THE COMMISSIONER OF INLAND REVENUE v. GIANT ELECTRONICS LTD

DCTC 3474/2011

IN THE DISTRICT COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

TAX CLAIM NO. 3474 OF 2011

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BETWEEN

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DECISION

1.  This is an application by the Plaintiff, Commissioner of Inland Revenue (“Commissioner”) under Order 18 rule 19 of the Rules of the District Court to strike out the defence filed by the Defendant, Giant Electronics Limited (“Giant”) on the basis that it discloses no reasonable defence and asks for judgment to be entered.

2.  Giant is absent in today’s hearing, despite I was informed that it has actually sent an office staff to sit at the public gallery to observe the proceedings.  

3.  The Commissioner, by its writ of summons, claims against Giant for $6,411,142 being tax due and payable by Giant under section 75 of the Inland Revenue Ordinance (“Ordinance”).

4.  Giant files a defence and pleads that it should be entitled to claim depreciation allowance or deduction under section 16G of the Ordinance in respect of certain manufacturing moulds, plants and machineries (“P & M”) used outside Hong Kong by its fellow subsidiary company in the Mainland China known as Giant Technology (Shenzhen) Limited (“Giant Shenzhan”). Giant alleges that it has entered into various processing agreements with Giant Shenzhen under which the latter purchased raw materials from the former and other unrelated suppliers and then sold the finished products back to the former.  Besides, Giant provides the P & M acquired and owned by it to Giant Shenzhen for production purpose on a rent free basis.

5.  Since the Commissioner refused to grant the claimed depreciation allowance or deduction and demanded payment of the outstanding tax as claimed, Giant lodged an objection to the assessment on 14 April 2011.

6.  In response to the objection, the Commissioner issued a notice to Giant ordering that the assessed tax amounting to $5,580,798 be held over pending the result of the objection but on the condition that tax reserve certificate for the same amount be purchased not later than 10 May 2011 and the balance of $525,052 be paid on or before 26 April 2011.

7.  However, Giant has done neither so far. As a result, surcharge is imposed on the unpaid and outstanding tax.

8.  In today’s hearing before me, Mr. Kwan, Senior Government Counsel for the Commissioner, relies on sections 71(1), 71(2), 75 (3) and 75(4) of the Ordinance in the striking out application.

9.  Section 71(1) makes it clear that any tax not paid in the manner directed by the Commissioner on the notice of assessment on or before the specified date in the notice shall be deemed to be in default.

10.  Section 71(2) provides that notwithstanding any notice of objection or appeal to the tax assessment, tax shall be paid unless the Commissioner orders any holding over pending the result of such objection or appeal; and the Commissioner may impose a condition that security for payment be made by way of purchasing tax reserve certificates or banker’s undertaking.

11.  Section 75(4) provides:-

“(4) In proceedings under this section for the recovery of tax the court shall not entertain any plea that the tax is excessive, incorrect, subject to objection or under appeal, but nothing in this subsection shall be construed so as to derogate from the powers conferred by the proviso to section 51(4B)(a) to give judgment for a less sum in the case of proceedings for the penalty specified therein.”

12.  Mr. Kwan has also helpfully provided me with a line of well known authorities on the interpretation of section 75 of the Ordinance:

(1) CIR v Au Yuk-Shuet (1966) 1 HKTC 489;

(2) Ng Chun-kwan v. CIR  [1976] HKLR 94; 

(3) CIR v. Choy Sau Kam and Chan Yun (1983) 2 HKTC 10 ;

(4) CIR v. Eekon Enterprises Ltd. (1995) 5 HKPLR 322;

(5) CIR v Lau Chi Sing, DCCJ 12121 of 2000, 26 April 2001, unreported;

(6) CIR v Nam Tai Group Management Limited, DCTC 458 of 2011, 29 September 2011, unreported.

13.  The authorities clearly show that tax shall be payable notwithstanding that there is any pending objection to the assessment or appeal against the same and that section 75(4) of the Ordinance is an ‘ouster’ provision of the District Court’s jurisdiction if the plea of the tax payer was that the tax assessed is incorrect.

14.  As Lam J (as he then was) said at §8 of his judgment in CIR v Lau Chi Sing (supra):

“In the proceedings before the District Court, the court is only required to be satisfied that an assessment has been made against the defendant and he has not paid. If the defendant wishes to raise other matters, the proper avenue is to follow the objection procedures laid down in the Ordinance.”

15.  Giant discloses in its defence that it objects to the Commissioner’s refusal to let it claim depreciation allowance or deduction in respect of the P & M. What Giant is in effect objecting is that the tax assessment is incorrect or excessive. By virtue of section 75(4) of the Ordinance and the cases quoted above, this Court cannot entertain such a plea.

16.  That said, it seems clear to me that this case is one of those plain and obvious cases that the court should exercise its summary powers to strike out the defence on the ground that it discloses no reasonable defence and I will do so.

17.  For the aforesaid reasons, I will allow the Commissioner’s application to strike out the defence for failing to disclose a reasonable defence.  I will grant Judgment in terms of the summons dated 1 November 2011 in favour of the Commissioner against Giant.

18.  I also order that Giant should bear the costs of the Commissioner of this application. Mr. Kwan asks for summary assessment of costs and submits to me their statement of costs. I would say that the time claimed for preparing the documents by the tax inspector of the Inland Revenue Department and by the Department of Justice is to me a bit excessive. I will thus give a broad brush approach and summary assess the costs of this application in the sum of $20,000.