SUEN HUNG SHAN v. COMMISSIONER OF INLAND REVENUE

HCIA 3/2017

[2020] HKCFI 418

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

INLAND REVENUE APPEAL NO 3 OF 2017

(ON APPLICATION FOR LEAVE TO APPEAL AGAINST THE DECISION OF THE BOARD OF REVIEW (REVENUE)

IN B/R 32/16 (D10/17))

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BETWEEN

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D E C I S I O N

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1.  Mr Suen Hung Shan is a taxpayer who had objected to the personal assessment for the year of assessment 2009/10 raised on him and eventually unsuccessfully appealed to the Board of Review (“Board”), as the Board found that his appeal was out of time and refused to extend time.  He has filed a summons in this court under s 69 of the Inland Revenue Ordinance (Cap 112) (“Ordinance”) to apply for leave to appeal against the Board’s decision.  The respondent (“Commissioner”) has applied to strike out his application on the ground that it discloses no reasonable cause of action.  The issue raised is whether an appeal under s 69 lies against the Board’s decision.

2.  As the point is a narrow one, it is unnecessary to rehearse all the background facts.  Suffice it to say that the underlying dispute concerns whether certain expenses said to have been incurred by the taxpayer in his sole proprietorship business were properly deductible in the personal assessment.  The Board heard the parties on 20 June 2017 and gave its decision in writing on 11 September 2017.  It can be seen from the Board’s decision that while it expressed its views on the merits of the underlying dispute, it disposed of the appeal on the basis that it was out of time and could not be entertained. 

3.  The Board stated that the preliminary issue for the appeal is whether the taxpayer’s appeal “could be entertained” and that this depended on whether the statutory time period for lodging an appeal had either been observed or should be extended.[1]

4.  The Board then found as facts the following procedural events:

(1) The Deputy Commissioner’s Determination dated 30 April 2015 was sent by registered post under cover of a letter (“Letter”) of the same date from the Deputy Commissioner to the taxpayer’s address on record which was an address in Macau.  The mail was, however, returned to the sender on 15 June 2015.

(2) The Letter, together with the Determination, was “redirected” (meaning “re-sent”) to the taxpayer at the same Macau address by ordinary post on 30 June 2015.  This time it was not returned.

(3) By a fax dated 28 December 2016, the taxpayer informed the Inland Revenue Department of his change of mailing address to an address in Shatin, Hong Kong, and asked the Inland Revenue Department to “send tax demands of 2011/12 & 2012 together with 2009/2010 director’s decisions and any letters from May 2015 onwards” to that address.

(4) The Letter, together with the Determination, was re-sent again to the taxpayer at his Shatin address by ordinary post on 24 January 2017.

(5) The taxpayer filed his notice of appeal on 22 February 2017.

5.  The statutory provisions concerning the lodging of an appeal against a determination of the Commissioner include the following.  Section 64(4) of the Ordinance provides that:

“ the Commissioner shall, within 1 month after his determination of the objection, transmit in writing to the person objecting to the assessment his determination together with the reasons therefor and a statement of the facts upon which the determination was arrived at, and such person may appeal therefrom to the Board of Review as provided in section 66.”

6.  Under s 66 of the Ordinance, a taxpayer may give notice of appeal to the Board against a determination:

“ within –

(a) 1 month after the transmission to him under section 64(4) of the Commissioner’s written determination together with the reasons therefor in the statement of facts; or

(b) such further period as the Board of Review may allow under subsection (1A)”.

7.  Section 66(1A) provides that the Board may extend the time for giving notice of appeal for such period as it thinks fit if it is satisfied that an appellant “was prevented by illness or absence from Hong Kong or other reasonable cause from giving notice of appeal in accordance with subsection (1)(a)”.

8.  In relation to the taxpayer’s appeal, in the end, the Board concluded that the appeal was lodged late and that no extension for such a long period (ie up to 22 February 2017) could properly be granted as to save the taxpayer’s appeal.[2] They went on to set out their analysis of the substantive issue in the case and concluded in favour of the Commissioner with the result that the assessment would be confirmed “even if [the Board] extended the time for lodging the appeal”.[3]

9.  On this application Mr Shum, who appeared for the Commissioner, took a short point based on ss 66, 68 and 69 of the Ordinance.  The skeleton argument which was signed by another Government Counsel contained additional submissions on the merits (or the lack thereof) of the taxpayer’s proposed appeal which were not relied upon and not traversed at the hearing.  Mr Shum’s submission in essence is that the Board held that the taxpayer’s appeal could not be entertained because it was out of time, which was a conclusion the Board came to under s 66.  There was no “decision on an appeal under section 68” within the meaning of s 69(1) from which an appeal may, with leave, lie to the Court of First Instance.  The correct way — indeed the only correct way — of challenging the Board’s decision is by an application for judicial review. Accordingly, the taxpayer’s application for leave to appeal under s 69 must be struck out.

10.  This question has not been considered under the new regime of appeal with leave on a question of law.  Analogous issues have, however, arisen before in relation to the previous system of appeal by way of case stated.  In Chow Kwong Fai v Inland Revenue Board of Review [2004] 2 HKLRD 963, the taxpayer filed a notice of appeal with the Board late, and the Board refused to exercise its discretion to grant an extension of time under s 66(1A).  To challenge that decision, the taxpayer sought to have the Board’s decision referred to the Court of First Instance by way of case stated pursuant to the then s 69 of the Ordinance.  The Board declined to state a case, holding that all the questions the taxpayer put forward were not proper questions of law on which to state a case.  The taxpayer thereupon applied for judicial review to challenge the Board’s refusal to state a case.  In the course of his judgment, Hartmann J (as he then was) observed:

“ 15. During the course of the hearing, I asked [the taxpayer’s counsel] whether, on the basis that the issue in contention was the reasonableness (in the public law sense) of the Board’s refusal to allow the applicant to appeal to it out of time, it would not have been more appropriate to come direct to this court to seek a judicial review of that challenge rather than to seek to proceed, in respect of the identical issue, in terms of s. 69 by way of case stated. In the present instance, with the Board being of the view that there was no question of law to be stated, there has been an unfortunate expansion of proceedings. I say that because this judicial review, which could dispose of the real issue in question, will do no more than determine whether that issue should come back to this court at a later date for determination in another form; namely, as a case stated.

16.       In my view, common sense and economic prudence dictate that a direct challenge by way of an application for judicial review is more appropriate when the lawfulness of a decision of the Board is challenged on classic judicial review grounds, for example, on the basis that it is Wednesbury unreasonable, rather than on the basis that the Board has, for example, wrongly directed itself in respect of a discrete point of law.”

11.  Nevertheless, his Lordship went on to refer to certain authorities in which questions of law relating to procedural issues were dealt with in an appeal from the Board by way of case stated, and in the result granted the application,[4] observing at para 18:

“ It is apparent … that, in respect of classic judicial review matters such as procedural fairness and rationality, it is best to proceed by way of judicial review but that, if the same issues are taken forward by way of case stated, while not correct, it may still be procedurally acceptable. In future, of course, with the increasing need for the courts to ensure the most economic expedition of matters before it, the more liberal approach of the past may not be condoned, especially when, as in the present case, it adds to the risk of a multiplication of proceedings.”

12.  This authority shows that judicial review could be an appropriate route — and indeed might well be the more suitable route where the grounds were classic judicial review considerations — for challenging a decision by the Board not to extend time under s 66.[5]  It does not, of course, deal with whether such a decision may also be challenged by way of an appeal on a question of law under the new s 69.  To resolve that question one has to turn to the legislation.

13.  Section 69(1) provides:

“ Where the Board of Review has made a decision on an appeal under section 68, the appellant or the Commissioner may appeal to the Court of First Instance against the Board’s decision on a ground involving only a question of law.”

14.  The wording makes it quite plain that an appeal lies where the Board “has made a decision on an appeal under section 68”.  An appeal from the Board to the Court of First Instance is a statutory creature. The Court of First Instance has no general inherent jurisdiction to hear appeals from the Board.  It follows that unless a decision of the Board falls within a decision on an appeal under s 68, the court has no jurisdiction to give leave for an appeal or to hear the appeal.

15.  Section 68 provides as follows:

“68. Hearing and disposal of appeals to the Board of Review

(1) Except where—

(a) a notification of consent in respect of the transfer of any appeal under section 67 is received by the Board of Review within the time allowed in that behalf by that section; or

(b) the Board endorses under subsection (1B)(b) a settlement reached in respect of the relevant appeal,

every appeal under section 66 shall be heard by the Board in accordance with this section and the clerk to the Board shall, as soon as may be after the receipt of the notice of appeal, fix a time and place for the hearing of the appeal, and shall give 14 days’ notice thereof to the appellant and the Commissioner:

Provided that the time so fixed for the hearing of the appeal shall not be earlier than—

(a) in the case of an appeal in respect of which neither party to the appeal gives notice under section 67(1), the expiration of the time allowed by that section for giving such notice; or

(b) in the case of an appeal in respect of which notice under section 67(1) is given—

(i) by the appellant; or

(ii) by the Commissioner but not by the appellant,

the expiration of a period of 21 days after the date on which such notice is given.

…

(2) Subject to subsection (2B), an appellant shall attend at the meeting of the Board at which the appeal is heard in person or by an authorized representative.

(2A) (Repealed 63 of 1997 s. 6)

(2B) If, on the date fixed for the hearing of an appeal, the appellant fails to attend at the meeting of the Board either in person or by his authorized representative the Board may—

(a) if satisfied that the appellant’s failure to attend was due to sickness or other reasonable cause, postpone or adjourn the hearing for such period as it thinks fit;

(b) proceed to hear the appeal under subsection (2D); or

(c) dismiss the appeal.

…

(3) The assessor who made the assessment appealed against or some other person authorized by the Commissioner shall attend such meeting of the Board in support of the assessment.

(4) The onus of proving that the assessment appealed against is excessive or incorrect shall be on the appellant.

(5) All appeals shall be heard in camera, but any appeal may be reported in such publications as may be approved by the Secretary for Justice in such a manner that the identity of the appellant is not disclosed.

(6) The Board shall have power to summon to attend at the hearing any person whom it may consider able to give evidence respecting the appeal and may examine him as a witness either on oath or otherwise. Any person so attending may be allowed by the Board any reasonable expenses necessarily incurred by him in so attending.

(7) At the hearing of the appeal the Board may, subject to the provisions of section 66(3), admit or reject any evidence adduced, whether oral or documentary, and the provisions of the Evidence Ordinance (Cap. 8), relating to the admissibility of evidence shall not apply.

(8) (a) After hearing the appeal, the Board shall confirm, reduce, increase or annul the assessment appealed against or may remit the case to the Commissioner with the opinion of the Board thereon.

…

(9) Where under subsection (8), the Board does not reduce or annul such assessment, the Board may order the appellant to pay as costs of the Board a sum not exceeding the amount specified in Part 1 of Schedule 5, which shall be added to the tax charged and recovered therewith.

…

(11) Subject to section 69, the Board’s decision on the appeal is final.”

16.  The Commissioner’s argument essentially runs as follows.  A “decision on an appeal under section 68” does not necessarily mean any outcome based on any decision of the Board after a notice of appeal has been given by a taxpayer.  Section 66(1) provides that notice of appeal may be given within 1 month or such further period as the Board may allow under s 66(1A).  A notice of appeal given out of time without an extension will simply not be “entertained”.  The determination of whether a notice of appeal has been given within time or whether time should be extended is a decision of the Board under s 66, not a decision on an appeal under s 68. In contrast, s 68 envisages a hearing of the appeal itself, at the end of which the Board takes one of several courses for the disposal of the appeal: ie confirm, reduce, increase or annul the assessment or remit the case to the Commissioner (s 68(8)(a)).  Where the Board rejects an appeal as being out of time, it does not confirm the assessment, but simply refuses to entertain the appeal under s 66(1).

17.  The Commissioner has also referred to the Board’s decision in D13/16, where it was held that the notice of appeal was given out of time and the taxpayer failed to establish any ground for an extension of time, as a result of which the Board decided not to entertain the appeal.[6] A subsequent application by the taxpayer for leave to apply for judicial review of the Board’s decision was dismissed by the Court of First Instance.[7]

18.  I confess that there is some logic in the Commissioner’s argument, which appeared initially attractive to me.  There are, however, two important considerations that militate against this construction.  First, this would easily lead to a multiplicity of proceedings.  Where an appeal is lodged by a taxpayer with the Board apparently beyond the 1-month period, it is in practice treated as a late appeal but nevertheless scheduled for hearing by the Board and an application for extension of time under s 66(1A) will be considered by the Board at the hearing.[8] The taxpayer may of course contend that the appeal is not in fact late, in addition to seeking an extension of time if it is.  The Board may, as it did in the present case, proceed to hear the argument whether the appeal is late and the application for extension of time and the appeal itself, and render a decision on both matters subsequently.  If the Board holds against the taxpayer on both questions, the Commissioner’s construction would mean that, in order to challenge the decision, the taxpayer will have to launch both an application for leave to apply for judicial review of the Board’s ruling that the appeal is out of time and its refusal to extend time, and a separate application for leave to appeal against the Board’s decision on the merits.  The same multiplicity would obtain if the Board rules in favour of the taxpayer and the Commissioner wishes to challenge both the Board’s decision that the appeal has been brought within time or its decision to extend time and the Board’s decision on the merits.  Similarly, if the Board rules on the question of time in favour of one party but on the merits in favour of the other, cross-applications for leave to apply for judicial review and for leave to appeal on questions of law may well result on the Commissioner’s construction of the statute.

19.  Such proliferation of proceedings was the principal reason that, under the old procedure, the courts allowed challenges based on judicial review considerations to be made through an appeal by way of a case stated.  As Huggins VP said in Chinachem Investment Co Ltd v Commissioner of Inland Revenue (1989) 1 HKTC 110 (quoted by Hartmann J in Chow Kwong Fai at para 17):

“ All too often the case stated process is adopted in an attempt to raise as an issue of law what is, in truth, an issue of fact. Some of the questions posed for the consideration of the High Court show this to have been such a case. It is one thing to allege that a tribunal has found a fact which was unsupported by any evidence: that raises an issue of law. It is quite another thing to allege that a tribunal of fact has disregarded evidence or that the evidence did not substantiate a finding.

There is another aspect of the matter which calls for a mention. It was argued that some of the matters raised before the High Court were such that they should have been made the subject of an application for judicial review and not an appeal by way of a case stated. Whilst there may be some logic in the argument, I am satisfied that convenience and avoidance of a multiplicity of proceedings may justify the taking by way of a case stated of some points for which the process was not designed. Thus, it is contended here that the Chairman of the Board of Review entered into the arena so as to flagrantly breach the rules of natural justice.” (emphasis added)

20.  As Hartmann J said in Chow Kwong Fai at para 18, there is an increasing need for the court to ensure the most economic expedition of matters before it.  The kind of multiplication of proceedings that the Commissioner’s construction would engender is, to my mind, a powerful reason to avoid that construction if it is avoidable.

21.  The second consideration is that, as shown in the cases such as Chow Kwong Fai, an appeal by way of case stated was, at least in appropriate circumstances, a permissible procedure for challenging a refusal of extension of time.  The object of the legislative amendment that replaced case-stated appeals with appeals with leave on questions of law was, as stated in the Explanatory Memorandum in the Inland Revenue (Amendment) (No. 3) Bill 2015, as follows:

“ to abolish the requirement to state a case for the opinion of the Court, and enable the appellant and the Commissioner to appeal directly to the Court (or, if applicable, the Court of Appeal) against the Board’s decision on a question of law.”

Legislative materials show that it was considered that the process of producing a case stated could be time-consuming and expensive, leading to delay in lodging an appeal to the court and adversely affecting the Board’s capacity and efficiency in handling other appeals.  The new regime was introduced to abolish the case stated procedure and to enable the parties to apply to the court direct for leave to appeal against the Board’s decision on a question of law.[9] The purpose of the legislation does not suggest that there was any intention to prevent the Board’s decisions on whether an appeal was within time and decisions on extension of time from being challenged by way of appeal rather than application for judicial review.  There was nothing that indicated any intention to outlaw the procedure permitted in Chow Kwong Fai, which would usefully and economically allow a decision on time to be challenged in a single appeal together with the decision on the merits.

22.  Admittedly, the old s 69 read quite differently from the new provision, as follows:

“ (1) The decision of the Board shall be final:

Provided that either the appellant or the Commissioner may make an application requiring the Board to state a case on a question of law for the opinion of the Court of First Instance.  Such application shall not be entertained unless it is made in writing and delivered to the clerk to the Board, together with a fee of the amount specified in Part 2 of Schedule 5, within 1 month of the date of the Board’s decision.  …”

Specifically, there was no reference there to “a decision on an appeal under section 68”.  Does the presence of these words in the new s 69 change the law in the way the respondent contends?

23.  The statute has to be construed using a purposive approach.  The words of the statute must be construed in the light of their purpose and context.  This does not, however, allow the court to attribute to the statutory provision a meaning which the language of the statute, understood in the light of its context and the statutory purpose, is incapable of bearing.[10]

24.  Without distorting or ignoring the plain meaning of the text, in my view the decision of the Board in the present case was “a decision on an appeal under section 68”.  The Board heard the appeal (including the question whether the notice of appeal was given out of time and whether an extension of time should be granted) pursuant to s 68(1), the clerk to the Board having fixed a time and place for the hearing as provided in that subsection.  The provisions in subsection (5) regarding hearing in camera, in subsection (6) regarding the power to summon and examine witnesses, and in subsection (7) regarding the admission or rejection of evidence, seem to me to have application to all questions at such a hearing.  It would be most strange if it were otherwise, so that these provisions only applied to the appeal on the merits but not to the Board’s determination on whether the appeal has been brought in time and whether time should be extended.  In a case such as the present, it seems to me that even though the Board may be dealing also with whether an appeal has been lodged in time or whether time should be extended under s 66(1A), the Board is nevertheless “hearing an appeal”, so that the new s 68AA,[11] which empowers the chairman, at the hearing of an appeal under s 66, to give directions on the provision of documents and information, applies to the hearing in full.  It would be most anomalous if it were to apply only to part of the hearing but not to the part that deals with time.

25.  It may be correct to say that in this case the Board did not in fact confirm the assessment appealed against pursuant to s 68(8)(a), because it came to the conclusion that the appeal was out of time and that no extension of time should be granted.  But it seems to me implicit in the statute that in a case such as the present, having heard an appeal in the way provided for in s 68, it would be open to the Board to reject the appeal on the ground that it was out of time.  That seems to me to be no less “a decision on an appeal under section 68” than a decision under s 68(8)(a) confirming, reducing, increasing or annulling the assessment appealed against.  Section 69(1) does not confine an appeal to a decision of the Board under s 68(8)(a).  Furthermore, the Board in this case actually made an order of costs against the taxpayer pursuant to s 68(9). Plainly, as it seems to me, this is a decision on an appeal under s 68. 

26.  For all these reasons, I reject the Commissioner’s contention.  The summons to strike out must therefore be dismissed, with a costs order nisi in favour of the taxpayer.  It will be for the taxpayer to consider whether he wishes his application for leave to appeal under s 69 to be further proceeded with, having had sight of the other arguments already flagged in the respondent’s skeleton argument and having regard to the relatively small amount at stake compared to the costs that may need to be incurred.  If he does, the respondent may file a statement as to why leave should not be granted, and the application will be dealt with in accordance with the procedures laid down in s 69.