

4. Briefly, this is a case where the Appellants, HZ and B (father and son), purchased a shophouse from the Housing and Development Board (HDB) under the Sale of Tenants Shops Scheme. The Appellant’s application was accepted by HDB on 15 October 1993 at a price for $670,000. The purchase was completed on 13 January 1994 and the Appellants were registered as lessees under the Land Titles Act for that property with effect from 1 October 1993. The Appellants, on 4 February 1994, granted an option to sell the shop to a purchaser C for $1.3 million. The option was exercised by C on 8 February 1994. On 18 March 1994, the HDB approved the resale of the Shop to the purchaser: The sale of the shop to the purchaser resulted in a gain of $580,784 and the share of profit for each Appellant from the sale of the shop was $290,392. The Comptroller of Income Tax (Respondent) issued the assessment for the amount of profit to the Appellants on 26 December 2001.

5. Both parties tendered an Amended Agreed Statement of Facts, Exhibit AASOF and Agreed Bundle of Documents, Exhibit ABD before this Board at the hearing. During the course of the hearing, the Appellants tendered additional documents and photographs which were admitted and marked as Exhibits AD1, AD2 AD3, AD4, AD5 and AD6 respectively. The Respondent tendered in documents which were admitted and marked as Exhibits RD-1, RD-2 and RD-3. The Appellants gave evidence on their behalf. The Comptroller did not call any witness to give evidence on his behalf.

6. For the purpose of the appeal, parties agreed to the following facts as stated in the Amended Agreed Statement of Facts (AASOF):

(1) The appellant are HZ, a retired businessman (referred to as “First Appellant” and his son, B (referred to as “Second Appellant”), both of [xxx].

(2) The First Appellant HZ and his wife had carried on a retail garment business in a shop at [xxx] Singapore (“the Shop") formerly rented from the HDB.

(3) By a letter dated 1 October 1993, under the Sale of Tenanted Shop Scheme, the HDB informed the First Appellant HZ, as registered tenant, that he could make an application to purchase the Shop that he was then renting at a price of $670,000.00.

(4) The Appellants made an application to the HDB to purchase the Shop and the application was approved by the HDB on 15 October 1993.

(5) The Appellants’ purchase of the Shop from the HDB was completed on 13 January 1994. The Agreement for Lease between the Appellant and the HDB was registered in the names of the Appellants as joint tenants.

(6) As evidenced by a letter from [xxx] Bank dated 24 December 1993, the entire purchase price was financed by loans and overdraft from [xxx] Bank amounting to $699,500.00 comprising:-

HDB Shop Loan I $345,900.00

HDB Shop Loan II $ 53,600.00

Overdraft $270,000.00

(7) The monthly instalment for HDB Shop Loan I was $2,235.29 for the first year from the date of first disbursement of HDB Shop Loan 1 and the monthly instalment for subsequent years were to be informed by [xxx] Bank. As regards HDB Shop Loan II, the Appellants were not informed of the monthly instalment. For both HDB Shop Loans I and II, the Appellants were to pay interest of 4.75% per annum on a monthly rest basis for the first year and such interest as the Bank may determine from time to time after the one year period. As regards the overdraft of $270,000, the Appellants had to pay interest of 1.00% per annum over the Bank’s prime lending rate calculated on daily balances with monthly rest.

(8) The income of the garment business was not good enough to sustain the payment of the heavy cashflow that would have to be incurred in the months ahead.

(9) On 4 February 1994, the Appellants granted an Option to sell the Shop to C (“the Purchaser) for $1,300,000. The Option was exercised by the Purchaser on 8 February 1994.

(10) The Appellant HZ was able to use the profit from the sale to pay for his son’s education overseas.

(11) The Appellant made an application to the HDB for approval of the resale of the Shop. On 18 March 1994, the HDB approved the resale of the Shop to the purchaser.

(12) By Notice of Additional Assessment S2132185J dated 26 December 2001, the Comptroller of Income Tax assessed the Appellant HZ for the Year of Assessment 1995 tax on the sum of $290,392.00 on the basis of his share of the profit from the sale of the Shop.

(13) By Notice of Additional Assessment S7229452A dated 26 December 2001, the Comptroller of Income Tax assessed the Appellant B for the Year of Assessment 1995 tax on the sum of $290.392.00 on the basis of his share of the profit from the sale of the shop.

7. Parties had also included extracts of newspaper reports of the Sale of Tenanted Shop Scheme in the Agreed Bundle of Documents, Exhibit ABD. The relevant extracts of that scheme as announced in the newspapers is reproduced below:

Extract from front page of the The Straits Times dated 3 March 1992 (at page 64 of Exhibit ABD)

“Details of sale of premises to tenants to be announced tomorrow

UPGRADING PLAN FOR HDB RETAIL SHOPS LAUNCHED

The Government will announce tomorrow details of the plan to sell Housing Board shop lots to their tenants as part of a comprehensive multi-agency effort to help local retailers upgrade.

Mr Lim Boon Heng, Senior Minister of State (Trade and industry) said yesterday at the launch of the Retail Sector Development Plan that restructuring of the sector was necessary to improve HDB shopkeepers’ productivity and profitability. He said the government’s master plan for the retail sector would start with two pilot projects in Toa Payoh and Tampines Neighourhood 2 – representing the older and newer estates respectively.

… … …”

__________________________________________________________

Extract from page 30 of The Straits Times dated 3 March 1992 (at page 65 of Exhibit ABD)

“HDB shopkeepers doing badly, struck in low-wage. Low productivity bind … … …

Have you ever wondered how well your neighbourhood HDB retailers and their workers are doing? This means that half the number of HDB shopkeepers have gross monthly incomes of between $1,000 and $2,000 – and this is before taking into account expenses like telephone, water and electricity and other utility charges. Only nine out of every 100 shops have a monthly turn over of over $40,000.

About half of all HDB retailers employ one of three workers. The salary paid is under $700 a month, with 12 per cent of the retailers paying their employees less than $500 a month.

Because of the low wages they offer, HDB shopkeepers have difficulty attracting local workers and must rely on family members or foreign workers. The HBD shops are therefore trapped in a vicious circle: they are unable to offer competitive wages because business is low and profit poor; and this in turn makes it difficult for them to upgrade to become more productive.

Their problems are exacerbated by “the changed consumer patterns and lifestyles, and a more competitive business environment”, said the EDB. To break this cycle and help then upgrade and modernise, the government has drawn up the Retail Sector Development Plan which will focus on helping retailers cope with the changing business environment, keep pace with rising customer demands and expectations, and upgrade and improve the efficiency of operations.

BACKGROUND … … … Apr 88: HDB put 33 shops in Bishan up for public tender, marking the start of HDB’s extension of its home-ownership programme to shop ownership. CPF could be used for the purchase of 99-lease shops. … … … Aug 91: Mr Dhanabalan disclosed in a PAP dialogue session that HDB was working out a plan to allow shop tenants in older estates to buy their units instead of leasing them. HDB had been renting out shops since 1960 at the then market rates. Attempts to raise rentals had however led to unhappiness among the tenants, he said. Sept 91: MND reassured shop tenants that the government would not use the open tender system to sell HDB shops. Nov 91: Deputy Prime Minister Lee Hsien Loong assured shop tenants that the price of their shops would be determined as fairly as possible when HDB works out a scheme to let them buy over their shop units

“Extract from front page of The Straits Times dated 5 March 1992 (Thursday) (at page 65 of Exhibit ABD)

Eligible tenants will get discount from market prices of comparable new shops

HDB SALE OF SHOPS STARTS FROM JUNE

From June 1, HDB tenants can buy their shops at a discount from market prices, said the National Development Minister yesterday. Under the sale programme involving 12,000...