TH Ltd v Comptroller of Income Tax

• Jurisdiction: Singapore
• Judge: T Kulasekaram J
• Judgment Date: 04 March 1982
• Neutral Citation: [1982] SGCA 1
• Docket Number: Civil Appeal No 10 of 1981
• Date: 04 March 1982
• Published date: 19 September 2003
• Year: 1982
• Plaintiff Counsel: Michael Patrick Nolan QC and Andrew Ang (Lee & Lee)
• Citation: [1982] SGCA 1
• Defendant Counsel: Loo Lian Ee (Attorney General's Chambers)
• Court: Court of Appeal (Singapore)
• Subject Matter: What was proper accounting treatment of property tax under 'completed contracts' accounting system,Change in accounting treatment of property tax payments,Deductions,Revenue Law,Income taxation,Accounting,Evidence of accountants relevant but not conclusive,Question of law for court to decide,Claim for deduction of property tax payments by property development company,Application of 'ordinary principles of commercial accountancy' by court

TH Ltd, the appellant company, was incorporated on 15 April 1970 and carries on the business of a housing developer. The company purchased several properties some of which it proceeded to develop and the rest it retained as its `land bank`.

Since its incorporation the company in its accounts pertaining to its development projects used the `completed contract` method of accounting. Under this method revenue is recognized only when the project is completed or substantially completed, costs and progress payments received are accumulated during the course of the project, but profit is not reported until the project is substantially completed.

The company treated each development project separately and individual cost records are kept for each project. Development expenses are `capitalized` in the balance sheet and are accumulated and carried forward from year to year until the project is completed. Upon completion all expenses attributable to a particular project are deducted from proceeds of sale and the net profits, if any, are assessed to tax.

For the accounting years 1970 to 1973 property tax incurred and paid annually by the company in respect of all its properties was `capitalized` in the balance sheet as part of the cost of the company`s properties and did not appear in the profit and loss account. During these accounting years the Comptroller of Income Tax, the respondent, did not object to the company`s adoption of the `completed contract` method of accounting and accepted the treatment of the property tax paid in the accounts as part of the cost of the properties and assessed the income tax payable on that basis.

However, for the accounting year 1974 the property tax paid amounting to $253,980 was for the first time treated in the accounts as an item of expenditure and charged into the debit side of the profit and loss account and this amount was claimed by the company as an item of deductible expenditure under s 14(1) of the Income Tax Act (Cap 141). The Comptroller disallowed this change in the treatment of the property tax payment and assessed the income tax payable accordingly. The company appealed to the Board of Review and the sole issue for determination related to the proper treatment in its accounts of property tax paid by the company in respect of its properties.

The Board heard accountancy evidence. In support of the company Mr Coomber, a practising chartered accountant said that the expensing of the property tax paid under the profit and loss account of the company was not inconsistent with commercial accounting practice and with the `completed contract` method of accounting. He said that property tax should never be capitalized as it does nothing to enhance the value of the property in respect of which property tax is payable and that it would be incorrect to do so.

On the other hand in support of the Comptroller Mr Yip, a certified accountant with no commercial accounting experience but employed by the Inland Revenue Department for 16 years, said that the practice of capitalizing property tax is in accordance with normal accounting practice in the case of a housing developer who adopts the `completed contract` method of accounting. He based his opinion on two publications. One is called `Statement of Standard Accounting...