HKSAR v. YICK KA LEI

HCMA392/2006

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

(Appellate Jurisdiction)

MAGISTRACY APPEAL NO. 392 OF 2006

(ON APPEAL FROM ESS 4161 TO ESS 4164 OF 2006)

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J U D G M E N T

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1. The appellant was convicted on his own plea of three charges (Charges 1 to 3) of ‘omitting from a tax return a sum with wilful intent’, contrary to section 82(1)(a) of the Inland Revenue Ordinance, Cap.12 and one charge (Charge 4) of ‘making a false statement with wilful intent’ contrary to section 82(1)(c) of the same.  He was sentenced to two month’s imprisonment, a fine of $5,000 and a further fine of $20,000 for each of the first three charges, the prison terms concurrent, and a fine of $5,000 and a further fine of $100,000 for the last charge.  He appeals against his sentence.

The facts

2. The appellant, in his 30’s and a senior director with Philips Electronics, was the sole owner of a property at Chico Terrace.  He failed to disclose the rental income he derived from that property in three tax returns 1997/98, 1998/99 and 1999/2000.  They come to $94,250, $161,733 and $130,500 with tax undercharged at $5,767, $9,973 and $5,209 respectively.  That constitutes Charges 1 to 3.

3. For Charge 4, I can do no better than quote the brief facts submitted for the appellant’s plea and sentence (parts that are relevant) :

“9.   Any tax-payer is entitled to claim for trading loss as a set off against other chargeable income ….  For the purpose of taxation, only loss regarding a trading stock is allowed to be treated as a trading loss.  Loss sustained in relation to a capital asset is not trading loss and is not deductible.  The loss resulting from the sale of a property could be claimed as a trading loss if the property is trading stock.  Whether the property was ‘left vacant’ or ‘let’ is one of the important factors considered by the IRD in determining the nature of use of the property and whether to allow a deduction as trading loss.

10.  In the Tax Return-Individuals for the year 2000/02 submitted on 5 June 2001 and a letter of the same date, the Defendant claimed a trading loss arising from the sale of the Chico Terrace …

…

12.  In processing his claim for deduction, IRD in a letter dated 23 July 2001 asked the Defendant to state, inter alia, whether the said property was used for letting or left vacant during the period of his ownership.  In his subsequent letter dated 5 August 2001 to the IRD, he claimed that, inter alia, he had purchased the said property with the sole purpose of trade in 1997 and it was left vacant for the viewing by any potential purchasers since then.

13.  Through his tax representative, the Defendant maintained his claim of trading loss in the sum of $1,104,983 … resulting from the sale of Chico Terrace be set off against his total taxable income under Personal Assessment for the year 2000/01.  He also maintained that Chico Terrace was left vacant during the period of the Defendant’s ownership.  When the IRD made further enquiry, the said tax representative retracted the position that the property was left vacant and replied the IRD that it was rented to independent third parties.

14.  Had the IRD been misled into believing that the said property was left vacant …, the Commissioner of Inland Revenue might have accepted that Chico Terrace was trading in nature and was not capital asset.  The $1,104,983 might also have been accepted as a trading loss to set off the other taxable income of the Defendant … Tax in the sum of $109,140 might be evaded …”

The magistrate’s reasons

4. This is what the magistrate said in his written reasons :

“The Defendant admitted 4 offences of tax evasion over a period of years.  He had omitted to include rental income derived over 3 years from a property owned by him and made a false statement regarding the loss arising from the sale of that property.

The misstatements were deliberate and were not made negligently by the Defendant or through inadvertence.

I was provided with a schedule of the penalties imposed in similar cases in recent years and sentencing authorities were cited.

I took the view that an immediate custodial sentence was appropriate given the nature of the offences and the timescale involved.  I did not call for a pre-sentencing report since I did not consider that Probation or Community Service would be an appropriate penalty.

…

I ordered the [prison] sentences to run concurrently and found that there were no exceptional circumstances relating to the Defendant or the offences to warrant a suspended sentence.”

This appeal

5. Counsel has filed four grounds.  They are as follows :

“(1) In not suspending the term of imprisonment, the magistrate had not considered and/or considered adequately:–

(a) the offences were committed without any planning in advance.

(b) the undue delay in bringing prosecution against the appellant after his full admission of guilt.

(c) the prompt offer made by the appellant to pay penalty which the Commissioner of Inland Revenue deems fit to impose.

(2) The magistrate erred in not considering community service order despite suitability of the appellant.

(3) In determining the quantum of the penalty imposed in addition to fine the magistrate had acted in excess of his jurisdiction.

(4) In the circumstances of the case, the sentences imposed are manifestly excessive.”

Analysis

6. I do not accept that Charges 1 to 3 were committed without planning : Ground 1(a).  They show a pattern of negative deception in not reporting positive rental income.  The appellant could have desisted in the second and third years.  There is nothing unusual about not letting out a property in one year and letting it out in the following year or years.  It is most unlikely that an IRD investigation would have been prompted.  The same cannot be said of Charge 4 but then Charge 4 is met by nothing but monetary fines.

7. I do not see how what is said in Ground 1(c) could help the appellant either.  In tax cases, restitution and/or prompt payment of penalties are but a factor that the court should consider when assessing the quantum of a prison sentence : AG v. Ma Lai Wu & Others [1987] HKLR 744.  There is an established sentencing principle that an immediate sentence of imprisonment will normally be passed on a tax evader : HKSAR v. Pak Wan Kam [2002] 2 HKLRD 224.

8. Moreover, one should only impose a community service order where there is no established sentencing principle that the offender’s crime requires a more severe punishment : HKSAR v.Wong Yiu Kin [2002] 1 HKLRD 712.  Ground 2, therefore, also has no merit.

9. What remains is Ground 1(b) on delay.

10. The appellant first owed up to the IRD in August 2002, through his tax representative.  On 7 May 2003, he admitted everything under caution.  The consent to prosecute him for the index offences did not, however, get to be signed until 10 February 2006.  This gap of 3½ years is explained to be partly due to an investigation concerning another property of the appellant.  The rest just had to do with the present matter like interviewing his tenants from Chico Terrace.  The average time for IRD to bring a matter to prosecution is, I am told, one to four years.

11. In my judgment, whether the time taken to prosecute this matter amounts to an inordinate delay, tremendous effort must have been made by the appellant to return to as normal a life as possible since August 2002.  This in itself is a kind of rehabilitation to which emphasis should be given in modern times sentencing.  The same sentiment can be found in the judgment of Power VP (as he then was) in Secretary for Justice v. Hui Siu Man [1999] 2 HKLRD 236, AR 10/1998.  That being the case, I will suspend the appellant’s terms of imprisonment.

12. Turning finally to Ground 3, the real complaint here is that the “further fines” in Charge 1 and Charge 3 are ultra vires.  This is so because section 82 of the Inland Revenue Ordinance provides that no further fine should exceed the tax undercharged or could have been undercharged by 300%.

13. With no alternative but to concede, the respondent nevertheless argues that the total amount of fine and further fine now imposed ($160,000) is appropriate to the total amount of tax undercharged or could have been undercharged ($130,089).

14. Having looked at a schedule of past cases, I am satisfied that the respondent is right, and that the total fine in this case ($160,000), whether or not to be accompanied by a term of imprisonment (suspended or otherwise), is not manifestly excessive : Ground 4.  In order to meet the requirement of section 82 of the Ordinance, however, I will order the further fine in all Charges 1 to 3 to be set at 200%, and in Charge 4 108.2%, thus maintaining the total fine of $160,000.

Judgment

15. The appeal is allowed.

16. The two-month terms for Charges 1 to 3, concurrent, are suspended for two years.  The further fine in Charge 1 is adjusted to $11,534; in Charge 2, $19,946; in Charge 3, $10,418; and in Charge 4, $118,102.  The rest remains unchanged.