The Commissioner of Inland Revenue v. Peter G.F. Sewell
Read the full judgment text of HCIA 4/1970 on BabelCite. This HCIA judgment.
1. With that brief introduction I come to apply the statute to the facts of the case. Both husband and wife earned a salary in the year of assessment 1968/69, the year in which they were married. Although some mention was made of the manner in which the salary earned by the wife during that year should be taxed we are not concerned to express any view as to that and nothing I say or do not say should be taken as indicating my view as to the correctness or otherwise of what was stated by either s
|
HCIA000004/1970 IN THE SUPREME COURT OF HONG KONG (APPELLATE JURISDICTION) INLAND REVENUE APPEAL NO. 4 OF 1970. -----------------
----------------- Coram: Blair-Kerr, Mills-Owens and Huggins, JJ. Date of Judgment: ----------------- JUDGMENT ----------------- Huggins, J.: We are called upon to construe the provisions of Part III of the Inland Revenue Ordinance and for reasons which will appear I think for my part that this is one of those cases where reference to legislation in other jurisdictions and to decided cases based thereon are more liable to be confusing than to be helpful. The basic scheme of taxation under Part III is as follows. Section 8(1) provides:
It is this sub-section which creates the tax and it indicates both the person who is to pay and what is to be taxed. Section 8(2) and s.9 together define what income is comprised within the term "salary". Section 11 lays down the manner in which the "salary" is to be assessed and s.12 provides for the deduction of various allowances in order to obtain the figure on which the tax is to be calculated. Finally, s.13 describes in detail the manner of calculating or computing the tax. The tax is payable each year in respect of the salary earned during that year, but as a general rule (and the general rule is said to be applicable to the present case) the salary earned during the year of assessment is in truth assessed, that is to say it is computed, by reference to the salary earned in the preceding year. Section 10 inter alia enables the Commissioner to collect tax in respect of a wife's salary from her husband. 1. With that brief introduction I come to apply the statute to the facts of the case. Both husband and wife earned a salary in the year of assessment 1968/69, the year in which they were married. Although some mention was made of the manner in which the salary earned by the wife during that year should be taxed we are not concerned to express any view as to that and nothing I say or do not say should be taken as indicating my view as to the correctness or otherwise of what was stated by either side to be the proper procedure for assessing the tax payable in respect of that year. We are concerned with the year of assessment 1969/70, in which both husband and wife again earned a salary. Those salaries were taxable by virtue of s.8. Under that section prima facie the wife was a person who ought to pay tax. However, since husband and wife, as we are informed, were not living apart the salary of the wife was, by virtue of s.10, deemed to be the salary of the husband and chargeable accordingly in his name. The Solicitor General said that "once the wife became a wife she was chargeable in the name of the husband". What the section says is:
The husband was in fact assessed, and a demand for tax was made on him, in respect of his wife's salary. 2. The question whether the wife was "a person chargeable" goes, indeed, to the root of the whole case. Section 11(1) provides:
If the wife is "a person chargeable" within the meaning of that sub-section then I, of course, agree with the Revenue to this extent - that her income must be separately assessed. But I do not think she is a person chargeable. Her income is chargeable in the husband's name but it seems to me that the effect of s.10 is that she herself is no longer a person chargeable. There is an indiscriminate use in the Ordinance of the word "charge" and its cognate forms which cannot but cause confusion. We find that "tax is to be charged", that "income is chargeable" to salaries tax and that the taxpayer "is chargeable". As I understand it these phrases mean respectively that tax is to be levied, that income is made subject to assessment for salaries tax and that the taxpayer is liable to pay. As we have seen, s.8 initially makes the wife a person chargeable, but that is by virtue of the fact that she has income. Section 10 provides that her income is to be deemed to be the income of the husband and, although it has not said so expressly, the Legislature must in my view have intended that that income should be deemed not to be the income of the wife and not to be chargeable in her name. If it were otherwise both husband and wife would be liable to assessment in respect of the same income and there would be nothing to prevent their both being made to pay tax on that income. The proviso to s.10 makes it clear that the wife is not to be assessed. It is the husband who is to be assessed in respect of the wife's income and that income is to be chargeable in his name. The whole purpose of s.10 is to avoid separate assessments and separate charges. The result, as it appears to me, is that although prima facie she is a person chargeable the wife ceases to be a person chargeable within the meaning of s.11 because her income ceases to be "her" income and is chargeable, and chargeable only, in the husband's name. 3. As I understand it the Revenue have not contended that the wife is "a person chargeable" within the meaning of s.11 and for good reason - if she is a person chargeable under that section there is no provision for aggregation (save possibly, by implication, as to the amount of tax separately payable): all that can be aggregated under s.11 are the amounts of a taxpayer's assessable income from several sources. If the wife's employment is not a source of the husband's income he has only one source and so has the wife, so that the aggregation provision would not apply, as the Revenue say it does. However, even as it is, the Revenue are trying to have their cake and eat it. First they say that the income of the wife is to be assessed under s.11(2) in the same way as it would be if she were sole and unmarried, although it has become the husband's income, and secondly they seek to aggregate the resulting "assessable income" with his under s.11(1) as though it had been his assessable income all the time, thus rendering it liable to tax at a higher rate than that to which it would otherwise have been subject. 4. The assessment of the husband's income, including that which is deemed to be his by virtue of s.10, is to be made under s.11. The "person" assessable and chargeable is the husband: the wife is deemed by necessary implication to have had no income in the year of assessment 1969/70. The sources of "his" assessable income are his own employment, which we are told was as a representative of the British Broadcasting Corporation, and his wife's employment, which we are told was with the Hong Kong and Shanghai Banking Corporation. I would have preferred to say that the sources of his income were the British Broadcasting Corporation and the Bank, the employments being the courses by which the income flowed to him. but I use the word "sources" in the same way that it has been used in s.8(1). The Commissioner was right when, as we are told, he said that "it would be straining the meaning of the Ordinance to refer to the wife as 'a source of income' within the meaning of ss.8 and 11": her source of income became his source of income. That necessarily follows from the fact that her income is deemed to be his, for otherwise he now has income without a source - which is impossible. In passing I must say that I think counsel for the taxpayer was not entirely consistent in his argument, for at one stage he assumed that the employment with the Bank was a source of the husband's income but at another suggested that it could not be. I am satisfied that it was. 5. Section 11(1) requires the aggregation of the amount of the husband's assessable income from all sources. It was argued that the legislation does not provide for the aggregation of the income of husband and wife. Strictly that is, of course, true but nothing turns upon it because this sub-section obviously requires aggregation of the amounts of the taxpayer's assessable income from each source, including the source which is deemed to be his because it is his wife's. I cannot accept the argument for the taxpayer that because "the wife" is not a source of income of the husband therefore the aggregation provision in this sub-section cannot apply. One must proceed to assess his income from each source in order to arrive at "the aggregate amount". No difficulty arises as to his assessable income from his own employment. The dispute arises as to his assessable income from the wife's employment with the Bank. Sub-section (2) says:
Once again it must be remembered that the person whose income we are assessing is the husband and not the wife. We are required to look for "the amount of income accruing to him from (his wife's employment) during the year preceding the year of assessment". In truth none of the income from his wife's employment in any year accrued to him: it accrued to the wife. Nevertheless s.10 deems certain income of his wife to be his income and to be chargeable accordingly in his name. If any part of the wife's income is to be deemed to be the income of the husband it must necessarily also be deemed to have accrued to the husband: it cannot belong to a person without having accrued to him. 6. The case has been argued on the assumption that the husband acquired this source of income, i.e. "his" employment with the Bank, on the same day that the "wife" acquired it. She acquired it before she became his wife. Mr. Litton did at one point suggest that the husband acquired a new source of income on the day of his marriage and was therefore not assessable under s.11(2) at all, but rather under s.11(5), but he did not rest his case upon that basis. For my part I would have thought the matter was strongly arguable but as it has not in fact been fully argued I content myself with expressly leaving it open. Whether or not that approach would raise difficulty for the Revenue in charging the "wife" in respect of her prenuptial income during the year of assessment 1968/69 is immaterial, but I am not sure that it would. Again, the fact that as a source of income of the wife the employment with the Bank would not be new seems to me entirely irrelevant: it is not (or is no longer) the wife or the wife's income that is being assessed. As a source of income of the husband, which is what s.11(2) is concerned with, the employment with the Bank was clearly new. There is nothing in s.10 which says that the husband is to be assessed as if he were the wife or even that the wife's income is to be assessed at all. 7. Does s.10 operate so that the income of the wife during the whole or part of the year preceding the year of assessment is deemed to be the income of the husband and therefore to have accrued to him? It is common ground that it does not operate upon what has been called the prenuptial income. There was some dispute whether it operates upon the postnuptial income in that year. It was, I think, contended at one stage by counsel for the taxpayer that even the postnuptial income of the wife during the year in which the marriage took place was not income which accrued to the taxpayer for the purposes of s.11(2) for he submitted that the wife would be chargeable in her own name in respect of postnuptial income earned in the year of marriage. I do not see how that can be right for such income is deemed to be his income. The prenuptial income is agreed to be excluded because s.10 is clearly intended to relate to the income of a woman while she is "a wife not being a wife living apart from her husband" and not to the income of a woman who is not a wife at all but subsequently becomes a wife. Moreover, any income which is to be deemed to be the husband's is also to be "chargeable accordingly in his name" and it would need very clear language to make the husband chargeable in his name in respect of prenuptial income. In my view there is no intention disclosed to make the husband liable for unpaid tax which the woman he married became liable to pay in respect of a period of assessment before the marriage. 8. Unless the wife's prenuptial income is deemed to be the husband's there is no justification for deeming it to have accrued to the husband. If it did not accrue to the husband, then on the plain words of s.11(2) it is not covered by that sub-section: all that accrued "to him" from his wife's employment (and then only because it is deemed to be his) is the postnuptial income. The rest accrued "to her". Fry v. Burma Corporation(1) and Duckering v. Gollan(2) do not assist us: the wording of the English statute is different and no question arose there whether prenuptial income "accrued" to the husband. Even on the assumption which has been made that the taxpayer's income fell to be assessed under s.11(2) it seems to me that the result would still be that the Commissioner's contention could not be sustained. It is on that assumption (but only on that assumption) that, as the Solicitor General emphasises, during the year of assessment 1969/70 the wife's income in the period from 1st April to 19th October (the anniversary of the marriage) would in effect be tax free. I do not suppose for a moment that that was intended but, if the assumption is correct, that is what the Legislature has said and if the Legislature must produce such a complicated scheme of taxation that they tie themselves in knots it is no part of my function to cut the knots. No doubt it was intended not only that the postnuptial income of a wife should be deemed to be the income of the taxpayer and chargeable accordingly in his name but also that that income should be assessed as though at all material times the income of the woman who becomes the wife has accrued to the taxpayer. There is no provision to that effect. This is a taxing statute and must be construed strictly: if there is a lacuna the taxpayer is entitled to the benefit of it. 9. The case for the Revenue appears to rest principally upon Elmhirst v. Commissioners of Inland Revenue(3). That was a case under r.16 of the All Schedules Rules in the Income Tax Act 1918, which reads as follows:
It was held that there was nothing in r.16 to make the computation of the income of a married woman different from that of a feme sole. The basis of that decision appears to me to have been that what was being assessed was "the profit of a married woman". That was deemed to be the profit of the husband for the purpose only of collection. Our Ordinance is very different. There is no provision for the assessment of the wife in respect of her salary income: what has to be assessed under s.11 is the income of the husband. Although by virtue of s.10 her income is "chargeable" in the name of the husband, that is to say that it is made subject to assessment for tax in the name of the husband, the Ordinance does not make it otherwise subject to assessment. In England the substantive part of r.16 makes the profit of a married woman assessable as if she were sole and unmarried. In Hong Kong her income can be brought into assessment only as part of the husband's income. Elmhirst's Case requires the words "for the purposes of collection" to be read into the proviso but not into the substantive part of the English rule: her income is to be assessed in the husband's name by virtue of the proviso but is assessable under the substantive part. That distinction was emphasised in the passage which Mr. Justice Blair-Kerr has cited from the judgment of Lord Hanworth M.R. in Leitch v. Emmott(4). 10. The Solicitor General contends that the view I have adopted does not give due weight to the fiction that the income of the wife is the income of the taxpayer. On the contrary, if anyone is not giving due weight to the fiction it is the Revenue, for they deem the wife's income to be the income of the husband for some of the purposes of Part III but not for all such purposes. Thus, as we have seen, they deem her income to be his for the purposes of aggregation and collection but not for the purpose of computation under s.11(2), for if the income from the employment with the Bank had in truth been the income of the husband during the period that the wife was a wife not living apart from him, and for no longer, he could have had no income from that source before the date of the marriage. (That is why I question the propriety of an assessment under s.11(2) at all). The Revenue seek in effect to avoid this inconsistency by adopting two inconsistent interpretations of the word "income" in s.10. While they agree that the prenuptial income is not to be "deemed to be the income of the husband and chargeable accordingly in his name" so as to render the husband liable to pay tax upon it, nevertheless they say that it must be "deemed to be the income of the husband" for the purpose of making it accrue to him. Of course, looking at the same matters from a different point of view one may say that the argument on behalf of the Revenue extends the fiction beyond the limits which have been set by the Legislature for it requires us to deem not only that "the income of a wife not being a wife living apart from her husband" accrued to the husband but also that income of an unmarried woman accrued to the man who became her husband. I will conscientiously apply the fiction to the full extent to which I am compelled by the Legislature - no less and no more. 11. I respectfully agree with my Lords that the support which the Board of Review found in the English cases for their conclusion was in fact without substance but I agree with the Board to this extent, that the differences between our legislation and that applicable in the United Kingdom are vital. 12. The question posed to this court in what has been headed "Case Stated" (although, as happens in 99 out of 100 of such proceedings in Hong Kong, the document thus described does not state the case at all) did not indicate as clearly as it might have done the real issue between the parties and they asked us to consider a question in the following form:
That "question" in fact includes two parts and I would answer it as follows. On the assumption that s.11(2) applies to the assessment of the husband in respect of the wife's income in the year of assessment 1969/70 the answer to the first part of the question is "Yes, though they did so for the wrong reasons"; and the answer to the second part of the question is "Yes - and not only should that part of the income of 'the wife' earned in the year preceding the year of assessment (when whe was not his wife) not to be deemed to be the income of the taxpayer but, more important, that part of her income should not be deemed to have accrued to the taxpayer". Representation: (1) 1930 A.C. 321 (2) (1964) 3 All E.R. 95 (3) (1937) 2 K.B. 551 (4) (1929) 2 K.B. 236, 244. |