The Queen v. Kwok Hing for

CACC000095/1991

BETWEEN

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Coram: Hon Sir Derek Cons, Ag CJ, Kempster and Power, JJA

Date of Hearing: 5 July 1991

Date of Judgment: 5 July 1991

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JUDGMENT

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Kempster, JA:

1. This is the judgment of the Court.

2. On 4 February 1991, in the District Court, Kwok Hing For, who at all material times was carrying on business under the style "Federal Chemical Company", was found guilty and convicted by Deputy Judge Davis on three charges of wilfully signing returns, submitted for assessment of profits tax, without reasonable grounds for believing the same to be true and with intent to evade tax and on three charges of "wilfully making use of fraud, art or contrivance" with the like intent contrary to section 82(1) (d) and (g) of the Inland Revenue Ordinance (Cap 112) respectively. Against those convictions he seeks leave to appeal.

3. The years of assessment covered by the charges were 1985/86, 1986/87 and 1987/88. In relation to 1985/86 it was admitted that the applicant signed a return for profits tax which omitted $958,000 worth of sales and included $853,300 worth of purchases never made. In relation to 1986/87 like admissions were made; the respective figures being $2,300,000 and $1,091,300. Similarly for 1987/88 - the respective figures being $4,000,000 and $592,500. The effect, according to the prosecution, was to understate the profits of the business for each of the three tax years in question and to reduce the applicant's ostensible liability to tax accordingly.

4. In the books of the business purchases from Unity Trading Company of $753,000, 1,091,300 and 3,181,500 were shown for the successive tax years with which we are concerned. That company had ceased business in October 1978 and supplied no goods to the applicant thereafter. For the tax year 1987/88 purchases of $350,000 from Constant (Hk) Trading Company appear. That concern had not by then commenced business and no goods were supplied to the applicant during the relevant period. The invoices for these supposed purchases were made out by the applicant's employees. The proceeds of the cheques made out in payment therefor went into the applicant's pocket. The total amount of tax for which the applicant was not out should, according to the prosecution, have been assessed is in excess of $1.5 million.

Section 51 (5) of the Ordinance reads: -

"A return, statement, or form purporting to be furnished under this Ordinance by or on behalf of any person shall for all purposes be deemed to have been furnished by that person or by his authority, as the case may be, unless the contrary is proved, and any person signing any such return, statement, or form shall be deemed to be cognizant of all matters therein."

The applicant elected not to give evidence so no question of testimony overriding, on the balance of probabilities, this deeming provision arose. As the trial judge pointed out in his judgment all the evidence went the other way. The necessary elements of wilfulness and intent to evade tax he felt able to infer from the defendant's knowledge of the financial situation of the business he was conducting, from the fact that duplicate sets of accounts for the material years, had been prepared and from the circumstances of the supposed purchases from Unity Trading Company and Constant (HK) Trading Company.

5. In support of his Grounds of Appeal the applicant contends that the monies earned by running a personal business were to be regarded as salary, possibly assessable to tax under section 8, rather than as income which, subject to the deductions provided for in section 16, should be assessed for profits tax. We cannot accept this submission. Section 8 "Charge of Salaries Tax" reads: -

These expressions necessarily postulate an employer, be that employer a branch of Government, a corporation or another natural person and does not extend to "self-employment". The applicant, carrying on his own business, was, we are satisfied, liable to assessment to profits tax under section 14 which reads: -

"Subject to the provisions of this Ordinance, profits tax shall be charged for each year of assessment at the standard rate on every person carrying on a trade, profession or business, in Hong Kong in respect of his assessable profits arising in or derived from Hong Kong for that year from such trade, profession or business ... as ascertained in accordance with this Part ..."

By section 2(1)"assessable profits" means the profits in respect of which a person is chargeable to tax for the basis period for any year of assessment calculated in accordance with the provisions of Part IV. The applicant was properly required to make a return under section 51(1) which reads: -

"An assessor may give notice in writing to any person requiring him within a reasonable time stated in such notice to furnish any return which may be specified by the Board of Inland Revenue for property tax, salaries tax or profits tax ... containing such particulars and in such form as may be specified by the Board of Inland Revenue."

Breach of that requirement would have rendered him liable to prosecution under section 80(2)(d).

6. The argument is advanced that the obligation, arising from section 82(1), to make an honest return could be obviated by a subsequent finding by the Revenue that no profits tax was exigible for the period covered by the return and should be obviated by a finding of law by the Court that the maker of the form was not, as a matter of law, liable to such tax for the reasons already outlined. It is not consistent with the terms of section 51(1) or otherwise sustainable.

7. By section 41: -

By section 42:-

In each of the returns relied upon by the prosecution the applicant, having been referred to these sections, had expressed the desire that his profits should be dealt with under "personal assessment". In any event, therefore, the category under which the applicant might become liable to tax was of academic interest only.

8. By his third Ground of Appeal, upon which the fourth depended, it was submitted "that the learned judge erred in admitting it at (sic) evidence documents obtained from a search conducted other than under a warrant issued pursuant to section 51 (B) of ... the Ordinance". Even if the admissibility of documents depended on that point it is not open to the applicant since, pursuant to section 65C of the Criminal Procedare Ordinance (Cap 221), he had admitted that "On 13 September 1988 Assessors of the Inland Revenue Department conducted a search of Federal's office pursuant to a search warrant. In the office they seized records, documents and accounts of Federal, some of which were exhibits in these proceedings". No application has been made pursuant to section 65C (4) to withdraw that admission which necessarily postulates a valid warrant.

9. In the premises we find no grounds warranting criticism of the judge's findings of fact, made on adequate evidence, or reasoning and would dismiss this application for leave to appeal against conviction. Furthermore, having regard to the total lack of merit in the arguments advanced on his behalf, we are minded to direct, pursuant to section 83w of the Criminal Procedure Ordinance, that 30 days of the period which the applicant has spent in custody since filing his application should not count towards sentence. We are, however, prepared to hear counsel on that question.

10. Having heard counsel we give the direction envisaged.

Representation:

M.C. Blanchflower (Crown Prosecutor) for the Respondent

A. Lau and G. Waston (David Tsang & Co) for the Applicant