The Court of Appeal overrules IRAS again, twice over the last two months.
What is the issue?
Are portable dormitories considered “plants” as per plaintiff being in the business of providing dormitory services or “buildings” as per IRAS?
At a total cost of $2.6 million, the plaintiff had built and operated 6 blocks of three-storey container-like as temporary workers’ accommodation and administrative use within an industrial estate. Each block was made of “steel beams held by nuts and bolts while panels were inserted within this steel framework to form walls. “The floor was made of timber and each dormitory was topped with a metal roof”.
Decision and Basis
IRAS has been told by the Court of Appeal to treat such portable dormitories as “plants”.
The three-judge court led by CJ Chan Sek Keong overruled the earlier decisions of Income Tax Review Board and the High Court and defined such assets as “plant” on the following criteria:-
- built on prefabricated materials
- could be dismantled and moved elsewhere within 90 days’ notice
The Court of Appeal concluded that the definition of plant would depend on “its exact operational role in the taxpayer’s business, its characteristics and the precise factual matrix and context concerned”.
Leung Yew Kwong and Tan Shao Tong from WongPartnership, lawyers for the Plaintiff, had argued that their client’s business of providing dormitory service involved moving and reusing such assets in other sites in the future. [The same team from the same law firm won in the Nov 2010’s case.]
IRAS’ lawyers, Irving Aw and Quek Hui Ling, had relied on past rulings of similar situations. They cited a specific example where circus tents functioned as premises and would not qualify as plants.
To the plaintiff, the decision could now claim for tax relief and secure “a tax savings of at least $500,000 based on 2004 tax rates”.
In my humble opinion, it is a difficult issue for IRAS as acknowledged by Judge of Appeal Andrew Phang. The law does not provide the definition of “plant” (as such words from my tax lecturer still echo in my head after years) and the three-judge court had to dwell on its precise definition in arriving at the decision.
Source – K.C. Vijayan, “Court of Appeal overrules taxman”, The Straits Times, Dec 18, 2010.