Commissioner of Inland Revenue v. Ng Shik Ho

DCCJ004526/1975

IN THE DISTRICT COURT OF HONG KONG

HOLDEN AT VICTORIA

CIVIL JURISIDCTION

Action No. 4526 of 1975

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Coram: Judge Rhind, D.J. in Court.

Date of Judgment: 31st August 1976.

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JUDGMENT

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1. In proceedings commenced in the District Court by Writ of Summons filed on 11th June 1975 and served on Defendant that same day, the Plaintiff's Particulars of Claim asserted the total sum of $1,653,000 to be owing by Defendant to Plaintiff for Profits Tax which fell due on 9th June 1975 in respect of the six years of assessment 1969/70 to 1974/75 (inclusive).

2. Contending that no reasonable grounds of defence were disclosed thereby, the Plaintiff now seeks by Summons under o.18 r.19 and the Court's inherent jurisdiction an order to strike out Defendant's Statement of Defence, the material averments of which can be summarised as follows:

(i) On or about 24th May 1975 the Plaintiff's assessor issued Defendant with forms under S.51(1) of the Inland Revenue Ordinance requiring him to make a return within one month from that date of profits assessable to profits tax for the six years of assessment 1969/70 to 1974/75 (inclusive).

(ii) At or about the same time as he issued the forms just referred to, the assessor issued notices of assessment for those same six years of assessment, purporting to estimate Defendant's liability to Profits Tax at $1,635,000.

(iii) By a letter dated 24th July 1975 to Plaintiff's assessor Defendant's solicitor requested the reason why the assessor purportedly exercised his discretion under the proviso to S.59(1) of the Inland Revenue Ordinance, but the assessor refused and/or failed to give any reason in his letter in reply dated 12th September 1975 or at all.

3. Whilst Defendant's counsel does not dispute this Court's power to strike out a hopeless defence, he, nonetheless, strenuously disputes the present to be such a case.

4. In the Statement of Defence it is contended in effect that, on the pleaded facts set out above, the tax claimed is ultra vires the Inland Revenue Ordinance and the purported assessments are nullities - themes counsel for the Defence elaborated on in his submissions on the present summons.

5. To anyone conversant with the line of cases stretching from C.I.R. v. Wah Feng 1960 H.K.L.R. 94, through C.I.R. v. Au Yuk Shuet 1966 D.C.L.R. 29 down to Ng Chun Kwan v. C.I.R., Civil Appeal No. 49/75, Defendant's contentions had a familiar ring about them, and so did the stand taken on Plaintiff's behalf. For Plaintiff it was urged that, stripped down to basics, what Defendant's plea amounted to was no more than that the tax claimed was incorrect, but as these were recovery proceedings under Part XII of the Ordinance, S.75(4) precluded the Court from entertaining any such plea. This type of plea is only appropriate to an objection or appeal under Part XI, it being the scheme of the legislation to keep objections or appeal under Part XII entirely separated from recovery proceedings under Part XII. Not so, countered counsel for Defendant: this time what Plaintiff had done was so defective and unjust as to result in a nullity.

6. For the sake of convenience, I will now set out the sub-sections of the Inland Revenue Ordinance to which reference has been made so far:-

7. If I understood Mr. Litton aright, his principal argument was this: having allowed Defendant a month under S.51(1) to make his return, Plaintiff could not at the same time summarily assess Defendant before allowing him that time to make the return. True, there is the proviso to S.59(1), so the argument went on, which enables the assessor to assess any person at any time if he is of opinion that such person is about the leave the Colony or that for any other reason it is expedient to do so, but that surely could not apply here as Defendant had only just been asked to make a return. There was no suggestion of Defendant being about to leave the Colony and there could not be any reason why it was expedient for Plaintiff to make such an assessment, for otherwise Plaintiff would have declared his reason when replying to Defendant's solicitor's letter of 24th July 1975. Moreover, without giving Defendant the opportunity of making a return, Plaintiff could not have been in a position to make an assessment based on an estimate, as contemplated by S.59(3), which is as follows:-

"S.59(3) Where a person has not furnished a return and the assessor is of the opinion that such person is chargeable with tax, he may estimate the sum in respect of which such person is chargeable to tax and make an assessment accordingly, but such assessment shall not affect the liability of such person to a penalty by reason of his failure or neglect to deliver a return."

8. I found those arguments unpersuasive. To my mind, when the proviso to S.59(1) states "... the assessor may assess any person at any time ..." those words mean what they say, overriding the rest of the sub-section. What the position would be if facts were pleaded from which the Court might have inferred that no assessor, acting bona fide, could have reasonably formed the opinion that it was expedient to assess Defendant forthwith becomes academic in the present case, for there is simply no material from which I can gauge whether he acted reasonably or unreasonably. Because of silence on this point in Plaintiff's letter to Defendant dated 12th September 1975, I do not see how I can go so far as to assume Plaintiff probably acted unreasonably. For the purpose of the present proceedings, unless the assessment can be demonstrated by Defendant to have been unreasonable, he cannot expect this Court to conclude the assessment was void. While one normally sympathises with a party saddled with a negative averment i.e. Defendant having to show the assessment was unreasonable if he is to have any hope of establishing nullity, one, nonetheless, need not feel too concerned for a person in Defendant's position who will have had his opportunity to object to the assessment in accordance with Part XI of the Ordinance, and in particular I have in mind S.64(4) whereunder the Commissioner has to state his reasons for making the assessment he did.

9. According to the Defence submission, from the facts pleaded it was arguable that the Plaintiff had never made an "assessment" in the sense in which that word is used in the Ordinance, so that Plaintiff's claim would lack any foundation. Thus, Defendant was saying this was not a situation where Plaintiff could claim the protection of the shield afforded by S.75(4) to incorrect assessments, for Plaintiff had not even reached the stage of making an assessment, let alone an incorrect one. Defendant impugned the existence of an assessment by a process of argument which can be summarised as follows. Plaintiff sent Defendant a form under S.51(1), allowing time to make a return. Before that time had expired, Plaintiff purported to assess Defendant, which in the absence of a return, could only have been done by estimating Defendant's profits. The conjunction of the circumstances of Defendant being asked to make a return and Plaintiff in effect estimating Defendant's profits indicate the Plaintiff was purporting to make an assessment under S.59(3), but the sine qua non for the operation of that sub-section, namely the expiration of the time allowed to make the return, was missing, so that Plaintiff's action under that sub-section was a nullity.

10. The fallacy of that argument is its assumption that it is only if Plaintiff acts under S.59(3) that he is entitled to do any estimating, and that if Plaintiff did any estimating then he must be presumed to have been purporting to act pursuant to S.59(3).

11. Probably Plaintiff made the assessment pursuant to the proviso to S.59(1), but it is also conceivable he might have made it under S.60(1) which relates to additional assessments, and is as follows:-

"S.60(1) Where it appears to an assessor that for any year of assessment any person chargeable with tax has not been assessed or has been assessed at less than the proper amount, the assessor may, within the year of assessment or within 6 years after the expiration thereof, assess such person at the amount or additional amount at which according to his judgment such person ought to have been assessed, and the provisions of this Ordinance as to notice of assessment, appeal and other proceedings shall apply to such assessment or additional assessment and to the tax charged thereunder."

12. Either the proviso to S.59(1) or S.60(1) would ground the assessment made here, and whichever one it was, the observations I am about to make apply equally. Although those subsections do not use the word "estimate" explicitly, that does not mean Plaintiff is not entitled to engaged in any estimating when making his assessments. Because Plaintiff has estimated, it does not mean he has not assessed. In so far as the proviso to S.59(1) is concerned, it is hard to see how it could be made to operate at all if the Plaintiff were forbidden to do any estimating. To make summary assessments, Plaintiff has to do the best he can with such material as is available to him, and he will inevitably have to estimate. If the tax-payer does not like the resulting assessment, including as it will an element of estimation, then, of course, he can avail himself of the remedies provided by Part XI. But I do not see how in such circumstances the tax-payer can say he has not been assessed. Also, for an assessment stemming from S.60. I fail to see why an element of estimation should be incompatible with assessment.

13. Various cases including the following were cited to me on Defendant's behalf: Argosy Co. Ltd. v. Guyana Commissioner of Inland Revenue 1971 ATC 49; The King v. The Deputy Federal Commissioner of Tax for South Australia, ex. p. Hooper 1926 37 CLR 368; Giris Pty Ltd. v. Federal Commissioner of Tax (1969) 1 A.T. R. 3; ex parte Aramayo 6 T.C. 613; Anisminic Ltd. v. Foreign Compensation Commission 1969 2 A.C. 147. All of them dealt with vastly different legal and factual situations from the one confronting the Court in the present case, and as to my mind they shed no useful light on the problem before the Court, I would regard it as an unproductive exercise to embark on an analysis of them now.

14. To find the solution to the present problem one needs look no further than the confines of the Inland Revenue Ordinance and the Hong Kong cases cited earlier. It is clear from those sources that the defence filed is doomed to failure, and I am therefore going to order it to be struck out.

Representation: