CHURCH BODY OF THE HONG KONG SHENG KUNG HUI AND ANOTHER v. COMMISSIONER OF INLAND REVENUE

CACV 41/2010

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF APPEAL

CIVIL APPEAL NO. 41 OF 2010

(ON APPEAL FROM HCIA NOS. 2 & 3 OF 2009)

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D E C I S I O N

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Hon Cheung JA (giving Decision of the Court) :

1.  The Commissioner of Inland Revenue (‘the Commissioner’) applies for leave to appeal to the Court of Final Appeal against our judgment dated 11 September 2014. The Commissioner relies on the ‘great general or public importance’ ground and also on the ‘or otherwise’ ground.

2.  The three questions framed for the great general or public importance ground are as follows :

1) Does any ‘enhancement for realisation principle’ arise from the line of authorities cited in paragraph 9 of the judgment, and if so, what is its scope?  (See: paragraphs 9, 10 and 12.6 of the judgment)

2) In determining whether a taxpayer has changed his intention regarding an asset from holding it for investment to holding it for trading, is the Board of Review required to refer to and apply the ‘enhancement for realisation principle’ (as understood by the Court of Appeal or otherwise), and if the Board fails to do so, does this justify the appellate court’s interference with the Board’s finding of fact?  (See: paragraphs 10, 12.2 to 12.19 of the judgment)

3) IDoes a finding of fact on change of intention based solely on ‘enhancement activities’ necessarily amount to an error of law made by the Board of Review?  (See: paragraph 10.7 of the judgment)

3.  The Commissioner’s underlying theme is that this Court has treated the ‘enhancement for realisation principle’ as if it is a principle of law and this will have wide-reaching ramifications on the assessment of profits tax in Hong Kong.  It is said that this Court has imposed a restraint on the way in which the Board conducts its fact-finding function regarding changes of intention from investment to trading.  This is plainly a wrong reading of our judgment.  The reference to the enhancement for realisation principle is obviously a compendious description of the relevant authorities in this area.  The Commissioner has focused rather selectively on the use of the phrases ‘error of law’ or ‘principles of law’ in our judgment without considering the contextual discussion we had conducted both in terms of the authorities and the factual background.  It is not appropriate and not necessary for this Court to go into details in a leave application.  In our view the point is not reasonably arguable.

4.  As to the ‘or otherwise’ ground, the Commissioner relies on evidence that was before the Board of Review but not included in the appeal bundle.  This Court could only deal with the appeal based on the materials before us and we are certainly not prepared to grant leave on this ground based on materials that were not even canvassed in arguments on appeal.

5.  Accordingly the application is refused with costs to the appellants.  There will be certificate for two counsel.