Sun Yau Investment Co Ltd v. Commissioner of Inland Revenue

HCIA000001/1983

Headnote

Revenue Law

An assessment becomes final and conclusive by reason of Section 70 of the Inland Revenue Ordinance notwithstanding that it provides for a greater liability for tax than would have been the case if a proper return had been available at the date of assessment and any such disparity does not constitute an arithmetical error within the meaning of Section 70A(1) of the Ordinance.

IN THE HIGH COURT OF JUSTICE

BETWEEN

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Coram: Hon. Mantell J.

Date of Hearing: 11th January, 1984.

Date of Delivery of Judgment: 10th February, 1984.

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JUDGMENT

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1. This is an appeal from a determination, by the Commissioner of Inland Revenue which has been transferred to the High Court under the provisions of Section 67 of the Inland Revenue Ordinance.

2. The agreed facts are as follows. The appellant is a company incorporated in Hong Kong which, when making its Profits Tax Returns, describes its business as "property investment and dealing". For the years 1978/79 and 1979/80, the company had no liability for profits tax. The company did not make a Profit Tax Return for 1980/81 and the Assessor estimated its liability at $125,981. That figure was based upon net assessable profits of $763,523 which in turn were derived from estimated assessable profits of $900,000 after a deduction for a loss brought forward from the previous year.   By letter dated 16th March 1962, the company lodged an objection against the assessment but did not include with the letter any Profits Tax Return or supporting audited accounts. The letter was not accepted by the Chief Assessor as a valid notice of objection because it was not received within one month of the date of the notice of assessment as required by Section 64 of the Inland Revenue Ordinance. The company was told that by reason of Section 70 of the Ordinance the assessment must be regarded as final and conclusive. On 29th May 1982, the company submitted a Profits Tax Return for the relevant year together with a copy of its audited accounts for the period 1st January 1980 to 31st December 1980. In a covering letter it was said that the return and the accounts were lodged "in support of the late objection". By a letter of 16th November 1932, the company's solicitors made further representations in support of the objection which provoked the response from the Chief Assessor that as previously stated there had been no valid notice of objection. On 3rd May 1983, the company's solicitors lodged an application under Section 70A of the Ordinance to reopen the 1980/81 assessment on the basis that the assessment made was excessive by reason of an arithmetical error or omission in the calculation of the amount of the assessable profits. They submitted particulars which, in effect, reproduced the contents of the Profits Tax Return and audited accounts and, it is conceded, which showed that if they had been taken into account, the company would not have been liable for any profits tax in the relevant year. The Assessor declined to correct the assessment which refusal has been upheld by the Commissioner of Inland Revenue. It is from this last determination that an appeal now lies.

3. The point, which is a short one, turns upon the true reading of Section 70A of the Inland Revenue Ordinance. It is common ground that Section 70A apart, Section 70 will operate to make the assessment final and conclusive for all material purposes. Section 70A(1) reads:

"Notwithstanding the provisions of section 70, if, upon application made within 6 years after the end of a year of assessment or within 6 months after the date on which the relative notice of assessment was served, whichever is the later, it is established to the satisfaction of an assessor that the tax charged for that year of assessment is excessive by reason of an error or omission in any return or statement submitted in respect thereof, or by reason of any arithmetical error or omission in the calculation of the amount of the assessable income or profits assessed or in the amount of the tax charged, the assessor shall correct such assessment.

Provided that under this section no correction shall be made to any assessment in respect of an error or omission in any return or statement submitted in respect thereof as to the basis on which the liability to tax ought to have been computed where the return or statement was in fact made on the basis of or in accordance with the practice generally prevailing at the time when the return or statement was made.”

It is not said here that the tax charged for the year of assessment is excessive by reason of an error or omission in any return or statement submitted but it is said that it is excessive by reason of an arithmetical error or omission in the calculation of the amount of the assessable income or profits assessed. It is said, therefore, that the Assessor was bound to correct his assessment.

4. Now, of course, had the Assessor been possessed of the Profits Tax Return and audited accounts, the figure which would have been arrived at both in the way of assessable profits and the amount of tax to be charged would have been very different from the assessment. In fact, whereas under the assessment a substantial sum is said to be owing by way of profits tax in the light of the contents of the late Profits Tax Return, there would have been none.  That fact alone, says Mr. Tang, bespeaks an arithmetical error or omission within the terms of Section 70A. He prays in aid, as a matter of interpretation and construction, the report of the 1st Inland Revenue Ordinance Committee of 1954 which in part reads as follows:

"Paragraph 95: Section 70 is so universal in its Prohibitions that even an obvious error cannot be adjusted after the statutory period for appeal has passed if the adjustment will reduce the income or profits assessed. We do not consider that this somewhat harsh interpretation was intended by the Legislature as, in our view, section 79(1) admits to the possibility of errors and envisages the necessity for provisions to correct them.

WE RECOMMEND that provision be made whereby despite Section 70 an assessor may amend an assessment if it is proved to his satisfaction within the time limit set forth in section 79 that the assessment is incorrect by reason of an error or mistake in any return or statement submitted or in the calculation of the assessed income or profits or of the tax charged thereon."

Also, he says that any other construction would be repugnant to Section 79(1) which provides for the repayment of tax paid in excess of the amount with which the taxpayer was properly chargeable in any given year. Further, he says that it would be quite wrong that the taxpayer should be left without remedy, if for any reason, the assessment made upon him were capricious even to the point of being absurd.

5. As to the first point, it is worth remembering that the word "arithmetical" was introduced in 1964 by the passage of the Inland Revenue (Amendment) Act. Amongst the object's and reasons for the Bill when presented are to be found these words:

So, to put it no higher, Mr. Tang can derive very little support for his argument from any expressed intention of the legislative. As to the second point, I find nothing inconsistent between the provisions of Section 79(1) and the restrictive construction of 70A contended for by the Commissioner of Inland Revenue. The former relates to circumstances in which repayment might be made and one can envisage several arising without the stage having been reached which is contemplated by Section 70, that is when the assessment becomes final and conclusive. The third point hypothecates a situation in which it could be said that there never was a true assessment at all, and it is not to be supposed that a taxpayer would be left without remedy in those circumstances.

6. In my judgment, the wording of 70A is perfectly plain. It covers the case where there has been a miscasting by the Assessor on the material available to him. The Assessor is not in error, let alone arithmetical error, simply because his assessment does not coincide with a figure he would have reached had other information been available to him. As was said by Mills Owens J. in Mok Tsze Fung v. Commissioner of Inland Revenue: ⁽¹⁾

"It might well be impossible for the assessor to prove facts justifying his assessment in the precise amount thereof, or, indeed, in any Particular amount. The law allows him to 'estimate', or, as the case may be, to assess 'according to his judgment', and if he were to be required to prove his assessment strictly his powers would, for practical purposes, be nullified."

The object of the ordinance is to achieve finality within the time table and procedures laid down. Various safeguards and appeal procedures are provided. One of those safeguards is Provided by Section 70A where in a proper case, the Assessor is required to correct his own arithmetical error. That is not this case. I agree not only with the findings of the Commissioner of Inland Revenue but also with his reasons. This appeal is dismissed with costs.

(1) [1962] H.K.L.R. p.166 at p.183/184

Representation:

Ronald Tang (S.K. Wong & Co.)for Appellant.

I. Wingfield, Crown Counsel, for Respondent.