T Ltd v Comptroller of Income Tax: Deductibility of Expenses & Interest Under Income Tax Act
T Ltd appealed to the High Court of Singapore against the Comptroller of Income Tax's decision regarding the deductibility of expenses and interest under the Income Tax Act. The company sought to deduct expenses incurred before obtaining a Temporary Occupation Permit (TOP) for its property development project, claiming them as losses under sections 14 and 37 of the Income Tax Act. The Comptroller disallowed the deductions, arguing that the expenses were pre-commencement and capital in nature. The High Court dismissed the appeal, upholding the Board of Review's decision.
1. Case Overview
1.1 Court
High Court1.2 Outcome
Appeal dismissed with costs.
1.3 Case Type
Tax
1.4 Judgment Type
Grounds of Decision
1.5 Jurisdiction
Singapore
1.6 Description
T Ltd appeals against the Comptroller of Income Tax's decision regarding the deductibility of expenses and interest under the Income Tax Act.
1.7 Decision Date
2. Parties and Outcomes
| Party Name | Role | Type | Outcome | Outcome Type | Counsels |
|---|---|---|---|---|---|
| T Ltd | Appellant | Corporation | Appeal dismissed | Lost | Nand Singh Gandhi |
| Comptroller of Income Tax | Respondent | Government Agency | Decision upheld | Won | Liu Hern Kuan, Usha Chandradas |
3. Judges
| Judge Name | Title | Delivered Judgment |
|---|---|---|
| Andrew Ang | Judge | Yes |
4. Counsels
| Counsel Name | Organization |
|---|---|
| Nand Singh Gandhi | Allen and Gledhill |
| Liu Hern Kuan | Inland Revenue Authority of Singapore |
| Usha Chandradas | Inland Revenue Authority of Singapore |
4. Facts
- T Ltd was incorporated in Singapore on 24 July 1989.
- T Ltd was acquired by the D Land Group in 1992.
- T Ltd was awarded land from the HDB on 6 June 1992.
- T Ltd signed a building agreement with the HDB on 1 December 1992.
- T Ltd submitted plans on 16 December 1992 and obtained provisional planning approval on 6 February 1993.
- The TOP was granted on 15 November 1995, and the first tenancy commenced on the same date.
- T Ltd claimed expenses incurred from 28 October 1993 to 15 November 1995 as deductions.
- The Comptroller of Income Tax refused to allow the deductions of the expenses incurred prior to the date of the granting of the TOP.
5. Formal Citations
- T Ltd v Comptroller of Income Tax, DA 14/2004, [2005] SGHC 115
6. Timeline
| Date | Event |
|---|---|
| T Ltd incorporated as a private limited company. | |
| T Ltd acquired by the D Land Group and its name changed. | |
| T Ltd was awarded land from the Housing and Development Board. | |
| T Ltd signed a building agreement with the Housing and Development Board. | |
| T Ltd submitted plans to develop the complex. | |
| T Ltd obtained provisional planning approval. | |
| Date of award of main building contract. | |
| T Ltd incurred interest and other expenses. | |
| Date of commencement of superstructure works. | |
| Date of Temporary Occupation Permit (TOP). | |
| Date when first tenancy commenced. | |
| The Comptroller issued a Notice of Refusal to Amend. | |
| T Ltd filed a Notice of Appeal with the Comptroller and the Clerk to the Board of Review. | |
| Decision of the Income Tax Board of Review. | |
| Decision Date. |
7. Legal Issues
- Deductibility of Expenses
- Outcome: The court held that the expenses incurred prior to the issuance of the TOP were pre-commencement expenses and not deductible.
- Category: Substantive
- Sub-Issues:
- Pre-commencement expenses
- Capital expenditure
- Deductibility of Interest
- Outcome: The court held that the interest incurred was of a revenue nature.
- Category: Substantive
- Sub-Issues:
- Interest of capital or revenue nature
- Commencement of Business
- Outcome: The court held that the business of the appellant did not commence until the TOP for the property was issued.
- Category: Substantive
8. Remedies Sought
- Deduction of expenses
- Carry forward of losses
9. Cause of Actions
- No cause of actions
10. Practice Areas
- Tax Law
11. Industries
- Real Estate
- Property Development
12. Cited Cases
| Case Name | Court | Affirmed | Citation | Jurisdiction | Significance |
|---|---|---|---|---|---|
| Vallambrosa Rubber Company Ltd v Farmer | N/A | Yes | (1910) 5 TC 529 | N/A | Cited by the appellant to support the argument that its business commenced when it started laying out capital expenditure. The Board referred to a 'contrary view' in the judgment of Lord Johnston. |
| Mitsui-Soko International Pte Ltd v The Comptroller of Income Tax | High Court | Yes | (1998) MSTC 7,349 | Singapore | Cited to caution against the proposition that if a company's objects are business objects and they are carried out, the company is to be regarded as carrying on business. |
| Hope v The Council of the City of Bathurst | N/A | Yes | 80 ATC 4386 | Australia | Cited for the proposition that for a business to be carried on, the activities must possess something of a permanent character. |
| Income Tax Case No 697 | N/A | Yes | (1950) 17 SATC 93 | South Africa | Cited for the principle that until an asset becomes capable of producing income, any expenditure upon it is of a preliminary or capital nature and is not deductible. |
| The Birmingham & District Cattle By-Products Co Ltd v The Commissioners of Inland Revenue | N/A | Yes | (1919) 12 TC 92 | England | Cited for drawing a distinction between transactions preparatory to the commencement of business and those which occurred once the business had commenced. |
| Calkin v Commissioner of Inland Revenue | New Zealand Court of Appeal | Yes | (1984) 7 TRNZ 100 | New Zealand | Cited with approval the Birmingham & District Cattle By-Products case and stated that it is not sufficient that the taxpayer has made a commitment to engage in business; he must first establish a profit making structure and begin ordinary current business operations. |
| Stevens and Stevens v Commissioner of Inland Revenue | N/A | Yes | (1989) 11 NZTC 6001 | New Zealand | Cited as taking a similar stand to Calkin v Commissioner of Inland Revenue. |
| Income Tax Case No 1322 | N/A | Yes | (1980) 42 SATC 272 | Zimbabwe | Cited for recognizing the clear distinction in tax law between expenditure before a business is begun, and expenditure after its commencement. |
| Commissioner of Income-Tax, Gujarat I v Saurashtra Cement and Chemical Industries Ltd | N/A | Yes | [1973] 91 ITR 170 | India | Cited by the appellant to support the submission that its business commenced with the acquisition of the land parcel. The Board took the view that the Saurashtra case was decided on its own unique facts. |
| Commissioner of Income-Tax v Western India Seafood (P) Ltd | N/A | Yes | (1993) 199 ITR 777 | India | Cited as being decided avowedly on similar reasoning to that in the Saurashtra case. |
| Hotel Alankar v Commissioner of Income-Tax, Gujarat | N/A | Yes | (1982) 133 ITR 866 | India | Cited as being decided avowedly on similar reasoning to that in the Saurashtra case. |
| Sarabhai Management Corporation Ltd v Commissioner of Income-Tax, Gujarat | N/A | Yes | (1976) 102 ITR 25 (Guj) | India | Cited as being decided avowedly on similar reasoning to that in the Saurashtra case. |
| Goodman Fielder Wattie Ltd v FC of T | N/A | Yes | 91 ATC 4438 | N/A | Cited for the proposition that in determining whether or not a business has commenced, the crux of the test to be applied is the element of commitment. The court held that, on the facts of the case before it, the taxpayer had not yet committed itself to the project and that it was engaging in activities of a provisional kind only. |
| The European Investment Trust Co Ltd v Jackson (Inspector of Taxes) | Court of Appeal | Yes | (1932) 18 TC 1 | England | The Court of Appeal in England apparently decided that whether or not interest was of a revenue or capital nature depended on whether the loan itself (which gave rise to the interest) was employed as capital in the business. This view was widely criticised and subsequently abrogated by legislation. |
| Beauchamp (Inspector of Taxes) v F W Woolworth plc | English Court of Appeal | Yes | [1988] STC 714 | England | The English Court of Appeal had occasion to consider its earlier decision in the European Investment Trust case. Nourse LJ who delivered the judgment of the court described it as “a very curious case”. |
| Wharf Properties Ltd v Commissioner of Inland Revenue (Hong Kong) | N/A | Yes | [1977] STC 351 | Hong Kong | In that case, a company bought a train depot, financing the purchase by means of short term loans for the purpose of redeveloping the land for rental income as a commercial complex. During its ownership of the site, the company derived small amounts of income by way of licence fees. The issue before the Privy Council was whether the interest on the loans was deductible for tax purposes. |
| Director-General of Inland Revenue v Rakyat Berjaya Sdn Bhd | Malaysian Federal Court | Yes | [1984] 1 MLJ 248 | Malaysia | Endorsed this view of the relationship between the equivalent Malaysian sections (the Malaysian and Singapore income tax legislation both originating from the same colonial model). |
| Steele v DFC of T | High Court of Australia | Yes | 99 ATC 4242 | Australia | The High Court of Australia held that the interest outgoings were not of a capital nature. |
13. Applicable Rules
| Rule Name |
|---|
| No applicable rules |
14. Applicable Statutes
| Statute Name | Jurisdiction |
|---|---|
| Income Tax Act | Singapore |
| Sections 14(1)(a) Income Tax Act (Cap 134, 1996 Rev Ed) | Singapore |
| Sections 37(1)(a) Income Tax Act (Cap 134, 1996 Rev Ed) | Singapore |
| Section 15(1)(c) Income Tax Act (Cap 134, 1996 Rev Ed) | Singapore |
15. Key Terms and Keywords
15.1 Key Terms
- Pre-commencement expenses
- Capital expenditure
- Temporary Occupation Permit
- Property investment
- Property development
- Interest deduction
- Income Tax Act
15.2 Keywords
- Income Tax
- Deductions
- Expenses
- Interest
- Singapore
- Property Development
- T Ltd
- Comptroller of Income Tax
16. Subjects
- Income Tax
- Deductions
- Business Commencement
17. Areas of Law
- Revenue Law
- Income Taxation