NE v Comptroller of Income Tax

Woo Bih Li J:

[2] The appellant is in the business of exhibiting motion pictures. C serves as one of the appellant’s directors. It was undisputed that C was the subject of a violent kidnapping attempt in 1971. At the driveway of his bungalow, he was dragged out of his car at gunpoint by four men. He was shot in the right arm in the struggle, bundled into the boot of a taxi and driven away. C’s captors switched cars at a pre-arranged spot where he was again forced into the boot of another vehicle. Despite his wound, C managed to escape when the car halted at a traffic light.

[3] The particular bodyguard in question in this appeal joined the appellant in 1989. According to the appellant’s case,[note: 1] the bodyguard in question was not the first bodyguard employed for C’s security. The bodyguard had taken over this duty from his predecessor. The bodyguard received about $30,000 per annum. The subject matter of this appeal involved three sums paid to the bodyguard as his salary, employer’s Central Provident Fund contribution and bonus of $28,255 for the Year of Assessment (“YA”) 1996, $31,523 for YA 1997 and $32,371 for YA 2000. The amount of tax involved, at the corporate tax rate of 26% or 27%, was said by the appellant to be about $8,000 a year. The relevant calendar years were therefore 1995, 1996 and 1999 and the applicable legislation would be the Income Tax Act (Cap 134, 1994 Rev Ed) and the Income Tax Act (Cap 134, 1999 Rev Ed).

[4] The relevant provisions of both the above Income Tax legislation are ss 14(1), 15(1)(a) and 15(1)(b). The material portions thereof are identical. Sections 14(1), 15(1)(a) and 15(1)(b) state:

[5] As can be seen, the substance of s 15(1)(b) is the mirror of s 14(1). The primary dispute was whether the expenditure in employing the bodyguard was incurred wholly and exclusively in the production of income.

[6] The Board stated its reasons at [17] to [21] of its written decision (see [2006] SGITBR 4) as follows:

[7] In these circumstances, the CIT relied on s 81(2) of the said Income Tax legislation. For completeness, I cite below ss 81(1) and 81(2):

[8] Accordingly, the appellant cannot appeal from the Board’s decision if it is purely one of fact. This principle was not disputed by the appellant. The CIT submitted that the Board’s decision was based on findings of fact. Paragraph 2 of its skeletal arguments state:

[9] On the other hand, the appellant’s case did not even assert that its appeal from the decision of the Board was on a question of law or of mixed law and fact. It was only during oral submissions that Mr Leon Kwong Wing, counsel for the appellant, submitted that the Board’s decision was wrong as a matter of law. However, Mr Leon still did not elaborate as to what the question of law was on which the Board had supposedly erred.

[10] It was not disputed that in considering whether an outgoing or expense was wholly and exclusively incurred in the production of income, the purpose of the expenditure has to be considered. This in turn necessitates a consideration of the taxpayer’s “object” in making the expenditure. In Mallalieu v Drummond [1983] 2 AC 861 (“Mallalieu”), Lord Brightman, who delivered the judgment for the majority of the law lords, said at 870:

I should add that Mallalieu involved a consideration of s 130(a) of the Income and Corporation Taxes Act 1970 (c 10) (UK) which is in substance similar to our ss 14(1) and 15(1)(b).

[11] In the later case of Vodafone Cellular Ltd v Shaw [1997] STC 734, Millett LJ said at 742:

[12] Mr Leon stressed that the Criminal Investigation Department had recommended that C be provided with a bodyguard but, in my view, this was neither here nor there as regards the issue before me.

[13] Mr Leon also submitted that C, while serving as a director of the appellant, did not hold any shares in the appellant. He said the appellant was controlled by someone else. Again, in my view, this was neither here nor there.

[14] Mr Leon also referred to the appellant’s overriding interest in protecting C who was its key personnel or key man.[note: 2] However, that again did not carry the matter further. Even if C was a key man in the organisation, that still did not elaborate on the appellant’s purpose of employing a bodyguard for him. It may well be said that the purpose was obviously to protect him, but the issue before me was whether the purpose was wholly and exclusively for the production of income. I would also add that counsel for the CIT, Mr Tang Siau Yan, informed me that there was evidence before the Board, although not recorded in the notes of evidence, that other members of C’s family also had bodyguards whose services were paid for by other companies. Mr Leon was prepared not to contradict Mr Tang on this point even though he himself did not recollect such evidence.

[15] In my view, the Board had concluded at [18] of its written decision that there was a dearth of evidence on the appellant’s purpose of employing the bodyguard. To me, this was clearly a question of fact only and it cannot be said that the evidence was such that it did not justify the conclusion which the Board had reached. Accordingly, I am of the view that the appellant is precluded by ss 81(1) and 81(2) from appealing to the High Court.

[16] I would add that even if it could be said that the Board’s conclusion at [18] of its written decision was one of mixed fact and law, I am of the view that there is insufficient evidence to establish the purpose of the employment of the bodyguard.

[17] Accordingly, it is unnecessary for me to venture a view as to whether the Board’s decision at [20], where it equated the expenditure incurred in the employment of the bodyguard with the expenditure on clothing in cases such as Mallelieu, was sustainable.

[18] It is also unnecessary for me to venture a view as to whether s 15(1)(a) is applicable only to a tax payer who is a natural person as opposed to a corporate entity.

[note: 1] At para 17.

[note: 2] See para 14 of the appellant’s case.