Re Independent Steamship Co Ltd

Case No.HCMP 208/1969

Court

High Court CFI

Date18 Mar 1970

Judge—

Case Document

100%Judiciary

HCMP000208/1969

IN THE SUPREME COURT OF HONG KONG

ORIGINAL JURISDICTION

MISCELLANEOUS PROCEEDINGS NO. 208 OF 1969

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	In the matter of an application by Independent Steamship Company Limited for leave to apply for an order of Mandamus
	and
	In the matter of an Assessment to Corporation Profits Tax in respect of the Year of Assessment 1966/67
	and
	In the matter of Section 64 of the Inland Revenue Ordinance, Cap.112
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Coram: Full Court (Blair-Kerr, Mills-Owens & Huggins, JJ.)

Date of Judgment: 18 March 1970

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JUDGMENT

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Blair-Kerr J.:-

1. The precise terms of the letters exchanged between the Inland Revenue Department and the applicants (or their agents) is of some importance. On 3rd February 1967 the Commissioner wrote to the applicants as follows:-

"Notice of Provisional Assessment and Demand for Corporation Profits Tax .............................. The assessor has provisionally assessed your profits under the terms of the Inland Revenue Ordinance and has computed your provisional liability as follows:-

	Assessable profits per return	Less:	Loss brought forward - Section 19(2)	Assessable profits
	$94,854		-	$94,854

Tax payable:- 15% on above profits

$14,228

	...................................................................................................................
	This tax is payable on or before 14th March 1967."

The applicants paid the $14.228: but on 28th February 1967 a firm of accountants, acting on behalf of the applicants, wrote to the Commissioner stating that as the applicants

"	.......... feel aggrieved by such assessment we have been directed by them to submit to you herein a notice of objection in terms of section 64 of the Inland Revenue Ordinance and claim that the assessment be revised in due course.
	The grounds on which we rely are that referring to your letter of 14th September 1965 you have instructed that an amount of loss $49,961 for the year ended 31st March 1959 will be carried forward if audited accounts for the year ended 31st March 1960 are submitted.
	We report that we now have instructions to submit such audited accounts."

On 20th March 1967, the assessor wrote to the applicants acknowledging the letter of 28th February and said:-

"	I would advise that as the said assessment is only a provisional one, which has to be confirmed or amended in due course, your letter has not been regarded as a formal objection under s.64(1). As and when a firm assessment is issued, and if your clients are still aggrieved by the firm assessment, they may on receipt of the notice of assessment lodge an objection ..............................
4.	Incidentally I must point out that the aggregate loss to the year ended 31st March 1959 of $49,961 is available for carry-forward for set-off and has in fact been utilised in the assessments for 1963/64 to 1965/66. Perhaps paragraph 2 of your letter under reply means that your clients intend to claim the loss sustained for the period 1st April 1959 to 14th September 1959 when their shipowning business was reported to have ceased."

This latter suggestion was not referred to by the applicants' accountants when they forwarded their clients' audited accounts on 5th May 1967; but in a "computation" attached to this letter there appears a note which reads:-

"The balancing allowance is claimed, please calculate."

2. On 12th April 1967, the Commissioner wrote to the applicants as follows:-

"Notice of Assessment and Demand for Corporation Profits Tax .............................. The assessor has assessed your profits under the terms of the Inland Revenue Ordinance and has computed your liability to tax as follows:-

	Assessed profits	Less:	Loss brought forward - Section 19(2)	Assessable profits
	$158,762		$25,400	$133,362

Tax payable:- 15% on above profits

$ 20,004

Tax paid on provisional assessment

$14,228

Total deduction

$14,228

	Additional net tax payable	$ 5,776
		======

	................................................................................................................................
	If you object to this assessment you must give me notice in writing WITHIN ONE MONTH of the date hereof stating precisely the grounds of your objection."

The letter appears to have been delivered to the applicants' accountants, who wrote to their clients on 15th April 1967 as follows:-

"	The assessor of Inland Revenue Department has assessed your taxable profits for the year .......... in the sum of $158,762 as per his notice dated 12th April 1967.
	If you feel aggrieved by such assessment for any reason please give us instructions in writing within three weeks from the date quoted in order to enable us to lodge an objection within the prescribed time."

On 9th May 1967, the applicants wrote to their accountants saying:-

"The following is a summary of the objections we have raised in connection with the Corporation Profits Tax Assessments for the past few years."

And, having set out their objections, the letter ended thus:-

"Your attention to the above will be highly appreciated."

3. The accountants took no action on their clients' letter prior to 12th May 1967, and Mr. Litton agrees that the applicants forfeited their right to lodge any objection to the assessment of 12th April 1967.

4. However, he submits that it is still open to the Commissioner, indeed that the Commissioner is duty bound by law, to consider the letter of objection dated 28th February 1967.

5. I think it is of some importance that the relevant sections of the Inland Revenue Ordinance should be viewed as a whole. The proviso to section 59 (2) reads:-

".......... 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."

Section 60 reads:-

" Where it appears to an assessor that a provisional assessment made under subsection (2) of section 59 should be increased or that for any year of assessment any person chargeable with tax has not been assessed or has been assessed at less than the proper amount, the assessor may, within the year of assessment or within six years after the expiration thereof, assess such person at the amount or additional amount at which according to his judgment such person ought to have been assessed and the provisions of this Ordinance as to notice of assessment, appeal and other pro-ceedings shall apply to such assessment or additional assessment and to the tax charged thereunder."

Section 62 reads:-

(1) The Commissioner shall give a notice of assessment to each person who has been assessed stating the amount assessed and the amount of tax charged.

(2) Where the assessment is a provisional assessment made under subsection (2) of section 59 the person assessed shall be notified accordingly by the Commissioner, and he shall further be notified in due course by the Commissioner if such provisional assessment is confirmed. The confirmation of a provisional assessment shall not preclude the making of an additional assessment subsequently under section 60."

Section 64(1) reads:-

"Any person aggrieved by an assessment made under this Ordinance may, by notice in writing to the Commissioner, object to the assessment; but no such notice shall be valid unless it states precisely the grounds of objection to the assessment and, in the case of an assessment other than a provisional assessment, is received by the Commissioner within one month after the date of the notice of assessment or, in the case of a provisional assessment, within one month after the date of the notice under subsection (2) of section 62 confirming or amending such assessment."

Section 64(2), so far as relevant, reads:-

"On receipt of a valid notice of objection under subsection (1), the Commissioner shall consider the same and .......... may confirm, reduce, increase or annul the assessrent ....."

Section 70, so far as relevant, reads:-

"Where no valid objection .......... has been lodged within the time limited by this Part against an assessment as regards the amount of the assessable .......... profits assessed thereby ............................ the assessment as made .................... shall be final and conclusive for all purposes of this Ordinance as regards the amount of such assessable .......... profits."

6. It seems to me to be wrong that a taxpayer should have the right to set in motion the whole machinery of review and appeal - if need be, to the Privy Council - against a provisional assessment. As counsel for the Commissioner said, this would mean that the assessor would be unable satis-factorily to conduct further inquiries while the questions raised were before the courts; and, in the end, the entire proceedings might be rendered nugatory because the assessor, as a result of his further inquiries, might increase or reduce his provisional assessment.

7. The first matter to consider is: what are the Commissioner's powers under section 60? This section appears to contemplate three situations:-

	(1)	that there has been a provisional assessment; and, as a result of the assessor's further inquiries under the proviso to section 59(2), it appears to him that the provisional assessment "should be increased";
	(2)	that there has been no assessment at all in respect of some year of assessment; that this fact has come to the notice of the assessor within six years from the expiration of that year; and that he has decided to make an assessment for that year;
	(3)	that there has been an assessment in respect of some particular year; but, within six years from the expiration of that year, it has come to the assessor's notice that the person liable to tax has been assessed "at less than the proper amount".

The words "the Assessor may .................... assess such person at the amount or additional amount at which ................... such person ought to have been assessed", apply to all three situations. But obviously the expression "additional amount" could not apply to situation (2). It does apply to situation (3) where there has been a previous assessment, (or a provisional assessment which has been confirmed) but the assessor, at a later date, decides that there are further assessable profits upon which tax should be paid. In my view, the words "additional amount" do not apply to situation (1). In the case of (1), the assessor assesses such person "at the amount .......... at which .......... such person ought to have been assessed" - not "at the additional amount .......... at which .......... such person ought to have been assessed". In other words, there is a re-assessment of the assessable profits for the year in question. But, so far as provisional assessments are concerned, section 60 contemplates only cases in which the provisional assessment, in the assessor's view, should be increased. What happens if, as a result of his further inquiries, the assessor is of the opinion that the assessment should be reduced or even withdrawn altogether? Is he precluded from reducing or withdrawing it? Surely not. True, the proviso to section 59(2) does not say, in so many words, that the assessor may reduce or withdraw a provisional assessment; but I do not think that he requires statutory authority to do so. The proviso makes it plain that the person assessed must pay the tax demanded on the provisional assessment and that he may be prosecuted if he fails to do so. It is a legally valid assessment, although provisional; and it remains so "until amended". The legislature appears to have used the word "amended" in a very loose sense; but the intention is clearly to maintain the validity of the provisional assessment until it has been replaced by something more permanent.

8. The Shorter Oxford Dictionary defines the word "provisional" as:-

".................... of the nature of a temporary provision or arrangement; provided or adopted for present needs or for the time being";

and I agree that, from the very nature of things, it was never the intention that a provisional assessment should be left in the air. Section 62 speaks of it being confirmed; other sections speak of it being amended; and, whether, on amendment, the figure for assessable profits is increased or decreased, it is clear from the language of section 60 and from the procedure adopted by the assessor as disclosed in the above correspondence, that there is a re-assessment.

9. If, upon the re-assessment, the assessable profits are increased, the Commissioner, in his notice, must give credit to the person assessed for any tax which he may have paid under the provisional assessment; and he "demands" only the balance of tax due on the new assessment. If, upon the re-assessment, the assessable profits are reduced, there is no "demand" for tax. The person assessed presumably gets a refund. But, in either case, there are not now two assessments standing side by side - one provisional and one "firm". When the provisional assessment is increased or reduced as a result of the assessor re-assessing the person "at the amount at which such person ought to have been assessed", the provisional assessment ceases to exist and the new assessment, or re-assessment, becomes the assessment.

10. Section 62 appears to be designed to ensure that the person assessed is kept informed of every action taken by the assessor in relation to assessments. In my view, subsection (1) is wide enough to cover every contingency, except confirmation of a provisional assessment. If the legislature had not enacted subsection (2), the Commissioner would, never-theless, have been required under subsection (1) to give notice of a provisional assessment. He would further have been required under subsection (1) to have given notice of any re-assessment upon the assessor deciding that a provisional assessment should be "amended". The legislature has chosen to provide specially for notices relating to provisional assessments; but the only reason for this would appear to be that confirming a provisional assessment could not reasonably be said to be making an assessment.

11. With respect to my Brothers, I find great difficulty in accepting the view that the word "confirmed" in subsection (2) of section 62 may mean "confirmed with amendment", or that the word "if" in subsection (2) of section 62 really means "whether". It seems to me that the word "if" is clearly conditional, and that if the provisional assessment is not confirmed, it is unnecessary to send a notice saying so in so many words. But this does not relieve the Commissioner from his legal obligation under subsection (1) to give his notice of any re-assessment upon the provisional assessment being amended.

12. Turning to section 64(1), it is, of course, easy to criticise the way in which this subsection has been drafted. It might be said, for example, that a provisional assessment is no longer provisional after it has been confirmed. But surely the broad intention is clear enough. The person assessed is given a right to object to an assessment; but it is a qualified right. The notice of objection must comply with certain requirements. Firstly, it is provided that no notice of objection shall be valid unless it states precisely the grounds on which the assessment is challenged. Secondly, in the case of a "firm" assessment, no notice of objection shall be valid unless it is received by the Commissioner within one month after the date of the notice of assessment. Thirdly, in the case of a provisional assessment, no notice of objection shall be valid unless it is received by the Commissioner within one month after the date of a notice saying that it has been confirmed; and fourthly, if the provisional assessment is not confirmed, but is "amended", no notice of objection shall be valid unless it is received by the Commissioner within one month after the date of a notice amending such assessment.

13. In the case of a "firm" assessment, section 64(1) makes no reference to the section under which the notice of assessment issues. But clearly it is subsection (1) of section 62, and it could not be suggested that section 64(1) is defective because it makes no reference to section 62 so far as "firm" assessments are concerned. In the case of provisional assessments which have been confirmed "or amended", there is a reference to subsection (2) of section 62. So far as notices confirming a provisional assessment are concerned, the reference is strictly accurate because such notices issue under that particular subsection. But, if it is true to say that when a provisional assessment is amended, there is a re-assessment and that the re-assessment is the assessment, the Commissioner is obliged to notify the person assessed under subsection (1) of section 62. If that is so, it seams to me that the reference in section 64(1) to subsection (2) matters not. The point is that a notice of objection is not valid unless it is received by the Commissioner within one month after the date of the notice amending the provisional assessment; and all notices in relation to assessments and amendments thereof issue under the authority of section 62.

14. If, of course, the intention of the legislature was that the word "confirmed" should be read as meaning "confirmed with or without amendment" or if it is possible to say that the legislature used the word "if" in the sense of meaning "whether" and that, in notifying the person assessed that the provisional assessment has not been confirmed, the Commissioner has a further duty specifically under subsection (2) of section 62 to give notice that the provisional assessment has been amended, giving details of "the amount assessed and the amount of tax charged" this avoids doing any violence to the language of section 64(1). But, with respect, I should have thought that to construe the two sections as I have done does less violence to the language of the two sections taken together. Anyway, it makes no material difference because however one looks at this question, the obvious intention of section 64(1) is that no objection should lie to an unconfirmed provisional assessment.

15. I agree with what my Brother Mills-Owens J. is about to say in relation to proviso (c) to section 64(1), always remembering, of course, the provisions of section 70. But I do not think that the proviso assists us on the question of construction which has arisen in this case.

16. As it seems to me, the Commissioner's notice of 3rd February 1967 was issued under section 62(2). The applicant had no right to object upon receiving this notice. The provisional assessment was not confirmed, It was "amended". There was consequently a re-assessment for the year; and this re-assessment became the assessment. The Commissioner was therefore obliged to give notice of this re-assessment; and he did so on 12th April 1967. In my view, this notice was given under section 62(1), or the alternative view is simply to regard it as a notice under section 62. But upon the issue of that notice, the provisional assessment ceased to exist. The applicants were clearly warned that if they wished to object to "the assessment" (and that is how it was described), notice of objection should be lodged within one month. Their agents failed to carry out their instructions; and, presumably, that is why this application is now being made.

17. As to the meaning of the word "within" in section 64(1) counsel for the applicants cited Scarfe and others v. The Federal Commissioner of Taxation⁽¹⁾. I am not prepared to say if this case could be of any assistance to this Court because the Australian legislation was not available to the Court. But it is difficult to see how this decision could, in any way, alter the plain meaning of the words "within one month after the notice .........." in section 64(1).

18. However, in my view, this appeal must also fail for the reason that the applicants' letter of 28th February 1967 did not raise the ground of objection on which they now rely in seeking an order of mandamus. The $49,961 referred to in that letter was a trading loss. The letter makes no mention of a balancing allowance.

19. Mr. Litton's submission was that the letter must be considered in the light of all previous correspondence on the subject of the balancing allowance. For myself, I am quite unable to accept that submission. The notice of objection referred to in section 64(1) is the foundation of the Commissioner's jurisdiction under section 64(2) to consider, and thereafter confirm, reduce, increase, or annul the assessment objected to; and the subsection says that "no such notice shall be valid unless it states precisely the grounds of objection ..........". In my view the letter of 28th February 1967 did not state any ground of objection, precisely or at all.

20. I agree with counsel that the Commissioner has no valid notice of objection before him. The Commissioner's jurisdiction under section 64(2) is founded upon the receipt by him of a valid notice of objection; and there is therefore no ground upon which this Court could consider issuing an order of mandamus.

21. I would myself refuse the application.

	(W.A. Blair-Kerr)
	President.

Representation:

H. Litton instructed by Messrs. P.H. Sin & Co. for the Applicant.

E. Thistlethwaite, Crown Counsel, for the Respondent.

(1) (1920) 28 C.L.R. p.271.