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Cite as: 2005 GWD 33-634, [2005] STI 1755, [2006] STC 1218, [2005] ScotCS CSOH_135, 2005 SLT 1061, 77 TC 391, [2006] BTC 846, [2005] CSOH 135

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The Commissioners Of Inland Revenue For Judical Review Of A Decision Of The General Commissioners Of Income Tax v. [2005] ScotCS CSOH_135 (18 October 2005)

OUTER HOUSE, COURT OF SESSION

[2005] CSOH 135

P43/05

OPINION OF

LORD DRUMMOND YOUNG

in Petition of

THE COMMISSIONERS OF INLAND REVENUE

Petitioners;

for

Judicial review of a decision of the General Commissioners of Income Tax, Aberdeen City Division, dated 19 August 2004 granting applications for late appeals against assessments for 1991/92, 1992/93 and 1993/94 in respect of Mr. Hugh Love in terms of section 49(1) of the Taxes Management Act 1970

________________

Act: Paterson; HM Milne, Solicitor (Scotland), Inland Revenue

Alt: Wolffe; Wright Johnston & Mackenzie LLP

18 October 2005

[1] The present petition for judicial review relates to the income tax liability of the taxpayer, Mr. Hugh Love, for the three years of assessment 1991/92, 1992/93 and 1993/94. During those three years the taxpayer worked offshore on "jack-up" drilling rigs. Such rigs are constructed on a barge hull which is fitted out for offshore drilling with legs that enable the rig to stand on the seabed. They are generally towed to their drilling location, where their legs are located on the seabed and their superstructure is then jacked up to a position well above the waterline.

[2] Section 193 of the Income and Corporation Taxes Act 1988 permits employees whose duties are performed wholly or partly outside the United Kingdom to claim a deduction from income tax in respect of their foreign earnings. Section 193 (1) is in the following terms:

"Where in any year of assessment-

(a) the duties of an office or employment are performed wholly or partly outside the United Kingdom; and

(b) any of those duties are performed in the course of a qualifying period (within the meaning of Schedule 12) which falls wholly or partly in that year and consists of at least 165 days

then, in charging tax under Case I of Schedule E on the amount of the emoluments from that employment attributable to that period, or to so much of it as falls in that year of assessment, there shall be allowed a deduction equal to the whole of that amount".

The expression "qualifying period" is defined by paragraph 3 of Schedule 12. The basic definition, found in paragraph 3(1), is as follows:

"For the purposes of section 193(1) a qualifying period is a period of consecutive days which either-

(a) consists entirely of days of absence from the United Kingdom; for

(b) consists partly of such days and partly of days included by virtue of sub-paragraph (2) below".

Paragraph 3(2) deals with time spent by the taxpayer in the United Kingdom between periods spent abroad. It provides that the intervening period spent in the United Kingdom will count as a qualifying period provided that two conditions are satisfied. First, the period must not exceed 62 days. Secondly, the number of days spent in the United Kingdom must not exceed one sixth of the total number of days in the period comprising both the periods spent outwith the United Kingdom and the intervening days spent in the United Kingdom. In the case of seafarers, sub-paragraph (2) is supplemented by sub-paragraph (2A):

"In relation to emoluments from employment as a seafarer, sub-paragraph (2) above shall have effect-

(a) as if the number of days specified ... were 183 instead of 62, and

(b) as if the fraction specified... were one half instead of one sixth;

...".

Thus the relief accorded to seafarers is greater than that accorded to other employees.

[3] During the early 1990s it was the view of the Inland Revenue that "jack-up" drilling rigs were not ships within the meaning of paragraph 3(2A). The result of that view was that persons who worked offshore on such rigs were denied the benefits accorded to seafarers, with the result that most such employees were unable to claim foreign earnings deduction. The Finance Act 1998 amended section 193 in such a way as to make it clear that in future years of assessment "jack-up" drilling rigs were excluded from the definition of ship. The effect of the amendments was to preclude any claim by those working on such rigs for treatment as a seafarer in years of assessment from 1998/99 onwards. The Revenue's view of the legal position before 1998 was challenged, however, and in Clark v Perks, [2001] STC 1254, it was held by the Court of Appeal in England that the view was mistaken and that those working on "jack-up" drilling rigs were entitled to be treated as seafarers for the purposes of foreign earnings deduction. Following that decision, in February 2002, the Inland Revenue issued Tax Bulletin 57, relating to foreign earnings deduction. In that document the Revenue indicated that they had accepted that before 17 March 1998 (the date when the amendments in the Finance Act 1998 came into operation) "jack-up" rigs would be treated as ships for the purposes of foreign earnings deduction. It was further intimated that, as the Revenue had decided to apply the Court of Appeal's decision more widely, employees who worked on "jack-up" rigs before March 1998 might be entitled to foreign earnings deduction provided that they satisfied all the other conditions for the deduction and were eligible to make a claim. That would enable open appeals to be settled. In relation to closed years, attention was drawn to section 33 of the Taxes Management Act 1970 (quoted below at paragraph [20]), which permits relief where an error or mistake has been made in a tax return. The view expressed in Tax Bulletin 57, however, was that relief under section 33 would be precluded by section 33(2), which restricted relief where the return was made in accordance with generally prevailing practice.

[4] The taxpayer was assessed to income tax for the three years 1991/92, 1992/93 and 1993/94. The assessment for 1991/92 was issued on 18 March 1993 and was appealed against. The assessment was determined under section 54 of the Taxes Management Act 1978 on 29 April 1993. The assessment for 1992/93 was issued on 24 January 1994. It too was appealed against, and the assessment was determined under section 54 on 7 March 1994. The assessment for 1993/94 was issued on 2 February 1995 and was not appealed against. Under section 31 of the Taxes Management Act an appeal might be brought against an assessment by notice of appeal in writing given within 30 days after the date of the notice of assessment. The time for an appeal against the assessment for 1993/94 accordingly expired on 2 March 1995. In the taxpayer's tax returns for each of the three years of assessment no claim for foreign earnings deduction was made. In each of the three assessments certain reliefs and allowances were given, but these obviously did not include foreign earnings deduction.

[5] Following the decision in Clark v Perks, the taxpayer decided to appeal against earlier assessments made on the basis that foreign earnings deduction was not available. By letter dated 8 July 2003 addressed to the Inspector of Taxes his agents advised that they wished to appeal against inter alia the three assessments for 1991/92, 1992/93 and 1993/94. The letter referred to the various assessments that had been made and continued as follows:

"Regarding 1991/92, 1992/93, 1993/94, 1995/96 and 1996/97, we note that no FED [foreign earnings deduction] allowances were given for any year. We therefore wish to make an appeal under Section 49(i) Taxes Management Act 1974 for each year....

If you are unable to agree that a late appeal can be granted then we would request that our client's case be listed before the General Commissioners at the first available opportunity".

The Inspector of Taxes allowed relief in respect of the years 1995/96 and 1996/97 in terms of section 33 of the Taxes Management Act 1970; in those two cases the issue had been raised within the time limit specified in that section, and the appeals were accordingly not out of time. The appeals for the three earlier years were made beyond the time limit in section 33, however, and it was accordingly necessary to consider whether an appeal should be permitted out of time.

[6] The legal provision governing proceedings brought out of time is section 49 of the Taxes Management Act 1970. Section 49(1) is in the following terms:

"An appeal may be brought out of time if on an application for the purpose an inspector or the Board [of Inland Revenue] is satisfied that there was a reasonable excuse for not bringing the appeal within the time limited, and that the application was made thereafter without unreasonable delay, and gives consent in writing; and the inspector or the Board, if not satisfied, shall refer the application for determination by the Commissioners".

The Inspector refused to allow the taxpayer to bring appeals out of time in respect of the three years 1991/92, 1992/93 and 1993/94. Thereafter the question of whether those appeals should be allowed out of time was referred to the General Commissioners of Income Tax, Aberdeen City Division. The case was heard by the General Commissioners on 17 August 2004. Evidence about the steps taken to make an appeal after the decision in Clark v Perks and the issue of Tax Bulletin 57 was given by the taxpayer's wife, and submissions were made by both parties.

[7] The General Commissioners issued their decision on 19 August 2004. It is in the following terms:

"The Commissioners granted the Appellant's applications for late appeals against his Assessments for 1991/92, 1992/93 and 1993/94 in terms of S. 49(1) of the Taxes Management Act 1970. Their reasons for doing so were as follows: -

(i) They considered that the appellant had a reasonable excuse for not bringing these appeals within the time limit in that it was not until the Inland Revenue Press Release of February 2002 that it became clear that the Inland Revenue had departed from its previous position and were prepared to accept claims for Foreign Earnings Deduction in respect of Jack up Rigs in certain circumstances.

(ii) The Commissioners further considered that given the evidence of Mrs. Love, whom they considered to be a credible witness, the Appellant had made sufficient efforts to make the application within a reasonable time thereafter particularly as he was working offshore at that time".

[8] The Inland Revenue now seek judicial review of the General Commissioners' decision. In particular, they seek declarator that the decision was ultra vires of the Commissioners and reduction of the decision. Counsel for the Revenue presented three arguments for the grant of such declarator and reduction.

1. The assessments for the years 1991/92 and 1992/93 had been settled by agreement under section 54 of the Taxes Management Act 1970. The effect of such agreement was equivalent to a determination of the Commissioners which, in terms of section 46(2) of the Taxes Management Act, was final and conclusive. It followed that those two assessments could not now be reopened.

2. The notice of appeal (quoted above at paragraph [5]) was not an "application" for the purpose of bringing proceedings out of time in terms of section 49(1). Such an application required to address two issues: whether a reasonable excuse existed for not bringing the appeal within the relevant time limit and whether the application was made thereafter without unreasonable delay. The notice issued on behalf of the taxpayer did not address these matters. Counsel conceded, however, that this argument faced a difficulty in that the Inspector had treated the letter of 8 July 2003 as an application to bring an appeal out of time, and had referred the case to the General Commissioners in terms of section 49(1). She indicated, however, that it would be helpful if the court could indicate what is required by section 49(1).

3. The Commissioners' decision was irrational and unreasonable. It allowed assessments that became final more than 10 years previously to be reopened, thus defeating the objective of finality. Moreover, it failed to have regard to the provisions of section 33 of the Taxes Management Act 1970, which prevented an assessment from being reopened timeously by a taxpayer if the assessment was in accordance with the practice generally prevailing at the time when the tax return was made. I should note that the petition challenges the three assessments both on the ground of unreasonableness and on the ground that the Commissioners misdirected themselves in law in allowing the taxpayer's application. Counsel's argument, however, was directed towards the question of unreasonableness.

I propose to deal with each of these arguments in turn, but dividing consideration of the third argument into two parts, the criteria for allowing a late appeal under section 49(1) of the Taxes Management Act 1970 and the legality and reasonableness of the Commissioners' decision.

Finality of assessments for 1991/92 and 1992/93
[9] The argument for the Revenue was based on section 54(1) and section 46(2) of the Taxes Management Act 1970. Section 54(1) and is in the following terms:

"Subject to the provisions of this section, where a person gives notice of appeal and, before the appeal is determined by the Commissioners, the inspector or other proper officer of the Crown and the appellant come to an agreement, whether in writing or otherwise, that the assessment or decision under appeal should be treated as upheld without variation, or as varied in a particular manner or as discharged or cancelled, the like consequences shall ensue for all purposes as would have ensued if, at the time when the agreement was come to, the Commissioners had determined the appeal and had upheld the assessment or decision without variation, had varied it in that manner or had discharged or cancelled it, as the case may be".

Section 46(2) is as follows:

"Save as otherwise provided in the Taxes Acts, the determination of the General Commissioners or the Special Commissioners in any proceedings under the Taxes Acts shall be final and conclusive".

The Revenue rely on the fact that the taxpayer's appeals against the two assessments for 1991/92 and 1992/93 were settled by agreement, and say that the effect is the same as if the Commissioners had determined the appeal. The agreement is therefore, in terms of section 46(2), final and conclusive, and cannot be reopened by means of a late appeal.

[10] In my opinion that argument is misconceived. Section 54(1) deals with the settlement of appeals by agreement, but that immediately raises the question of the meaning of the word "agreement". The subject matter of the agreement referred to in section 54(1) is the amount of an assessment. An assessment is a declaration that a global amount of tax falling under a particular head, for example Schedule E, is due in respect of a particular year of assessment. It is supported, however, by a detailed computation of that amount of tax, and in the course of the computation a range of reliefs and deductions may be taken into account. Any agreement as to the amount of the assessment must obviously entail agreement as to the availability of those reliefs and deductions and their amount. Such agreement may also entail agreement that certain reliefs or deductions are not available. For that to happen, however, the relief or deduction in question must be raised in the course of the discussions between the inspector and the taxpayer, and some form of consensus must be reached that it is not available. If the availability of a relief or deduction is not raised in the course of discussions, it cannot in my opinion be said that there is any agreement as to that matter. In such a case, accordingly, section 54(1) has no application.

[11] That is precisely the situation in the present case. The assessments for the years of assessment 1991/92 and 1992/93 determined the amount of Schedule E tax that the taxpayer was due to pay in respect of those years. There is no indication in any of the documentation that has been produced that the availability of foreign earnings deduction was ever raised in respect of either year. Moreover, in their petition for judicial review the Revenue make the following averment:

"In the taxpayer's tax returns for each of three years of assessment, no claim for foreign earnings deduction was made in terms of section 193(1) and Schedule 12 of the Income and Corporation Taxes Act 1988...".

The fact that no such claims were made is hardly surprising. At the relevant time, as the Revenue aver, the generally prevailing practice was that employees working on "jack-up" rigs were not entitled to claim foreign earnings deduction under the rules for seafarers, and no claims for foreign earnings deduction were accepted by the Revenue. In these circumstances, the agreements concluded between the inspector and the taxpayer did not entail any agreement as to the availability or otherwise of foreign earnings deduction; the point was simply never raised.

[12] The foregoing approach proceeds on ordinary notions of what is involved in an agreement, and is also supported by authority. In Scorer v Olin Energy Systems Ltd., [1985] AC 645; [1985] STC 218, Lord Keith of Kinkel, who delivered the principal speech in the House of Lords, stated (at [1985] AC 656F-H and [1985] STC 222f-h):

"It was settled by Cenlon Finance Co Ltd. v Ellwood... that where an agreement has been arrived at under [section 54(1)] it is not open to the inspector to make an additional 'discovery' assessment under [section 29 of the Taxes Management Act 1970]. Such an additional assessment is, however, not precluded if it is founded upon a point other than the particular matter which was the subject of the [section 54(1)] agreement...".

The expression "particular matter" is clearly significant; the use of that expression is clearly contrary to any argument that all that is agreed is a global liability to a particular head of tax. On the facts of Scorer v Olin Energy Systems Ltd., it was held that the matter in dispute, the availability of certain carried-forward losses to be set against the profits of a different division of the taxpayer company, had been raised by the taxpayer's accountants in their negotiations with the inspector. Consequently the agreement concluded with the inspector was held to comprehend the matter in dispute, and the inspector was precluded from making an additional discovery assessment in respect of that matter. The principle for determining whether a matter has been raised for the purposes of such an agreement was stated as follows (at [1985] AC 658A-B; [1985] STC 223 f-g):

"The situation must be viewed objectively, from the point of view of whether the inspector's agreement to the relevant computation, having regard to the surrounding circumstances including all the material known to be in his possession, was such as to lead a reasonable man to the conclusion that he had decided to admit the claim which had been made".

In the present case, as I have indicated, it is accepted by the Revenue that no claim for foreign earnings deduction was made in respect of the two years of assessment in question.

[13] Further support for the same view is found in the opinions of Cross J at first instance and of the Court of Appeal in Cenlon Finance Co Ltd. v Ellwood, 40 TC 176, a case that was referred to in Scorer v Olin Energy Systems Ltd. The applicability of the equivalent of section 54(1) was not argued when the case went to the House of Lords. In that case an agreement under the equivalent of section 54(1) had been reached between the taxpayer company and the inspector as to certain matters. A subsequent inspector took the view that a dividend had been wrongly excluded from the company's accounts for the period in question. It was agreed between the parties that this was a discovery for the purposes of the equivalent of section 29 of the Taxes Management Act, and the question that arose was to what extent the discovery procedure in that section was controlled by the equivalent of section 54(1). Both at first instance and in the Court of Appeal it was held that the discovery procedure could not be used because of the section 54 agreement. Cross J. at first instance stated (at 40 TC 188):

"It is true that in this case Cenlon's notice of appeal did not raise the question whether or not the... dividend should be included in the computation of its profits. It was a simply a notice of appeal against estimated assessments; but the question whether the dividend should be included was raised by the Inspector when he saw the accounts, and he agreed to the estimated assessments being reduced on the footing that the dividend ought not to be included. The agreement which he made was, therefore, in substance, equivalent to the allowing of an appeal by Cenlon against the inclusion of the dividend".

Thus Cross J. had regard to the particular subject matter of the agreement that was concluded between the inspector and the taxpayer rather than the global nature of the assessment. In the Court of Appeal Upjohn LJ stated (at 40 TC 196):

"In my judgment, if we were to give effect to the submissions made on behalf of the Crown, we should be rendering [section 46(2) of the Taxes Management Act] completely nugatory; and, what is equally important, it was quite futile and unnecessary to pass [section 54(1)], for in essence the Crown would not be bound until the passing of six years, and they could always reopen any assessment upon a change of mind as to the law applicable. It seems to me that [section 54(1)] is directed to the case where a particular point has been determined, and when that point is determined it cannot be re-litigated; both sides are bound".

Once again the emphasis is on the particular point that has been determined by the parties' agreement. The same emphasis can be seen in the opinion of Pearce LJ, who stated (at 40 TC 198-199):

"By [section 46(2) of the Taxes Management Act], an appeal, once determined, shall be final.... By [section 54(1)], the agreement in writing shares that finality. The finality therefore extends to the particular matter which was the subject of the agreement -- namely, in these cases, whether the... dividends could properly be computed in the receipts under Case I of Schedule D".

[14] I was also referred by counsel for the Revenue to the decision of Lightman J. in Barnett v Brabyn, [1996] STC 716, a case where the taxpayer was assessed to tax for certain years on the basis that he was self-employed. His appeals against those assessments were the subject of agreements under section 54; the agreements proceeded on the basis that he was self-employed. Additional assessments were made subsequently for two of the years in question, and the taxpayer appealed, ultimately to the High Court, on the basis that he had truly been employed under a contract of employment rather than self-employed. It was held that the taxpayer was not precluded from taking this point, on the ground that the agreement had the same status as a decision of the Commissioners, but a decision of the Commissioners is not a decision on a lis inter partes and accordingly does not give rise to res judicata or any equivalent doctrine. That decision indicates that there are important limits to the scope of a section 54 agreement, and is entirely consistent with the view that any such agreement is only binding in respect of the particular issues that were raised in the course of the antecedent negotiations.

Requirements of application under section 49(1) of the Taxes Management Act 1970
[15] The second argument for the Inland Revenue was that the letter of 8 July 2003 sent by the taxpayer's agents to the Inspector of Taxes was not an "application" under section 49(1) of the Taxes Management Act 1970 for the purpose of bringing proceedings out of time. In particular, it did not refer to any reasonable excuse for not bringing the appeal within the appropriate time limit, and nothing was said about whether the application had been made without unreasonable delay; both of those matters were referred to in the subsection. Counsel accepted, however, that this argument faced a difficulty in that the Inspector had treated the letter of 8 July 2003 as an application under section 49(1), and had referred the matter to the General Commissioners on that basis. In my opinion the fact that the Inspector treated the letter as an application under section 49(1) is of itself fatal to the Revenue's argument. By so doing, the Inspector implicitly agreed that the letter was such an application. The fact of such agreement is enough to confer the status of an application under section 49(1) on the letter. In any event, had the Inspector taken the point that the requirements of section 49(1) were not satisfied and that the letter did not amount to an application, it is clearly likely that the taxpayer's agents would have put the matter right immediately. Thus there is obvious prejudice to the taxpayer as a result of the Inspector's failure to state the argument at the outset.

[16] Counsel for the Revenue, accepting that her argument faced difficulty, invited me to consider what is required under section 49(1), to provide guidance in future cases. She referred to the decision of the Queen's Bench Division in Northern Ireland in R v Special Commissioner of Income Tax, ex parte Magill, 53 TC 135. In that case the taxpayer had written to the Inspector of Taxes to acknowledge receipt of an assessment and ask for confirmation that tax had been charged at the correct rate and on the correct basis. Any appeal was out of time. Gibson LJ held that the letter was not a valid application to bring an appeal out of time in terms of section 49(1). First, there was no indication in the letter that the taxpayer sought any relief from the consequence of his delay in bringing the appeal. Secondly, the subsection used the phrase "on an application for the purpose" in the context of an appeal out of time. Gibson LJ held that that expression indicated that there must be either in the body of the notice of appeal or separately an application to the Inspector "for the purpose" of securing relief from the normal consequence of the delay. These grounds do not apply to the present case, where the taxpayers' agents' letter made express reference to a late appeal (see paragraph [5] above), and requested that, if the Inspector were unable to agree to a late appeal, the case should be listed before the General Commissioners; that is of course the precise procedure that is contemplated by section 49(1).

[17] I do not think that it is possible to provide comprehensive guidance as to the requirements of a valid application under section 49(1); the circumstances of individual cases may vary greatly. In general, however, I consider that a sensible and practical approach should be taken in all cases to the question of whether there is an application to make a late appeal. If it is apparent from the terms of a letter from the taxpayer or his agent that the taxpayer wishes to make a late appeal, that should be treated as an application for the purpose of bringing an appeal out of time. It does not matter in my view that the letter does not deal with the matters that are mentioned expressly in section 49(1), namely whether there is a reasonable excuse for not bringing the appeal within the prescribed time and whether the application was made thereafter without unreasonable delay. Those matters are not essential to the intimation of the appeal, and can be dealt with in a supplementary document. It is essential, however, that the taxpayer or his agent should make submissions on those matters to the Inspector, either in the notice of appeal or in a supplementary document. The Inspector has no power to grant the application unless he is satisfied that there is a reasonable excuse and that there has been no undue delay, and normally the material that is adduced to satisfy him on those matters must come from the taxpayer. The taxpayer should also address any other issues that appear relevant to whether a late appeal should be permitted; I discuss these below at paragraph [23]. The reason is that these are all matters that may be relevant to the decision made by the Inspector under section 49(1). On the foregoing basis, I consider that in the present case the Inspector was correct in treating the letter of 8 July 2003 as an application for leave to appeal out of time.

Criteria for allowing late appeal under section 49(1) of the Taxes Management Act 1970
[18] The third argument for the Inland Revenue was that the Commissioners' decision to allow a late appeal under section 49(1) was irrational and unreasonable. It manifestly failed to achieve finality, which was an important consideration in this area of the law, as was made clear in the opinions in Cenlon Finance Co. Ltd. v Ellwood, supra. In addition, the decision was contrary to the scheme of section 33 of the Taxes Management Act 1970, the terms of which are set out below at paragraph [20]. The scheme of section 33, counsel submitted, was to permit a taxpayer to reopen an assessment that was excessive by reason of an error or mistake within a period of six years after the end of the relevant year of assessment, but subject to one important exception. That exception was found in the proviso to subsection (2), which stated that an assessment could not be reopened if the relevant tax return was made in accordance with the practice generally prevailing at the relevant time. In the present case, the assessments on the taxpayer for all three years of assessment had been made in accordance with the practice that prevailed before the decision in Clark v Perks, supra. Counsel further drew attention to section 29 of the Taxes Management Act, the provision that allows the Revenue to make a discovery assessment, and pointed out that a similar qualification applies to the Revenue's power to reopen matters. She submitted that the position of the Revenue and the taxpayer should be symmetrical.

[19] In reply, counsel for the taxpayer submitted that Parliament had deliberately, in section 49, chosen to leave decisions on the question of appeals out of time at large for the Commissioners. Provision was made for a stated case on a point of law, but otherwise the Commissioners' decision was final and conclusive. If their decision were to be reduced, it was necessary to show that the Commissioners had acted irrationally, or at least unreasonably, in the sense that no reasonable decision maker addressing the issue could have come to the same conclusion. Reference was made to the well-known speech of Lord Diplock in Council of Civil Service Unions v Minister for the Civil Service, [1985] AC 374, at 410F-H, and also to the opinion of Lord Macfadyen in SHBA Ltd. v The Scottish Ministers, 2002 SLT 1321, at paragraphs [47]-[48]. Counsel emphasized that the General Commissioners were a lay body, and that they were expected to apply their own judgment and their own sense of what was fair and reasonable. On that basis, they could reasonably take the view contained in their decision letter. Counsel further submitted that the Revenue's approach to section 33 of the Taxes Management Act was flawed. Parliament had provided not only that a claim might be made for repayment of tax in the limited circumstances set out in that section, but had also provided in section 49 that appeals might be allowed to proceed although late. Thus two alternative mechanisms were available. There was nothing irrational in the Commissioners' allowing an appeal to proceed out of time under section 49 even in a case where the section 33 procedure was not available.

[20] The Inland Revenue's attack on the Commissioners' decision turns largely on the relationship between sections 33 and 49 of the Taxes Management Act. The provisions of section 49(1) are set out above at paragraph [6]. Section 33, in the version that applies to the three years of assessment in the present case, provides as follows:

"(1) If any person who has paid tax charged under an assessment alleges that the assessment was excessive by reason of some matter or mistake in a return, he may by notice in writing at any time not later than six years after the end of the year of assessment... in which the assessment was made, make a claim to the Board for relief.

(2) On receiving the claim the Board shall inquire into the matter and shall, subject to the provisions of this section, give by way of repayment such relief... in respect of the error or mistake as is reasonable and just:

Provided that no relief shall be given under this section in respect of an error or mistake as to the basis on which the liability of the claimant ought to have been computed where the return was in fact made on the basis or in accordance with the practice generally prevailing at the time when the return was made.

(3) In determining the claim that Board shall have regard to all the relevant circumstances of the case....

(4) If any appeal is brought from the decision of the Board on the claim the Special Commissioners shall hear and determine the appeal in accordance with the principles to be followed by the Board in determining claims under this section; and neither the appellant nor the Board shall be entitled to require a case to be stated under section 56 of this act otherwise than on a point of law arising in connection with the computation of profits".

[21] In a sense a tension exists between these two sections. On its face, section 49 might be thought to confer an unrestricted power to reopen assessments by means of a late appeal. Section 33, by contrast, is limited in its application, both by the six-year limit stipulated in subsection (1) and by the exclusion for generally prevailing practice contained in the proviso to subsection (2). If section 49 is unlimited in its application, however, it provides an obvious route to circumvent the restrictions in section 33. That might be thought contrary to the statutory scheme. A similar point can be made in relation to section 29, dealing with discovery assessments, which is subject to a broadly similar limitation for generally prevailing practice. This difficulty arises, I suspect, because the assessment and appeal provisions that are now contained in the Taxes Management Act 1970 have their origins in a number of different Finance Acts, passed over a long period, and no attempt has been made to develop them into a coherent code using systematic concepts and terminology. It must be said that on the whole the assessment mechanism seems to work well in practice, but this is no doubt due to the good sense of Inspectors of Taxes and tax advisers rather than the coherence of the statutory provisions. In the present case, however, I have come to the opinion that the tensions are more apparent than real. They can readily be resolved by a proper analysis of section 49(1), and I now turn to that analysis.

[22] Section 49 is a provision that is designed to permit appeals out of time. As such, it should in my opinion be viewed in the same context as other provisions designed to allow legal proceedings to be brought even though a time limit has expired. The central feature of such provisions is that they are exceptional in nature; the normal case is covered by the time limit, and particular reasons must be shown for disregarding that limit. The limit must be regarded as the judgment of the legislature as to the appropriate time within which proceedings must be brought in the normal case, and particular reasons must be shown if a claimant or appellant is to raise proceedings, or institute an appeal, beyond the period chosen by Parliament.

[23] Certain considerations are typically relevant to the question of whether proceedings should be allowed beyond a time limit. In relation to a late appeal of the sort contemplated by section 49, these include the following; it need hardly be added that the list is not intended to be comprehensive. First, is there a reasonable excuse for not observing the time limit, for example because the appellant was not aware and could not with reasonable diligence have become aware that there were grounds for an appeal? If the delay is in part caused by the actings of the Revenue, that could be a very significant factor in deciding that there is a reasonable excuse. Secondly, once the excuse has ceased to operate, for example because the appellant became aware of the possibility of an appeal, have matters proceeded with reasonable expedition? Thirdly, is there prejudice to one or other party if a late appeal is allowed to proceed, or if it is refused? Fourthly, are there considerations affecting the public interest if the appeal is allowed to proceed, or if permission is refused? The public interest may give rise to a number of issues. One is the policy of finality in litigation and other legal proceedings; matters have to be brought to a conclusion within a reasonable time, without the possibility of being reopened. That may be a reason for refusing leave to appeal where there has been a very long delay. A second issue is the effect that the instant proceedings might have on other legal proceedings that have been concluded in the past; if an appeal is allowed to proceed in one case, it may have implications for other cases that have long since been concluded. This is essentially the policy that underlies the proviso to section 33(2) of the Taxes Management Act. A third issue is the policy that is to be discerned in other provisions of the Taxes Acts; that policy has been enacted by Parliament, and it should be respected in any decision as to whether an appeal should be allowed to proceed late. Fifthly, has the delay affected the quality of the evidence that is available? In this connection, documents may have been lost, or witnesses may have forgotten the details of what happened many years before. If there is a serious deterioration in the availability of evidence, that has a significant impact on the quality of justice that is possible, and may of itself provide a reason for refusing leave to appeal late.

[24] Because the granting of leave to bring an appeal or other proceedings late is an exception to the norm, the decision as to whether they should be granted is typically discretionary in nature. Indeed, in view of the range of considerations that are typically relevant to the question, it is difficult to see how an element of discretion can be avoided. Those considerations will often conflict with one another, for example in a case where there is a reasonable excuse for failure to bring proceedings and clear prejudice to the applicant for leave but substantial quantities of documents have been lost with the passage of time. In such a case the person or body charged with the decision as to whether leave should be granted must weigh the conflicting considerations and decide where the balance lies.

[25] Section 49(1) of the Taxes Management Act contains a number of features that are in my opinion consistent with the approach described above. In the first place, the subsection uses the word "may", which tends to indicate, although perhaps not conclusively, that a discretion is contemplated. In the second place, the subsection contemplates that, if the inspector rejects the application, he is to refer it automatically for determination by the Commissioners. That indicates that the ultimate discretion as to whether to allow a late appeal rests with the Commissioners, and that the function of the inspector is merely to allow an appeal to proceed in sufficiently clear cases. In the third place, the discretion conferred on the Commissioners is not expressly limited by the terms of the subsection. Two matters are mentioned expressly, the existence of a reasonable excuse for not bringing the appeal within the time limited and making an application without unreasonable delay thereafter, but these only apply in terms to the decision by the inspector, not the ultimate decision by the Commissioners. That suggests that the Commissioners are entitled to take into account any consideration that may be relevant to whether or not a late appeal should be permitted. Those obviously include the two matters that are mentioned in the subsection in relation to the inspector's decision, but they may also include the whole of the considerations set out in paragraph [23] above. Of course many cases may occur where the two conditions mentioned in the subsection are satisfied, and there is prejudice to the taxpayer if a late appeal is not allowed to proceed, but no other considerations seem to apply. In such a case the application under section 49 should obviously be granted.

[26] That leads on to the function exercised by the inspector, or by the Board, under the subsection. Read short, the subsection provides that "An appeal may be brought out of time if... an inspector... is satisfied that there was a reasonable excuse for not bringing the appeal within the time limited, and that the application was made thereafter without unreasonable delay". On a strict reading of the words used, that might be taken to suggest that an inspector is obliged to allow a late appeal to proceed if he is satisfied as to the two matters that are expressly mentioned. If that were so, however, provided that the two express conditions were satisfied the inspector would be obliged to allow a late appeal to proceed even in a case where a very long time had elapsed since the assessment had been determined, or where nearly all of the documentary evidence had been destroyed. I cannot believe that that is a sensible result. It can be avoided, however, if the inspector is regarded as exercising essentially the same discretion as the Commissioners, albeit on a provisional basis and subject to an obligation to refer to the Commissioners should the inspector decide against permitting an appeal to proceed. That result can be achieved if the two express conditions are regarded as being necessary conditions but not sufficient conditions in every case; they will not be sufficient if other relevant considerations suggest that an appeal out of time should not be allowed to proceed. Such a result is wholly consistent with the use of the word "may" at the start of the subsection. It is also consistent with the further provision that the inspector should give consent in writing; that perhaps suggests the existence of a discretion that is more general in nature than merely deciding whether the two express conditions have been satisfied. In my opinion such a construction gives proper effect to the purpose of the subsection which is, as stated above, to permit appeals to proceed where otherwise they would be time-barred. In view of that purpose, it is to be expected that the inspector, and in due course the Commissioners, would be entitled to take account of all considerations that might be relevant to whether a late appeal should be permitted. In this connection I was referred to the decision in R (on the application of Browallia Cal Ltd.) v General Commissioners of Income Tax, [2004] STC 296, where it was held that the Commissioners have a wider discretion but that the inspector's discretion is confined to determining the two matters that are expressly mentioned in the subsection. In my view the scope of the discretion must be the same at each level, subject to the inspector's obligation to refer to the Commissioners if he decides against the taxpayer. Otherwise there is a danger that an application that ultimately lacks merit because of, for example, the very long lapse of time will be allowed to proceed by the inspector simply because the taxpayer was able to satisfy the two express conditions. I agree, however, that the discretion is not limited to the two matters that are expressly mentioned, but extends at least to the considerations mentioned above at paragraph [23].

[27] On the foregoing analysis of section 49(1), the apparent conflict with section 33 disappears. The legislative policy underlying the proviso to section 33(2) is that a taxpayer should not be able to obtain relief for an error or mistake if his return was made in accordance with the practice generally prevailing at the time. It is easy to see the reason for that policy; if there is a general practice, a large number of cases are likely to have been concluded on the basis of that practice, and if any one case is reopened consistency demands that they should all be reopened. Clearly that could place a very heavy burden on the Revenue, and indeed on taxpayers' advisers. For that reason Parliament has determined that relief for errors or mistakes should not be accorded in such cases. When an application is made to allow an appeal to proceed late, the existence of that legislative policy is clearly a relevant consideration, for two reasons. First, it must be respected simply as the policy that Parliament has determined should apply to cases where there was at the relevant time a generally prevailing practice. Secondly, that legislative policy is related to the effect that reopening one assessment may have on other cases, and that by itself is a consideration that will usually be relevant to whether an appeal should be allowed to proceed out of time. Thus the existence of the proviso to section 33(2) is a factor that should be taken into account in determining an application under section 49(1), as is the policy that underlies that proviso.

Legality and reasonableness of General Commissioners' decision
[28] The decision of the General Commissioners is set out above at paragraph [7]. Two reasons are given. First, the appellant had a reasonable excuse for not bringing appeals within the time limit because it was not clear until the Inland Revenue Press Release of February 2002 that they had departed from their previous position on foreign earnings deduction in respect of "jack up" rigs. Secondly, on the basis of evidence from the taxpayer's wife, the taxpayer had made sufficient efforts to make the application within a reasonable time following the press release. It is clear that those two reasons address the two specific considerations that are mentioned in section 49(1). Nothing is said, however, about any other considerations that might be relevant to the question of whether an appeal should be allowed to proceed out of time.

[29] At least one other consideration is in my opinion of clear relevance to the taxpayer's appeal. That is the existence of the limitations in section 33, and the legislative policy that clearly underlies that section. It is not in dispute in the present case that, at a time when the returns for the three years of assessment 1991/92, 1992/93 and 1993/94 were made, there existed a generally prevailing practice that taxpayers working on "jack up" rigs were not entitled to foreign earnings deduction on the same basis as seafarers. The taxpayer made no claim for foreign earnings deduction because of that practice, and if he had done so it is clear that the claim would have been refused. Consequently, if the taxpayer had chosen to make a claim under section 33 based on error or mistake, and had done so within the time limit prescribed in that section, the claim would have been rejected under the proviso to subsection (2). If a timeous claim under the statutory provision that is designed to deal with errors in returns would not have succeeded, it is difficult to see why an appeal made out of time should be allowed to proceed. The existence of the limitation in the proviso to subsection (2) and the legislative policy that underlies that limitation are both matters that are relevant to whether a late appeal should be permitted. This is not, however, a matter that appears to have been considered by the Commissioners.

[30] A further consideration that might be relevant to whether a late appeal should be allowed to proceed is the time that has elapsed since the three years of assessment in question. The taxpayer's application to appeal out of time was made 10 years after the last of the three years of assessment in question. The time that has elapsed could of itself be material to the decision that the Commissioners had to make under section 49. Once again, this matter does not appear to have been considered by the Commissioners.

[31] The Inland Revenue's challenge to the General Commissioners' decision, at least as presented in argument, was based on the notion of unreasonableness. The failure of a decision maker to take account of a relevant consideration has frequently been categorized as a misdirection in law, but in this area I do not think that any hard and fast line can be drawn between misdirections in law and unreasonableness. Particularly where the decision maker has failed to take account of the general policy underlying the law rather than a specific legislative provision, his decision may properly be characterized as unreasonable rather than as a legal misdirection.

[32] The test of reasonableness has been discussed in a large number of well known cases. I am content to adopt the recent formulation by Lord Macfadyen in SHBA Ltd. v The Scottish Ministers, supra, at 2002 SLT 1336B:

"The fundamental point, it seems to me, is that a decision cannot be held to be invalid on the ground of unreasonableness (or irrationality) unless it can be affirmed that no reasonable decision maker addressing the issue could have come to the same conclusion".

On that test, I am on opinion that the General Commissioners' decision must be held unreasonable. Section 33 of the Taxes Management Act discloses a clear legislative policy in relation to the opening of old assessments. The same policy is evident in section 29, dealing with discovery assessments. That policy is that, where an assessment is made in accordance with generally prevailing practice at the time of the relevant tax return, it cannot be reopened. The rationale of that policy is perhaps obvious, for the reasons discussed above. No account was taken of that policy by the Commissioners. Moreover, the result of the Commissioners' decision is that a taxpayer is permitted to reopen a concluded assessment by means of a late appeal when a timeous challenge would not have succeeded. In my opinion that result is one that no reasonable body of General Commissioners, properly directed on the law, could have reached.

[33] Counsel for the taxpayer emphasized that Parliament had deliberately chosen to leave the decision as to whether an appeal should be allowed to proceed late to the General Commissioners, a lay body, with only very restricted rights of appeal from their decisions. He further emphasized the formulation of the test of unreasonableness or irrationality by Lord Diplock in Council of Civil Service Unions v Minister for the Civil Service, supra. Lord Diplock's formulation refers to irrationality rather than the more traditional concept of unreasonableness, and defines the concept as applying to "a decision which is so outrageous in its defiance of logic or of accepted moral standards that no sensible person who had applied his mind to the question to be decided could have arrived at it". I do not think that this can be regarded as an exhaustive statement of the law, applicable to all cases where unreasonableness or irrationality is invoked as a ground of challenge. Perhaps the most common reason for holding a decision to be unreasonable is that it does not accord with the set of principles of practical reasoning that are conventionally described as common sense, a concept that is based neither on logic nor on accepted moral standards. In the present case, the Commissioners' failure is to take account of an important matter of legislative policy, and that is essentially a failure of practical reasoning. I should say that I have every sympathy with the Commissioners. Section 49(1) cannot be described as a well drafted provision. It mentions two particular considerations that are of obvious relevance to whether a late appeal should be allowed. It does not state that other considerations might be relevant. The Commissioners were perhaps misled by the wording of the subsection into thinking that only those two considerations had to be addressed, and they duly addressed those considerations. Nevertheless, while I can readily understand why the Commissioners reached their decision of 19 August 2004, I cannot hold that it is one that reasonable Commissioners properly directed on the legislative background could properly have reached. Nor does it seem relevant that Parliament has chosen to leave the decision to the Commissioners. The Commissioners are still obliged to take account of the general policy of the law relating to the reopening of concluded assessments. Moreover, it cannot be said that that policy is self-evidently unfair. It is always open to a taxpayer to challenge the prevailing practice, as indeed happened in Clark v Perks, supra. No doubt the cost of a challenge may be a daunting prospect for an individual taxpayer, but it is not unknown for tax advisers who deal with particular categories of taxpayer, for example those working on "jack up" rigs, to mount a test case and obtain funding from a large number of taxpayers.

Conclusion
[34] For the foregoing reasons I will sustain the first, second and third pleas in law for the Inland Revenue. I will accordingly pronounce decree of declarator that the General Commissioners' decision of 19 August 2004 was ultra vires, and decree for reduction of the decision.