Cheng Hung Kit v. The Commissioner of Inland Revenue

HCIA 4/2020

[2021] HKCFI 233

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

INLAND REVENUE APPEAL NO 4 OF 2020

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Before: Hon Au-Yeung J in Chambers

Closing Date for Written Submission: 22 January 2021

Date of Decision: 27 January 2021

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D E C I S I O N

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Introduction

1.The audited accounts of Hang Heung Hop Kee (“Hop Kee”) stated that money payable to the appellant (“Mr Cheng”) as directors’ emoluments was applied towards discharge of debts owed by Hang Heung Cake Shop.  The audited accounts were stated to be true and correct and were signed by Mr Cheng as a director.  The respondent (“CIR”) charged Mr Cheng to salary tax.  Mr Cheng said that no money had been received by him and the audited accounts merely reflected the set off of debts between the 2 companies.  On appeal, the Board of Review (“the Board”) upheld the CIR’s decision.  This is Mr Cheng’s application for leave to appeal to the Court of First Instance against the Board’s decision (“the Decision”).  He puts forth 5 grounds of appeal.

Legal principles

2.Under section 69(3)(e), of the Inland Revenue Ordinance, Cap 112 (“IRO”), leave to appeal must not be granted unless the Court of First Instance is satisfied that a question of law is involved in the proposed appeal and that:

(a)  the proposed appeal has a reasonable prospect of success; or

(b)  there is some other reason in the interests of justice why the proposed appeal should be heard.

3.A proposed appeal has a reasonable prospect of success if it is reasonably arguable, although it is not necessary to show that the proposed appeal will probably succeed: China Mobile Hong Kong Co Ltd v Commissioner of Inland Revenue [2018] HKCFI 373, §16, Chow J.

4.The applicant must identity the point of law involved or any specific legal error or question: China Mobile, §27 and 30(4).

5.A finding of fact may only be challenged as an error of law if:

(1)  The decision was based on a finding of fact or inference from facts which was perverse or irrational;

(2)  There was no evidence to support the finding;

(3)  The decision was made by reference to irrelevant factors; and

(4)  The decision was made without regard to relevant factors.

See Kwong Mile Services Ltd v Commissioner of Inland Revenue (2004) 7 HKCFAR 275, §§31-34, Bokhary PJ.

6.The appellate court should not disturb the decision of the Board unless it regards that decision as contrary to the true and only reasonable one: Kwong Mile, §37, Bokhary PJ.

Ground 1

7.Under section 68(4) of IRO, the onus of proving that the assessment appealed against is excessive or incorrect shall be on the appellant.  Mr Cheng submits that section 68(4) applies only to the taxpayer’s burden to adduce evidence to show that the CIR has erred in his assessment process but it does not impose a burden on the taxpayer to adduce evidence to prove that CIR has no jurisdiction to make any assessment.

8.In my view, the Board has correctly identified the burden of proof as being on Mr Cheng and correctly cited authorities in support (§3 on pages 7-10 and §5(12) on page 17 of the Decision).  Section 68(4) does not deal with jurisdiction of the CIR and the Board has not applied section 68(4) to any jurisdiction issue.  Ground 1 is unarguable.

Ground 2

9.Mr Cheng relied on several principles for appeal against findings of fact in Kwong Mile and asked if the Board’s fact-finding has been perverse or irrational. 

10.Mr Cheng’s contentions were misconceived:

(1)  He misquoted the Board when he stated that, at §(5)(11) on page 17 of the Decision, the Board held that the only “admissible” evidence was the audited accounts of Hop Kee for the year ended 31/3/2010.  In fact, the Board held that it was the only “credible” evidence. 

(2)  Mr Cheng stated that the Board failed to evaluate and consider relevant evidence, eg §1(4) at page 3 of the Decision.  However, that paragraph referred to the undisputed fact that Mr Cheng had reported in his tax returns for 2009/2010 that he had no taxable income.  He said that the Board failed to consider the audited accounts of Hang Heung Cake Shop for the year ended 31/3/2010.  However, he failed to point out what was relevant in that set of audited accounts.

(3)  Mr Cheng contended that the Board failed to disregard irrelevant matters, eg in §4(8) on page 11.  However, the Board was merely stating the case of Mr Cheng in that paragraph.

(4)  Mr Cheng contended that the Board failed to correctly understand the facts, eg §4(10) at page 13 and §5(9) at page 16 of the Decision. However, the Board was stating that Mr Cheng had not included the authorities of Poon Cho Ming John (2019) 22 HKCFAR 344 and Fuchs (2011) 14 HKCFAR 74 in his statement of grounds of appeal before the Board and the CIR was not given an opportunity to respond.  In any case, the Board had considered (correctly) how those 2 authorities did not apply to Mr Cheng’s case.

11.More importantly, Mr Cheng has failed to show how the points in the preceding paragraph have made the Board’s findings perverse or irrational, or contrary to the true and only reasonable conclusion. 

12.Ground 2 is unarguable.

Ground 3

13.Mr Cheng contends that the Board erred in law in misapplying section 11D(a) of IRO, which provides as follows:

“For the purpose of section 11B—

(a) income which has accrued to a person during the basis period for a year of assessment but which has not been received by him in such basis period shall not be included in his assessable income for that year of assessment until such time as he shall have received such income, when notwithstanding anything contained in this Ordinance, an additional assessment shall be raised in respect of such income:

Provided that for the purposes of this paragraph income which has either been made available to the person to whom it has accrued or has been dealt with on his behalf or according to his directions shall be deemed to have been received by such person; …” (underline added)

14.Mr Cheng contends that the Board failed to have regard to the “opening part” of this section and expanded the true meaning of the words underlined in the “second part” to a very wide ambit.

15.Again, the contention was misconceived.  The Board had expressly noted that the relevant income had not come into the hands of Mr Cheng but found that income had been dealt with on his behalf or according to his directions.  The Decision was supported by facts and law.  Ground 3 is unarguable.

Ground 4

16.Mr Cheng contended that the Board erred in failing to identify and differentiate the true nature of the sums in question.  He queried whether, even if one sum of $4,848,436 could be deemed income from employment, the sum of $18,657,059 could be similarly deemed.

17.It is futile for Mr Cheng to pose a query.  The Board did not just deem the nature of the 2 sums.  It found the 2 sums to be directors’ emoluments disposed of in accordance with section 11D(a), having considered both parties’ case, the evidence and the law.  Mr Cheng had not shown where the Board had gone wrong.

Ground 5

18.Mr Cheng contended that the Board had erred in purporting to distinguish the present case from Poon Cho Ming John and Fuchs.  There is nothing in this ground as the Board’s interpretation and consideration of the relevance of these 2 authorities to this case were correct.  Ground 5 is unarguable.

Conclusion

19.None of the grounds are arguable.  I decline to grant leave to appeal. 

20.I thank Ms Jesse Yu for her assistance.

Statement by the appellant

Statement by Ms Jesse Yu, Government Counsel, of the Department of Justice, for the respondent