ZF v Comptroller of Income Tax

• Jurisdiction: Singapore
• Judgment Date: 13 January 2010
• Date: 13 January 2010
• Docket Number: Income Tax Appeal No 1 of 2008
• Court: High Court (Singapore)

ZF

Plaintiff

and

Comptroller of Income Tax

Defendant

[2010] SGHC 14

Andrew Ang J

Income Tax Appeal No 1 of 2008

High Court

Revenue Law–Income taxation–Appeals–Whether prefabricated dormitories were plant within meaning of ss 19 and 19A Income Tax Act (Cap 134, 2008 Rev Ed)

ZF ( the Company ) was a company in the business of providing accommodation to workers for the purposes of which it constructed some dormitories. Under the Income Tax Act (Cap 134, 2008 Rev Ed) ( the Act ), capital expenditure on machinery and plant qualified for initial and annual allowances under ss 19 and 19A of the Act.

The Income Tax Board of Review ( the Board ) held that the prefabricated dormitories were not plant within the meaning of ss 19 and 19A of the Act and rejected the Company's application for capital allowances. The Company disagreed with the Board's decision and appealed to the court on the ground that given the nature of its business and the commercial necessity for the easy dismantling of the dormitories for relocation to another site, the portable and demountable dormitories qualified as plant for the purposes of ss 19 and 19A of the Act.

Held, dismissing the appeal:

(1) The word plant in the context of capital allowances was not to be accorded its ordinary dictionary meaning but read in light of decided authorities: at [8].

(2) The proper determination as to what qualified as plant for the purposes of the appeal, depended on the satisfaction of two tests - the functional or business use test and the premises test: at [11] and [31].

(3) The functional or business use test entailed an examination of the function of the apparatus in question in the context of the business of the taxpayer; whether an asset functioned as plant for a taxpayer had to be determined by consideration of that particular taxpayer's trade and examining the function of the asset in that particular taxpayer's trade. It was fair to say that it was commercially necessary for the Company to use portable and demountable dormitories. However the portability and demountability of the dormitories were the properties of the dormitories and not the function of the dormitories. In any case, it was not a requirement that the dormitories hadto actively perform a function to qualify as a plant . The dormitories afforded the accommodation which it was in the business of the Company to provide. In this context, the dormitories satisfied the function test: at [13], [16], [26] to [28], [32] and [37].

(4) A structure which passed the function or business use test might still fail the premises test if it was not plant in itself as opposed to mere premises in which the business was conducted. To answer the question whether the item functioned as premises or plant would involve deciding whether it was more appropriate to describe the item as an apparatus for carrying on the business or as the premises in or upon which the business was conducted: at [31] and [34].

(5) Although the dormitories were built to enable the Company to carry out its business activity of providing accommodation to workers, the provision of shelter was a typical function of premises - the structures performed no other function other than that primary function of providing accommodation to workers. As such, it was more appropriate to describe the dormitories as premises in or upon which the business was conducted, rather than an apparatus for carrying on the business: at [34] to [37].

(6) Accordingly, the dormitories passed the functional or business use test but failed the premises test. Therefore the dormitories did not qualify as plant under the Act: at [38].

Attwood (Inspector of Taxes) v Anduff Car Wash Ltd [1997] STC 1167 (folld)

Benson (HM Inspector of Taxes) v Yard Arm Club Ltd [1979] 1 WLR 347; (1979) 53 TC 67 (refd)

Bridge House (Reigate Hill) Ltd v Hinder (HM Inspector of Taxes) (1971) 47 TC 182 (refd)

Broken Hill Pty Co Ltd v Commissioner of Taxation for The Commonwealth [1967-68] 41 ALJR 377 (refd)

Carr (HM Inspector of Taxes) v Sayer (1992) 65 TC 15 (refd)

CIR v Barclay, Curle & Co Ltd [1969] 1 WLR 675; (1969) 45 TC 221 (refd)

Cole Bros Ltd v Phillips (HM Inspector of Taxes) (1982) 55 TC 188 (refd)

Cooke (Inspector of Taxes) v Beach Station Caravans Ltd [1974] 1 WLR 1398; [1974] STC 402 (refd)

IRC v Scottish & Newcastle Breweries Ltd [1982] 1 WLR 322; [1982] STC 296 (refd)

Jarrold (HM Inspector of Taxes) v John Good & Sons, Ltd [1963] 1 WLR 214; (1962) 40 TC 681 (refd)

Munby v Furlong (Inspector of Taxes) [1977] Ch 359; [1977] 2 All ER 953 (refd)

Quarries Ltd v Federal Commissioner of Taxation (1961) 106 CLR 310 (refd)

Schofield (HM Inspector of Taxes) v R & H Hall Ltd (1974) 49 TC 538 (refd)

St John's School v Ward (HM Inspector of Taxes) (1974) 49 TC 524 (folld)

Wimpy International Ltd v Warland (Inspector of Taxes) [1988] STC 149 (folld)

Wimpy International Ltd v Warland (Inspector of Taxes) [1989] STC 273, CA (folld)

Yarmouth v France (1887) 19 QBD 647 (folld)

Income Tax Act (Cap 134, 2008 Rev Ed) ss 19, 19A (consd)

Leung Yew Kwong and Tan Shao Tong (WongPartnership LLP) for the appellant

Quek Hui Ling and Foo Hui Min (Inland Revenue Authority of Singapore) for the respondent.

Judgment reserved.

Andrew Ang J

Introduction

1 This is an appeal by [ZF] ( the appellant ) against the decision of the Income Tax Board of Review ( the Board ) which held that certain prefabricated dormitories were not plant within the meaning of ss 19 and 19A of the Income Tax Act (Cap 134, 2008 Rev Ed) ( the Act ) in the context of the appellant's trade. The Board's decision was premised, inter alia, on the following findings:

(a) The appellant did not, for the purposes of its trade, which is the provision of accommodation to workers, require the use of the dormitories to be portable or demountable. The fact that the appellant had assembled the dormitories using prefabricated structures was for its own convenience in the event it was required to vacate the land at short notice. The appellant could have carried on its business of providing accommodation without using prefabricated structures. In other words, it was not a commercial necessity to employ prefabricated structures vis-à-vis the dormitories.

(b) The dormitories were primarily used as workers' accommodation and remain as buildings or premises used for the conduct of the appellant's trade or business.

2 On appeal, the appellant reiterated its case that given:

(a) the nature of its business (ie, the provision of dormitory accommodation); and

(b) the commercial necessity for the easy dismantling of the dormitories for relocation to another site,

the portable and demountable dormitories qualified as plant for the purposes of ss 19 and 19A of the Act.

The facts

3 On 1 June 2001, [Z] Pte Ltd ( [Z] ) was awarded a contract to design, build and operate workers' dormitories ( the dormitories ) at [XXX] Road ( the site ) by [C] Pte Ltd ( [C] ), a subsidiary of [XXX]. The site was owned by the Government of the Republic of Singapore and leased to the Building and Construction Authority ( BCA ). BCA in turn sub-leased the site to [C] for a term of three years from 1 December 2001 ( the sub-lease ). Under cl 7.2.2 of the sub-lease, BCA is entitled to terminate the sub-lease without cause at any time by giving [C] not less than 90 days' written notice. Upon termination, [C] is required forthwith to peacefully vacate and deliver up the site to BCA. BCA may also, at its absolute discretion, grant a fresh tenancy on such terms as it deems fit. In turn, cl 12 of [C]'s agreement with [Z] provides that the term of operation of the dormitories would be for the period as set out under the sub-lease agreement between [C] and BCA plus any extensions thereto. According to the appellant, the reason for the short notice period was that the site situated at Jurong Industrial Estate was intended for industrial use and the dormitories were intended to be situated on the site temporarily.

4 Although [Z] was awarded the contract to design, build and operate the dormitories by [C], the dormitories were not built by [Z] as it wanted to put in place a professionally competent team to operate and manage the dormitories. To this intent, [Z] entered into a joint-venture with [F] Pte Ltd ( F ), and the appellant was incorporated. The appellant subsequently engaged its own contractor, [XXX] Pte Ltd, to build the dormitories.

5 It was not disputed that the appellant used prefabricated material to build the dormitories. Each three-storey dormitory structure (of which there are six at the site) had a concrete foundation base, wooden floors and steel sheet sides and roof. The appellant contended that as a result of the short-term lease and the short notice period to vacate the site, the dormitories had to be installed and dismantled quickly. In addition, the modular nature of the dormitories allows the appellant to re-use such units of prefabricated structures to fit into the size of the next site available for use. It was explained that if the appellant had built the dormitories with brick and mortar, it would lose its considerable investment if the dormitories were to be demolished upon receipt of notice of termination. Given the limited period of the lease and the possibility of termination upon 90 days' notice, it was commercially necessary (and not merely desirable) that the dormitories possessed those features. On the other hand, the respondent took the position that it was not commercially necessary to adopt prefabricated structures in building the dormitories and that the dormitories were not a plant for the purposes of the Act.

The law

6 The only question before the court is whether, in the circumstances, the dormitories fall within the definition of plant in ss 19 and 19A of the Act so as to qualify for initial and annual allowances available thereunder for...