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SCMP Reporter

TWO Hutchison group subsidiaries are seeking to overturn a decision by the Commissioner of Inland Revenue to hold them liable  for $22 million of property tax.

   Harley Development and Trillium Investment argue they had been granted exemption and it would be an abuse of power by the  commissioner to go back on this.

  They are challenging the commissioner's decision last year  to  assess property tax on $175 million relating to a deal between the  two companies and the Hongkong  and Shanghai Bank.

   Opening the case for Harley and Trillium, Mr John Gardiner,  QC, leading Mr Denis Yu, said the  matter concerned the premises of  Hongkong Bank's principal branch, in China Building, used as  the bank's headquarters from 1983  to 1985.

   Mr Gardiner said the bank occupied the basement to the second  floor of the building.

     In October 1985 the Hutchison  group had acquired a reversionary  interest on a 30-year lease held by  the bank over the properties between the basement and the second floor.

    Mr Gardiner said the transaction was achieved firstly by Harley  taking an assignment of a long-lease interest from a subsidiary of  the bank for $137 million.

   Secondly, a Hutchison subsidiary acquired the whole share and  loan capital of Trillium, which had  an interest in part of the properties  in question, for $63 million.

   Thirdly, he said, Harley and Trillium had granted the 30-year  lease back to the bank for $119.87  million and $55 million, respectively.

  Mr Gardiner said Harley had paid a net $17.25 million and Trillium a net $7.8 million for the reversionary interest.

   He said that in  1987, Harley  had applied by letter for exemption of property tax. The Inland Revenue had not replied.

   The company had also submitted a profits tax return in relation  to the transaction, which had been  subjected to profits tax, he said.

   When one understood the practice, said counsel, the conduct of  the Inland Revenue Department was clearly a representation that the exemption was accepted.

  He said Trillium had been granted exemption from property  tax from 1983-84 onward.

    A filed profit tax return in relation to the deal had been treated as  falling under the exemption.

    Mr Gardiner said the commissioner was acting ultra vires  in seeking to raise property tax from   Harley and Trillium.

 It would be an abuse of power  by the commissioner to go back on  the acceptance, said Mr Gardiner.



Hutchison companies fight $22m tax assessment