The Commissioner of Inland Revenue v. Ngai Lik Electronics Co Ltd

DCTC 6110/2007

IN THE DISTRICT COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

TAX CLAIM NO. 6110 OF 2007

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BETWEEN

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Coram  :  His Honour Judge Chow

Date of hearing  :  13^th October, 2008

Date of handing down Decision  :  17^th December, 2008

DECISION

1.This is the Defendant’s application to set aside the decision made on 23^rd June, 2008 by Master Poon, who gave the following orders:-

1. The Defence filed on 14 September 2007 be struck out on the ground that it discloses no reasonable defence;

2. Judgment be entered against the Defendant for the sum of HK$33,222,035 with interest thereon at judgment rate from the date of writ to the date of payment; and

3. Costs of the action, including the costs of the plaintiff’s application by its summons dated 28^th January, 2008, be to the Plaintiff, to be taxed, if not agreed.

2.In this action, the Plaintiff sues the Defendant to recover profits tax in the total sum of $33,222,035, pursuant to section 75 of the Inland Revenue Ordinance (“the IRO”), Cap. 112, plus interests thereon for different periods, particularized as follows:-

Assessment under Charges (b) and (d) was raised under s.61A, IRO, whereas assessment under Charges (a), (b), (c) and (g) was raised under s.60, IRO, and assessment under Charge (f) was raised under S.59, IRO.

3.In its defence, the Defendant pleads that:-

(a) there is no “tax due and payable” by the Defendant because

(i) the Defendant has fully paid profits tax on all its taxable profits;

(ii) the profits on which tax was levied arose form business not carried on in Hong Kong; the IRO precludes the Plaintiff from assessing the profits tax;

(iii) therefore the purported notices of assessment are null and void.

(b) The purported notices of assessment purportedly raised under s.61A of the IRO are ultra vires the IRO so that no profits tax is “due and payable” by the Defendant and this action was commenced mala fides by the Plaintiff.

(c) S.61A and/or s.75 is contrary to the Basic Law and/or the Bill of Rights Ordinance.

4.Under paragraph 6.1 of his submission, the Defence Counsel submits that the Plaintiff’s application to strike out the Defence on the ground of “no reasonable defence” has been advanced upon a misconception of the relevant principles, because:-

“(a) once it is assumed that the facts pleaded in para. s2-5 of the Defence are true or correct, then the jurisdictional threshold requirement under s.75(1) is not met – which obviously constitutes an arguable defence to this Action;

(b) once it is assumed that the facts pleaded in para. s7 & 8 are true or correct, then D has a reasonably arguable defence upon that ground also;

(c) D’s para. 9 challenge to the constitutionality or lawfulness of the scope of part of s.61A ……… raises a serious and difficult question of law which is obviously unsuited to summary determination;

(d) D’s para. 10 challenge to the constitutionality or lawfulness of part of the scope of s.75 ……………. raises a serious and difficult question of law, which is obviously unsuited to summary determination.”

5.S.75 (4) of the IRO provides:-

“(1) Tax due and payable under this Ordinance shall be recoverable as a civil debt due to the Government.

(2) Whenever any person makes default in payment of tax the Commissioner may recover the same by action in the District Court notwithstanding that the amount is in excess of the sum mentioned in action33 of the District Court Ordinance (Cap. 336).

(3) In proceedings under this action 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.

(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 …….”

6.The Defence Counsel’s submissions on grounds (a) and (b) under Paragraph 4 above cannot be right.  S.75(1) empowers the Commission of the Inland Revenue Department to recover tax due to the Government.  S.75(4) specifically deals with proceedings for the recovery of tax.  In proceedings concerning the recovery of tax, regard must not merely be given to s.75(1).  Section 75(4) also has to be taken into account.  When s.75(1) and s.75(4) are read together, this Court is not to entertain any plea that the tax is excessive, incorrect, subject to objection or under appeal.  Under paragraphs 3, 4, 5 and 7 of the Defence, the Defendant put up a plea that the tax in question was assessed on profits which did not arise in Hong Kong, and that it had paid all the profits tax assessed.  This implies that the Commissioner wrongly raised tax assessed on profits which are not taxable and that the tax assessed is incorrect.  Under section 75(4) of the IRO, this defence is not allowed.  Accordingly the defences raised in paragraph 2-5, 7 and 8 shall not be entertained by this Court.  So no arguable defence has been raised.

7.The Defence Counsel further submits that:-

“6.2  At present there is no decision of any higher Court to guide this Court on the s.61A arguments ……….  These are not issues suitable for summary determination.

6.3       Underlying P’s application is the very extreme notion that there cannot be any defence ever to any s.75 proceedings, i.e. that this Court is performing a purely administrative and not a judicial function in the Court’s processing of s.75 Actions.  It is submitted that any such suggestion is constitutionally impossible.

6.4       It should be noted that none of the matters canvassed in paragraph 6.1 above is a plea that is barred from adjudication by s.75(4).”

The absence of any decision from a higher court does not preclude this Court to make a decision on the matter in question.  I do not accept the argument that this Court is performing a purely administrative function.  When this Court applies the law to the issues before it, it is performing a judicial function.

8.Paragraph 9 of the Defence is as follows:-

“9.     Further and alternatively, if or to the extent that section 61A of the Inland Revenue Ordinance purports to authorize an Assistant Commissioner of Inland Revenue to make assessments based upon a transaction without any time limitation from the date of the transaction then, to that extent, it is contrary to the Basic Law and/or the Bill of Rights Ordinance and therefore is void.”

The Defence Counsel argues that the absence of any time limitation in s.61A of the IRO is contrary to section 105 of the Basic Law and/or Articles 13 and 22 of the Bill of Rights Ordinance and to that extent s.61A is void and the notices of assessment are void.  Article 105 of the Basic Law reads:-

“The Hong Kong Special Administrative Region shall, in accordance with law, protect the right of individuals and legal persons to the acquisition, use, disposal and inheritance of property and their right to compensation for lawful deprivation of their property.

Such compensation shall correspond to the real value of the property concerned at the time and shall be freely convertible and paid without undue delay.

The ownership of enterprises and the investments from outside the Region shall be protected by law.”

Article 105 deals with the protection of individuals and legal persons to “the acquisition, use, disposal and inheritance of property” and their right to compensation for “lawful deprivation of their property”.  It is a provision dealing with the protection of individuals.  I cannot see how it can be related to tax matters.  It does not contain any provision dealing with time limitation. 

9.Article 13 of the Bill of Rights Ordinance provides:

“Everyone shall have the right to recognition everywhere as a person before the law.”

10.Article 22 of the Bill of Rights Ordinance provides:

“All persons are equal before the law and are entitled without any discrimination to the equal protection of the law. In this respect, the law shall prohibit any discrimination and guarantee to all persons equal and effective protection against discrimination on any ground such as race, colour, sex, language, religion, political or other opinion, national or social origin, property, birth or other status.”

These two Articles do not contain any provision relating to time limitations.  I cannot see how s.61A is contrary to Article 105 of the Basic Law and/or Articles 13 and 22 of the Bill of Rights Ordinance.

The Defence argues that to the extent s75(4) of the IRO purports to remove judicial authority to decide the issues in question and/or the duty of this Court to exercise its relevant judicial powers, it is contrary to Article 35 of the Basic Law and/or Articles 13 and 22 of the Bill of Rights Ordinance, and therefore is void and therefore does not debar this Court from entertaining the Defendant’s pleas.  Article 35 of the Basic Law provides:

“Hong Kong residents shall have the right to confidential legal advice, access to the courts, choice of lawyers for timely protection of their lawful rights and interests or for representation in the courts, and to judicial remedies.

Hong Kong residents shall have the right to institute legal proceedings in the courts against the acts of the executive authorities and their personal.”

I cannot see how this Article is connected with the alleged “removal” of judicial authority to decide the issues pleaded in the defence.  In any event, s.75(4) is a valid statutory provision, which must be observed by this Court.  I also cannot see how Articles 13 and 22 of the Bill of Rights Ordinance are relevant in this regard.

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

Costs

12.I make an order nisi, to be made absolute in 14 days’ time, that the Defendant do pay costs of this application to the Plaintiff, to be taxed, if not agreed.

The Plaintiff  :   represented by Miss Michelle Chan of the Department of Justice

The Defendant  :     represented by Mr. Barrie Barlow, S.C., instructed by M/S Andrew Lam & Co., Solicitors.