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HCIA000001/2000
HCIA 1/2000
IN THE HIGH COURT OF THE
HONG KONG SPECIAL ADMINISTRATIVE REGION
COURT OF FIRST INSTANCE
HIGH COURT INLAND REVENUE APPEAL NO. 1 OF 2000
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| BETWEEN |
| AUST-KEY COMPANY LIMITED |
Appellant |
| AND |
| COMMISSIONER OF INLAND REVENUE |
Respondent |
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Coram: Hon Chung J in Court
Dates of Hearing: 21 July 2000 and 2 March 2001
Date of Handing Down Opinion: 21 March 2001
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O P I N I O N
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Introduction
1. This is the decision on the case stated by the Board of Review (said to be) pursuant to section 69 of the Inland Revenue Ordinance Cap. 112 which reads :
"(1) The decision of the Board shall be final.
Provided that either the appellant or the Commissioner may make an application requiring the Board to state a case on a question of law for the opinion of the Court of First Instance. Such application shall not be entertained unless it is made in writing and delivered to the clerk to the Board, together with a fee ... within 1 month of the date of the Board's decision ...
(5) Any judge of the Court of First Instance shall hear and determine any question of law arising on the stated case and may in accordance with the decision of the court upon such question confirm, reduce, increase or annul the assessment determined by the Board, or may remit the case to the Board with the opinion of the court thereon. Where a case is so remitted by the court, the Board shall revise the assessment as the opinion of the court may require ... ".
2. The 2 questions posed for the opinion of the Court by the Board are :
"(1) After considering the evidence on valuation presented to the Board of Review by both parties, whether the Board was entitled to come to its own conclusion on the market value of the Property as at early November 1988.
(2) Whether the Board of Review was obliged to seek third party professional opinion if the market value of both parties to the appeal are not accepted by the Board of Review".
3. I shall discuss whether these questions can properly be called "questions of law" below. For the moment, I shall proceed to consider them assuming that they are.
The Background Facts
4. The background facts leading to the hearing before the Board have been set out in the case stated and arose in the following manner.
5. The taxpayer used to own shop premises in Tai Po ("the Property"). It is common ground that when the Property was acquired, it was intended to be the taxpayer's capital asset. The taxpayer applied to the authorities sub-divide the Property into 87 shop units in August 1988. By July 1989, sub-division work was completed. From April 1989 to March 1993, the taxpayer sold 73 of the sub-divided units (5 of which were sold with existing tenancies). The 14 units still owned by the taxpayer were rented out.
6. The Revenue considered that when the Property was converted into 87 units, the taxpayer changed its intention from treating the Property as a capital asset to trading stock. The Board in essence agreed with the Revenue regarding this matter despite the taxpayer's arguments to the contrary. This point is no longer in issue before the Court in the case stated.
7. As a result of the taxpayer's change of intention regarding the shop units, the sale proceeds therefrom became taxable. The Revenue considered the value of the Property (before sub-division) should be $16 million, based on a valuation by the Rating and Valuation Department ("the R & V"). On the other hand, the taxpayer assessed (through valuers engaged by it) that the value should be $30 million.
8. The taxpayer's value was at one stage accepted by the Revenue but this was no longer the case when the matter was heard by the Board. At the time of the Board hearing, the taxpayer argued inter alia that the Revenue, having accepted its valuation, is estopped from departing from it after a reasonable period of time. Again, this argument is not relevant to this case stated.
9. At the end of the hearing, the Board assessed the Property's value to be $25.5 million (not $16 million or $30 million). The practical consequence (to the taxpayer) of the difference in the Property's value is this. If the Property's value is higher, the difference between it and the amount of sale proceeds (that is, the profit) would be smaller and hence the amount taxable would be less.
The Relevant Findings of the Board
10. From the 2 questions posed, it is apparent that the Board's findings relevant to the case stated are related to the valuation of the Property. In view of its importance herein, the relevant passages will be set out below :
"... On 16th May 1989, ... the Taxpayer's Valuer ... issued a brief valuation report valuing the Property to be worth HK$30M ... The Taxpayer's Valuation Report is a one page [sic] with a description report annexed thereto. The Taxpayer's Valuation Report valued the Property as one single unit with vacant possession ... The Taxpayer's Valuer said in his testimony to the Board that he used the comparable approach in the valuation. The Taxpayer's Valuation Report stated that the ... instruction was to prepare a valuation ... "for internal account purpose" ...
... The evidence relating to the market value ... presented ... by the Taxpayer were [sic]:-
... The Taxpayer's Valuation Report ...
... The Taxpayer's Valuer gave evidence at the hearings ...
... The valuation evidence presented ... by the Revenue were [sic]:-
... An inter-departmental memo dated 2nd August 1994 ... written by a C. Mak for [the R & V] ...
... A Valuation Report by a valuation surveyor from [the R & V], Mr. K. C. Tsang ("R&V Valuer") ...
... The R&V Valuer gave evidence at the hearings before the Board ... Mr. or Ms. C. Mak ... was not called to give evidence nor were any working papers to support the valuation in the Interdepartmental Memo presented to the Board ...
... The Taxpayer's Valuer testified that he had lost his file and working papers relating to the Taxpayer's Valuation Report. Thus, he was unable to go into any details at all to support the valuation of HK$30M ... The Taxpayer's Valuer had seen the R&V Valuation Report and was able to provide the Board ... with valuable comments thereon ...
... The Revenue relied on both the R&V Valuation Report and the Interdepartmental Memo to support its HK$16M valuation ...
Board's Decision on Valuation
... Other than a bare assertion ... that the value of the Property ... was $30M, the Taxpayer's valuer was unable to provide any evidence to support his valuation. Only a one page letter ... remains. His working file has been lost ... Therefore, the Taxpayer's Valuer evidence was of no assistance to this Board ...
... The Taxpayer's Valuer, however, did give valuable comments on [the R&V's] valuation report and offered alternative views on the R&V's valuation, the comparables used and the adjustments made ...
... [The R&V's] valuation ... was presented to this Board through the oral testimony of a valuation of surveyor ... The comparables and calculations used ... was subject to examination by the Taxpayer' [sic] Representative and this Board. This valuation forms the basis upon which we make our finding ...
... We note the comments of the Taxpayer's Valuer on [the R & V] valuation ... We do not fully agree with adjustments made to the 3 comparables used by [the R & V]. We would make the...
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