Commissioner of Inland Revenue v. Perfekta Enterprises Ltd

CACV 115/2017

[2018] HKCA 544

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF APPEAL

CIVIL APPEAL NO. 115 OF 2017

(ON APPEAL FROM HCIA NO. 1 OF 2016)

________________________

________________________

________________________

D E C I S I O N

________________________

Hon Cheung JA :

1.Both parties apply for leave to appeal to the Court of Final Appeal against our judgment of 1 June 2018.

I.   Perfekta’s application

2.1.As Perfekta’s application was first received by the Court, I will deal with its application first.  It relies on the following question which is said to be of great general or public importance:

‘ In the event of a successful case stated/appeal vitiating a majority decision of a board of review/ tribunal (‘the Majority Decision’), can the Court substitute the finding in the minority decision (‘the Minority Decision’) for that of the board of review/tribunal, with the consequence that any challenge to the Minority Decision is a challenge to a conclusion from primary facts which can only succeed if it is demonstrated to be unreasonable, illogical or plainly wrong? Or should the matter be remitted to the board of review/tribunal with the opinion of the court for proper findings to be made free from the legal errors identified, unless it can be shown that the conclusion of the Minority Decision is the true and only reasonable conclusion?’

2.2.It has been repeatedly stated by this Court that in an application for leave it is not necessary or appropriate to give a detailed judgment dealing with the arguments and it is sufficient to state succinctly whether the framed question has satisfied the threshold requirement.

2.3.I am of the view that this question is not engaged because of the way that the parties had chosen to conduct the appeal.  I repeat the reason given in paragraph 6.23 of our judgment :

‘ 6) A minority decision or the Board’s decision?

6.23   A point was raised at the hearing on the legal effect of the Board’s decision after the majority’s view on change of intention was rejected and when Mr Kwok’s view which was being upheld was only a minority view. Mr Smith had certainly not asked either before Chung J or before us for the case to be remitted to the Board to determine afresh the issue of change of intention merely because the decision that was upheld was a minority decision.  In fact this is clearly not permissible because of the wording of Question 3 of the Case Stated.  What Chung J was asked by this question was to decide whether the majority’s view or the minority’s view on change of intention was the correct view.  He decided in favour of the minority’s view.  That was the scope of the appeal before Chung J and this Court.  There is no room for argument that a minority decision in such circumstances is not sufficient to be regarded as a decision of the Board.’

2.4.Perfekta also asks for leave to appeal on the ‘or otherwise’ ground in that it is said that ‘the matter is exceptional and the Court of Appeal majority judgment was demonstrably wrong in applying the legal principles of separate legal personality to the facts of the case and concluding that Perfekta changed its intention to one of trade in relation to the lot.’  It, however, acknowledges that it is the practice of the Court of Appeal to decline to grant leave on the ‘or otherwise’ ground on the basis that this should be left for decision by the Court of Final Appeal and it reserves the right to rely on the ‘or otherwise’ ground if this Court refuses leave and leave is sought before the Court of Final Appeal.

2.5.This being the situation, it is not necessary for me to deal with this point.

II.   The Commissioner’s application

3.1.The Commissioner relies on the following question which is said to be of great general or public importance :

‘ Do sections 14 and/or 16 of the Inland Revenue Ordinance (Cap. 112) invariably require, for the ascertainment of chargeable profits, an opening stock value and closing stock value to be ascertained in a trade or an adventure in the nature of a trade, irrespective of the nature of the trade or adventure?’

3.2.What we did was simply to allow the amendment.  The question of great general importance is not engaged.  In any event, in my view this point is not reasonably arguable.  The Commissioner is trying to overturn the long established principle that one cannot simply treat income receipt as trading profit without taking into account the costs that may have to be incurred in order to generate the income.  The Commissioner has yet to point to any authority which shows that this can be done.  Certainly he has not shown why the statement of Lord Millett in Nice Cheer Investment Limited v Commissioner of Inland Revenue [2014] 2 HKC 112 at 422 that :

‘The first step is to ascertain the trading profits or losses for the year. This is done by debiting the opening stock (which is a purchase from the previous year of account) and purchases during the year and crediting the closing stock (which is a sale to the next year of account) and sales made during the year. The balance represents the trading profit or loss for the year.’ (emphasis added)

does not apply to the present situation.  In essence the sale of land as a piece of commodity is no different from the sale of a box of chocolate.

III.   Conclusion    

4.Accordingly I would dismiss both of the applications with costs to the respective party together with certificate for two counsel.

Hon McWalters JA :

5.I agree with the judgment of Cheung JA.

Hon G Lam J :

6.I too would dismiss both parties’ applications for leave to appeal. 

7.Perfekta’s application fails because on the reasoning of the majority of this court, the question posed did not arise for the reason stated in paragraph 6.23 of the judgment of this court.  While I took a somewhat different view (see paragraphs 29 and 39 of the judgment of this court), that difference does not give rise to any question of great general or public importance.

8.As regards the Commissioner’s application, I agree with what Cheung JA has said above.  This court’s judgment was that the Board of Review erred in refusing leave for Perfekta to amend its grounds of appeal.  The question whether, and if so, how particular items of loss and expense should be taken into account remains to be determined by the Board upon the case as remitted to it by this court.

Mr Paul Shieh SC and Mr Mike Lui, instructed by Department of Justice, for the appellant

Mr Clifford Smith SC and Mr Justin Lam, instructed by Pang & Associates, for the respondent