Richfield International Land and Investment Company Ltd v Commissioner of Inland Revenue (Hong Kong)
| Jurisdiction | UK Non-devolved |
| Judgment Date | 03 October 1989 |
| Date | 03 October 1989 |
| Court | Privy Council |
Privy Council.
Lord Ackner, Lord Roskill, Lord Goff of Chieveley, Lord Jauncey of Tullichettle and Lord Lowry.
Mr. Denis Chang Q.C. and Mr. Denis Yu of the Hong Kong Bar (instructed by McKenna & Co.) for the company.
Mr. Peter Feenstra, senior assistant Crown solicitor, Hong Kong and Mr. David Hinchen, senior Crown counsel, Hong Kong (instructed by Macfarlanes) for the Commissioner of Inland Revenue.
Judgment delivered by Lord Jauncey of Tullichettle.
The following cases were referred to in the judgment:
Edwards (H.M.I.T.) v. Bairstow & Anor. ELR[1956] A.C. 14
Furniss (H.M.I.T.) v. Dawson & Ors. ELRTAX[1984] A.C. 474; [1984] BTC 71
Lim Foo Yong Sdn. Bhd. v. Comptroller-General of Inland Revenue (Malaysia) TAX[1986] BTC 210
Hong Kong profits tax - Sale of property which had produced rental income - Whether property was capital asset or trading stock at time of sale - Whether reasonable inference by Board of Review that property was trading stock - Inland Revenue Ordinance (Hong Kong), section 14sec. 14.
This was an appeal by the taxpayer company from the decision of the Hong Kong Court of Appeal. The Board of Review dismissed an appeal by the company against assessment to profits tax on the sale of a property but the High Court held that the sale was a realisation of capital assets. The Court of Appeal restored the decision of the Board of Review.
The company owned seven properties in Hong Kong including a block of flats, Gardena Court, which were classified as fixed assets in its balance sheet. In the early 1970s the company sold two properties which were at first treated as capital transactions but later were assessed to profits tax as property dealing under the Inland Revenue Ordinance, section 14sec. 14. In 1978 a block of flats producing rental income was sold which was also assessed to profits tax. The company did not challenge those assessments.
In January 1980 the company sold Gardena Court which had been let for rental income from the time of its acquisition in 1972 to the date of sale. The book profit realised was shown on the company's accounts as surplus on disposal of assets but profits tax was assessed on the basis that the sale was a trading transaction.
On the company's appeal the Board of Review stated that they would have treated the sale as the realisation of a capital asset if the company had not submitted to profits tax on sales of its other properties. The issue before the Privy Council was whether the Board of Review were entitled to draw the inference from the treatment of previous sales as trading transactions that Gardena Court had become trading stock, the sale of which would attract profits tax.
Held, dismissing the company's appeal:
1. The principle that a finding of fact by a body such as the Hong Kong Review Board would only be set aside by an appellate court if that body had acted without any evidence or on a view of the facts which could not be supported applied equally to inferences drawn from primary facts. If the primary facts were capable of supporting two alternative inferences it was not the function of the appellate court to substitute its preferred inference for the inference legitimately drawn by the body in question. (Furniss (H.M.I.T.) v. Dawson & Ors.TAX[1984] BTC 71 and Lim Foo Yong Sdn. Bhd. v. Comptroller-General of Inland Revenue (Malaysia) TAX[1986] BTC 210, applied.)
2. Having concluded that the company was content to pay profits tax on the sale of the other properties, the Review Board were entitled to find that the sale of Gardena Court was undertaken on the same basis. The Review Board had not drawn an inference for which there was no foundation in fact or which could not reasonably be sustained by the facts as found.
This is an appeal by a taxpayer company ("the company") from a judgment dated 9 August 1988 of the Court of Appeal of Hong Kong (Cloughand Hunter JJ.A. and MacDougall J.) allowing an appeal by the Commissioners of Inland Revenue ("the Revenue") from an order dated 10 March 1988 by Sears J. which had allowed an appeal by the company by stated case from a decision of the Board of Review dated 12 August 1986 rejecting the company's taxpayers appeal against an assessment to profits tax for the year 1979-80. That assessment related to...
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