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The Servicemen’s Guides Association v The Commissioner Of Inland Revenue

Judgment Cited authorities 7 Cited in Precedent Map Related
Vincent
JurisdictionHong Kong
Judgment Date10 January 2023
Neutral Citation[2023] HKCFI 82
Year2023
Subject MatterInland Revenue Appeal
Judgement NumberHCIA1/2022
HCIA1/2022 THE SERVICEMEN’S GUIDES ASSOCIATION v. THE COMMISSIONER OF INLAND REVENUE

HCIA 1/2022 &
HCIA 2/2022
(Heard together)

[2023] HKCFI 82

HCIA 1/2022

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

INLAND REVENUE APPEAL NO. 1 OF 2022

______________

BETWEEN
THE SERVICEMEN’S GUIDES ASSOCIATION Appellant
and
THE COMMISSIONER OF INLAND REVENUE Respondent

______________

AND

HCIA 2/2022

INLAND REVENUE APPEAL NO. 2 OF 2022

______________

BETWEEN
THE COMMISSIONER OF INLAND REVENUE Appellant
and
THE SERVICEMEN’S GUIDES ASSOCIATION Respondent

______________

(Heard together)

Before: Hon Cheng J in Chambers

Date of Hearing: 7 December 2022

Date of Decision: 10 January 2023

_______________

D E C I S I O N

_______________

A. INTRODUCTION

1. By summons of 23rd May 2022, the Servicemen’s Guides Association (“the SGA”) applied for leave to appeal against the decision of the Inland Revenue Board of Review (“the Board”) dated 26th April 2022 (“the Decision”). The Decision relates to an assessment for profits tax for the year of assessment 2013/14 issued to the SGA, regarding assessable profits of $2,745,867 and tax payable thereon of $443,068.

2. By summons of 26th May 2022, the Commissioner of Inland Revenue (“the Commissioner”) also applied for leave to appeal against the Decision.

B. THE BACKGROUND

3. There is no real dispute as to the facts, which the Board found at paragraphs 10 to 16 of the Decision. The relevant ones for present purposes are as follows.

4. The SGA was incorporated in Hong Kong as a company limited by guarantee on 5th May 1955.

5. The SGA’s memorandum and articles of association states the objects of the SGA in clause 3 of the memorandum of association, as follows.

“(a) To acquire and take over any part or all of the assets and liabilities of the present unincorporated body known as the Servicemen’s Guides.

(b) To establish, maintain and conduct a fleet landing, premises and all other conveniences which the General Committee under its powers in the Articles and Bye-laws of the Association shall determine for the guidance and welfare of American Servicemen, as from time to time may be visiting Hong Kong.

(c) To establish, maintain and conduct any film or theatre or any other form of entertainment or sport and to organize or subscribe to advise upon and assist tours and excursions in Hong Kong or elsewhere for the benefit of American Servicemen and their legal dependents and friends.

(d) To establish, maintain and conduct laundry services, money exchanges, canteens, lounges, and giftshops of all kinds anywhere in Hong Kong for the benefit of American Servicemen.

…

(f) To acquire by purchase, lease or otherwise, lands and to maintain the same, and lease or let out buildings, offices, or premises not immediately required for use by the Association and to furnish, alter, enlarge, repair, uphold and maintain such buildings and premises, and generally to purchase, take on lease or in exchange, hire or otherwise acquire, property and any rights or privileges which the Association may think necessary or convenient for the purposes of the Association.

…

(m) To procure for the Association recognition by all proper authorities and by the public and generally to do all things necessary or desirable for the promotion of the welfare and guidance of American Servicemen in Hong Kong.

(n) To carry on or conduct any other business or proceedings which may seem to the Association capable of being conveniently carried on or conducted in connection with the objects herein, or calculated directly or indirectly to advance the objects herein or any of them, or to enhance the value of, or render profitable, any of the Association’s property or rights.”

6. The Inland Revenue Department (“the IRD”) issued a letter dated 10th August 1955 stating that the CIR agreed that the SGA, as a “charitable institution”, was exempt from liability to tax under s.88 of the Inland Revenue Ordinance (“the IRO”).

7. The IRD issued a further letter dated 1st April 1965 confirming that the SGA was exempt from tax under s.88 IRO by reason of being a charitable, ecclesiastical or education institution of a public character.

8. Over the years, the IRD conducted periodic reviews of institutions for the purpose of considering whether they still qualified as being charitable for the purposes of s.88 IRO.

9. In 2008, solicitors for the SGA wrote to the IRD asking for confirmation whether the letter of 1st April 1965 was still valid. The IRD’s reply of 25th July 2008 indicated that the SGA was a charitable institution exempt from tax under s.88 IRO.

10. In 2016, the IRD conducted another periodic review of tax exempt institutions and trusts and sent a questionnaire to the SGA for this purpose. The review led to further correspondence asking for further information, documents and explanations in 2017, including a letter of 12th July 2017 in which the IRD asked for an explanation as to how the SGA’s operations were exclusively charitable and for the public benefit. There were further queries in 2018. In a letter of 4th April 2018, the IRD asked the SGA to explain in detail how its objects fell into one or more charitable purposes. The queries were pursued in the IRD’s letter of 7th September 2018 and 4th February 2019.

11. On 18th March 2020, the IRD wrote to the SGA stating the view that the SGA was not a charity at law and therefore could not be exempt from tax under s.88 IRO, setting out detailed reasons for the view taken.

12. On 20th March 2020, an assessment for profits tax for the year of assessment 2013/14 was issued to the SGA. The amount of assessable profits therein was subsequently revised, for reasons which do not arise in the current applications.

13. The SGA has been operating premises at 1 Lung King Street, Wanchai, Hong Kong (widely known as “Fenwick Pier”). The SGA originally occupied the land at 1 Lung King Street under a Crown Land Licence. Subsequently, it held the land under a tenancy agreement for a term of five years from 1st May 1992, and thereafter under a tenancy renewable on a quarterly basis until such time as the tenancy was terminated, at a rent of $1 per annum.

14. In the Decision, the Board held that the SGA was not a charitable institution under s.88 of the IRO for the purpose of exemption from taxation for the year of assessment 2013/14. The Board considered that the SGA failed to meet the three conditions in Cheung Man Yu v Lau Yuen Ching & ors [2007] 4 HKC 314. The Board further expressed the view, obiter, in case it were found to have been wrong on this issue, that SGA would have satisfied the requirements of the proviso to s.88 IRO so as to claim an exemption from profits tax.

C. THE PRINCIPLES

C1. Leave to appeal against a decision of the Board

15. An appeal against a decision of the Board of Review may be made only on a ground involving a question of law: s.69(1) IRO.

16. An intending appellant must first obtain leave to appeal: s.69(2) IRO. Under s.69(3)(e), no leave will be granted unless the court is satisfied that:

16.1 a question of law is involved in the proposed appeal, and

16.2 the proposed appeal has a reasonable prospect of success, or that there is some other reason in the interests of justice why the proposed appeal should be heard.

C2. Appealing against a decision of the Board

17. The ways in which a decision of the Board may be challenged are limited, as explained in CIR v Inland Revenue Board of Review [1989] 2 HKLR 40 at 56F-H, 57F-H (Barnett J).

17.1 The decision may be challenged for misdirection in law.

17.2 An inference or the final conclusion of the Board may be attacked on the basis that the primary facts do not admit of an inference drawn from them, or that the primary facts or inferences, or a combination of them, do not admit of the final conclusion. Where the facts can reasonably admit of the Board’s conclusion, however, its decision should not be disturbed.

17.3 A finding of primary fact may be challenged on the basis that there was no evidence in support of the finding. Alternatively, it may be contended that the Board should have made findings of other relevant facts.

C3. Tax exemption for charitable institutions under s.88 IRO

18. Section 88 IRO provides as follows.

“Notwithstanding anything to the contrary in this Ordinance contained there shall be exempt and there shall be deemed always to have been exempt from tax any charitable institution or trust of a public character:

Provided that where a trade or business is carried on by any such institution or trust the profits derived from such trade or business shall be exempt and shall be deemed to have been exempt from tax only if such profits are applied solely for charitable purposes and are not expended substantially outside Hong Kong and either –

(a) the trade or business is exercised in the course of the actual carrying out of the expressed objects of such institution or trust; or

(b) the work in connection with the trade or business is mainly carried on by persons for whose benefit such institution or trust is established.”

19. The parties agreed that the common law principles as to whether an institution is a charity should apply in determining whether SGA is a “charitable institution or trust of a public character” for the purposes of s.88 IRO. In order to qualify as a charity, three conditions must be satisfied:

19.1 the purposes of the institution must have charitable character, that is they must be within the spirit and intendment of the preamble to the Charitable Uses Act 1601 (“the Preamble”);

19.2 the...

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