SO KAM SHING AND ANOTHER v. THE COLLECTOR OF STAMP REVENUE

DCSA 45/2016

[2018] HKDC 503

IN THE DISTRICT COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

STAMP APPEAL NO 45 OF 2016

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JUDGMENT

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INTRODUCTION

1.  Stamp Duty Ordinance (“SDO”) s 10(2) provides:-

“Every instrument chargeable with stamp duty containing or relating to several distinct matters shall be separately and distinctly charged, as if it were a separate instrument, with stamp duty in respect of each of the matters.” (Emphasis added)

2.  The outcome of this appeal would turn on the true meaning of this statutory provision.

THE FACTS

3.  I would first set out the facts in the case stated prepared by the Collector of Stamp Revenue (“the Collector”) which are not in dispute.

4.  This is an appeal brought by Mr So Kam Shing (“KS”) and Mr So Kam Wai (“KW”) under SDO s 14 against a stamp duty assessment by the Collector issued on 6 May 2016 (“the Assessment”) in respect of a Deed of Family Arrangement (“DFA”) and a Deed of Assent (“the Assent”) both dated 6 August 2013 (together “the Deeds”). 

5.  Mr So Yim Nam (“the Deceased”) passed away on 2 September 2011.  At the time of his death, the Deceased was the sole owner of a property known as Shop No 7 on G/F, Tin On House, Nos 78-84 & 88-96 Shek Yam Road, Kwai Chung, New Territories (“the Property”).

6.  Letters of Administration in respect of the Deceased’s estate was granted to KS on 28 March 2013. 

7.  According to the Affirmation made by KS on 7 February 2013, KS, KW and Ms So Kam Yee (‘the Sister”) are the lawful and natural children of the Deceased and the only persons entitled to have shares in the Deceased’s estate.

8.  By entering into the DFA, KS, KW and the Sister agreed that the Property should be vested in KS in his personal capacity and KW as tenants-in-common in equal shares. 

9.  KS, in the capacity of administrator of the Deceased’s estate, executed the Assent to vest the Property in KS in his personal capacity and KW as tenants-in-common in equal shares.

10.  The Property is a non-residential property within the meaning of SDO s 29A(1).

11.  On 16 August 2013, Messrs Lee Shing Fung & Co (“the Solicitors”) presented the Deeds to the Collector for adjudication of stamp duty pursuant to SDO s 13(1).

12.  The Property was then valued by the Commissioner of Rating and Valuation (“the Commissioner”) at HK$17,800,000 as at the date of the Deeds.

13.  By a letter dated 12 June 2015, the Collector informed the Solicitors that the distribution of interests in the Property in excess of the entitlement of the beneficiaries under the intestacy (“the Excess Entitlement”) operated as a voluntary disposition inter vivos and was chargeable with ad valorem stamp duty (“AVD”) under SDO s 27.  The computation of the Excess Entitlement and the AVD chargeable are as follows:-

Beneficiaries	Entitlement under Intestates’ Estates Ordinance (Cap.73) (“IEO”)		Distribution according to the Deeds		Increase/ Decease in entitlement
	HK$		HK$		HK$
1st Appellant	(1/3) 5,933,334		(1/2) 8,900,000		+2,966,666
2nd Appellant	(1/3) 5,933,333		(1/2) 8,900,000		+2,966,667
The Daughter	(1/3) 5,933,333		NIL		-5,933,333
	17,800,000		17,800,000

Excess Entitlement			HK$5,933,333
AVD chargeable (HK$5,933,333 x 6%)			HK356,000

14.  KS and KW disagreed with the valuation of the Property as assessed by the Commissioner and further contended that AVD should be computed for each of them separately.

15.  The Commissioner subsequently advised that the valuation of 1/3 share of the Property as at 6 August 2013 was HK$5,340,000.  Accordingly, the Collector issued a proposed assessment to the Solicitors with the following details:-

Beneficiaries	Entitlement under IEO		Distribution according to the Deeds		Increase/ Decease in entitlement
	HK$		HK$		HK$
1st  Appellant	(1/3) 5,340,000		(1/2) 8,010,000		+2,670,000
2nd  Appellant	(1/3) 5,340,000		(1/2) 8,010,000		+2,670,000
The Daughter	(1/3) 5,340,000		NIL		-5,340,000
	16,020,000		16,020,000

Excess Entitlement			HK$5,340,000
AVD chargeable (HK$5,340,000 x 6%)			HK$320,400

16.  In a letter from KS and KW dated 21 January 2016 to the Collector, KS and KW did not take issue with the revised valuation.  However, KS and KW asserted that the effect of the Deeds was to transfer the entire entitlement of the Sister in the Property under intestacy of the Deceased to the two of them in equal shares and the stamp duty in respect of the Deeds should therefore be computed as follows:-

      ($5,340,000 / 2 x 3%) + ($5,340,000 / 2 x 3%) = $160,200

17.  The Collector maintained the view that the Deeds were chargeable with AVD of $320,400. 

18.  On 6 May 2016, the Collector, under SDO s 13(3)(b), issued the Assessment in respect of the Deeds as follows:-

		HK$
AVD chargeable ($5,340,000 x 6%) under Scale 1(g) of head 1(1) in the First Schedule to SDO		320,400
Less: Stamp Duty Paid		320,400
Stamp duty payable		NIL

19.  On 25 May 2016, KS and KW filed a Notice of Appeal against the Assessment. 

THE QUESTIONS

20.  The questions submitted for the opinion of the Court in this appeal are as follows:-

(a) whether the Deeds are chargeable with stamp duty; and

(b) if so, with what amount of stamp duty.

QUESTION 1

21.  KS and KW are not saying that the Deeds are not chargeable with stamp duty.  They are merely disputing the amount of stamp duty chargeable.  So, question 1 is not an issue between the parties. However, since this is a question in the case stated prepared by the Collector and submissions on this question have been made, I would give my opinion on the question.

22.  The starting point is to look at the following definitions in the SDO:-

(a) S 2 contains a definition of “conveyance”, which is as follows:

“conveyance（轉易契）means every instrument (including a surrender) and every decree or order of any court whereby any immovable property is transferred to or vested in any person.”

(b) S 27(1) provides:

“Any conveyance of immovable property operating as a voluntary disposition inter vivos shall be chargeable with stamp duty as a conveyance on sale, with the substitution of the value of the property conveyed for the amount or value of the consideration for the sale,”

(c) S 27(4) provides:

“Any conveyance or transfer (not being a disposition made in favour of a purchaser or incumbrancer or other person in good faith and for valuable consideration) shall for the purposes of this Ordinance be deemed to be a conveyance or transfer operating as a voluntary disposition inter vivos, and (except where marriage is the consideration) the consideration for any conveyance or transfer shall not for this purpose be deemed to be valuable consideration where the Collector is of opinion that by reason of the inadequacy of the sum paid as consideration or other circumstances the conveyance or transfer confers a substantial benefit on the person to whom the property is conveyed or transferred.”

23.  By the operation of the DFA and the Assent, KS and KW have inherited a share in the Deceased’s estate which is in excess of the interest that they may inherit under the intestacy law.  By the definitions in the aforesaid statutory provisions, the Deeds are deemed to be a conveyance or transfer operating as a voluntary disposition inter vivos under SDO s 27(4).  The Deeds are therefore chargeable with ad valorem stamp duty.  This is a clear conclusion and is supported by the authorities.

24.  In Baker & anor v Inland Revenue Commissioners [1924] AC 270, the House of Lords has considered section 74(5) of the Finance Act 1910 (which is identical to SDO s 27(4)) and said at 275-276:-

“Now I have to pass on to the second part of sub-s.5, which has a bearing upon that state of things.  The sub-section proceeds: “and (except where marriage is the consideration) the consideration for any conveyance or transfer shall not for this purpose be deemed to be valuable consideration where the Commissioners are of the opinion that by reason of the inadequacy of the sum paid as consideration or other circumstances the conveyance or transfer confers a substantial benefit on the person to whom the property is conveyed or transferred.”  I think that means that a conveyance, although for value, comes within the section if it confers upon the grantee a substantial benefit beyond what that grantee gives, or (in other words) if it is in substance a gift to the person taking under it after allowing for any consideration which he brings in.  In such cases the conveyance does confer a benefit – that is a gift – on the person to whom the conveyance is made, and to that extent is to be treated as a voluntary disposition.” (Emphasis added)

25.  The same conclusion was reached by the Singapore High Court in Tan Kay Thye & ors v Commissioners for Stamp Duties [1991] 3 MLJ 150.  That case is factually similar to the present appeal.  The appellants in that case by a deed of family arrangement and an assent acquired property which was more valuable than that they could have acquired under the intestacy rule.  The Singapore High Court held that the assent in that case is chargeable with ad valorem stamp duty under section 16 of the Singapore Stamp Duties Act.  That provision is identical to SDO s 27.

26.  For the reasons above, it is clear that the Deeds are chargeable with ad valorem stamp duty. 

QUESTION 2

27.  The parties agree that if KS and KW are right, the amount of stamp duty chargeable would be the one stated in paragraph 16 above.  On the other hand, if the Collector is right, the amount of stamp duty would be the one set out in paragraph 15 above.

28.  KS and KW rely upon SDO s 10(2) and argue that the Sister has transferred half of her interest in the Property to each of them.  KS and KW argue that there are 2 transfers, and each transfer is a distinct matter.  They say that in accordance with SDO s 10(2), the stamp duty should be computed in the way as set out in paragraph 16 above.  They further argue that the Collector’s computation as mentioned in paragraph 15 above would only be correct if the Sister transfers her entire interest in the Property to only one of them.  This is not the case.  The Collector’s computation therefore is not correct.

29.  As a matter of law, the Sister has never had any proprietary interest in the Property.  It is trite that beneficiaries of the estate of a deceased do not have any proprietary interest in any particular asset in the estate before the execution of an assent by the executor or administrator.  The position has been succinctly summarized in Williams, Mortimer & Sunnucks (20^th Edition), §81-03:-

“Until assent or conveyance, a person interested under the will or intestacy has an inchoate right transmissible to his own representatives. It is a chose in action capable of itself being settled or transmitted …”

See also Commissioner of Stamp Duties (Queensland) v Livingston [1965] AC 694, 707-708.

30.  Accordingly, it is not the Sister transferring her 1/3 proprietary interest in the Property to KS and KW in equal shares, but the administrator with the Sister’s consent indicated in the DFA transferring the 1/3 proprietary interest in the Property to KS and KW by executing the Assent.  The crux is whether that transfer is one matter or two separate distinct matters.

31.  Mr Suen for the Collector refers me to Ansell v Commissioners of Inland Revenue [1929] 1 KB 608, which can shed light on this issue.  In that case, in considering the true meaning of the Stamp Act 1891 s 4(a) (which is substantially similar to SDO s 10(2)), Rowlatt J said at 617:-

“It one turns to s.4 the distinct matters there must be distinct matters for the purposes of the Stamp Act. If two different classes of property are being transferred by the same words of assignment in the same document, and those two different classes of property in the same document are different from the point of view of the Stamp Act and taxation, it seems to me in common sense that they must be distinct matters.” (Emphasis added)

32.  Mr Suen submits that in the light of Ansell, “distinct matters” in SDO s 10(2) should be different classes of property being transferred in one instrument.  In the present case, the Excessive Entitlement vested in KS and KW by way of voluntary disposition is simply the same kind of proprietary interest.  So there is only one matter in the transfer effected by the Deeds, not two separate distinct matters.

33.  I accept Mr Suen’s submissions. While I understand KS and KW’s argument, with respect, their argument cannot be right.  If they were right, SDO s 10(2) would have been invoked in each and every case where the conveyance is transferring a property to two or more persons holding the same as tenants in common.  This simply cannot be something contemplated by the statutory provision.  In my judgment, “distinct matters” in SDO s 10(2) are different classes of property being transferred in one instrument.  The Excessive Entitlement transferred to in KS and KW by the Deeds is the same kind of proprietary interest, and hence KS and KW cannot derive assistance from SDO s 10(2).

34.  The Collector’s computation of Stamp Duty as set out in paragraph 15 above is therefore correct and the amount of stamp duty stated therein is the correct amount.

DISPOSITION

35.  For the reasons above, I dismiss the appeal.

36.  I have heard submissions on costs.  In my view, costs should follow the event.  I order that costs of this appeal (including all costs reserved, if any) be paid by KS and KW to the Collector, with a certificate for counsel, to be taxed if not agreed.

37.  I further direct that upon KS and KW’s request, this judgment be interpreted to them by a court interpreter in the District Court at a mutually convenient time.

38.  Lastly, it remains for me to thank the parties for the assistance rendered to the court.