Scottish Court of Session Decisions

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URL: http://www.bailii.org/scot/cases/ScotCS/2006/CSOH_195.html
Cite as: [2008] STC 1557, [2007] STI 113, [2006] ScotCS CSOH_195, [2006] CSOH 195, 2007 GWD 1-16

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OUTER HOUSE, COURT OF SESSION

[2006] CSOH 195

P1724/06

OPINION OF LORD MACPHAIL

in the petition of

MOHAMED ABDOUR ROUF TRADING AS THE NEW BALAKA RESTAURANT

Petitioner;

for

JUDICIAL REVIEW OF A DECISION OF THE GENERAL COMMISSIONERS OF INCOME TAX FOR THE DIVISION OF DUNDEE

________________

Petitioner: Tyre, Q.C.; Brechin Tindal Oatts

15 December 2006

Introduction

[1] This is a petition for judicial review of a decision of the General Commissioners of Income Tax for the Division of Dundee ("the Commissioners") refusing to state a case for the Opinion of this Court. They refused to do so on the ground that they were not satisfied that the questions on which the petitioner required the case to be stated were questions of law. The petitioner maintains that there was no basis upon which they could reasonably have so satisfied themselves and refused to state a case. He invites this Court to quash their decision not to state a case and to make an order under Section 45(b) of the Court of Session Act 1988 ordaining them to state and sign a case under Regulation 20 of the General Commissioners (Jurisdiction and Procedure) Regulations 1994. The petition has been served upon the Clerk to the Commissioners and upon Her Majesty's Commissioners of Revenue and Customs, but neither has taken any part in the proceedings. At the first hearing I was fully addressed by senior counsel for the petitioners.

The facts

[2 ] The petition narrates that the petitioner trades under the name of The New Balaka Restaurant in St Andrews. On 12 and 13 December 2005 the Commissioners heard appeals by the petitioner against revenue assessments for the years 1995-1996 and 1996-1997 and against closure notices for each of the years from 1997-1998 to 2002-2003 inclusive. By a notice dated 20 December 2005 (no. 6/11 of process) the Commissioners intimated to the petitioner that all his appeals had been dismissed except in respect of certain reductions in tax assessed by the closure notices for 2001-2002 and 2002-2003 which had been made at the invitation of H M Inspector of Taxes. The Commissioners did not state any reasons for their decision.

[3 ] The petitioner wrote to the Commissioners on 16 January 2006 intimating that he wished to appeal against the decision and enclosing the necessary fee (no. 6/12 of process). The Clerk replied by letter dated 23 January 2006 (no. 6/13 of process) inviting the petitioner to identify the question of law on which he required a case to be stated. On 14 February 2006 the petitioner's chartered accountants, Messrs Jeffrey Crawford, wrote to the Clerk (no. 6/14 of process) and stated three questions of law for the opinion of the Court. It is unnecessary to set out the first question, since at a later date it was not insisted in. The other two questions were:

"(ii) Whether on the facts found by the General Commissioners as set out in their decision there was evidence on which they could properly arrive at their decision, and

(iii) Whether on the facts so found their determination of the appeals was correct in law."

[4 ] By letter dated 31 March 2006 (no. 6/15 of process) the Clerk to the Commissioners replied:

"I thank you for your letter of 14 February, 2006 which has now been considered by the Commissioners.

In regard to the three 'questions of law' noted in your letter, I would respond as follows:

[. . .]

(ii) and (iii) The Commissioners do not consider there is any point of law at issue in regard to their determination. They found on the facts that Mr Rouf's record keeping had been negligent, and they did not find on the facts, nor the contentions made by Mr Rouf's Agent, that the burden of proof in displacing the Inland Revenue's assessments had been satisfied.

On that basis, the Commissioners are not satisfied that under Regulation 20(4) the questions identified are proper questions of law, and Tribunal have accordingly refused to state a case."

It is the Commissioners' decision refusing to state a case, referred to in that letter, which the petitioner contends ought now to be quashed by this Court. There was a further exchange of correspondence between the petitioner's chartered accountants and the Clerk (nos. 6/16 and 6/17 of process), but the Commissioners adhered to their decision.

[5 ] The petitioner's pleas-in-law are in these terms:

"1. There being no basis upon which the respondents could reasonably have satisfied themselves that the questions identified by the petitioner in Messrs Jeffrey Crawford's letter of 14 February 2006 were not questions of law, the decision of the respondents referred to in their letter of 31 March 2006 ought to be quashed by the Court.

2. There being no basis upon which the respondents could reasonably have refused to state a case for the opinion of the Court, and they accordingly being in breach of their statutory duty in refusing to do so, an order should be pronounced ordaining them to state a case in accordance with Regulation 20 of the General Commissioners (Jurisdiction and Procedure) Regulations 1994."

The statutory provisions

[6 ] The following are the relevant statutory provisions. The case stated procedure is regulated in part by Regulation 20 of the General Commissioners (Jurisdiction and Procedure) Regulations 1994 ("the Regulations"). The effect of Regulation 20(1) is that within thirty days after the final determination of appeals such as these any party to the proceedings, if dissatisfied with the determination as being erroneous in point of law, may by notice served on the Clerk require the Commissioners to state and sign a case for the opinion of the Court of Session. That is what the petitioner did by his letter no. 6/12 of process. Section 56(3) of the Taxes Management Act, as amended, provides that where a party to an appeal requires the Commissioners to state and sign a case under Regulations 20(1) of the Regulations, he must pay to the Clerk to the Commissioners a fee of £25 for and in respect of the same, before he is entitled to have the case stated. Again, the petitioner complied with this provision. Regulation 20, so far as material, further provides:

(3) After a party has required a case to be stated under paragraph (1) above, the Tribunal [i.e. the Commissioners] may by notice served on him require him within a period of time stated in the notice, not being less than twenty eight days, to identify the question of law on which he requires the case to be stated.

(4) If a party fails to comply with a notice served under paragraph (3) above, or if the Tribunal is not satisfied that the question identified is a question of law, [. . .] the Tribunal may refuse to state a case."

Here, the Clerk's letter no. 6/13 of process was a notice in terms of Regulation 20(3); the petitioner's chartered accountants' letter no. 6/14 of process complied with that notice; but the Commissioners, in the exercise or purported exercise of the discretion conferred by Regulation 20(4), were not satisfied that the questions the accountants had identified were questions of law and refused to state a case, as the Clerk's letter no.6/15 of process records.

The issues raised in the appeal to the Commissioners

[7 ] I now narrate the issues raised in the appeals to the Commissioners, and consider whether the questions identified by the petitioners' chartered accountants were questions of law.

[8 ] Counsel for the petitioner explained that an inquiry into the affairs of the petitioner's restaurant had begun in the year 2000. The inquiry went back as far as the year 1995-1996 and focused on two matters: it was suspected that not all payments by credit card had been declared; and it was also suspected that cash received had been taken out of the business and had not been declared. The inquiry involved extensive correspondence and a long series of meetings. By a letter dated 23 August 2002 the Inspector referred to certain discrepancies and stated that in the absence of information she proposed to make additions of £100,000 for the year 1997-1998, and to scale back and forward this figure to include the years 1995-1996 to 2000-2001. Her proposed additions ranged from £94,000 for the year 1995-1996 to £108,000 for the year 2000-2001 (no. 6/18 of process, page 4). At a meeting on 19 November 2003 it was explained that the figure of £100,000 was derived in part from her review of discrepancies over a three month period from January to March 1997 (no. 6/19 of process, page 108). She also considered apparent failures to declare payments by Inspectors for test meals at the restaurant (no. 6/18 of process, page 5). By the time of the hearing before the Commissioners, however, H M Commissioners of Revenue and Customs had acknowledged that there had been little or no credit card fraud, and that the three month review had produced a distorted assessment. The assessments, however, had never been amended. Counsel stated that he was advised that at the hearing before the Commissioners, the Inspector acknowledged that any remaining discrepancy with regard to credit cards was of the order of a few hundred pounds.

[9 ] At the hearing, said counsel, the petitioner was represented by his accountant. A number of matters were in dispute: whether there had been any under-declaration by the petitioner at all; whether there was any cash discrepancy which had not been satisfactorily explained; whether it was credible to make assessments on the basis of the three month review; whether the scaling of the figure of £100,000 was appropriate in view of events in the later years which had affected tourist business in St Andrews including the attack on the World Trade Center on 11 September 2001 and the outbreak of foot and mouth disease in Great Britain; whether the estimates of customer numbers by Revenue and Customs staff on their visits to the restaurant were accurate; and whether the restaurant could ever have turned over the amount of business that would have been required to produce the level of profit estimated by the Inspector. Counsel submitted that it had been incumbent on the Commissioners to make findings in fact, including primary findings and inferences of fact, on these disputed matters.

[10 ] Counsel further submitted that it had been necessary for the Commissioners to address a question of onus of proof. The assessments for the first two years had been out of time, and thus could only be upheld upon proof by H M Commissioners of Revenue and Customs of fraudulent or negligent conduct by the taxpayer. That issue had been placed before the Commissioners at the hearing. The Inspector was well aware of it, as appeared from her list of authorities in no. 6/19 of process and the first paragraph of the letter no. 6/21 of process.

[11 ] At the hearing before me counsel cited Amis v Colls (1960) 39 TC 148. In that case Cross J referred to the proviso to Section 47 of the Income Tax Act 1952, which was concerned with fraud or wilful default rather than fraudulent or negligent conduct, and was in these terms:

"Provided that where any form of fraud or wilful default has been committed by or on behalf of any person in connection with or in relation to income tax assessments, additional assessments and surcharges on that person to income tax for that year may, for the purpose of making good to the Crown any loss of tax attributable to the fraud or wilful default, be amended or made as aforesaid at any time."

His Lordship observed (at page 161):

"It is clear that the onus of establishing that a case falls within that proviso lies on the Crown, and the Inspector representing the Crown on the appeal could have taken one of two courses. He could, if he had liked, have opened his whole case on all the years, calling all his evidence as though the onus was on him to support all the additional assessments. Alternatively, he could first call such evidence as he thought fit to establish the fraud or wilful default which he was alleging in connection with the first five years, and could then ask the Commissioners to decide whether he had made out his case on that point. If they decided that point against him, then those years could be struck out altogether and the matter would proceed on the other years. He chose the latter of the two possible courses and he relied only on his own evidence supported by certain documents to which he referred."

[12 ] In the present case, said counsel, the Inspector had taken the former of these two courses, had presented evidence and had been cross-examined by the petitioner's accountant. The Inspector then called seven officers who had eaten test meals at the restaurant. Thereafter the petitioner's accountant gave evidence and was cross-examined by the Inspector. The petitioner did not give evidence.

[13 ] Counsel observed that it appeared from the reference to "burden of proof" in the Clerk's letter of 31 March 2006 (no. 6/15 of process) that the Commissioners had misunderstood that issue.

Whether the questions stated on the petitioner's behalf are questions of law

[14 ] Against that background I consider whether the questions identified by the petitioner's accountants in their letter to the Clerk (no. 6/14 of process) are questions of law. It will be convenient to repeat them:

"(ii) Whether on the facts found by the General Commissioners as set out in their decision there was evidence on which they could properly arrive at their decision, and

(iii) Whether on the facts so found their determination of the appeals was correct in law."

Accordingly the petitioner sought to raise two issues: whether there was evidence on which the Commissioners were entitled to make the findings they made; and whether on the basis of these findings they were entitled to reach the determination they made. It is clear from the speeches of Viscount Simonds and Lord Radcliffe in Edwards v Bairstow [1956] AC 14 at pages 29 and 34-36 that these are questions of law. Similar questions were stated in Khawaja v Etty [2003] EWHC 2883 (Ch), [2004] STC 669, the facts of which to some extent resemble those of the present case: see paragraph 11 of the case stated and paragraph 6 of the judgment of Lawrence Collins J. Indeed similar questions are also stated as questions of law in note 3 to the Outline for a Case Stated in appendix 1 to the Guidance Notes for General Commissioners of Income Tax (Scottish Version) (June 2003) (no. 6/22 of process). The questions stated by the petitioner's accountants are familiar and conventional in form. It is beyond doubt that they are questions of law.

Whether the Commissioners' refusal to state a case was reasonable

[15] The final question is whether the Commissioners' refusal to state a case reaches the legal standard of unreasonableness which is the criterion for judicial review. In my opinion that question admits of only one answer.

Result

[16 ] I shall therefore sustain the pleas-in-law for the petitioner. However, instead of pronouncing an order under Section 45(b) of the Court of Session Act 1988 ordaining the Commissioners to state a case, I shall order the Clerk to the Commissioners to send a draft of the case required by the petitioner to be stated, to the petitioner and to H M Commissioners of Revenue and Customs within 56 days after the date of the interlocutor. A time limit of 56 days for the issuing of the draft case is prescribed by Regulation 21(1) of the Regulations. It will be understood that thereafter the statutory procedure is to be followed.

[17 ] Rules as to orders for the payment of expenses in legal proceedings in which General Commissioners are concerned are prescribed by Section 2A of the Taxes Management Act 1970, as amended. Counsel invited me to reserve the question of expenses, and I shall do so.