XCHRX Commissioner of Inland Revenue v. Lau Chi Sing

IN THE DISTRICT COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

CIVIL ACTION NO. 12121 OF 2000

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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 claims against the defendant in regard of tax in the amount of $451,237. This amount of tax is certified by a certificate issued by the Commissioner pursuant to section 75(3) of the Inland Revenue Ordinance.

2. The tax was imposed in respect of three transactions. The first transaction is in relation to the sale of a property known as Ground Floor, 1st Floor, 2nd Floor, Lot No. 824 in Demarcation District 225, Shung Yeung, Hang Hau, Sai Kung. Regarding this transaction, the defendant pleaded in his Amended Defence filed on 6 December 2000 that he was only an indigenous villager who allowed his name to be used for the transaction. He co-operated with a Mr Chan Kwong-shing in the project and out of the transaction he himself only got $400,000 as the price for the sale of his villager's right to Mr Chan. He further pleaded that the $400,000 was capital gain and should not be subject to profit tax.

3. The second transaction is in respect of the sale of the property known as Ground Floor, Lot No. 285 in Demarcation District 214, Nam Yai Tsuen, Sai Kung. The defendant pleaded in his Amended Defence that he was not involved in this transaction at all, although his name was used by his friend, Mr Chung, without his consent. That was, according to him, the reason why his name appeared as a confirmor in this transaction.

4. The third transaction is with regard to the sale of property known as 1st Floor, Lot No. 380 in Demarcation District No. 239, O Pui Village, Sai Kung. Again, the defendant said he was not involved in this transaction and his name was being used without his consent and the matter is said to be under investigation by the police.

5. By a summons taken out on 19 December 2000, the plaintiff applied for the Amended Defence to be struck out. The application is based on section 75(4) of the Inland Revenue Ordinance, Cap. 112. Section 75(4) reads 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. This subsection has been described as being wide enough to wrap up all the objections which can be made to the assessment (see Briggs CJ in the case of Ng Chun-kwan v The Commissioner of Inland Revenue [1976] HKLR 94).

7. In my judgment, the matters raised by the defendant in the Amended Defence in substance alleged that the assessment was incorrect and therefore falls within the operation of section 75(4). It is important to appreciate that under the scheme of the Inland Revenue Ordinance, the proceedings before the District Court for the purpose of recovery of tax is limited in scope. The Ordinance in fact provides for challenge being made to the assessment by way of objection raised to the Commissioner and if necessary to appeal against the determination of the Commissioner by way of appeal to the Board of Review and, if necessary, further appeal by way of case stated to the High Court.

8. Further, section 71(2) of the Ordinance makes it clear that tax shall be payable notwithstanding that there is any pending objection to the assessment or appeal against the same. 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.

9. My view as to the interpretation of the Ordinance is reinforced by the recent Court of Appeal decisions in Tak Wing Investment v The Commissioner of Inland Revenue CACV No. 167 of 2001. In that case the Court of Appeal held that there could not be any judicial review with regard to the Commissioner's decision to commence proceedings in the District Court for recovery of tax notwithstanding that objection about the assessment was still pending.

10. Mr Fung who appeared for the defendant today argued that section 75(4) did not apply to a case of mistake as to identity of the taxpayer. He relied on a dicta by Chief Justice Briggs in the case of Ng Chung-kwan v The Commissioner of Inland Revenue [1976] HKLR 94 at page 98. I should quote the relevant paragraph. It reads:

"Section 75 of the Ordinance is quite another matter. It deals with the recovery of the tax and not with assessment at all. The wording of subsection (4) of the section wraps up all the objections which can be made to the assessment. This is not to say that there is no defence to claim for tax brought by the Commissioner. There may be questions as to the identity of the taxpayer, for example. As I see it, section 75 of the Ordinance confers a limited, in fact a very limited, jurisdiction on the District Court rather than limit the jurisdiction of the courts as a whole."

11. And this dicta was referred to by Barker JA in the Court of Appeal in the case of Commissioner of Inland Revenue v Choy Sau-kam [1983] 2 HKTC 10 at page 16.

12. In my judgment, the question as to the identity referred to by Briggs CJ is a different question from the one that is being raised by the defendant in this action. The question as to the identity of the taxpayer mentioned by the Chief Justice was in fact an echo of a concession by counsel for the Commissioner in the case of Ng Chun-kwan at page 99-100. In that case it was conceded by counsel for the Commissioner that the court may enquire into the identity of the taxpayer to ascertain that the defendant was actually the person who has been assessed. In other words, what is envisaged by the Chief Justice was a scenario where there were two persons having perhaps the same name and the defendant being sued was not actually the person who was being assessed. Of course, in that sort of situation the attack is not made against the assessment but rather it is a question of whether the defendant was the person being assessed.

13. In contrast, in the case before me there is no dispute that the defendant was the person who was being assessed. What the defendant wished to argue is that he was being assessed wrongly due to the fact that, in fact, he did not take a part in the transactions as what the Commissioner has said he had.

14. I asked Mr Fung whether these matters can be canvassed by the defendant by way of objection to the Commissioner in accordance with the procedure set out in the Inland Revenue Ordinance. He said the defendant could do so since that objection has not been finally determined by the Commissioner. That being the case, I see no reason why section 75(4) does not apply here and because of that the matters pleaded in the Amended Defence do not disclose a reasonable defence and should be struck out accordingly.

15. So I propose to make an order in terms of the summons of 19 December 2000, except that under paragraph 1, I will just confine myself to the ground of disclosing no reasonable defence.

16. There is no need to have paragraph 2. Judgment shall be in terms of paragraph 3, that is in the sum of $451,237.

17. There will be judgment entered against the defendant on the sum of $451,237 and interest on the said sum of $451,237 from 2 August 2000 until payment at judgment rate. Costs of the action, including the cost of this application be to the plaintiff, to be taxed if not agreed.