THE COMMISSIONER OF INLAND REVENUE v. SEA POWER INTERNATIONAL TRADING LTD

DCTC6943/2008

IN THE DISTRICT COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

CIVIL ACTION NO. 6943 OF 2008

D E C I S I O N

1.  The Commissioner of Inland Revenue claims against the defendant company for tax due and payable in the sum of $183,750.  Under Section 75 of the Inland Revenue Ordinance, the Commissioner of Inland Revenue applies under Order 18, Rule 19(1)(a) of the Rules of District Court to strike out the defendant’s defence disclosing no reasonable defence and for judgment to be entered. 

2.  The defendant’s defence as pleaded is that it did not receive any tax demands or requests for payment of tax and the defendant is only a trustee for another company for the proceeds of the transaction upon which tax was levied. 

3.  The defendant filed an affidavit with exhibits.  It is the defendant’s contention that it is for the plaintiff to show a tax demand and request to pay tax assessed has been served on the defendant.  The defendant’s affidavit exhibited its objections to the tax assessed and the filing of the company’s return, supported by company accounts etc.  These were compiled in January 2009, subsequent to the issue of the writ by the Commissioner of Inland Revenue.

4.  The defendant further deposed that it had not received a tax return or demand before the writ was issued.  Needless to say on application under Order 18 or 17(1)(a) evidence is excluded.  The court is obliged to look at the pleading without extrinsic evidence and decide whether, in the assumption the facts pleaded are true the pleading discloses a defence in law. 

5.  Section 71(2) provided: 

“Tax shall be paid notwithstanding any notice of objection or appeal unless the Commissioner orders that payment of tax or any part thereof be held over, pending the result of such objection or appeal.”

Section 75(4) of the Ordinance stated:

“In proceedings under this section for the recovery of tax the court shall not entertain any plea that the tax is excessive, incorrect, subject to objection or under appeal.”

6.  In the present case, the defendant’s defence no doubt is the tax assessed was incorrect.  In the case of CIR v Choi Sau Kum &Anor [1982] HKTC, Vol 2, page 10, Barker JA (as he then was) referred to Briggs CJ’s dictum in Ng Chun Kwan v Commissioner of Inland Revenue [1976] HKLR 94 where he held the wordings of Section 75(4) wraps up all the objections which can be made to the assessment.  In the Court of Appeal case of the Commissioner of Inland Revenue v Lai Yin Har formerly trading as China Skin Specialist Clinic [1988] 2 HKTC, 376, Fuad VP held at page 380 the following:

“Section 75(4) of the Ordinance is perfectly clear and all the material averments in the defence, as well as the basis for the tax payer’s submissions to the court are caught within the steely embrace of the prohibition.  The court shall not entertain any plea that the tax is excessive, incorrect, subject to objection or under appeal.  Nothing that the tax payer has said today, who appears before us in person, takes the matter outside that express statutory prescription.

If authority were needed on the effect of Section 75(4) and that in such circumstances the proper course is to strike out the defence it is to be found in two of the decisions cited to the judge, both of which bound him.  Ng Chan Kwan v Commissioner of Inland Revenue [1976] HKLR 94, 1 HKTC 633, (Full Court, 16 January 1976) which was followed in Commissioner of Inland Revenue v Choy Sau Kan & Anor, 2 HKTC 10.

Both those authorities pointed out that matters of the kind raised by the tax payer here can only be ventilated by the objection and appeal procedures for which the Ordinance makes provisions.  These are to be found in Sections 64, 66, 67, 68, 69 and 69A. 

With every respect to the learned judge, his approach both at the hearing proper and at the review was wholly misconceived.  In view of the content of the defence and what is elected by Section 75(4) of the Ordinance, the judge’s discretion could only properly have been exercised by striking out the defence as not ‘disclosing an adequate defence’ under Rule 38A(1)(b)(ii) of the District Court Civil Procedure (General) Rules.  He should then have gone on to enter judgment against the taxpayer under Rule 27(1)(b) of the same Rules because she had failed to disclose any reasonable ground of defence.  There was, in the circumstances, no need for the production of the certificate provided for in Section 75(3) of the Ordinance because that sub-section is only relevant when, as a matter of evidence, it is necessary to prove that the tax is due and its amount.”

7.  Section 75(3) of the Inland Revenue Ordinance states:

“In proceedings under this section for the recovery of tax the production of a certificate signed by the Commissioner stating the name and last known postal address of the defaulter and particulars of tax due by him shall be sufficient evidence of the amount so due and sufficient authority for District Court to give judgment to the said amount.”

8.  Therefore, even if this case should go to trial, all the Commissioner needed to show is the certificate from the Commissioner of Inland Revenue to prove its claim against the defendant. 

9.  Lam D.J. (as he was) said in the case of CIR v Lau Chi Sing DCCJ 12121 of 2000, on 26 April 2001 the following:

“In the proceedings before the District Court, the court is only required to be satisfied that an assessment has been made against the defendant and he has not paid.  If a defendant wishes to raise other matters, the proper avenue is to follow the objection procedures laid down in the Ordinance.”

10.  On the point of non-receipt of tax return or tax demand, Section 58(2) provides:

“Every notice given by virtue of this ordinance may be served on a person either personally or by being delivered at or sent by post to his last known postal address, place of abode, business or employment, or any place at which he is or was during the year to which the notice relates, employed or carrying on business or the land or buildings in respect of which he is chargeable to the tax under Part 2.  Subsection 3 provides any notice sent by the post shall be deemed, unless the contrary is shown, to have been served on the day succeeding the day on which it would have been received in the ordinary course by post.”

11.  The burden is on the defendant to show it did not receive the notice sent by the Commissioner under the ordinance.  The onus is on the defendant, not the plaintiff, under Section 58(3).  The defendant has failed to discharge this burden.  For the aforesaid reasons, I am satisfied the defence, as filed, does not disclose any defence in law.  It is therefore struck out and judgment is hereby entered against the defendant.  Costs should follow the event.  The defendant shall pay costs to the plaintiff including all costs reserved to be taxed if not agreed.

12.  Interest to be charged at the rates as set out in paragraph 2 of the Plaintiff’s summons.