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EXTRA DIVISION, INNER HOUSE, COURT OF SESSION
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Lord Osborne
Lord Wheatley
Lord
Brodie
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[2009] 6
XA96/07
OPINION OF THE COURT
delivered by LORD OSBORNE
in Appeal by Stated Case
by
The Commissioners for the General Purposes of Income Tax for the
Division of Dundee for the Opinion of the Court of Session as the Court of
Exchequer in Scotland under Regulations 20 to 22 of the General
Commissioners (Jurisdiction and Procedure) Regulations 1994
for
MOHAMED ABDOUR ROUF
Appellant;
against
THE COMMISSIONERS FOR HER
MAJESTY'S REVENUE AND CUSTOMS
Respondents:
______
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Act: Tyre, Q.C.; BTO, Edinburgh
Alt: Thomson,
Advocate; Acting Solicitor (Scotland), HM Revenue & Customs
10 February 2009
The
background circumstances
[1] This
is an appeal by way of Stated Case under Regulations 20 to 22 of the
General Commissioners (Jurisdiction and Procedure) Regulations 1994
against a decision of the Commissioners for the General Purposes of Income Tax
for the Division of Dundee ("the Commissioners"), intimated to the appellant on
20 December 2005. The appellant,
having expressed dissatisfaction with their decision, the Commissioners
initially refused to state and sign a case.
In consequence, the appellant applied to this Court for a judicial
review of that refusal. By an
interlocutor of the Lord Ordinary, dated 14
December 2006, the Clerk to the Commissioners was ordained to issue a
draft Stated Case, which, in due course, was adjusted in response to certain
revisals proposed by the appellant and by the respondents, and was signed by
the Commissioners on 24 and 29 May and 1 June
2007.
[2] At a
meeting of the Commissioners held in Dundee on 12 and 13 December 2005,
the appellant, who carried on business as a restaurateur at the New Balaka
Restaurant, St Andrews, appealed against assessments on additional profits
of £94,000 and £96,000 for the tax years 1995/1996 and 1996/1997
respectively. These assessments had been
made pursuant to section 36 of the Taxes Management Act 1970, for the
purposes of making good to the Crown a loss of income tax attributable to the
negligent conduct of the appellant. The
appellant also appealed against amendments in terms of section 28A(1) and
(2) of the Taxes Management Act 1970 by an officer of the Board of Inland
Revenue to the appellant's self-assessment returns for the six years 1997/1998
to 2002/2003 inclusive. The amounts of
additional tax assessed were as follows:
|
Year
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Additional tax
charged
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Tax self-assessed
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Amended tax
assessed
|
|
1997/1998
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£40,000
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£32,110.10
|
£72,110.10
|
|
1998/1999
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£41,200
|
£11,073.60
|
£52,273.60
|
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1999/2000
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£40,687.72
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£3,894.88
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£44,582.60
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2000/2001
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£42,453.65
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£5,648.80
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£48,102.45
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2001/2002
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£44,201.88
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£6,190.87
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£50,392.75
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2002/2003
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£46,000
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£9,816.35
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£55,816.35
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[3] The
questions for the determination of the Commissioners appeared to them to be (i)
whether there had been fraudulent or negligent conduct on the part of the
appellant in regard to the assessments for the years 1995/1996 and 1996/1997,
and (ii) the amounts of the appellant's profits arising from the New
Balaka restaurant during the eight years of assessment. The appellant attended the hearing before the
Commissioners, but did not himself give evidence. He was represented by his accountant,
Mr Douglas Martin, who also gave evidence on behalf of the appellant.
[4] From
the evidence adduced, the Commissioners found the following facts admitted or
proved:
7.1. The appellant carried on business of a
restaurateur under the name of Balaka Bangladeshi Restaurant at 3 Alexandra Place, St Andrews, during the years of
assessment.
7.2. The restaurant had received a number of
awards between 1985 and 1999 and had been voted the "Best in the UK" in 1999 in the Good
Curry Restaurant Guide. It boasted a
number of major celebrities amongst its customers. The appellant did not seek to compete on
price with his competitors but instead concentrated on the quality of the food.
7.3. The appellant also provided a carry-out
service from the premises.
7.4. The appellant submitted all of his records
for the year ended 31 October 1997 to the respondents. The respondents carried out a detailed
analysis of the daily records for the three months from 1 January 1997 to 31 March
1997 and found discrepancies of £552.70, £174.18 and £273.18 respectively
between the total entries in the cash book and the total figures shown on the
actual meal slips which were provided.
The meal slips which were provided were not numbered consecutively. No till rolls were ever produced to the
respondents.
7.5. The respondents conducted an examination
of the appellant's debit and credit card transactions for the same three month
period. They noted what appeared to be a
discrepancy between the number of such transactions recorded in the appellant's
meal slips and the number recorded in the appellant's bank statements. The discrepancy which was calculated for
these three months was approximately £20,000 and it was concluded that this figure
represented undeclared income. This
apparent discrepancy was found to be only around £500 on further investigation.
7.6. Information received by the respondents
from the appellant's previous advisers, Messrs Walker Dunnet, suggested that in
the year ending October 1997 approximately £20,000 of business expenses
had been met out of the appellant's personal resources.
7.7. The respondents had carried out a
surveillance of the premises on three separate occasions. A survey which had been carried out on 30 September 1999 for VAT purposes had disclosed that
94 customers had purchased meals but only 77 meals had been recorded and 17
meals went unrecorded. Surveillance
visits were also carried out for income tax purposes on 23 November 1999 and 14 January
2000, and again it was observed during the course of both visits that meals
were not being recorded on the till. All
meals purchased by officers were paid for in cash.
7.8. The respondents calculated from the
information gleaned from the visits on 23 November
1999 and 14 January 2000 that 26.06% of receipts
from meals purchased were not being recorded.
This figure was based upon the proportion of receipts from meals
purchased by the respondents' staff members on those dates which was not
recorded. They further calculated that
8.09% of customers were not being recorded.
The respondents chose to base their calculation on the figure for the
proportion of receipts from the unrecorded meals of their staff and considered
that, on this basis, the turnover returned by the appellant of £417,450 for the
accounting period ended 31 October 1997 was under-recorded by
£108,537.
7.9. The respondents had carried out a separate
exercise by calculating the average number of customers for these visits by
reference to the average cost of meals purchased by their officers. The figures showed that the average number of
customers indicated by the profits returned was 52 whereas the respondents had
observed an average of 76 customers over the three days.
7.10. The appellant had regularly visited Bangladesh during the period of
assessment. He had operated two bank
accounts with banks in that country during the years of assessment but had
failed to provide details of the accounts to the respondents.
7.11. The appellant's records covering the period
of assessment under appeal were incomplete and unreliable. In particular, no till rolls were kept and a
purchase day book was not maintained, meals were unrecorded and the sales were
under-declared in the appellant's accounts.
7.12. The appellant had been the subject of a VAT
inquiry for the period from 31 October 1985 until 31 July 1991 and had appealed against VAT
assessments covering this period. In its
decision dated 21 June 1995, the VAT Tribunal had
determined that the appellant had under-declared VAT of £61,400 for the period.
7.13. The report by HM Customs and Excise Officers
at Schedule 9 of the papers submitted by the respondents was accepted by
the appellant as correct.
[5] The
decision made by the Commissioners was in the following terms:
"11.1 We accepted the contention of the
respondents that the accounting records of the appellant were not complete and
reliable during the periods in question, and that the failure to maintain
complete and reliable records amounted to negligence. We also accepted the contention of the
respondents that there had been a continuity over many years of the failure to
maintain complete and reliable records.
And so we determined the respondents had proved negligence by the
appellant throughout the accounting periods for the two tax years in question,
namely 1995/1996 and 1996/1997.
11.2. We determined that the appellant had not
discharged the onus of proof in proving the assessments made by the respondents
to be excessive. At no point during the
proceedings were any actual alternative income figures (which took account of
the appellant's contentions) proposed to us for us to consider.
11.3. Accordingly, we dismissed the appeals and
determined the assessments in the amounts assessed. For the avoidance of doubt we determined the
additional tax assessed as £44,201.88 and £46,000 respectively for the years
2001/2002 and 2002/2003, the amounts for these two tax years having been
erroneously stated as £50,392.75 and £55,816.35 respectively in the Notice
issued in respect of the hearing.
11.4. The decision was intimated to the appellant
on 20 December 2005".
The
questions of law for the Opinion of the Court posed by the Commissioners are in
the following terms:
"(1) Whether on the facts found by us, there
was evidence on which we could properly arrive at our decision, and
(2) Whether on the facts so found our determination of the
appeals was correct in law".
The
submissions of the appellant
[6] Having
drawn our attention to the circumstances just narrated and the questions posed
for the Opinion of this Court, senior counsel for the appellant submitted that
both of those questions should be answered in the negative, because the
Commissioners had erred in law in the following respects: (1) they had misconstrued their
statutory duty by deciding the appeal against the appellant because he had not
produced alternative income figures for the Commissioners to consider in the
event that they determined that there had been undeclared income; and (2) their determination was inconsistent
with and contradictory of the evidence before them and consequently was one
which no reasonable Commissioners, properly instructed as to the relevant law,
could have made.
[7] Senior
counsel explained that the first two assessments involved in the case had been,
as it were, out of time; accordingly the
respondents had had to prove negligence or fraudulent conduct on the part of
the appellant before they could be reopened.
Negligent conduct had been shown, it was agreed; accordingly the Court did not require to be
concerned about that. In these
circumstances the onus had moved to the appellant to show that the assessments
made had been excessive. Looking at the
table of figures for the assessments set out in the Stated Case, that for the
year 1997/1998 had been based on a calculation for that year. The assessments for the later years had been
arrived at by means of adjustments to that calculation. Senior counsel went on to consider in detail
the findings in fact made by the Commissioners.
It had to be accepted that the absence of till rolls referred to in
finding 4 raised a suspicion of suppression of income. However, the content of finding 5 was
not so significant as it might, at first sight, appear. The figure of £20,000 mentioned there was now
agreed to have been flawed.
[8] Turning
to the issue of surveillance, referred to in findings 7 and 8, the
percentages which emerged were not comparable.
The use of the 26.06% figure was therefore demonstrably wrong. In finding 9 reference was made to a
separate exercise undertaken by the respondents involving a calculation of the
average numbers of customers on the occasion of the three visits of their
officers by reference to the average cost of the meals purchased by those
officers. However, the outcome of this
calculation set forth in Tab 12 of the documents produced with the Stated
Case was flawed because it took no account of carry-out customers or VAT. Finding 12 was irrelevant, since it
related to a period between 31 October 1985 and 31 July 1991, earlier than the period under
consideration in this case.
[9] Turning
to the Commissioners' decision, no issue was taken with the finding of
negligence. Paragraph 11.2 of the Stated
Case was the only paragraph in which there was any finding made regarding the assessments. There the Commissioners had fallen into
error. It was not necessary for the
appellant to prove alternative income figures;
it was sufficient for the appellant to succeed to show that the
respondents' figures were demonstrably unreliable. The primary position of the appellant was
that there had been no under-declaration of income. Most of his contentions had been designed to
show that the respondents' contentions were unsound, rather than addressing the
question of whether, if there had been an under-declaration, what the amount of
such under-declaration was. It was not
therefore a matter for criticism that alternative figures for undeclared income
were not proffered. The Commissioners'
duty, when hearing an appeal, was set forth in section 50(6) of the Taxes
Management Act 1970, which provided that, if it appeared to them that the
appellant had been overcharged by a self-assessment, the assessment had to be
reduced accordingly. It followed that
if, on the basis of evidence before them, the Commissioners were so satisfied,
it was their duty to reduce the assessment, regardless of whether alternative
figures had been suggested by the appellant.
In that connection the appellant placed reliance on Bookey v Edwards [1981] 55 T.C.486 at page 491. The
Commissioners required to make their own judgement, however difficult that
might be. Senior counsel also relied on Khawaja v Etty [2004] S.T.C.669, at page 681, paragraph 26. If this submission were correct, the result
should be that the case should be remitted to the Commissioners to make
findings of their own concerning income figures. Paragraphs 11.1 to 11.3 of the Stated Case
was the only reasoning available from the Commissioners. They had failed to discharge their duty under
section 50(6) of the 1970 Act. They
had failed to exercise their own judgement when there was material available to
them to enable that to be done.
[10] Senior
counsel next advanced his second main submission to the effect that, even if
the Commissioners had not made the error of law contended for in the first
submission, the facts found by them were such that no person acting judicially
and properly instructed as to the relevant law could have come to the
determination under appeal. Putting the
matter in another way, the evidence accepted by them was inconsistent with and
contradictory of the determination. In
these circumstances their decision should be quashed. In this connection senior counsel relied on Edwards v Bairstow [1956] A.C.14, particularly what was said by
Lord Radcliffe at pages 35 and 36.
Senior counsel adopted the third test there set forth. The true and only reasonable conclusion on
the evidence before the Commissioners contradicted their determination. The respondents might say that even if the information
derived from credit and debit card transactions were discarded, there was still
in being the information from the surveillance operation conducted by
them. However, if one looked at the
letter dated 23 August 2002, document Tab 5X,
page 290 of the Appendix, it was evident that the figures in the assessments
under challenge were in fact based upon the credit and debit card transaction
figures. Thus those assessments were
based upon unreliable information. In
this connection, senior counsel relied upon the contents of the minutes of a
meeting on 19 November 2002, at which the basis of
the respondents' assessment had been discussed.
Reference was also made to the letter from the respondents, dated 5 May 2004, document Tab 5AG page
314. It followed from the foregoing
material that, by the time of the hearing before the Commissioners, the
foundation upon which the assessments for all of the years in question had been
calculated had been removed and that the Commissioners had been well aware of this. Indeed, the state of affairs was acknowledged
in paragraph 9.1 of the Stated Case.
[11] What
had occurred was that the Commissioners had affirmed the assessments appealed
against, reached upon a false basis, upon the footing that there had been other
material which supported them. In that
connection reference was made to the document Tab 7O, page 343. On the basis of that state of affairs, senior
counsel submitted that no reasonable Commissioners could have failed to find
the calculation in question fatally flawed.
It made use of the figure of 26% produced by using only the proportion
of missing meal slips for meals purchased by the respondents' staff. The same document, however, recorded total
meals and missing meal slips which, using the same methodology, produced a
suppression rate of only 8%. The only
reasonable conclusion was that a much lower assessment had been justified. Senior counsel then referred to paragraph 3
of the respondents' note of argument. It
appeared to refer to the calculation made on behalf of the respondents in
document 7.9, Table 12. That
calculation was itself flawed, since it took no account of Value Added
Tax. A revisal of that calculation had
been produced taking Value Added Tax into account, but it still did not justify
the 26% suppression figure accepted by the Commissioners.
[12] In all
of these circumstances, senior counsel submitted that the appellant had
successfully discharged the onus of proving that the assessments under
consideration were excessive. The only proper
course open to the Commissioners was to reduce the assessments concerned. If, contrary to the appellant's contention
that there was no undeclared income, the Commissioners had concluded that there
was, but of a lesser amount than that reflected in the assessments, it had been
their duty to exercise their judgement on the basis of the material before them
in order to determine the reduced amounts.
The Commissioners had not been entitled simply to confirm the
assessments.
[13] Responding
to the respondents' written arguments, it was not true to say that there had
been no evidence before the Commissioners which compelled a conclusion that the
assessments represented an overcharge.
In this connection reliance was placed on Nicholson v Morris [1977] 51 T.C.95, particularly at page 119.
However, that part of that case did not support the position adopted by
the Commissioners here, because it was predicated upon a total absence of
evidence. In the present case there had
been evidence available to the Commissioners.
Senior counsel also drew our attention to R.A. Bird & Company v Commissioners
of Inland Revenue 1925 12 T.C.785.
At pages 794 to 795, it was evident that a motion for a remit to
the Commissioners had been made and refused.
The reason for that was that there had been no evidence put before the
Commissioners to justify their making a further finding in fact. That was not the position here; there had been evidence before them that
would have justified the making of further findings.
[14] As
regards the disposal of the appeal, senior counsel drew our attention to the
terms of section 56(6) of the Taxes Management Act 1970. His motion was that the powers of the Court
were broad; there should be a remit to a
differently constituted set of Commissioners to deal with the matter, since the
existing Commissioners had initially refused to state a case at all.
Submissions
of the respondents
[15] Counsel
for the respondents commenced by submitting that the Commissioners had been
entitled to conclude that the appellant had failed to show that the assessments
appealed against were excessive. There
was no dispute that the onus of proving that the assessments were excessive had
rested on the appellant. In the
circumstances, the Commissioners had been entitled to make the findings in fact
that they had made. There was no
question of the respondents seeking to justify the assessed figures on the
basis of discrepancies in the recording of credit card transactions. It was accepted by the respondents that
figures derived from that source had originally been the subject of a
misunderstanding, but now those figures simply fell away. The Commissioners had not misunderstood the
position relating to them. The
respondents' investigations into the appellant's operation originally appeared
to reveal perceived credit card under-declaration; business expenses met from personal
funds; discrepancies between cash books
and meal slips; under-declaration based
on surveillance; money being taken to Bangladesh; and non-disclosure of Bangladeshi
interests. While the respondents came to
accept that the suspected credit card discrepancies could be explained, save
for £500, they remained of the view that the other considerations continued to
apply. Calculations were thereafter made
to ascertain whether the assessment figures were too high or not. That had been done in two ways. Firstly, calculations had been made by
computation of suppression. The
calculation had been based on the observed under-declaration of meals served to
the respondents' staff. This gave a mean
under-declaration of revenue from meals of 26.06%. At the same time the mean percentage of
missing customers on the two days of observation was calculated and found to be
8.09%. An under-declaration of 26% would
have implied a required addition to the declared turnover of £417,450 for the
year in question of £108,537. That was
£8,537 in excess of the £100,000 at the heart of the assessment. Secondly, a calculation was done, the nature
of which was revealed in Tab 12, whereby an average cost per meal was
derived from the respondents' test purchases and applied to turnover declared
plus the assessed additional turnover of £100,000. The purpose of the calculation was to
ascertain whether such figures suggested customer numbers in excess of those
actually observed. The results disclosed
customer numbers still substantially below those observed. This implied that the £100,000 figure upon
which the assessments were based was modest and, indeed, generous to the
appellant. As a result of this
approach, the respondents considered that the assessed figures were still
appropriate. Thus the assessments were
not defended before the Commissioners upon the basis of credit card
discrepancies, a fact recognised in their narration of their findings in fact,
particularly in paragraphs 7.5 and 7.8.
[16] The
appellant's argument that no reasonable Commissioners could have failed to find
that suppression of 8% rather than 26% was justified, or at least that 26% was
not justified because of the 8% calculation, was fundamentally flawed. The position was that the 26.06% figure had
been calculated on a rational basis, namely the suppression of receipts from
meals on the available sample, which was the respondents' staff purchases. Such a calculation could not have been done
on all customers on the days in question, because the surveillance staff did
not know what the customers who were not Inland Revenue personnel had spent. Accordingly it was appropriate to calculate
under-declaration under reference to the figure of 26.06%. Plainly the method of calculation was
rational and among the reasonable methods that could properly be employed.
[17] The
appellant's argument that the choice of the 26% figure was flawed was based
upon misconceptions as to the nature of the calculation involved. The two calculations undertaken by the
respondents were not separate calculations made for the same purpose. The purpose of the calculations was to
compare suppression of revenue from meals with the number of missing
customers. The appellant's criticism of
the respondents' approach in this regard was unsound. The comparison of the two figures derived
from the calculations demonstrated that there was not a random loss of
customers and meals; on the contrary, it
showed that the suppression practised was of the larger bills. In any event, even if the respondents had
chosen the 26% figure rather than the 8% figure in the manner suggested, that
choice would nevertheless have been quite rational and one which the
Commissioners were entitled to accept.
Further and in any event, the appellant's argument ignored the finding
in fact 7.7 made by the Commissioners to the effect that on another
particular occasion transactions were unrecorded on 17 meals from 94 dining
customers, a missing customer rate of 18%, higher than on the two other
occasions of surveillance. Further, no
evidence had been put before the Commissioners indicating that there was any
material arithmetical error in the calculation of the 26% figure. Accordingly, in the whole circumstances the
appellant's submission that the Commissioners' acceptance of the assessments
was irrational failed.
[18] Counsel
went on to submit that there had been no evidence before the Commissioners which
compelled them to reach a conclusion that the assessments appealed against
represented an overcharge. Neither the evidence of the appellant's accountant,
nor the arguments advanced on his behalf by that accountant, compelled the
Commissioners to reach a conclusion that there had been an overcharge, in the
absence of definite figures suggesting that that had been the case. Bookey
v Edwards [1982] 55 T.C.486 and Khawaja v Etty [2004] S.T.C.669 ought to be distinguished. Similarly, Edwards v Bairstow & Harrison
[1956] A.C.14 was also distinguishable.
It would have been impossible in the circumstances of the present case
for the Commissioners to make a reduction in the assessments involved. No evidence had been led from the appellant
regarding his arrangements, or to the effect that the assessments were
excessive. The present case was one that
had cried out for detailed explanations from the appellant as to his lack of
record keeping, the manner of his operation of his business and his actual
trading levels. Although present
throughout the hearing and aware of the issues at stake, the appellant had
chosen to refrain from giving evidence.
[19] Some
assistance was to be gained from Haythornthwaite
& Sons Ltd v Kelly (1927) 11 T.C.657. In this case at pages 667 and 672, the point
was made that an assessment should stand unless the appellant by his own
evidence or by other lawful evidence demonstrated that there had been an
overcharge. That had not happened in the
present case. Counsel also relied on Johnson v Scott (1978) 52 T.C.383, at page 393.
[20] Counsel
proceeded next to submit that the appellant's contention that the Commissioners
had simply refused the appeal because the appellant had not put forward figures
of his own was not a fair or complete summary of the Commissioners'
decision. The fact was that the
Commissioners had held themselves satisfied on a variety of matters that were
not attacked by the appellant, but which were of significance in the context. First, there was a general finding that meals
had been unrecorded and sales under-declared (finding in fact 7.11). Second, non-recording of transactions had
been witnessed by the respondents' staff (finding in fact 7.7). Further, it had been found that non-recording
of transactions had been witnessed by Customs and Excise staff (finding in
fact 7.7). It had been proved that
there were discrepancies between cash book entries and meal slips (finding in
fact 7.4). The Commissioners had
found that the appellant's records covering a period of assessment under appeal
were incomplete and unreliable (finding in fact 7.11). To the observation of the respondents' staff,
meals were not recorded on the till (finding in fact 7.7). Further, it had been proved that there had
been a failure to keep till-rolls and make them available (finding in
fact 7.4). There had also been
established a failure to maintain a purchase day book (finding in
fact 7.11). Against a background of
regular visits on the part of the appellant to Bangladesh, he had failed to furnish
statements concerning bank accounts in that state (finding in
fact 7.10). Finally, in October
1997 approximately £20,000 of business expenses had been met out of the
appellant's personal resources (finding in fact 7.6).
[21] It was
obvious from the Case that the Commissioners had fully understood and recorded
the contentions made to them on the appellant's behalf. The weakness in the appellant's position had
been that many of these contentions were bound to fail in the absence of
figures which only the appellant could furnish showing the effect of the
factors referred to. In all of these
circumstances it was quite appropriate for the Commissioners to observe, as
they had done, that no alternative figures had been proposed by the
appellant. On the basis of the
Commissioners' findings, it could not be said that they had reached their
determination solely because no alternative figures to those provided by the
respondents had been the subject of evidence.
Paragraphs 11.2 and 11.3 of the Stated Case did not suggest
otherwise. The result of the hearing
before the Commissioners was an inevitable consequence of the strategy adopted
by the appellant, which was to make his appeal upon the basis that there had
been no under-declaration of income and by challenging the credibility of the
respondents' contention to the contrary.
However, for good reasons, that approach had failed.
[22] Even if
there had been a material flaw in the respondents' calculations, or method of
estimating turnover and profit, there was nonetheless no evidence allowing the
Commissioners to conclude that the assessments were excessive. The assessments were based upon estimates, as
they had to be, which was different from a calculation. The only way in which the Commissioners could
have concluded that the assessments made actually were excessive in such
circumstances, would have been if the appellant had led evidence to that
effect. In other words, in order to
discharge the onus upon him, it was incumbent upon him to give evidence as to
the true extent of his under-declaration of income. In any event, it was submitted that there was
no error in the formulation of the estimates involved. In that connection reliance was placed upon Hamilton v The Commissioners of Inland Revenue (1930) 16 T.C.28. The position was that, while an appellant
might criticise an assessment made by the respondents, he nevertheless had to
undermine the assessment itself; the
onus was on him to do so. It was
possible to do that, in practice, only by the appellant saying what the
assessment should have been. The law was
that the taxpayer had to "come clean".
In this connection reference was made to Nicholson v Morris and Haythornthwaite & Sons Ltd v Kelly.
An exception to that submission would be where an assessment had been
made upon a specific calculation, which might require to be corrected, if it
were shown to be erroneous. That was not
the nature of the basis of the assessments made here.
[23] Upon
the assumption that the Commissioners had erred in law, which was, of course,
rejected, the Court should nevertheless refuse to remit the case back. This submission depended upon the nature of
any error established, but it would operate if the Court were to hold that the
Commissioners had misdirected themselves as to their statutory duty, the
appellant's first contention. It might
also apply in relation to the appellant's second contention. As there was no evidence and there were no
findings in fact that could allow it to be concluded that the appellant had
discharged the onus of establishing that the assessments were excessive, or a
conclusion as to what the appropriate assessment figures were, there would be
no purpose in a remit back.
[24] In any
event, if the Court were to decide that a remit back was appropriate, any remit
should be made to the same Commissioners, with the Opinion of the Court. Any alleged error could be corrected by the
same Commissioners, properly directed, applying their mind to the evidence
previously available. There could be no
question of further evidence being led.
The appellant had had his opportunity to lead such evidence as he
considered it was in his interests to lead.
In this connection reliance was placed on Spedding v Sabine [1954] 35 T.C.239 at pages 243-244.
There was no error alleged which called into question the Commissioners bona fides, or their ability to
determine the case properly. Any error
of law which it was contended there might have been had not been in the
fact-finding exercise. It could be
corrected by the same Commissioners, properly directed, applying their minds to
the evidence previously before them.
However, were there to be a remit to a differently constituted set of
Commissioners, there would necessarily require to be a fresh hearing of evidence,
giving the appellant an opportunity to change the strategy which he had formerly
adopted and to prolong the proceedings without justification. If there were to be any remit back to the
same Commissioners, the Court should direct that no further evidence should be
led. The fact that, at an earlier stage,
there had been a refusal by the Commissioners to state a case was not a reason
why any remit should not be made to them.
Such a posture did not demonstrate any bias on their part; it merely demonstrated that they had not
perceived there to be a question of law on which a case could properly be
stated. The fact they had taken such a
view did not disable them from further involvement. A further reason why there should be no remit
to different Commissioners was that general Commissioners were local in
nature. A remit to other Commissioners
would necessarily involve Commissioners who acted outside the Dundee area. Anderson v The Commissioners of Inland Revenue (1933) 18 T.C.320, at
page 327, founded upon by the appellant, was distinguishable on its
facts; in any event, the remit there made
had been to the same Commissioners. The
position adopted by the respondents was justified for the reasons given by
Lord President Clyde in Bird
& Company v Commissioners of
Inland Revenue 1925 S.C.186 at page 191.
Further support for the respondents' position could be got from Murphy v Australian Machinery & Investment Company Limited (1948) 30 T.C.244 at pages 260 and 263.
Parties ought not to be enabled to go back to the Commissioners and to
call fresh evidence on issues which were raised in the original proceedings and
as to which they had had a full opportunity of calling such evidence as they
might be advised to call. In the whole
circumstances, the Court should answer the two questions posed in the
affirmative and refuse the appeal.
Reply on
behalf of the appellant
[25] Senior
counsel dealt first of all with matters arising from his first submission. The respondents' response to that submission
was to be found at section 7 of the Summary of Submissions. It was there said that it was not a fair or
complete summary of the Commissioners' decision to say that they had simply
refused the appeal because the appellant had not put forward figures of his
own. It was submitted that that response
was not a real answer to the submissions made on behalf of the appellant. The real point was that the Commissioners had
misapprehended the decision; they
thought that if the appellant did not put forward figures of his own, that was
the end of the matter. They had erred in
their comprehension of their duty in relation to the effect of
section 50(6) of the 1970 Act.
[26] Turning
to his second main submission concerning the irrationality of the
Commissioners' decision, the document Tab 7O was important. The disparity between the figures contained
in this document of 26.06% and 8.09% was striking. The 26.06% was plainly excessive. No proper findings in fact had been made
concerning these figures. The use of the
higher figure was quite unreasonable.
[27] Turning
to the issue of disposal, senior counsel submitted that these Commissioners
should not be asked again to adjudicate upon the case. They had erred in law and had refused to
state a case when requested to do so. If
the case were to be remitted back to them, the appellant would not get "a fair
crack of the whip". If, however, the
case were to be remitted to the same Commissioners, they should be permitted to
hear fresh evidence, if they considered that that was appropriate. No direction prohibiting that should be
made.
The decision
[28] We
propose to deal with the appellant's major submissions in the order in which
they were made. The first of these was to
the effect that the Commissioners had erred in law in misconstruing the nature
of their duty. The statutory context of
the Commissioners' decision was, of course, section 50(6) of the 1970 Act,
which provides:
"If, on an appeal, it
appears to the majority of the Commissioners present at the hearing, by examination
of the appellant on oath or affirmation, or by other .....evidence -
(a) that .....the appellant
is overcharged by a self assessment;.....; or
(c) that the appellant is
overcharged by an assessment other than a self assessment, the assessment
.....shall be reduced accordingly, but otherwise the assessment ....shall stand
good".
[29] In
understanding the effect of those provisions, in our opinion, it is helpful to
recall the observations made by Lord Hanworth, M.R., in Haythornthwaite & Sons Ltd v Kelly at page 667. There he said:
"Now it is to be
remembered that under the law as it stands the duty of the Commissioners who
hear the appeal is this: Parties are entitled to produce any lawful evidence,
and if on appeal it appears to the majority of the Commissioners by examination
of the appellant on oath or affirmation, or by other lawful evidence, that the
appellant is over-charged by any assessment, the Commissioners shall abate or
reduce the assessment accordingly; but
otherwise every such assessment or surcharge shall stand good. Hence it is quite plain that the
Commissioners are to hold the assessment standing good unless the subject - the
appellant - establishes before the Commissioners, by evidence satisfactory to
them, that the assessment ought to be reduced or set aside".
Thus the general onus to show an overcharge lay upon
the appellant. If the appellant had
succeeded in showing that he had been over-charged, then, it would have been the
responsibility of the Commissioners to make their own judgment, upon the
evidence before them, as to the proper level of the assessment, to which the
assessments would have required to have been reduced accordingly. As was recognised by Walton J. in Bookey v Edwards at page 491, that might have required Commissioners to make
the best estimate that they could in the face of an unsatisfactory evidential
position. However, before the
Commissioners in this case came under an obligation to make the best judgement
that they could of the appellant's liability, on the basis of the evidence,
plainly they had to be satisfied that the appellant had been overcharged in the
assessments made.
[30] The
Commissioners' explanation of the course which they followed in this case is
set out, although briefly, in paragraph 11 of the Case, already quoted. In paragraph 11.1 they state:
"We accepted the
contention of the respondents that the accounting records of the appellant were
not complete and reliable during the periods in question, and that the failure
to maintain complete and reliable records amounted to negligence. We also accepted the contention of the
respondents that there had been a continuity over many years of the failure to
maintain complete and reliable records".
In the light of those conclusions, the Commissioners
held that, negligence having been proved, the assessments for the earlier
accounting periods were open for examination.
In paragraph 11.2 the Commissioners continue:
"We determined that the
appellant had not discharged the onus of proof in proving the assessments made
by the respondents to be excessive. At
no point during the proceedings were any actual alternative income figures
(which took account of the appellant's contentions) proposed for us to
consider".
It was upon the basis of this latter paragraph particularly
that the appellant advanced his first submission. However, we do not think that the
juxtaposition of the two sentences quoted in paragraph 11.2 demonstrate that
the Commissioners reached the position that they were not satisfied that the
appellant had discharged the onus resting on him simply because alternative
income figures had not been proposed to them by him. The fact was that, in their findings in fact,
the Commissioners held themselves satisfied as regards a variety of matters,
which were not challenged by the appellant. They made a general finding of
meals being unrecorded and sales being undeclared (Finding 7.11). They were satisfied that non-recording of
transactions had been witnessed by the respondents' staff (Finding 7.7). Further they were satisfied that the
non-recording of transactions had been witnessed by the staff of HM Customs
& Excise, as they then were (Finding 7.7).
They found that there had been discrepancies between the cash book and
meal slips (Finding 7.4). They found
that there had been incomplete and unreliable record keeping (Finding
7.11). They found that there had been a
failure to record transactions on the till (Finding 7.7). They found that there had been a failure to
keep till-rolls and make them available (Finding 7.4 and 7.11). They found that there had been a failure to
maintain the purchase day book (Finding 7.11). The Commissioners also found, against the
background of regular visits to Bangladesh, there had been a failure
to provide details of two bank accounts there and a failure to provide
statements concerning such accounts (Finding 7.10). Finally, in October 1987, the Commissioners
found that approximately £20,000 of business expenses had been met out of the
appellant's personal resources (Finding 7.6).
[31] Against
the background of that profoundly unsatisfactory state of affairs, the
respondents had made the assessments complained of. Yet the appellant and his advisers, at the
hearing before the Commissioners, did not think fit to place before them any
figures of their own to show that the assessments involved were excessive. In these circumstances, we consider that the
Commissioners were quite entitled to conclude that they were not satisfied that
the assessments made by the respondents were excessive. In reaching their conclusion they did not, in
our opinion, focus exclusively upon the fact that no alternative income figures
had been produced by the appellant. Plainly
they examined the whole background to which we have referred, as appears from
their findings in fact. But, in this
connection it is also appropriate to recall the observations of Sargant, L.J.
in Haythornthwaite & Sons Ltd v Kelly at page 672. There he stated:
"Silence, or the absence
of evidence of that kind, was in my judgment evidence - very cogent evidence
too, to show that the assessment made by the Inspector could not be displaced
on the part of the company".
The significance of silence on the part of the
taxpayer was also emphasised by Walton J. in Nicholson v Morris at
page 110. It is worth quoting what
he said:
"It is the duty of every
individual taxpayer to make his own return and, if challenged, to support the
return he has made, or, if that return cannot be supported, to come completely
clean, and if he gives no evidence whatsoever he cannot be surprised if he is
finally lumbered with more than he has in fact received. It is his own fault that he is so lumbered".
[32] In our
opinion, the observations of the Commissioners in the second sentence of
paragraph 11.2 of the case is no more than a quite justified observation
along the same lines based upon the fact that the appellant did not give
evidence, nor supply the Commissioners with alternative income figures. The tactic adopted on behalf of the appellant
before the Commissioners was simply to raise certain criticisms of the basis of
the assessments made, but that approach did not satisfy the Commissioners that
the assessments were excessive. In
short, nothing done by the Commissioners in this case suggests to us that they
misunderstood their statutory duty in any way.
Accordingly we reject the appellant's first main submission.
[33] We turn
next to the appellant's second submission, to the effect that, on the facts
found by them, no Commissioners acting judicially and properly instructed as to
the relevant law could have come to the determination under appeal, or putting
the matter in another way, the evidence accepted by the Commissioners was
inconsistent with and contradictory of their determination.
[34] In evaluating
the submission, it is necessary to recognise the history of the respondents'
investigations into the appellant's business affairs, as disclosed in the
Commissioners' findings in fact. As
appears from finding 7.4, the respondents carried out a detailed analysis
of the daily records of the appellant for the 3 months from 1 January 1997 to 31
March 1997, finding discrepancies between entries in the cash book and
meal slips. Furthermore, it was noted
that the meal slips which were provided were not consecutively numbered and
that no till rolls were ever produced to the respondents. In the light of those circumstances, the
respondents then proceeded in the manner described in finding 7.5, which
involved the conduct of an examination of the appellant's debit and credit card
transactions for the same 3 month period.
There was noted what appeared to be a discrepancy between the number of
such transactions recorded in the appellant's meal slips and the number recorded
in the appellant's bank statements. The
discrepancy for these 3 months was then calculated to be approximately £20,000,
which, it was concluded, represented undeclared income. However, as appears from the last sentence in
finding 7.5 further investigation into this aspect of the appellant's
affairs revealed that the apparent discrepancy was only around £500. The Commissioners having made findings to
that effect, it is quite plain that they were aware that the originally
calculated discrepancy for the 3 months in question did not exist. In that respect, that part of the findings
simply represents an element in the history of the respondents' concerns over
the appellant's affairs. However, matters moved on from there. In this connection it is appropriate to refer
to the letter from the respondents to the appellant's advisers dated 5 May 2004, document 5AG, where the
Inspector, having agreed to the appellant's figures for credit card
transactions, continued to maintain that discrepancies existed, which would
require to be further discussed. Calculations were thereafter undertaken upon
the basis of a computation of suppression.
Exactly what was done is recorded in the Commissioners'
finding 7.7. Thus particular
significance attaches to the surveillance visits carried out on 23 November 1999 and 14
January 2000. The respondents'
calculations based upon the information gleaned on the occasion of these
surveillance visits is described in finding 7.8. On the basis of the information concerning
missing meals on these two occasions the figure of 26.06% was developed. Such an under-declaration implied a required
addition to the £417,450 declared turnover of £108,537. It was upon this figure that the respondents
then chose to justify the assessment which they had made of £100,000. A further examination of customers observed
and recorded was carried out which revealed a disparity of 8.09% of customers
not being recorded. However, it is plain
that that percentage is not a figure which can properly be compared with the
percentage of 26.06% already referred to.
The Commissioners find in finding 7.9 that the respondents carried out a
completely separate exercise by calculating the average number of customers for
the occasions of the observations by reference to average cost of meals
purchased by their officers. The
mechanism of that calculation is set forth in document 12 in the Appendix.
However, in our opinion, its outcome does not necessarily undermine the
standing of the exercise in which the figure of 26.06% was developed.
[35] As we
see it, the appellant's second main submission must be assessed by asking the
question of whether the Commissioners could rationally have accepted the figure
of 26.06% which the respondents had developed, in the light of the other
figures. Having looked at the findings
made and in the light of the submissions made to us on behalf of the
respondents, we conclude that the Commissioners' approach was a rational one,
which they were entitled to take. The
figure in question was calculated upon the basis of receipts from meals served
to members of the respondents' staff, figures for which were available to
them. A similar calculation could not
have been done on all of the customers of the business on the days in question
because the respondents plainly could not ascertain what the missing customers
who were not Inland Revenue staff had actually spent.
[36] It may
be that, had the appellant taken a different approach before the Commissioners,
with the production of alternative figures to those founded upon by the respondents,
the outcome of the case might have been different. As Walton J. put it in Nicholson v Morris, at page 109,
referring to the Revenue figures:
"I do not think that
anybody pretends that those figures are anything other than estimates or
guesses. They are the best that the
Revenue can do on the materials in front of them and they may very well, for
ought I know, be a very poor approximation to the truth indeed. But the
situation here is that once leave has been given to make the additional
assessments and the additional assessments have been made, the onus is on the
taxpayer to show that they represent over-assessments".
As was observed at page 110 in the same case, if a
taxpayer does not "come completely clean, and if he gives no evidence
whatsoever he cannot be surprised if he is finally lumbered with more than he
has in fact received". In our view there
is nothing irrational about the Commissioners having followed such an approach,
as they have done. In all of these
circumstances we have come to the conclusion that the second main submission of
the appellant is without merit and must be rejected. It follows that the appeal must be
refused. In the light of the conclusion which
we have reached, it is unnecessary to enter upon a consideration of how the
appeal might have been disposed of if we had reached a different
conclusion. Accordingly we shall answer
both of the questions posed in the case in the affirmative.
