The Commissioner of Inland Revenue v. Henry John Walton Masters

HCIA000002/1983

Revenue: Inland Revenue Ordinance: Sub-section (c) of section 9(1), construction of.

Revenue: Inland Revenue Ordinance section 9(1)(c) "provided at a rent": Meaning of.

Salaries tax: Deductible expenses: Whether service charge payable to hotel deductible.

Salaries tax: Excess of rent over rental value: Definition of.

Employee: Employer providing accommodation: Salaries tax: Nature of difference between rent and rental value deductible.

Government servant: Quartered in hotel: Quantification of deductible expenses of excess of rental value over rent.

BETWEEN:-

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Coram:  The Honourable Mr. Justice Jackson-Lipkin in Court.

Date of hearing: 17th February 1984

Date of decision: 17th February 1984

Date of delivery of judgment: 1st March 1984

Appearances:  Barlow for the Appellant.
                       (Mrs.) Kaplan for the Respondent.

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JUDGMENT

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1. I heard this appeal on 17th February, and at 4.40 p.m. I told the parties that I would allow the appeal, but, due to the lateness of the hour, I would defer giving my reasons.

2. The Respondent is an Estate Surveyor. He is also a Civil Servant. He is subject, therefore, to those bizarre and shadowy creatures more resembling Boojums than Snarks [see The Hunting of The Snark (1876) Carroll: 3rd Fit; v. 10; lines 3 and 4], the Civil Service Regulations, which, by paragraph 2, remind the amazed and baffled reader that 'they have no force in law ...........". Paragraph 3 of the Introduction, however, goes on to remind the new thoroughly bewildered reader that "Government Regulations apply to all Government Servants except in so far as ......... (a) a contrary intention appears in Government Regulations;"! Suffice it for me to say that it is common case in this appeal that the Respondent was at all times subject to Regulations 842(1) and 872(l).

3. The facts appear so clearly from pages 1 to 3 of the Case Stated that I need not repeat them here.

4. Despite being led on a tortuous path through the legislative history of section 9 of the Inland Revenue Ordinance from 1947 to 1981, the 3rd Edition of Simon, Volume 27 of the 4th Edition of Halsbury's Laws, Volume 4 of the 4th Edition of Stroud and The Oxford Dictionary, the Hotel Accommodation Tax Ordinance, the Hotel Proprietors Ordinance, Samuel v. Salmon & Gluckstein Ltd. [1946] Ch. 8, Property Holding Company Ltd. v. Clark [1948] 1 K.B. 630 (that is to say, that part of the judgment of the Court of Appeal that remained after the decision in Seaford Court Estate Ltd. v. Asher [1949] 2 K.B. 481) and C.H. Bailey Ltd. v. Memorial Enterprises Ltd. [1974] 1 W.L.R. 728, the point of the appeal was short and relatively simple. However, as Mr. Barlow informed me, several thousands of revenue cases will turn on this decision.

5. The Respondent had been put, or had gone into an hotel prior to getting a Quarter. For that sojourn, the Government paid "room rent" and Government tax and, with that myopic parsimony, the hallmark of Governments world-wide, but one half of the "10% service charge" levied "on the room rent". The Respondent, qua tax payer, claimed as a deductible expense the remaining 5%, that is to say half the "service charge". It was also common case that the 10% "service charge" levied by the hotel was net one that could be avoided by any hotel guest - that is to say it was not in truth a charge for service, and could net be avoided, for example by the room occupant offering to do his own cleaning, dusting, laundry etc..

6. The Board of Review, I know not how, "went off at a tangent" and went into the history and nature of a "service charge" and how it was dealt with by hotels, and into definitions of "rent", whereas none of those was in issue between the parties.

7. What was at issue was a matter of pure construction - that is to say, construction of paragraph (c) of section 9(1) of the Inland Revenue Ordinance, which reads, "Where a place of residence is provided by an employer or an associated corporation at a rent less than the rental value, the excess of the rental value over such rent;".

8. For the Appellant it was contended that "rent" meant the rent at which the employer, in this case Her Majesty's Government in and for the Colony of Hong Kong and its Dependencies, provided the accommodation to the Respondent: That is the "rent" paid by the employee to the employer for his accommodation.

9. The Respondent, on the other hand, contended that "rent" in that paragraph meant the "rent" (whatever that word meant) which the Government paid to the hotel.

10. There was no dispute over "rental value" in section 9(1)(c), because that was defined in paragraph (a) of the proviso to section 9(2).

11. For my part, I was, and I am, wholly unable to see how any construction can be put on sub-section (c) that would involve what the Government (or any employer) paid to the (or any) hotel. The wording is, "where a place of residence is provided .......... at a rent", and in my judgment that means exactly what it says; "provided at".

12. I then had to ask myself at what rate was a place of residence "provided" by the Government to the Respondent - that is to be found clearly set out in Regulation 872(1) to which I have referred, and is calculated, whatever may be the type of accommodation that is provided and wherever it may be, at a common rate of 7½% of the Civil Servants' salary (including expatriation pay where applicable). In other words, if hotel accommodation was provided free by any employer, the 8% of the employee's income would be deductible in toto from the employee's "income from any office or employment" for the purposes of assessment of tax, even though the employer would nonetheless be paying the hotel. The case of the Respondent is no different, save in arithmetical calculation. In the case of a Civil Servant such as the Respondent, "the excess of the rental value over such rent" where the Civil Servant is from Point 21 upwards, is one half per cent - that is to say the difference between the 8% derived from proviso (a) to section 9(2) and the 7 ½% derived from paragraph (c) of section 9(1) and paragraph 1 of Regulation 872.

13. In my judgment, the Board of Review was wrong in holding, in the penultimate sub-paragraph of paragraph 6 of the Case, that "rent" in s. 9(1)(c) was "the quoted rate plus the service charge" levied by the hotel.

14. The answer to the question posed to me for Opinion, therefore is No.

15. For those reasons I allow this appeal.

16. By agreement, no application was made for costs and, accordingly, there will be no Order.

Representation:

Solicitors: Crown Solicitor for the Appellant.
                Masons & Marriott for the Respondent.