The Commissioner of Inland Revenue v. D.R. Humphrey
Read the full judgment text of HCIA 2/1969 on BabelCite. This HCIA judgment was delivered on 21 January 1970.
1. This is a case stated from a decision of the Board of Review constituted under Part XI of the Inland Revenue Ordinance allowing an appeal against an assessment for salaries tax for the year of assessment 1968/9. The tax-payer complained of the inclusion as part of his income of a sum of $559.30 received by him from his employers representing a refund of toll charges and the reimbursement of part of his travelling expenses.
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HCIA000002/1969 IN THE SUPREME COURT OF HONG KONG APPELLATE JURISDICTION INLAND REVENUE APPEAL NO. 2 OF 1969 -----------------
----------------- Coram: Briggs, J. in Court. Date of Judgment: 21 January 1970 ----------------- JUDGMENT ----------------- 1. This is a case stated from a decision of the Board of Review constituted under Part XI of the Inland Revenue Ordinance allowing an appeal against an assessment for salaries tax for the year of assessment 1968/9. The tax-payer complained of the inclusion as part of his income of a sum of $559.30 received by him from his employers representing a refund of toll charges and the reimbursement of part of his travelling expenses. 2. The Board accepted the following facts, which are taken almost verbatim from the decision of the Board. The tax-payer, D.R. Humphrey is employed by the Government of Hong Kong as a Land Assistant. At the relevant time he was in charge of cadastral survey in the New Territories and was attached to the District Office, Taipo. As an expatriate officer of Government he was entitled to quarters. None being available in the New Territories, he was allocated accommodation in Kowloon. His employment necessitated the use of a car, and by arrangement with Government he used his own vehicle for his work. Under regulations 731 and 734 of the Establishment Regulations, which apply to the tax-payer, he is entitled to claim "partial reimbursements of expenses incurred in home to office journeys". This is referred to in regulation 734 as a "mileage allowance". 3. A person to whom the regulations apply is not reimbursed for the whole of the expenditure incurred. For the first 250 miles he may make no claim. For any additional mileage he may claim so much per mile for home to office journeys. It is important to notice that the tax-payer's expenses were greater than the amount he was reimbursed. 4. It was convenient for the tax-payer to make use of Lion Rock Tunnel to reach the New Territories from his residence. It was agreed by Government that a person who is authorised to claim mileage allowance under these regulations might use the tunnel free of charge. A toll of 50 is charged for the use of this tunnel, and it was agreed that if the tax-payer paid the toll he would be refunded the amount so paid by Government. 5. The Inland Revenue Department contended that the sums which were received by the tax-payer as partial reimbursement of his home to office journeys and the refund of toll charges must be included as part of his income from his employment. 6. In the year of assessment 1968/9 the refund of the toll charges together with the partial reimbursement of the travel expenses amounted to $559.30. The tax-payer was paid that sum. And that sum was assessed for tax as if it were part of the income of the tax-payer. The tax-payer appealed against this assessment to the Board of Review which found in his favour. 7. The Board of Review dealt with the refund of toll charges separately from the reimbursement of part of the expenses of home to office travel. I agree with Mr. Hobley that this is not necessary. For tax purposes both amounts fall under the same heading. The toll charge was part of the expense of travelling from the New Territories to the tax-payer's residence on his home to office journeys. 8. The relevant portion of the Inland Revenue Ordinance is section 8(1) (a) and section 9(1) (a). My attention was also drawn to section 13B of the same Ordinance but I intend to ignore that section since Mr. Hobley expressly said he placed no reliance upon it. 9. Section 8(1) (a) reads:-
10. Section 9(1) (a) reads:-
Then follows certain exceptions which need not detain us as they are not relevant to this case. 11. It was accepted by Mr. Hobley that it is for the Crown to prove that tax is payable and not for the tax-payer to prove the sums in question are not assessable. This was neatly expressed in the judgment of Viscount Simonds in Hochstrasser v. Mayes(1) where he said:-
12. If I understood him correctly Mr. Hobley's case is that the sum in question is an augmentation to the salary of the tax-payer or a perquisite, using the words of the Ordinance. This view was rejected by the Board and I will say at once that I think they were right. 13. The regulations and the circular dealing with the toll payable at the tunnel clearly show that what was in effect agreed between the tax-payer and his employer was that certain sums would be refunded or reimbursed to the tax-payer. There is no question of an allowance in the sense that a sum of money was claimable whether or not a journey had been performed. There is no suggestion that the sum was part of the salary of the tax-payer. It was an agreement that Government would reimburse the tax-payer for part of his expenses. I agree with the Board that a reimbursement transfers certain expenses from the employee to the employer. I also agree with the Board that this sum cannot be called a perquisite which denotes something extra being given. 14. Looking at the facts of this case from the standpoint of common sense it is difficult to see how a sum which is a reimbursement of moneys actually paid can be "income derived from an office or employment of profit". Even having regard to the various decisions in England on words contained in English enactments similar to the words used in the Hong Kong Ordinance. It is said that section 9(1) (a) of the Ordinance is an inclusive definition of income. None of the expressions there used, "wages, salary, leave pay, etc." is relevant and there must be some reasonable check on what is to be included. The section mentions one kind of "allowance" but does not include mileage allowance. Is it not arguable that this would have been included specifically if it were contended that it should form part of the income? It is noticeable that the similar section in the English Act is drawn in wider terms. It is clear, I think, that the sum in question does not fall within the wording of the Ordinance. And further it is obvious that when Government agrees to refund the toll charge they mean the return to the tax-payer of the actual sum expended on the toll and not that sum less tax. 15. Mr. Ching for the tax-payer relies on Owen v. Pook(2). In that case the tax-payer was partially reimbursed for his travelling expenses between his residence and the place where he worked. One issue in the case was whether the sum so reimbursed was properly included as part of his emoluments. Three of the five judges sitting on the appeal in the House of Lords held that this was not so. 16. Lord Pearce had this to say (at p.8):-
17. The tax-payer in that case as in the present case was only reimbursed part of his travelling expenses and he claimed to be entitled to a deduction of that part of those expenses which were not so reimbursed. The facts in that case differ from the facts before me and that part of the case does not here concern us. 18. The Crown relies on the case of Hochstrasser v. Mayes(1) which is a case with very different facts from the facts before me. 19. In that case a company required certain members of their staff to be prepared to serve the company wherever the company required. To assist in the housing of married employees a scheme was devised whereby the company assisted such employees with interest-free loans for the purchase of houses. A term of the scheme was that if an employee who participated in the scheme was transferred and it was necessary for him to sell his house he would be guaranteed against any capital loss. 20. An employee sustained a loss by such a sale and was compensated by the company and the question was whether that sum was assessable for tax. 21. The court held that it was not assessable on the ground that though the fact of employment was the causa sine qua non it was not the causa causans of the payment, which did not therefore arise from the employment. 22. In that case the scheme was embodied in an entirely separate agreement from the contract of service. And as I have said its facts are clearly distinguishable from those on which this case stated is based. 23. It is also to be noted that the case turned on the meaning of the expression "profit arising from the employment" which appeared in the relevant enactment with which the court was there concerned. Such an expression is not contained in section 9(1) (a) of the Hong Kong Ordinance, though of course, section 8(1) (a) makes it necessary that the income be derived from an office of profit. 24. In this case the regulations do form part of the contract of service of the tax-payer. I think it is clear that the fact of the employment was the causa sine qua non of the payment. But I do not think that that was the causa causans. As I understand the facts the payment was not made because the tax-payer was employed by the Government, it was because in addition he had expended certain sums of money, there being an agreement between the parties that if the tax-payer expended certain sums he would be re-imbursed. 25. It follows that I am of the opinion that the Board of Review was right and that the refund of toll charges and the partial re-imbursement of travelling expenses incurred in home to office journeys was not income and was not there fore chargeable for tax. The answer to the first two questions put by the Board of Review is in the affirmative. 26. The Board of Review also held that even if the payments represented part of the emoluments of the tax-payer, he was entitled to relief under section 12(1) (b) of the Inland Revenue Ordinance and I have been asked whether that decision is correct. 27. Since I have found that the payments were not part of the assessable income of the tax-payer it is unnecessary to answer this question. However I will say this. 28. Section 12(1) (b) of the Ordinance reads thus:-
29. There were cited to me the following cases, Ricketts v. Colquhoun(3), Nolder v. Walters(4), and Burton v. Rednall(5). In all these cases the sole question at issue was whether or no expenses incurred by the tax-payer in travelling from his residence to his place of work were deductible under the portion of the English enactment corresponding to section 12(1) (b) of the Inland Revenue Ordinance. And in each case it was held that they were not. These cases however do not deal with the question I have already decided in favour of the tax-payer. They do not touch on the question whether moneys received by a tax-payer from his employer as a reimbursement of his travelling expenses are assessable for tax or not. They are solely concerned with the deductibility of the travel expenses of the tax-payer under the relevant portion of the enactment. And so far as my decision in this case is concerned I consider them irrelevant.
Representation: J. W. D. Hobley, Assistant to Law Officers for Appt. C. Ching (Hoosenally & Co.) for Respondent. Judgment read in Court. (1) (1960) A.C. at p.389. (2) (1969) 2 A.E.R. 1. (1) (1959) 3 A.E.R. 817. (3) (1926) A.C. 1. (4) (1930) 15 T.C. 380. (5) (1954) 35 T.C. 435. |