Commissioner of Inland Revenue v. Chow Hung-kong

Case No.HCIA 1/1978[1978] HKLR 475

Court

HCIA

Date—

Judge—

Case Document

100%Judiciary

HCIA000001/1978

IN THE SUPREME COURT

	Inland Revenue Appeal
	1978 No. 1

BETWEEN
	COMMISSIONER OF INLAND REVENUE	Appellant
	and
	CHOW Hung-kong	Respondent

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Coram: Zimmern, J.

Date of Judgment: 28th September, 1978.

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JUDGMENT

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1. This is an appeal by way of case stated from a decision of a Board of Review by the Commissioner against the decision of the Board in which I dismissed the appeal after hearing Counsel for the Commissioner and for reasons then given and said I would give my full reasons in writing. The agreed facts are as follows:

"	(a)	The Taxpayer was employed as an Administrative Officer of the Society for the Aid and Rehabilitation of Drug Addicts on Shek Kwu Chau commencing from 24th August 1968. He was provided with a bungalow on the island which was large enough to accommodate his family but he had nevertheless rented a flat in North Point, Hong Kong for them.
	(b)	On 22nd August 1975 the Assessor raised a Salaries Tax assessment on the Taxpayer for the year of assessment 1974/75, particulars of which are as follows:-

	Principal Employment		$46,500.00
	Add Quarters		3,487.00
	Total Assessable Income		$49,987.00
	Less: Allowances:

Personal	$10,000.00
Wife	10,000.00
Children	3,000.00	23,000.00

	Net Chargeable Income		$26,987.00
			-------------
	Tax Payable Thereon		$2,548.00
			=========

(c)

On 15th September 1975 the Taxpayer lodged a written objection on the following grounds:-

I found that it is wrong to include $3,487 (quarter) as part of my assessable income, since I am not benefited by this quarter which is only used when I am on duty there and situated on the isolated island of Shek Kwu Chau."

(d)

It was further contended by the Taxpayer that:-

	(i)	'My employer supplies free quarter to me because they require me to stay overnight on the isolated island on duty from time to time.'
	(ii)	'Since I pay for my own quarter in Hong Kong every month out of my salary, therefore free quarter do not mean part of my income.'

(e)

The Taxpayer's employer had confirmed that:-

	(i)	In addition to leave on 52 Sundays the Taxpayer was entitled to 39 days annual leave inclusive of public holidays. During these 91 days the Taxpayer was required to leave Shek Kwu Chau unless he obtained the permission of the Medical Superintendent to remain. Apart from leave Taxpayer was required to remain on the island for 24 hours a day and from time to time to work outside normal office hours.
	(ii)	The Taxpayer's duties after normal hours were of a general administrative nature. However, in addition to these duties he was required to participate in evening recreational activities organised for the drug addicts.
	(iii)	The Taxpayer was required to live in the residence provided on the island as this was necessary for the performance of the duties which his contract of service imposed on him.
	(iv)	The residence consists of a bungalow which was furnished by the Society and which contains a dining room, a sitting room, two bed rooms, a kitchen and a store room.
	(v)	The bungalow was intended for use as a residence for the Taxpayer and his family in order that his family could visit him from time to time. However, the reason for the provision of the residence was to provide a resting place for the Taxpayer in consequence of the fact that he was required to stay on duty overnight from time to time.
	(vi)	The Taxpayer never stayed in the bungalow during his holidays and leave periods, and members of his family have not occupied the bungalow with him.
	(vii)	In general the bungalow was used only by the Taxpayer but occasionally other staff and visitors stayed there overnight.
	(viii)	The island is a restricted area and is only accessible by means of the Society's launches. There are no schools or shopping facilities because the whole island is used exclusively for treatment and rehabilitation of male drug addicts."

2. The Commissioner contends that the bungalow, the rental value of which was assessed at $3,487, is chargeable to the taxpayer's income under section 9(1) (b) of Cap. 112. The Board decided otherwise on the ground that the English principle of representative occupation applies. Mr. Weir for the Commissioner argues that the words of section 9(1) (b) are plain and that there is no room for implications and determination by reverting to matters as the "spirit of a taxing ordinance". For this proposition he relies on the well known words of Rowlatt J. in Cape Brandy Syndicate v. I.R.C.⁽¹⁾ cited by Viscount Simon L.C. in Canadian Eagle Oil Co., Ltd. v. The King⁽²⁾:

"in a taxing Act one has to look merely at what is clearly said. There is no room for any intendment. There is no equity about a tax. There is no presumption as to a tax. Nothing is to be read in, nothing is to be implied. One can only look fairly at the language used."

Mr. Weir says that the operative words of section 9(1) (b) are "the provision of a place of residence free of rent" and once such a provision is made the taxpayer was caught by the clear words of the section. The Board had decided that the main issue in this case was whether the taxpayer was in representative occupation of the bungalow and adopting the test laid down by Fox J. in Langley v. Appleby⁽³⁾ wherein he said

"In the case of representative occupation, the true analysis is that the servant's residence in the premises constitutes part of the consideration for which he is paid his salary ..... Put shortly, the question is whether he is paid to live in the premises."

decided that the taxpayer was paid to live in the bungalow.

3. It was argued by the Commissioner's representative before the Board as it is argued by his Counsel before me that Langley v. Appleby was decided on Section 47(1) of the Finance 1963 which reads as follows:

"Where any premises in the United Kingdom are available to the occupier by reason of his or his wife's holding an office or employment, and - (a) he pays no rent for the premises, or (b) the rent he pays for them is less than the annual value of the premises, determined in accordance with ...... this Act, the holder of the office or employment shall be treated for the purposes of tax under Schedule E as being in receipt (in addition to any other emoluments) of emoluments at an annual rate equal to the annual value of the premises, determined as aforesaid, reduced by the annual amount of any rent which he pays for them".

and that the wording differs from our section 9(1) (b). Counsel contends that Fox J. had said the crucial word in the English enactment was the word "occupier" which word does not appear in our Ordinance. I fail to see this subtlety and I doubt if the Acting Deputy Commissioner had this in mind when he determined the taxpayer's objection thus

"The provisions of the tax law is plain and it charges to tax the 'rental value of any place of residence provided free by the employer'. It is a fact that the Taxpayer is required by his employer to live in a bungalow because it is necessary for the performance of the duties which his contract of service imposes upon him. However, this is not a factor that has to be considered and the fact is that he was and still is occupying a rent-free quarter provided by his employer and as such he is clearly caught by Section 9(1) (b) of the Inland Revenue Ordinance."

It falls upon me to construe section 9(1) (b) but before I can do so I must refer to section 8 of Cap. 112, which reads as follows:

"8. (1) Salaries tax shall, subject to the provisions of this Ordinance, be charged for each year of assessment on every person in respect of his income arising in or derived from the Colony from the following sources -

	(a)	any office or employment of profit; and
	(b)	any pension."

This section expressly charges salaries tax to every person's income arising from any office or employment of profit and any pension. It has been said the word "income" by itself "is a large word" and signifies "what comes in". We are concerned here with the word restricted to what comes in arising in or derived from any office or employment of profit. The Interpretation section of the Ordinance does not define this. Without being exhaustive I am of the view that incomes chargeable under this section include salaries, fees, wages, perquisites, benefits but one and all they must arise in or derive from an office or employment of profit or pension.

4. Irrespective of what the side note says nothing in section 9 defines the words "income from employment" to include something not arising in or derived from the sources set out. Section 9(1) (b) merely provides for the mode of assessment of a perquisite or benefit i.e. a place of residence provided rent free by the employer by its rental value. Similarly section 9(1) (c) provides for the case where the residence is provided at a rent less than the rental value. The rental value is then quantified in section 9(2).

5. Applying the law as I find it to the agreed facts of this case the first question is "was a place of residence provided by the employer to the taxpayer. " The Acting Deputy Commissioner in his determination set out above said he was per the ultimate sentence. In my view and I so hold he was wrong. An employee cannot be said to be provided with a place of residence when on the agreed facts:-

	(a)	The employee was required to leave that residence every Sunday and holiday including his annual leave save with the consent of his employer.
	(b)	The employer had the right to let other members of the staff and visitors to stay there overnight.

These facts were not considered by the Acting Deputy Commissioner at all.

6. The next question is "could it have been a place of residence" within section 9(1) (b) if facts (a) and (b) above did not exist. The answer is again "No". To be caught by sections 8 and 9 the residence provided must be income in the form of a benefit or perquisite arising in or derived from his employment. The board was right to have applied one of the English tests so apposite to the facts of this case. The taxpayer was paid to live in the bungalow. Besides his working hours he was on call 24 hours a day. The bungalow on the island and his residence or occupation therein was solely for the purpose of his work and qua income was neither a benefit nor a perquisite and in fact was nothing at all.

7. I have said that the answer to the 1st question raised is "YES" and therefore the 2nd question does not arise.

8. The decision of the Board is upheld and the appeal dismissed with costs.

Representation:

Weir for Appellant.

Bernacchi Q.C. & Whitehead (Francis Chaine & Co.) for Respondent.

(1) [1921] 1 K.B. 64 @ 71

(2) [1946] A.C. 119 at 140

(3) [1976] 3 A.E.R. 391 at 415

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