Revenue and Tax Law
| Date | 01 December 2019 |
| Publication year | 2019 |
| Citation | (2019) 20 SAL Ann Rev 662 |
| Published date | 01 December 2019 |
| Author | TAN Kay Kheng LLB (Hons) (National University of Singapore); CDipAF (Association of Chartered Certified Accountants); MAcc (Charles Sturt University); MTax (University of New South Wales); MTS (Trinity Theological College); CTA, FCPA (Australia), ATA (Income Tax), FSIArb; Advocate and Solicitor (Singapore). Leonard GOH MA (Cambridge); Advocate and Solicitor (Singapore); Deputy Senior State Counsel, Legislation Division, Attorney-General's Chambers. |
25.1 The Supreme Court delivered six decisions in 2019, all decided in the High Court. They covered a range of issues besides substantive issues of revenue law, such as tax crime, enforcement by the tax authority to collect unpaid taxes and judicial review.
25.2 There are therefore, in our view, six cases for the year 2019 that had some relevance to revenue law:
| Tax type | High Court | Court of Appeal |
| Income tax | 3 |
|
| Stamp duty | 2 | No decisions |
| Property tax1 | 1 |
|
25.3 In Allswell Marketing Pte Ltd v Public Prosecutor2 (“Allswell”), the taxpayer was convicted by a magistrate on two charges relating to its failure to file income tax returns for more than two years. The relevant statutory provision for these charges was under s 94A(3) of the Income Tax Act3 (“ITA”), which states:
Any person who fails or neglects without reasonable excuse to comply with section 62 or 71(1) in respect of any year of assessment for 2 years or more shall be guilty of an offence and shall be liable on conviction to —
(a) a penalty equal to double the amount of tax which the Comptroller assesses him to be liable for that year of assessment after determining, to the best of the Comptroller's judgment, the amount of his chargeable income; and
(b) a fine not exceeding $1,000, and in default of payment to imprisonment for a term not exceeding 6 months.
[emphasis added]
25.4 This provision therefore provides for both a penalty and a fine when sentencing a taxpayer that is convicted by the court. In Allswell, the magistrate found the taxpayer guilty and sentenced it to a fine as well as a penalty that was double of the tax assessed by the Comptroller of Income Tax (“the Comptroller”) for the years of assessment 2010 and 2011, that is, double of $142,388.4 The taxpayer disputed the amount of tax that should be assessed and argued that it ought to be in the range of $19,000.5
25.5 On appeal to the High Court, the taxpayer did not appeal against the conviction or the fines, but appealed only against the penalty ordered.6 The sole issue turned on the interpretation of s 94A(3)(a) regarding the Comptroller's assessment of the tax relating to the years of assessment in question, which ought to have been done “to the best of the Comptroller's judgment”.
25.6 The High Court judge, See Kee Oon J, observed that the court had no discretion whether to order the penalty as it was mandatory, or to determine its quantum once the amount of tax was assessed. The only basis for determining the penalty and its quantum was the Comptroller's assessment.7
25.7 The taxpayer's main line of argument was based on the availability of a right of appeal against the Comptroller's assessment to the Income Tax Board of Review (“the Board”) (and possibly thereafter, to the High Court and Court of Appeal) under Pt XVIII of the ITA. As the Comptroller's assessment may be found to be inaccurate by the Board or the courts, the relevance of such finding in relation to the Comptroller's assessment for the purposes of s 94A(3)(a) arose for consideration in Allswell.8
25.8 Taking a step back, See J first addressed the “best judgment” requirement in s 94A(3)(a) and held that:9
… the Comptroller must have made what he honestly believed to be a fair determination of the taxpayer's chargeable income based on the material available to him. This decision must not be capricious, vindictive, wholly unreasonable, or against the interests of good administration …
This view was essentially based on the well-known Wednesbury principle,10 which was applied in an earlier revenue case in Singapore, namely, JD Ltd v Comptroller of Income Tax.11
25.9 See J then considered two differing scenarios: where the Comptroller's assessment has been revised on appeal at the time of sentencing in s 94A(3) proceedings, and where the appeal is still pending.
25.10 Where the assessment had been revised by the Board or the courts, the court found that any issue of the Comptroller disregarding the revised assessment was more illusory than real. Under s 80(14) of the ITA, the Comptroller had a statutory obligation to revise his assessment in line with the decision of the Board and courts. It was not open to the Comptroller to refuse to do so. Hence, even though a penalty under s 94A(3)(a) would be imposed on the basis of the Comptroller's assessment as it stood on the date of sentencing, the Comptroller was
25.11 Where there is a pending appeal on the tax assessment, See J reiterated the point that s 94A(3)(a) makes no reference to the appeal process. The relevant assessment for computing the penalty is therefore the Comptroller's assessment at the time of sentencing. There is also nothing in the ITA to indicate that sentencing is to be deferred until the statutory appeal process has been exhausted.13 This would not lead to a potentially absurd result when an assessment is revised downwards in the appeal process, since the court may be invited to exercise its revisionary powers:14
No serious prejudice need result from this interpretation. I am conscious that should an appeal under Pt XVIII of the ITA succeed, this may result in a revised assessment and a lower penalty or possibly even none at all. Where the matter has proceeded before the High Court on appeal, the court may be invited upon a taxpayer's successful appeal to exercise its revisionary powers to revise the initial order for the penalty made below. Correspondingly, the Prosecution should take steps to rectify the initial order for the penalty, to set the record straight in the interests of fairness and justice.
25.12 On a procedural point, See J also ruled that under the relevant provisions of the Criminal Procedure Code,15 the sentencing court has a discretion to adjourn proceedings in limited instances.16 This includes primarily the instance:17
… where the offender mounts a credible challenge to the Comptroller's assessment on the ground that he has not exercised his best judgment. This is since the Comptroller's exercise of best judgment is a pre-requisite for the imposition of the penalty.
25.13 On the facts, the court found that the taxpayer did not mount a credible challenge on the ground of the Comptroller's failure to exercise his best judgment in making the tax assessments. The magistrate was also correct to proceed with the sentencing, without adjourning the same due to the tax appeal pending before the Board. The appeal was therefore dismissed.18
25.14 It may be helpful to highlight here that penalties under the ITA, including that under s 94A(3)(a), do not excuse or relieve the taxpayer from paying the taxes actually assessed. This is made clear by s 99 of the ITA. In other words, the penalties (or the fines as well, for that matter) are wholly punishments for the offences that the taxpayer is convicted of. That being so, the observations by See J on the availability of the court's revisionary powers to change an initial order imposing penalties are to be welcomed, since the punitive characteristic of the penalty persists even if it is revised downwards.19
25.15 The background to capital allowances and how a balancing charge may arise was succinctly summarised by the High Court in the case of BZZ v Comptroller of Income Tax20 (“BZZ”):
In the scheme of things, a taxpayer is given capital allowances on his capital assets to cover capital depreciation. When the capital asset is sold at a price exceeding the amount of capital allowances not claimed, or what is called the ‘tax written-down’ value, the Comptroller will recover the difference from the seller as the ‘balancing charge’, in this case, $40,476,347. There is no dispute that if a balancing charge were to be levied for the sale in this case, $40,476,347 would be the correct amount to be charged.
25.16 The issue in BZZ was whether an exception to the imposition of a balancing charge as provided in s 24 of the ITA was applicable. BZZ involved a sale of a property from the appellant to the trustee (“BMT”) of a real estate investment trust (“FCOT”). The parties and their relationships in terms of shareholding and ownership are mentioned in the course of the judgment21 and it is presented here pictorially as follows for ease of understanding:
25.17 The issue turned on the meaning of “control” in s 24(1) of the ITA, in the context of control between the seller and the buyer allowing for an exception to imposing a balance charge. In this connection, s 24(1) provides:
This section, except subsection (5), shall have effect in relation to any sale of any property where the buyer is a body of persons over whom the seller has control, or the seller is a body of persons over whom the buyer has control, or both the seller and buyer are bodies of persons and some other person has control over both of them, and the sale is not one to which section 33 applies.
25.18 The appellant argued that control was to be contemplated in a wider sense, and this would be found in how the manager (FCAM) controlled BMT. The accounts of FCOT and FCL were also consolidated. Such control over BMT could be assumed, even though BMT also owed fiduciary duties to FCOT.22
25.19 The judge, Choo Han Teck J, ultimately rejected the appellant's arguments. He noted that BMT as trustee had duties and obligations rising above those to the manager, so the apparent control of the manager over BMT was not absolute. Choo J also noted that the “question of control is not about the control between the...
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