BFC v Comptroller of Income Tax: Deductibility of Bond Issuance Expenses
In BFC v Comptroller of Income Tax, the Court of Appeal of Singapore heard an appeal regarding the deductibility of expenses incurred by BFC in borrowing money through bond issuance. BFC challenged the Comptroller's decision to disallow deductions for discounts and redemption premiums, while allowing deductions for interest paid on the bonds. The court dismissed the appeal, holding that the discounts and redemption premiums were capital expenditures and not deductible under the Income Tax Act.
1. Case Overview
1.1 Court
Court of Appeal1.2 Outcome
Appeal Dismissed
1.3 Case Type
Tax
1.4 Judgment Type
Grounds of Decision
1.5 Jurisdiction
Singapore
1.6 Description
The Court of Appeal examined whether discounts and redemption premiums on bonds are deductible expenses under the Income Tax Act. The court dismissed the appeal.
1.7 Decision Date
2. Parties and Outcomes
| Party Name | Role | Type | Outcome | Outcome Type | Counsels |
|---|---|---|---|---|---|
| Comptroller of Income Tax | Respondent | Government Agency | Judgment for Respondent | Won | Quek Hui Ling of Inland Revenue Authority of Singapore Jimmy Goh Yak Hong of Inland Revenue Authority of Singapore Michelle Chee Yen Yen of Inland Revenue Authority of Singapore |
| BFC | Appellant | Corporation | Appeal Dismissed | Lost |
3. Judges
| Judge Name | Title | Delivered Judgment |
|---|---|---|
| Sundaresh Menon | Chief Justice | No |
| Chao Hick Tin | Justice of the Court of Appeal | Yes |
| Andrew Phang Boon Leong | Justice of the Court of Appeal | No |
4. Counsels
| Counsel Name | Organization |
|---|---|
| Quek Hui Ling | Inland Revenue Authority of Singapore |
| Jimmy Goh Yak Hong | Inland Revenue Authority of Singapore |
| Michelle Chee Yen Yen | 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
- BFC issued bonds in 1995 with a face value of $150 million and offered a discount of $645,750.
- BFC issued bonds in 1996 with a face value of $165 million and offered a discount of $11,682,495.
- The 1995 bonds had a redemption premium of 1.5% of the principal amount, or $2.25 million.
- The Comptroller of Income Tax allowed deductions for a portion of the interest paid on the bonds.
- The Comptroller of Income Tax disallowed deductions for the discounts and redemption premium.
- The 1995 Bond Proceeds were used to finance the refurbishment of the Hotel.
- The 1996 Bond Proceeds formed a mixed pool of funds, part of which was income-producing and part of which was not income-producing.
5. Formal Citations
- BFC v Comptroller of Income Tax, Civil Appeal No 124 of 2013, [2014] SGCA 39
6. Timeline
| Date | Event |
|---|---|
| BFC issued 1995 Bonds | |
| BFC issued 1996 Bonds | |
| 1995 Bonds matured and were redeemed | |
| 1996 Bonds matured and were redeemed | |
| Respondent assessed Appellant’s taxable income for Year of Assessment 2001 | |
| Respondent assessed Appellant’s taxable income for Year of Assessment 2002 | |
| Decision below reported at [2013] 4 SLR 741 | |
| Judgment reserved |
7. Legal Issues
- Deductibility of Expenses
- Outcome: The court held that discounts and redemption premiums are not deductible as they are considered capital expenditure and do not fall within the definition of 'interest' under s 14(1)(a).
- Category: Substantive
- Related Cases:
- [2006] 2 SLR(R) 618
- [2006] 4 SLR(R) 161
- Definition of Interest
- Outcome: The court defined interest as compensation for the use or delayed payment of money, where the amount depends on the duration of the loan.
- Category: Substantive
- Related Cases:
- [2000] 2 SLR(R) 360
- [1947] AC 390
- Capital vs Revenue Expenditure
- Outcome: The court determined that the discounts and redemption premiums were capital expenditures, as they were related to loans used for capital purposes.
- Category: Substantive
- Related Cases:
- [1964] AC 948
- [1966] AC 295
- (1938) 61 CLR 337
8. Remedies Sought
- Deduction of discounts offered on bonds
- Deduction of redemption premium paid on bonds
9. Cause of Actions
- No cause of actions
10. Practice Areas
- Tax Litigation
11. Industries
- Hospitality
12. Cited Cases
| Case Name | Court | Affirmed | Citation | Jurisdiction | Significance |
|---|---|---|---|---|---|
| BFC v Comptroller of Income Tax | High Court | Yes | [2013] 4 SLR 741 | Singapore | Refers to the decision of the lower court being appealed. |
| MNO v Comptroller of Income Tax | High Court | Yes | MNO v Comptroller of Income Tax (1961) 27 MLJ 223 | Singapore | Cited for the interpretation of the word 'including' in s 14(1) of the Income Tax Act as a term of extension. |
| Commissioners of Inland Revenue v British Salmson Aero Engines, Limited | Court of Appeal | Yes | [1938] 2 KB 482 | England and Wales | Cited for the principle that income tax is a tax on income and does not tax capital. |
| Commissioner of Taxes v Nchanga Consolidated Copper Mines Ltd | Privy Council | Yes | [1964] AC 948 | Federation of Rhodesia and Nyasaland | Cited for the distinction between capital expenditure and revenue expenditure. |
| Regent Oil Co Ltd v Strick (Inspector of Taxes) | House of Lords | Yes | [1966] AC 295 | England and Wales | Cited for the contrast between the 'plant' of a business and its 'stock-in-trade' in distinguishing between capital and revenue expenditure. |
| Sun Newspapers Ltd v Federal Commissioner of Taxation | High Court | Yes | (1938) 61 CLR 337 | Australia | Cited for the distinctions between capital expenditure and revenue expenditure. |
| ABD Pte Ltd v Comptroller of Income Tax | High Court | Yes | [2010] 3 SLR 609 | Singapore | Cited for a comprehensive discussion of various tests for determining whether expenditure is capital or revenue in nature. |
| T Ltd v Comptroller of Income Tax | Court of Appeal | Yes | [2006] 2 SLR(R) 618 | Singapore | Cited for the principle that the classification of borrowing costs as capital or revenue expenditure depends on the purpose of the underlying loans. |
| Comptroller of Income Tax v IA | Court of Appeal | Yes | [2006] 4 SLR(R) 161 | Singapore | Cited for the principle that the classification of borrowing costs as capital or revenue expenditure depends on the purpose of the underlying loans. |
| Wharf Properties Ltd v Commissioner of Inland Revenue | Privy Council | Yes | [1997] AC 505 | Hong Kong | Cited regarding interest as part of the cost of generating income and therefore a revenue expense once the asset has been acquired or created and is producing income. |
| Andermatt Investments Pte Ltd v Comptroller of Income Tax | Court of Appeal | Yes | [1995] 2 SLR(R) 866 | Singapore | Cited for the principle that only interest payments in respect of a capital loan which has a 'direct link' to the income of a taxpayer are deductible. |
| Commissioner of Taxation v Hunter Douglas Ltd | Federal Court | Yes | (1983) 50 ALR 97 | Australia | Cited as an authority in IA for loans used to acquire trading stock would be regarded as revenue in nature. |
| T Ltd v Comptroller of Income Tax | High Court | Yes | [2005] 4 SLR(R) 285 | Singapore | Refers to the High Court decision of T Ltd v Comptroller of Income Tax. |
| Chng Gim Huat v Public Prosecutor | High Court | Yes | [2000] 2 SLR(R) 360 | Singapore | Cited for the definition of 'interest' as compensation for the deprivation of the use or delayed payment of money by another. |
| Riches v Westminster Bank Limited | House of Lords | Yes | [1947] AC 390 | England and Wales | Cited for the principle that interest may be regarded as representing the profit a lender might have made if he had had the use of the money, or conversely the loss he suffered because he had not that use. |
| Yusen Air & Sea Service (S) Pte Ltd v Changi International Airport Services Pte Ltd | High Court | Yes | [1999] 3 SLR(R) 95 | Singapore | Cited for the presumption that when a word is used multiple times in a statute, that word should be consistently construed in the same manner each time it occurs, unless its context clearly suggests otherwise. |
| Public Prosecutor v Ng Guan Hup | High Court | Yes | [2009] 4 SLR(R) 314 | Singapore | Cited for the presumption that when a word is used multiple times in a statute, that word should be consistently construed in the same manner each time it occurs, unless its context clearly suggests otherwise. |
13. Applicable Rules
| Rule Name |
|---|
| No applicable rules |
14. Applicable Statutes
| Statute Name | Jurisdiction |
|---|---|
| Income Tax Act (Cap 134, 2001 Rev Ed) s 10(1) | Singapore |
| 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) | Singapore |
| Income Tax Act (Cap 134, 2001 Rev Ed) s 15(1)(c) | Singapore |
| Income Tax Act (Amendment No 2) Act (Act 53 of 2007) | Singapore |
15. Key Terms and Keywords
15.1 Key Terms
- Bonds
- Discounts
- Redemption Premium
- Interest
- Capital Expenditure
- Revenue Expenditure
- Deductibility
- Income Tax Act
- Year of Assessment
- Borrowing Costs
15.2 Keywords
- Income Tax
- Deductibility
- Bond Issuance
- Capital Expenditure
- Revenue Expenditure
- Singapore
17. Areas of Law
| Area Name | Relevance Score |
|---|---|
| Income taxation | 95 |
| Taxation | 90 |
| Deductibility of Expenses | 70 |
| Borrowing Costs | 60 |
| Company Law | 50 |
| Contract Law | 30 |
16. Subjects
- Taxation
- Corporate Finance
- Accounting