COMMISSIONER OF INLAND REVENUE v. WONG KWONG HUNG HENRY

HCAL22/99

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ADMINISTRATIVE LAW LIST NO.22 OF 1999

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J U D G M E N T

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The applicant seeks leave to apply for judicial review of a number of decisions by the Commissioner of Inland Revenue. They are :

(1) A decision on 8th March 1998 to make a further assessment to salaries tax by reason of which assessment an additional amount of tax in the sum of $773,000 became payable;

(2) a decision on 20th April 1998 not to hold over part of the sum thus said to be due, namely, the sum of $320,000 which therefore became immediately payable despite the taxpayer's objection to the assessment;

(3) a decision to issue proceedings in the District Court for the recovery of the sum not held over; and

(4) the Commissioner's refusal in January 1999 to withdraw that further assessment.

The relief sought is a declaration that the decisions were invalid; a declaration that the respondent was in breach of his duties and that he did not make his decisions by proper and careful exercise of his discretion; an order of prohibition prohibiting the respondent from proceeding with recovery action of $773,400 in relation to the additional assessment; and an order is also sought to stay the District Court action pending determination of these judicial review proceedings.

The application for leave came before me on the papers when I intimated that I was not prepared to grant leave on the papers, and that in any event I would not entertain the application for an interim stay on an ex parte footing. Accordingly, the matter comes before me today for oral argument and the Commissioner of Inland Revenue is represented and has been heard by counsel.

The application for leave was filed on 15th February 1999. The factual background of the case as presented is as follows :

In 1995, the Commissioner commenced an investigation into the affairs of the applicant whose return for the years 1988 to 1992 inclusive, all showed a salary of $156,000. For each of the years 1988/89, 1989/90 and 1990/91, an additional assessment was raised. In each case, the applicant objected and the sum payable as tax was held over pending determination of the objections. For the year of assessment which is the subject of this application, there was a change, in that not all of the tax payable was held over. The additional assessment was issued on 9th March 1998. The applicant lodged objection on 27th March 1998 and by notice dated 20th April 1998, the amount of $450,350 was held over, but $320,000 was expressly stated to be payable by 22nd April 1998. By letter dated 15th May 1998, the Commissioner wrote to the applicant saying that his representative's request for further hold over of tax demanded was not accepted and that "... the tax demanded should be paid on or before due date to avoid the taking of recovery action". The tax was not paid, and on 23rd December 1998 proceedings were indeed instituted in the District Court and judgment had since been entered in default of defence.

The ground of complaint is that in making the additional assessment, no basis for the making of the additional assessment of $5 million was provided save a broad statement that the applicant's assets were not commensurate with his declared income. In other words, it is contended that it was not apparent to the assessor that there was an additional $5 million undeclared salary. The applicant goes on to complain that in light of the protective nature of the previous assessments, he had reason to believe that collection of tax allegedly due was not intended by the Commissioner, and that he was taken by surprise by the issue of proceedings in the District Court.

Two matters in particular concerned me : first, the question of delay in making this application; and, second, the question whether other avenues for redress had been exhausted by the applicant.

It is conceded in the grounds of the application that there exists legislative provision for airing challenges to tax assessments, in particular, appeals to the Board of Review and that that channel has not been exhausted. It is said that it is virtually impossible in practice for a taxpayer to discharge the onus on him to prove that the assessment is wrong. This fact combined with the refusal to allow a hold over of all tax charged is said to be oppressive. It is also emphasized by Mr Thomson today, on behalf of the applicant, that there is no appeal to the Board of Review in respect of the decision of the Commissioner not to hold over part of the tax so that it cannot be said in relation to that decision that there is an alternative avenue, whether equally convenient or otherwise.

It is evident from the papers before me that there has been an on-going investigation into the affairs of the applicant by the Commissioner and that the assessor's case is that there have been large sums of money passing through the applicant's bank account and that there has been an accretion of personal assets by the applicant which has not been explained, and that despite reminders, according to this case, very little documentary evidence has been provided and very little information in answer to questions raised by the Commissioner. Reference is made in the correspondence which I do have to letters which are not exhibited to the applicant's affirmation in support of the application for leave, for example, that the applicant's tax representative has not supplied details as requested about the destination of certain funds. There is reference in one letter to a discrepancy of $35 million for which the applicant has offered, it is said, no explanation, though I note that this refers to the tax year 1990/91 but that, too, is an assessment which is said to have been entirely without foundation. It is quite evident from the papers which have been filed that it appeared to the assessor that the applicant has been hiding his true income and has not been answering questions put to him, an important contention with which the applicant does not deal at all in the application itself or in his supporting affirmation.

I do not think in the circumstances of the case as it is presented, that it suffices for there to be a blank assertion by the applicant that there is no basis for the assessment made. In other words, I do not think that the material before me discloses what might, on further consideration, turn out to be an arguable case. All there is is a bare assertion by the applicant that there was no basis for the assessment; against which bare assertion is material from the respondent who says in terms why he took the view that salary had not been disclosed and that there were assets which suggested a much higher income, and the failure by the applicant to answer the questions accordingly raised.

Where there is disclosed some material which shows that there appears to be a basis for the assessor's decision, where it is evident from the material disclosed that some material correspondence has not been placed before the court; and where complaint is made by the taxpayer only after judgment has been entered against him for tax not held over, but before enforcement of that judgment, the applicant must not be surprised if a court considers whether the application is no more than a holding device, and examines the application for leave with a little care to see if at least some substance is disclosed. I do not think that that bare assertion as framed in this application is enough to lift it off the ground.

As for the decision to commence proceedings, there can be no possible basis for a challenge to that decision. Tax was due upon the assessment and has not been paid, and the District Court has jurisdiction in the matter. In so far as it is said that there was no basis for the assessment - a defence which is not available in the District Court - I have already commented on the merits of that assertion on the information before me.

That leaves the decision in January 1999 by the Commissioner not to reverse his decision to withhold the only part of the tax due under the additional assessment. I fail to see how that decision, or indeed the original decision to require payment of part of the tax, can be said to be irrational or illegal, or tainted by any other impropriety. I note in regard to the 1999 decision from correspondence which was not disclosed by the applicant but which has been put before me by the Commissioner, that there were earlier requests by the applicant to hold over which were turned down. This particular request, which is the subject of challenge, was only made after the District Court proceedings were instituted and many months after the original decision to charge tax in the sum of $320,000. All this apart, the decisions made to assess additional tax and to refuse to hold over $320,000 tax demanded were decisions made some 11 and 10 months respectively before the launch of these proceedings. For the applicant to say that he did not think any enforcement action would be taken because of previous conduct by the Commissioner does not hold water, since this was the first time that the Commissioner decided to require immediate payment of some tax, and the requirement was made perfectly clear on the notice of assessment itself. But the matter goes further than that. I am of the opinion that there has, in this particular regard, been material non-disclosure by the applicant. In the grounds of the application, the following contention is made :

"Further as the Applicant was not aware of any attempt to collect the HK$320,000 until the writ in District Court Civil Action No.25042 of 1998 was received on 23rd December, 1998, that belief was reinforced."

The applicant has affirmed those contents to be accurate. Yet there has been placed before me letters from the Commissioner showing that proceedings were threatened regularly in and after May 1998, and express mention on many occasions of recovery action in the courts. Mr Thomson argues that material non-disclosure is not relevant at this stage. I think that in the circumstances it is relevant. It is relevant to the reasons given by the applicant for not instituting proceedings before now and it is relevant to the question whether the refusal in January 1999 to hold over tax is a decision which has any prospect of successful challenge. And in any event, such non-disclosure would form good ground for setting aside leave were that to be granted. This application in relation to the decision to assess additional tax and the original decision to refuse to hold over tax can hardly be said to have been made promptly, and in any event was made well after the expiry of the three month outer limit for such application. I do not think that good reason is shown for the delay. I think that to extend time in such cases, unless good reason in an individual case is shown, would be detrimental to the good administration of the tax system.

Further, in relation to the decision to raise the additional assessment, there is an alternative avenue for relief, and that is the appeal to the Board of Review. It is only in exceptional circumstances that judicial review would be permitted in the face of a statutory appeal procedure. Mr Thomson says though that that is not an equally convenient remedy for this applicant for the objection process takes a long time as does the appeal process to the Board of Review, and that in the meantime the applicant has to pay the tax not held over. He says that the position is analogous to that in the case of Harvest Sheen Ltd. v. Collector of Stamp Revenue [1997] 2 HKC 380 and he also cites R. v. Paddington Valuation Office, ex parte Peachey Property Corporation Ltd. [1966] 1 QB 380. I do not think that these two cases provide sound analogies. In Harvest Sheen, there was a demonstrably obvious and palpably wrong decision by the Collector of Stamp Revenue and the applicant's access to the courts was effectively stifled by a statutory provision which was held by the judge to contravene the Bill of Rights Ordinance. In Peachey Property, the applicants would have had to draw proposals for the valuation of thousands of properties, not just one. It is not open in this particular case to the applicant to contend, in my judgment, as a reason for utilizing judicial review that appeals are difficult to pursue successfully. The legislature has set down the process to be adopted and the burdens to be discharged. Those with sound cases should have nothing to fear and there is no warrant for this court intervening in some supervisory way when the applicant has remedies elsewhere. The only disadvantage suffered by the applicant is that he has to pay tax pending the determination of the objection. But that said, there has been no request by him to pay by instalments or to have that payment somehow guaranteed; merely on but one occasion, a suggestion in response to a threat to institute proceedings, that he could not afford to pay. The applicant was galvanised into instituting these proceedings only once there was judgment obtained in the District Court. I note, too, that the fact that judgment had already been obtained was not a fact revealed in the application.

For all these reasons, the application for leave to apply for judicial review is refused.