THE COMMISSIONER OF INLAND REVENUE v. DRACO HUMAN RESOURCES MANAGEMENT LTD

DCTC 192/2025

[2025] HKDC 2120

IN THE DISTRICT COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

TAX CLAIM NO. 192 OF 2025

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DECISION

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1.  On 29 August 2025, the Commissioner of Inland Revenue (“The Commissioner”) in this tax recovery action obtained before Registrar Soong an order giving summary judgment under Order 14 of the Rules of the District Court against the Defendant (“D”) in the sum of HK$1,148,093.53 with interest and costs of this action summarily assessed at HK$4,917.

2.  Of present concern is the pre-judgment interest there awarded at best lending rate plus 1% from the date of the writ (13 March 2025) to the date of judgment.

3.  By Notice of Appeal dated 11 September 2025, the Commissioner appeals against only such part of the Order of the Registrar in respect of the award of the said pre-judgment interest and asks that such interest be awarded at the interest rate on judgment debt[1] for the same period.

4.  Mr Chan Wai Lung, who has complied with O. 5A, r. 2 of the Rules of the District Court to act as the representative of D, did not appear, but one Mr Leung Wah did, who informed the Court that D did not seriously dispute the interest rate. As O. 5A, r. 2 has not been complied with in respect of Mr Leung acting as D’s representative, I treated D as being absent and was satisfied that the hearing should proceed in D’s absence.

5.  The relevant background can be briefly summarized as follows. D defaulted in submitting its tax return for 2021/2022. On 12 January 2023, the Commissioner issued an Estimated Assessment Demanding Final Tax for 2021/22 and Notice for Payment of Provisional Tax for 2022/23 demanding payment of tax in the total sum of HK$1,019,846. As the tax sum remained overdue, the Commissioner imposed the respective surcharge under section 71(5) and then section 71(5A) of the Inland Revenue Ordinance Cap 112 (“the IRO”) and the total tax sum due became HK$1,148,093.53. On 13 March 2025, the Commissioner commenced this action. On 10 June 2025, the Commissioner took out a summons for summary judgment, pursuant to which the order under appeal was made.

6.  As this is an appeal from a Master to a Judge, and as is trite, it would be conducted by way of a re-hearing as if the matter were first heard before me.

7.  The present pre-judgment interest is awarded pursuant to section 49 of the District Court Ordinance. It is trite that the award of interest thereunder is a discretionary award.

8.  Ms Chan, appearing for the Commissioner, informed that pre-judgment interest at judgment rate has been consistently awarded in tax claims. By way of example, she referred to 2 cases - Commissioner of Inland Revenue v Nam Tai Trading Co Ltd (DCTC 4250/2008, [2010] 3 HKC 1) and Commissioner of Inland Revenue v Energy World (H.K.) Limited (DCTC 139/2017, unrep., 30 November 2017, HHJ KW Wong) - in both of which pre-judgment interest at the judgment rate was awarded after the Court struck out the Defence and entered judgment for the Commissioner.

9.  She cited Commissioner of Inland Revenue v Chan Chun Chuen and Another (DCTC 2290/2010, unrep., 15 April 2013, Chief District Judge S.T. Poon (as he then was)) in which the rate for pre-judgment interest was contested and then awarded at the judgment rate.

10.  I pause to note that Ms Chan confirmed that none of these 3 cases, or any authority on this point concerning interest, had been cited to the Registrar at the hearing before her.

11.  In Chan Chun Chuen, the Commissioner sought summary judgment for a total unpaid tax sum of HK$340,852,444.60 and pre-judgment interest at the judgment rate. There, CDJ S.T. Poon was referred by senior counsel acting for the Commissioner to the statutory scheme for the payment of tax under section 71 of the IRO.

12.  The relevant sub-sections in section 71 are :

“71. Provisions regarding payment of tax

(1) Tax charged under the provisions of this Ordinance shall be paid in the manner directed in the notice of assessment on or before a date specified in such notice. Any tax not so paid shall be deemed to be in default, and the person by whom such tax is payable, or where any tax is payable by more than one person or by a partnership then each of such persons or each partner in the partnership, shall be deemed to be a defaulter for the purposes of this Ordinance. (Replaced 49 of 1956 s. 53)

(2) 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: (Amended 7 of 1985 s. 2)

Provided that where the Commissioner so orders he may do so conditionally upon the person who or on whose behalf the objection or appeal is made providing security for the payment of the amount of tax or any part thereof the payment of which is held over either—

(a) by purchasing a certificate issued under the Tax Reserve Certificates Ordinance (Cap. 289); or

(b) by furnishing a banker’s undertaking,

as the Commissioner may require. (Added 7 of 1985 s. 2)

…

(9) Where the Commissioner exercises his powers under the proviso to subsection (2) and a person is required to furnish a banker’s undertaking under paragraph (b) of that proviso, the undertaking shall—

…

(e) be expressed to be an undertaking to pay—

(i) an amount equal to the tax or any part thereof the payment of which is held over; and

(ii) interest on that amount, from the date for the payment of the tax specified in the notice of assessment to the date of withdrawal or final determination of the objection or appeal, at the rate specified in subsection (11); and

(f) provide for payment to the Commissioner upon written notification to the bank by the Commissioner that the objection or appeal has been withdrawn or finally determined and that the amount, and interest, stated by him is now due,

and if such person fails to supply such an undertaking in such manner the provisions of subsection (2) shall apply as they would if there had been no order. (Added 7 of 1985 s. 2)

(10) Where the Commissioner makes an order under subsection (2) but does not exercise his powers under the proviso thereto, interest shall be payable on so much of the amount of the tax or any part thereof the payment of which is held over as becomes payable or is found to become payable upon the withdrawal or final determination of the objection or appeal, from the date for the payment of the tax specified in the notice of assessment or the date of the order, whichever is the later, to the date of withdrawal or final determination of the objection or appeal, at the rate specified in subsection (11). (Added 7 of 1985 s. 2)

(11) The rate of interest specified for the purposes of subsections (9)(e)(ii) and (10) shall be the rate determined by the Chief Justice by order under section 50(1)(b) of the District Court Ordinance (Cap. 336). (Added 7 of 1985 s. 2. Amended 4 of 2010 s. 12)

  (my added emphasis)

13.  Therefore, the statutory scheme on the payment of tax as stipulated under section 71 is that the assessed amount of tax is payable within the time specified in the notice of assessment, and tax not so paid shall be deemed to be in default, and so payable regardless of any objection or appeal against the assessment, unless its payment is ordered by the Commissioner to be held over pending the result of such objection or appeal. If there is such hold-over ordered by the Commissioner, save in the scenario where the Commissioner imposes the purchase of a tax certificate as a condition and the tax certificate is so purchased, in all other scenarios for the hold-over, the tax-payer is required to pay interest on any sum of tax found payable after the disposal of the objection or appeal from the date of the payment specified in the notice of assessment or from the date of the Commissioner’s order for hold-over, whichever is the later.

14.  Of particular note is that the rate of interest so required to be paid is specifically fixed by section 71(11) of the IRO to be the judgment rate.

15.  That being the statutory scheme for the payment of tax under the IRO, CDJ S.T. Poon in Chan Chun Chuen (in §§34 and 35) reasoned that it would be absurd that if pre-judgment interest at a rate lower than judgment rate is awarded by the Court in a tax claim, (a) an objecting or appealing tax-payer who has applied for and obtained a hold-over from the Commissioner would be worse off than one who has not applied for a hold-over, in that he has to pay interest at judgment rate while the other pays interest at a lower rate awarded by the Court, and (b) a tax-payer who simply refuses to pay the tax, just sits there and waits to be sued by the Commissioner, would also only need to pay interest at a lower rate awarded by the Court.

16.  I respectfully agree with the learned judge’s reasons and also agree with his view (§§36 and 37) that if pre-judgment interest at a rate lower than the judgment rate is awarded by the Court in tax claims as a norm, it might jeopardize the existing statutory scheme for the payment of tax, that therefore the Court should be slow to adopt such a lower rate, which should only be considered where there are exceptional circumstances justifying such a lower rate as appropriate. I would respectfully adopt that as the appropriate approach in deciding the pre-judgment interest rate in tax claims.

17.  In the present case, the matters put forth in D’s Defence filed in person were that the audited accounts could not be prepared in time and that the amount of profit estimated by the Commissioner did not take into account the actual performance drop caused by the Covid pandemic. However and evidently, D could have lodged an objection under section 64 of the IRO to ventilate the concerns it now puts forth, but it had not done so. In my view, the matters put forth hardly amount to circumstances justifying the adoption of a rate lower than the judgment rate.

18.  In the premises, I allow the appeal, set aside only such part of the said Order on the award of pre-judgment interest and order instead that pre-judgment interest be awarded to the Commissioner in terms as sought in paragraph 2 of the Notice of Appeal. For the avoidance of doubt, the remaining part of the Registrar’s Order is not disturbed.

19.  On costs of this appeal, it seems to me that the just costs order is no order. Had these authorities been cited to the Registrar, in all likelihood the learned Registrar would have awarded the judgment rate as then asked by the Commissioner. This appeal thus was brought to correct that over-sight; and D did not really resist this appeal and did not appear. Having heard Ms Chan who did not disagree, I make no order as to the costs of this appeal.

20.  I thank Ms Chan for her assistance to the Court.