BFH v Comptroller of Income Tax [2013] SGHC 161

In this case, the taxpayer made a lump-sum payment of S$100M to the Info-Comm Development Authority for the grant of a 3G Facilities Based Operator (“FBO“) Licence and certain radio frequency spectrum for 3G mobile telecommunication services (“3G Spectrum Rights“) for a period of 20 years.

The issue at the Income Tax Board of Review (“ITBR“) was whether the payment in question was a revenue expense deductible under Section 14(1) of the Income Tax Act (“the Act“) or a capital expenditure that is not deductible under Section 15(1)(c).

The ITBR held that the payment was capital in nature and hence not deductible.  BFH appealed to the High Court and Andrew Ang J delivered the judgement.

Andrew Ang J held that the ITBR’s decision is correct in that the payment is capital in nature and not deductible under Section 15(1)(c) of the Act.  He went at length to discuss the technological aspects of the 3G Spectrum and compare it with the 2G Spectrum.

Purpose versus Intention

Andrew Ang J said that “in ascertaining the purpose of the taxpayer in entering into a transaction, the court, must often as a matter of practical necessity, look to certain specific guidelines and factors for assistance, depending on the factual matrix at hand. When the court does consider such complementary guidelines, it cannot be said that it is adopting a formalistic approach and ignoring the underlying purpose of a the taxpayer. Such specific guidelines are simply a means to an end.”

Andrew Ang J further said that there is a difference between ascertaining the purpose and the intention as he explained that an enquiry as to purpose focuses on the ultimate end, while an enquiry as to intention does not necessarily have such a focus.

Manner of the Payment in Question

The Appellant tried to argue that the manner of the payment was irrelevant as the purpose of incurring the payment could not be inferred from the manner of payment as the payment structure was decided by the Government and the Appellant had no choice accordingly.  However, Andrew Ang J disagreed with the Appellant as it did have a choice – i.e. the Appellant might not have opted to pay a lump sum.  The fact is that the Appellant did incur the payment in question as a lump sum.

Consequence or Result of the Payment in Question

Andrew Ang J concluded that the consequence or result of the payment in question was the strengthening or enhance of  the profit-making business structure of the Appellant.   Being a 20-year licence, it constitutes an enduring benefit of the trade as discussed by Viscount Cave LC in Atherton case:
In fact, the Relevant Expenditure also provided the Appellant with the opportunity and right to develop a 3G telecommunications network and to offer 3G services which, in turn, meant new and innovative services and greater speeds for the Appellant’s customers.34 This opportunity strengthened or enhanced the core business structure of the Appellant. I say this bearing in mind the following facts which the Appellant was careful to highlight in its submissions: the scope and quality of 3G services that can be provided depends on the technology and equipment available35; most 3G services in 2001 were already available and could in fact be provided on the Appellant’s existing 2G network; and it was not until 2009, with the advent of smart- phones and the relevant technology and infrastructure, that the new 3G services became commercially viable.36 These facts merely indicate that the Relevant Expenditure was one condition amongst others that had to be met before the Appellant was able to bring about an enhancement of the Appellant’s telecommunications network. In other words, the 3G FBO Licence was a necessary, although not sufficient, condition for the development and growth of the Appellant’s telecommunications business and services.

Finally, Andrew Ang J observed that other jurisdictions (UK, Australia and Malaysia) had to amend the legislation in order for the payment to be a deductible outgoing.  In the absence of such statutory intervention, the payment in question would not be deductible nor would it qualify for any writing down allowance.

Accordingly, Andrew Ang J dismissed the Appellant’s appeal and held that the payment is question is capital in nature and thus, not deductible under Section 14(1) of the Act.

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