The Commissioner of Inland Revenue v. Chapman Development Ltd

DCTC 4466/2007

IN THE DISTRICT COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

TAX CLAIM NO. 4466 OF 2007

--------------------

--------------------

Coram : Her Honour Judge H.C. Wong in Chambers (open to public)

Dates of Hearing : 22 February 2008

Date of Handing Down Decision :  14 March 2008

DECISION

1.The Plaintiff, Commissioner of Inland Revenue (“the Commissioner”), claims against the Defendant Chapman Development Limited (“Chapman”) for $28,398,521.87 being tax due and payable under S.75 of the Inland Revenue Ordinance (“the Ordinance”).

2.Chapman filed a Defence claiming the Commissioner’s assessments were excessive and the tax demands improper.  It admitted it had lodged an objection to the Commissioner’s assessments.

3.The Commissioner applies to strike out the Defence on the basis that it disclosed no reasonable defence and asks for judgment to be entered.

4.The Defence filed a summons the day before the hearing of the striking out application for a stay of all further proceedings in the action pending the determination of the Defendant’s objection to the assessments by the Commissioner and/or the determination of the appeal from the Commissioner’s determination to the Board of Review, if any.

5.The Commissioner relies on S.71(2) and S.75(4) of the Ordinance in the striking out application.

6.S.71(2) provides:-

“(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: (Amended 7 of 1985 s.2)

Provided that where the Commissioner so orders he may do so conditionally upon the person who or on whose behalf the objection or appeal is made providing security for the payment of the amount of tax or any part thereof the payment of which is held over either –

(a)	by purchasing a certificate issued under the Tax Reserve Certificates Ordinance (Cap. 289); or
(b)	by furnishing a banker’s undertaking, as the Commissioner may require.”

S.75(4) provides:-

“(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.”

7.There was no order of the holding over of payment of tax pending the result of the objection or appeal under S.71(2) of the Ordinance, the Commissioner is now seeking payment of the assessed tax in the present proceedings.

8.Mr. Wong, Counsel for the Commissioner, submitted that under S.75(4) of the Ordinance, the Court shall not entertain a Defence claiming the tax assessed was excessive, incorrect or subject to objection or under appeal.  He relied on the interpretation of S.75 by Judge Pickering (as he then was) in the case of C.I.R. v Au Yuk-Shuet (1966) 1 HKTC 489 which was approved by the Full Court in the case of Ng Chun-kwan v. Commissioner of Inland Revenue [1976] HKLR 94.  S.75(4) of the Ordinance remains intact in spite of the lapse of time.

9.Mr. Wong further referred to the case of C.I.R. v. Choy Sau Kam and Chan Yun (1983) 2 HKTC 10 where the Court of Appeal approved and followed the case of Ng Chun-kwan and described S.75(4) as an ‘ouster’ provision of the District Court’s jurisdiction if the plea of the tax payer was the tax assessed is incorrect.

10.Mr. Wong further relied on the decision of Judge Kwan in the case of CIR v. Eekon Enterprises Ltd. (1995) 5 HKPLR 322 where she held that Article 10 of the Bill of Rights does not guarantee a right of access to court if none already exists.  That the purpose of Art. 10 is to ensure a fair hearing once the matter is brought before a Court or tribunal.  She further held that the fact the defendant was impecunious does not violate Article 22 of the Bill of Rights.

11.Mr. Mok S.C., Counsel for the Defendant, argued that under S.71(2) and S.75(4) the taxpayer is deprived of a fair hearing in the District Court if the taxpayer’s defence is struck out for pleading a defence of incorrect assessments by the Commissioner.  Though the taxpayer has a right to lodge an objection to the assessment with the Commissioner and upon a determination by the Commissioner rejecting the objection, lodge an appeal to the Board of Review, the Commissioner would still be entitled to enter judgment against the taxpayer.

12.Mr. Mok claimed that the Defendant’s assets are insufficient to pay the $28 million odd tax demanded.  The Commissioner, in order to enforce payment, would most likely petition for the winding up of the Defendant.  Consequently, the Defendant would be deprived of funds to carry on financing the tax appeal dispute with the Commissioner or at the Board of Review.

13.In the Defendant’s application to stay the proceedings until the determination of the Defendant’s objection or appeal, Mr. Mok relied on the case of Harvest Sheen Ltd. v. Collector of Stamp Duty Revenue [1997] 2 HKC 380 where Barnett J. held that the provision under S.14(1) of the Stamp Duty Ordinance requiring the taxpayer to pay stamp duty before lodging an appeal against the assessment was not proportionate to the end which the legislative scheme sought to achieve.  He held obiter that it was inconsistent with Article 10 of the Bill of Rights which protects the litigant’s right of access to Court.  Mr. Mok further relied on Article 35 of the Basic Law which guarantees “access to the Courts” and “to judicial remedies”.

14.S.14 of the Stamp Duty Ordinance reads:

“Appeal against assessment

(1)	Any person who is dissatisfied with the assessment of the Collector under section 13 may, within a period of 1 month from the date on which the assessment is made and on payment of the stamp duty in conformity therewith, appeal against the assessment to the court and may for that purpose require the Collector to state and sign a case setting forth the question upon which his opinion was required and the assessment made by him.
(2)	The Collector shall thereupon state and sign a case and deliver the same to the person by whom it is required and the case may, within 7 days thereafter and after service thereof upon the Attorney General, be set down by such person for hearing.
(3)	Upon the hearing of the case the court shall determine the question submitted, and, if the instrument in question is in the opinion of the court chargeable with any stamp duty, the court shall assess the stamp duty chargeable thereon.
(4)	If the amount of the stamp duty assessed by the court is less than the assessment of the Collector, the excess of stamp duty paid shall be ordered by the court to be repaid together with any excess of penalty paid under section 9 in respect thereof.
(5)	If in the opinion of the court the assessment of the Collector is not excessive, the court shall make an order confirming that assessment.
(5A)	The court may appoint a member of the Lands Tribunal to sit and assist it in any proceedings or part of any proceedings under this section; but the decision in the appeal shall be the decision of the court alone. (Added 43 of 1984 s.2)
(6)	In this section ‘court’ means the District Court.”

15.S.14 of the Stamp Duty Ordinance requires the stamp duty payer to pay up the duty before lodging an appeal against the assessment to court.  That was the basis of the applicant’s case in Harvest Sheen Ltd. where Barnett held S.14 was inconsistent with Art. 10 of the Bills of Rights Ordinance.

16.There is no such provision in the Inland Revenue Ordinance.  The procedure under S.71 of the Ordinance is to lodge an objection to the assessment to the Commissioner for his determination; if the objection was turned down, an appeal can be made to the Board of Review.  Further, the taxpayer may resort to Court proceedings by way of judicial review of the Board of Review’s decision.  Therefore, it cannot be said that the taxpayer has been deprived of an access to court or to seek judicial remedy.

17.The Defendant argued that the Commissioner may petition the winding up of the Defendant once the Defence is struck out because it has insufficient funds to pay the tax assessed even though the Commissioner’s determination of the Defendant’s objection was still pending.  Once wound up, the Defendant would lose its rights to lodge an appeal to the Board of Review or apply for judicial review of the Board of Review’s decision.  This is not strictly correct, because the liquidator or provisional liquidator may carry on with the appeal procedures with the leave of Court.

18.Further, S.71(2) of the Ordinance provides that the Commission may order the payment of tax or any part thereof be held over pending the result of the objection or appeal.  It further provides that holding over of tax payment may be ordered upon the taxpayer purchasing a tax reserve certificate or furnishing a banker’s undertaking.

19.This is similar to the regime under S.22 of the Estate Duty Ordinance referred to by Barnett J. in the Harvest Sheen’s case which provided for an appeal either on payment of or security for the duty claimed.  Because provision was made for the Commissioner to defer payment of the duty or part payment of the duty pending appeal of the assessment (P.393 H-I of the judgment), the Court seemed to accept Art. 10 of the Bills of Rights would not be infringed.

20.In the case of CIR v. Eekon Enterprises Ltd. Judge B. Kwan reviewed all the authorities under S.75(4) on a similar application to strike out the taxpayer’s defence.  Such as the cases of Choy Sau Kam; CIR v Lai Yin Ha (1988) 2 HKTC 374 and CIR v Lee Lai Ping (1993) 3 HKPLR 141.  In the case of Lee Lai Ping, the Hong Kong Court of Appeal held that as the taxpayer’s objection was subject to appeal to the Board of Review, Art. 10 of the Bill of Rights Ordinance is not inconsistent with S.75(3) & (4) of the Ordinance.  I have been referred further to the case of CIR v. Lau Chi-sing where H.H. Judge Lam (as he then was) struck out the taxpayer’s defence in a similar application in (Judgment on 26 April 2001) for failing to disclose a reasonable defence.  The District Court has therefore been consistent in observing S.75 of the Ordinance and held that Art. 10 of the Bills of Rights Ordinance is not inconsistent with S.75 of the Ordinance.

Conclusion

21.I am satisfied the taxpayer will not be deprived of an access to
Court or seeking judicial remedies even though the Commissioner has the option to wind up the Defendant in the execution of the judgment if the Defendant should fail to pay up the tax assessed.  In fact, there are various possibilities and options opened to the Defendant, one of which is to ask the Commissioner to hold over the payment until after the appeal to the Board of Review.  Should it fail in the appeal to the Board of Review, it has the option of applying for a judicial review of the Board’s decision.  The Commissioner may or may not decide to wind up the Defendant.  Even if it does take place at a future date, no doubt the Defendant has the option of pursuing the issue in a different Court.

22.For the aforesaid reasons, I reject the Defendant’s application for a stay of proceedings.  The Plaintiff’s application to strike out the defence for failing to disclose a reasonable defence is granted.  Judgment in terms of the Summons of 12 July 2007 is entered against the Defendant with costs against the Defendant to be taxed if not agreed.

Parties :

Mr. Stewart K.M. Wong instructed by Messrs. Department of Justice for the Plaintiff.

Mr. Johnny Mok leading Ms. Catrina Lam instructed by Messrs. J. Chan &

Lai for the Defendant.