13 November 2012

This case is an appeal against the decision of the Valuation Review Board (“the VRB”)  in VRB Appeals No 236 of 2009 and No 237 of 2009: (Glengary Pte Ltd v Chief  Assessor [2012] SGVRB 1) in fixing the annual value of a piece of land at $51,409,000 for 2007 and 2008.

The Property, TS 30 Lot LP 650 (“the Property”), the site on which a condominium development now known as The Sail@Marina Bay is (“The Sail”), which is located at Marina Boulevard, was acquired by Glengary Pte Ltd (“the Appellant”) from the state under the Government Land Sales scheme in 2002 on a 99-year lease with effect from 12 August 2002. The Sail comprises of a seven-storey car park/retail podium (which contains 22 retail units and the car park) and two residential tower blocks (consisting of 1,111 residential units). It received its Certificate of Statutory Completion on 17 April 2009.

Before construction of The Sail began, the Appellant launched in October 2004, the sale of the residential units which it intended to construct. Possession was granted to the building contractor on 22 November 2004. The vast majority of the residential units (1,106 units) were sold by the end of 2005, with four units sold in 2006 and the last unit sold in January 2007.

While The Sail was under construction in 2007, the Chief Assessor (“the Respondent”) issued a notice under s 20 of the Property Tax Act (Cap 254, 2005 Rev Ed) (“the Act”) increasing the annual value of the Property to $59,091,000 with effect from 1 April 2007. The Appellant objected to this notice. The Appellant also objected to the annual value of $59,091,000 in the 2008 Valuation List. The Respondent disallowed both objections, relying on s 2(3)(b) of the Act to disregard the committed sales of the units in assessing the annual value of the Property. The Appellant appealed to the VRB against the Respondent’s decision.

Both parties tendered an Agreed Statement of Facts to the VRB, of which, in particular, they agreed on the quantum of the annual value of the Property depending on the interpretation of section 2(3)(b) of the Property Tax Act as follows:

• Basis A: If the VRB were to decide that the basis of assessment under s 2(3)(b) of the Act is that any committed sales of the units in respect of the Property are to be disregarded, the annual value shall be reduced to $51,409,000 with effect from 1 April 2007 and 1 January 2008 in respect of the two appeals; and
• Basis B: If the VRB were to decide that the basis of assessment under s 2(3)(b) of the Act is that the committed sales of the units in respect of the Property are to be taken into consideration, the annual value shall be reduced to $27,000,000 with effect from 1 April 2007 and 1 January 2008 in respect of the two appeals.

The VRB decided that the Respondent was entitled to treat the land as vacant land and disregard the committed sales in the valuation. The VRB agreed with the Respondent that the fact that the units had been sold was connected to the fact that there were buildings being erected on the vacant land. The VRB found that  it was “undeniably clear” from a speech of the Minister for Finance, Lim Kim San (“the Minister’s speech”), during the second reading of the Property Tax (Amendment) Bill in Parliament on 30 December 1965, that Parliament intended to provide the Chief Assessor with a straightforward formula to assess the annual value of a property as if it were vacant land in all cases. The Appellant’s interpretation of s 2(3)(b) of the Act would have necessarily rendered the legislative amendment in 1965 meaningless and had to be rejected. Hence, the VRB rejected the Appellant’s arguments and, pursuant to Basis A, reduced the annual value of the Property to $51,409,000 for 2007 and 2008.

The Appellant then appealed to the High Court. Its submissions are as follows:

(1)   The 1965 amendment to the Act was made to enable the Respondent to have recourse to what is now s 2(3)(b) of the Act in order to determine the annual value at 5% of the land value, notwithstanding the fact that buildings were being constructed on the land. The Appellant noted that but for the 1965 amendment, this option might not have been available to the Respondent. The statutory fiction created by s 2(3)(b) of the Act only applies in relation to the physical state of the land and cannot be extended to create a further fiction that the units in respect of the Property have not been sold when they were in fact sold. The Appellant pointed out that there was no indication of such a further fiction in the Minister’s speech in 1965 when moving the amendment.

(2)   The sale of units would clearly be one such circumstance, because once all units are sold, the gross realisable sale proceeds for the project would have crystallised for the developer and the escalation of the market prices of units in the general market would not increase the gross development value of the particular site for the developer.

(3)   The Appellant also relies on a broader principle, of “the principle of reality”, which is essentially that all circumstances which exist in reality should be taken into consideration in valuing land, except where not required by statute.

The Respondent advanced four principal arguments, ie:

(1)   First, it submitted that a valuation on Basis B would effectively “lock in” the annual value once all the units are sold, and that this would not be in accordance with the concept of “annual value” that encompasses a market value concept, whereby the value may fluctuate in accordance with the property market conditions from year to year. Basis A is more aligned to the concept that the “annual value” should be dependent on market value.

(2)     Secondly, Basis A better reflected Parliamentary intention for the following reasons:

–          Where “deeming provisions”, such as s 2(3)(b) of the Act, are in issue, one must treat as real the consequences and incidents that inevitably flow from or accompany that deemed state of affairs. Parliament had intended to provide a straightforward statutory formula to assess the annual value of a property as if it was vacant land in all cases.

–          The Appellant’s interpretation would render s 2(3)(b) of the Act otiose. The taking into account of committed sales would be tantamount to including the value of the building on the land, given that committed sales of units in the development mean nothing more than a sale of the parts of a building which has yet to be fully constructed.

(3)   Thirdly, the Respondent pointed out that its practice is to rely on s 2(3)(b) of  the Act in the case of vacant land or development land with disused or insignificant buildings, or buildings which were going to be demolished to make way for development.

(4)   Finally, the Respondent argued that because the Act is meant “to provide for the levy of a tax on immovable properties and to regulate the collection thereof”, the tax liability is attached to the property being taxed, and not to the owner of the property.

Held: Appeal allowed. The annual value of the Property is determined according to Basis B as agreed between the parties.

1. Given that this case essentially turns on the interpretation of s 2(3)(b) of the Act, the starting point in any such exercise must be s 9A(1) of the Interpretation Act (Cap 1, 2002 Rev Ed), which provides that a purposive approach must be adopted when interpreting statutory provisions.
2. The sale of a unit is a separate event from its eventual physical construction. What the buyer has committed to purchase is a physical unit, but in the meantime, his or her rights and liabilities exist only legally. It is not the intention of Parliament that s 2(3)(b) of the Act should have the effect that committed sales should be completely disregarded in the process of assessing the annual value of land on which buildings are being constructed.
3. In response to the “principle of reality” relied upon by the Appellant, the Respondent had submitted that this principle is subordinate to the objective of giving full effect to the statutory fiction in s 2(3)(b) of the Act. The Respondent’s argument was that Basis B would mean that the annual value of the Property is “locked in” and could not fluctuate according to “market value”. However, even if it is “locked in”  and could not fluctuate according to “market value”, the Respondent concedes that its practice is to reassess the annual value upon the issuance of the TOP. Thus, the “lock in” period would only last for a few years. Further and in any event, the Respondent’s notion of “market value” assumes that the market would value the Property at a particular value ignoring the committed sales. Without statutory authorisation, this would not be in line with the rebus sic stantibus principle, which states that property must be valued as it exists at the time when the valuation is made, with all the then existing circumstances – all cases of valuation must, prima facie, be rooted in reality. There is no evidence that the statutory fiction in s 2(3)(b) does not stretch so far as to impede the consideration of committed sales as part of the reality surrounding the Property at the time of valuation.
4. The Respondent’s third argument is based on its administrative practice. Practice, however is not law.
5. The Respondent’s fourth argument is that because property tax is a tax on a property, the Respondent should not have regard to the arrangements made by the owner of a property in respect of its sale of units. However, as a matter of logic, the incidence of a liability and the method of calculating the quantum of that liability (which is dependent on the annual value) are conceptually distinct.

The above judgement was delivered on 5 September 2012.