Nice Cheer Investment Ltd v. Commissioner of Inland Revenue

CACV 135/2011

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF APPEAL

CIVIL APPEAL NO. 135 OF 2011

(ON APPEAL FROM HCIA No. 8 of 2007)

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BETWEEN

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Before : Hon Cheung, Kwan and Fok JJA in Court

Date of Hearing : 7 November 2012

Date of Decision : 7 November 2012

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D E C I S I O N

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Hon Cheung JA (giving decision of the Court) :

1.We are satisfied that the three questions formulated by the Commissioner of Inland Revenue, namely,

‘ (1) Is an increase in value above its acquisition cost of unsold stock-in-trade, which is reflected in a trader’s accounts drawn up in accordance with standard accounting practice, to be taken into account when ascertaining the assessable profits of the trader under section 14 of the Inland Revenue Ordinance (Cap 112) (“the IRO”)?

(2) Is there a general principle of profits tax that profits derived from stock in trade are only assessable to tax under the IRO if they result from a realisation of the stock, in the sense of some form of dealing with, or disposal of, the stock?

(3) To what extent is the general principle that profits for profits tax purposes are to be computed in accordance with ordinary principles of commercial accounting (as accepted by theCFA in CIR v Secan Ltd (2000) 3 HKCFAR 411) subject to supposed general principles of profits tax (such as the principle stated in Question 2) which are not expressly stated in the IRO itself?’

are of great general or public importance which ought to be considered by the Court of Final Appeal.  Accordingly we shall grant leave pursuant to section 22(1)(b) of the Hong Kong Court of Final Appeal Ordinance (Cap. 484).  The costs of the application be in the cause of the appeal.

Mr. Eugene Fung SC and Mr. Julian Lam, instructed by Department of Justice, for the appellant

Mr. Stewart Wong SC, instructed by Woo, Kwan, Lee & Lo, for the respondent