Thomson Hill Ltd v Comptroller of Income Tax

• Jurisdiction: Singapore
• Judge: Lord Brandon of Oakbrook
• Judgment Date: 15 February 1984
• Neutral Citation: [1984] SGPC 2
• Docket Number: Privy Council Appeal No 49 of
• Date: 15 February 1984
• Published date: 19 September 2003
• Year: 1984
• Plaintiff Counsel: Steward Bates QC, Andrew Ang and John Tallon (Norton, Rose, Butterell & Roche)
• Citation: [1984] SGPC 2
• Defendant Counsel: Andrew Park QC and Lucy Hangchi (Jacques & Lewis)
• Court: Privy Council
• Subject Matter: Income taxation,Accounting,Alteration of practice by company disallowed by Comptroller,Change in accounting method,Revenue Law,Company electing to prepare profit and loss accounts on 'completed contract method',Claim for deduction of property tax payments by property development company

This appeal concerns the correct treatment of property tax in the profit and loss accounts of the appellant company, Thomson Hill Ltd. That company was incorporated in Singapore on 15 April 1970 and carried on business as housing developers. From time to time the company purchased housing sites, some of which have been developed, others are in course of development, and others are being retained with a view to development in the future. The company elected, and the respondent Comptroller of Income Tax accepted, that the profit and loss accounts of the company should be prepared by the `completed contract method`. Even if it were permissible for the company to change to some other method of calculating its profits, the company is not desirous of making any change.

By the completed contract method the expenses directly incurred by the company, in relation to a site which is developed, are not charged in the company`s profit and loss account year by year as those expenses are incurred. On the other hand no account is taken of the value of the work in progress year by year. Upon completion of the development, all the expenditure relating to the development incurred over the years from the date of acquisition of the site, including the cost of acquisition of the site, is aggregated and deducted from the sale price or market value of the completed development. The difference between the aggregate expenditure incurred in respect of the development and the proceeds of sale or market value of the completed development constitutes a profit which the company then includes in its profit and loss account for the year of completion. For example, on 16 March 1970 the company purchased for $3m a site of 28 acres at Lorong Chuan, Lot 2284, for the purposes of a housing development known as the Golden Hill project. Between 1970 and 1974 the company was engaged in carrying out the development of the site at a cost exceeding $6m which were not charged against the profits of the company. In 1974 phases 1, 2 and 3 of the Golden Hill project were completed and the profits of the company for that year included a sum exceeding $7.6m, representing the difference between the cost of the completed parts of the Golden Hill project, including an apportioned part of the 1970 acquisition cost, and including all the costs and expenditure directly attributable to the project between 1970 and 1974 on the one hand, and the proceeds of sale or market value of the completed parts of the project when they were completed in 1974.

Between 1970 and 1974 the company incurred and paid costs and expenses which were not directly attributable to any particular development site. For example, the company paid salaries to its headquarters staff, purchased company stationery and maintained company vehicles and office equipment generally. These general administration expenses of the company were not apportioned to the various development projects which were being carried out but, in accordance with admittedly sound accounting principles, were charged in the year of expenditure in the profit and loss account of the company. The income of the company for the years 1970 to 1973 was very small because none of the development projects was completed and in accordance with the completed contract method no profit could be taken into account in respect of any development prior to its completion. There was little income to set against the general administration expenditure in each year. Consequently the profit and loss accounts showed a loss for each year which loss was carried forward. In the year 1974, however, completion of phases 1 to 3 of the Golden Hill project provided, as already indicated, a profit relating to that project of over $7.6m and that profit was, in accordance with the principles of the completed contract method, brought into the profit and loss account of the company for the year 1974. In the result the net profit for 1974 was a sum exceeding $4m liable to income tax in the tax year 1975 subject to setting off the losses made in previous years.

By the Property Tax Act, a property tax, at a rate from time to time determined by the government upon the annual value of all lands and buildings as set forth in a valuation list prepared for that purpose, is payable by the owner of the land and is enforceable by, inter alia,a sale of the land charged with the tax. Thus between 1970 and 1973 the company paid property tax assessed in respect of the site of the Golden Hill project. That tax was directly attributable to the project and was not part of the general administration expenses of the company. The aggregate amount of the property tax paid in respect of the Golden Hill project was therefore not charged in the profit and loss accounts of the company between 1970 and 1973 but was included in the aggregate costs and expenses of the project and served to reduce the net profit which resulted from the Golden Hill project and which was included in the profit and loss account for the company for 1974. But for the property tax paid in respect of the Golden Hill project the net profit disclosed in 1974 of $7.6m would have been higher by the amount of tax paid between the acquisition of the site in 1970 and the completion of the project in 1974.

Similarly between 1970 and 1973 the property tax payable in respect of every other development site held by the company was not charged against the company`s profits in each year of payment as part of the general administration expenses of the company but was included in the costs and expenses of the development carried out or planned for that site and fell to be deducted from the proceeds of sale or market value of the development for the...