AQP v Comptroller of Income Tax: Income Tax Deduction for Misappropriated Funds
AQP appealed against the High Court's decision, which upheld the Income Tax Board of Review's decision, disallowing a deduction under Section 14(1) of the Income Tax Act for a loss of $12,272,917 due to misappropriation of funds by its ex-Managing Director. The Court of Appeal allowed the appeal in part, remitting the case to the Board for further evidence regarding the ex-Managing Director's power and control and the company's system of checks and balances.
1. Case Overview
1.1 Court
Court of Appeal1.2 Outcome
Appeal allowed in part; case remitted to the Income Tax Board of Review for further evidence.
1.3 Case Type
Tax
1.4 Judgment Type
Grounds of Decision
1.5 Jurisdiction
Singapore
1.6 Description
Appeal regarding income tax deduction for funds misappropriated by ex-Managing Director. The court remitted the case to the Board for further evidence.
1.7 Decision Date
2. Parties and Outcomes
| Party Name | Role | Type | Outcome | Outcome Type | Counsels |
|---|---|---|---|---|---|
| AQP | Appellant | Corporation | Appeal allowed in part | Partial | Nand Singh Gandhi, Li Weiming Mark |
| Comptroller of Income Tax | Respondent | Government Agency | Other | Other | David Chong, Lee Cheow Han, Liu Hern Kuan, Julia Mohamed, Joyce Chee |
3. Judges
| Judge Name | Title | Delivered Judgment |
|---|---|---|
| Chao Hick Tin | Justice of Appeal | No |
| Andrew Phang Boon Leong | Justice of Appeal | Yes |
| V K Rajah | Justice of Appeal | No |
4. Counsels
| Counsel Name | Organization |
|---|---|
| Nand Singh Gandhi | Allen & Gledhill LLP |
| Li Weiming Mark | Allen & Gledhill LLP |
| David Chong | Attorney-General's Chambers |
| Lee Cheow Han | Attorney-General's Chambers |
| Liu Hern Kuan | Inland Revenue Authority of Singapore |
| Julia Mohamed | Inland Revenue Authority of Singapore |
| Joyce Chee | Inland Revenue Authority of Singapore |
4. Facts
- The Appellant's Ex-MD misappropriated $12,272,917.
- The Ex-MD was convicted of criminal breach of trust.
- The Appellant could not recover the misappropriated funds.
- The Appellant applied for relief under s 93A of the Act.
- The Respondent denied relief, stating no error was made.
- The Ex-MD had significant control over the Appellant's funds.
- The Appellant made a provision for doubtful debts including the Loss in its statutory accounts.
5. Formal Citations
- AQP v Comptroller of Income Tax, Civil Appeal No 139 of 2011, [2013] SGCA 3
- AQP v Comptroller of Income Tax, , [2012] 1 SLR 185
- Public Prosecutor v Kwek Chee Tong, , [2001] SGDC 194
- AQP v Comptroller of Income Tax, , [2010] SGITBR 1
6. Timeline
| Date | Event |
|---|---|
| Ex-Managing Director appointed | |
| AQP listed on SESDAQ | |
| Ex-Managing Director began misappropriating funds | |
| AQP listed on SGX Mainboard | |
| Ex-Managing Director's misappropriation ended | |
| Ex-Managing Director dismissed | |
| Appellant made provision for doubtful debts including the Loss in its statutory accounts | |
| Ex-Managing Director convicted of criminal breach of trust | |
| Appellant obtained judgment against the Ex-MD | |
| Appellant applied for relief under s 93A of the Act | |
| Respondent determined no relief would be granted | |
| Income Tax Board of Review upheld the Respondent’s determination | |
| Judgment reserved | |
| Court of Appeal decision |
7. Legal Issues
- Deductibility of Loss
- Outcome: The court held that the case should be remitted to the Board to determine whether the Ex-MD had overriding power or control and whether a sufficient system of checks and balances was in place.
- Category: Substantive
- Sub-Issues:
- Misappropriation of funds
- Employee defalcation
- Overriding power or control
- System of checks and balances
- Interpretation of s 14(1) of the Income Tax Act
- Outcome: The court clarified the test for deductibility of losses under s 14(1), endorsing the 'overriding power or control' test.
- Category: Substantive
- Sub-Issues:
- Meaning of 'wholly and exclusively incurred'
- Nexus to production of income
8. Remedies Sought
- Tax Deduction
- Relief under s 93A of the Income Tax Act
9. Cause of Actions
- Criminal Breach of Trust
- Misappropriation of Funds
10. Practice Areas
- Tax Litigation
- Corporate Governance
11. Industries
- No industries specified
12. Cited Cases
| Case Name | Court | Affirmed | Citation | Jurisdiction | Significance |
|---|---|---|---|---|---|
| AQP v Comptroller of Income Tax | High Court | Yes | [2012] 1 SLR 185 | Singapore | Decision appealed from, regarding the deductibility of loss due to misappropriation of funds. |
| Public Prosecutor v Kwek Chee Tong | District Court | Yes | [2001] SGDC 194 | Singapore | Cited for the District Judge's findings of fact regarding the Ex-MD's criminal breach of trust and control over the Appellant's funds. |
| AQP v Comptroller of Income Tax | Income Tax Board of Review | Yes | [2010] SGITBR 1 | Singapore | Decision of the Income Tax Board of Review that was appealed to the High Court. |
| Curtis (H M Inspector of Taxes) v J & G Oldfield, Limited | English High Court | Yes | (1925) 9 TC 319 | England and Wales | Cited as the foundational case for determining the tax-deductibility of losses incurred due to employee defalcation, particularly concerning the 'overriding power or control' test. |
| The Roebank Printing Company, Limited v The Commissioners of Inland Revenue | Court of Session | Yes | (1928) SC 701, 13 TC 864 | Scotland | Considered Curtis regarding the deductibility of losses from employee defalcations. |
| Bamford (H M Inspector of Taxes) v A T A Advertising Ltd | English High Court | Yes | (1972) 48 TC 359 | England and Wales | Considered Curtis regarding the deductibility of losses from employee defalcations. |
| Lockie Bros Ltd v Commissioner for Inland Revenue | N/A | Yes | (1922) 32 SATC 150 | South Africa | Cited as a case where defalcations by the managing director were not allowed as a deduction. |
| Commissioner of Taxes v Rendle | Appellate Division of the High Court of Southern Rhodesia | Yes | (1965) (1) SA 59 (SRAD), 26 SATC 326 | Southern Rhodesia | Attempted to reconcile conflicting decisions regarding defalcations. |
| Income Tax Case No 1242 | N/A | Yes | (1975) 37 SATC 306 | South Africa | Losses from defalcations by relatively junior employees were allowed as deductions. |
| Income Tax Case No 1383 | N/A | Yes | (1978) 46 SATC 90 | South Africa | Losses from defalcations by relatively junior employees were allowed as deductions. |
| Commissioner of Taxes v Webber | Supreme Court | Yes | [1956] NZLR 552 | New Zealand | The defalcator was only a part-time book-keeper. |
| W G Evans & Co Ltd v Commissioner of Inland Revenue | Supreme Court | Yes | [1976] 1 NZLR 425 | New Zealand | The defalcator was nothing more than the company’s accountant. |
| Cassidy’s Limited (formerly Packer Floor Coverings Ltd) v The Minister of National Revenue | Tax Court of Canada | Yes | 89 DTC 686 | Canada | The business was controlled by the defalcator’s superiors. |
| Parkland Operations Limited v The Queen | Federal Court of Canada (Trial Division) | Yes | 90 DTC 6676 | Canada | The defalcators misappropriated the money while dealing with it in the course of the company’s activities, and not by exercising some overriding control over the funds which existed outside of those activities. |
| Charles Moore & Co (WA) Pty Ltd v Federal Commissioner of Taxation | High Court | Yes | (1956) 95 CLR 344 | Australia | Dealt with the deductibility of loss arising from a robbery. |
| The Commissioner of Taxation (New South Wales) v Ash | High Court of Australia | Yes | (1938) 61 CLR 263 | Australia | Discusses the defalcations of a partner in relation to the petty larcenies of servants. |
| Loo Chay Sit v Estate of Loo Chay Loo, deceased | Court of Appeal | Yes | [2010] 1 SLR 286 | Singapore | Reference to evidential burdens as well as the legal burden of proof. |
| Zim Integrated Shipping Services Limited and others v Dafni Ignal and others | Court of Appeal | Yes | [2011] 1 SLR 862 | Singapore | Reference to evidential burdens as well as the legal burden of proof. |
13. Applicable Rules
| Rule Name |
|---|
| No applicable rules |
14. Applicable Statutes
| Statute Name | Jurisdiction |
|---|---|
| Income Tax Act (Cap 134, 2008 Rev Ed) s 14(1) | Singapore |
| Income Tax Act (Cap 134, 2008 Rev Ed) s 93A | Singapore |
15. Key Terms and Keywords
15.1 Key Terms
- Misappropriation
- Defalcation
- Income Tax Deduction
- Overriding Power or Control
- Checks and Balances
- s 14(1) Income Tax Act
- Nexus to Production of Income
- Ex-Managing Director
- Criminal Breach of Trust
- Year of Assessment
15.2 Keywords
- Income Tax
- Deduction
- Misappropriation
- Singapore
- Court of Appeal
- Employee Defalcation
16. Subjects
- Taxation
- Corporate Governance
- Fiduciary Duty
- Criminal Law
17. Areas of Law
- Tax Law
- Income Tax
- Deductions
- Corporate Law