Commissioner of Inland Revenue v. Woo Kwok-hing
Read the full judgment text of HCIA 2/1976 on BabelCite. This HCIA judgment.
1. The respondent in this appeal, pursuant to the now repealed, but here applicable, section 15A of the Inland Revenue Ordinance (to which I shall refer as the Ordinance), had a single assessment made in respect of the profession and a business in which he was engaged. He was notified by Inland Revenue Department on the 21st January, 1975 that he had no assessable profits for the year of assessment 1973/74, and that he had no loss capable of being carried forward from that year of assessment int
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HCIA000002/1976 IN THE SUPREME COURT OF HONG KONG INLAND REVENUE APPEAL NO. 2 of 1976 -----------------
Coram: Trainor, J. Date of Judgment: 25th January, 1977. ----------------- JUDGMENT ----------------- 1. The respondent in this appeal, pursuant to the now repealed, but here applicable, section 15A of the Inland Revenue Ordinance (to which I shall refer as the Ordinance), had a single assessment made in respect of the profession and a business in which he was engaged. He was notified by Inland Revenue Department on the 21st January, 1975 that he had no assessable profits for the year of assessment 1973/74, and that he had no loss capable of being carried forward from that year of assessment into the next. He appealed to the Board of Review, on the ground that he had incurred a loss in the year of assessment 1973/74 and, therefore, that loss ought to have been carried forward to the next year, when his objection, on those grounds, to the assessment of the Assessor was rejected by the Commissioner of Inland Revenue. His appeal was allowed by the Board, and the Commissioner applied to the Board to state a case for the opinion of the High Court. This the Board did and stated the question of law to be decided to be:
2. Certain facts and figures for the purpose of assessing the profits tax of the appellant were agreed before the Board. It was agreed that the accounting year for appellant's profession commences on the 10th October. It was also agreed that the appellant dealt in shares, so as to cause his dealings to be considered a business, during the period 3rd July, 1972 to 31st December 1973. The figures agreed are set out in the Case stated and it would be useful, I think, to repeat them here. 3. It was agreed that from his profession the appellant had profits as follows:
and from share dealing:
4. The repealed section 15A of the Ordinance is as follows:
5. That, very simply, means that in a year of assessment, i.e. from the 1st April to the following 31st March, the results of two businesses owned by one, non-corporate person are added together and the net result is the assessable profits or losses as the case may be. 6. Section 18(1) states that unless otherwise provided the assessable profits for any year of assessment shall be computed on the full amount of the profits derived during the year preceding the year of assessment. "Assessable profits" are the profits for the period of any year of assessment on which tax in that year of assessment ultimately falls to be computed. 7. Section 18(3), however, provides, that where a person commences a business on a day within a year of assessment the assessable profits for that year of assessment shall be computed on the amount of the profits made between the date of commencement and the last day of that year of assessment or more simply the following 31st March. 8. It was agreed before the Board, that in the year of assessment 1972/73, i.e. 1st April 1972 to the 31st March, 1973 the assessable profits from the appellant's profession were $65,859. For that year of assessment, then, the assessable profits were the sum of the profit from the appellant's profession in the year of assessment 1971/72, i.e. $65,859 and the profits from his share dealing from the 3rd July 1972 to the 31st March 1973, $29,687; in all $95,546. There was no dispute as to that. 9. Provision is made in Section 18(2) for the Commissioner to direct that in a case where accounts are made up to a date other than the 31st March that other date be accepted as fixing the period for ascertaining the assessable profits. In the instant case the directed date was the 9th October. 10. Section 18(5) provides that where a person ceases to carry on business in the Colony the assessable profits for that year of assessment shall be computed from the 1st April of that year up to the date of cessation. 11. In the professional year of the appellant, if I may call it that, from the 10th October, 1971 to the 9th October, 1972, i.e. in the assessment year 1972/73, the assessable profits of the appellant were $96,390. On the preceding year basis they came into calculation of tax in the year of assessment 1973/74. In that year of assessment, on the 31st December, 1973, the appellant ceased dealing in shares, therefore his assessable profits on that business, if any, are to be calculated from the 1st April, 1973 up to the 31st December i.e. in the assessment year 1973/74. Rather than make a profit, the appellant, like so many others at that time, had a substantial loss on his share dealings viz., $127,044, in that year of assessment. An aggregation of the two sums show two obvious things: (1) he had no assessable profits; and (2) pursuant to Section 15A, he had a loss of $30,654. 12. It is, and has been, the contention of the appellant that he was a person chargeable to tax who had incurred a loss in the year of assessment 1973/74 and that that loss should have been carried forward to the year of assessment 1974/75 and set off in arriving at his assessable profits for that year. His contention is based on sections 18 and 19 of the Ordinance. Section 19 provides:
13. Section 19A provides the basis for computing losses and so far as it is relevant reads as follows:
14. It follows, therefore, that if a person's accounting period ends on the 31st March and, consequent on Section 18(1), his assessable profits for any year of assessment are those of the preceding year up to that date his losses are assessed over the same period. But if the accounting period ends on a date other than the 31st March his assessable profits are those for the year expiring at the end of the accounting period, and they become the assessable profits in the next assessment year as provided in Section 18(2). There such is the case Section 19A(2) applies then "any loss which may be set off under Section 19 shall be computed by reference to such person's accounts for a similar period ending on the same day in the year of assessment." Put in another way, if a person's accounts for a business or businesses are prepared up to a certain directed date or dates his profits are computed up to that date or dates in that year then his losses are calculated to the same date or dates in the same year of assessment. Under Section 15A they are aggregated and the single sum is the basis for consideration in the succeeding year of assessment. 15. But in my opinion subsection (2) of Section 19A only applies where a business, or businesses, is in continuous operation; if it ceases then losses must be computed according to Section 19A(1), i.e. in the same way as profits are computed. Subsections (1) and (2) of Section 18 prescribe the basis for computing the assessable profits of a current business or profession. Subsection (5) provides for the case where a business or profession ceases in the course of a year of assessment as follows:
16. The net issue as I see it then is: In what year of assessment are the losses incurred in the share dealing to be taken into consideration for the purposes of income tax. 17. There is no question that in the year of assessment 1973/74 the professional assessable profits were those earned up to the 9th October, 1972, i.e. $96,390. Similarly the losses on the share dealings were incurred in the same year of assessment. "A person chargeable to tax" is entitled under Section 19(1) to set off the losses in any year of assessment against what would otherwise be the assessable profits of that same year; and where the loss is such that it cannot be completely set off in that year it may be carried forward to the next to be set off against what would otherwise be the assessable profits of the next. 18. In the instant case the respondent was entitled to have carried forward into the year 1974/75 the balance of loss of $30,654 from the preceding year, to be taken into consideration in arriving at his assessable profits. 19. I find that the Board of Review correctly construed Sections 19 and 19A and I dismiss the appeal with costs to the respondent. Representation: Mr. Edmonds, C.C. for Appellant. Mr. R. Tang (K.Y. Woo & Co.) for Respondent. |