Tan Hee Liang v Chief Assessor and Another

[1] This is an appeal from the decision of the High Court judge (“the Judge”) dismissing the appellant’s appeal from the decision of the Valuation Review Board (“the Board”) (see the High Court judgment in Tan Hee Liang v Chief Assessor (“the Judgment”) reported at [2008] 1 SLR 586). The appellant is the owner of a shop unit (“the subject property”) and, essentially, his case centred on the correct amount to be excluded from the total monthly rental (“gross rental”) in the ascertainment of the annual value (for taxation purposes) of the subject property. The respondents are the Chief Assessor and the Comptroller of Property Tax.

[2] As characterised by the parties, the sole issue before us is whether, in arriving at the annual value, the Chief Assessor was correct in not excluding from the gross rental the contributions payable by the appellant towards a sinking fund and a special levy. However, the simplicity of this characterisation obscures what is really a difficult exercise in both concept and logic. As can perhaps be appreciated, this case raises interesting issues regarding the correct meaning to be given to the expression “annual value” as found in s 2(1) of the Property Tax Act (Cap 254, 2005 Rev Ed) (“PTA”).

[3] However, whatever meaning is eventually ascribed to the particular provision must also take into account the prevailing tax assessment practices of the relevant authorities, lest unwarranted confusion be unintentionally caused. As such, after we first heard the parties, we invited them to tender additional written submissions on s 2(1) of the PTA. The Chief Assessor submitted additional submissions on 16 May 2008, with the appellant filing submissions in reply two weeks later. We took these additional submissions into account in reaching the decision detailed in this judgment.

[4] Having provided the brief backdrop to the present appeal, we come now to the facts. The facts leading to the institution of legal proceedings are relatively simple and can be stated within a brief compass. As we briefly alluded to above, the appellant is the owner of the subject property which is specifically located within a shopping complex, City Plaza, which in turn is located at 810 Geylang Road, Singapore 409286.

[5] As such, and this is common ground between the parties, the appellant pays separate quarterly contributions to: (a) a management fund (referred by the parties as contributions to a “maintenance fund”); (b) a sinking fund; and (c) a special levy imposed by the City Plaza Management Corporation Strata Title Plan No 669 (“the MCST”). The MCST also refers to payments to the management fund, viz, category (a) above, as the “maintenance contributions”. For consistency, we shall refer to the payments to the fund under category (a) as “payments to the management fund” in this judgment.

[6] In the present case, the subject property was let to a tenant at a gross rental of $4,000, making an annual rental of $48,000. Under cl 30(b) of the tenancy agreement, the landlord was to bear all rates, assessments, property tax (but not goods and services tax) and all other outgoings imposed upon or payable in respect of the subject property and to insure the same against fire. It is common ground between the appellant and the Chief Assessor that there is deemed included in the gross rental the payments made by the appellant to the management fund, the sinking fund and the special levy.

[7] In assessing the annual value of the property at $45,600, the Chief Assessor allowed to be excluded the appellant’s payments to the management fund of approximately $2,400 per year but not those towards the sinking fund and the special levy. In other words, the Chief Assessor had decided that contributions made by the appellant towards the sinking fund and the special levy were not to be excluded from the gross rental in the calculation of the annual value, whereas payments to the management fund were allowed to be excluded.

[8] Being dissatisfied with the Chief Assessor’s decision to allow only the payments to the management fund to be excluded from the assessment of the annual value and not allow those contributions payable towards the sinking fund and the special levy to be excluded, the appellant commenced a series of legal proceedings which culminated in the present appeal.

[9] The appellant first appealed against the Chief Assessor’s decision to the Board. The Board dismissed the appellant’s appeal and the appellant appealed against the Board’s decision to the High Court. As the arguments raised and considered in the proceedings below are of some utility to understanding the true nature of the issues raised before us, we propose to detail them at some length. We should mention that the arguments raised before the Board and the High Court are largely identical.

[10] Both the appellant and the Chief Assessor agreed before the Board and the High Court that, in the computation of the annual value, the appellant’s payments to the management fund should be excluded. However, the rationale for the exclusion of this component was not agreed upon by both parties. As will be seen later, it is this conceptual difference that the issue raised in the present appeal can be said to stem from.

[11] The appellant’s position was that payments to the management fund should be excluded, as such payments were unrelated to the subject property since they related only to the common property and not to the subject property. There was thus an attempt to differentiate between common property and individual property privately owned by individuals. On the other hand, the Chief Assessor argued that the reason why payments to the management fund should be excluded was that this component was for payment for “services”, and the case authorities, such as the 1959 High Court decision of Chartered Bank v The City Council of Singapore [1959-1986] SPTC 1 (“Chartered Bank”), stated that such payments should be excluded.

[12] Following from the parties’ dispute on the rationale behind why payments to the management fund should be excluded in the computation of the annual value, the parties were (and are) in dispute as to whether the appellant’s payments towards the sinking fund and special levy should be excluded as well.

[13] The Chief Assessor took the position that the payments towards the sinking fund and the special levy should not be excluded because these payments, unlike the appellant’s payments to the management fund, were not payments for services but for expenses for maintenance and repair. The Chief Assessor argued that since the statutory definition of “annual value” in s 2(1) of the PTA specifically stated that the landlord had to bear the expenses of repair and maintenance, the payments towards the sinking fund and special levy must be included in the computation of the annual value. The Chief Assessor further took the position that no distinction should be drawn between payments towards repair and maintenance of the subject property and of the common property.

[14] The Chief Assessor attempted to find support in this court’s decision in MCST Plan Nos 1298 and 1304 v Chief Assessor [2006] 4 SLR 404 (“Centrepoint Shopping Centre”) for the argument that, since the subsidiary proprietor of an individual lot owns a part of the common property under s 13 of the Land Titles (Strata) Act (Cap 158, 1999 Rev Ed) (“LTSA”) and the determination of the annual value of an individual lot would invariably take into account the enjoyment to be derived from facilities and amenities forming part of the common property, it would be wrong to exclude the payments for maintenance and repair even though they related to the common property.

[15] The appellant took the position before the Board and the High Court that the payments towards the sinking fund and the special levy should be excluded because these payments were unrelated to the rent or the letting of the subject property, being payments towards the common property, just like the appellant’s payments to the management fund.

[16] The appellant relied on this court’s decision in BCH Retail Investment Pte Ltd v Chief Assessor [2007] 2 SLR 580 (“BCH No 2”) to support his argument that payments towards the sinking fund and the special levy were unrelated to the rent or the letting of the subject property as they were payments in relation to the common property and not the subject property. As it was not the common property, but the subject property, that was being assessed for property tax, the appellant argued that payments that were related to the common property should be excluded since such payments were unrelated to the rent or the letting of the subject property.

[17] The Board upheld the Chief Assessor’s decision based on the following three grounds:

(a) A “common law service charge exception” was established in Chartered Bank ([11] supra). The sinking fund and the special levy were collected for purposes beyond the provision of services or profit on those services. Thus, payments to the sinking fund and the special levy did not fall within the categories decided by the High Court in Chartered Bank or in BCH Retail Investment Pte Ltd v Chief Assessor [2002] 4 SLR 844 (“BCH No 1”).

(b) It was impermissible for the appellant, relying on the English Court of Appeal decision of Bell Property Trust, Limited v Assessment Committee for the Borough of Hampstead [1940] 2 KB 543 (“Bell Property Trust”), to extend the service charge exception established by Chartered Bank and BCH No 1. Bell Property Trust was decided prior to the introduction of the commonhold system (the English equivalent of our strata titles system) and was hence inapplicable to our strata titles system in so far as the judgment in that case assumed that only the payments for the area within the apartment could be taken into account. It therefore differentiated between rent paid for actual occupation of the flat and the remuneration for the benefit of services and amenities provided by the landlord. The Board was also of the view that Goddard LJ in Bell Property Trust was relying upon such an assumption when he held at 556 that the cost of repairs to “common parts” was deductible.

(c) To differentiate the maintenance of the common parts from that within the four walls of the strata unit would be out of sync with the PTA, LTSA and this court’s decision in Centrepoint Shopping Centre.

[18] As can be seen, the Board accepted the Chief Assessor’s arguments that it had to be determined if the payments for the sinking fund and the special levy fell within the common law service charge exception. The Board did not analyse if the payments were related to the rent or the letting of the subject property (pursuant to BCH No 2) in deciding whether the payments should be excluded from the computation of annual value of the subject property. However, no fault should be attached to the Board for not having done so as BCH No 2 was only decided after the Board had considered the appellant’s appeal before it.

[19] The Judge accepted the appellant’s arguments and rejected the abovementioned three grounds of the Board for upholding the Chief Assessor’s decision not to exclude the payments towards the sinking fund and the special levy from the computation of the annual value of the subject property. Notwithstanding this, the Judge agreed with the conclusion argued for by the Chief Assessor (and of the Board, which upheld the Chief Assessor’s decision) in that contributions to the sinking fund and the special levy ought not to be excluded, but reached this conclusion by a different process of reasoning, which, in our view, can broadly be divided into two separate parts.

[20] In the first part of the Judgment, the Judge disagreed with the reasoning of both the Board and the Chief Assessor and held (at [31] of the Judgment) that the contributions to the sinking fund and the special levy, as well as the payments to the management fund, “are unrelated to the elements of rent or letting of the [subject] property”. In other words, the Judge saw no reason to distinguish between contributions towards the sinking fund and the special levy from the payments to the management fund.

[21] Specifically, the Judge’s reasons for rejecting all three grounds of the Board (see [17] above) were as follows:

(a) The Board took too restrictive a view when it limited allowable “deductions” to what it called the “service charge exception” established by Chartered Bank and BCH No 1. This court’s decision in BCH No 2 made it clear that what was to be excluded in the determination of annual value was remuneration of any kind paid by the tenant which was unrelated to the elements of rent or letting.

(b) Bell Property Trust could not be said to be inapplicable in the context of Singapore’s strata title system. This case was followed by the High Court in BCH No 1 and referred to by this court in BCH No 2. From s 2(7) of the PTA and the decision of this court in Centrepoint Shopping Centre ([14] supra), the “annual value” of the individual lot still referred only to the gross amount at which the individual lot could reasonably be expected to be let; the expenses of repair, insurance, maintenance or upkeep, etc, which might be included in such gross amount, all related to the individual lot.

(c) The Board’s reasoning, that to differentiate the maintenance of the common parts from that within the four walls of the strata unit would be out of sync with the approach of the LTSA, PTA and this court’s decision in Centrepoint Shopping Centre, was incorrect.

[22] As a result of the reasoning set out above, the Judge rejected the Chief Assessor’s arguments that the payments towards the sinking fund and the special levy were related to rent or letting and that a distinction should be drawn between the payments to the management fund and those to the sinking fund or the special levy.

[23] The Judge also accepted the appellant’s submission that no principled distinction could be drawn between payments to the management fund (which the Chief Assessor allowed to be excluded) and those to the sinking fund or the special levy (which the Chief Assessor disallowed). The Judge accepted that all of these items were unrelated to the elements of rent or the letting of the subject property, ie, the individual lot. At [31] of the Judgment, the Judge stated:

[24] On that basis, one would have thought that the Judge would then rule in the appellant’s favour. Indeed, it ought then to have followed that, since payments to the management fund were excluded, the same should have applied to the contributions towards the sinking fund and the special levy as well. As it turned out, the Judge held that it was insufficient for the appellant to demonstrate only that the contributions to the sinking fund or the special levy were unrelated to the elements of rent or the letting of the subject property in order for them to be excluded from the annual value. This formed the focus of the second part of the Judgment.

[25] In the second part of the Judgment, the Judge held that the appellant had to satisfy a further requirement to the effect that the payment by the tenant must, in character and quantum, be bona fide in return for something other than the use and occupation of the subject property, viz, that the tenant derived a service or benefit from the said payment (“the further requirement”); if no such benefit was forthcoming, then there would be no justification for excluding the payment or the relevant part from the gross rental in arriving at the annual value.

[26] The Judge reasoned that if the landlord could not show that the tenant derived a service or benefit for the payment, the consideration for the payment must be for the letting and the payment should therefore not be excluded in the ascertainment of the annual value. Explaining his reasons further, the Judge drew a distinction between “painting, repairs to the common property” and “the installation of additional facilities … for the benefit of the subsidiary proprietors”, as follows (at [36] and [37] of the Judgment):

[27] In the result, the Judge determined that the tenant did not derive any service or benefit from the payments to the sinking fund and special levy and therefore dismissed the appellant’s appeal from the Board’s decision. In other words, the Judge upheld the Chief Assessor’s decision not to exclude the payments towards the sinking fund and the special levy from the computation of the annual value.

[28] Before us, the appellant did not take issue with the Judge’s treatment of the legal issues in the first part of the Judgment. Indeed, according to Mr Tan Hee Joek, counsel for the appellant, the Judge had in fact accepted and adopted a large portion of the appellant’s submissions below in this regard. Instead, and not surprisingly, the appellant was dissatisfied with the second part of the Judgment, viz, the imposition of the further requirement.

[29] Thus, reduced to its core, the appellant’s argument was premised on a single proposition: The Judge erred in imposing the further requirement that the payment sum in dispute be of service or benefit to the tenant. To this there were in fact several sub-arguments. First, the appellant submitted that the need for the further requirement was not argued before the Judge. It was a requirement which the Judge had imposed without the input of either party. While there might be cases where such a practice was without fault, it was urged upon us that where the outcome of a case turned on a particular point, the parties must be given the opportunity to address the court on it. Thus, in the instant case, where the Judge had failed to do this, it would be manifestly unfair to the appellant for the case to have been decided against him on a point not argued by either party.

[30] The second sub-argument on the main premise was substantive in nature. According to the appellant, the necessity of the further requirement was unsupported by authority. To support this proposition, the appellant referred extensively to the established case law to show that, even in cases where there had been no benefit conferred on the tenant by way of a payment, the courts had not disallowed the exclusion of such payment. The overarching reason, it was implicitly argued, must be the guiding principle that only payments related to rent or letting could be included in the ascertainment of the annual value.

[31] Alternatively, in lieu of the main premise described above, it was submitted by the appellant before us that, even if the Judge was correct that there was in law the further requirement, this requirement was in fact fulfilled on the facts and based on the Judge’s own analysis at [36] and [37] of the Judgment.

[32] The Chief Assessor’s arguments, on the other hand, were premised on “two prongs”.

[33] The first prong was essentially that payments towards the sinking fund and special levy were expenses that were related to elements of rent and letting and should not be excluded because these payments were expenses for maintenance and repair, unlike the appellant’s payments to the management fund which were “payments for services”. This ostensibly militates against the Judge’s reasoning in the first part of his decision. While there was no formal cross-appeal as such by the Chief Assessor, reliance was placed on O 57 r 9A(5) of the Rules of Court (Cap 322, R 5, 2006 Rev Ed ) to make this submission against the first part of the Judge’s decision. This particular provision allows a respondent to specify his desire to contend on an appeal that the decision of the court below should be varied in the event of the appeal being allowed in whole or in part, or that the decision of that court should be affirmed on grounds other than those relied upon by that court, even though the said respondent had not appealed from the decision of the court below.

[34] Returning to the first prong of the Chief Assessor’s arguments before us, it was said that the expression “the landlord paying the expenses of repair, insurance, maintenance or upkeep and all taxes (other than goods and services tax)” (“the qualifying words”) in that part of s 2(1) of the PTA defining “annual value” meant that, in ascertaining the annual value of the property, expenses incurred for repair, insurance, maintenance or upkeep and all taxes (other than goods and services tax) were to be included in the ascertainment. Accordingly, as the uses of both the sinking fund and the special levy were for either repairs or maintenance to the common property, these were properly the responsibility of the landlord and, as such, should not be excluded from the gross rental in the ascertainment of the annual value.

[35] Before us, counsel for the Chief Assessor, Ms Julia Mohamed, further explained that the reason why the payments to the management fund in the present case were excluded from the computation of the annual value was because these had to do with “services” and hence came within the exception created in Chartered Bank ([11] supra). However, when asked whether Chartered Bank in fact correctly stood for such a proposition given that some of the exclusions allowed in that case were in fact hardly “services” but resembled maintenance instead, Ms Mohamed departed from her written submissions and urged us to consider the correctness of Chartered Bank itself. In this respect, she submitted that there was in fact no basis to treat payments to the management fund any differently from contributions to the sinking fund and the special levy, and that instead of excluding payments to the management fund, these ought instead to have been included. This was notwithstanding the apparently prevailing practice of the tax authorities to exclude contributions to funds such as the management fund in the present case from the ascertainment of the annual value of the subject property.

[36] The second prong of the Chief Assessor’s argument was simply to agree with the Judge’s finding that the further requirement was necessary and that the appellant had not succeeded on this requirement based on the facts of the present appeal.

[37] By the end of the hearing before us, and having set out the parties’ arguments in some detail in the preceding paragraphs, it is apparent that the single issue raised by both parties as being the “sole” issue for our determination in fact consisted of several sub-issues, none of which can swiftly be described as simple.

[38] First, what is the function of the qualifying words (see [34] above)? This is especially important, given that the qualifying words have hitherto been authoritatively interpreted to mean that such contributions coming within the terms of the qualifying words ought to be included instead of excluded. We also understand from Ms Mohamed that the former interpretation represents the current practice of the relevant authorities.

[39] Secondly, does the fact that these sums relate to the common property take them out of the ambit of the definition of “annual value” within the meaning of limb (a) of the definition in s 2(1) of the PTA (see [42] below) in the first instance inasmuch as the concept of annual value is not intended to embrace any sums related to the common property as such? If the answer is in the affirmative, then that would conclude the present appeal in favour of the appellant inasmuch as both these sums (viz, the special levy and the sinking fund contributions) have nothing to do with the definition or concept of “annual value” within the meaning of the PTA. In other words, even if we find that contributions towards maintenance funds (such as the management fund) ought to be included owing to the qualifying words in s 2(1) of the PTA, the next question is whether maintenance contributions towards the common property (as opposed to the individual lot) ought to be included. This begs the further (and more fundamental) question: Can a sensible and conceptually defensible distinction be drawn between common property and individual lots for the purposes of tax assessment in a strata development such as City Plaza, which is the development at the heart of the present case? If, however, the answer is in the negative, that would not necessarily or automatically conclude the present appeal in favour of the respondents because the respondents might be unable to demonstrate that the aforementioned sums fall within the qualifying words and, if so, such sums would not be subject to property tax within the meaning of the PTA.

[40] Thirdly, assuming that a distinction can be drawn between common and individual properties in a strata development, how does this affect the assessment of tax given that the two, while structurally separate (so assumed at present), nonetheless interact in a very real sense? In answering this question, one should also bear in mind what this court said in BCH No 2 to be the very premise underlying the ascertainment of annual value, viz, the relation to the rent or letting of the subject property, which in turn approximates to the real value of the property.

[41] We now consider each of these issues in turn.

[42] We start first with the statutory definition of “annual value”. According to Leung Yew Kwong & Mani Usilappan, Property Tax in Singapore and Malaysia (Butterworths Asia, 2nd Ed, 1997) at p 39, the annual property tax payable for a property is the product of the annual value and the tax rate. As such, the annual value is an integral factor to be taken into account when calculating the tax payable in respect of a property. “Annual value” is defined in s 2(1) of the PTA as follows:

[43] From the above definition of “annual value”, it can be seen that the sub-category of properties comprising “wharf, pier, jetty or landing-stage” is treated differently from that category of properties comprising “house or building or land or tenement”. For the latter category of properties which comprise the bulk of the properties in the Valuation List, the annual value would include the element of the landlord’s expenses for repair, insurance, maintenance or upkeep and all taxes. For the former category of properties, the annual value would include the landlord’s taxes but not the expenses for repair, insurance, maintenance or upkeep. To illustrate this point in relation to the category comprising “house or building or land or tenement”, the authors of Property Tax in Singapore and Malaysia helpfully provide an illustration, as follows (at p 40):

[44] In this respect, the function of the qualifying words (see [34] above) in this category of properties is to affix the responsibility of paying all the expenses of property tax, repair, maintenance and insurance on the landlord. Indeed, as the Judge pointed out in the Judgment (at [8]), “[t]he effect of that definition is that the landlord may be assumed to include, within the rental charged to the tenant, an amount to recoup his expenses of repair, insurance, maintenance or upkeep of the premises let”.

[45] Having resolved the threshold question of the function of the qualifying words, we come now to a more substantive matter: whether maintenance contributions towards common property should be included. In order to answer this question, there is a need to set the proper background context from which the discussion can follow. Generally, maintenance contributions take two basic forms – via a management fund and a sinking fund, respectively. The latter constitutes an issue in so far as the present appeal is concerned although (as we shall see below), the former is not irrelevant, especially with respect to the question of general principle.

[46] Both the funds mentioned in the preceding paragraph are, in fact, the focus (in so far as the current legal position is concerned) of s 38 of the Building Maintenance and Strata Management Act (Act 47 of 2004) (“BMSMA”). The provision itself is reproduced below (at [70]). For present purposes, however, the explanatory note to the Building Maintenance and Management Bill (Bill 6 of 2004) is apposite; in particular, it states as follows:

[47] Section 38 of the BMSMA in turn derives its existence from various sections in Pt IV of the LTSA. Part IV was repealed with effect from 1 April 2005 by s 138(1) of the BMSMA read with item (12) of the second column of the Third Schedule to the BMSMA. It is thus necessary to have regard to the predecessor provisions of s 38 in the LTSA.

[48] First, the composition and purpose of the management fund can be gleaned from ss 42(2) and 48(1) of the LTSA. Of these, s 48(1)(m) provides for the purpose of the management fund, as follows:

Sub-paragraphs (a), (b), (c) and (d) of s 48(1) (referred to as “paragraph (a), (b), (c) or (d)” above) in turn provide as follows:

[49] This must then be compared with s 39(1) of the BMSMA which, read with s 38(3) of the same Act, provides for the purposes for which the management corporation may disburse moneys from its management fund:

Comparing the two sets of provisions, it can be observed that they are not identical. In other words, the purposes of the management fund as defined in the BMSMA do not replicate those specified in the LTSA. In particular (and this is important for reasons to be seen later), while ss 48(1)(a) and 48(1)(b) of the LTSA are largely reproduced in ss 39(1)(a) and 39(1)(b) of the BMSMA, ss 48(1)(c) and 48(1)(d) of the LTSA are not similarly reproduced. Sections 48(1)(a) and 48(1)(b) of the LTSA relate largely to the present maintenance and repair of the common property in question, and the sense of this can also be gathered from ss 39(1)(a) and 39(1)(b) of the BMSMA. On the other hand, s 48(1)(c) and 48(1)(d) of the LTSA, in so far as they largely refer to future maintenance and repair (by the use of the words “renew”, “provide additional facilities” and “make improvements”), no longer find expression in s 39(1) of the BMSMA. Although s 39(1)(d) of the BMSMA provides for a “catch-all” clause with regard to any other liabilities incurred by the management corporation, we do not think that this was intended to capture the “missing” s 48(1)(c) and 48(1)(d) of the LTSA since these sections had been deliberately left out in the BMSMA – the intention being to repeal, amongst other provisions, these particular sections.

[50] Turning now to the sinking fund, its composition may be gleaned from ss 48(1)(n) and 48(1)(p) of the LTSA. As with the case of the management fund, s 48(1)(p) provides for the establishment of a sinking fund for the purposes specified in s 48(1)(n), which provides as follows:

[51] Before making a comparison with the relevant section of the BMSMA (as we have done in respect of the management fund), we pause to observe that s 48(1)(n) of the LTSA in fact replicates, to some extent, some of the purposes applicable for the disbursement of moneys from the management fund as set out in s 48(1)(c) and 48(1)(d) of the LTSA. These sections in fact largely relate to the future maintenance and repair of the common property and the expression of such can be found in ss 48(1)(n)(i), 48(1)(n)(ii) and 48(1)(n)(iii) in so far as they allude to the “repainting”, “renewal” and “improvements” of particular features of the common property. There was thus, under the LTSA, a degree of overlap between the purposes of the management fund and the sinking fund.

[52] We now compare s 48(1)(n) of the LTSA with s 39(2) of the BMSMA which, read with s 38(6) of the BMSMA, provides for the purposes for which the management corporation may disburse moneys from its sinking fund:

[53] It is very clear from this comparison that almost the whole of s 48(1)(n) of the LTSA is replicated in s 39(2) of the BMSMA. This can be contrasted with the incomplete adoption of the purposes of the management fund as set out previously in the LTSA in the later BMSMA. In order to understand the reason why this is so, we have to examine the relevant legislative materials. Indeed, the concept of the sinking fund was first introduced by s 17 of the Land Titles (Strata) (Amendment) Act 1987 (Act 16 of 1987). As the explanatory statement to the Land Titles (Strata) (Amendment) Bill (Bill 10 of 1986) put it:

And, during the second reading of the Bill, the Minister for Law, Mr E W Barker, observed thus (see Singapore Parliamentary Debates, Official Report (29 July 1986) vol 48 at cols 124–125):

[54] We have earlier alluded to the noticeable differences in the adoption of the purposes of the management fund and the sinking fund in the BMSMA as distinguished from the LTSA. In so far as maintenance and repair are concerned, we note that, under the LTSA, the management fund and the sinking fund shared certain overlapping purposes, viz, the future maintenance and repair of the common property. These overlaps were, however, largely erased, having regard to the corresponding provisions in the BMSMA (which represents the current position). Having regard to the legislative debates as reproduced above, we think that the management fund and sinking fund are meant to have distinct functions. Otherwise, why state that the sinking fund is in addition to the management fund? However, the degree of overlap in the LTSA perhaps, and unfortunately, obscured this otherwise intended clear distinction between the two funds. This was, to our minds, put right in the BMSMA in so far as the overlapping purposes were no longer reproduced.

[55] All this establishes a relatively obvious point – that (put in a nutshell) the maintenance fund is for regular maintenance and repair of the common property in the present, whereas the sinking fund is for major maintenance and repair of the common property which might take place in the future (see also Tan Sook Yee, Principles of Singapore Land Law (Butterworths Asia, 2nd Ed, 2001) at pp 606–607). The broad distinction between present and future maintenance and repair thus finds expression across the two types of funds. Therefore, intrinsic within what has just been stated are at least two basic distinctions. The first (and broad) distinction is in relation to the time at which the respective maintenance and repair are effected. The second is in relation to the types of maintenance and repair involved. This first distinction is (as we shall see below at [80]) of some legal significance in so far as the present appeal is concerned.

[56] Returning to the issue at hand (viz, whether maintenance contributions should be included in the calculation of annual value), it follows from the analysis in the preceding part of this judgment (at [43]–[44] above) that, flowing also from the meaning ascribed to the qualifying words, expenses relating to maintenance should prima facie be the responsibility of the owner (as defined in s 2(1) of the PTA). This in turn means that such expenses, which (as we shall see) to the extent that they are provided for by way of contributions towards the sinking fund and the special levy, should be included in the gross rental for the ascertainment of the annual value. We need only add that the meaning of “maintenance” is relatively clear and that a broad, commonsensical definition should be adopted. In this regard, Collins Cobuild English Language Dictionary (Harper Collins Publishers India Pvt Ltd, 1991) at p 877 pertinently defines “maintenance” as “the activity of keeping something such as a building, vehicle or machine in good condition by regularly checking it and doing necessary repairs”. This definition accords with the interpretation given to the meaning of “maintain” in a number of other cases. For example, the House of Lords in Hamilton v National Coal Board [1960] AC 633 defined “maintain” in the context of the Mines and Quarries Act 1954 (c 70) (UK) to mean “keep[ing] in proper order by acts of maintenance before the thing to be maintained falls out of condition” (see per Lord Keith of Avonholm at 647).

[57] We ought to mention that the issue of whether payments to the management fund should be included was in fact raised for Ms Mohamed’s consideration in the course of the oral hearing before us. As would be recalled (and see [35] above), Ms Mohamed had departed from her written submissions and submitted before us that payments to the management fund ought to be included and not excluded as was the past practice of the relevant authorities. However, this does not mean that such past practice has been incorrect, for a further question has still to be answered: To what extent do the various expenses provided for by such contributions relate to maintenance within the meaning of the qualifying words? Ms Mohamed’s new submission before us did not perhaps take into account the response to this question. It cannot, in other words, be the case that there is a blanket rule that all expenses be included (or excluded).

[58] In the context of the present case, this neatly dovetails into the second issue we have identified for determination (see [39] above), viz, whether maintenance contributions towards the common property (as opposed to the individual lot) ought to be included. This, as we note, in turn necessitates an even more fundamental enquiry: What is the distinction, if any, between a common and individual property in so far as of a strata development (such as that involved in the present appeal) is concerned?

[59] As Prof Tan notes in Principles of Singapore Land Law ([55] supra at p 590), the entire basis of the strata titles scheme is predicated on the subdivision of airspace above the ground as well as subterranean space. Thus, once it is accepted that a parcel of airspace can be adequately delineated, an expanded definition of land is possible, and a registered proprietor of a “lot” can be one in relation to a parcel of land in the conventional sense or in relation to a parcel of defined airspace. A building can be subdivided into different lots of delineated parcels of airspace – subsidiary or individual lots. The tax regime applicable to property, which comprises a lot the title of which is issued under the LTSA, is provided for in s 2(7) of the PTA.

[60] Under the system of registration of titles, there is little problem in providing for the separate registration of titles of the delineated areas of airspace. Each individual lot is delineated on the strata title plan and includes any accessory lot delineated as such on the strata title lot. An “accessory lot” is defined in s 3 of the LTSA as “a lot intended for separate proprietorship and use with any other specified lot or lots for any purpose”. By ss 13(3) and 15(1) of the LTSA, neither the accessory lot nor its share of the common property may be dealt with separately from the individual lot.

[61] On the other hand, “common property” is defined in s 3 of the LTSA. Common property, such as open space, lifts, corridors and rubbish chutes, are owned by the registered subsidiary lot owners as tenants in common. Each registered subsidiary owner of a “lot” is assigned a certain share value or share units. The share units in turn determine, inter alia, the proportionate share of common property owned. To regulate the occupation of the subdivided building, the relevant legislative framework provides for the establishment of a management corporation which is made up of the subsidiary owners and which is responsible for the maintenance of the common property. It also lays down, as by-laws, a basic code of conduct that binds all occupiers. In addition to these statutory by-laws, the management corporation may also make new or extra by-laws.

[62] In other words, as statutorily defined, an individual lot is wholly separate and distinct from the common property. One does not shade into another in so far as formal definition and distinction are concerned. However, carved out (as they are) of the same airspace, it would be overly simplistic to dismiss out-of-hand the notion that the two interact. Indeed, as we shall see, while there is a legal difference between an individual lot and common property, there is nonetheless a connection between the two inasmuch as one’s share in the overall proportion of the lots determines the ownership of common property. Therefore, despite the formal distinction as envisaged in law, there is, practically speaking, some degree of interaction between common property and individual lots. All the subsidiary proprietors as tenants hold common property in common, and as such they have unity of possession. The subsidiary proprietor of a lot, as tenant in common with the other subsidiary proprietors of common property, has the right to use any part of it. With this in mind, we proceed to examine how this, in turn, interacts with the purpose of tax assessment.

[63] Returning to the issue as to whether the fact that the sums in issue in the present appeal relate to the common property takes them outside the ambit of s 2(1) of the PTA, we are of the view that it does not. There are two cogent reasons in support of this conclusion.

[64] First, although sums or contributions related to the common property would appear, at first blush, to have nothing to do with the lot or property concerned, further reflection suggests that, as a matter of both logic as well as justice and fairness, each owner or subsidiary proprietor of each individual lot or property enjoys the common property and that, therefore, the annual value of the lot or property concerned should justifiably incorporate the value of such enjoyment. As we have demonstrated above, notwithstanding the legal distinction between common property and specific lots, they do, in reality, interact in a very real sense and it would therefore be wholly artificial to distinguish them for the purposes of property tax assessment. This in fact follows closely the observations of this court in BCH No 2 that the annual value of a property relates to the rent or the letting of the subject property. In so far as contributions to the common property enhance the value of the property as a whole, and therefore increase the annual value of the individual lot, we see no reason why such contributions should not be included for the purposes of ascertaining the annual value of the subject property.

[65] Secondly, the value that is attributable to the common property ought not to fall (in the context of property tax) into a “legal black hole”. Indeed, as this court observed in Centrepoint Shopping Centre ([14] supra) at [10]:

Indeed, if this were not the case, it would be anomalous that no one pays tax for the common property in a strata development.

[66] The Board was, in fact, cognisant of the point just made (see Tan Hee Liang v The Chief Assessor [2007] SGVRB 2, especially at [24]–[25]). However, whilst the Judge also acknowledged this particular point, he was of the view that Centrepoint Shopping Centre did not assist the respondents in the manner we have just outlined (see the Judgment, especially at [26]–[28]). With respect, however, the fact situation in Centrepoint Shopping Centre was, as the Judge himself appeared to acknowledge (at [26]), quite different. That case concerned the licensing of parts of the common property for a fee. The argument made by the taxpayer in that case was to the effect that the annual value of each individual lot included a proportion of the gross amount at which the common property could be let and that those parts of the common property which were licensed for a fee were not subject to property tax. In our view, although the latter proposition did not follow from the former, this does not mean that the former proposition is untenable in relation to the specific factual context with which we are concerned in the present appeal. On the contrary, the Judge, who in fact delivered the judgment of this court in Centrepoint Shopping Centre, acknowledged this former proposition in the very passage quoted in the preceding paragraph (and also at [26] of the Judgment; see also the reasoning at [35]–[37] where there was at least an implicit assumption that contributions to the common property could be related to rent or letting).

[67] Accordingly, we are of the view that it did not follow that, just because the contributions to the sinking fund and special levy were payments towards the common property, they had nothing to do with the rent or the letting of the specific lot. The next question then is how to attribute the extent to which such payments are related to the specific lot in question.

[68] When the two related considerations referred to in the preceding paragraphs are taken into account, it is clear that each owner or subsidiary proprietor ought to be responsible for (in the words utilised in the relevant definition of “annual value” reproduced at [42] above, and constituting part of the qualifying words set out at [34] above) “paying the expenses of repair, insurance, maintenance or upkeep and all taxes” in relation to the common property in so far as it is relates to their individual lot or property. In other words, a system of proportional contribution towards such expenses ought to constitute part of the annual value of the individual lot or property in question. This proportional contribution (ie, practical attribution), in fact, adequately reflects the actual benefit accrued to the individual lot owner from his enjoyment or utilisation of the common property. Thus, in reference to the monthly contributions the individual lot owner makes towards, for instance, the management fund, sinking fund or special levy, this in essence reflects that particular owner’s enjoyment of the common property and we see no reason why it should not be included for the purposes of property tax assessment.

[69] However, this not the end of the inquiry. The next issue is: Out of these monthly contributions, how much is actually related to maintenance and repair, which s 2(1) of the PTA has mandated must be included in the calculation of the annual value? This is, in fact, the second aspect of the issue of practical attribution. In this regard, the important question that arises in the context of the present appeal is this: To what extent, if at all, do the sums paid by the appellant in respect of the special levy and/or the sinking fund relate to the expenses that constitute (in law) part of the annual value of the subject property (looked at from the distinctive perspective of the common property)?

[70] Returning to the fact situation in the present appeal, in our view, it is clear that the sums paid by the appellant in respect of both the special levy as well as the sinking fund do relate – in part at least – to the common property. However, the difficulty that arises in this regard is that, at least in so far as the payments to the management fund and sinking fund are concerned, it is clear (from the relevant provisions of the BMSMA) that such payments, whilst utilised to meet expenses referred to in the qualifying words in s 2(1) of the PTA, can also be utilised to meet other purposes which have nothing to do with the concept of “annual value”. It is clear that payments or contributions which relate to such other purposes ought not to be included in the assessment of the annual value of the lot or property concerned. Indeed, it is clear that these other purposes have, in principle, nothing to do with the elements of rent or letting in the first place. Let us elaborate by considering the specific provisions in the BMSMA itself. The relevant provisions of the BMSMA are, in fact, to be found in both ss 38 and 39. Section 38 of the BMSMA reads as follows:

[71] Section 39 of the BMSMA (the relevant parts which we have already set out at [49] above) reads as follows:

[72] In so far as the payments to the management fund and the sinking fund are concerned, it will be seen that such payments or contributions can be utilised for both the purposes of maintenance and repair as well as for other purposes. The question that arises – in a very practical way – is what proportion should be allocated to the former purposes, for it is that proportion of the contributions that would be included as part of the annual value of the lot or property concerned (here, the subject property). Likewise, the special levy may relate wholly or partly to the purposes embodied in the qualifying words. Thus, in the usual case, how would one properly resolve this problem of attribution which we have identified? In our view, this is a problem which falls squarely on the Chief Assessor to resolve by the adduction of suitable evidence showing the precise attribution. Only then does the evidential burden of proof shift to the taxpayer (here, the appellant) to demonstrate to the Chief Assessor why any particular item and/or proportion that is included ought to be excluded instead.

[73] However, this is not an end to the matter. We have noted earlier in this judgment (especially at [55] above) that there is a distinction in the point in time at which funds from the maintenance fund and the sinking fund, respectively, are utilised (or at least specifically allocated) for the purposes of maintenance and repair. Hence, in addition to the difficulty of practical attribution, there arises the issue of when the funds utilised from the sinking fund for the purposes of maintenance and repair can be included in the assessment of the annual value for the purposes of property tax. We are of the view that such inclusion can take place only when the maintenance and repair are in fact effected or at least specifically allocated (which would, in the nature of things, be a major undertaking (see above at [55]). Thus, in so far as present maintenance preserves the value and hence goes towards the present value, this should be included. As for future maintenance, we think this might enhance (or preserve) the value of the property and hence is related to the annual value. However, just when “specific allocation” of funds for such future maintenance takes place is something which we think the Chief Assessor would be in a better position to provide some firm guidelines on after consultation with the relevant industry stakeholders. Apart from the precise timing when the payments ought to be taken into account, there is a further issue of whether one-off payments have a permanent effect on the property tax payable. It would seem to us as a matter of common sense that there may have to be some flexibility on this issue. This is an important point which will have a crucial bearing on the outcome of one of the key issues before us in the present appeal.

[74] We should pause to observe, at this juncture, that the further requirement raised by the Judge (see generally above at [25]–[26]) might still be in issue where the item concerned does not come within the qualifying words and is not otherwise related to rent or letting. Put simply, would the further requirement still apply before the item concerned is excluded for the purposes of assessment of property tax? We would, with respect, disagree with the Judge that the further requirement should apply. As the appellant correctly points out, there is no authority whatsoever that supports the further requirement. More importantly, we see no reason, in principle, why the further requirement should apply. Indeed, the imposition of such a requirement could, depending on the particular factual matrix at hand, result (as the appellant correctly pointed out) in further artificial distinctions being drawn. As this court emphasised in BCH No 2 ([16] supra), the pivotal focus is on whether or not the items concerned are related to rent or letting. Of course, if they fall within the qualifying words, then such items would also be included, as the Legislature clearly mandates that this should be the case. Indeed, the qualifying words themselves deal with the relationship between the landlord and the tenant without the need for a further judicial or interpretive overlay which the further requirement, in substance, represents.

[75] Thus, to summarise the applicable principles:

(a) Practical attribution (relating to the specific lot): While there is a need to show that the specific lot owner’s payments to the management fund, sinking fund and/or the special levy must relate to the specific lot in question (in so far as these contributions are ostensibly made towards the common property), this issue resolves itself by virtue of the actual contribution made by the specific lot owner. In other words, once it is established that there cannot be an iron curtain separating common property on the one hand and the specific lot on the other (inasmuch as a benefit to the former will naturally result in a corresponding benefit to the latter), the only practical manner of attribution is by way of the specific lot owner’s actual contributions to the funds concerned.

(b) Practical attribution (purposes related to maintenance and repair): It is, however, necessary to show that part of the specific lot owner’s payments to the management fund, the sinking fund and/or the special levy goes towards purposes of maintenance and repair for such contributions to be included in the calculation of the annual value of the specific property concerned. Indeed, to obviate any future difficulties in this particular regard, we suggest (at [80] below) that the Chief Assessor ought to issue relevant advice or (preferably) guidelines.

(c) Time at which the funds are utilised: In relation specifically to the sinking fund, we have noted above its distinction with the management fund. Thus, even after it is established that certain parts of the management fund and the sinking fund go towards maintenance and repair, in so far as the sinking fund is concerned, contributions thereto should only be included for the purpose of the calculation of the annual value of the specific property concerned when the maintenance and repair are in fact effected or at least specifically allocated (which would, in the nature of things, be a major undertaking). However, just when “specific allocation” of funds for such future maintenance takes place is something which we think the Chief Assessor would be in a better position to provide some firm guidelines on after consultation with the relevant industry stakeholders (see above at [73]).

(d) Further requirement laid down by the Judge not applicable: Finally, for the avoidance of doubt, the further requirement laid down by the Judge in the court below is not applicable.

[76] We now apply the relevant principles of law as discussed above to the facts at hand.

[77] In so far as the contributions to the sinking fund are concerned, we do not think that they should be included based on the evidence presently available.

[78] First, in relation to the first aspect of practical attribution (see [68] above), we do not think that the Chief Assessor has shown exactly how much of the sinking fund is related to the rent and value of the specific property concerned. Whilst we have said that the mere fact that such contributions are made towards the maintenance and repair of the common property will not preclude their inclusion in the assessment of the annual value, the onus remains on the Chief Assessor to prove the practical attribution. However, while this has not been done in the present case, we have also stated that this problem actually resolves itself and hence this issue is moot.

[79] Secondly, in relation to the second aspect of practical attribution (see [69] above), the Chief Assessor has not shown the proportion of the specific lot owner’s contributions towards the sinking fund which can be attributed to maintenance and repair of the common property in question.

[80] Thirdly, it will be seen that, in so far as the principle with regard to timing set out above (at [73]) is concerned, it is clear, in our view, that, absent an actual allocation or expenditure vis-à-vis the sinking fund in respect of the maintenance and the repair of the common property, there should be no inclusion of the amount concerned in the annual value for the purposes of property tax. However, as we are of the view that this is an issue best left to the Chief Assessor to resolve by way of clear guidelines as to when specific allocation takes place, we will remit this issue alone back to the Chief Assessor to decide.

[81] The special levy in the present case was collected over a period of three years from July 2005 to June 2008 for external upgrading works (as approved through the passage of a special resolution at the MCST’s second annual general meeting). The crucial question is whether this is a form of repair or maintenance. The question of whether the special levy was to be used for such a purpose is not in question.

[82] In our view, in contrast with the sinking fund, as the relevant sections of the BMSMA (as reproduced and discussed above) demonstrate, the special levy, in the context of the present appeal, is related wholly to the purposes embodied in the qualifying words and has been allocated specifically for a purpose relating to maintenance and repair. As the issue of timing does not arise, it should therefore be included as part of the annual value of the subject property. There of course remains the issue as to whether this will result in a temporary or permanent increase in the annual value of the property concerned. This is, strictly speaking, not before us and must necessarily depend, inter alia, on the nature of the use to which the special levy is being put to.

[83] Finally, no issue arises in the present appeal in so far as the payments to the management fund are concerned. This is because the Chief Assessor – somewhat curiously, in our view – permitted such contributions to be excluded for the purposes of assessment of the annual value of the subject property and there has been no cross-appeal on that point. Here again (as with the contributions to the sinking fund), these contributions can, ostensibly at least, be utilised both for the purposes of maintenance and repair (see ss 39(1)(a)-39(1)(c) of the BMSMA, reproduced above at [71]) as well as for other purposes (see s 39(1)(d) of the BMSMA, reproduced above at [71]). However, having regard to its overall purpose and, indeed, its common characterisation by the parties herein as a “maintenance fund”, it is inconceivable that such fund could always be excluded on the apparent premise that it is never concerned with maintenance and repair. The better view must be that it should have some use towards maintenance and repair, and it was therefore wrong for the Chief Assessor to have hitherto adopted what was, in effect, a blanket exclusion for unclear reasons which can only be explained on a mistaken belief that such payments to the respective management funds always have nothing to do with maintenance and repair. In the circumstances, payments to the management fund ought, in our view, to be included in the assessment of the annual value for the purposes of property tax in so far as they relate to maintenance and repair.

[84] However, by allowing the appellant’s payments to the management fund to be excluded, the Chief Assessor has, in fact, accorded the appellant a concession of sorts. The Chief Assessor is, of course, entitled to make this concession as a matter of administrative discretion and practice (as well as, perhaps, even as a matter of legal right: see s 69 of the PTA as well as [85] below).

[85] Leaving aside the special administrative concession extended by the Chief Assessor to the appellant with respect to the latter’s payments to the management fund (which is, in any event, not an issue before this court in the present appeal), it would appear that whilst the Chief Assessor was correct in including the appellant’s contributions to the special levy in the assessment of the annual value of the subject property, it ought not (in the absence of proof of an actual allocation of funds towards maintenance and repair) to have included the appellant’s contributions to the sinking fund as a matter of course in the assessment of the annual value of the same. However, in the final analysis, assuming that the contributions to the sinking fund were properly included, while we think that the Chief Assessor was wrong as a matter of principle, the result reached in terms of the final sum taxed was perhaps correct, taking into account the overall treatment of the three funds in question. In particular, we note that in so far as the management fund usually constitutes a larger sum than the sinking fund or the special levy (and it is, indeed, collected more regularly and, hence, more frequently), it is in fact the taxpayers who have enjoyed some benefit in view of the Chief Assessor’s erroneous practice to date of totally excluding payments to the management fund from the calculation of the annual value of the respective properties concerned. We should, however, also note in this last-mentioned regard the Chief Assessor’s further submissions which acknowledged that “there may not be a need to reopen the past cases as section 69 of the [PTA] allows for remission”.[note: 1] Looked at in the round, it would appear that the (albeit unintended) net result approximates that which would have been achieved had the Chief Assessor assessed the annual value of the properties concerned in accordance with the legal principles set out above. For the avoidance of doubt, our comments in this regard should not obscure the ruling that we have made to remit the issue relating to the sinking fund back to the Chief Assessor for determination.

[note: 1]At para 58 of the respondents’ further submissions.