Shell Eastern Petroleum Pte Ltd v Chief Assessor

• Jurisdiction: Singapore
• Judge: Karthigesu JA
• Judgment Date: 18 November 1998
• Neutral Citation: [1998] SGCA 71
• Docket Number: Civil Appeal No 72 of 1998
• Date: 18 November 1998
• Published date: 19 September 2003
• Year: 1998
• Plaintiff Counsel: Michael Khoo SC and Cheah Kok Lim (Michael Khoo & Partners)
• Citation: [1998] SGCA 71
• Defendant Counsel: Tham Siok Peng (Inland Revenue Authority of Singapore)
• Court: Court of Appeal (Singapore)
• Subject Matter: Annual value,s 2(f)(ii) Property Tax Act (Cap 254 1985 ed),Property tax,Revenue Law,Leasehold property,Whether conversion adopted by Chief Assessor correct,Appeal against notice of assessment of annual value,Whether freehold value to be imputed to leasehold property for purpose of assessing annual value,Annual value of leasehold property 5% of freehold value

Judgment:

LP THEAN JA

(delivering the judgment of the court): Introduction

1.This appeal concerns the determination of the annual value of a leasehold property, namely, Lot 1151 pt of Mukim 19 situate at the junction of Yishun Avenue 5 and Yishun Street 11. The property is a rectangular plot with an area of about 2,000 sq m (`the property`). The property is leased by the State to the appellants for a term of 30 years with effect from 1 July 1992 at a premium of S$13,966,888 which reflects a rate of S$6,983 per sq m. It is a site for a petrol service station which has yet to be built.

2.The Chief Assessor on or about 24 October 1992 issued a notice of assessment proposing to assess the annual value of the property in the sum of S$1,164,000. The Chief Assessor arrived at the proposed annual value on the following basis. Under proviso (f) to s 2 of the Property Tax Act (Cap 254) (`the Act`), the annual value of the property is to be determined as if the property comprised a freehold estate in land. In determining the annual value of the property the Chief Assessor took as the leasehold value the premium of S$13,966,888 paid by the appellants and since the property is leasehold, its value is about 60% of the freehold value (`the conversion rate`). Applying the conversion rate the Chief Assessor arrived at a sum of S$23,278,146 as the freehold value of the property which reflects a rate of S$11,639 per sq m. Under proviso (b) to s 2 of the Act, the Chief Assessor has the option of assessing the annual value of the property at 5% of the estimated value of land, and pursuant to that proviso the Chief Assessor assessed the annual value in the sum of S$1,164,000, which is approximately 5% of the freehold value.

3.The appellants appealed to the Valuation Review Board against the assessment of the Chief Valuer. The Board accepted the assessment of the Chief Assessor and the appellants then appealed to the High Court. The appeal was heard before Christopher Lau JC and he dismissed the appeal [see [1998] 3 SLR 264]. The appellants now appeal against that decision.

4. The appeal

Before us the appellants challenged the determination of the annual value by the Chief Assessor on two grounds. First, para (ii) of proviso (f) to s 2 of the Act does not require the Chief Assessor, in determining the annual value of the property, to convert its leasehold value into a freehold value. Secondly, even if the Chief Assessor was right in assessing the annual value of the property at 5% of its freehold value, he was wrong in applying the conversion rate of 60%. The leasehold value of a property in fact should be 76.86% of its freehold value. This appeal therefore raises the following issues: (a). whether on the true construction of proviso (f) to s 2 of the Act the Chief Assessor in determining the annual value of the property is required to convert the leasehold value of the property into a freehold value; and

(b). if the answer to the above issue is in the affirmative, having regard to all the circumstances of the case, whether the conversion rate of 60% adopted by the Chief Assessor in determining the freehold value should be accepted.

5. Construction of proviso (f) to s 2 of the Act

The first issue turns on the true construction of proviso (f) to s 2 of the Act. It is convenient at this point to set out, so far as relevant, the provisions of s 2 of the Act, which are as follows:

In this Act, unless the context otherwise requires -

`annual value`, as used of a house or building or land or tenement, not being a wharf, pier, jetty or landing-stage, means the gross amount at which the same can reasonably be expected to be let from year to year, the landlord paying the expenses of repair, insurance, maintenance or upkeep and all taxes ...

Provided that -

(a) ...

(b) in assessing the annual value of any property, the `annual value` of the property shall, at the option of the Chief Assessor, be deemed to be the annual value as hereinbefore defined or the sum which is equivalent to the annual interest at 5% -

(i) on the estimated value of the property, including buildings, if any, thereon; or

(ii) on the estimated value of the land as if it were vacant land with no buildings erected, or being erected, thereon;

...

(f) in assessing the annual value of any property comprised in a statutory land grant or lease of State land or a lease of property by a public authority for a period exceeding 3 years -

(i) the grantee or lessee of the property shall be deemed to be the owner thereof;

(ii) the annual value of the property shall be determined as if that property comprised a freehold estate in land; and

(iii) no deduction shall be made of any premium or rent payable to the Government or the public authority;

We should mention that in the 1997 revised edition of the Property Tax Act, the provisos (a) to (f) to s 2 appear as sub-ss (2) to (7) respectively of s 2.

6.In construing proviso (f) to s 2 of the Act, the learned judicial commissioner held that there was no ambiguity in the proviso. Indeed, in his opinion, the provision there could not have been clearer. The learned judicial commissioner said at [para ] 9 of his grounds of decision as follows:

The provision could not have been clearer. It provided the Chief Assessor with a basis for determining the annual value of the property as if that property comprised a freehold estate in land. The Parliamentary Secretary to the Minster for Finance at the second reading of the Property Tax (Amendment) Bill on 31 July 1968 in a speech dealt with s 2(f)(ii) in this one sentence: `... Secondly, it provides for the assessment of property to be conducted in the same way as if they are freehold estates in land` in contrast to his elaboration in the same speech of provisos f(i) and f(iii). I accepted the Chief Assessor`s submission that this confirms that there could have been no ambiguity in proviso f(ii); it provided a basis for determining the annual value of the property as if that property comprised a freehold estate in land by imputing a freehold value to the property. The assessment of the property had to be conducted in the same manner as if it was a freehold estate in land.

7.Following from what he said, the learned judicial commissioner opined that if the leasehold value is not required under para (ii) of proviso (f) to be converted into a freehold value and the annual value under proviso (b) is to be assessed at 5% of the leasehold value, then para (ii) of proviso (f) would become otiose. That would be against the fundamental rule of statutory interpretation that Parliament does not legislate in vain. He said in [para ] 10:

... The proviso did not say that the estimated value of the property was to be its leasehold value. The estimated value of any property ought to be the freehold value of the property as the leasehold value reflects the value for a fixed duration only. If it did, it would have meant that the annual value would be 5% of the leasehold value - 5% of the premium paid would be $698,344.00 - in which event proviso (f) would have no meaning at all. This goes against the fundamental rule of statutory interpretation that Parliament does not enact in vain.

8.The learned judicial commissioner was of the further opinion that if the annual value of a leasehold property was to be assessed at 5% of the leasehold value, it would result in the owner of the property paying lower property tax annually as well as for a shorter period than an owner of an identical freehold property. He said at [para ] 11:

To assess the leasehold property at a lesser annual value than the freehold property would be double discounting of two properties that are physically similar. Not only would the owner of the leasehold property be paying tax at a lower annual value but also he would be paying tax for a shorter period. The difference in tenure should only result in the difference in the period over which the tax was to be paid.

9.Before us, counsel for the appellants contends as follows. Proviso (f) to s 2 of the Act was not intended to create a basis for assessing or computing the annual value. Paragraph (i) thereof merely deems, among others, a grantee or lessee of State land for a period exceeding three years to be the owner of the property for the purposes of annual value. Paragraph (ii) thereof provides for the assessment of such property to be conducted in the same way as if the property were freehold land and para (iii) does not permit any deduction for premiums or rent payable to the government so that full property tax will be collected. There is nothing in the language of that proviso to suggest even remotely that the leasehold value has to be converted into a freehold value. Counsel relies on the following explanation of proviso (f) given by the Parliamentary Secretary to the Minister for Finance in his speech during the second reading of the Property Tax (Amendment) Bill on 31 July 1968:

In the case of property comprised in a statutory land grant or lease of State land or a lease of property for a period exceeding three years by a public authority, another para 2(f) is inserted. Firstly, it deems the grantee or lessee of such land to be the owner for purposes of assessing annual value. Secondly, it provides for the assessment of property to be conducted in the same way as if they are freehold estates in land. And thirdly, it disallows deductions for premium or rent payable to the Government so that full property tax may be levied.

The present situation is that when such lands are leased with a prohibition against sub-letting, the lessee is not regarded as the owner for purposes of the Property Tax Ordinance and so no tax is paid. Where there is no prohibition against sub-letting, the lessee is regarded as the owner and pays tax. But the law at present allows the lessee to deduct the proportionate amount of the tax paid or (in the case of Government leases) the rent payable

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