Commissioner of Inland Revenue v. Asia Television Ltd.

Case No.HCIA 4/1986

Court

HCIA

Date20 Mar 1987

Judge—

Case Document

100%Judiciary

HCIA000004/1986

IN THE SUPREME COURT OF HONG KONG

HIGH COURT

INLAND REVENUE APPEAL NO. 4 OF 1986

BETWEEN

COMMISSIONER OF INLAND REVENUE

Appellant

AND

ASIA TELEVISION LTD.

Respondent

Coram: MORTIMER, J

Date of hearing: 19 March 1987

Date of judgment: 20 March 1987

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JUDGMENT

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1. This is an Appeal by way of case stated from a decision of the Board of Review dated the 12th April 1986.

2. The Board allowed the Taxpayer's appeal against Profit's Tax Assessment for six years between 1977 and 1983 amounting in total to something over 5.5 million.

3. Before the Board, certain facts were agreed and others were found to be proved. The following were agreed :-

	(a)	That the Taxpayer entered into a licence agreement with each of the Distributors for the right to broadcast on television films and tapes supplied by the Distributor for a fixed period against the payment of licence fees as stipulated in the Agreement.
	(b)	That the licence fees were paid up the Taxpayer direct to the Distributors abroad.
	Those were the facts agreed. The following were found proved:
	(a)	that the licence fees were in lump sums which were fixed independently of the estimated advertising revenue of the Taxpayer arising from the broadcasting of the films or tapes;
	(b)	That the licence fees in no way represented a percentage of such estimated advertising revenue;
and	(c)	That the money which was used to pay the licence fees came from the Taxpayer's funds and that it was not possible to identify a specific item of the Taxpayer's income as funding the payment of licence fees.

4. The background was that the Taxpayer was said to be an agent for certain non-resident foreign film distributors within the meaning of section 2 of the Inland Revenue Ordinance, Cap. 112 in respect of fees which had been paid by the Taxpayer direct to the Distributors in accordance with agreements between them.

5. The assessments made by the Commissioner of Inland Revenue were made under the Inland Revenue Ordinance. First, under section 14 which is the general charging section in respect of profits, more particularly, for the purposes of this case under section 15(1)(a) and/or (b). Section 15(1) reads :

"	For the purposes of this Ordinance, the sums described in the following paragraphs shall be deemed to be receipts arising in or derived from Hong Kong from a trade, profession or business carried on in Hong Kong and
	(a)	sums not otherwise chargeable to tax under this Part, received by or accrued to a person from the exhibition or use in Hong Kong of cinematograph or television film or tape, any sound recording, or any advertising material connected with such film, tape or recording and
	(b)	sums, not otherwise chargeable ..................... received by or accrued to a person for the use of or right to use in Hong Kong ........ copyright material ..........

6. The Commissioner of Inland Revenue purported to act under his powers in section 20A which provides: sub-paragraph (1)

"A non-resident person shall be chargeable to tax either directly or in the name of his agent in respect of all his profits arising in or derived from Hong Kong from any trade, profession or business carried on in Hong Kong whether such agent has the receipt of the profits or not, and the tax so charged whether directly or in the name of the agent shall be recoverable by all means provided in this Ordinance out of the assets of the non-resident person or from the agent."

7. Section 21A deals with the amount of such profits to be assessed and it reads :

"The assessable profits of a person arising in or derived from Hong Kong in respect of a sum deemed by section 15(1)(a) or (b) to be a receipt arising in or derived from Hong Kong from a trade, profession or business carried on in Hong Kong shall, for the purposes of this Ordinance and notwiththstanding any other provisions of this part, be taken to be 10% of such sum."

8. Returning for a moment to section 20A where the tax may be chargeable to the agent; the agent referred to is defined in section 2. In this respect section 2 reads : "agent in relation to a non-resident person includes -

	(a)	the agent, attorney, factor, receiver or managor in Hong Kong of such person, and
	(b)	any person in Hong Kong through whom such person is in receipt of any profits or income arising in or derived from Hong Kong."

9. The Board Of Review found that the definition of "agent" in sub-paragraph (b) did not apply to a person who makes a direct payment to a non-resident person on a principal to principal basis and therefore in this case the Taxpayer did not come within the definition of "agent" in the relevant legislation and that therefore the legislation did not bite on the Taxpayer.

10. The question Of law for my decision is therefore was the Board of Review correct in law in finding that the Taxpayer was not the agent of the non-resident film distributors within the meaning of the Inland Revenue Ordinance? The issue for my determination is whether the Taxpayer is an "agent" within the definition of section 2. This point is not amenable to lengthy or elaborate argument or reasoning.

11. The Appellant contends that the words in the definition section "through whom" are sufficient and apt to cover the payment made by the Taxpayer in this case to the non-resident distributors. The full words being for these purposes, "any person in Hong Kong through whom such non-resident person is in receipt Of any income arising in Hong Kong."

12. Counsel for the Commissioner of Inland Revenue submits further that if one considers the definition of the word "through" in the Oxford Dictionary he is assisted thereby, because "through" can mean "by means of", or can indicate "a cause" Or "a reason" or "instrumentality " or" the instrument by which something is done". He submits therefore that the payment made by the "principal" in this case is covered by the words and that the payment is made through the principal.

13. Further he argues that in so far as the Board of Review relied upon the "eusdem generis" rule, it is excluded by the Interpretation and General Clauses Ordinance, Cap. 1. The words "or", "other" and "otherwise" it provides, "shall be construed disjunctively and not as implying similarity unless the word "similar" or some other word of like meaning is added". Counsel for the Commissioner submits that that provision bears upon the definition of "agent" in the instant Ordinance.

14. He submits also that the sections relied upon were not Charging Sections but were machinery for the collection off tax and there-fore it is not required in construing the section that I should impose any particularly strict interpretation in favour of the Taxpayer. Also, he askes me to consider the results if the section does not bite on the Taxpayer in this case. He says that there will be problems which the Commissioner of Inland Revenue will face in the collection of tax from those who come temporarily to work in Hong Kong; such as those who come to give theatrical performances, for sporting events, or professional men such as lawyers, engineers and so forth.

15. He points to the words "in receipt of" in the Definition Section and submits that the person abroad cannot be in receipt of the income save through the Taxpayer in this case. Further, that the Definition Section is not limited to a person who is an agent nor to a person who is acting as an agent but covers also a person such as the Taxpayer here who is acting as "principal" but is paying money to a non-resident person or company.

16. Finally it is submitted that if the word "agent" is not defined in the way contended for by the Commissioner the result is so contrary to the intention of the section and of the Ordinance that an absurd result is achieved.

17. I turn now to consider the meaning of the words in the section. Words in an Ordinance are to be given their ordinary meaning in the content in which they are used unless there is some powerful reason for giving them some other meaning. For example, it may be necessary to give words a meaning other than their ordinary meaning because of the history of the legislation or because of previous binding decisions of the Court or, if the ordinary meaning of the words produces an absurdly unjust result or produces simple absurdity in the legislation. Then the Court would strive to give those words a proper meaning; by that I mean a meaning which does not lead to an unjust or absurd result, on the basis that the legislature could not have intended such a result also the content in which words are used may require that general words be limited in their effect. The "eusdem generis" principle is an example.

18. Some of the principle which are to be applied in the interpretation of words in a statute,including a revenue statute, are usefully to be found in a decision of the Privy Council in 1970; Mangin v. Commissioner of Inland Revenue 70 Australian Tax Cases 6001, the passage in the Judgment of the majority delivered by Lord Donovan at F. 6003 :

It may be useful to recall at the outset some of the rules of interpretation which fall to be applied. First, the words ore to be given their ordinary meaning. They are not to be given some other meaning simply because their object is to frustrate legitimate tax avoidance devices".

Having cited a case, he continues,

moral precepts are not applicable to the interpretation of Revenue Statute.

Secondly, 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 tax. Nothing is to be read in, nothing is to be implied. One can only look fairly at the language used."

He then cites authority.

Thirdly, the object of the construction of a statute being to ascertain the will of the legislature it may be presumed that neither injustice nor absurdity was intended. If therefore a literal interpretation would produce such a result, and the language admits of an interpretation which would avoid it, then such an interpretation may be adopted.

Fourthly, the history of an enactment and the reasons which led to it being passed may be used as en aid to its construction."

19. The context of the words in this case is found in the provisions of section 20A to which I have adverted, where the agent is made charge-able either out of the assets he holds for the non-resident person or otherwise, and the Definition Section defining the word "agent". Whereas of course a Statute could define the acts of an "agent" to include the acts of a "principal" it would obviously require the clearest words. Such words, in my judgment, are absent here. The words "any person through whom such non-resident person is in receipt of any income arising in Hong Kong" describe acts which are often associated with an agent and acts which are governed by the words "through whom".

20. The ordinary meaning of those words is to the effect that income which has arisen in Hong Kong (that is, income of the nonresident person) goes through the person charged as agent to the non resident person. In other words, from A or a number of people through B, the agent, to C the non-resident person. There will be something identifiable as the income or profits of the non-resident person which have gone through the person to be charged, to the non-resident.

21. In this case the non-resident person was not in receipt of income through the resident agent Taxpayer but was in receipt of income from him as "principal". In their ordinary meaning, therefore, the words "any person ....... through whom such person ....... is in receipt of income arising in ........ Hong Kong" do not cover the payments made by the Taxpayer in this case. It follows that the answer to the question of law for the opinion of Court posed in the case, stated is "yes".

22. I am fortified in my judgment by a number of considerations. First, the decision does not involve any absurd or unjust result, whereas to find that a definition in an Ordinance defines an "agent" as a "principal" would certainly border on the bizarre, if not, indeed, the absurd.

23. Secondly, the Definition Section itself is logical as submitted by Mr. Fisher. The definition moves first from the general, the word "agent" as generally understood in the law; to the special, the words "attorney", "factor", "receiver" or "manager", special types of agent; then, to a person who is not an agent but who performs functions similar to an agent. Someone who is passing on profits or income; someone through whom profits or income is passed. Mr. Fisher submits that one can find in the Definition Section persons who are all intermediaries of some kind. Therefore he says the words "through whom" are apt to describe a further type of intermediary I accept that is logic in the context in which the words are used and in the raider context of the Ordinance itself.

24. He supports the argument further for he says; note the different wording of section 20A and section 29; he says that if the intention had been to make the person who is paving liable for the tax, section 20A and the Definition Section would have been differently drawn. He says that because of the way in which section 29(1) is drafted. Section 29(1) reads :

"Subject to Sub-section (5) where a person in Hong Kong pays or credits to any person a sum being interest chargeable with interest tax under section 28, he shall, at the time he makes the payment .................. such sums of interest tax as determined in accordance with other sections."

There, the liability is imposed upon the person who pays. Section 20A does not employ the same machinery and could easily do so if it was intended to cover the situation of the "principa1" who makes payment.

25. Mr. Fisher seeks to support this definition by adverting to the "eusdem generis" rule. It is applicable. It would support his contention. For my part, I prefer to rely upon the ordinary meaning of the words in their context. If it be of any importance hereafter, in my judgment, the provision of the Interpretation and General Clauses Ordinance, Cap. 1 providing that the words "or", "other" and "otherwise" shall be construed disjunctively and not as implying similarity unless the words "similar" or some other word of like meaning is added have no application to the relevant words of the definition of "agent" where the word "and" is used aftar sub-paragraph (a) and no other relevant words are used in the Definition Section, sub-suction (b).

26. I have been invited to consider Rye & Eyre v. Commissioners of Inland Revenue 19 Tax Cases 164. A decision of the House of Lords in 1935 dealing with different statutory provisions in the United Kingdom but some of which are similar and dealing with the situation where a solicitor paid on behalf of a client for copyright royalties to an author abroad.

27. I refer to the speech of Lord Atkin at 173. The words under consideration were "the person by or through whom any such payment is made". It was said that the solicitor was caught by those words. Lord Atkin dealing with the point said:

"Now were the Appellants in this case, Messrs Rye and Eyre, the person by or through whom such payment is made?" I imagine that on the plain meaning of those words, the words would be apt to describe either the principal or the agent. The principal by whom or the agent through whom, the payment was made. I reserve any question as to whether or not in this particular case the solicitors could be said to be the persons "by whom" the payment was made, but it seems to me obvious that the payment was made either by them or through them. And indeed the only suggestion that was made in the case was that they were not the persons "through whom" the payment was made, because through whom means the person in consequence of whose instructions the payment was made which seems to me to be entirely contrary to the plain meaning of the words, which appear to no to indicate agency.

28. Insofar as Lord Atkin was dealing with the words "through whom" I take comfort from the fact that he considered the words to have the same ordinary meaning as I consider they have in this case, although I remind myself that the context here is different.

29. On those grounds this Appeal is dismissed.

	(J. B. Mortimer)
	Judge of the High Court

Representation:

I. Wingfield of Crown Solicitor for Appellant.

G. Fisher (Johnson, Stokes & Master) or Respondent.