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Cite as: [2006] UKSPC SPC523, [2006] UKSPC SPC00523

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Khan v Ditector of Assets Recovery Agcency [2006] UKSPC SPC00523 (23 February 2006)

SPC00523

PROCEEDS OF CRIME – General Revenue function – Assessment to tax by Director – Whether Special Commissioners have the power to allow appeal on basis that qualifying conditions for exercise of Director's Revenue functions are not satisfied – Yes – Whether article 6 ECHR applies to Director's tax assessment – No – Whether retrospective effect of assessment affects its validity – No – What standard of proof is required in relation to satisfaction of qualifying condition requiring Director to establish reasonable grounds for suspicion that income has arisen as a result of criminal conduct – Whether Appellant's rights under article 1 of First Protocol have been violated – No – Whether proceedings breached Appellant's rights under article 7 – No – PoCA 2002 s.317(1) – TMA 1970 s.29 – Human Rights Act 1998 s.6 – ECHR arts 6 & 7 and art 1 of First Protocol

THE SPECIAL COMMISSIONERS

RAJA MUNAWAR KHAN Appellant

and –

DIRECTOR OF THE ASSETS RECOVERY AGENCY Respondents

Special Commissioners: STEPHEN OLIVER QC

THEODORE WALLACE

Sitting in public in London on 7 December 2005 and 9 January 2006

Lawrence Power, counsel, instructed by J H Law, solicitors, for the Appellant

Tamara Solecki, barrister, of the Solicitor's office of the Assets Recovery Agency, for the Respondents

© CROWN COPYRIGHT 2006

DECISION

This decision concerns a series of preliminary issues arising in the appeal by Mr Khan against assessments by the Director to income tax under Cases I and III of Schedule D and National Insurance Contributions under Class 4 for the years 1998/99 to 2001/02.

The assessments for the four years total £49,185 tax and £5,597 contributions on estimated undeclared income of £174,186 for the period, compared with £55,144 shown on the Appellant's returns. The assessments which were issued on 1 June 2004 were discovery assessments made under section 29(4) or (5) of the Taxes Management Act 1970. Paragraph 18.1 of the Respondent's further particulars of claim allege negligent or fraudulent conduct.

On 24 February 2004 the Director served on the Inland Revenue Commissioners a notice under section 317 of the Proceeds of Crime Act 2002 ("PoCA") in relation to the Appellant for the years in question which vested in her the general functions of the Revenue in respect of income tax and insurance contributions.

The Appellant was charged on 23 May 2001 with money laundering offences and was committed for trial with others at Leeds Crown Court. Essentially it was alleged that he acted as a courier of money arising from drug trafficking and other criminality. He denied the charges.

On 13 October 2003 at Leeds Crown Court Judge Wolstenholme having heard medical evidence stayed the indictments against the Appellant because of his ill health and ordered that the indictments should not be proceeded with without the leave of the Court. The judge considered that to put the Appellant through a trial would involve an unacceptably high risk of heart attack. He made no findings as to his fitness to plead.

Before the present hearing there have been four directions hearings in this appeal. The first three hearings, on 16 November 2004, 21 April 2005 and 25 July 2005, were primarily concerned with the effect of the Appellant's ill health on the appeal. Further medical reports were obtained before the July hearing which indicated that the Appellant's condition was substantially the same as at the time of the Crown Court proceedings.

At the time of the July hearing there were also outstanding appeals against penalties under section 95 of TMA ("TMA") 1970 of 80 per cent totalling £43,825. The penalties clearly involved criminal charges for the purposes of article 6 of the European Convention on Human Rights ("ECHR"), see King v United Kingdom (No 2), [2004] STC 911. Following the July hearing the Director withdrew the penalties so that the appeal is now solely concerned with the assessments under section 29.

After a purely procedural hearing on 26 October 2005 it was directed that a series of preliminary issues raised by the Appellant should be considered at a hearing on 7 December 2005. The preliminary issues are now dealt with separately.

Do the Special Commissioners have jurisdiction to vacate a section 29 assessment on the basis that the qualifying condition in section 317(1) of PoCA is not satisfied?

The relevance of the question arises from the argument for Mr Khan, advanced by Lawrence Power, which is based on the contention that the Special Commissioners must be able to entertain and give affect to a challenge, if successful, to a Director's assessment on the basis that it does not satisfy the qualifying condition in section 317(1). Otherwise there would, for example, be a violation of Mr Khan's rights to a fair hearing or a denial of natural justice.

Miss Solecki submitted that the Special Commissioners have no power to vary or discharge an assessment under section 29 which is validly made except under section 50(6) or (7) of TMA. She also submitted that the words "in respect of the exercise" in section 320 of PoCA do not cover the qualifying condition in section 317 and that any challenge to such condition must be by judicial review.

The relevant statutory provisions of PoCA are found in Part 6 which is headed "General Revenue functions". Section 317, so far as is relevant, reads as follows:

"(1) For the purpose of this section the qualifying condition is that the Director has reasonable grounds to suspect that –

(a) income arising or a gain accruing to a person in respect of a chargeable period is chargeable to income tax or is a chargeable gain (as the case may be) and arises or accrues as a result of the person's or another's criminal conduct (whether wholly or partly and whether directly or indirectly),

…

(2) If the qualifying condition is satisfied the Director may serve on the Commissioners of Inland Revenue (the Board) a notice which-

(a) specifies the person … and the period, and

(b) states that the Director intends to carry out, in relation to the person … and in respect of the period, such of the general Revenue functions as are specified in the notice.

(3) …

(4) The Director –

(a) may at any time serve on the Board a notice of withdrawal of the notice under subsection (2);

(b) must serve a notice of withdrawal on the Board if the qualifying condition ceases to be satisfied."

Section 30A(4) of TMA provides that an assessment shall not be altered except in accordance with the express provisions of the Taxes Act. The assessment appealed against by Mr Khan purports to be a "discovery" assessment made under section 29(1); section 29(8) provides that an objection to such an assessment "shall not be made otherwise than as an appeal against the assessment". Section 31(1)(d) gives the taxpayer the right of appeal against an assessment.

Section 50(6) of TMA provides, so far as is relevant:

"(6) 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) …

(b) …; or

(c) that the appellant is overcharged by an assessment other than a self-assessment,

the assessment or amounts shall be reduced accordingly, but otherwise the assessment or statement shall stand good."

Does section 50(6) restrict the jurisdiction of the Special Commissioners to simply reducing an assessment assessed on the grounds that the assessment is excessive: or does it authorize the Special Commissioners to examine an assessment with a view to deciding its validity and, if it is invalid, to reduce the amount assessed to a nil figure? We do not read section 50(6) as limiting our jurisdiction to the former role. Nor do we see that section 317(4) of PoCA restricts us in this respect; that provision deals not with the jurisdiction of the Special Commissioners, but with the Director's administrative powers to carry out general Revenue functions.

The jurisdiction of the Special Commissioners is not limited to situations where the taxpayer claims to have been overcharged by a valid assessment. The jurisdiction covers situations where the taxpayer contends that there is no charge on grounds that the document purporting to be the assessment is invalid or ineffective. The most usual case is where the assessment is challenged as being out of time. Another example is where the taxpayer contends that the assessment is on the wrong person (e.g. where the assessment is on him as an individual whereas he claims he should have been assessed as a trustee). A further example of a challenge to the validity of the assessment that falls within the Special Commissioners' jurisdiction is where the taxpayer contends that the assessing officer did not have had the Board's authority to make the assessment. The words of section 50(6) do not, expressly or by necessary implication, restrict the scope of the appeal commissioners and prevent them from examining the validity of the assessment on those grounds. Indeed section 29(8) expressly provides for an appeal on the grounds that neither of the conditions in subsections (4) and (5) are fulfilled.

So here we hold that a person who has been assessed by the Director in pursuance of section 317 may put forward as one of his grounds of appeal that the person making the assessment, the Director, had no authority to do so on the basis that the Director has not satisfied the qualifying condition in section 317(1)(a). It would then be for the Director to show that she had properly served a notice on the Inland Revenue under section 317(2) and thereby obtained the right to exercise the general Revenue functions specified in the notice. The jurisdiction of the Special Commissioners exists to entertain the appeal on those grounds without reference to any Human Rights or natural justice issues and without considering the implications of any general prohibition against retrospective legislation.

Section 320(1) provides,

"An appeal in respect of the exercise by the Director of general Revenue functions shall be to the Special Commissioners."

In our judgment an appeal on the basis that the qualifying condition was not satisfied is an appeal "in respect of the exercise by the Director" of revenue functions.

Does article 6 ECHR have an effect on Part 6 assessments?

We examine this in the light of Mr Power's submissions.

To satisfy the qualifying condition in section 317(1)(a), the Director has to make a determination that there has been "criminal conduct", i.e. conduct constituting "an offence" within section 326(1). This, it was argued for Mr Khan, brings the case within the "criminal charge" ambit of article 6.

Here, it was argued for Mr Khan, he has no conviction for any relevant offence; he is to be presumed innocent. If therefore Mr Khan is to be afforded his article 6 rights, he must be given the opportunity to rebut the suspicion of criminal conduct before the assessment is raised. He must, for example, be charged, be informed of the nature and cause of the "accusation" against him and be given the chance to defend himself in person or through legal assistance. Here the Director's grounds for suspicion that Mr Khan has been involved in money laundering were based on evidence in statements of two officers of the Agency. This, it was said for Mr Khan, requires a determination that Mr Khan has committed some form of criminal conduct. That determination must, on the strength of the "criminal conduct" limb of article 6, be reviewable by an independent and impartial tribunal such as the Special Commissioners.

On that basis the question whether article 6 is engaged because the section 29 tax assessment relates to Mr Khan's civil rights and obligations is not in issue. But suppose it were, postulates Mr Power, the Tribunal should not follow the majority opinion in Ferrazzini v Italy [2001] STC 1314, particularly as Mr Khan's property rights are involved here.

Why is this relevant to the present proceedings? Mr Khan's state of health may be such that he cannot give instructions as to the handling of the present appeals and that he cannot attend and give evidence. The present position under the law is that, in the case of a tax assessment validly made under section 29 of TMA, the appeal tribunal has no power to discharge the assessment by reason of the taxpayer's disability from taking the necessary steps to challenge it. Eagles v Rose (1995) 26 TC 427 decides that an assessment stands despite the fact that the General Commissioners have been unable to reach a decision on the evidence before them. The Court of Appeal in Rose v Humbles 48 TC 103 [1972] 1 WLR 33 decided that the appellant's inability to give evidence at an appeal against a Schedule E assessment did not justify the court in setting the assessment aside. The point is that a tax assessment creates a liability which survives until discharged on appeal or by agreement. That is the position unless article 6 gives the taxpayer some additional protection. Thus, if an assessment on Mr Khan can be categorized as a criminal charge, the enhanced protection given by article 6.2 and 6.3 will be available to him. That enhanced protection, if available, may by some means that as yet to be determined come to Mr Khan's aid. Otherwise Mr Khan has to contend that his liability resulting from the assessment falls within the scope of the expression "civil rights and liabilities" in article 6.1; and, if so, he has to contend that the normal protection afforded by article 6.1 is greater than the appeal rights given by the Taxes Management Act as interpreted by the courts.

It is not in dispute that the Special Commissioners are a "tribunal" within section 6(3)(a) of the Human Rights Act 1998; as such we are required to act compatibly with article 6 Convention Rights of an appellant such as Mr Khan. Nor is it in dispute that the Director, in assessing her assessment powers, is to do so in a way that is best calculated to contribute to the reduction of crime; that is the principle underlying section 2 of PoCA.

Criminal or unlawful conduct is relevant to the three recovery powers given to the Director. Confiscation orders under Part 2 (relating to England and Wales) require a criminal conviction of the person in question. Civil recovery proceedings in Part 5 relate to the proceeds of unlawful conduct (i.e. conduct "unlawful under the criminal law" (section 241 of PoCA)). Property so obtained may be recovered and cash may be forfeited, in both cases in civil proceedings instituted by the Director (in England and Wales) whose powers are exercisable whether or not any proceedings have been brought for an offence in connection with the property. By the combined effects of sections 266(1) and 241(3) of PoCA the Director has to satisfy the court on balance of probabilities that the property is recoverable. The Director's "general Revenue functions" under Part 6 are significantly different. They come into play and enable her to take on the tax assessing function of HMRC (the Revenue) where the relevant qualifying condition in section 317(1) is satisfied. This is "that the Director has reasonable grounds to suspect that (a) income arising … to a person … is chargeable to income tax … and arises as a result of that person's or another's criminal conduct …" (as defined in section 326). Once assessed the onus is on the taxpayer to show on balance of probabilities that the assessment should be discharged or reduced.

An issue in Director of the Assets Recovery Agency v Customs and Excise Commissioners and Charrington [2005] EWCA Civ 334 was whether Part 5 civil recovery proceedings instituted by the Director should be classified as criminal proceedings for the purposes of Article 6. The Court of Appeal, in paragraph 17, decided that they did not for the following among other reasons. For the recovery proceedings to be effective there needed to be no arrest, no formal charge, no conviction, no penalty and no criminal record. In other words there was no exercise of the State's powers to condemn or punish for wrongdoing that called for the enhanced protection of article 6.2. That decision is in line with Walsh v Director of the Asset Recovery Agency (26 September 2005), a decision of the Court of Appeal of North Ireland.

In the present case the jurisdiction of the Special Commissioners is engaged, not because Mr Khan has been arrested or charged, let alone convicted, in relation to any criminal offence nor because the sums assessed have been obtained "by conduct unlawful under the criminal law"; the right of appeal arises because Mr Khan has been assessed to tax in pursuance of section 29 of TMA on Schedule D income, i.e. trading income taxable under Case 1 and bank deposit income taxable under Case 3. Once the qualifying condition has been satisfied, the assessment by the Director is made on the same basis as any other assessment. The person receiving an assessment made by the Director has to displace it or pay up in the same way as any other taxpayer. Indeed he has a ground of appeal open to him that would not be open to a taxpayer assessed by the Revenue; he can challenge the validity of the assessment on the grounds that the qualifying condition has not been satisfied.

If Part 5 civil recovery proceedings are not protected as criminal charges by article 6, tax assessment proceedings relating to Part 6 general Revenue functions do not involve criminal charge status either. The tax assessment has none of the features of the criminal charge as identified in the Charrington and the Walsh judgments. Unlike Part 5 proceedings where conduct unlawful under the criminal law has to be proved, criminal conduct is not, once the qualifying condition has been satisfied, an ingredient in the assessing or recovery process except possibly in relation to the section 29 conditions.

Is article 6 protection given because the Special Commissioner proceedings concern the determination of Mr Khan's civil rights and obligations? We think not. Indirect taxes may be in a different position, but income tax assessments (as distinct from civil penalty assessments) have been consistently declared by the European Court of Human Rights not to involve civil rights and obligations. We quote, for example, the opening words of the "Court's Assessment" in the judgment of the Court of Human Rights in King v UK (No.2) [2004] STC 911 at 920:

"The Court would note, first of all, that the procedures concerning the assessment of tax owing by the applicant fall outside the scope of article 6.1 as neither concerning the determination of a 'criminal charge' or of any of the applicant's civil rights or obligations (for example, Ferrazzini v Italy [2001] STC 1314, (2001) 3 ITLR 918, para 29)."

In Ali and Begum, an indirect tax appeal, the Tribunal expressed the view that the reasoning of the majority in Ferrazzini was not appropriate to the indirect tax system of the UK. Nonetheless the approach of the European Court of Human Rights to direct tax is now well established; it is based on the pragmatic ground that otherwise the Court would be overwhelmed by direct tax appeals. It was further argued for Mr Khan that income tax assessments, such as the ones in issue here, involve property rights. We cannot see this as a distinguishing feature from other tax appeals covered by the Ferrazzini principle as restated in King. Moreover, insofar as reliance is placed on Article 1 of the First Protocol ("A1P"), tax assessments such as the present are subject to the requirement for proportionality within the words of exclusion which preserve the State's right to confer laws necessary to secure the payment of taxes. We will come back to this point when dealing with Mr Power's submissions on A1P.

Would it be contrary to natural justice for the Special Commissioners to proceed with the hearing in spite of the Appellant's ill health?

Mr Power contended for Mr Khan that the "doctrine of natural justice" should apply on account of Mr Khan's inability to give instructions, attend the hearing and give evidence. Mr Power referred to the (dissenting) judgment of Sachs LJ in Rose v Humbles where he states:

"For the taxpayer it is has been rightly pointed out that the breach of rules of natural justice was about as serious as could be, nowadays it is a paramount right of any man charged with wilful default or fraud under the provisions of a statute normally regarded as penal to have an opportunity personally to give evidence to dispel whatever prima facie case may have been set up against him …".

That was a case involving extended time limit assessments based on fraud or wilful default. The judgment of Sachs LJ was in fact a dissenting judgment and must be approached with caution. In King v UK (No.2) the assessments were also extended time limit assessments; nevertheless the ECHR held that they did not involve criminal charges within Article 6.1.

In our judgment, notwithstanding Mr Khan's disability, this is a case where the Tribunal should proceed with the hearing. We are not aware of any case where it has been held that the Tribunal should not proceed in such circumstances by reason of the rules of natural justice. Article 6 does not assist Mr Khan. Within the constraints of the statutory regime, which treats tax assessments as obligations that subsist until discharged, the position is clearly covered by the majority decision of the Court of Appeal in Rose v Humbles (referred to above). In short, Mr Khan's position is no different from that of the estate of a deceased taxpayer. Having said that, if this would enable Mr Khan to attend or give evidence, we would be prepared to direct that the hearing is to take place as close as possible to Mr Khan's home or, if necessary, to attend on him to receive evidence.

Is there a general prohibition against retrospectivity that applies to bar the Director's power to assess Mr Khan?

The assessments appealed against relate to Case 1 of Schedule D income said to have arisen in the periods from 6 April 1998 to 5 April 2002. The PoCA came into effect in 2003. The Director's Revenue powers arose in 2004

PoCA and the assessment action taken by the Director have, to quote from the skeleton argument for Mr Khan, imposed on him "a new duty or obligation that did not exist at the time the tax liability arose" (i.e. 1998/99 to 2001/2002) which Mr Khan can only discharge by "showing that his income was not obtained through criminal activity". In that respect it was contended by Mr Power that PoCA operates retrospectively.

We do not accept this. The chargeability to tax of the income for those periods existed quite irrespective of the arrival of PoCA and the assumption by the Director of her general Revenue powers. The income was returnable on Mr Khan's self-assessment return or assessable under section 29. The qualifying condition in section 317(1) relates to the separate question of whether the Director has the authority to require the Revenue functions to be vested in her.

Nor is there any evident unfairness in the operation of Part 6. An assessment by the Director as opposed to one by the Revenue does not change the legal character of the particular taxpayer's liability to pay tax on the assessed income nor does it have the effect that a receipt is income when it would not otherwise be income. The wording of Part 6 should therefore be read as it is found rather than straining to give it a different and non-retroactive meaning.

In any event Parliament has clearly given retrospective force to the Director's powers under PoCA, Part 6. This appears from sections 317(9) and 319(4). Section 317(9) states that – "It is immaterial whether a chargeable period or any part of it falls before or after the passing of the Act". Section 319(4) provides – "Subsections (2) and (3) apply in respect of years of assessment whenever occurring". The meaning of sections 317(9) and 319(4) is, in our view, clear and unambiguous. Part 6 of PoCA expressly recognizes the retrospective effect of assessments under section 29 of TMA. The two relevant provisions, sections 317(9) and 319(4), would otherwise be redundant.

Reasonable grounds to suspect : the qualifying condition

Mr Power challenges the validity of the assessments on the ground that the Director has not satisfied the qualifying condition in section 317(1).

Section 317(2) authorizes the Director to assume the general Revenue functions if the qualifying condition in subsection (1) is satisfied. The relevant qualifying condition is in subsection (1) and, as already noted, this requires that the Director has reasonable grounds to suspect that income arising to a person in respect of a chargeable period is chargeable to income tax and arises as a result of the person's or another's criminal conduct.

The Tribunal has to be satisfied, so the argument for Mr Khan ran, on a "more likely than not" basis that the person in question has (to quote from the Appellant's Skeleton Argument) "committed a criminal offence and by that offence has benefited by securing property from the proceeds of crime" taking into account "that the Appellant must be regarded as innocent of the charge". The skeleton argument goes on to say that "it will be surprising if section 317(1) of PoCA circumvented the ordinary standard of proof in criminal cases and allowed the Tribunal to make a determination of criminal guilt in the absence of a full investigation and requiring that evidence to satisfy the burden of proof that applies in criminal jurisprudence."

The expression "reasonable grounds to suspect" requires us to be satisfied on two counts. First, we need to be satisfied that the Director or an authorised member of her staff, here Mr Archer, had formed the genuine suspicion in his own mind that the income arose as a result of the criminal conduct of the person. Second, we need to be satisfied that what was in his mind was, viewed objectively, reasonable in the sense that it amounted to a reasonable suspicion. If confirmation for this is needed, it is found in the decision of House of Lords in O'Hara v Chief Constable of the Royal Ulster Constabulary [1997] AC 286, a case concerned with the statutory powers of arrest conferred on a constable. O'Hara further establishes that the person whose decision it is is entitled to rely on secondary evidence. To contend, as Mr Power does, that we need to be satisfied of Mr Khan's guilt and of his having benefited from the crime, is not supported by the words of section 317(1) on any reading.

What were the actual grounds for the Director's suspicion?

The following is a verbatim extract from the Appellant's skeleton argument:

"The Director has served notice to the Commissioners on the basis of such 'reasonable grounds' for suspicion. The notice indicated that the Director will carry out all Revenue functions in relation to the tax years 1998/1999 to 2001/2002. The Amended Particulars of Claim specify what these reasonable grounds for suspicion of criminal conduct are and reasonable grounds are 'to suspect standards only'. Full particulars of reasonable grounds to suspect in relation to 'criminal conduct' are set out in the witness statements of Mr Ian Archer, the Director's delegate and in that of Brian David Ludlow of HM Customs and Excise, made for the purposes of an application to the High Court Queens Bench Division for a restraint order. In particular, the Director has and had reasonable grounds to suspect criminal conduct of the Appellant and/or another in that:

The Appellant was one of a number of persons being investigated for money laundering offences and the proceeds of crime, principally the proceeds of drug trafficking from 1998-2001. The prosecution case against him was that he was responsible for collecting cash from persons involved in criminal conduct including drug traffickers and then depositing this cash with certain Bureaux de Change from where the moneys were transferred out of the jurisdiction. The Appellant was arrested on 25 April 2001 on suspicion of money laundering and interviewed under caution. He was re-interviewed on 23 May 2001 and charged with money laundering offences. The case was stayed on the basis of the Appellant's ill-health.

Observations of the Appellant during the period of alleged criminality, seized documents and an analysis of financial documents pertaining to the Appellant suggest that the Appellant received payment for his activities and that his activities were therefore in the nature of a trade and thus chargeable to income tax.

(1) Pieces of paper were found suggesting that the Appellant took commission in respect of his activities of picking up money and conveying it to the Bureaux.

(2) Bank records at the time of the alleged criminality show capital accruals in the assessed period. No explanations have been given. Significant deposits in the bank accounts ceased around the time of the Appellant's arrest after April 2001.

(3) Calculations made by the investigator Ian Archer show that the Appellant's bank withdrawals were not enough to cover his minimum possible expenditure in the assessed period.

(4) The Appellant alluded to receiving income which had apparently not been returned to the Revenue at the interviews conducted on him during the prosecution case.

(5) Without further explanation of the evidence of the source of the income arising and given its proximity in time to the alleged criminal activity the Director had and has reasonable grounds to suspect that the alleged income was chargeable to income tax and arose wholly or partly and directly or indirectly from criminal conduct on the part of the Appellant and/or another".

Whether the qualifying condition has been satisfied in the present circumstances will ultimately depend on the evidence from Mr Archer. But if his evidence were to embody the matters set out in the above extract, our provisional reaction is that the qualifying condition would be more than satisfied.

Article 1 of the First Protocol ("A1P")

A1P reads as follows:

"Every natural or legal person is entitled to the peaceful enjoyment of his possessions. No one shall be deprived of his possessions except in the public interest and subject to the conditions provided for by law and by the general principles of International law.

The preceding provisions shall not, however, in any way impair the right of a state to enforce such laws as it deems necessary to control the use of property in accordance with the general interest or to secure the payment of taxes or other contributions or penalties."

Mr Power argued that the Director's action has the effect of depriving Mr Khan of his property in the form of his cash deposits at the bank. While recognizing that the European Court of Human Rights' decision in Sporrong v Lorroth [1982] ECHR 5 at paragraph 69 states that A1P calls for a fair balance to be struck between the interests of the community and the requirements for the protection of the fundamental rights of the individual in question, he submitted that the Director's action amounts to unfair interference. The new Part 6 procedure goes beyond the normal tax assessment procedures of section 29 and as such infringes Mr Khan's rights of peaceful enjoyment.

Miss Solecki for the Director emphasized two general points. First, the Director's assessing powers, which are vested in her once the qualifying condition has been satisfied and she has assumed them, are precisely the same as those conferred on the Revenue. Second, as will be seen from decisions such as National and Provincial Building Society v UK [1997] STC 1416 and R v Dimsey (HL) [2001] STC 1520, per Lord Scott at 1535, A1P recognizes a wide margin of appreciation given to each contracting state.

Section 29(1) authorizes an officer of the Board who "discovers", e.g., underdeclared income to make an assessment of an amount which ought in his opinion to be charged in order to make good the loss of tax. This authorization is subject to two alternative conditions. One is that the underdeclaration is attributable to fraudulent or negligent conduct on the part of the taxpayer; that is section 29(4). The other condition (in subsection (5)) is that, after the officer no longer had the opportunity to make an enquiry or after the completion of his enquiries, the officer could not reasonably have been aware of the taxpayer's underdeclaration. It is not disputed that a section 29 assessment by an officer of the Board would not violate Mr Khan's A1P rights. Does the fact that the Director additionally has to satisfy the qualifying condition of showing reasonable grounds to suspect criminal conduct or do the position? It was contended for Mr Khan that it does. We do not agree. Mr Khan is in the same position as anyone else assessed under section 29.

So far as the Director is in a position to interfere with Mr Khan's peaceful enjoyment of his possessions by making an assessment, this authorization does not arise until she has satisfied the qualifying condition in relation to Mr Khan's alleged income. Once she comes to exercise her assessing powers she is in precisely the same position as the officer of the Board whose powers she has assumed. She, like the officer, has to satisfy the relevant conditions of section 29(4) and (5); and when assessing under section 29 she no more violates the taxpayer's A1P rights than the officer would have done.

Article 7

Mr Power submitted that the hearing of Mr Khan's tax appeal will involve evidence of surveillance and the use of material produced in the course of a criminal investigation leading to a charge of money laundering; moreover Mr Khan will need to call evidence to refute that charge. He said that the hearing of the appeal would have the characteristic of criminal proceedings concerned with the criminal offence allegedly committed before PoCA came into force.

Article 7 provides that:

"No one shall be held guilty of any criminal offence on account of any act or omission which did not constitute a criminal offence under the national or international law at the time when it was committed. Nor shall a heavier penalty be imposed than the one that was applicable at the time the criminal offence was committed."

We do not consider that Article 7 can apply in the present circumstances. In the first place Article 7 provides that "no one shall be held guilty of a criminal offence". Any decision taken by the Special Commissioners in the exercise of their statutory jurisdiction in respect of an assessment will not and cannot be a conviction of guilt. Article 7 applies only to criminal offences and criminal penalties. And if civil recovery proceedings under Part 5 do not, on the authority of Walsh and Charrington, referred to in paragraph 23 above, involve "criminal charges" within Article 6, a decision of the Special Commissioners upholding a Part 6 assessment cannot be a holding that the Appellant is guilty of a criminal offence within Article 7.

We summarise our conclusions as follows:

The Special Commissioners do have jurisdiction on appeal under section 320(1) of PoCA to determine that an assessment by the Director under section 29 of TMA is invalid on the grounds that the qualifying condition in section 317(1) of PoCA is not satisfied just as the Commissioners can determine that the conditions in section 29(4) or (5) of TMA are not satisfied (paras 9 to 17).

Article 6 of ECHR is not engaged by assessments to tax by the Director, where they do not involve penalties under section 95 of TMA; such assessments do not involve civil rights or criminal charges within Article 6. The fact that an assessment under section 29 depends on the conditions in section 29(4) or (5) being satisfied does not have the effect that it involves a criminal charge (paras 18 to 28).

The principles of natural justice do not have the effect that the Special Commissioners cannot or should not consider the appeal because of the Appellant's ill health. Provided the assessments were validly made, they stand subject to any determination under section 50(6) of TMA (paras 29 and 30).

The fact that the Director is given power to make assessments does not affect the liability of the Appellant to be assessed to tax on income and does not involve retrospection regarding such liability. In any event PoCA provides expressly for assessments "in respect of years of assessment whenever occurring" (paras 31 to 35).

The qualifying condition under section 317(1) of "reasonable grounds to suspect" does not involve proof of criminal conduct but a genuine suspicion which is reasonable viewed objectively, see O'Hara [1997] AC 286 (paras 36 to 39).

Although the assessments do involve deprivation of the Appellant's possessions within Article 1 of the First Protocol, the procedure on section 29 assessments and the powers of the Director under Part 6 of PoCA are within the wide margin of appreciation of contracting states (paras 41 to 45).

The fact that the appeal may involve evidence of matters which constitute criminal conduct does not mean that the decision of the Special Commissioners if adverse to the Appellant would involve a holding that he is guilty of a criminal offence within Article 7 of the Convention. No criminal penalty is involved (paras 46 to 47).

STEPHEN OLIVER QC

THEODORE WALLACE

SPECIAL COMMISSIONERS

RELEASED: 23 February 2006

SC/3104/2004