The Commissioner of Inland Revenue v. Ching Yeung Colour Printing Co Ltd

DCTC 2774/2012

IN THE DISTRICT COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

TAX CLAIM NO 2774 OF 2012

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D E C I S I O N

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1.This is the Plaintiff’s application for an order that the defence be struck out on the ground that it discloses no reasonable defence.

2.On 29 August 2012, the Plaintiff issued a writ against the Defendant for the sum of $4.62 million being tax payable under section 75 of the Inland Revenue Ordinance.  The nature of the tax is profits tax and it is for the year of assessment 2005 to 2006. 

3.The Defendant raised a number of grounds to object to the claim.  The Defendant is a company incorporated under the laws of Hong Kong.  It carried out its business initially as a provider of printing services but as time went by the business nature of the Defendant changed and its principal business is now in trading. But this change of nature of business was not communicated properly to its accountant.  As a result, this change of business was not further communicated to the Commissioner of the Inland Revenue and as such the tax assessment for the year of 2005 to 2006 did not reflect this change.  The Defendant upon realising this mistake wrote to the Inland Revenue Department asking for reassessment of the same.  The nature of this defence is that the assessment is not correct. 

4.The second defence is that negotiations had been taking place and are still in progress, as such the Plaintiff should not have issued or prematurely issued the present writ. 

5.The third ground is that if the Defendant were to order to pay the disputed sum it would create severe hardship to the Defendant.  This can never be a ground of objection.  I will go to this point later on.

6.The further ground is that section 75 of the Inland Revenue Ordinance removes the judicial authority and/or the duty of this court to exercise its judicial power judicially to hear any defence that the assessment is incorrect or excessive.  Therefore it is contrary to Articles 35 of the Basic Law or against the Bill of Rights Ordinance Articles 10 and 22 and therefore section 75 should be held null and void.

7.The Plaintiff has cited to this court a number of authorities relating to section 71 and section 75 of the IRO.  Section 71(1) of the IRO provides:-

“Tax charge under the provisions of this ordinance shall be paid in the manner directed in the Notice of Assessment on or before a date specified in such notice.”

71(2) reads:

“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.”

And section 75(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.”

8.Now, I will deal with the defence one by one.  The first ground of defence is that the Defendant company has changed its business and this was not communicated to its accountant and not communicated to the Commissioner of the Inland Revenue and the tax assessment for the year of 2005 to 2006 did not reflect this change and so by implication the Defendant is saying that the assessment is excessive or incorrect.  This is not allowed under section 75(4) of the IRO.

9.The defence counsel submits that section 75 is contrary to Basic Law and the Bill of Rights Ordinance.  However, there has been a long line of authorities either in the District Court or in the Court of Appeal which examine the operation and effect of section 75.  The cases cited by the Plaintiff include CIR v Au Yuk Shuet [1966] 1 HKKC 489; Ng Chun Kwan v CIR [1976] HKLR 94; CIR v Choy Sau Kam & Chan Yun [1983] 2 HKPC 10 and CIR v Eekon Enterprises Limited [1995] 5 HKPLR 322.  Despite arguments by defendants in the various cases, the ruling of the courts in those cases are the same, namely section 75 is still valid and I am bound to apply the provisions under that section.  That section forbids this court to entertain any plea that the tax assessment is excessive or incorrect and so the first ground of the defence cannot be a valid defence.

10.The second ground of the defence is that set out under 2(g) of the defence.  The defence counsel raises submission that since the negotiation between the Plaintiff and the Defendant is still in progress and the Defendant was under the impression or understanding that the Plaintiff would not take steps to enforce it until and unless the negotiation has come to an end which in turn has given the Defendant a legitimate expectation.

11.I note that this defence of legitimate expectation was not raised in the defence.  It could have been raised under paragraph 2(g) of the defence but it is not there.  So my judgment is that this ground of defence was simply raised by the defence counsel for the sake of argument.  It is not part of the defence.  If that is a genuine defence, under 2(g) of the defence, relevant facts could have been set out to support or advance the argument of legitimate expectation.  It was not there.  Since it is not there to become part of defence I cannot strike it out because it is not part of  the defence but I hold that the submission cannot succeed.

12.The defence counsel further raise under paragraph 23 of the submission that the Plaintiff could have exercised its discretion to issue the writ without any negotiations at all.  Nonetheless, it did not do so and the Plaintiff’s right under section 75 of IRO is thus superseded or suspended by this negotiation which gave rise to a legitimate expectation.  I cannot see how the rights of the Plaintiff, if any, under section 75 can be superseded or suspended.  The Plaintiff is entitled to conduct negotiation on one hand and also to exercise its statutory right to commence proceedings against the Defendant.  Negotiation itself cannot damage the rights of the Plaintiff.  In any event, under section 75(4) the provisions are related to the manners which the court should take in entertaining any plea of defence.  It does not deal with the rights of the Plaintiff. This argument is not logical and cannot succeed. 

13.The third ground is defence is if the Defendant were ordered to pay the disputed sum it would create severe hardship to the Defendant.  Hardship is never a ground of defence.  If it is under duty to pay tax then it has to pay, it cannot simply say “Well, I suffer severe hardship and I not under any obligation to pay”.  That is not a statutory defence.

14.On the whole of the defence, simply I cannot see any reasonable defence at all.  I therefore enter Judgment in favour of the Plaintiff in the sum as claimed, that is $4.62 million with interest thereon commencing from 29 August 2012, the date of the writ.

15.The Defendant do pay costs of this action including today’s hearing to the Plaintiff in the agreed sum of $30,000.

Mr Leslie Shay, GC of the Department of Justice, for the plaintiff

Mrs Angel Daley, instructed by Ho & Wong, for the defendant