Dr. The Honourable Leung Ka-lau v. The Commissioner of Inland Revenue

CACV 278/2021, [2023] HKCA 649

On appeal from [2021] HKCFI 1177

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF APPEAL

CIVIL APPEAL NO 278 OF 2021

(ON APPEAL FROM HCIA NO 3 OF 2020)

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J U D G M E N T

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Hon Kwan VP (giving the Judgment of the Court):

1.By a majority, this court handed down our judgment on 22 February 2023 (“CA Judgment”)[1] dismissing the appeal of the Commissioner of Inland Revenue against the judgment of A Chan J on 27 April 2021. By the judgments of the High Court, it was held that an award of damages granted to the taxpayer for his loss of rest days, statutory and public holidays whilst he was employed by the Hospital Authority (“HA”) was not chargeable to salaries tax under section 8 of the Inland Revenue Ordinance, Cap 112.

2.The Commissioner seeks leave to appeal to the Court of Final Appeal. The question framed in the notice of motion to be of great general or public importance is as follows:

“When a payment is made to an employee to compensate for the loss of his contractual entitlements to rest days and holidays as a result of being required by his employer to render services on such days, is the payment income from employment pursuant to section 8 of the Inland Revenue Ordinance (Cap 112)?”

3.We are satisfied that this is a question of great general or public importance and the grounds of appeal stated in the notice of motion are reasonably arguable.

4.The taxpayer was one of the lead plaintiffs in an action brought by 165 doctors employed by the HA seeking to enforce, inter alia, their statutory and contractual rights to rest days, statutory and public holidays that they had been deprived of by the operation of the on-call system and were not replaced. By the judgment of the Court of Final Appeal[2], it was held that the doctors are entitled to rest days, statutory and public holidays and in default of being granted such rest days and holidays, they are entitled to damages to be assessed equivalent to a full day’s wages in respect of each missed rest day or holiday at each doctor’s then salary. A number of doctors who received damages from the HA as a result had filed objections with the Commissioner objecting to the chargeability of such damages to salaries tax. To date, at least 47 of those objections remain unsettled[3]. It is accepted by the taxpayer that the relevant facts of these outstanding objections should be the same as his case.

5.Further, there are other taxpayers also seeking to rely on the High Court judgments to raise objections on the chargeability of payments or compensation for overtime work or work on rest days over and beyond the hours specified in their employment contracts. To date, at least 360 of those objections remain outstanding[4].

6.Even though the Court of Final Appeal has considered the relevant principles in Fuchs v Commissioner of Inland Revenue[5] and Commissioner of Inland Revenue v Poon Cho Ming[6] , as pointed out by Mr Eugene Fung, SC for the Commissioner[7], the specific issues raised in this case have not been adjudicated upon by the Court of Final Appeal. In Fuchs and Poon Cho Ming, the payments were made upon the termination of employment. In the present case, the payment was not so made.

7.We do not propose to go into the arguments advanced by Mr Godwin Ng for the taxpayer that the intended grounds of appeal are not reasonably arguable. As mentioned, the CA Judgment was reached by a majority.

8.Leave is granted to the Commissioner to appeal against the CA Judgment to the Court of Final Appeal on the usual conditions. We order that the costs of this application are to be in the cause of the appeal to the Court of Final Appeal.

Mr Godwin Ng, instructed by Wong & Co, for the Applicant (Respondent)

Mr Eugene Fung SC and Mr John Leung, instructed by the Department of Justice, for the Respondent (Appellant)