Shell Eastern Petroleum Pte Ltd v Chief Assessor

• Jurisdiction: Singapore
• Judge: Christopher Lau JC
• Judgment Date: 18 April 1998
• Neutral Citation: [1998] SGHC 124
• Docket Number: Originating Motion No 66 of 1994
• Date: 18 April 1998
• Year: 1998
• Published date: 26 January 2004
• Plaintiff Counsel: Michael Khoo and Cheah Kok Lin (Michael Khoo & Partners)
• Citation: [1998] SGHC 124
• Defendant Counsel: Tham Siok Peng (Inland Revenue Authority of Singapore)
• Court: High Court (Singapore)
• Subject Matter: Whether value of property on 30-year lease about 60% of its freehold value,Conversion factor derived from use of comparable evidence,s 2(f)(ii) Property Tax Act (Cap 254),Appeal against notice of assessment of annual value of property,Property tax,Revenue Law,Whether conversion factor of 60% fair and reasonable,30-year leasehold property leased from State,Whether property to be valued on freehold basis under s 2(f)(ii) Property Tax Act (Cap 254),Annual value

Judgment:

CHRISTOPHER LAU JC

This matter concerned an appeal by Shell Eastern Petroleum Pte Ltd (the appellants) against the dismissal by the Valuation Review Board (the Board) on 20 June 1994, of the appellants` appeal against a notice of assessment dated 24 October 1992 issued by the Chief Assessor, proposing an annual value of S$1,164,000 for the appellants` property, a petrol station site, with effect from 1 July 1992.

2.I dismissed the appellants` appeal, after considering the evidence and counsel`s submissions. These are my reasons.

3.The property in question (the subject property) is a rectangular piece of land of 2,000 square metres situated at the junction of Yishun Avenue 5 and Yishun Street 11. It is a petrol station site (on which a petrol station has yet to be built) leased by the State to the appellants for a term of 30 years with effect from 1 July 1992 for a premium of S$13,966,888. The premium reflects a rate of S$6,983 per square metre.

4. Civic Development Pte Ltd v Chief Assessor The basis for the Chief Assessor`s proposed annual value was inter alia, that: (a). under s 2(f)(ii) of the Property Tax Act (the Act), the subject property was to be valued on a freehold basis;

(b). the value of the property on a 30-year lease was about 60% of its freehold value;

(c). this 60% conversion factor was fair in view of

(i). the Board`s decision in 1990 in ; and

(ii). the empirical evidence.

5.Having considered the premium for the 30-year lease was 60% of freehold value, the freehold value was by that means then determined by the Chief Assessor to be S$23,278,146 or S$11,639 per square metre. In arriving at the annual value for the subject property, the Chief Assessor had exercised his option under s 2(b) of the Act by deeming the annual value to be a sum which was equivalent to the annual interest at 5% on the estimated value of the property as if it were vacant land, that is, S$1,164,000.00 or 5% of S$23,278,146.00.

6.In its grounds of decision dated 29 April 1995, at p 3, the Board stated:

The Board accepted the Chief Assessor`s submission that the actual tender price where the 60% was used was based on the table supplied by the Land Office and that as required under s 2(f) of the Property Tax Act that the subject property is to be valued on a freehold basis. The value of the land on a 30-year lease is about 60% of its freehold value. Having regard to the fact that the tender price reflects the freehold leased rate, the Board accepted the Chief Assessor`s computation reflected a fair 30-year lease on the subject land.

The Board also accepted the Chief Assessor`s contention that the tender price of other petrol stations was evidence of the value.

The Board rejected the appellant`s contention that such comparisons are not acceptable.

7.The appellants contended that: (a). the Board had erred in law and in fact in accepting the Chief Assessor`s contention that in assessing the annual value of the subject property under s 2(f) of the Act, `the subject land is to be valued on a freehold basis`. The argument was that s 2(f) was introduced to overcome the uncertainty as to whether flat owners were `owners` and hence liable to pay property tax. Section 2(f) it was argued had been enacted to ensure only that flat owners were liable for tax as if they were owners of freehold property. It was also argued the proviso did not create a basis for the computation of the annual value and that there was no necessity to convert the leasehold value of the property to a freehold value; the leasehold property being, by virtue of the proviso, to be treated as having a freehold value;

(b). even if the property was to be valued on a freehold basis, the Board had erred in law and in fact by allowing the Chief Assessor to apply a conversion factor of 60% of the freehold value of the property, which factor was wrong and was not supported by any sales evidence or in law;

(c). the Chief Assessor was incorrect in relying on the sales of two petrol stations and flatted factories as `comparables`, and in not considering that adjustments were necessary;

(d). the appellants were correct in contending that in imputing a freehold value to the leasehold interest, the leasehold premium should have been converted to the freehold value using a rate of 76.86%;

(e). accordingly, the fair annual value of the subject property could not be S$1,164,000 but a lesser amount.

8.Proviso (f)(ii) to the definition of annual value in s 2 of the Act was however a statutory direction that the Chief Assessor had to follow in determining the annual value of the property. The proviso stated:

Provided that -

(f) in assessing the annual value of any property comprised in a lease of State Land for a period exceeding 3 years -

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

9.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 Minister 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.

10.It meant that the leasehold value (the premium paid), of the property, ie $13,966,888 had to be converted into a freehold value, $23,278,000.00, and 5% of this `estimated value` of the property would be its annual value. 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...