AYH v The Comptroller of Income Tax [2011] SGITBR 4

In this case, a company acquired new plots of land to build an extension to an existing mall. The question was whether the interest expenses on the loans taken out to finance the acquisition could be treated as part of the investment for the existing mall and hence deductible under s10E(1) of the Income Tax Act.

On the facts, the Board was unable to discern any corporate intention at the time of the tender and acquisition to build the existing mall, to also acquire those new plots of land. Ultimately, the appeal by the company was dismissed. It was concluded that the new investment did not produce income prior to the issuance of the TOP, and hence the interest expense deduction claimed was disallowed.

Some points to note from the case:

• Case of JD Ltd advocated an investment-by-investment approach but company sought to distinguish it by classifying the present case as business income while labelling the JD Ltd case as passive investment income. The company argued that CJ Yong said that for s10(1)(a) income, there was no requirement for a source-by-source approach to be applied.
• The Board is of the view that the ordinary meaning of “investments” as understood by businessmen would in essence mean an outlay, usually in money or money’s worth, for the acquisition of an asset with a view to the generation of income and/or the expectation of profit from the asset acquired.
• In T Ltd, it was held that for business to commence in a situation like the present case, the taxpayer must have established an income-generating asset or income-earning structure.
• Other considerations include: four year gap between existing mall and acquisition of new plots, difference in price of the land, need to surrender separate titles to procure a single Certificate of Title.