First-tier Tribunal (Tax)

[2010] UKFTT 619 (TC)

TC00861

Appeal number: TC/2010/04549

INCOME TAX –appeal out of time–enquiry opened 2006/7 tax return on 12 December 2008 – no response from appellant – closure notice dated 11 September 2009 assessing £65,980 to capital gains tax – appellant did not appear – respondents advised appellant made bankrupt September 2010 – Trustee in Bankruptcy not attending – permission to appeal dismissed

FIRST-TIER TRIBUNAL

TAX

                                           MOHAMMED ZAFAR                           Appellant

                                                                      - and -

                                 THE COMMISSIONERS FOR HER MAJESTY’S

                                                   REVENUE AND CUSTOMS               Respondents

                        TRIBUNAL: DAVID S PORTER (TRIBUNAL JUDGE)

                                                SUSAN STOTT       (MEMBER)                                                                                                    

Sitting in public at Albion Street Leeds on 12 October 2010

The Appellant did not appear

Alan Hall, an Inspector of Taxes, instructed by the General Counsel and Solicitor to HM Revenue and Customs, for the Respondents

© CROWN COPYRIGHT 2010

DECISION

1.       Mr Mohammed Zafar (Mr Zafar) wishes to appeal, out of time, the Respondents (HMRC) assessment of £65,980 capital gains tax, raised in a  closure notice of 11 September 2009, arising from the transfer of 5000 shares in Kozee Sleep (Midlands) Limited (Kozee) to Mohammed Zahoor  in the period 1 May 2006. In his notice of appeal dated 26 April 2010 Mr Zafar stated that neither he nor his agent had received any correspondence from HMRC; that he was entitled to “rollover relief” and he dispute HMRC’s valuation of the shares at £140 each. HMRC say that he must have received their correspondence as his property “Highfield” is distinctive and only one of five such properties in Wheelwright Drive, Dewsbury. Kozee had net assets of £1,400,000 and HMRC had therefore valued 50% of the holding at £700,000. Mr Zafar had had the opportunity to produce evidence of his reliefs but had chosen not to do so. The assessment was raised on 11 September 2009 and Mr Zafar has made no attempt to clarify the position with HMRC. No claims for relief have been received. Mr Zafar has only appealed after a 7 months lapse of time and he has given no evidence as to why he has taken no previous action. In the circumstances he does not have a reasonable excuse for his delay and the Tribunal should not grant permission to appeal.

2.       Alan Hall (Mr Hall), an Inspector of Taxes, instructed by the Acting Solicitor for HM Revenue and Customs, acted for HMRC. This appeal was called for hearing at 10.30am on 12 October 2010. Mr Zafar was not represented when the Tribunal started the appeal at 12.00 pm. Enquiries were made as to Mr Zafar’s lack of attendance and Mr Hall advised that Mr Zafar had been made bankrupt in September. His Trustee in Bankruptcy advised that he would not be attending either.  No other information was provided indicating what Mr Zafar’s intentions were. We decided to hear the appeal in the absence of Mr Zafar and his Trustee in Bankruptcy. Rule 33 of the Tribunals Procedure (First-tier Tribunal) (Tax Chamber) Rules 2009 allows this procedure.

The Facts

3.       According to the returns submitted to Companies House in 2004, Mr Zafar held 5000 ordinary shares in Kozee, the remaining 5000 shares of the 10,000 shares issued were held by Mohammed Zahoor. A summary of the “363s” annual return to Companies House shows the transfer of shares as under:-

 Date signed                Shares held by             Shares held by

or filed                                                Mr Zafar                      Mahammed Zahoor

10/5/04                                    5000                            5000

15/5/05                                    5000                            5000

3/5/06                                      5000                            5000

9/5/07                                      “no change”

6/6/08                                                                          10,000                                                             “5000 disposed of in period

                                                                                    6/5/2006”

8/7/09                                                                           10,000

Kozee is an unquoted company, its registered office is at Roundhay Chambers, 199 Roundhay Road, Leeds. LS8 5AN. The auditors for Kozee are Yorkshire Audit Bureau, also of Roundhay Chambers. This appeal has been lodged by Huque Chaudhry Associates Limited (HCA), also located at Roundhay Chambers. “Shareworks” had previously been instructed by Kozee and an appropriate notice to that effect was register with HMRC on 11 October 2007.The returns for the period 2006/7 were filed through the internet and included the following comment:

       “The return is estimated pending receipt of further information”.

4.       No capital gains tax pages were included with the return and no further amendments have been made since the submission of the return. As a result HMRC opened an enquiry into the 2006/7 returns on 12 December 2008 and enquired about the disposal of the 5000 shares in Kozee. A copy of the notice was sent to “Shareworks”. On 18 February 2009 “Shareworks” requested that HMRC contact Mr Zafar direct, as their instructions did not extend to the enquiry. HMRC amended their system so that “Shareworks” were no longer registered as the agents. HMRC corresponded with Mr Zafar at his home address: “Highfield”, Wheelwright Drive, Dewsbury, WF13 4JB. None of the correspondence addressed to Mr Zafar at this address has been returned to HMRC as undelivered. Mr Zafar has suggested that the address was incorrect, because his house is known as “Highfield House”. He stated that there were several new houses near to his home and that the letters might have been delivered to them in error. 9 letters and 8 statements were sent to Mr Zafar. Mr Hall produced to the Tribunal a print out from Google Birds eye view of Wheelwright Drive. This reveals 5 large detached properties “Highfield” being the most substantial. We are satisfied that the Royal Mail would be familier with the area and confusion with regard to the addresses unlikely. We are satisfied that Mr Zafar will have received all of the correspondence. HMRC gave Mr Zafar notice on 6 April 2009 to produce the appropriate documents and indicated in the letter that if he failed to produce them he would be subjected to a penalty of £300, with a further penalty of £60 per day, after the day on which the documents should have been produced, until they were produced. Mr Zafar failed to produce the documents and a penalty of £300 was raised on 11 June 2009. 

5.       On 11 September 2009 HMRC issued a closure notice under section 28A (1) & (2) Taxes Management Act 1970. He concluded that a capital gain should have been declared on disposal of the shares. The return had indicated that £5,249 was due by way of tax when this should have been £71,229, a difference of £65,980. The capital gain was calculated as follows:

Kozee had net assets of £1,400,000 and as 50% of the shares had been disposed of, HMRC valued the half share at            £700,000         (5000 shares x £140)

Less cost                                             £    5,000

                                                            -----------

                                                            £695,000

Business taper relief 25% of £695,000 chargeable        £173,750

Less annual exemption                                                   £    8,800

                                                                                    ---------------

Chargeable gain                                                  £164,950

Capital gains tax liability at 40%                         £ 65,980

HMRC arranged for the Bailiff to attend at “Highfield” during March/April 2010. Mr Arshad Choudhry, from the HCA group, wrote to HMRC on 22 March 2010  by way of a formal appeal against the assessment on the basis that  Mr Zafar did not have beneficial ownership of the shares and a claim for ‘holdover relief’ was also available to him. We consider that if, as alleged, Mr Zafar did not have a beneficial ownership in the shares then he would not need to claim ‘holdover relief’. In any event, no such claim has been made. The basis of the appeal as shown in the appeal notice, is insufficiently detailed to assist us in the absence of the attendance by Mr Zafar or his trustee in Bankruptcy. We have therefore had to rely on the facts as presented by Mr Hall and contained in HMRC’s bundle.

The Law

6.       Prior to 1 April 2009 an application to appeal out of time was made to the Tribunal under section 49(2) b of Taxes Management Act 1970. That section required an appellant to show that there was a reasonable excuse for the delay and that the appeal had been made as soon as reasonably possible after the excuse had occurred. After 1 April 2009 Section 29 of The Transfer of Tribunal Functions and Revenue and Customs Appeals Order 2009 amended section 49 and substituted a new section which deals with appeals to HMRC, reviews and appeals to the Tribunal. Where a notice is given out of time to HMRC the new section 49 requires 3 conditions to be fulfilled. (A) The request to HMRC must be made in writing. (B) HMRC have to be satisfied that there was a reasonable excuse for not giving the notice in time. (C) HMRC have to be satisfied that the request has been made without unreasonable delay after the reasonable excuse has ceased. These provisions mirror the earlier provisions in the Taxes Management Act 1970. 30 days after the date of the review, where there is a review, or 30 days after the date of the assessment new sections 49 G and H provide that an appeal can be allowed ‘only if the Tribunal gives permission’.

7.       Time limits are imposed for good reasons and cannot be overridden without equally good reasons by the Tribunal. In Ogedegbe v HMRC LON/2009/0200 Sir Stephen Oliver said:

       “While this Tribunal has got power to extend the time for making an appeal, this       will only be granted exceptionally”.

Tribunal Judge Kevin Poole has given a useful comment on the position under the new Rules in the case of David Pledger v the Commissioners for Her Majesty’s Revenue and Customs TC 00624 in which he states:

“ The Tribunal does have a general obligation to give effect to the overriding objective expressed in Rule 2 of the Tribunal Procedure (First-tier Tribunal) (Tax Chamber) Rules 2009 (the Rules) to deal with cases fairly and justly when it “exercises any power under these Rules” or “interprets any rule or practice direction” (Rule 2(3) (a) and (b)). These general obligations must be borne in mind when exercising the case management powers under Rule 5:

       Rule 5(3) …the Tribunal may by direction:

“(3) extend or shorten the time for complying with any rule, practice direction or direction, unless such extension or shortening would conflict with a provision of another enactment setting down a time limit;…”

Rule 20 of the Rules provides:

“(1) Where an enactment provides for a person to make or notify an appeal to the Tribunal, the appellant must start proceedings by sending or delivering a notice of appeal to the Tribunal within any time limit imposed by that enactment…..

(4) If the appellant provides the notice of appeal to the Tribunal later than the time required by paragraph (1) or by an extension of time allowed under Rule 5(3)(a) (power to extend time)

(a) the notice of appeal must include a request for an extension of time and the reason why the notice of appeal was not provided in time; and

(b) unless the Tribunal extends time for the notice of appeal under Rule 5(3)(a) (power to extend time) the Tribunal must not admit the notice of appeal.”

The position therefore appears to be that the apparent statutory discretion under section 49 Taxes Management Act 1970 to permit notice of appeal be given  out of time (which has been amended by The Transfer of Tribunal Functions and Revenue and Customs Appeals Order 2009 from the 1 April 2009) is in legal terms overlaid by the “extension of time” provisions of the Rules, which also came into force on 1 April 2009 and must be applied in accordance with the overriding objective set out in the Rules.

We propose to adopt his approach that the Tribunal’s discretion in permitting the present appeal to proceed “out of time” is to be applied purely in line with its obligations under Rule 2 dealing with the case “fairly and justly”. In doing so, it has taken into account:

(1)        the guidance given  in the case of Ogedegbe

(2)        The factors listed in Rule 2 (2)

(3)   The fact that the rules at the time when the decisions were first appealable would have required the appellant to show a reasonable excuse for the delay in appealing and no unreasonable delay in bringing the appeal after the excuse ceased.

The closure notice was issued on 11 September 2009 under sections 28A (1) 7(2) Taxes Management Act 1970 and the 30 day time limit for an appeal runs from 12 October 2009.

The decision

7.     We have considered the facts and the law and have decided that neither Mr Zafar nor his Trustee in Bankruptcy should be given permission to appeal out of time. As far as the enquiry is concerned, this was closed on 11 September 2009. There have been no reasons given by Mr Zafar and his accountants why it has taken over 7 month to appeal the matter. We have been told by HMRC that Mr Zafar and his accountants were singularly unhelpful during the enquiry. In fact, Mr Zafar failed to provide any information even when penalties were raised. It is inconceivable that Mr Zafar received none of the correspondence, which he clearly chose to ignore. The evidence from Companies House indicates that 5000 shares changed hands. On the face of it there must have been a disposal for capital gains tax purposes. Mr Zafar and his accountants have not chosen, even by the time of the appeal, to explain why they consider that no capital gains ought to be paid.  Mr Zafar has alleged that he was only holding the shares for Mr Zahoor but has given no indications as to how that has occurred. We have received not further evidence as to the reasons for the 7 months delay before their appeal was been lodged on 26 April 2010. The assessments raised at the enquiry have not been appealed against and there must be finality in tax matters where a taxpayer has been given adequate time to respond to questions raised by HMRC and has chosen not to do so. This weighs heavily against him when he seeks to appeal out of time. Mr Zafar has had from the commencement of the enquiry, in December 2008, up to the date of this hearing to supply, what must be a fairly straight forward explanation for the sale of the shares, and has failed to do so.  In the present circumstances it is both fair and just to refuse the application.  Both he and his accountant at the time of the enquiry, and up to the date of this hearing have chosen not to assist HMRC in their enquiries or this Tribunal in the appeal and as a result we refuse permission to appeal.

8.       This document contains full findings of fact and reasons for the decision. Any party dissatisfied with this decision has a right to apply for permission to appeal against it pursuant to Rule 39 of the Tribunal Procedure (First-tier Tribunal) (Tax Chamber) Rules 2009.   The application must be received by this Tribunal not later than 56 days after this decision is sent to that party.  The parties are referred to “Guidance to accompany a Decision from the First-tier Tribunal (Tax Chamber)” which accompanies and forms part of this decision notice.

TRIBUNAL JUDGE

RELEASE DATE: 30 November 2010