28 November 2019

BZZ v Comptroller of Income Tax [2019] SGHC 252

The appeal before the Singapore High Court in BZZ v Comptroller of Income Tax concerned arguments by a seller of a property to the trustee of a real estate investment trust (“REIT”) that the seller should not be imposed with a balancing charge under the Income Tax Act (“Act”) as section 24(1) of the Act applied to nullify the effect of the balancing charge. The Singapore High Court considered the requirement for control under section 24(1) and held that the section did not apply on the facts of the present case and accordingly dismissed the appeal.


BZZ sold a property to BMT, who bought it in its capacity as trustee of the beneficiary, FCOT, a REIT. The manager of FCOT was FCAM (“Manager”). Both BZZ and the Manager were wholly owned by FCL.

The Comptroller of Income Tax (“Comptroller”) levied a balancing charge of S$40 million against BZZ arising from the sale of the property.

Under the Act, a taxpayer is given capital allowances on his capital assets to cover capital depreciation. When the capital asset is sold at a price exceeding the amount of capital allowances not claimed, the Comptroller will recover the difference from the seller as a “balancing charge”, in this case, S$40 million. A balancing charge is deemed to be income chargeable with tax under section 10(4) of the Act. The only exception is where section 24(1) of the Act applies.

BZZ disputed the Comptroller’s claim that a balancing charge was necessary in this case. Its appeal was dismissed by the Income Tax Board of Review, upon which it appealed to the High Court.

High Court decision

The High Court construed section 24(1) of the Act to have the effect of nullifying a balancing charge “if a sale in question can be said to be not a true commercial sale in that … both buyer and seller are under the control of the third party”. The court held that it was not relevant to consider the question of control between the Manager and BMT, but rather, the control by FCL over BZZ and FCOT.

The court noted BZZ’s submissions that the accounts of FCOT and FCL were consolidated under the Monetary Authority of Singapore’s requirements and accounting procedure. The court also noted that BMT as trustee was duty-bound to follow the directions of the Manager under the trust deed. Nevertheless, the court found that the apparent control that the Manager had over BMT was not absolute as BMT’s duties and obligations to FCOT as the subject of its trust rose above its duties and obligations to the Manager.

In its analysis, the court held that the control envisaged under section 24(1) must refer to the seller and the buyer. However in the present case, legally, FCL did not control BMT, the buyer. The fact that FCL controlled FCOT (through the Manager managing FCOT) was another matter, and that was a crucial break in the chain of control. The court further observed that BMT’s core duties arose in a complex situation where FCL was only a 22.2% owner of FCOT, and that BMT may not be able to fully discharge its core duties if it were constrained to just “irreducible core duties”.

On the facts, while the court found that FCL was in control of BZZ, it found that FCL had at most “substantial influence” over FCOT, which was not “control” for the purposes of section 24(1) of the Act. Accordingly, the court dismissed BZZ’s appeal.

Reference materials

The High Court judgment is available from the Supreme Court website www.supremecourt.gov.sg or by clicking here.


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