plant or machinery. The difference is not relevant to anything in this appeal and I shall treat the two regimes as interchangeable. There is no dispute that the taxpayer received these allowances and therefore, in principle, if the termination of the franchise and lease can be regarded as a sale of the buildings and structures, prescribed fixed assets and plant and machinery to the Authority and the consideration for each of those assets exceeded the residual value after allowances, a balancing charge should be added to the taxpayer’s profits for that year of assessment: see section 18F(1). The taxpayer submitted to the Court of Appeal that the Commissioner should not at that stage be allowed to put forward a claim that the taxpayer was liable to be assessed on balancing charges. It was an entirely new basis for assessment. The Court of Appeal, in a judgment delivered by Kwan JA, with which Fok and Lam JJA concurred, rejected this objection. She said that the Court could deal with the case “on the existing materials…without the need for further evidence.” Her view was that the Commissioner’s case failed because, for reasons to which I shall in due course return, the Ordinance excluded a balancing charge in the circumstances in which the franchise and lease had come to an end. The Commissioner appeals against this decision on the merits and I shall have something to say about it later. But the chief question, in my opinion, is whether the Commissioner should have been allowed to raise the question of a balancing charge at the last minute before the hearing in the Court of Appeal.
The nature of the powers and duties of the Commissioner under section 64(2) of the Ordinance has been settled since the decision in Mok Tsze Fung v Commissioner of Inland Revenue [1962] HKLR 258, in which J said: “His duty is to review and revise the assessment and this, in my view, requires him to perform an original and administrative, not an appellate and judicial, function, of considering what the proper assessment should be. He acts de novo, putting himself in the place of the assessor, and forms, as it were, a second opinion in substitution for the opinion of the assessor.” These principles were recently reaffirmed by the Court of Final Appeal in Shui On Credit Co Ltd v Commissioner of Inland Revenue (2009) 12 HKCFAR 392. The taxpayer had entered into a complicated scheme of transactions with a view to avoiding tax. It was assessed to profits tax under the anti-avoidance provisions of section 61A of the Ordinance, which requires that the transaction “has, or would have had, but for this section” the effect of conferring a tax benefit on a person. The Commissioner took the view that there was no need to resort to section 61A because, despite the scheme, the sums in question were chargeable to profits tax under the ordinary provisions of sections 16 and 17 of the Ordinance. He therefore made an assessment under those sections. The taxpayer objected that he was not entitled in dealing with an objection to make an assessment upon an entirely different basis. But Lord Walker of Gestingthorpe, citing the Mok Tsze Fung case, said that the Commissioner’s duty was to consider de novo whether, and if so in what amount, the taxpayer should be assessed to profits tax. He was not confined to deciding whether the assessment had been made on the right basis.