The Commissioner of Inland Revenue v. Chia Tai Conti - Hong Kong Ltd

DCTC 9755/2006

IN THE DISTRICT COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

TAX CLAIM NO. 9755 OF 2006

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BETWEEN

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Coram : H.H. Judge Chow in Court

Hearing date : 25^th September 2007

Date of Handing Down Decision : 16^th November 2007

Decision

1.There are 2 applications before this Court: (1) the Plaintiff’s application for summary judgment against the Defendant for the sum of $18,884,355.90 together with interest at 11% p.a. from the date of writ to judgment and thereafter at judgment rate until payment, (2) the Defendant’s application to stay the action pursuant to the Court’s inherent jurisdiction, and alternatively under Order 18r 19(b) or (d) of the Rules of the District Court until after the Plaintiff has issued its determination in respect of the Defendant’s objections against the profits tax assessments for the years 1997-98, 1998-99 and 1999-2000.

2.The Plaintiff’s claim is for the sum of $18,884,355.90, being tax due and payable under section 75 of the Inland Revenue Ordinance (“the Ordinance”) together with interest.  The tax in question was raised on the Defendant under 3 notices of additional assessment:

1.	Charge 1 1-2914296-98-1
	Tax as per Demand Note		$11,137,501.00
	Less:	Tax held over unconditionally 14.5.2004	2,237,501.00
			8,900,000.00
	Add:	5% surcharge imposed on 30.6.2004	445,000.00
		10% surcharge imposed on 5.1.2005	934,500.00
	Amount claimed as per Writ of Summons:		$10,279,500.00
	Less:	Payment on 11.12.2006	3,721.70
		Payment on 3.1.2007	8,170.40
			$10,267,607.90
2.	Charge 2 1-1125159-99-3
	Tax as per Demand Note		$9,920,000.00
	Less:	Tax held over unconditionally 22.2.2005	5,382,150.00
			4,537,850.00
	Add:	5% surcharge imposed on 16.5.2006	226,892.00
		10% surcharge imposed on 30.5.2006	476,474.00
			$5,241,216.00
3.	Charge 3 1-1121239-00-3
	Tax as per Demand Note		$3,360,000.00
	Less:	Tax held over unconditionally 13.4.2006	144,731.00
			3,215,269.00
	Add:	5% surcharge imposed on 7.6.2006	160,763.00
	Amount claimed as per Writ of Summons:		$3,376,032.00
	Less:	Payment on 8.3.2007	500.00
			$3,375,532.00
	Total		$18,884,355.90

3.A certificate signed by the Commissioner of Inland Revenue in compliance of section 75(3) has been exhibited to the affirmation of Li King Oi, an assessor of the Inland Revenue Department, who gave an affirmation to support of the Plaintiff’s application for summary judgement.  Section 75(3) of the Inland Revenue Ordinance (“the Ordinance”) provides:-

“

In proceedings under this section for the recovery of tax the production of a certificate signed by the Commissioner stating the name and last known postal address of the defaulter and particulars of the tax due by him shall be sufficient evidence of the amount so due and sufficient authority for a District Court to give judgment for the said amount.”

The Certificate produced by the Plaintiff is sufficient authority for this court to give judgment for the amount claimed by the Plaintiff. 

4.The Defendant’s pleaded case is that:-

a)	valid objections have been duly lodged against the additional assessments under section 64 of the Ordinance; the grounds of objection were that the additional profits as assessed were excessive and the Defendant was not liable to the additional tax;
b)	up to now the Plaintiff has failed to issue her determination on the Defendant’s objections; the assessments have not become final and conclusive by virtue of section 70 of the Ordinance.

5.Section 75(4) of the Ordinance provides that:-

“

(4)

In proceedings under this section for the recovery of tax the court shall not entertain any plea that the tax is excessive, incorrect, subject to objection or under appeal, but nothing in this subsection shall be construed so as to derogate from the powers conferred by the proviso to section 51 (4B)(a) to give judgment for a less sum in the case of proceedings for the penalty specified therein.”

The matters raised in the Defence are clearly covered by section 75(4) of the Ordinance.  Therefore there is no defence to the Plaintiff’s claim.

6.Section 71 of the Ordinance provides that notwithstanding any notice of objection, tax has to be paid on or before the date specified in the notice of assessment.  Section 71 reads: -

“	(1)	Tax charged under the provisions of this Ordinance shall be paid in the manner directed in the notice of assessment on or before a date specified in such notice.  Any tax not so paid shall be deemed to be in default……
	(2)	Tax shall be paid notwithstanding any notice of objection or appeal, unless the Commissioner orders that payment of tax or any part thereof be held over pending the result of such objection or appeal”.

7.The Defendant has been in default in paying the tax specified in the 3 notices of additional assessment.  In my judgment there is no defence to the Plaintiff’s claim for unpaid tax.

The application for stay

8.The grounds of the application are as follows:-

a)	The present action is harsh and unjust in view of the unreasonable delay of the Plaintiff in making her determination of the Defendant’s objection;
b)	The present action is otherwise an abuse of process of the Court.

9.The Defendant submits that the present proceeding should be stayed until the objection against the tax assessment for the relevant years have been determined by the Commissioner.  The present proceeding is an abuse of the process of the court due to the undue delay of the Commissioner in making her determination.  But there is no legal basis to support a stay of tax recovery proceedings simply because the determination of the Defendant’s objection is still pending.  On the contrary, the legislative scheme of the Ordinance is that where an objection has been lodged, the Plaintiff is entitled to require a taxpayer to pay the tax assessed and then proceed to consider the objection. 

10.The Defendant submits the following facts in support of its contentions:-

“	5.	Objection against the assessment for 1997/98 was lodged on 25 Mar 2004.  In fact the field audit commenced in 2000.
	6.	The IRD affirmed in 2005 that a statement of facts is being prepared for the Commissioner’s consideration to make a determination …………
	7.	The IRD still says that the relevant Determination for 1993/94 to 1998/99 is under preparation ………..  A Draft Statement of Facts covering the years 1993/94 to 1998/99 were attached to the Affirmation of LO Yau Hung.  In fact, the Draft Statement of Facts has been issued by the Assessor on 30 Nov 2005 and comments thereon have been given by the Defendant via its tax representative in a letter dated 17 March 2006.  It therefore appears that no progress in forwarding the case to the Commissioner for determination has been made for over 1 year.  There is no explanation as to the reason for the delay.
	8.	IRD did not indicate that Determination in respect of 1999/2000 which is one of the subject matter of the current recovery action is under preparation.
	9.	S.64(2) requires the Commissioner to determine an objection within reasonable time.
	10.	Submit that there has been undue delay by the Commissioner in making her determination.  The Commissioner has failed to comply with s.64(2).”

11.The Defendant has not submitted what should be the length of time required for the Commissioner to make a determination, having regard to the complexity or simplicity of the case involved.  He has not shown a yardstick for measuring the time to be taken by the Commissioner for the purpose of reaching the conclusion that there has been undue delay by the Commissioner in making her determination.  Hence he has failed to convince me in this regard.  In any event, even if he succeeds in doing so, it is not a valid ground to oppose the Plaintiff’s application.

12.The Defendant also submits that the statutory provision regarding tax recovery is severe and may work hardship and injustice.  This is not a valid objection to the Plaintiff’s application.

13.For the reasons set out above, I dismiss the Defendant’s application.

14.I enter judgment in favour of the Plaintiff as claimed in the summons.

Costs

15.I make an order nisi, to be made absolute within 14 days’ time, that costs of the action including costs of this application be to the Plaintiff, to be taxed, if not agreed, with certificate for Counsel.

The Plaintiff : represented by Mr. Peter Ng S.C. instructed by Inland Revenue Department

The Defendant : represented by Mr. Ho Chi Ming, instructed by M/S. Cheng, Chan & Co., Solicitors