The Commissioner Of Inland Revenue, Hong Kong v Sam Kwong Weaving Fty. "1952" Ltd

CourtDistrict Court (Hong Kong)
Judgment Date04 July 1987
Judgement NumberDCCJ3203/1986
Subject MatterCivil Action


Application to strike out defence - Exercise by Commissioner of Inland Revenue of positive duty to assess tax and of discretion to impose surcharge provided by law - Doctrine of estoppel thus not available - Legal requirement on settlement of assessable tax on or before due date notwithstanding any notice of objection or appeal by the tax-payer, unless otherwise ordered by Commissioner of Inland Revenue, to prevent tax-payer's delay or excuse in making payment.



ACTION NO. 3203 OF 1986









Coram: H. Wong, D.J. in Chambers.

Hearing dates: 15th September, 1986, 6th November 1986, 16th January, 1987, 14th April, 1987 and 3rd July, 1987.

Date of Judgment: 4th July, 1987.




1. This is Plaintiff's application to strike out the defence and to have summary judgment for his claim of surcharge on a late payment of tax by Defendant.

2. It is not in dispute that on 13/1/86 Defendant's audited accounts on which tax for 1984/85 would be reckoned had not been filed and that situation gave rise to the assessor in charge of Defendant's case issuing to Defendant, under the provision of S.59(3) of Inland Revenue Ordinance, Cap. 112, a combined Notice:-

(a) of Assessment and Demand for Profits Tax for the year of assessment 1984/85, calculated at 18.5% of estimated profit of $2,800,000 = $518,000, less $433,173 already charged = $84,827

(b) For payment of Provisional Tax for the year of assessment 1985/86, based on 18.5% on the same assessable profit of $2,800.000 = $518,000

Total: ($84,827 + $518,000) = $602,827

3. In the same document Defendant was allowed to pay the above amount of $602,827 in 2 phases:-

(1) $473,327 to be paid on or before 17/3/86

(2) $129,500 to be paid on or before 17/6/86

4. This mode of payment by instalments is subject to the terms set out in the same Notice and reproduced below:-

"(a) If the full amount of the FIRST INSTALMENT is not paid as stipulated so much of the TOTAL TAX PAYABLE as is then unpaid will be deemed to be in default and will become immediately recoverable.

(b) If the full amount of the FIRST INSTALMENT is paid as stipulated but the full amount of the SECOND INSTALMENT is not so paid so much of the SECOND INSTALMENT as is then unpaid will be deemed to be in default and will become immediately recoverable.

(c) Where any tax is in default a sum not exceeding 5% thereof may be added to and recovered with the tax."

5. The chronology of events which formed the background and/or led to the present matter at issue can be summarized as follows:-

Item 1) 18/3/86 - Messrs. Thomas Le C. Kuen & Co., Defendant's tax representatives, lodged a Notice of Objection under S.64(1) of the Ordinance on the ground that the tax assessed by Plaintiff on 11/3/86 was excessive;

2) 11/4/86 - Defendant's application to have the said second instalment of $129,500 held over. (This was granted on 29/4/86);

3) 11/4/86 Plaintiff replied to Defendant's objection of 18/3/86 (Item 1) saying that that objection would be validated if a completed return of accounts was received by him not later than 25/4/86;

4) 24/4/86 - Defendant's audited accounts, Profits Tax Return etc. for 1984/85 were lodged to validate the objection;

5) 26/5/86 - Upon finalization of the objection Defendant's tax for 1984/85 was calculated as follows : -

1st instalment

2nd instalment

Original assessment $473,327 $129,500
Less : discharged


Due date for payment 17/3/86 $167,229 Nil

Less : paid on 18/3/86

$ 58,247
Balance $108,982

6) 6/6/86 - Defendant paid the balance of tax of $108,982 (Item 5).

7) 10/6/86 - Revised assessment for 1984/85 and revised demand for Profits Tax 1985/86 shows

Net revised tax $167,229
Less : Previously changed (Item 5) $167,229
Tax payable $ 0

6. Defendant avers that the ground for its failure to file its Tax Return with supporting audited accounts before the date of assessment of 13/1/86 was that on 6/12/85 Jones, J. ordered in High Court M.P. No. 2627 of 1985, inter alia, that all documents 6f Defendant or copies he placed and remain in the custody of a notary public until further order of the Court. Defendant further asserts that those documents were not released until 14/1/86 by order dated 9/1/86 of the same judge, so that information and explanations needed for the preparation of audited accounts and tax return were not ready until March 1986 and thus resulted in the delay.

7. There is no evidence that the order of Jones, J. of 6/12/85 was made known to Plaintiff or became the subject of an application for late submission of tax return. Consequently on 13/1/86 Plaintiff, in my view, rightly exercised his statutory right under S. 59(3) of the Ordinance by raising the said assessment of tax X. 59(3) says:

"where a person has not furnished a return and the assessor is of the opinion that such person is chargeable with tax, he may estimate the sum in respect of which such person is chargeable to tax and make an assessment accordingly ….."

8. Replying to the objection of 18/3/86 from Defendant's tax representative Plaintiff said on 11/4/86: -

"I regret that I cannot accept your representative's letter dated 18 March 1986 as a valid Notice of Objection under Section 64 of the Inland Revenue Ordinance because the assessment in question was made under Section 59(3) in the absence of a return and a return has still not been submitted. The objection will, however, be validated providing a properly completed return is received by me not later that 25 April 1986.

Should a return not be received by that date, the assessment will become final and conclusive in terms of Section 70 of the Inland Revenue Ordinance. The tax should in any event be paid on or before the due date." (emphasis added)

9. It can be said that the intention of the Legislature is that a tax-payer should not use an objection to an assessment as a means to delay or escape payment of tax and that such intention is found in the following S.71(2).

"Section 71(2): - 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."

10. As far as default in payment and surcharge arising there from are concerned Plaintiff invokes these provisions: -

"Section 71(1): - TAX charged 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. Any tax not so paid shall be deemed to be in default, and the person by whom such tax is payable, or where any tax is payable by more than one person or by a partnership then each of such persons or each partner in the partnership, shall be deemed to be a defaulter for the purpose of this Ordinance."

"Section 71(5): - Where...

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