Re Independent Steamship Co Ltd

HCMP000208B/1969

IN THE SUPREME COURT OF HONG KONG

ORIGINAL JURISDICTION

MISCELLANEOUS PROCEEDINGS NO. 208 OF 1969

-----------------

Coram: Full Court (Blair-Kerr, Mills-Owens & Huggins, JJ.)

Date of Judgment: 18th March, 1970.

-----------------

JUDGMENT

-----------------

Huggins, J: This is an application for an order of mandamus addressed to the Commissioner of Inland Revenue requiring him to determine an objection lodged by the applicants in respect of an assessment of corporation profits tax. The issue which arises is whether the objection has been validly made so as to require the Commissioner to consider it and to make a decision upon it.

1. The applicants are shipowners. Between August 1956 and September 1959 they operated one vessel, but at the end of that period they sold her at a sub tantial loss and I think it is not disputed that after allowing for depreciation at the rate prescribed by the Inland Revenue Ordinance they would have been entitled to a balancing allowance under s. 38 in the sum of $1,050,190 against subsequent profits. From September 1959 until 1963, however, the company neither owned nor operated any vessel and there were no profits against which a balancing allowance could be made. Indeed, the Commissioner regarded the applicants as having ceased business altogether. Be that as it may, in July 1963 the applicants purchased another vessel and commenced trading with her, as a result of which they made profits. In respect of the year of assessment 1966/67 the applicants submitted the necessary return. On the 3rd February, 1967 the Commissioner gave notice of a provisional assessment under s.59(2). That assessment made no mention of any loss brought forward under s.19(2), which we are told would include any balancing allowance. By a letter dated the 28th February, 1967 the applicants' accountants purported to give notice of objection against this provisional assessment, the terms of the letter being as follows:-

The Commissioner replied, indicating that he did not regard this letter as a formal objection under s.64(1) as there had been only a provisional assessment, and on the 12th April, 1967, he gave a further notice of assessment, which indicated that additional nett tax was payable. The notice was accompanied by a computation headed "Firm Assessment" and allowed for a sum of $25,400 as loss brought forward under s.19(2). Again no mention was made of any balancing allowance. No objection was lodged in respect of this assessment.

2. The material parts of s.64(1) are:-

There can be no doubt that unless the context indicates otherwise a provisional assessment made under s.59 is an "assessment made under this Ordinance" so that at first sight the opening sentence of s.64(1) appears to contemplate an objection to a provisional assessment. S.59(2) lays down three alternative courses of action open to an assessor where a person furnishes a return, (a) to accept the return and make an assessment accordingly, (b) to reject the return and make an assessment upon an estimate of the tax chargeable, and (c) to make a provisional assessment. Alternative (c) is contained in the proviso, which says:

"Provided that if the assessor accepts the return as substantially correct, but considers it necessary to make further inquiries on any matter, he may make immediately a provisional assessment in the amount of the return which until amended shall be a valid assessment for all purposes."

Despite the forthright statement that a provisional assessment shall be valid "for all purposes" counsel for the Commissioner submits that it is valid for all purposes except for purposes of an objection. Perhaps it is not necessary for him to go quite as far as that for what in effect he submits is that although not in any sense "invalid" a provisional assessment is not open to objection because the Ordinance (in particular s.64) supplies no method of lodging a valid notice of objection against it.

3. I must concede at once that the drafting of the relevant provisions leaves much to be desired and if, as we are told, s.64(1) was enacted in its present form in 1965 with the purpose of making appeals against provisional assessments incompetent it is a little surprising that the Legislature did not express its intention more clearly. The inclusion of the words "in the case of a provisional assessment" would obviously support the implication contained in the opening sentence that every assessment, including a provisional assessment, may be objected to. The argument for the Commissioner requires the subsection to be read as though it said "... in the case of an assessment which is not in substitution for a provisional assessment ..... and in the case of an assessment which is in substitution for a provisional assessment......". There is a related difficulty arising from the fact that "in the case of a provisional assessment" a notice must be given "within one month after the date of the notice under subsection (2) of section 62 confirming or amending such assessment". Strictly a notice under s.62(2) cannot itself confirm a provisional assessment but can only give notice that a provisional assessment has been confirmed. Even disregarding such niceties of language one finds that there is no express reference in s.62(2) to a notice amending, or giving notice of the amendment of, a provisional assessment. Indeed counsel on both sides seem to argue that there is no such thing as an amending assessment or a notice of amended assessment: they say that there can be only an "additional" assessment under the provisions of s.60. In my view it is impossible on a reading of the whole Ordinance to hold that there is no such thing as an amended assessment. The proviso to s.59(2), whence is derived the power to make a provisional assessment, expressly indicates the possibility of amendment and one is not to assume that the Legislature included the words "until amendment" to no purpose. Mr. Justice Mills-Owens has suggested to us that a notice of confirmation under s.62(2) may be a notice that the assessment is confirmed with amendment: it would then be, in the words of s.64(1) a "notice under subsection (2) of section 62 ... amending such assessment". Whatever way one approaches the Ordinance there are difficulties of construction and the one which strikes me most forcibly concerning this approach is that the Legislature has elsewhere in the Ordinance contrasted confirmation and amendment too often for the word "confirmed" when it appears in s.62(2) to combine confirmation and amendment, while such a construction would involve that the words "or amending" in s.64(1) were surplusage. I am, however, greatly indebted to my learned brother for his suggestion because it has shown me another possibility which, I think, does less violence to the language of the Ordinance than any other.

4. I agree that it is unfortunate that the draftsman has lumped together in s.60 provisions relating to increases of provisional assessments and assessments additional to what I any call substantive assessments, i.e. assessments under paragraphs (a) and (b) of s.59(2), but in my view this does not prevent the first type of additional assessment from being at the same time an amended assessment. Although s.60 does not use the word "amend" in any of its cognate forms it deals with the case where the sum arrived at by the provisional assessment is subsequently thought by the assessor to be too low and, therefore, to require "amendment". (No question can arise of a provisional assessment's being too high because every provisional assessment must be "in the amount of the return" so that any disputed matter can only lead to an increased and not to a decreased liability). Having come to the conclusion that any amendment of a provisional assessment must be made under s.60 I then ask myself How is the taxpayer to be informed of the amendment? The contention before us has been that notice must be given under s.62(1). The reason for that contention is that the only provisions relating to notice of assessment are subsections (1) and (2) of s.62 and that subsection (2) applies only "if such provisional assessment is confirmed". Nevertheless, as Mr. Justice Mills-Owens points out, s.64(1) appears to contemplate "a notice .... amending" (or, more accurately, a notice of amendment) given under s.62(2) and it occurs to me that the clue to the solution to the problem may lie in the draftsman's not being a devotee of Fowler. Perhaps in the better English usage "if" is a conjunction introducing a clause of condition or supposition although there is authority stretching back at least as far as the Authorised Version of the Bible for its use as a synonym for "whether": see Genesis 8.8. If one reads s.62(2) as though it said "... and he shall further be notified in due course by the Commissioner whether such provisional assessment is confirmed", one gets the position that if an assessor decides to amend a provisional assessment notice must be given under s.62(2) that the provisional assessment is not confirmed. It is perhaps not an unreasonable assumption that the Legislature contemplated that in such a case the notice should go further and should indicate what figure had been decided upon as being the correct assessment. In that event the notice could not unfairly be described, in the words of s.64(1), as a "notice under subsection (2) of section 62 .... amending such assessment". In my view the notice dated the 12th April 1967 was a notice under s.62(2) of amendment of the provisional assessment.

5. It fallows from there that "in the case of a provisional assessment" (which I agree should be taken to mean "in the case of an assessment which is in substitution for a provisional assessment") where the provisional assessment is not confirmed notice of objection must be given within one month of the notice informing the taxpayer that the provisional assessment is not confirmed and amending the assessment. Whether the increased assessment is still a "provisional" assessment it is not necessary for us to decide. It has been argued for the appellants that the notice of objection dated the 28th February, 1967 was given within the period prescribed by s.64(1). While this, also, is not necessary to our decision I cannot accept that argument because this much at least is clear, that the notice of objection was not intended to be valid unless it was served "after" the date of the notice of the amendment of the provisional assessment.

6. That brings me to the question whether the Ordinance does contemplate an objection to a provisional assessment at all. What possible purpose could there be in the Legislature's providing for an objection to a provisional assessment which had ex hypothesi been superseded by an amended assessment? It is contended on behalf of the applicants that proviso (c) to s.64(1) may make it necessary to do so because otherwise the taxpayer may find himself barred from raising an issue which was raised by the provisional assessment. This argument is based upon the words "shall have no further right of objection than he would have had if the .... amended assessment had not been made, except to the extent......"; which appear in proviso (c) to s.64(1). As it seems to me the purpose of this proviso was to produce finality. Once a taxpayer acquires a right to object he must proceed with any objection he may have and if he fails to do so the fact that an additional or amended assessment is made which raises the same issue does not entitle him to raise the issue by objection to the later assessment: his right to raise the issue is statute barred except to the extent of any fresh or increased liability. What is said by the applicants is that the reference to an "amended assessment" in proviso (c) can only be to a case where a provisional assessment has been "amended" under s.60 because there is no other case where an assessment can be amended: therefore, the proviso suggests that where there has been a provisional assessment the right to object to an amended assessment is limited because there was a previous right to object against the provisional assessment itself. Counsel for the Commissioner agrees that the reference to an "amended assessment" can only be to a case where a provisional assessment has been "amended" under s.60 but submits that the words "or amended" are surplusage, since where there has been a provisional assessment an "amended" assessment is also an "additional" assessment: he says they were inserted ex majore cautela.

7. In my view the submission of cocunsel for the applicants involves a circular argument. Proviso (c) can only apply to the present case if there is a right of appeal against a provisional assessment, which is the very thing we have to decide. If there was no right to object "if the additional or amended assessment had not been made", the proviso cannot have the effect of limiting the right to object to the additional or amended assessment.

8. The conclusion I have reached is that the nature of the provisional assessment is governed entirely by the proviso to s.59(2). If such an assessment is to be, until amended, a valid assessment for all purposes the implication is that when amended it ceases to be valid for all purposes. It would not necessarily follow that it was to be invalid for all purposes but I think the obvious intention was that it was to be merged in the amending assessment. It was for this reason that the Legislature limited the time for objection by reference to the notice of confirmation or of amending assessment. Despite the words in s.64(1) "in the case of a provisional assessment" what must be objected to is not the superseded provisional assessment but the amended assessment into which it becomes merged. I am not greatly concerned that if there is no power to object to a provisional assessment the Commissioner may keep the taxpayer at bay indefinitely by failing to confirm the assessment or to give notice of an amended assessment. It would certainly have been better if he had been required to give notice of confirmation or amendment within a prescribed time, though I hasten to add that there is nothing to suggest that there has ever been any unreasonable delay. In theory he could deprive taxpayers of any opportunity to object by giving notices of provisional assessment and never confirming or amending the assessment, but that possibility arises, I suspect, from an over sight and not from any intention of the Legislature. The possibility is not a convincing argument in favour of a right to object to a provisional assessment.

9. In view of my conclusion upon the first contention of the Commissioner it may be unnecessary to deal with the second, but as the matter is within small compass I will express a view upon it. It seems to me that as a rule if the Commissioner declined to determine an objection we would be obliged to grant mandamus unless the notice disclosed no ground at all for an objection. What counsel for the Commissioner really asks us to do is to make a declaration as to the effect of the notice if valid or, more specifically, a declaration that the objection did not extend to the question whether a balancing allowance should have been made: what he says here is not that there is no ground for objection but that the ground which the applicants wish to have considered is not mentioned in the notice. I see no reason why a notice should not be valid to the extent of giving the Commissioner jurisdiction and yet be insufficient to raise one or more objections which the objector desires to raise. Suppose a taxpayer desires to raise two matters of objection but through inadvertence mentions only one in his notice. Can it be said that the notice is wholly invalid because it does not mention both grounds of objection? It may be that the Commissioner could not go beyond the terms of the notice and consider the ground which was omitted (there is no express power to allow amendment of a notice of objection) but I think the notice would be valid as far as it went. In the present case the notice does state precisely one ground of objection (whether good or bad) although it is questionable whether it raises the ground now sought to be pursued. The loss of $49,961 mentioned in the notice of objection is a nett loss carried forward from the year of assessment 1958/59, the year before the sale of the ship which resulted in the capital loss now sought to be brought into account. That capital loss is not referred to in the letter of the 28th February, 1967 either directly or by reference. Since apparently the applicants submitted no proper return for the year 1959/60 it was assumed by the assessor that they had ceased business and he made a "nil" assessment under s.59(2)(b). According to the papers before us the only reference to a balancing allowance of $1,050,190 made in a communication addressed to the Department of Inland Revenue was made on the 1st September, 1965. This was in reply to a letter dated the 23rd August, 1965 stating that the applicants were not liable to tax for the year of assessment 1963/64 (the year in which business was resumed) and that a loss of $35,113 was being carried forward, this being the balance of the loss of $49,961 sustained in 1958/59. The letter of the 1st September was from the applicants accountants and the substance of it was in these terms:-

A reply from the assessor, dated the 14th September, 1965, indicated in detail how the original figure of $49,961 had been arrived at and pointed out that no audited accounts had been received for the year 1959/60. Nothing further appears to have transpired until the notice of provisional assessment was given on the 3rd February, 1967 and when the purported notice of objection (the letter of the 28th February, 1967) was lodged the audited accounts for 1959/60 had still not been submitted. For my part I do not see how it could be asserted that this letter stated "precisely" that which is said to have been the real ground of objection. It is true that the assessor seems not to have appreciated the significance of the letter of the 1st September, 1965, but that he had so failed was apparent from his reply of the 14th September, 1965. One would have expected the applicants or their advisers immediately to press for an assurance that a loss in excess of $35,113 would be carried forward from the year 1963/64, such loss taking into account the balancing allowance claimed. This would, presumably, have involved their supporting their claim with audited accounts, which, as I have said, were still not forthcoming. If they had incorporated the letter of the 1st September, 1965 in the notice of objection by reference, that might possibly have been sufficient to indicate the basis of the applicants' objection to the fact "that the amount of loss $49,961 for the year ended 31st March, 1959 will be carried forward", although even then one would have to give a liberal interpretation to the word "precisely". As it is, I do not think the notice gave any indication of the real ground of objection. It is, as I understand it, conceded that the figure of $49,961 carried forward for 1958/59 was correct, although that is what is objected to, and that that figure ought to be carried forward from 1959/60 unless the balancing allowance is taken into account. There really being nothing, therefore, for the Commissioner to consider I am inclined to think that we should have been justified in refusing to grant the discretionary remedy which is sought although counsel for the Commissioner said he was not asking us to refuse an order in the exercise of our discretion.

10. I would dismiss this application on the ground that no appeal lies against an assessment made under the proviso to s.59(2).

18th March, 1970.

Representation: