XCHRX Commissioner of Inland Revenue v. Group Harbour International Ltd.

IN THE DISTRICT COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

CIVIL ACTION NO. 1660 OF 1999

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D E C I S I O N

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1. In this action, the Commissioner of Inland Revenue sued the defendant for recovery of tax in the sum of $467,775 and this is certified by a certificate issued pursuant to section 75(3) of the Inland Revenue Ordinance on 15 January 2001. Section 75 of the Inland Revenue Ordinance provides for the recovery of unpaid tax as a civil debt by the Commissioner in the District Court.

2. The defendant challenged the assessment of the Commissioner and has raised objection to the Commissioner with regard to the assessment and thereafter there was an appeal to the Board of Review. I was told this morning that it has been determined on 14 March 2001 with the result that the appeal was dismissed. I was further told that it is the intention of the defendant to appeal by way of case stated against that determination of the Board of Review.

3. By a defence filed in this action on 21 November 2000, the defendant opposed the claim of the Commissioner. I do not propose to read each and every paragraph of the defence. In a nutshell, the defence case is that the defendant did not carry on any business and the transaction in question, which involved the sale of a property, is in fact a change in the family occupied property of the defendant's household and therefore the gain achieved by the sale thereof is merely a capital gain rather than a profit generated from the carrying on business. The defendant says that it is not liable to pay profit tax.

4. By a summons issued on 5 December 2000, the Commissioner applied for the striking out of the defence on the ground that it discloses no reasonable defence and/or that it is otherwise an abuse of the process of the court. That application is based on section 75(4) of the Inland Revenue Ordinance which reads:

"In proceedings under this section 75 for the recovery of tax the court shall not entertain any plea that the tax is excessive, incorrect, subject to objection or under appeal, but nothing in this subsection shall be construed so as to derogate from the powers conferred by the proviso to section 51(4B) and (a) to give judgment for a less sum in the case of proceedings for the penalty specified therein."

5. The wide scope of that subsection and the limitation imposed by that subsection on the District Court in considering the merit of the assessment has been well-established. There have been a number of Court of Appeal decisions on that (see the case of Ng Chun-kwan v CIR [1976] HKLR 94; CIR v Choy Sau-kam [1983] 2 HKTC 10 and CIR v Lai Yin-ha [1988] 2 HKTC 374).

6. As held by Briggs CJ in the case of Ng Chun-kwan, the wording of subsection (4) wraps up all the objections which can be made to the assessment.

7. Ms Choi who appears today on behalf of the defendant makes the submissions that as a matter of construction of section 75(4), the word "incorrect" should be confined to a situation where the assessment was excessive or being wrongly calculated. She further submitted that in the present case the defendant's contention is that there is no factual basis for the assessment and therefore it falls outside the scope of section 75(4). Upon further clarification, it appears that her main point is that because of the error of the Commissioner in the interpretation of the facts in this case, there was an error of law. She made the bold submission that in case of error of law, the District Court can intervene, notwithstanding section 75(4).

8. I reject that submission. It is against the authorities as I have mentioned. An assessment which is open to objection on the grounds of errors of law is still an incorrect assessment coming within the meaning of section 75(4). It is quite clear from the cases that errors of law are covered (see in particular the case of CIR v Choy Sau-kam [1983] 2 HKTC 10). That case also concerned with an allegation that the Commissioner interpreted the facts wrongly and in the terminology of Ms Choi, that would also be an error of law. Still, the Court of Appeal held that it is covered by section 75(4).

9. Ms Choi referred to the case of Nanwani v Commissioner of Estate Duty [1976] HKLR 74. I do not think that case assists her because that case is concerned with estate duty charged under the Estate Duty Ordinance and there is no equivalent provision to section 75(4) in the Estate Duty Ordinance. The crucial question in the present case is whether the matters relied on by the defence are covered by section 74 and I hold that it is covered by that subsection.

10. I was also referred to the case of Anisminic v Foreign Compensation Commission [1969] 2 AC 147. Ms Choi relied on that case to argue that the court always have a supervisory jurisdiction over the other administrative bodies and can intervene in cases of error of law. Of course, the court does have a supervisory function but it has to be remembered that such supervisory function vests in the High Court and there is no power to conduct judicial review in the District Court. In this connection, the case of Tak Wing Investment v CIR CACV 167 of 2001, an judgment delivered on 20 March 2001, shows the interplay between judicial review and the recovery process under section 75 of the Inland Revenue Ordinance. Whilst the recovery process would be conducted in the District Court pursuant to section 75, in an appropriate case the taxpayer can commence judicial review proceedings in the High Court to challenge the decisions of the Commissioner, subject to any express provisions in the Inland Revenue Ordinance.

11. In the Tak Wing case, the Court of Appeal held that a taxpayer cannot obtain judicial review with regard to the commencement of recovery proceedings in the District Court, although judicial review could be undertaken to direct the Commissioner to consider an objection expeditiously. Further, as observed by Mayo VP in the Tak Wing case, under section 71(2) of the Inland Revenue Ordinance, the Commissioner is entitled to require the taxpayer to pay the tax payable and then proceed to consider the objection in accordance with the procedures for objection and appeal as set out in the Ordinance.

12. Lastly, Ms Choi also relied on the Basic Law. She refers me to Articles 4, 6 and 158 of the Basic Law but the key provision she relied upon is Article 6. Article 6 provides that the Hong Kong Special Administrative Region shall protect the right of private ownership of property in accordance with law. Ms Choi submitted that the tax money falls within the scope of property, the ownership of which is protected by Article 6.

13. I do not find that there is any infringement of that article in the present situation. The recovery of tax is in accordance with the law as provided for in the Inland Revenue Ordinance and further, in the event of the defendant being successful in his appeal by way of case stated and if it is decided that the tax should not have been charged, there is provision in the Inland Revenue Ordinance for the refund of the excess tax paid by the defendant (see section 79 of the Inland Revenue Ordinance). Further, in an appropriate case the Commissioner can defer the payment of tax pending objection (see section 71(2) of the Inland Revenue Ordinance). Hence, there is no question of the defendant's right to private property being infringed and Article 6 of the Basic Law is not engaged.

14. For all these reasons, I find that there is no reasonable defence in this case and I therefore order that the defence be struck out. I propose to make an order in terms of the summons which is the summons of 5 December 2000, subject to the amendment that I would delete the second part of the first paragraph. I would just strike out the defence on the ground that discloses no reasonable defence.

(Submissions re revised tax amount)

15. I now have evidence that the assessment has been revised downwards and there is no suggestion that the Commissioner intends to further adjust it upwards again. That must be the figures or perhaps the maximum figures which the Commissioner is entitled to claim. The only difficulty I see is with regard to section 75(3) of the Inland Revenue Ordinance. As to that, Mr Ho already made submission relying on judgment of Huggins J in Ng Chun-kwan. But as I read the judgment, it was said in the context of that particular case that the certificate would be regarded as conclusive. Of course the facts of the case are very different. That was not a case where the Commissioner has actually revised the assessment downwards. In fact, at page 99 of the report, it was reported that the counsel for the Commissioner in that case considered that the taxpayer could in some situation require a District Judge to scrutinise the certificate. The question as to the conclusiveness of the certificate was discussed in that case against the background that there was no challenge to the figure by the taxpayer. So this was a different situation from what I am dealing with this morning.

16. In my judgment, the only question is what is the tax due and payable at this moment? Since it is not disputed that the assessment has been revised downward and there is no suggestion that the Commissioner intends to further revise it upward again, the only conclusion must be that the tax due and payable at the present moment is $435,801, notwithstanding the figure stated in the certificate. Given that background, I am only prepared to order judgment in the sum of $435,801, so I will amend that figure accordingly in the summons.

(Submissions re paragraphs in proposed order)

17. And so the order I will make is that:

1) The defence filed herein on 21 November 2000 be struck out on the ground that it disclosed no reasonable defence;

2) Judgment be entered against the defendant for the sum of $435,801;

3) Interest of the said sum of $435,801 from the 28th day of January 1999 until payment at judgment rate;

4) Costs of the action herein, including the costs of this application, be to the plaintiff, to be taxed if not agreed.