Lam Ying Bor Investment Co v. Commissioner of Inland Revenue

CACV000051/1978

Certiorari - property tax - appeal against assessment - notice out of time - corporation - illness of sole active director - no arrangements for management of the business - corporation not "prevented" from giving notice of appeal.

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Coram: Roberts, C.J., Huggins, J.A. and Leonard, J.

Date of Judgment: 30 October 1979

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JUDGMENT

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Huggins, J.A.:

1. We are concerned with the exercise of the discretion of the Full Bench to refuse prerogative orders, and the point is a short one.

2. The Commissioner of Inland Revenue called upon the Appellant company to file a return of profits. This was at a time when the method of charging tax was being changed from one based upon the previous year's profits to one which might be based upon the actual year's profits. The Company had already received an assessment based upon the previous year's profits and had appealed against it. No point arises in respect of that assessment. The return now demanded was in respect of the actual year's profits. The Company failed to make a return and eventually the Commissioner duly served upon the Company a notice of additional assessment based upon estimated figures. The Company had one month in which to lodge an appeal against the additional assessment, but no objection was lodged within that time. An objection was lodged about seven weeks out of time.

3. The Commissioner had power in specified circumstances to extend the time for appealing against an assessment, but, after some months of correspondence, he refused to extend the time. His refusal was founded upon the view that a company could never satisfy the prerequisites for an extension of time. That view the Full Bench held to be wrong, but the court was of opinion that in the circumstances of the present case the Commissioner would inevitably have refused an extension of time even if he had considered all the factors properly to be considered. It is contended that, by holding that the Commissioner would inevitably have refused an extension of time, the Full Bench was in error and usurped the function of the Commissioner. Accordingly, it is said, the court ought not to have exercised its discretion to refuse an order of mandamus to the Commissioner to consider the matter afresh.

4. The power to extend the time is conferred by proviso (a) to s. 64(1) of the Inland Revenue Ordinance, which is in these terms:

"If the Commissioner is satisfied that owing to absence from the Colony, sickness or other reasonable cause, the person objecting to the assessment was prevented from giving such notice within such period, the Commissioner shall extend the period as may be reasonable in the circumstances;".

It is not disputed that the Commissioner is compelled to exercise the power if he is so satisfied.

5. The other material facts are alleged by the Company to be as follows, and for the purposes of this appeal we have to assume that the Commissioner would accept them, although at one stage he appears to have had doubts about the truth of one of the allegations. The Company consists of only three shareholders, who are a man and his two sons. The three shareholders are also the directors of the Company, but there is evidence that only one of them, Lo Kau, took any active part in the management of the Company: the father was too old and the brother was employed full time in a firm of architects. The brother did on a few occasions sign papers prepared by the Company's accountants, whose office was in Victoria and only a short distance from his own, and once called on the Assessor to discuss delays in filing a return, but he asserted in effect that he was acting as agent for Lo Kau rather than as a director of the Company. The Company's registered office was at the material time in Lai Chi Kok Road, Kowloon, but it was in reality a disused shop and was staffed by only an old retainer, who was paid by another company, of which Lo Kau had apparently the controlling interest. The duties of this retainer are not stated and it is certain that he neither opened correspondence addressed to the Company nor, when Lo Kau was unavailable, took any steps to see that the correspondence was dealt with. The notice Road, additional assessment was found unopened after the time for objection had expired. The explanation for this is said to be that Lo Kau, the only active director, was seriously ill for several months, which included the whole of the month during which objection ought to have been lodged. Eventually the brother formed the view that Lo Kau was unlikely to survive and started to investigate the affairs of the Company. It was then that he discovered the notice of additional assessment and, without further delay, instructed the Company's accountants to lodge an objection, which was done.

6. The history of Lo Kau's illness started in late 1975, when it was found that he was suffering from a heart complaint which required constant medical attention. On 19th May 1976 he was admitted to hospital and was detained until 10th June. He was then confined to bed at home until 20th July, when he was readmitted to hospital for three days, and six days later he left Hong Kong to undergo heart surgery in the United States of America. He returned to Hong Kong in September but went straight back into hospital. The notice of additional assessment had been served on 14th July and the time for objection had expired in August.

7. The argument on behalf of the Commissioner is that, on any view of the facts alleged by the Company, the Commissioner could not have been satisfied that the Company was prevented from giving notice of objection within the time prescribed. Mr. Barlow contended that even if "prevent" means no more than "hinder" the Company was not hindered from lodging the objection by the illness of Lo Kau: the reason for the failure to lodge an objection in time was the mismanagement (or, perhaps, more accurately the non-management) by the Company of its affairs during the material period. He summed up his contention like this:

"If a company has done all that may reasonably be expected, then it may be said to have been prevented if it fails".

Here, he submits, it was not reasonable to permit the whole supervision of the Company's affairs to come to a halt simply because one director, albeit the only normally active director, was ill for several months: the other directors were aware of his illness and could, before it was too late to lodge objection to this additional assessment, have made alternative arrangements for the supervision of the Company's affairs -as was later done.

8. On behalf of the Company it is submitted that the Company could not reasonably be expected to foresee the extended inability of Lo Kau to manage the Company and that even when he became ill it was not unreasonable for the Company's affairs to be left to run themselves for a time - and for a time which would extend beyond the last day for lodging an objection.

9. As I understand it, Lo Kau remained in more or less active supervision of the Company until he was detained in hospital on 19th May 1976, in spite of his uncertain health. Only thereafter was he himself prevented from carrying out his duties. We do not know what the prospects of a prolonged incapacity were at any time until there was a letter dated 7th July 1976 from the Mayo Clinic indicating that he would be away from Hong Kong for at least the greater part of a month. This letter would have been received on a date around that on which the notice of additional assessment was served. By then Lo Kau had already been unable to attend to the business for nearly two months. There was another month before the time for lodging an objection expired.

10. The Full Bench drew a distinction between circumstances which "prevented" a taxpayer from lodging an objection in time and circumstances which would excuse him from not lodging an objection in time. Mr. Barlow did argue (though perhaps not very strongly) for this very strict interpretation of the word "prevent", but I think that the nature of the legislation and the provisions of s. 19 of the Interpretation and General Glauses Ordinance require us to give a more liberal interpretation. However, the question still remains, whether the Commissioner would be acting unreasonably if he were to find that the Company should be excused for not lodging its objection in time. The Full Bench implicitly decided that he would. The consequence of such a decision would no doubt be unfortunate for the Company, but there are degrees of negligence and it seems to me that the negligence of this Company was of a very high order. Corporations enjoy substantial privileges not enjoyed by individuals and have proportionate responsibilities. Not without some reluctance I am driven to agree that, in neglecting its affairs altogether from 19th May to 14th August, this Company was guilty of such negligence that it could have no reasonable cause for failing to give notice of objection within the prescribed period.

11. I would dismiss the appeal.

30th October 1979.