BFC v Comptroller of Income Tax: Deduction of Borrowing Expenses & Income Tax Assessment
BFC appealed to the High Court of Singapore against the Income Tax Board of Review's decision, which upheld the Comptroller of Income Tax's assessment that certain borrowing expenses related to two bond issues were not deductible for income tax purposes. The court, presided over by Justice Lai Siu Chiu, dismissed the appeal, finding that the discounts and redemption premiums were capital expenses and not 'interest' under the Income Tax Act, thus not deductible. The judgment was reserved on 9 September 2013.
1. Case Overview
1.1 Court
High Court1.2 Outcome
Appeal Dismissed
1.3 Case Type
Tax
1.4 Judgment Type
Grounds of Decision
1.5 Jurisdiction
Singapore
1.6 Description
The High Court dismissed BFC's appeal, upholding the Comptroller's decision that certain borrowing expenses from bond issues were not deductible for income tax assessment due to their capital nature.
1.7 Decision Date
2. Parties and Outcomes
| Party Name | Role | Type | Outcome | Outcome Type | Counsels |
|---|---|---|---|---|---|
| Comptroller of Income Tax | Respondent | Government Agency | Appeal Dismissed | Won | Quek Hui Ling of Inland Revenue Authority of Singapore Michelle Chee of Inland Revenue Authority of Singapore Jimmy Goh of Inland Revenue Authority of Singapore |
| BFC | Appellant | Corporation | Appeal Dismissed | Lost |
3. Judges
| Judge Name | Title | Delivered Judgment |
|---|---|---|
| Lai Siu Chiu | Judge | Yes |
4. Counsels
| Counsel Name | Organization |
|---|---|
| Quek Hui Ling | Inland Revenue Authority of Singapore |
| Michelle Chee | Inland Revenue Authority of Singapore |
| Jimmy Goh | Inland Revenue Authority of Singapore |
| Tan Kay Kheng | WongPartnership LLP |
| Tan Shao Tong | WongPartnership LLP |
| Novella Chan | WongPartnership LLP |
| Jeremiah Soh | WongPartnership LLP |
4. Facts
- Appellant issued bonds in 1995 and 1996.
- The 1995 Bonds were secured bonds with a principal amount of $150,000,000.
- The 1996 Bonds were unsecured bonds with a principal amount of $165,000,000.
- Proceeds of the 1995 Bonds were used for hotel renovation, refinancing, and working capital.
- Proceeds of the 1996 Bonds were used as working capital.
- Comptroller allowed deduction of interest paid on the bonds but disallowed deduction for discount and redemption premium.
- The Income Tax Board of Review upheld the Comptroller's decision.
5. Formal Citations
- BFC v Comptroller of Income Tax, Income Tax Appeal No 2 of 2013, [2013] SGHC 169
6. Timeline
| Date | Event |
|---|---|
| Appellant issued 1995 Bonds. | |
| Appellant issued 1996 Bonds. | |
| 1995 Bonds matured. | |
| 1996 Bonds matured. | |
| Year of Assessment 2001. | |
| Year of Assessment 2002. | |
| Appeal heard by the Income Tax Board of Review. | |
| Income Tax Board of Review dismissed the appeal. | |
| Judgment reserved. |
7. Legal Issues
- Deductibility of Borrowing Expenses
- Outcome: The court held that the discounts and redemption premium were capital expenses and not deductible as 'interest' under the Income Tax Act.
- Category: Substantive
- Sub-Issues:
- Classification of discounts and redemption premiums as interest
- Whether expenses were wholly and exclusively incurred in the production of income
- Capital vs. revenue expenses
- Related Cases:
- [2000] 2 SLR(R) 360
- [2011] 1 SLR 1217
- Re Sampson and Barfried Entreprises Ltd (1962) OR 1103
- (1895) 23 R 264
- (1938) 22 TC 175
- (1955) 20 SATC 113
- [1983] STC 590
- [2005] 1 SLR(R) 733
- [2011] UKFTT 289 (TC)
- [1962] AC 209
- [2013] 3 SLR 354
- [1955] AC 696
- [1991] AC 306
- [2006] 1 SLR(R) 484
- [1999] 3 NZLR 129
- [1943] 25 TC 353
- [2000] 3 SLR(R) 136
- [2006] 4 SLR(R) 161
- [2006] 2 SLR(R) 618
- (1953) 88 CLR 492
- [2010] 3 SLR 209
- [1944] AC 126
- (1991) 22 ATR 168
- (1983) 50 ALR 97
- (1993) 176 CLR 640
- (1996) 185 CLR 66
- [1990] 1 AC 478
- Federal Commissioner of Taxation v Broken Hill Pty Ltd (2000) 45 ATR 507
- Definition of Interest
- Outcome: The court held that 'interest' must bear the fundamental feature of accrual with time to be considered as such under the Income Tax Act.
- Category: Substantive
- Sub-Issues:
- Accrual of interest over time
- Distinction between interest, discounts, and redemption premiums
- Related Cases:
- [2000] 2 SLR(R) 360
- [2011] 1 SLR 1217
- [2005] 1 SLR(R) 733
- [2011] UKFTT 289 (TC)
- Capital vs Revenue Expenditure
- Outcome: The court held that the bond issues were capital in nature, and therefore, the discounts and redemption premium were also capital in nature and not deductible.
- Category: Substantive
- Sub-Issues:
- Purpose of the loan
- Linkage between loan and main transaction
- Nature of the main transaction
- Related Cases:
- [2006] 4 SLR(R) 161
- [2006] 2 SLR(R) 618
- [2010] 3 SLR 209
- [1944] AC 126
- (1991) 22 ATR 168
- (1983) 50 ALR 97
- (1993) 176 CLR 640
- (1996) 185 CLR 66
- [1990] 1 AC 478
8. Remedies Sought
- Deduction of borrowing expenses (discounts and redemption premium) from income tax assessment
9. Cause of Actions
- Income Tax Appeal
10. Practice Areas
- Tax Litigation
- Appeals
11. Industries
- Hospitality
- Investment
- Property
12. Cited Cases
| Case Name | Court | Affirmed | Citation | Jurisdiction | Significance |
|---|---|---|---|---|---|
| Chng Gim Huat v Public Prosecutor | High Court | Yes | [2000] 2 SLR(R) 360 | Singapore | Cited for the definition of 'interest' as compensation paid to a lender for the use of his money. |
| ACC v Comptroller of Income Tax | High Court | Yes | [2011] 1 SLR 1217 | Singapore | Cited for the principle that nomenclature does not affect whether a payment is interest. |
| Re Unconscionable Transactions Relief Act | Ontario Court of Appeal | Yes | Re Sampson and Barfried Entreprises Ltd (1962) OR 1103 | Canada | Cited for the proposition that interest may be a fixed sum of money, but ultimately found unpersuasive. |
| R. Buchanan & Company v John Macdonald | Court of Session | Yes | (1895) 23 R 264 | Scotland | Cited for the meaning of discount as the payment of interest in advance, but ultimately found untenable. |
| Commissioners of Inland Revenue v Thomas Nelson & Sons Ltd | Court of Session | Yes | (1938) 22 TC 175 | Scotland | Cited for the proposition that a redemption premium could be interest in nature and substance. |
| Commissioner for Inland Revenue v Genn & Co (Pty) Ltd | Supreme Court | Yes | (1955) 20 SATC 113 | South Africa | Cited for the proposition that raising fees paid to an investment company formed part of the consideration paid by the taxpayer for the use of the loan proceeds. |
| Ditchfield (Inspector of Taxes) v Sharp and others | Court of Appeal | Yes | [1983] STC 590 | England and Wales | Cited for the principle that consideration can consist of a mixture of cash, property, discounts and loans, but they do not lose their individual character. |
| City Hardware Pte Ltd v Kenrich Electronics Pte Ltd | High Court | Yes | [2005] 1 SLR(R) 733 | Singapore | Cited for the principle that interest runs from day to day until repayment of the loan. |
| Nicholas Pike v The Commissioners for Her Majesty’s Revenue and Customs | First-tier Tribunal (Tax Chamber) | Yes | [2011] UKFTT 289 (TC) | United Kingdom | Cited for the ordinary meaning of interest and that the question of whether a payment is interest is not determined by the label attached to it. |
| Chow Yoong Hong v Choong Fah Rubber Manufactory | Privy Council | Yes | [1962] AC 209 | Malaysia | Cited for the definition of discount as a deduction from the price fixed once and for all at the time of payment. |
| Dorsey James Michael v World Sport Group Pte Ltd | High Court | Yes | [2013] 3 SLR 354 | Singapore | Cited for the principle that a purposive approach be taken in statutory interpretation. |
| Kirkness (Inspector of Taxes) v John Hudson & Co Ltd | House of Lords | Yes | [1955] AC 696 | United Kingdom | Cited for the principle that subsequent legislation may fix the proper interpretation of earlier legislation if there be any ambiguity in the earlier. |
| Commissioner of Inland Revenue v Hang Seng Bank Ltd | Privy Council | Yes | [1991] AC 306 | Hong Kong | Cited for the principle that subsequent legislation may fix the proper interpretation of earlier legislation if there be any ambiguity in the earlier. |
| JD Ltd v Comptroller of Income Tax | High Court | Yes | [2006] 1 SLR(R) 484 | Singapore | Cited for the principle that Parliament shuns tautology and does not legislate in vain. |
| Tasman Forestry Ltd v Commissioner of Inland Revenue | High Court | Yes | [1999] 3 NZLR 129 | New Zealand | Cited for the principle that there is no symmetry between the charging and deductibility provisions of the Income Tax Act. |
| Lomax (H.M. Inspector of Taxes) v Peter Dixon & Son, Ltd | High Court | Yes | [1943] 25 TC 353 | United Kingdom | Cited for the principle that the discount and redemption premium compensated the taxpayer for capital risk. |
| Pinetree Resort Pte Ltd v Comptroller of Income Tax | High Court | Yes | [2000] 3 SLR(R) 136 | Singapore | Cited for the principle that there must be a nexus between the incurrence of the expense and the production of income. |
| Comptroller of Income Tax v IA | Court of Appeal | Yes | [2006] 4 SLR(R) 161 | Singapore | Cited for the principle that the concept of 'purpose' is a principal legal tool in distinguishing capital from revenue. |
| T Ltd v Comptroller of Income Tax | Court of Appeal | Yes | [2006] 2 SLR(R) 618 | Singapore | Cited for the principle that whether interest expenses are capital or revenue depends on the purpose for which the loan is employed. |
| Federal Commissioner of Taxation v James Flood Pty Ltd | High Court | Yes | (1953) 88 CLR 492 | Australia | Cited for the principle that 'outgoing' covers outgoings to which the taxpayer is definitively committed in the year of income although there has been no actual disbursement. |
| ABD v Comptroller Income Tax | Court of Appeal | Yes | [2010] 3 SLR 209 | Singapore | Cited for the test to be applied in distinguishing capital from revenue expenditure. |
| Montreal Coke and Manufacturing Company v Minister of National Revenue | Privy Council | Yes | [1944] AC 126 | Canada | Cited for the principle that expenditure incurred in relation to the financing of their businesses is not expenditure incurred in the earning of their income within the statutory meaning. |
| Kidston Goldmines Ltd v Federal Commissioner of Taxation | High Court | Yes | (1991) 22 ATR 168 | Australia | Cited for the principle that the purpose of the borrowing will be ascertained from the use to which the borrowed funds were put. |
| Federal Commissioner of Taxation v Hunter Douglas Ltd | Federal Court | Yes | (1983) 50 ALR 97 | Australia | Cited for the principle that the uses to which the bond proceeds were put are not conclusive of the purpose of the bond issues. |
| Coles Myer Finance Limited v Commissioner of Taxation of the Commonwealth of Australia | High Court | Yes | (1993) 176 CLR 640 | Australia | Cited for the principle that a loss or outgoing incurred for the purpose of securing working or circulating capital is clearly deductible. |
| Federal Commissioner of Taxation v Energy Resources of Australia Ltd | High Court | Yes | (1996) 185 CLR 66 | Australia | Cited for the principle that where a taxpayer incurs loss or expense in raising funds by issuing promissory notes at a discount to their face value, its entitlement to a s 51 deduction for that loss or expense depends on the use to which the funds are to be put. |
| Beauchamp (Inspector of Taxes) v F.W. Woolworth plc | House of Lords | Yes | [1990] 1 AC 478 | United Kingdom | Cited for the principle that where a loan is taken for a general as opposed to a specific purpose, it is likely to be capital as opposed to revenue in nature. |
| Federal Commissioner of Taxation v Broken Hill Pty Ltd | Federal Court of Australia | Yes | Federal Commissioner of Taxation v Broken Hill Pty Ltd (2000) 45 ATR 507 | Australia | Cited for the principle that the common law looks at the substance of a transaction and not at its label or form. |
13. Applicable Rules
| Rule Name |
|---|
| No applicable rules |
14. Applicable Statutes
| Statute Name | Jurisdiction |
|---|---|
| Income Tax Act (Cap 134, 2001 Rev Ed) s 14(1) | Singapore |
| Income Tax Act (Cap 134, 2001 Rev Ed) s 14(1)(a) | Singapore |
| Income Tax Act (Cap 134, 2001 Rev Ed) s 15(1)(c) | Singapore |
| Interpretation Act (Cap 1, 2002 Rev Ed) s 9A | Singapore |
| Income Tax Act (Cap 134, 2008 Rev Ed) s 14(1)(a) | Singapore |
| Income Tax Act s 10(1)(d) | Singapore |
15. Key Terms and Keywords
15.1 Key Terms
- Bond
- Discount
- Redemption Premium
- Interest
- Borrowing Expenses
- Income Tax
- Capital Expenditure
- Revenue Expenditure
- Working Capital
- Refinancing
- Hotel Renovation
- Total Assets Method
- Deductibility
- Assessment
15.2 Keywords
- Income Tax
- Deductions
- Borrowing Expenses
- Bonds
- Discounts
- Redemption Premium
- Capital Expenditure
- Revenue Expenditure
17. Areas of Law
| Area Name | Relevance Score |
|---|---|
| Income taxation | 95 |
| Taxation | 90 |
| Administrative Law | 30 |
| Contract Law | 20 |
| Company Law | 15 |
16. Subjects
- Income Tax
- Tax Deductions
- Borrowing Costs
- Statutory Interpretation