Commissioner of Inland Revenue v. Wan Yam-yim

Case No.HCIA 4/1978

Court

HCIA

Date07 Dec 1979

Judge—

Case Document

100%Judiciary

HCIA000004/1978

Property tax - assessment of value of building - pre-war building which had never been let - Inland Revenue Ordinance s. 5A(2) - "rent at which ... such property might reasonably be expected to let" was the "permitted rent" under Part I of Landlord and Tenant (Consolidation) Ordinance - s. 28 of that Ordinance could not affect valuation.

IN THE COURT OF APPEAL	Inland Revenue Appeal
	1978 No. 4

BETWEEN
	Commissioner of Inland Revenue	Appellant
	AND
	Wan Yam-yim	Respondent

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Coram: Huggins, J.A., Cons and Yang, JJ.

Date of Judgment: 7 December 1979

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JUDGMENT

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Huggins, J .A.:

1. By order of the Chief Justice this appeal by way of Case Stated from the Board of Review has come directly to this court. The Board allowed an appeal from an assessment by the Commissioner of Inland Revenue of the assessable value of a building for property tax at $19,200 and held that the assessment should be $2,960. The Commissioner appeals.

2. The building in question is a pre-war building which is wholly occupied by the Respondent and which, we are told, has never been let. The ground floor is used by the Respondent for the purposes of a retail grocery shop and the first floor as his residence. It is common ground that the assessable value falls to be determined under s. 5A(2) of the Inland Revenue Ordinance, the substance of which is in these terms:

"In any other case, the assessable value of land or buildings or land and buildings shall be an amount equal to the rent at which on the first day of any year of assessment such property might reasonably be expected to let from year to year if -

	(a)	the tenant undertook to pay all usual tenant's rates and taxes; and
	(b)	the landlord undertook to pay the Crown rent, the costs of repairs and insurance and any other expenses necessary to maintain the property in a state to command that rent:".

3. The Commissioner relied upon Assessment Committee of the Metropolitan Borough of Poplar v Roberts 1922 2 A.C. 93 for the proposition that the rent restriction legislation had no place in the assessment. The Board of Review rejected that authority on the ground that it was concerned with rating: rates are assessed upon the value of the hereditament to the occupier, whereas property tax is concerned with the value of the property to the owner: accordingly, although the rent restriction legislation has no relevance to the assessment of the value of property for rating purposes, the legislation may affect its value for the purposes of property tax. The correctness of this view has been accepted by the parties for the purpose of this appeal.

4. Secondly it was argued for the Commissioner that s. 5A(2) should be construed so as to produce a method of assessment different from that which was applicable under s. 5A(1), otherwise there would be no reason to differentiate between the cases coming within subs. (1) and those coming within subs. (2): subs. (1) was intended to provide an assessment which had regard to the rent restriction legislation and subs. (2) to provide an assessment from which all reference to that legislation was excluded, it being assumed that the premises were uncontrolled. Before us counsel for the Commissioner has not contested the decision of the Board of Review upon this point, which was that s. 5A(2) had to be interpreted by itself. I therefore say nothing more about the point than to emphasize the obvious, that we should not be taken to have endorsed the view of the Board upon it.

5. Thirdly it was argued for the Commissioner (although this does not appear from the Case Stated) that if the rent restriction legislation was material to an assessment under s. 5A(2) it was none the less necessary to take into consideration the provisions of s. 28, under which a building could become excluded from the further application of Part I of the Landlord and Tenant (Consolidation) Ordinance. This is the only matter which has been pursued in this court.

6. It having been conceded that the provisions of the Landlord and Tenant (Consolidation) Ordinance are not irrelevant to the assessment in the present case, the contention on behalf of the taxpayer is that the rent referred to in s. 5A(2) of the Inland Revenue Ordinance cannot exceed "the permitted rent" as defined in s. 2 of the Landlord and Tenant (Consolidation) Ordinance, because that is the maximum rent which a landlord could lawfully demand in respect of a controlled building. Mr. Barlow submits that the taxpayer's contention nevertheless overlooks the possibility of an application under s. 28 for approval of an agreement at a higher rent and the fact that upon the expiration of the term created thereby the premises would be excluded from the further application of the provisions of Part I. Subss. (1) and (3) of s. 28 at the material time read as follows:

"(1) Where a landlord and a tenant or prospective tenant desire to enter into a tenancy agreement in respect of any premises for a term certain not exceeding 5 years at a rent in excess of the permitted rent for such premises, they may make a joint application to a tenancy tribunal for approval of the terms of the proposed agreement, and notwithstanding anything contained in this Part, the tribunal shall give its approval if it is satisfied that the proposed agreement -

	(a)	is not harsh or oppressive on the tenant; and
	(b)	contains no provision for renewal or for extension of the term; and
	(c)	expresses the whole consideration for the transaction."

"(3) Where, after the 15th November 1973, a tenancy agreement is executed under subsection (2), the building or part thereof to which the agreement relates shall be excluded from the further application of this Part. notwithstanding the termination or expiry of the agreement, whether the agreement was made before or after the commencement of the Landlord and Tenant (Consolidation) (Amendment) (No. 4) Ordinance 1975."

Mr. Barlow says that this section would affect "the rent at which the property might reasonably be expected to let from year to year". It seems to me that, even if it could affect the rent in a free market, once one assumes that the tenancy is controlled one is faced with the limitation imposed by s. 9 against recovery of more than the permitted rent.

7. Apart from that, s. 28 itself presents a difficulty. It would apply only where (i) the parties agreed to contract out and they obtained the approval of a tenancy tribunal, and (ii) where the agreement related to "a term certain not exceeding 5 years". It is argued on behalf of the Commissioner that property which was available for letting could not "reasonably be expected to let" at all if the landlord were going to receive only the permitted rent. It follows, the argument continues, that a valuer would have to contemplate the probability that an application would be made under s. 28. The fallacy in that argument seems to me to be that s. 5A of the Inland Revenue Ordinance necessarily assumes a hypothetical letting on the date of the assessment. Once a hypothetical tenancy from year to year of controlled premises has been forced upon the parties the hypothetical tenant would be unlikely to agree to a tenancy for a fixed term not exceeding 5 years at an increased rent, especially as he would have no protection when the fixed term expired: s. 28(3). Thus the rent would not in fact be inflated by virtue of the possible effect of s. 28.

8. I think the argument on behalf of the Commissioner based on s. 28 of the Landlord and Tenant (Consolidation) Ordinance fails and that the appeal should be dismissed.

Cons, J.:

9. I agree.

Yang, J.:

10. I, too, agree.

7th December 1979.