Commissioner of Inland Revenue v. Indosuez W I Carr Securities Ltd.

HCIA000005/2001

HCIA 5/2001

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

INLAND REVENUE APPEAL NO. 5 OF 2001

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HCIA 4/2001

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

INLAND REVENUE APPEAL NO. 4 OF 2001

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Coram: Deputy High Court Judge Longley in Court

Date of Hearing: 17 December 2001

Date of Judgment: 18 December 2001

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R U L I N G

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1.Miss Li, for the Commissioner, invites the court to look at the Determination of the Commissioner dated 2 July 1999.

2.She does so because of the reason given by the Board of Review (in para. 34 of the Case Stated) for finding that the profits generated from the execution of orders on overseas markets for overseas clients arose substantially from an offshore source. The Board took this view on the basis that the overseas offices of the group to which the tax-payer belonged were the agents of the tax-payers in the maintenance of the relationship with the client, the processing, handling and management of the orders and the provision of primary research materials.

3.Miss Li's submission is essentially that there was no evidence to support the conclusion that there was such agency, or that such a conclusion could not reasonably be reached.

4.The Board itself accepted, notwithstanding the onus on the tax-payer under s.68(4) of the Inland Revenue Ordinance to prove that the assessment was erroneous, that there was no direct evidence on the question and that the tax-payers had not adduced any evidence as to the contractual relationship between itself and the various offices or its associated companies within the group (see paras. 29 and 30 of the Case Stated).

5.But the Board of Review said (in para.31 of the Case Stated) that it did not "consider that the absence of such direct evidence indicates that the tax-payer was unable to produce such evidence". The reason given for reaching that conclusion was the fact that Mr Thomson for the tax-payer in his opening submissions had quoted from a paragraph in the Reasons given by the Commissioner in which the Commissioner had said that it was clear that commission was earned when customers' orders had been carried out by the tax-payer "through agents in the Stock Exchanges outside Hong Kong" and that there had been no demur on the part of counsel for the Commissioner to this assertion by Mr Thomson. This passage is set out in para.29 of the Case Stated.

6.The Board of Review said that this could explain the failure of the tax-payer to call direct evidence of the contractual relationship between the tax-payer and the overseas offices.

7.Miss Li's main point, as I understand it, is this, that the passage cited by Mr Thomson in his opening before the Board and cited in para.29 of the case stated was a reference to overseas brokers, not to the group's overseas offices when they liaised with clients, or solicited or handled orders or provided primary search materials. The Board of Review was therefore not entitled to conclude that the failure of the Commissioner's counsel to demur to this passage led the tax-payer to believe it did not have to adduce evidence as to the contractual relationship with other companies or offices in the group in so far as liasing with clients, soliciting and handling orders etc were concerned.

8.Miss Li says that the context of this passage in the Commissioner's reasons makes it clear to what it refers and that the court should therefore look at it.

9.She referred to the case of Carvill v Commissioners of Inland Revenue 70 TC 126 in which it was stated that it was usual practice for the Commissioner to transmit to the High Court with a case stated copies of any documents proved or admitted at the hearing and that the Judge hearing the appeal can be referred to such documents for the purpose of amplifying the case stated.

10.Miss Li also invites the court to look at a fact in the Commissioner's Determination under the heading "Facts upon which the determination was arrived at" which were agreed for the purpose of the hearing before the Board of Review. She contends that this fact supports the view that the Board of Review's reference to overseas clients was to them being the clients of their particular overseas office.

11.Mr Smith for the tax-payer has referred the court to the decisions of Kaplan J and Barnett J in the Aspiration Land cases ((1990) 3 HKTC 395 and (1988) 2 HKTC 575) in support of the proposition that in Hong Kong, the basic requirement of a case stated is that it should, save in exceptional circumstances, be complete in itself.

12.It should be noted however that in those cases what the Commissioner was seeking to do was to attack the Board's findings of primary fact which had been the basis of the Board's conclusions through the evidence which had been adduced before the Board. This, as Barnett J pointed out, would effectively require the court to re-hear the whole review on paper without the benefit of hearing witnesses. The Commissioner was not simply seeking to challenge that there was no evidence to support a particular finding of fact. He was in effect seeking to challenge the Board's findings of primary fact based on the evidence. The Board would then in effect be reconducting a trial on the facts, not deciding an issue of law.

13.In this case, what Miss Li seeks to do is quite different. She asks the court to look at the context of the passage quoted in para. 29 of the Case Stated so that the court is left in no doubt as to what it related and that there was nothing which could have amounted to such an admission by the Commissioner. She is not seeking to attack a finding of primary fact but to clarify a passage from which the court drew an inference. In so far as she seeks to rely upon a passage under the heading "Facts upon which the determination was arrived at", she is not seeking to attack the Board's findings of fact. There is no doubt that the facts under the heading were agreed by the parties. The Board did not therefore have to make a finding of fact in relation to them. They were consequently primary facts before the Board which could be used by the Board to find its conclusions.

14.I allow Miss Li's application that the court should look at the Commissioner's Determination for the purposes she has outlined.

Representation:

Ms Gladys Li, SC, instructed by Department of Justice for Commissioner of Inland Revenue (Appellant in HCIA5/01 and Respondent in HCIA 4/01)

Mr Clifford Smith, SC, leading Mr Meil Thomson, instructed by Messrs Johnson, Stokes & Master for Respondent in HCIA 5/01 and Appellant in HCIA 4/01