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Koo Ming Kown And Another v The Commissioner Of Inland Revenue

Judgment Cited authorities 1 Cited in Precedent Map Related
Vincent
Judgment Date09 June 2014
Year2014
Judgement NumberCACV182/2013
Subject MatterCivil Appeal
CourtCourt of Appeal (Hong Kong)
CACV182/2013 KOO MING KOWN AND ANOTHER v. THE COMMISSIONER OF INLAND REVENUE

CACV 182/2013

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF APPEAL

CIVIL APPEAL NO. 182 OF 2013

(ON APPEAL FROM HCAL NO. 112 OF 2013)

________________________

BETWEEN

KOO MING KOWN 1st Appellant
(1st Applicant)
TADAO MURAKAMI 2nd Appellant
(2nd Applicant)
and
THE COMMISSIONER OF INLAND REVENUE Respondent
(Respondent)

________________________

Before: Hon Yeung, Lam VPP and Kwan JA in Court
Date of Hearing: 30 May 2014
Date of Judgment: 30 May 2014
Date of Reasons for Judgment: 9 June 2014

_______________________

REASONS FOR JUDGMENT

_______________________

Hon Lam VP (giving the Reasons for Judgment of the Court):

1. On 26 April 2013, the Commissioner of Inland Revenue issued three notices of assessment for additional tax under Section 82A of the Inland Revenue Ordinance Cap 112 [“IRO”]. Two notices were issued to the 1st Applicant demanding him to pay additional tax in the sums of $6,400,000 and $6,200,000 respectively. One notice was issued to the 2nd applicant demanding him to pay additional tax in the sum of $5,400,000. All three notices were issued in respect of additional tax stemming from profits tax payable by a company, Nam Tai Trading Company Limited [“the Company”]. The Applicants are former directors of the Company and they had signed the tax returns of the Company in different tax years in such capacity. The tax years for which additional taxes are demanded are 1996/97, 1998/99 and 1999/2000. The Company is in liquidation pursuant to a winding-up order made on 4 June 2012.

2. For present purposes, it is not necessary to go into all the details of the circumstances under which the Commissioner demanded additional tax from the Applicants. In short, it stems from the determination by the Commissioner, upheld by the Board of Review in December 2008, that management fees paid by the Company to its ultimate holding company Nam Tai Electronics, Inc. and the legal and professional fees paid to that holding company and its PRC subsidiary were not deductible.

3. Though the Company had applied to the Board to state a case to the Court of First Instance, that application was refused on 22 April 2009 on the basis that the questions put forward by the Company were unparticularised and did not identify clearly other questions of law. The Company had sought to challenge that by way of judicial review in HCAL 40 of 2009. Leave was refused by A Cheung J (as the Chief Judge then was) on 23 April 2009.

4. As a matter of chronology, there was an earlier round of challenge in respect of the notices of intention to assess additional tax issued by the Commissioner in 2011. The Applicants had issued an application for judicial review in HCAL 24 of 2011. That set of proceedings was discontinued by them on 27 June 2012 after a meeting between the Inland Revenue Department and the 1st Applicant (together with his tax adviser). Subsequently, further representations were made to the Commissioner on behalf of the Applicants.

5. After the April 2013 notices of assessment were issued, the Applicants, through their solicitors, lodged an appeal to the Board of Review on 24 May 2013. Mr Coleman SC (together with Mr Maurellet appearing for the Applicants in this appeal) told us that that appeal is still ongoing and it is scheduled to be heard in January 2015.

6. On 22 July 2013, the Applicants filed the application for leave to apply for judicial review in the present case. Three grounds were advanced in the Form 86:

“(1) That the Commissioner erred in law in that he misunderstood the proper scope of section 82A of the IRO, namely that:

(a) Where the Company is liable to furnish tax returns and pay taxes, it is only the Company which is liable for any further assessments of tax (“Ground 1”); and

(b) Where a person has not been “required” to make tax returns under section 51 of the IRO, it cannot then be liable under section 82A (“Ground 2”); and

(2) The Commissioner failed to take into account a number of relevant considerations in issuing the Notices of Assessment and Demand (“Ground 3”), namely:

(a) The strong evidence of a “reasonable excuse” on the part of the Applicants; and

(b) The substantial period of time which has elapsed since the making of the tax Returns, the basis upon which the Notices are made.”

7. That application was heard on 21 August 2013. On the same...

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