HCAL227/2022

HCAL227/2022

HCAL 227/2022 A A [2022] HKCFI 2932 B IN THE HIGH COURT OF THE B HONG KONG SPECIAL ADMINISTRATIVE REGION C C COURT OF FIRST INSTANCE D CONSTITUTIONAL AND ADMINISTRATIVE LAW LIST NO 227 OF 2022 D E E BETWEEN F F BESINS HEALTHCARE (HONG KONG) Applicant LIMITED G G and H H COMMISSIONER OF INLAND REVENUE Respondent I I ________________ J J Before: Hon Coleman J in Court K K Date of Hearing: 23 September 2022 L Date of Judgment: 28 September 2022 L M M _______________ N JUDGMENT N _______________ O O A. Introduction P P 1. The Applicant taxpayer in this case says that the Respondent Q (“Commissioner”) holds approximately $6 million paid by the Applicant, Q to which the Commissioner is not entitled. The Applicant demands the R R return or refund of that sum, and has brought these proceedings for that S S purpose. Albeit late in the day, the Commissioner has now agreed to T refund that sum. But the Applicant will not take ‘yes’ for an answer. T U U V V  - 2 - A A 2. It is, therefore, necessary for me to resolve the issues. They B B turn primarily on the correct approach to the statutory regime in the C Inland Revenue Ordinance Cap 112 (“IRO”) providing for tax assessment, C objections and appeals in the context of holding over of the tax assessed, D D but on condition of the purchase of tax reserve certificates (“TRCs”). E E 3. The issues arise in judicial review proceedings commenced F F by Form 86 dated 13 April 2022. On 27 April 2022, I gave leave to G apply for judicial review, on the papers. Further evidence has been filed, G and the matter has come on for substantive hearing. H H I 4. The Applicant has been represented by Mr Stefano Mariani, I Solicitor Advocate. The Commissioner has been represented by J J Mr William Liu, Senior Assistant Law Officer, and Ms Jess Chan, K Assistant Law Officer (Ag). K L L 5. At the end of the hearing, I reserved my decision. This is M my Judgment. M N N B. Factual Background O O 6. The Applicant is a company incorporated in Hong Kong on P 20 April 2009. It is part of a corporate group, which manufactures and P distributes pharmaceutical products. Q Q R 7. Though the Applicant’s registered office is in Hong Kong, its R substantive commercial operations are said to be carried out overseas, S S generally with the collaboration of third-party manufacturers and related T third-party agents. Hence, since incorporation, the Applicant has T conducted its affairs on the basis that it is not chargeable to profits tax in U U V V  - 3 - A A Hong Kong under section 14 of the IRO. Therefore, the Applicant filed B B tax returns stating that it did not derive any Hong Kong sourced profits, C and so was not chargeable to profits tax. C D D 8. In 2018, the Commissioner commenced an audit of the E Applicant’s tax affairs. Between 2018 and 2020, the Commissioner E issued the Applicant with assessments to profits tax (“Initial F F Assessments”) for the years of assessment 2011/12 to 2018/19 inclusive G (“Total Period”). G H H 9. For present purposes, the focus is on matters following the I Initial Assessments raised for the years of assessment 2012/13 to 2016/17 I inclusive (“Relevant Period”). For those years, the Applicant was J J assessed to a total of HK$107,540,448 of profits tax (“Disputed K Assessments”). K L L 10. The Applicant disputes that it is liable to such profits tax, M and in respect of each of the Disputed Assessments raised a timeous M objection under section 64 of the IRO (“Objections”). The Objections N N maintained the Applicant’s argument that it is not liable to any profits tax, O such that each assessment should have been ‘nil’. O P P 11. On receipt of the Objections, the Commissioner ordered that Q the payment of tax assessed in the Disputed Assessments be held over Q under section 71(2) of the IRO, subject to the purchase by the Applicant R R of TRCs in the amount of the Disputed Assessments for the Relevant S Period, namely HK$107,540,448. S T T U U V V  - 4 - A A 12. For the Total Period, the Applicant was required to purchase B B eight TRCs to comply with the condition of the holdover in the total sum C of HK$204,061,560. The Applicant purchased the TRC’s accordingly, C and they stood as security for the payment of the disputed tax assessed. D D E 13. The Commissioner’s decision on the Objections was given E in his Determination dated 13 January 2022 (“Determination”). Whilst F F he confirmed much of the Disputed Assessments, and so to that extent G dismissed the Objections, he also decided that the total amount of the G assessment confirmed in the Determination relating to the Relevant H H Period should be in the lower amount of HK$101,518,153. Therefore, I the difference amounted to HK$6,022,295. I J J 14. As a result, the Commissioner now holds HK$6,022,295 K more in TRCs than he claims is payable by the Applicant for the years of K assessment in the Relevant Period. I shall define the HK$6,022,295 as L L the “Excess Amount”, though I note (as will be explained below) that the M Commissioner does not accept that the sum is necessarily an excess. M N N 15. It may be relevant also to identify that the Determination O additionally dealt with: O P (1) the year of assessment 2011/12, where the Commissioner P adjusted the Initial Assessment to ‘nil’; Q Q (2) the year of assessment 2017/18, where the Commissioner R adjusted the Initial Assessment to increase the assessment by R HK$383,084; and S S (3) the year of assessment 2018/19, where the Commissioner T adjusted the Initial Assessment to increase the assessment by T HK$366,924. U U V V  - 5 - A A 16. The TRC purchased in the sum of HK$3,900,000 for the B B year of assessment 2011/12 has been redeemed, and that sum has been C refunded to the Applicant. C D D 17. The increased assessments for the years of assessment E 2017/18 and 2018/19 total HK$750,008 (“Additional Amount”). The E Applicant has expressed willingness to purchase TRCs in the Additional F F Amount. G G 18. On 27 January 2022, the Applicant lodged an appeal against H H the Determination for the years of assessment 2012/13 to 2018/19 I (namely, all of the years of assessment for the Total Period subject to the I Initial Assessment, except for 2011/12). The appeal is brought under J J section 66(1) of the IRO, and will be heard by the Board of Review K (“Board”) – with dates of hearing fixed for May 2023. The merits of K that appeal are irrelevant for present purposes, and need not be addressed. L L M 19. By its solicitors’ correspondence in February 2022, the M Applicant requested a refund of the Excess Amount, together with any N N interest due thereon, by repurchasing the relevant TRCs or portions of O them. On 7 March 2022, the Commissioner rejected that request O (“Refusal”). The Refusal was made on the basis that the Commissioner P P was not authorised to repurchase TRCs in the Excess Amount until the Q final disposal of the Applicant’s substantive tax appeals against the Q Disputed Assessments. R R S 20. The Refusal is the subject matter of these judicial review S proceedings. The specific relief sought in the Form 86 includes an order T T U U V V  - 6 - A A of mandamus, requiring the Commissioner to “redeem” the TRC’s in an B B amount equivalent to the Excess Amount. C C C. Commissioner’s Change of Stance D D 21. It seems that the parties entered into without prejudice E E communications beginning 15 August 2022. Obviously, I am not F concerned with any exchange made on that basis. F G G 22. However, by open letter dated 14 September 2022, the H Commissioner made a “final offer” to settle these proceedings by making H a refund of the Excess Amount, albeit without interest for the time being. I I The letter stated that: J J (1) The Commissioner agrees to vary the conditions of the TRC K purchased such that there will be a refund of the Excess K Amount, and the Excess Amount would be held over L unconditionally. L M (2) Further, TRC’s should be purchased by the Applicant to M cover the Additional Amount. N N (3) As to whether there should be interest accrued on the Excess O Amount for the period from date of purchase to date of O variation, under section 71(7)(d) of the IRO, or whether any P interest shall be payable by the Applicant for the period from P the date of variation to the data final determination of the Q Q objection or appeal under section 71(10) of the IRO would R depend upon the findings and judgment of the appeal, so that R it is premature to agree interest or make a request for a ruling S S on a hypothetical situation. T T U U V V  - 7 - A A 23. The letter, therefore, proposed entering into a Consent Order, B B in terms (which I shall simplify) that: C C (1) the Excess Amount would be repaid to the Applicant, D without interest, within 21 days following the D Commissioner’s receipt of the relevant original TRCs; E E (2) the Applicant would purchase TRCs for the Additional F Amount within 21 days; and F (3) the Commissioner shall bear the Applicant’s costs of these G G proceedings up to 15 August 2022, and costs incurred by the H Commissioner thereafter shall be borne by the Applicant, all H costs being taxed if not agreed. I I 24. Mr Liu submits that the agreement to repay the Excess J J Amount is dispositive of these proceedings, and it is of no import as to K what particular label is used to describe the repayment. Although the K Commissioner cannot agree to pay interest on the Excess Amount, Mr Liu L L says that the issue of interest is both academic for the time being and in M M any event not raised in the pleaded Form 86. N N 25. I think it can be said that the open offer to repay the Excess O Amount appears to be conditional upon (a) the Applicant’s agreement to O P purchase TRC’s for the Additional Amount (which may not be P controversial) and (b) the Applicant’s agreement to the proposed split Q Q costs order. However, by Mr Liu’s written submissions, the R Commissioner’s position seems now to be that the Excess Amount can be R repaid (without interest), and any disagreement as to the proper costs S S order can be the subject of argument, to await the parties’ ability to read T and consider this Judgment. T U U V V  - 8 - A A 26. Further, though the focus of Mr Liu’s submissions has been B B as regards the repayment of any interest on the Excess Amount (because C of the agreement to repay the Excess Amount itself), the argument C developed in those submissions seems to me to be at least potentially D D relevant to the legal necessity or not for the refund of the Excess Amount E – and also relevant to the mechanics of any refund. E F F D. Statutory Context G G D.1 Definition of Tax H H 27. As is usual for statutes, the IRO contains a definition section. I In section 2, “tax” is defined as: I J Tax (稅、稅款、稅項) except for the purposes of Parts 12 and 13, J means any tax imposed by this Ordinance (including provisional salaries tax charged under Part 10A, provisional K profits tax charged under Part 10B and provisional property tax K charged under Part 10C) other than additional tax, but for the L purposes of Parts 12 and 13 tax (稅、稅款、稅項) includes L additional tax; M M D.2 Objections and Appeals N N 28. The starting point of the process of objections and appeals O with which this case is materially concerned begins, of course, with a O prior assessment to tax. P P Q 29. Part 10 of the IRO is headed ‘Assessments’, and Q section 62(1) provides as follows: R R S 62. Notice to be issued by Commissioner S (1) The Commissioner shall give a notice of T assessment to each person who has been T assessed stating the amount assessed, the U U V V  - 9 - A A amount of tax charged, and such due date for B payment thereof as may be fixed by the B Commissioner. C C 30. Part 11 of the IRO is headed ‘Objections and Appeals’, and D D comprises sections 64 to 70A. E E 31. Under section 64 of the IRO, a taxpayer may object in F writing to an assessment to tax issued by the Commissioner. Insofar as F G is material for present purposes (with other passages omitted), section 64 G provides as follows: H H 64. Objections I I (1) Any person aggrieved by an assessment made under this Ordinance may, by notice in writing J to the Commissioner, object to the assessment; J but no such notice shall be valid unless it states precisely the grounds of objection to the K assessment and is received by the Commissioner K within 1 month after the date of the notice of L assessment: L Provided that— M M (a) if the Commissioner is satisfied that owing to absence from Hong Kong, N N sickness or other reasonable cause, the person objecting to the assessment was O prevented from giving such notice within O such period, the Commissioner shall extend the period as may be reasonable P in the circumstances; P (b) where any assessment objected to has Q Q been made under section 59(3) in the absence of any return required under R section 51, no notice of objection against R such assessment shall be valid unless, in addition to such notice being valid in S S accordance with the foregoing provisions of this subsection, the return required as T aforesaid has been made within the T period provided by this subsection for objecting to the assessment or within U U V V  - 10 - A A such further period as the Commissioner B may approve for the making of such B return; C (c) where the assessment is a reassessment C of the tax due from a person having the effect of either increasing or reducing D D that person’s liability to tax, the person so reassessed shall have no further right E of objection than he would have had if E the reassessment had not been made except to the extent to which, by reason F of the reassessment, a fresh liability in F respect of any particular is imposed on G him or an existing liability in respect of G any particular is increased or reduced. H (1A) For the purposes of subsection (1), where a H person chargeable to tax is assessed under section 59(2)(b) or 60(1) in circumstances that, I I if the person had no other income, property or profits chargeable to tax under this Ordinance, J the assessment would have been made under J section 59(3)— K (a) the provisions of proviso (b) to K subsection (1) shall apply to any L objection made against that assessment L to the extent to which that person has failed to comply with section 51; and M M (b) no notice of objection against such assessment shall be valid unless and until N N that person has complied with section 51. O (2) On receipt of a valid notice of objection under O subsection (1) the Commissioner shall consider the same and within a reasonable time may P confirm, reduce, increase or annul the P assessment objected to, and for the purpose of discharging his functions under this subsection Q Q may, by notice in writing, require the person giving the notice of objection to furnish such R particulars as the Commissioner may deem R necessary with respect to the matters which are the subject of the assessment and to produce all S S books or other documents in his custody or under his control relating to such matters, and T may summon any person who in his opinion is T able to give evidence respecting the assessment to attend before him and may examine such U U V V  - 11 - A A person on oath or otherwise. Where the B Commissioner proposes to examine any person B on oath under this subsection, he shall, by prior notice in writing, afford a reasonable C opportunity to the person giving the notice of C objection or his authorized representative to be D present at such examination. D (3) In the event of the Commissioner agreeing with E any person assessed, who has validly objected to E an assessment made upon him, as to the amount at which such person is liable to be assessed, any F necessary adjustment of the assessment shall be F made. G G (4) In the event of the Commissioner failing to agree with any person assessed, who has validly H objected to an assessment made upon him, as to H the amount at which such person is liable to be assessed, the Commissioner shall, within I I 1 month after his determination of the objection, transmit in writing to the person objecting to the J assessment his determination together with the J reasons therefor and a statement of the facts upon which the determination was arrived at, K K and such person may appeal therefrom to the Board of Review as provided in section 66. L L 32. Hence: M M (1) A person aggrieved by an assessment made under the IRO N N Ordinance may object to the assessment. O (2) To be valid, the objection must be made by notice in writing O to the Commissioner, stating precisely the grounds of P P objection, received by the Commissioner within 1 month Q after the date of the notice of assessment (or any extended Q time). R R (3) The making of a valid notice of objection under section 64 S remits the matter of the assessment to the Commissioner for S his reconsideration. T T U U V V  - 12 - A A (4) The Commissioner is required to review the taxpayer’s B B position on a de novo basis, and may make a decision either C annulling, confirming, increasing, or decreasing the amount C of tax assessed. D D (5) The Commissioner’s opinion on the objection is, as it were, E a second opinion in substitution for the opinion of the E assessor. F F (6) If the Commissioner agrees with any valid objection, any G necessary adjustment to the assessment shall be made. G (7) If the Commissioner fails to agree with the objection, he H H must explain in his determination the facts upon which he I has proceeded and the basis of the determination. I J (8) Thereafter, if the taxpayer is dissatisfied with the J Commissioner’s determination of an objection under K section 64, then the taxpayer may appeal to the Board as K provided for in section 66. L L M 33. Section 66 of the IRO provides as follows: M N 66. Right of appeal to the Board of Review N (1) Any person (hereinafter referred to as the O appellant) who has validly objected to an O assessment but with whom the Commissioner in considering the objection has failed to agree P P may within— Q (a) 1 month after the transmission to him Q under section 64(4) of the Commissioner’s written determination R together with the reasons therefor and the R statement of facts; or S S (b) such further period as the Board of Review may allow under T subsection (1A), T U U V V  - 13 - A A either himself or by his authorized representative B give notice of appeal to the Board; but no such B notice shall be entertained unless it is given in writing to the clerk to the Board and is C accompanied by a copy of the Commissioner’s C written determination together with a copy of D the reasons therefor and of the statement of facts D and a statement of the grounds of appeal. E (1A) If the Board is satisfied that an appellant was E prevented by illness or absence from Hong Kong or other reasonable cause from giving F notice of appeal in accordance with F subsection (1)(a), the Board may extend for such G period as it thinks fit the time within which G notice of appeal may be given under subsection (1). H H (2) The appellant shall at the same time as he gives notice of appeal to the Board serve on the I I Commissioner a copy of such notice and of the statement of the grounds of appeal. J J (3) Save with the consent of the Board and on such terms as the Board may determine, an appellant K may not at the hearing of his appeal rely on any K grounds of appeal other than the grounds L contained in his statement of grounds of appeal L given in accordance with subsection (1). M M 34. Insofar as is material for present purposes (with other N passages omitted), section 68 of the IRO provides as follows: N O 68. Hearing and disposal of appeals to the Board of O Review P P (1A) At any time before the hearing of an appeal- Q (a) the appellant may withdraw the appeal Q by notice in writing addressed to the clerk to the Board; R R (b) the appellant and the Commissioner may reach a settlement on the amount at S S which the appellant is liable to be assessed. T T (1C) Subject to subsection (1D), where a settlement is submitted and endorsed by the Board, any U U V V  - 14 - A A necessary adjustment of the assessment shall be B made and such assessment shall be final and B conclusive for all purposes of this Ordinance as regards the amount of relevant assessable C income or profits or net assessable value. C (1E) In the event that a settlement reached under D D subsection (1A)(b) is not endorsed by the Board, the relevant appeal shall be heard by it. E E (3) The assessor who made the assessment appealed against or some other person authorised by the F Commissioner shall attend such meeting of the F Board in support of the assessment. G G (4) The onus of proving that the assessment appealed against is excessive or incorrect shall H be on the appellant. H (8)(a) After hearing the appeal, the Board shall I confirm, reduce, increase or annul the I assessment appealed against or may remit the J case to the Commissioner with the opinion of J the Board thereon. K K 35. Hence: L L (1) An appeal made by the taxpayer to the Board may M nevertheless be subsequently withdrawn. M N (2) An appeal to the Board may also be compromised by way of N settlement between the taxpayer and the Commissioner as to O the amount at which the taxpayer is liable to be assessed. O P (3) If the Board endorses the settlement, any necessary P adjustment to the assessment shall be made, and it shall Q become final and conclusive. Q R (4) If the Board does not endorse the settlement, the appeal will R be heard. S S (5) The appeal is dealt with on an adversarial basis. T (6) A person may attend the appeal on behalf of the T Commissioner in support of the Commissioner’s assessment. U U V V  - 15 - A A (7) The onus of proving that assessment is excessive or incorrect B B is borne by the appellant taxpayer. C (8) The Board’s function, on hearing an appeal under section 68, C is to consider the matter de novo. D D (9) The Board has the full powers to confirm, reduce, increase E or annul the assessment appealed against. E F F 36. Further, though the appeal is from a determination, it is G against an assessment: see Shui On Credit Co Ltd v Commissioner of G Inland Revenue (2009) 12 HKCFAR 392 at §30. H H I 37. For present purposes, it seems to me to be important to ask I whether the relevant assessment appealed against to the Board is (a) that J J made by the determination, incorporating any necessary adjustment of the K original assessment as a result of the determination, or (b) the original K assessment. Although during the hearing it seemed at one point that it L L might be common ground that the relevant assessment appealed against is M the assessment as adjusted because of the determination, I do not think M that is correct: N N (1) First, probably the real common ground was that, on the O O appeal in this particular case, it seems that the Commissioner P will argue in support of the assessment as made in the P Determination, rather than the Initial Assessments. Q Q (2) Secondly, if the Commissioner and the person assessed agree R as to the amount at which that person is liable to be assessed, R that is an alternative to – and there is simply no need for – an S S appeal. T (3) Indeed, in this case, the Commissioner has not agreed with T the Applicant as to the amount at which the Applicant is U U V V  - 16 - A A liable to be assessed. Whilst the Commissioner has B B reduced the amount that he thinks should be the amount at C which the Applicant is liable to be assessed, he has disagreed C with the Applicant’s contention that the amount should be D D ‘nil’. E (4) Thirdly, an adjustment to the assessment is only necessary E under section 64 when the Commissioner and taxpayer have F F agreed as to the amount at which the taxpayer is liable to be G assessed. That is not the same as any measure of partial G agreement as to the amount at which the taxpayer is not H liable to be assessed. H I (5) That approach to section 64(3) and (4) – the latter of which I leads on to section 66 – seems to me to be more consistent J with the overall tenor of Part 11, as it moves towards J reaching the point of finality (and its effect) identified in K K section 70. L (6) Amongst other things, section 70 identifies that an L agreement under section 64(3) gives rise to the finality of the M M relevant assessment. Plainly, the fact of an appeal to the N Board evidences, and is predicated on, the lack of such an N agreement. O O P 38. Section 70 of the IRO provides as follows: P 70. Assessment or amended assessments to be final Q Q Where no valid objection or appeal has been lodged R within the time limited by this Part against an R assessment as regards the amount of the assessable income or profits or net assessable value assessed S thereby, or where an appeal against an assessment has S been withdrawn under section 68(1A)(a) or dismissed T under subsection (2B) of that section, or where the T amount of the assessable income or profits or net assessable value has been agreed to under section 64(3), U U V V  - 17 - A A or where the amount of such assessable income or B profits or net assessable value has been determined on B objection or appeal, the assessment as made or agreed to or determined on objection or appeal, as the case may C be, shall be final and conclusive for all such purposes of C this Ordinance as regards the amount of such assessable D income or profits or net assessable value: D Provided that nothing in this Part shall prevent an E assessor from making an assessment or additional E assessment for any year of assessment which does not involve re-opening any matter which has been F determined on objection or appeal for the year. F G G 39. Hence, an assessment or amended assessment becomes H “final” at whatever point is the end of the process of agreeing or H determining the amount of the assessment, such that, for example: I I (1) if there is no valid objection to an assessment, the J J assessment becomes final; K (2) if there is no valid appeal from the determination of an K objection, the amount assessed in the determination becomes L L final; M (3) if an appeal is withdrawn, the amount assessed in the M determination becomes final; N N (4) if the appeal is settled with the endorsement of the Board, O the agreed amount of the assessment becomes final; O P (5) if the appeal proceeds and the Board determines the amount P of the assessment and there is no further appeal, the amount Q of the assessment as determined by the Board becomes final. Q R R D.3 Tax Reserve Certificates S S 40. The TRC regime in the IRO is governed by section 71, T which is the first section in Part 12 of the IRO, and it provides as follows: T U U V V  - 18 - A A 71. Provisions regarding payment of tax B B (1) Tax charged under the provisions of this Ordinance shall be paid in the manner directed C in the notice of assessment on or before a date C specified in such notice. Any tax not so paid shall be deemed to be in default, and the person D D by whom such tax is payable, or where any tax is payable by more than one person or by a E partnership then each of such persons or each E partner in the partnership, shall be deemed to be a defaulter for the purposes of this Ordinance. F F (2) Tax shall be paid notwithstanding any notice of G objection or appeal, unless the Commissioner G orders that payment of tax or any part thereof be held over pending the result of such objection H or appeal: H Provided that where the Commissioner so orders I I he may do so conditionally upon the person who or on whose behalf the objection or appeal is J made providing security for the payment of the J amount of tax or any part thereof the payment of which is held over either— K K (a) by purchasing a certificate issued under the Tax Reserve Certificates Ordinance L L (Cap. 289); or M (b) by furnishing a banker’s undertaking, M as the Commissioner may require. N N (3) Where the Commissioner is of opinion either that the tax or any part thereof held over under O O subsection (2) is likely to become irrecoverable, or that the person objecting or appealing is P unreasonably delaying the prosecution of his P objection or appeal, he may cancel any order made under that subsection and make such fresh Q order as the case may appear to him to require. Q (4) Where, upon the final determination of an objection R R or appeal under Part 11, or upon any order made by the Commissioner, any tax which has been held over S under subsection (2) becomes payable or the tax S charged is increased, the Commissioner shall give to the person objecting or appealing a notice in writing T fixing a date on or before which any tax or balance of T tax shall be paid. Any tax not so paid shall be deemed to be in default. U U V V  - 19 - A A (5) Where any tax is in default, the Commissioner may in B his discretion order that a sum or sums not exceeding B 5% in all of the amount in default shall be added to the tax and recovered therewith. C C (5A) Where on the expiry of a period of 6 months from the date when any tax is deemed to be in D default, whether such date was before or after D 1 August 1984, there remains unpaid any E amount of the aggregate of— E (a) the tax deemed to be in default; and F F (b) any sum added thereto under subsection (5), G G the Commissioner may order that a sum or sums not exceeding 10% in all of the unpaid amount H H shall be added to the unpaid amount and recovered therewith. I I (5B) (Repealed) J (6) Notwithstanding anything contained in the J previous subsections of this section the Commissioner may agree to accept payment of K K tax by instalments. L (7) Where the Commissioner exercises his powers L under the proviso to subsection (2) and a person is required to purchase a certificate under M paragraph (a) of that proviso— M N (a) a certificate in an amount equal to the tax N or any part thereof the payment of which is held over shall be purchased within a O period of 14 days from the date of the O order of the Commissioner, or on or before the date for the payment of tax P P specified in the notice of the assessment, whichever is the later, failing which the Q provisions of subsection (2) shall apply Q as they would if there had been no order; R (b) the Commissioner shall, when he issues R a certificate so purchased, note on it S particulars sufficient to identify the S objection or appeal to which it relates; T (c) upon the withdrawal or final T determination of the objection or appeal a certificate or part of a certificate so U U V V  - 20 - A A purchased shall be accepted by the B Commissioner in payment of so much of B the tax held over as becomes or is found to become payable, and no interest shall C be payable upon any certificate or part of C a certificate so accepted; D D (d) where, upon the final determination of the objection or appeal, and after all tax E held over which becomes, or is found to E be, payable has been paid in the manner specified in paragraph (c), any certificate F or part of a certificate so purchased has F not been accepted as payment by the G Commissioner under paragraph (c), the G Commissioner must repay to the holder of the certificate— H H (i) the principal value represented by the certificate or part of the I I certificate; and J (ii) the interest on that value, J calculated in accordance with the rules from the date of issue of the K certificate to the date of the final K determination of the objection or L appeal; and L (e) no certificate so purchased shall be valid M for any purpose except as specified in the M preceding paragraphs. N (8) The provisions of subsection (7) shall apply N notwithstanding anything to the contrary in the O rules relating to such certificates made under the O Tax Reserve Certificates Ordinance (Cap. 289) and any reference to the rules relating to such P certificates in that subsection shall refer to the P rules so made. Q Q (9) Where the Commissioner exercises his powers under the proviso to subsection (2) and a person R is required to furnish a banker’s undertaking R under paragraph (b) of that proviso, the undertaking shall— S S (a) be in a form acceptable to the Commissioner; T T U U V V  - 21 - A A (b) be furnished to the Commissioner within B a period of 14 days from the date of the B order of the Commissioner, or on or before the date for the payment of the tax C specified in the notice of assessment, C whichever is the later; D D (c) be given by a bank (as defined in the Banking Ordinance (Cap. 155)); E E (d) not be revocable without the consent of the Commissioner; F F (e) be expressed to be an undertaking to pay— G G (i) an amount equal to the tax or any H part thereof the payment of which H is held over; and I (ii) interest on that amount, from the I date for the payment of the tax specified in the notice of J J assessment to the date of withdrawal or final determination K of the objection or appeal, at the K rate specified in subsection (11); and L L (f) provide for payment to the M Commissioner upon written notification M to the bank by the Commissioner that the objection or appeal has been withdrawn N or finally determined and that the amount, N and interest, stated by him is now due, O O and if such person fails to supply such an undertaking in such manner the provisions of P subsection (2) shall apply as they would if there P had been no order. Q (10) Where the Commissioner makes an order under Q subsection (2) but does not exercise his powers under the proviso thereto, interest shall be R R payable on so much of the amount of the tax or any part thereof the payment of which is held S over as becomes payable or is found to become S payable upon the withdrawal or final determination of the objection or appeal, from T T the date for the payment of the tax specified in the notice of assessment or the date of the order, U U V V  - 22 - A A whichever is the later, to the date of withdrawal B or final determination of the objection or appeal, B at the rate specified in subsection (11). C (11) The rate of interest specified for the purposes of C subsections (9)(e)(ii) and (10) shall be the rate determined by the Chief Justice by order under D D section 50(1)(b) of the District Court Ordinance (Cap. 336). E E 41. The starting point in section 71(1) is that “tax charged” F F under the provisions of the IRO shall be paid in the manner directed in G the notice of assessment. The use of the phrase “tax charged” must in G context mean the amount of tax which has been assessed as payable, as H H shown in the notice of assessment – because section 62 requires the I I Commissioner in the notice of assessment to give notice of the amount of J “tax charged”. J K 42. Simply put, Hong Kong adopts a “pay first, argue later” K L regime. As stated in section 71(2), notwithstanding any objection or L appeal, the taxpayer has to pay the tax as assessed, unless the M M Commissioner orders that the payment be held over pending the result of N such objection or appeal. Such holdover could either be unconditional N or conditional. O O P 43. However, there is no general power for the Commissioner to P require the payment or to authorise the retention of funds as security for Q Q tax that could potentially be assessed in future. That also seems to be R made clear in part by section 71(4), which provides that where the tax R charge is increased upon the final determination of an objection or appeal S S under Part 11, the Commissioner shall give a notice in writing fixing a T date on or before which any tax or balance of tax shall be paid. It is T only at that point that the tax charged as increased becomes payable, and U U V V  - 23 - A A a failure to pay by the specified date would deem that tax to be in default. B B The date of default is itself important, as it is only from the date of default C that the Commissioner may in his discretion order that a sum or sums not C exceeding 5% in all of the amount in default shall be added to the tax and D D recovered with it: see section 71(5), and see also section 71(5A). E E 44. TRC’s themselves are governed by a separate statute, the Tax F F Reserve Certificates Ordinance (“TRCO”). In case of any conflict G between the provisions of the TRCO and section 71 of the IRO, the latter G prevails. For present purposes, therefore, it is probably unnecessary to H H look at any particular provisions of the TRCO. I I 45. Though not canvassed in argument for the purposes of this J J case, I think it relevant to remember that the Commissioner has K formulated a policy to guide the exercise of his discretion under K section 71(2). It is relevant, in part because the Applicant says the effect L L of the TRC regime can be taken into account when identifying the proper M statutory interpretation of the relevant provisions. I traversed that policy M and its effect in Ubiquiti Networks International Ltd v Commissioner of N N Inland Revenue [2022] HKCFI 170 at §§14-22. O O 46. The policy is contained in a published document known as P P the “Department Interpretation and Practice Notes No. 6” (“DIPN 6”), of Q which §9 is pertinent (underlining in original): Q R 9. The policy with regard to the issue of stand-over orders R is as follows: S (a) Unconditional stand-over – Where, upon receipt S of a valid objection and request for holdover, it T is immediately apparent to an Assistant T Commissioner, or other officer authorized by the Commissioner, that the objection should be U U V V  - 24 - A A allowed forthwith an unconditional stand-over B will be ordered pending revision of the B assessment. However, interest will be payable if any tax so held-over is finally found payable C [see paragraph 14 below]. C (b) No stand-over – Where, upon receipt of a valid D D objection and request for holdover, it is the opinion of an Assistant Commissioner, or other E officer authorized by the Commissioner, that the E objection has little chance of success, no stand-over will be ordered and the tax will be F payable on the due date(s) contained in the F notice of assessment. G G (c) Purchase of tax reserve certificates – Where, upon receipt of a valid objection and request for H holdover, it is the opinion of an Assistant H Commissioner or other officer authorized by the Commissioner that the objection has some merit I I but that the balance of probability, based on the facts known to exist at the date of the objection, J does not weigh definitely in favour of the J taxpayer, a stand-over will be ordered conditional upon the purchase of tax reserve K K certificates in the amount of the tax stood-over. It is emphasized that, in the generality of cases L falling into this category, the purchase of L certificates will be required. M M 47. Thus, under DIPN 6, the grant or not of a holdover and the N N imposition of any condition for a holdover turn on the view of the O Assistant Commissioner, or other officer authorised by the Commissioner, O as to whether: P P (1) it is immediately apparent that the objection should be Q allowed forthwith; or Q R (2) the objection has little chance of success; or R (3) the objection has some merit, but the balance of probability S S based on the facts known to exist at the date of the objection T does not weigh definitely in favour of the taxpayer. T U U V V  - 25 - A A 48. It is when it is “immediately apparent … that the application B B should be allowed forthwith” that an unconditional holdover will be C ordered. Otherwise, there will be no holdover at all or only a C conditional holdover. The discretion conferred upon the Commissioner D D in deciding whether and if so on what basis to hold over tax is a wide one, E and it is settled that DIPN 6 sets out sensible criteria to guide the E Commissioner’s exercise of discretion. F F G 49. DIPN 6 is naturally ordinarily engaged when consideration G is first given to the possibility of a holdover order – after the initial H H assessment and prior to the determination of an objection to it: see §§9(a), I (b) and (c), which all start with “Where, upon receipt of a valid I objection …”. But, section 71(2) itself does not limit the time at which J J such an order can be made. Further, section 71(3) specifically caters for K at least some circumstances where the Commissioner can revisit his K previous holdover order, to cancel it and make such fresh order as the L L case may appear to him to require. Though those particular M circumstances relate to revisiting a holdover order to impose more M ‘onerous’ conditions for the taxpayer, it would seem logical that there N N might be the power in appropriate circumstances to revisit the holdover O order for revision to terms more ‘favourable’ to the taxpayer (see below). O P P 50. The Court has previously recognised the “hard options” Q faced by a taxpayer, who wishes to exercise a statutory right to object to a Q tax assessment issued by the Commissioner: see, for example, Dairyfarm R R Establishment v CIR [2018] 5 HKLRD 179 at §§1, 35-36. There, the S S potential disparities were recognised as follows: T (1) Tax demanded under an assessment is payable on the due T date specified in the assessment notwithstanding any U U V V  - 26 - A A objection or appeal, unless the Commissioner orders that the B B payment thereof be held over pending the outcome of the C objection or appeal. C (2) If the Commissioner does not order any holdover and the D D taxpayer pays the tax as assessed on or before the due date: E (a) should the taxpayer ultimately succeed in his E objection or appeal, he is entitled to be refunded the F F tax paid, but without any interest; G G (b) on the other hand, should he withdraw, or ultimately fail in, his objection or appeal, no further issue arises H H as the tax has already been paid. I I (3) Where Commissioner decides to make a holdover order, he J may do so unconditionally or conditionally. J (4) If the Commissioner makes an unconditional holdover order: K K (a) should the taxpayer ultimately succeed in his L objection or appeal, no payment will need to be made L by him and no further issue arises as there is no tax M M liability; N (b) on the other hand, should he withdraw, or ultimately N fail in, his objection or appeal, he has to pay the O O amount of tax that he is liable to pay plus interest on P that amount from the original due date or the date of P the order (whichever is the later) to the date of the Q withdrawal or final determination of the objection or Q appeal at the rate specified in section 71(11), which R R has stood at 8% per annum since 1 April 2009. S S (5) If the Commissioner makes a holdover order conditional upon the purchase of a TRC: T T U U V V  - 27 - A A (a) should the taxpayer ultimately succeed in his B B objection or appeal, he is entitled to be refunded the C amount paid to purchase the TRC with interest at the C rate specified in section 71(7)(ii), which is currently D D set at 0.05% per annum; E (b) on the other hand, should he withdraw, or ultimately E fail in, his objection or appeal, the TRC shall be F F accepted by the Commissioner in payment of the tax G that the taxpayer is liable to pay and no further G payment is required to be made by him. H H 51. Hence: I I (1) the interest payable by the taxpayer (who withdraws, or J J ultimately fails in, his objection or appeal) to the K Commissioner in the case of an unconditional hold over is K 8% per annum; L L (2) the interest payable by the Commissioner to the taxpayer M (who ultimately succeeds in his objection or appeal) in the M absence of any holdover is nil; and N N (3) the interest payable by the Commissioner to the taxpayer O (who ultimately succeeds in his objection or appeal) in the O case of a holdover conditional upon the purchase of a TRC is P P 0.05% per annum. Q Q 52. Such disparities may be amplified where the time taken to R deal with the objection and any further appeal steps until final resolution R may be measured in years rather than months or weeks. The potential S S impact of the passage of possibly significant time is obvious. T T U U V V  - 28 - A A D.4 Other Provisions B B 53. Mr Mariani also refers to sections 40 and 46 of the C C Interpretation and General Clauses Ordinance Cap 1 (“IGCO”), which D materially provide as follows: D E 40. Construction of enabling words E (1) Where any Ordinance confers upon any person F power to do or enforce the doing of any act or F thing, all such powers shall be deemed to be also conferred as are reasonably necessary to enable G G the person to do or enforce the doing of the act or thing. H H (2) Without prejudice to the generality of subsection (1), where any Ordinance I confers power— I (a) to provide for, prohibit, control or J J regulate any matter, such power shall include power to provide for the same by K the licensing thereof and power to K prohibit acts whereby the prohibition, control or regulation of such matter L might be evaded; L (b) to grant a licence, Government lease, M M permit, authority, approval or exemption, such power shall include power to N impose reasonable conditions subject to N which such licence, Government lease, permit, authority, approval or exemption O O may be granted; P (c) to approve any person or thing, such P power shall include power to withdraw approval thereof; Q Q (d) to give directions, such power shall include power to couch the same in the R R form of prohibitions. S 46. Power to make public instruments and perform acts S Where any Ordinance confers power upon any person to T T make, grant, issue or approve any proclamation, order, notice, declaration, instrument, notification, licence, U U V V  - 29 - A A permit, exemption, register or list, such power shall B include power— B (a) to amend or suspend such proclamation, order, C notice, declaration, instrument, notification, C licence, permit, exemption, register or list; D D (b) to substitute another proclamation, order, notice, declaration, instrument, notification, licence, E permit, exemption, register or list for one E already made, granted, issued or approved; F (c) to withdraw approval of any proclamation, order, F notice, declaration, instrument, notification, licence, permit, exemption, register or list so G G approved; and H (d) to declare the date of the coming into operation, H and the period of operation, of any such proclamation, order, notice, declaration, I instrument, notification, licence, permit, I exemption, register or list. J J 54. Mr Liu accepts that section 46(a) and (b) of IGCO, in K K particular, applies in the absence of any contrary provision in the IRO, so L that the Commissioner can exercise his discretion to vary or amend the L holdover order, including as regards a TRC condition, or substitute a new M M order in place of the original. N N E. Grounds of Review O O 55. The Applicant identified two grounds of review, being: P P (1) Illegality: the basis of the Refusal – namely, that he has no Q Q power to refund or repurchase TRC’s unless and until the R substantive tax appeal is finally adjudicated – is R misconceived and contrary to the plain words of S section 71(7)(d); and S T (2) Irrationality: even if the section 71 of the IRO regime does T not apply, the Commissioner would nevertheless be U U V V  - 30 - A A empowered to vary the terms of the holdover of tax, under B B section 46 of the IGCO, and where there is no principled C basis for the Commissioner to retain the Excess Amount, his C failure to return it was Wednesbury unreasonable. D D 56. Although the first ground as originally formulated focused E E on whether there could be any refund at all, the Commissioner has since F F accepted that he can and will refund the principal sum of the Excess G Amount. Hence, the argument has tended to focus on the remaining G element of interest. But, as I have already indicated, the argument on H H whether there is the ability (let alone obligation) to pay interest is I logically linked analytically to the question of any legal possibility or I necessity for the refund of the principal sum of the Excess Amount, as J J well as to the mechanics of effecting any refund. K K 57. As to the second ground, Mr Liu submits that even if L L irrationality is made out, the Commissioner’s change of stance has M rendered the point otiose. But, again, I think it is necessary to consider M this ground as part of the overall analysis. N N O 58. Therefore, though to an extent they might be thought to O overlap, I shall deal in turn with each of the Grounds. P P Q F. Illegality Q F.1 Applicant’s Argument R R 59. On behalf of the Applicant, Mr Mariani submits that the S S stance taken by the Commissioner is contrary to the plain words of T section 71(7)(d) of the IRO, which governs the repurchase mechanism for T U TRC’s under the IRO. The provision refers to the “final determination U V V  - 31 - A A of the objection or appeal” (his emphasis), identifying that the B B draughtsman contemplated – and articulating the difference between – C two separate processes, being (1) the determination of the objection, or C alternatively (2) the determination of the appeal. D D E 60. Mr Mariani submits that the appeal to the Board is not a E continuation of the objection, which would by then have been dismissed F F by the Commissioner in whole or part. Rather, it is a separate de novo G consideration of the assessment confirmed by the Commissioner in the G determination of the objection. In other words, an objection under H H section 64 and an appeal under section 66 are separate and distinct I processes, involving (a) different decision-makers, (b) potentially I different grounds of objection or appeal, (c) different procedural rules, J J and (d) the possibility of adjudication on different grounds. It does not K matter that those two separate processes might be seen as two K components of one larger process. L L M 61. Hence, he says, the question that must finally be determined M so as to compel the Commissioner to repurchase a TRC is not the N N assessment which is the subject-matter of the objection or appeal, as the O case may be, as distinct from the objection or appeal, which are statutory O processes. Further, when the Commissioner makes a determination of P P an objection, he makes a final determination of that objection. The Q subject matter of an appeal is not the objection itself, which has by then Q been superseded by the determination, but the underlying assessment R R (which has, at least to some extent, been confirmed in the determination). S S 62. Therefore, Mr Mariani says, where the Commissioner has T T allowed the Objections in part by reducing the Disputed Assessments, U U V V  - 32 - A A that was his final decision on – therefore, the final determination of – the B B Objections. C C 63. Mr Mariani also relies upon the substantial difference D D between the rate of interest accruing on the TRC’s purchase by the E Applicant and the prevailing commercial rate of interest, to make the E submission that it cannot have been the intention of the legislature in F F enacting section 71 to cause sustained and potentially open-ended G financial prejudice to the taxpayer by deferring repayment of tax that the G Commissioner agrees is not due as a matter of law until after the H H taxpayer’s appeal with respect to the year of assessment in question has I been finally resolved. I J J 64. Mr Mariani’s argument also involves the contention that the K Excess Amount is no longer “tax” as defined in the IRO, because it is no K longer assessed as being payable by the Commissioner. It therefore L L follows, he says, that there should no longer be security for “tax” M equivalent to the Excess Amount. Indeed, Mr Mariani submits that the M Commissioner has no express or implied statutory authority to retain N N sums paid to him by the taxpayer pursuant to section 71(2) on account of O amounts that are no longer “tax” as defined. In short, he says that to the O extent that the Disputed Assessments were revised downward by the P P Determination, so too should the relevant holdover order. As he put it, Q the IRO “operates in the present tense”, namely on the basis of what is Q currently in dispute between the Commissioner and the taxpayer. R R S 65. Mr Mariani submits that fact that the Commissioner no S longer claims the Excess Amount logically means that he accepts that it T T belongs to the taxpayer, and there is no reason why the taxpayer should U U V V  - 33 - A A await the final conclusion of what is in dispute before having that money B B refunded. For example, if the Applicant were today to withdraw the C appeal, it would undoubtedly be entitled to a refund of that part of the C TRC’s relating to the Excess Amount, together with interest. It makes D D no sense, he says, to be denied the refund and/or interest simply because E there is an extant appeal. E F F 66. Mr Mariani submits there is no other way to refund the G Excess Amount other than by “redeeming”, hence the mandamus relief G claimed in the Form 86. In this case, the original TRC’s would be H H redeemed, and replaced by new TRCs in the corrected amount. That I would leave the Commissioner fully secured against the amount of tax for I which he now claims the Applicant is liable. J J K F.2 Commissioner’s Argument K L 67. Mr Liu notes that the Excess Amount was part of the L assessment made by notices issued under section 62 of the IRO. M M Pursuant to section 71(1) and (2) of the IRO, the Applicant had to pay N that tax charged by the due date set in the notices of assessment despite N any objection or appeal. Therefore, under the IRO the sum of O O HK$6,022,295 – that is, the Excess Amount – is “tax charged”, and P whether it is indeed payable is pending the final determination of the P Applicant’s appeal to the Board (or any further appeal). Q Q R 68. Mr Liu submits that, by bringing the appeal, the Applicant R has reopened the correctness of the tax assessment in the Determination. S S The Board will consider the correctness of the assessment de novo, and T make any necessary factual findings based on the evidence placed before T it. Therefore, whether the alleged Excess Amount is indeed an excess of U U V V  - 34 - A A the amount of tax properly to be assessed upon final determination of the B B appeal is not yet known. C C 69. Focusing, as he does, on the question of interest, Mr Liu D D submits that the Applicant’s contentions are contrary to section 71 of the E IRO. He says that where there has been no final determination of the E tax appeal, the question of liability on interest has not arisen at all. In F F other words, without knowing the outcome of the final determination of G the appeal, the actual amount of tax finally found to be payable is not yet G known, and hence whether the TRC originally purchased (and any TRC H H as might be reduced) would be sufficient security cannot be determined. I I 70. Mr Liu refers to the TRC regime, including the issue of J J interest, as was explained by Chow J (as Chow JA then was) in the K Dairyfarm case (see above). He points to the fact that the Court noted K that the glaring disparities in the interest payable by the Commissioner L L and taxpayer was authorised by legislation and had to be accepted as M lawful and binding. M N N 71. But, in any event, Mr Liu says the issue of interest has not O arisen in the present case where there has been no final determination of O the appeal, and the Court should not make any hypothetical ruling or give P P an advisory opinion on the issue of interest depending on the different Q possible outcomes of the appeal. Q R R 72. As to what is meant by “final determination of the objection S or appeal”, Mr Liu submits that the objection and appeal are not two S completely separate processes, but rather different stages of the same T T process in which the original assessment of tax is challenged and resolved U U V V  - 35 - A A under part 11 of the IRO. In support of that submission, Mr Liu refers to B B Suen Hung Shan v Commissioner of Inland Revenue [2021] C 1 HKLRD 1084 at §§35-51, where Kwan VP pointed out that: C D (1) Part 11 provides for the procedures for a taxpayer to D challenge an assessment on different stages. E E (2) The first stage is an objection to the Commissioner under F section 64. F (3) The second stage is, where the Commissioner fails to agree G G with the taxpayer, the taxpayer may appeal to the Board H under section 66. H (4) The third stage is, where an appeal under section 66 has been I I heard by the Board, which has made a decision under section J 68, the taxpayer or Commissioner may appeal to the Court J of First Instance under section 69, on a ground involving K K only a question of law. L (5) Section 70 of the IRO provides for the situations in which an L assessment is regarded as final and conclusive for all M M purposes of the IRO. N (6) Section 70 also makes a clear differentiation between the N situation where no valid objection or appeal has been lodged O O within the time limited, and the situation where there is a P determination on an objection or appeal that has been lodged P within time. Q Q 73. So, Mr Liu submits, properly construed on ordinary R R well-established principles of statutory construction, it would not be S correct to view the objection and appeal as two separate processes such S that there could be a “final determination of the objection” and a “final T T determination of the appeal”. Indeed, the phrase “final determination of U U V V  - 36 - A A [an/the] objection or appeal” appears seven times in section 71 of the IRO B B and should be consistently construed. But the Applicant’s construction C would unnecessarily entail payments and repayments and calculations C and re-calculations throughout the statutory procedure where the tax D D dispute has not really come to a final end. E E 74. Mr Liu submits that what is to be borne in mind is that the F F purpose of the statutory procedure is to ascertain the correctness of the G assessment for all purposes of the IRO: see section 70. The question of G finality depends on whether there is a valid objection or appeal, and H H whether the objection or appeal is withdrawn or determined. Finality is I achieved at the stage of the procedure at which the dispute has been I disposed of conclusively and finally. J J K 75. Where there is a pending appeal, the determination appealed K against is not a final one. Reading together sections 70 and 71, the L L “final determination of an objection or appeal” refers to the stage at the M end of which there is or can be no further appeal: see also Koo Ming M Kown v Commissioner of Inland Revenue [2018] HKCFI 2593 at §§71-74. N N “Final” simply means “at the end”, and “conclusive” means no more than O that the decision made is binding as between the parties. O P P 76. This is why, Mr Liu submits, the amount of the TRC relating Q to the year of assessment 2011/2012 was refunded, because the tax Q dispute over that assessment was finally resolved at the objection stage, R R there being no further appeal to the Board. But the position is not the S same for the years of assessment in the Relevant Period, because there is S an outstanding appeal. T T U U V V  - 37 - A A F.3 Court’s Analysis B B 77. Notwithstanding the complexity of some of the argument, it C C seems to me that the correct analysis is ultimately rather straightforward. D D 78. The complexity in argument arises in part from something of E E the failure of the competing contentions to meet head-on, or perhaps to F address the real determinative question: F G (1) Mr Mariani’s primary case is that, because there has been a G “final determination” of the Objections, the TRCs must be H dealt with under section 71(7)(d) on that basis – and there is H neither the need nor even the ability to await the outcome of I I the appeal. That argument depends upon his proffered J interpretation of the phrase “final determination of the J objection or appeal” found in that section. It leads to K K Mr Mariani’s submission that once the Objections have been L dealt with in the Determination, the Commissioner must L redeem (or repurchase or refund) the relevant part of the M TRCs at that point. M N (2) Mr Liu’s primary case is that, because of the proper N interpretation of the phrase “final determination of the O objection or appeal” in section 71(7)(c) and (d), the O Commissioner has no power to do anything with the TRCs P P until after the outcome of the appeal (and any further appeal Q through the Courts). It leads to Mr Liu’s submission that Q notwithstanding that the Objections have been dealt with in R R the Determination, the Commissioner must not redeem or otherwise deal with the TRCs. S S (3) But both of those primary submissions revolve around an T T argument as to when the Commissioner either must or must U U V V  - 38 - A A not (as the case may be) exercise the powers granted in B B section 71(7)(c) and (d), to accept the TRC as payment of C tax and/or to redeem any amount in excess of that assessed C to tax. D D 79. But, it may be that the real point in contention between the E E parties relates to a different matter: not to the time at which the powers in F F section 71(7)(c) and (d) must or must not be exercised as regards any G TRC as is in place, but rather to as to what can happen to a TRC at an G earlier point before the time (whenever that is) when the powers under H H section 71(7)(c) and (d) can/must be exercised. I I 80. In other words, the real determinative questions in this case J J are (a) whether a holdover order can be varied, and (b) whether a TRC K once purchased is immutable or inviolate until the time (whenever that is) K that the powers under section 71(7)(c) and (d) can/must be exercised. L L M 81. To focus on the more straightforward approach, it is M nevertheless helpful to look first at the contest as to the proper N N interpretation of the phrase “final determination of the objection or O appeal” found in section 71(7)(c) and (d) of the IRO. In my view, that O phrase clearly identifies the single endpoint of the process potentially P P comprising an objection and an appeal under Part 11 of the IRO. This Q means the single endpoint of the objection (if there is no valid appeal) or Q the objection and the appeal (if there is a valid appeal). This is because: R R (1) the use of the word “final” identifies that the relevant S S determination is the last determination; T (2) the determination of an objection is not the “final T determination” if there is an appeal; U U V V  - 39 - A A (3) that is also made clear by the word “withdrawal” where it B B appears in the compound phrase “withdrawal or final C determination of the objection or appeal”; C (4) hence, the “withdrawal” of an objection brings the process to D D an end, similarly the “withdrawal” of an appeal brings the E process to an end – i.e. reaches finality; E (5) but the determination of an objection does not bring the F F process to an end – i.e. does not reach finality – if there is an G appeal, unless and until the appeal is withdrawn, settled or G finally determined; H H (6) the use of the phrases “withdrawal or final determination of I the objection or appeal” and “final determination of the I objection or appeal” within section 71 consistently identify J J the endpoint of the process, at which point the material K assessment is made final and the amount of tax which is to K be paid is known, and it is also known what should now be L paid even if previously held over – see section 71(4), L section 71(9)(f) and section 71(10); M M (7) under section 71(7)(c) and (d), what is to happen at the point N of “final determination of the objection or appeal” is that the N TRC will be used and accepted as payment of tax, and any O O excess refunded; P P (8) logically, that would occur at only one point of time, and not on an ongoing and potentially varying basis; Q Q (9) this is also consistent with the meaning of “final and R R conclusive” in section 70. S S 82. Once that is understood, it can be taken into the remainder of T the legal framework before applying that context to the facts of the case: T U U V V  - 40 - A A (1) The starting point is that, after making an assessment, the B B Commissioner shall give a notice of assessment to the C person assessed, stating (a) the amount assessed, (b) the C amount of tax charged, and (c) the due date fixed for D D payment of the tax charged: see section 62(1). E (2) The tax charged shall be paid in the manner directed in the E notice of assessment on or before the date fixed by the F F Commissioner and specified in the notice of assessment: see G section 71(1). G (3) A person aggrieved by an assessment may object to it: see H H section 64(1). I (4) The Commissioner shall consider any valid objection and I may confirm, reduce, increase or annul the assessment J J objected to: see section 64(2). K (5) If the Commissioner agrees with the person (who has validly K objected to the assessment) as to the amount at which that L L person is liable to be assessed, any necessary adjustment of M the assessment shall be made: see section 64(3). M (6) If the Commissioner fails to agree with the person (who has N N validly objected to the assessment assessed) as to the amount O at which that person is liable to be assessed, he must give a O reasoned determination and a statement of facts upon which P P the determination was arrived at: see section 64(4). Q (7) A person who has validly objected to an assessment but with Q whom the Commissioner in considering the objection has R R failed to agree may appeal from the determination to the S Board: see section 64(4) and section 66(1). S T T U U V V  - 41 - A A (8) The process of any objection and/or appeal as regards an B B assessment reaches finality when there is no further step in C that process which is being or can be taken: see section 70. C (9) Therefore, finality is reached at the point in time, whichever D D is the later, when: E (a) there is no valid objection; E F (b) there has been determination of an objection, and F either: (i) the amount at which the person is liable to G G be assessed is agreed between the Commissioner and that person, or (ii) there is no valid appeal from the H H determination; I I (c) the appeal from a determination of an objection has J been withdrawn; J (d) the appeal has been dismissed as a result of the K K appellant’s failure to attend the hearing of the appeal; L (e) the appellant and the Commissioner have reached a L settlement, endorsed by the Board, as to the amount at M M which the appellant is liable to be assessed; N (f) the assessment has been made by the Board on the N appeal; O O (g) the assessment has been made by the Court. P P (10) Indeed, the design of the objections and appeals process Q under Part 11 of the IRO is to reach the point where it can be Q said that the relevant assessment is final and conclusive R under section 70. R S (11) Notwithstanding any notice of objection or appeal, the tax S charged shall be paid unless the Commissioner orders that T payment of the tax or part of it be held over pending the T result of the objection or appeal: see section 71(2). U U V V  - 42 - A A (12) Tax held over under section 71(2) becomes payable on the B B final determination of an objection or appeal under Part 11, C and the tax shall be paid on or before the date then fixed by a C notice in writing given at that time: see section 71(4). D D (13) The order holding over payment of tax may be made E conditional upon the person who objects or appeals E providing security either (a) by purchasing a TRC or (b) by F F furnishing a banker’s undertaking: see section 71(2). G (14) Any TRC required as a condition to holding over payment of G tax must be purchased by the later of (a) 14 days from the H H holdover order or (b) the date for the payment of tax I specified in the notice of assessment: see section 71(7)(a). I (15) What happens to the purchased TRC in place depends upon J J what happens at the final point of the process of objection K and/or or appeal: see section 71(7)(c)-(e). K (16) If and when the relevant objection or appeal is withdrawn, L L that brings finality to the Part 11 process and the TRC shall M be accepted by the Commissioner in payment of the tax held M over or so much of it as becomes payable, and no interest N N shall be payable upon any TRC or part of a TRC so accepted: see section 71(7)(c). O O (17) If and when the process of objection or appeal reaches final P P determination, that brings finality to the Part 11 process and the TRC shall be accepted by the Commissioner in payment Q Q of the tax held over or so much of it as becomes payable, and R no interest shall be payable upon any TRC or part of a TRC R so accepted: see section 71(7)(c). S S (18) It makes little sense to think that the TRC might be accepted T in payment of tax when the amount of tax payable is still at T large, and before the process has reached the endpoint of U U V V  - 43 - A A withdrawal or agreement or final determination as to how B B much tax is to be paid by means of acceptance of the TRC. C (19) Where, after all tax held over which has become or has been C found to be payable has been paid by the acceptance of the D D TRC, and there is any TRC or part of a TRC which has not E been accepted as payment by the Commissioner in payment E of tax which has become or been found payable, then the F F Commissioner must repay to the holder of the TRC (i) the G principal value represented by the TRC or the part of the G TRC, and (ii) the interest on that value, calculated in H accordance with the rules from the date of issue of the TRC H to the date of the final determination of the objection or I I appeal: see section 71(7)(d) J (20) No TRC purchased shall be valid for any purpose except as J specified in the preceding paragraphs: see section 71(7)(e). K K L 83. Applying that legal framework to the facts of the present L case: M M (1) The Commissioner gave a notice of assessment to the N N Applicant, stating (a) the amount assessed, (b) the amount of O tax charged, and (c) the due date fixed for payment of the tax O charged. P P (2) The tax charged included the Excess Amount. Q (3) The tax charged, including the Excess Amount, was to be paid Q on or before the date specified in the notice of assessment. R R (4) The Applicant was aggrieved by the assessment and objected S to it by filing the Objection. S T (5) The Commissioner considered the Objection and by his T Determination reduced the assessment objected to. U U V V  - 44 - A A (6) But the Commissioner did not agree with the Applicant as to B B the amount at which the Applicant is liable to be assessed, C because the Applicant said it should be ‘nil’. C (7) There was, therefore, no necessary agreed adjustment of the D D original assessment (and it does not matter that it might be E said that the Commissioner by the Determination agreed that E some of the amount previously assessed should be reduced). F F (8) Because the Commissioner did not agree with the Applicant G as to the amount at which the Applicant is liable to be G assessed, he gave the reasoned Determination. H H (9) The Applicant therefore could, and did, appeal from the I Determination (and so appeal against the assessment) to the I Board. J J (10) The process of any objection and/or appeal as regards the K assessment has not reached finality, because there is at least K one further step in that process which is being taken. L L (11) Therefore, the point has not been reached where it can be M said that the relevant assessment is final and conclusive. M N (12) Notwithstanding the Objection and subsequent appeal, the N tax charged still fell to be paid unless the Commissioner O were to order that payment of tax or part of it be held over O pending the result of the objection or appeal. P P (13) The Commissioner did make an order holding over payment Q of tax, but the order was made conditional upon the Q Applicant providing security by purchasing TRCs. R R (14) The TRCs purchased were purchased by reference to the S S amount of tax charged in the original assessment, pre-dating the consideration of the Objection by the Determination. T T U U V V  - 45 - A A (15) The tax as held over has not become payable, as there is as B B yet no final determination under Part 11, and no date has C been fixed by a notice in writing specifying the date by C which to pay. D D (16) What is to happen to the purchased TRC and in place E depends upon what happens at the final point of the process E of objection and/or or appeal. F F (17) If the appeal is withdrawn, or there is an endorsed settlement, G that would bring finality to the Part 11 process and the TRC G would be accepted by the Commissioner in payment of the H H tax held over or so much of it as becomes payable, and no I interest would be payable upon the TRC or part of it so I accepted. J J (18) If the appeal reaches final determination (including after any K appellate steps in the Courts), that would bring finality to the K Part 11 process and the TRC would be accepted by the L Commissioner in payment of the tax held over or so much of L it as becomes payable, and no interest would be payable M M upon the TRC or part of it so accepted. N N (19) Once all tax held over which has become or has been found to be payable has been paid by the acceptance of the TRC, O O and if there is any TRC or part of a TRC which has not been P accepted as payment by the Commissioner in payment of tax P which has become or been found payable, the Commissioner Q Q will have to repay to the Applicant (i) the principal value R represented by the TRC or the part of the TRC, and (ii) the R interest on that value, calculated in accordance with the rules S from the date of issue of the TRC to the date of the final S determination of the objection or appeal. T T U U V V  - 46 - A A 84. That final position has not been reached. Unless and until B B the appeal is withdrawn or settled or finally determined, the original C assessment in the amount including the Excess Amount remains in place C (even if the Commissioner will not be seeking to uphold the full original D D assessment on the argument at the appeal). E E 85. Therefore, it is incorrect to say that the Commissioner must F F redeem or refund the TRCs up to the amount of the Excess Amount. G G 86. But that is not the end of the analysis. This is because the H H Commissioner now correctly accepts that he has the power to vary or I amend the basis of the holdover orders, including as to the conditions I imposed. An express power can be found in section 71(3), and further J J (implied) powers are to be found in section 46 of the IGCO. K K 87. Mr Mariani’s position must also be that the Commissioner L L has power to vary a holdover order made under section 71(2) even though M a “final determination” has not yet been reached. This is because the M Applicant’s second ground of review – irrationality – must be predicated N N on the assertion that the Commissioner does have the power to vary his O original holdover order. O P P 88. The relevant power is that the Commissioner may cancel, Q suspend, amend or substitute any holdover order made, and make such Q fresh or amended or substituting order as the case may appear to him to R R require. But that is a discretionary power. Any challenge to the S exercise of that power would have to be on conventional administrative S law grounds. T T U U V V  - 47 - A A F.4 Conclusion on Illegality B B 89. Therefore, on the chronology in this case, and though the C C reasons originally given for the Refusal were incorrect or focused on the D wrong point, it was not illegal or contrary to the IRO for the D Commissioner to refuse to exercise his powers under section 71(7)(c) and E E (d) to repay or refund the Excess Amount, and any interest accruing on it. F For the avoidance of any doubt, I would make clear my view that the F same approach logically applies both to the principal of the Excess G G Amount and to any interest. H H 90. On the other hand, it would also not have been illegal for the I I matter to have been dealt with by changing the basis of the holdover J orders in some way, such that holding over of tax in the amount of the J Excess Amount is made unconditional. This is what the Commissioner K K has proposed, and it seems to me that it is open to him in the exercise of L his discretion to take that step. L M M 91. Though the conclusion might be thought to give rise to some N potential ‘unfairness’, that seems to me to be the correct conclusion on N the proper statutory interpretation of the material provisions as a whole. O O It is notorious that tax legislation does not have to comply with what P might generally be regarded as in accordance with fairness or equity. P Nor does any such notion influence the proper approach to statutory Q Q interpretation in this case. Anyway, it is not inherently unfair for the R TRC to act as security to abide the final result of the assessment to tax, R including the any process of objection or appeal. S S T 92. Any impact of perceived unfairness in any given case would T have to be remedied, if appropriate, under a different ground of public U U V V  - 48 - A A law. It is, therefore, appropriate to turn to the Applicant’s second B B ground. C C G. Irrationality D D G.1 Applicant’s Argument E E 93. The doctrine of irrationality or Wednesbury F F unreasonableness is well-settled, and it does not require lengthy G elucidation, or citation of authority. G H H 94. A decision is Wednesbury unreasonable if a decision-maker I fails to consider matters which he is bound to consider, or fails to exclude I matters which are irrelevant, or if the decision is so unreasonable that no J J reasonable authority could ever have come to it. Where a factor can K properly be taken into account, what weight is to be given to it is a matter K for the decision-maker, but what fact he is bound to take into account for L L the relevant purpose is determined by construing the statute conferring M the power. Wednesbury unreasonableness is assessed against the M ultimate decision made, determining whether any analytical defects, legal N N or otherwise, are sufficiently serious to render the decision so O unreasonable as justifies judicial interference. O P P 95. Mr Mariani submits that, because the Commissioner was Q empowered to hold over tax assessed subject to the holdover orders, he Q may unmake or otherwise amend such orders to the degree necessary to R R reflect the amount of tax that is actually in dispute between the parties S following the Determination. He refers in particular to section 46 of the S IGCO. T T U U V V  - 49 - A A 96. Further, he submits that where the legislative object and B B intent of section 71 is to secure the flow of public revenue and to C facilitate the collection of tax assessed in accordance with the IRO, there C is no principled basis on which the Commissioner can choose to exercise D D (or not exercise) any discretion or power with which he is invested under E any enactment so as to retain the Excess Amount. By the Determination, E Mr Mariani says, the Commissioner has himself conceded that the money F F belongs to the Applicant. G G 97. Mr Mariani submits that the retention of the Excess Amount H H by the Commissioner entails gross prejudice to the Applicant, and I bestows no proper advantage on the Commissioner or the public purse. I Hence the retention is Wednesbury unreasonable. J J K G.2 Commissioner’s Argument K L 98. As already indicated, Mr Liu argues that the Commissioner’s L agreement to repay or refund the Excess Amount disposes of the M M argument on irrationality. He further says that as a result, the question N of interest is purely hypothetical or academic. N O O 99. I do not think Mr Liu has conceded that the Commissioner’s P agreement to refund is an acceptance that not to do so would be irrational. P But the agreement to refund must at least be thought to be the rational Q Q response to the Applicant’s current situation. R R G.3 Court’s Analysis S S 100. It seems to me to be necessary to decide the irrationality T T ground, despite the Commissioner’s agreement to repay the principal of U U V V  - 50 - A A the Excess Amount, not least because of the refusal to pay the interest. B B Indeed, again, it seems to me to be logical that the approach to the C principal and interest is the same. For that reason, I do not think the fact C that the Form 86 does not specifically seek payment of interest matters, D D where the principal and interest stand or fall together. E E 101. I also reject the suggestion that the question of interest is F F premature and/or academic. The relatively small amount of interest G involved in this case is the result of the low rate applicable, and that does G not make the point academic. H H I 102. Crucially, the Determination of the Objection in this case led I to the Commissioner’s view as reflected in the Determination that tax in J J the amount of the Excess Amount is simply not payable. At least as K things stand, on the appeal the Commissioner will not be arguing K anything different. L L M 103. It is, of course, correct that under section 68(8)(a) the Board is M entitled to and might increase the assessment appealed against to an N N amount higher than the amount for which the Commissioner himself O contends – a possibility also seen from the terms of section 71(4). But, on O the basis of the assessment found in the Determination, the Commissioner P P currently thinks that to seek to charge the Excess Amount as tax would Q simply be wrong. In any event, it would only become tax payable if, and Q from the point in time when, the Board were to increase the assessment of R R the tax payable. S S 104. If the original assessor had in the first place taken the same T T view as the Commissioner did in the Determination, the amount of tax in U U V V  - 51 - A A the notices of assessment for the Relevant Period would not have B B included the Excess Amount. On that basis, though the Applicant would C undoubtedly have objected to the assessment – because the Applicant C says that it should not pay any tax at all – there would have been no D D question of requiring any TRC in the amount of the Excess Amount, as E there would have been no tax charged in that amount potentially the E subject of a holdover order, conditional or otherwise. F F G 105. Now that the Commissioner’s opinion is to be taken as G standing in substitution of the assessor’s opinion, it seems to be obviously H H irrational or Wednesbury unreasonable for the Commissioner to seek to I retain the funds used to purchase that part of the TRC’s relating to the I Excess Amount. J J K 106. The Commissioner, through Mr Liu, correctly accepts that K section 46 of the IGCO permits him to make the necessary amendment to L L his previous holdover order, and I think it would be irrational not to make M the amendment which is necessary. M N N 107. Further, the logical extension of that point is that the O Commissioner is currently accepting that he should never have had those O funds in the amount of the Excess Amount. In so far as those funds have P P accrued interest whilst the Commissioner has held them, it seems Q obviously irrational for the Commissioner not to return or refund that Q interest at the same time as returning or refunding the principal. R R S 108. That seems to me to be the only way rationally to put the S parties back into the position they would otherwise have been in. That T T would, in effect, treat the holdover of the Excess Amount as having been U U V V  - 52 - A A on an unconditional basis from the first making of the Objections. If, at B B some subsequent point in the appeal process, the Applicant is assessed to C tax in an amount greater than is currently secured, that is simply the result C of the process – and is the same as would happen in any other similar D D case. In such circumstances, the IRO already provides for the E appropriate means of collecting the greater amount and any relevant E interest. F F G G.4 Conclusion on Irrationality G H 109. Not to refund the Excess Amount and the accrued interest H together would in the circumstances of this case be irrational/Wednesbury I I unreasonable. J J H. Result K K 110. The open offer made by the Commissioner has not been L L accepted by the Applicant. In those circumstances, and despite the fact M that the Commissioner has made the open offer to refund (only) the M principal sum of the Excess Amount, it seems to me in the exercise of my N N discretion that the Applicant is entitled to relief. O O 111. In those circumstances, I grant the following orders: P P (1) a declaration that the Refusal was unreasonable and/or Q Q irrational; and R (2) an order of mandamus requiring the Commissioner to vary R the terms of the holdover orders and within 21 days to S S refund to the Applicant the principal sum of the Excess Amount together with the interest on that sum, calculated in T T U U V V  - 53 - A A accordance with the rules from the date of issue of the TRC B B to the date of the refund being made. C C 112. As to costs, though I have found in favour of the D D Commissioner on much of his offered interpretation of the relevant E provisions in the IRO, I have in effect granted the Applicant the substance E of the relief sought in the Form 86. On that basis, it seems to me that I F F should reserve the question of costs to further argument. G G 113. I will deal with the questions of costs on paper. The H H Applicant should file its costs submissions within 14 days, and the I Commissioner should file his costs submissions within 14 days thereafter. I I will then determine the question of costs without any further J J submissions, unless otherwise ordered by me. K K L L M M (Russell Coleman) N Judge of the Court of First Instance N High Court O O Mr Stefano Mariani, instructed by Deacons, for the applicant P P Mr William Liu, Senior Assistant Law Officer (Civil Law), and Ms Jess Q Chan, Assistant Law Officer (Civil Law)(Ag.), of the Department of Q Justice, for the respondent R R S S T T U U V V