ABD Pte Ltd v Comptroller of Income Tax: Taxability of Entrance Fees & Deductibility of Expenses

ABD Pte Ltd appealed against the Comptroller of Income Tax's decision to assess tax on gross entrance fees without deductions for land costs, building construction, geomancy fees, and payments to club members. The High Court of Singapore, presided over by Andrew Phang Boon Leong JA, dismissed the appeal, holding that entrance fees are taxable when members are admitted, costs for land and building are capital expenditures and not deductible, and the sum paid to club members is not deductible in the Year of Assessment 2001.

1. Case Overview

1.1 Court

High Court

1.2 Outcome

Appeal dismissed with costs.

1.3 Case Type

Tax

1.4 Judgment Type

Grounds of Decision

1.5 Jurisdiction

Singapore

1.6 Description

Appeal regarding the taxability of club entrance fees and deductibility of expenses. The court dismissed the appeal, finding entrance fees taxable upon receipt.

1.7 Decision Date

7 April 2010

2. Parties and Outcomes

Party Name	Role	Type	Outcome	Outcome Type	Counsels
Comptroller of Income Tax	Respondent	Government Agency	Judgment for Respondent	Won	Foo Hui Min of Inland Revenue Authority of Singapore Usha Chandradas of Inland Revenue Authority of Singapore
ABD Pte Ltd	Appellant	Corporation	Appeal Dismissed	Lost	Nand Singh Gandhi of Allen & Gledhill LLP Delphie Ann Gomez of Allen & Gledhill LLP

3. Judges

Judge Name	Title	Delivered Judgment
Andrew Phang Boon Leong	Justice of the Court of Appeal	Yes

4. Counsels

Counsel Name	Organization
Foo Hui Min	Inland Revenue Authority of Singapore
Usha Chandradas	Inland Revenue Authority of Singapore
Nand Singh Gandhi	Allen & Gledhill LLP
Delphie Ann Gomez	Allen & Gledhill LLP

4. Facts

The taxpayer, ABD Pte Ltd, was incorporated to build and operate a proprietary club.
The taxpayer acquired a 30-year lease of land from the State.
The taxpayer built the Club building on the land.
The taxpayer received entrance fees from members.
The Club began its operations.
A class action was filed against the taxpayer due to overcrowding.
The Court of Appeal ordered the taxpayer to pay damages to members.

5. Formal Citations

ABD Pte Ltd v Comptroller of Income Tax, Income Tax Appeal No 2 of 2009, [2010] SGHC 107

6. Timeline

Date	Event
1996-07-11	ABD Pte Ltd incorporated
1996-10-18	Appellant acquired 30-year lease of land
1996-11-01	Appellant initiated introductory launch for club membership
1996-11-30	Appellant received entrance fees
2000-03-22	Club began operations
2000-11-30	Appellant received entrance fees
2005-01-01	Court of Appeal ordered Appellant to pay damages
2009-06-16	Income Tax Board of Review dismissed Appellant's appeal
2010-04-08	Judgment reserved

7. Legal Issues

Taxability of Entrance Fees
- Outcome: The court held that the entrance fees accrued as income and were taxable under s 10(1) of the Act once each member was admitted to the Club.
- Category: Substantive
- Related Cases:
  - [2000] 4 SLR(R) 1
Deductibility of Land and Building Costs
- Outcome: The court held that the costs of acquiring the land and constructing the building were capital expenditures and not deductible under s 15(1)(c) of the Act.
- Category: Substantive
Deductibility of Geomancy Fees
- Outcome: The court held that the geomancy fees were capital expenditures and not deductible under s 15(1)(c) of the Act.
- Category: Substantive
Deductibility of Damages Paid to Club Members
- Outcome: The court held that the sum of $53,283,000, which the Appellant was obliged to pay to the Club’s members following the civil action against it, is not deductible in the Year of Assessment 2001.
- Category: Substantive

8. Remedies Sought

Deduction of costs of acquiring land and constructing the Club building
Deduction of geomancy fees
Deduction of sum paid to Club's members

9. Cause of Actions

No cause of actions

10. Practice Areas

Taxation
Revenue Law

11. Industries

Recreation
Hospitality

12. Cited Cases

Case Name	Court	Affirmed	Citation	Jurisdiction	Significance
T Ltd v Comptroller of Income Tax	Singapore Court of Appeal	Yes	[2006] 2 SLR(R) 618	Singapore	Cited for according a broad scope to s 15(1)(c) of the Income Tax Act, regarding deductions of a capital nature.
In re A B Ltd	Singapore Court of Appeal	Yes	[1957] MLJ 143	Singapore	Cited to illustrate that where a situation is not provided for by the Income Tax Act, no tax concession operates in favor of the taxpayer.
In re A B Ltd	Singapore High Court	Yes	[1956] MLJ 197	Singapore	Affirmed by the Singapore Court of Appeal decision in In re A B Ltd [1957] MLJ 143.
ABD v Comptroller of Income Tax	Income Tax Board of Review	Yes	[2009] SGIBTR 3	Singapore	The Board held that the entrance fees accrued as income and were thus taxable under s 10(1) of the Act once each member was admitted to the Club. The Board's decision was appealed in the present case.
Pinetree Resort Pte Ltd v Comptroller of Income Tax	Court of Appeal	Yes	[2000] 4 SLR(R) 1	Singapore	Cited for the interpretation of the word 'accrue' to mean 'to which any person has become entitled' in the context of income tax.
MPD Pte Ltd v Comptroller of Income Tax	Singapore Income Tax Board of Review	Yes	(1998) MSTC 5249	Singapore	Distinguished from the present case; MPD concerned progress payments for condominium units, subject to contingencies, unlike the present case where the Appellant became legally entitled to the entrance fees once a member was admitted to membership.
Arthur Murray (NSW) Pty Ltd v Federal Commissioner of Taxation	High Court of Australia	Yes	(1965) 114 CLR 314	Australia	Distinguished from the present case; Arthur Murray involved the taxation of fees received for a specified number of dancing lessons given over a period of time such that the fees for each dance lesson were not taxed as income until the lesson was actually given, the present case involves the taxation of entrance fees received for the grant of membership to the Club.
Eckel v Board of Inland Revenue	Privy Council	Yes	[1989] STC 305	Trinidad and Tobago	Distinguished from the present case; Eckel concerned income earned through contracts for the sale of goods. It is clear from the decisions in those cases, as will be discussed below, that a taxpayer will only be deemed, for tax purposes, to have earned his income when the goods which he has contracted to sell are delivered to the buyer.
CIR v Montana Lands Ltd	Supreme Court of Hong Kong	Yes	(1968) HKTC 334	Hong Kong	Distinguished from the present case; Montana Lands concerned income earned through contracts for the sale of goods. It is clear from the decisions in those cases, as will be discussed below, that a taxpayer will only be deemed, for tax purposes, to have earned his income when the goods which he has contracted to sell are delivered to the buyer.
J P Hall & Co Ltd v Inland Revenue Commissioners	English Court of Appeal	Yes	[1921] 3 KB 152	England	Distinguished from the present case; J P Hall concerned income earned through contracts for the sale of goods. It is clear from the decisions in those cases, as will be discussed below, that a taxpayer will only be deemed, for tax purposes, to have earned his income when the goods which he has contracted to sell are delivered to the buyer.
HU v Comptroller of Income Tax	Income Tax Board of Review	Yes	[1999] SGITBR 1	Singapore	Cited to support the argument that club membership is a chose in action.
Commissioners of Inland Revenue v British Salmson Aero Engines, Limited	English Court of Appeal	Yes	[1938] 2 KB 482	England	Cited for the general principle that income tax is a tax on income and does not tax capital.
Comptroller of Income Tax v IA	Court of Appeal	Yes	[2006] 4 SLR(R) 161	Singapore	Cited for the observation that the distinction between capital and revenue is often elusive and difficult to apply.
Vallambrosa Rubber Co Ltd v Farmer	Scottish Court of Session (First Division)	Yes	(1910) 5 TC 529	Scotland	Cited for the 'once and for all' test, which is considered an early and broad test for distinguishing between capital and income expenditure.
British Insulated and Helsby Cables, Limited v Atherton	House of Lords	Yes	[1926] AC 205	England	Cited for the 'enduring benefit of the trade' test, which is a well-known test for distinguishing between capital and revenue expenditure.
Van den Berghs, Limited v Clark (Inspector of Taxes)	House of Lords	Yes	[1935] AC 431	England	Cited for cautionary remarks regarding the application of the Atherton test.
Commissioner of Inland Revenue v Carron Company	House of Lords	Yes	(1968) 45 TC 18	England	Cited for the observation that many types of expenditure may have an enduring effect but nevertheless not be of a capital nature.
John Smith and Son v Moore	House of Lords	Yes	[1921] 2 AC 13	England	Cited for the test that centres on the distinction between fixed and circulating capital.
BP Australia Ltd v Commissioner of Taxation of the Commonwealth of Australia	Privy Council	Yes	[1966] 1 AC 224	Australia	Cited for the application of the fixed and circulating capital test.
British South Africa Company v Commissioner of Income Tax	Privy Council	Yes	[1946] AC 62	England	Distinguished from the present case; the very pith and marrow of the business of the taxpayer in British South Africa centred on not only the acquisition, but also the sale, of its mineral concessions and mining rights. In other words, these concessions and rights constituted the stock-in-trade of the taxpayer and were therefore deductible against the income it received. In the present proceedings, however, the pith and marrow of the business of the Appellant is not the acquisition and sale of the land or the building – or, indeed, any of the assets of the Club for that matter.
Commissioner of Taxes v Nchanga Consolidated Copper Mines Ltd	Privy Council	Yes	[1964] AC 948	England	Cited for the application of the fixed and circulating capital test.
Tucker (Inspector of Taxes) v Granada Motorway Services Ltd	House of Lords	Yes	[1979] 1 WLR 683	England	Cited for the 'identifiable asset' test.
Countess Warwick Steamship Company, Limited v Ogg (Inspector of Taxes)	English High Court	Yes	[1924] 2 KB 292	England	Cited for the difficulty in laying down any general rule to cover all possible cases regarding capital or income.
Regent Oil Co Ltd v Strick (HM Inspector of Taxes)	House of Lords	Yes	[1966] AC 295	England	Cited as a comparable case to BP Australia Ltd v Commissioner of Taxation of the Commonwealth of Australia, but with a different result.
ECC Quarries Ltd v Watkis (HM Inspector of Taxes)	English High Court	Yes	[1977] 1 WLR 1386	England	Cited for the observation that Regent Oil Co Ltd v Strick (HM Inspector of Taxes) and BP Australia Ltd v Commissioner of Taxation of the Commonwealth of Australia were comparable cases of petrol station ties.
Vodafone Cellular Ltd v Shaw (HM Inspector of Taxes)	English High Court	Yes	(1997) 69 TC 376	England	Cited for the observation that the tests propounded by the courts are necessarily imprecise.
Heather (HM Inspector of Taxes) v P-E Consulting Group Ltd	English Court of Appeal	Yes	[1973] Ch 189	England	Cited for the observation that the question of revenue expenditure or capital expenditure is difficult and that different minds may come to different conclusions with equal propriety.
Hallstroms Proprietary Limited v The Federal Commissioner of Taxation	High Court of Australia	Yes	(1946) 72 CLR 634	Australia	Cited for the observation that the distinction between an expenditure on account of revenue and an outgoing of a capital nature is not so indefinite and uncertain as to remove the matter from the operation of reason.
Simpson v Jones (Inspector of Taxes)	English High Court	Yes	[1968] 1 WLR 1066	England	Cited for the observation that common sense is a frail guide in the law of income tax.
Anglo-Persian Oil Company, Limited v Dale (HM Inspector of Taxes)	English High Court	Yes	(1931) 16 TC 253	England	Cited for the observation that the 'enduring benefit of the trade' test refers to a benefit that endures in the way that fixed capital endures.
James Spencer & Co v Commissioners of Inland Revenue	Scottish Court of Session	Yes	(1950) 32 TC 111	Scotland	Cited for the principle that if in the earlier period there is only a provisional or contingent liability, it is not until it has been subsequently determined to be an actual liability by admission or decision that it can properly be brought into computation.
Commissioner of Inland Revenue v Lo and Lo (a firm)	Privy Council	Yes	[1984] STC 366	England	Cited for the principle that an expense incurred is not confined to a disbursement, and must at least include a sum which there is an obligation to pay, that is to say an accrued liability which is undischarged.
New Zealand Flax Investments Ltd v FCT	High Court of Australia	Yes	(1938-39) 61 CLR 179	Australia	Cited for the definition of the term 'incurred' for the purposes of determining the deductible expenditure for tax purposes.
Nilsen Development Laboratories Pty Ltd v FCT	High Court of Australia	Yes	(1979–80) 144 CLR 616	Australia	Cited for the principle that the term 'incurred' does not include a loss or expenditure which is no more than impending, threatened, or expected.
Commissioner of Inland Revenue v Mitsubishi Motors New Zealand Ltd	Privy Council	Yes	[1996] AC 315	England	Cited for the principle that to determine whether a liability was incurred, the question is whether in the light of surrounding circumstances, a legal obligation to make a payment in the future can be said to have accrued.

13. Applicable Rules

Rule Name
No applicable rules

14. Applicable Statutes

Statute Name	Jurisdiction
Income Tax Act (Cap 134, 2008 Rev Ed)	Singapore
s 10(1)(a) of the Income Tax Act	Singapore
s 14 of the Income Tax Act	Singapore
s 14(1) of the Income Tax Act	Singapore
s 15 of the Income Tax Act	Singapore
s 15(1)(c) of the Income Tax Act	Singapore
Section 14(1)(h) of the Act	Singapore

15. Key Terms and Keywords

15.1 Key Terms

Entrance fees
Capital expenditure
Revenue expenditure
Accrued income
Deductibility
Proprietary club
Membership
Lease
Geomancy fees
Damages
Year of Assessment

15.2 Keywords

Income Tax
Entrance Fees
Deductibility
Capital Expenditure
Revenue Expenditure
Singapore
Club Membership

17. Areas of Law

Area Name	Relevance Score
Income taxation	95
Taxation	90
Administrative Law	10
Contract Law	5

16. Subjects

Taxation
Income Tax
Capital Expenditure
Revenue Expenditure