The Commissioner of Inland Revenue v. Wong Chi To, The Director of Selbo Industries Ltd

DCTC 8460/2007

IN THE DISTRICT COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

TAX CLAIM NO. 8460 OF 2007

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BETWEEN

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Coram :  Her Honour Judge Mimmie Chan in Chambers (open to public)

Date of hearing :  31 July 2008

Date of handing down Decision :  18 September 2008

DECISION

1.The Commissioner, who is the Plaintiff in this case, applies to strike out the Defence filed in this action on the ground that it discloses no reasonable cause of defence, and for judgment to be entered for the sum of $718,410 against Mr. Wong, the Defendant. 

2.According to the Statement of Claim, the claim against Mr. Wong is for the amount of tax assessed by the Commissioner to be payable by him under s.75 of the Inland Revenue Ordinance ("Ordinance"). 

3.As the application is made under Order 18 rule 19 (1)(a) of the Rules of the District Court, and Order 18 rule 19(2) provides that no evidence shall be admissible on such application, the following facts are based entirely on the pleadings in the Defence filed.

4.According to the Defence, Mr. Wong is one of the 3 directors of Selbo Industries Ltd. ("Company").  As director, Mr. Wong signed tax returns of the Company prepared by the Company's accountants.  To assist the understanding of the facts of this case, under s.51(1) of the Ordinance, an assessor may give notice in writing to any person requiring him within a time stated in the notice to furnish any return which may be specified by the Board of Inland Revenue for tax. 

5.It is pleaded in paragraph 10 of the Defence that on 5 October 2005, the Commissioner issued a notice to Mr. Wong under s.82A(4) of the Ordinance ("October Notice"), to the effect that Mr. Wong was liable to be assessed to additional tax on the basis that Mr. Wong had without reasonable excuse failed to comply with the requirements of the notice given to him under s.51(1) of the Ordinance for the year 2000/2001, and also failed to inform the Commissioner that he was chargeable to tax for the years of assessment 1998/1999 and 1999/2000 within the period prescribed under s.51(2) of the Ordinance. 

6.According to paragraph 12 of the Defence, the Commissioner then informed Mr. Wong on 23 December 2005, by reference to the October Notice, that the Commissioner had assessed Mr. Wong to additional tax, in the total sum of $732,000, under s.82A(4) of the Ordinance.

7.Mr. Wong claims that on a proper construction of the provisions of the Ordinance, including sections 51 and 82A, the Commissioner had no power or jurisdiction to make an assessment against Mr. Wong as a director of a corporate taxpayer under s. 82A(1)(d) of the Ordinance.  He claims therefore that the assessments were null and void.

8.Mr. Wong originally pleads that another director of the Company is jointly and severally liable for the tax assessed, but this ground was not relied upon by Mr. Wong's counsel at the hearing before me on 31 July 2008 to show that Mr. Wong has a valid defence to the Commissioner's claim.

9.The issue for determination is whether it is plain and obvious that the Defence is unsustainable. 

10.Mr. Wong claims that the Commissioner had not alleged that there was any incorrect return, incorrect statement or incorrect information, and that he was only assessed for his alleged failure to comply with the requirements of a notice given to him under s.51(1) of the Ordinance ("s.51(1) Notice").  As evidence is inadmissible, I will assume that Mr. Wong is right in this regard, and that the October Notice referred to in paragraph 10 of the Defence was issued under s.82A(1)(d), and not s.82A(1)(e).

11.It is argued on behalf of Mr. Wong that under s.82A(4), before making an assessment of additional tax, the Commissioner must cause notice to be given to the person proposed to be assessed, to inform such person of his alleged failure to comply with the s.51(1) Notice.  Counsel for Mr. Wong argued that this is a mandatory requirement, and that this requirement must also be read in conjunction with the rights enshrined in Articles 10 and 11 of the Bill of Rights, because the assessment of additional tax is in the nature of a punitive penalty.  Counsel referred to the case of Koon Wing Yee v. Insider Pleading Tribunal [2008] 3 HKLRD 372, where the Court of Final Appeal held that insider dealing proceedings involved a determination of a criminal charge by reason of the power to impose a penalty of an amount not exceeding three times the amount of profit gained or loss avoided.  In Koon Wing Yee, the Court of Final Appeal held that in determining whether proceedings are criminal in nature for the purposes of Articles 10 and 11, not only the classification of the offence but the nature of the offence and severity of the potential sanction should be considered.  The absence of a formal charge does not determine whether the proceedings are criminal or not.

12.In my judgment, the short answer to Counsel's contention is that the October Notice already informed Mr. Wong of the basis of the Commissioner's assessment of additional tax as required under s.82A(4) (a).  Paragraph 10 of the Defence itself clearly recites such basis as contained in the October Notice : namely, Mr. Wong's failure to comply with the requirements of a s.51(1) Notice given by the Commissioner to Mr. Wong (and not the Company). 

13.Even if Article 11 of the Bill of Rights should be applicable by virtue of the potentially severe nature of the sanction of additional tax up to treble the amount of tax undercharged, all that Article 11 requires is that a person charged with a criminal offence should be informed promptly and in detail in a language which he understands of the nature and cause of the charge against him.  I consider that the October Notice and the letter of 23 December 2005 sufficiently set out both the nature and cause of "the charge" against Mr. Wong, namely, his failure to comply with the s.51(1) Notice given to him, and the consequent assessment of additional tax payable by him under s.82A. This gives sufficient information to enable Mr. Wong to ascertain the ground of his alleged liability for additional tax, and to oppose or object to the assessment of such additional tax on such grounds as may be available to him, and in the appropriate manner specified under the Ordinance for appeal.

14.It is Mr. Wong's case that the Commissioner has no power to impose additional tax against him personally under s.82A(1)(d) and (e) in respect of the Company's liability for tax.  This amounts to arguing that the tax assessment is ultra vires, incorrect and, as paragraph 15 of the Defence pleads, "null and void".  Section 75(4) of the Ordinance bars such a defence, which falls squarely within Ng Chun-kwan v. The Commissioner of Inland Revenue [1976] HKLR 94.  By claiming that the Commissioner has no power to assess the tax in question, Mr. Wong is saying that the assessment of additional tax is ultra vires.  As Briggs, CJ clearly pointed out in his judgment in that case, to plead that the Commissioner acted ultra vires when the assessment was made is merely saying that there was a wrong or incorrect assessment, and such defence most clearly comes within s.75(4) of the Ordinance. 

15.If Mr. Wong has any valid ground to support his contention that as a director of the Company, he is not liable to additional tax by reason of any failure by the Company to furnish a return, or if Mr. Wong can show that for any other reason he is not liable for the tax assessed, he is able under s.82B of the Ordinance to appeal against the assessment.  There is accordingly no question of Mr. Wong being shut out from avenues of appeal from the allegedly wrong or incorrect assessment. 

16.I do not regard Attorney General v. Chino Industries Ltd. (in voluntary liquidation) [1997] HKLRD 833 to be applicable to this case.  The decision in Chino Industries Limited  relates to a jurisdictional point or defence being raised in proceedings other than proceedings for a claim by the Commissioner for the recovery of tax as a civil debt in the District Court.  In clear contrast, the present proceedings are precisely those contemplated by and provided for in s.75 of the Ordinance, and s.75(4) obviously applies. 

17.For the above reasons, I consider that the Defence is obviously unarguable, and impossible to succeed.  I am satisfied that the Defence discloses no reasonable cause of defence and should be struck out.  Judgment is to be entered against Mr. Wong for the sum of $718,410 with interest at judgment rate from 15 October 2007 to the date of payment.  I will further make an order nisi that the costs of the action and of the application to strike out (including any costs reserved) be paid by Mr. Wong to the Commissioner, with Certificate for Counsel, to be taxed if not agreed.

Mr. Paul Leung, instructed by the Department of Justice, for the Plaintiff

Miss Catrina Lam, instructed by Messrs. Ng & Co, for the Defendant