NP and Another v Comptroller of Income Tax

• Jurisdiction: Singapore
• Judge: Judith Prakash J
• Judgment Date: 31 August 2007
• Neutral Citation: [2007] SGHC 141
• Docket Number: District Court Appeal No ITA 1 of 2006
• Date: 31 August 2007
• Year: 2007
• Published date: 05 September 2007
• Plaintiff Counsel: Nicholas Lazarus (Justicius Law Corporation)
• Citation: [2007] SGHC 141
• Defendant Counsel: Usha Chandradas and Ong Ken Loon (Inland Revenue Authority of Singapore)
• Court: High Court (Singapore)
• Subject Matter: Accounting,Revenue Law,Section 81(2) Income Tax Act (Cap 134, 2004 Rev Ed),Income taxation,Approach of court,Whether property sales amounting to trading,Whether issue one of mixed fact and law,Appeals,Husband and wife buying eight residential properties and selling seven of them in eight years,Whether buying and selling properties amounting to trading

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

31 August 2007 Judgment reserved.

Judith Prakash J

Introduction

1 The appellants, NP and XY, are husband and wife. During the eight years between June 1988 and March 1996, they bought eight residential properties (“the properties”) and sold seven of them. In 1999 and 2000, the Comptroller of Income Tax (“the Comptroller”) issued, in total, three notices of additional assessment against the appellants. These notices of assessment related to the gains made by the appellants when they sold four of their properties. The appellants were dissatisfied with the notices and applied to the Comptroller for the assessments to be reviewed and revised. In July 2004, the Comptroller rejected these applications.

2 The appellants did not accept this decision. Accordingly, on 6 August 2004, they filed a notice of appeal with the Income Tax Board of Review (“the Board”) pursuant to s 79(1) of the Income Tax Act (Cap 134, 2004 Rev Ed) (“the Act”) in respect of three of the properties. Having heard the parties’ submissions, on 12 December 2006, the Board dismissed the appellants’ appeals in respect of two of the properties but allowed their appeal in respect of one property. The appellants were still dissatisfied and therefore lodged an appeal to this court against the decision of the Board.

Background

3 The notices of additional assessment raised by the Comptroller were issued on the basis that the gains arising out of the sale of the appellants’ properties were chargeable to tax under s 10(1)(a) of the Act as profits made from trading activities. This section reads:

Charge of income tax

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.

4 An agreed statement of facts was filed before the Board. It was not in dispute that the appellants had bought and sold the properties in question or that they had realised a profit from each of the sales. The stand taken by the appellants was that they were not trading in the properties as the same had each been purchased to provide a residence for themselves and their children. A summary of the transactions carried out by the appellants over the years appears below.

No.	Property	Purchase		Sale		Holding Period (Approximation)
		Contract Date	Price ($)	Contract Date	Price ($)
1	(“Greenwood Grove”)	11/06/88	575,000	30/11/90	725,000	2.4 years
2	Waterside unit”)	31/12/90	963,840	04/02/93	1,340,000	2.1 years
3	Close”)	22/03/93	1,430,000	29/07/93	1,690,000	4 months
4	Marque unit”)	17/05/93	1,090,000	17/08/94	1,400,000	1.25 years
5	Sejarah”)	27/06/94	3,465,000	27/01/95	4,190,000	7 months
6	(“Hillcrest Road”)	06/05/95	2,200,000	20/08/99	2,050,000	4.25 years
7	Drive”)	26/05/95	1,800,000	-	-	-
8	(“Chatsworth Avenue”)	03/10/95	5,950,000	Feb/March 1996	6,270,000	5 months

5 The four properties in respect of which the notices of additional assessment were issued were the Waterside unit, Watten Close, Jalan Sejarah and Chatsworth Avenue. The appellants appealed to the Board on all except Chatsworth Avenue. The Board allowed the appellants’ appeal in respect of Jalan Sejarah but dismissed the appeals relating to the Waterside unit and Watten Close.

Appeals against the Board

6 The law relating to appeals from decisions of the Board is not in dispute. The applicable legislation is found in s 81 of the Act. Under s 81(2), an appeal from a decision of the Board to the High Court may be made by the taxpayer or the Comptroller provided that the amount of tax involved is more than $200 and that the question arising in the appeal is one of law or one of mixed fact and law. Appeals on questions of fact alone are not permitted. There is a similar rule in the United Kingdom and the rationale for the same was well explained by Lord Radcliffe in the case of Edwards v Bairstow & Harrison [1955] 36 TC 207 when he said (at 231):

As I see it, the reason why the Courts do not interfere with Commissioners’ findings or determinations when they really do involve nothing but questions of fact is not any supposed advantage in the Commissioners of greater experience in matters of business or any other matters. The reason is simply that by the system that has been set up the Commissioners are the first tribunal to try an appeal and in the interests of the efficient administration of justice their decisions can only be upset on appeal if they have been positively wrong in law. The Court is not a second opinion, where there is reasonable ground for the first. But there is no reason to make a mystery about the subjects that Commissioners deal with or to invite the Courts to impose any exceptional restraints upon themselves because they are dealing with cases that arise out of facts found by Commissioners. Their duty is no more than to examine those facts with a decent respect for the tribunal appealed from and, if they think that the only reasonable conclusion on the facts found is inconsistent with the determination come to, to say so without more ado.

It is clear from the above passage that whilst the findings of fact made by the Board must generally be respected, the court is free to decide whether the conclusion reached by the Board is consonant with the facts found and to reject the Board’s conclusions if the same are unreasonable.

7 In the local case of Mount Elizabeth (Pte) Ltd v Comptroller of Income Tax [1986] SLR 421, Chan Sek Keong JC (as he then was) considered Edwards v Bairstow and commented at 136:

In the context of Lord Radcliffe’s speech in Edwards v Bairstow & Harrison, at pages 227-8 and the Court of Appeal’s decision in CBH v Comptroller of Income Tax as to the test an appellate body must apply in hearing an appeal of this nature, the submissions of counsel for the applicant can be distilled and encapsulated into one contention, and that is, the Board erred in law in that no reasonable body of members constituting an Income Tax Review Board could have reached the findings reached by the Board in this instance.

The learned judge accepted that contention and went on to state that in the appeal before him, the appellant had a heavy burden to discharge before achieving lift off because the Board had had ample evidence before it to make the findings that it did. After considering the evidence, Chan Sek Keong JC held that not only had there been sufficient evidence for the Board to reach the conclusion it did but there was also other evidence which the Board could have relied upon or drawn inferences from to reinforce its conclusions. It should also be noted that when the Court of Appeal’s decision in CBH v Comptroller of Income Tax [1980-1981] SLR 238 was appealed against to the Privy Council, that body observed ([1985] MJL 6), in dismissing the appeal, that the Court of Appeal had asked itself the right question which was whether a reasonable tribunal could have reached that decision of fact.

8 Thus, while the Comptroller contended that the appeal brought by the appellants was purely on factual issues and should not be allowed on that basis, I cannot accept that submission because what I have to determine is whether a reasonable tribunal could, on the evidence before it, have reached the conclusions that the Board did. Further, the question of whether a trade has been carried on has been determined to be a question of law on the one hand and of fact on the other: see Simon’s Income Tax Vol 1 at 21. Thus, in any event, the issue of whether the appellants were trading in properties in relation to the Waterside unit and Watten Close would be a question of mixed fact and law.

The law on “trading” under s 10(a) of the Act

9 Whilst, there is no definition of “trade” in the Act, it is common ground that in determining whether a trading activity has been carried on or whether a particular transaction was a trading transaction, the court examines various characteristics of trading activities (referred to as “badges of trade”) and the extent to which the transaction in question reflects those characteristics. In his article “Badges of Trade Revisited” (Singapore Journal of Legal Studies [1996] 43-78), Prof Teo Keang Sood stated that there was no single indicium that was determinative of the question whether the activities of a taxpayer in real property transactions amounted to the carrying on of a trade or business or were simply investment activities. He went on to identify 11 factors or characteristics that would be taken into account when such a question was being determined. Some of those characteristics related specifically to corporations but the following characteristics are common to both individuals and corporations. These are:

(a) the motive of the taxpayer;

(b) the nature of the subject matter;

(c) the method of financing;

(d) whether there has been a multiplicity of similar transactions;

(e) the duration of ownership;

(f) the application of special skill/supplementary work; and

(g) reasons for realisation.

The above badges of trade are similar to those found in the Final Report of the 1954 UK Royal Commission on the Taxation of Profits and Income (“the Report”). The guidelines in the Report were cited with approval and applied by the Board in the local case of W Holdings Pte Ltd v CIT [1992] MSTC 5135 at 5151. The badges identified by the Report are subject matter of realisation, length of period of...