United Kingdom VAT & Duties Tribunals Decisions

 


Pal & Ors v Revenue and Customs [2006] UKVAT V19463 (16 January 2006)

19463

ASSESSMENT – whether assessment relating to periods when no returns made in a partnership name was valid or not – appeal allowed – VATA 1994 s73(1)

LONDON TRIBUNAL CENTRE

KAVITA PAL, RAJINDER PAL, ENRIQUE QUILLEN ALONSO and HICHAM BENLACHGAR EL BOUACHERI	Appellants
and
HER MAJESTY'S REVENUE AND CUSTOMS	Respondents

Tribunal: Rodney P Huggins (Chairman)

Rachel Adams FCA, ATII

Sitting in public in London on 8 December 2005

No appearance by or on behalf of Hicham Benlachgar el Bouacheri

James Mackie, VAT Consultant for Kavita Pal, Rajinder Pal and Enrique Quillen Alonso

Jonathan Holl of the Solicitor's office of H M Revenue and Customs for the Respondents.

... CROWN COPYRIGHT 2005

DECISION

The appeal

1. On 26 September 2003 the Commissioners issued an assessment in the sum of £17,074 plus £935.09 interest against Tapas Bar Cerveceria for the periods from 1 May 2002 to 31 October 2002 and asserted that Kavita Pal, Rajinder Pal (Mr and Mrs Pal), Enrique Quillen Alonso (Mr Alonso) and Hicham Benlachgar El Bouacheri (Mr Bouacheri) were a partnership carrying on the business operating a bar and restaurant known as the Tapas Bar Cerveceria at 10 Little Clarendon Street, Oxford.
2. Mr and Mrs Pal and Mr Alonso appealed against the assessment on 18 December 2003. Mr Bouacheri was not a party to the appeal notice as he had disappeared and it is believed has gone abroad and cannot be traced. However, as he was also named as being a partner, for the purpose of these proceedings, he is treated as one of the Appellants.

The legislation

3. Section 1(1) of the Partnership Act 1890 (the 1890 Act) provides as follows :

"Partnership is the relation which subsists between persons carrying on a business in common with a view to profit".

4. Section 36(1) of the 1890 Act states :

"Where a person deals with a firm after a change in its constitution, he is entitled to treat all apparent members of the old firm as still being members of the firm until he has notice of the change."

5. The assessment was raised under the provisions of section 73(1) of the Value Added Tax Act 1994 (the 1994 Act) Section 73(1) provides :

"73(1) Where a person has failed to make any returns required under this Act … or to keep any documents and afford the facilities necessary to verify such returns or where it appears to the Commissioners that such returns are incomplete or incorrect, they may assess the amount of VAT due from him to the best of their judgment and notify it to him."

6. Section 83 of the 1994 Act provides that an appeal shall lie to a tribunal with respect to :

"(p) an assessment

(1) under section 73(1) … or the amount of such assessment."

The issues

7. The preliminary issue which is dealt with in this decision is whether Mr and Mrs Pal, Mr Alonso and Mr Bouacheri (the Appellants) were all partners in the Tapas Bar business either at the time of the assessment periods or at all. The validity of the assessment was the question to be answered.
8. If the Appellants were partners and the assessment was valid, then the second issue was whether the amount of tax due was assessed to the best judgment of the Commissioners. This decision does not relate to that question. If the appeal had been dismissed by us, the second issue would have had to be dealt with on another occasion.

The evidence

9. Mr Pal and Mr Alonso gave oral evidence on behalf of the Appellants.
10. A bundle of 229 documents was produced by both Mr Mackie and Mr Holl. Oral evidence was given on behalf of the Commissioners by Mr Michael Burke, a senior officer of H M Revenue and Customs (Customs) at the Oxford VAT Business Centre.

The facts

11. From the evidence before us we find the following facts.
12. Mr and Mrs Pal were in partnership together and their business was partially involved in acquiring properties some of which consisted of Head Leases with superior Landlords. Their business was registered for VAT purposes.
13. The freehold of Number 10 Little Clarendon Street, Oxford is owned by University College, Oxford University and the College had granted a Head Lease to Mr and Mrs Pal for a term of fifteen years. The premises consisted of a bar and restaurant on the ground floor with a flat on two floors above. The restaurant was in a dilapidated state and needed considerable renovations.
14. Mr and Mrs Pal knew a Spaniard Mr Alonso as he was working at a sandwich bar franchise in Oxford and they had another business next door. They introduced him to Mr Bouacheri who had worked for Mr and Mrs Pal in another catering business. Mr Alonso and Mr Bouacheri agreed to renovate the premises and then re-open the restaurant and bar and to pay Mr and Mrs Pal licence fees for the occupation of the premises as neither of them had references of previous business accounts. At that stage it was not feasible for the names of Mr Alonso and Mr Bouacheri to be put forward to the Head Landlords as sub-tenants.
15. Heads of Agreement dated 11 June 2001 were drawn up between Mr

and Mrs Pal (then trading as "T & J Operations") of the one part and Mr Alonso and Mr Bouacherie of the other part (who were described as "the Partnership"). In Clause 1 they were granted the full right under licence to enter upon and occupy 10 Little Clarendon Street for the purpose of "there carrying on the business of a restaurant". This right was stated to be personal to the Partnership and non-assignable. The Heads of Agreement was effectively a document setting out the terms under which Mr Alonso and Mr Bouacheri could purchase all the assets of the business.

It was made quite clear in this Agreement that the Partnership had to pay all outgoings for the premises and run the business.

16. Mr Alonso and Mr Bouacheri had to pay a licence fee of £64,000 and a deposit of £8,000 being one quarter's rent due in advance. The term of the licence was one year certain. During the period from 26 June 2001 to 26 December 2002 upon payment of a further substantial sum T & J Operations undertook to "use its best endeavours to have the partnership names introduced onto the Lease of the premises…"
17. Mr Alonso sold his house in order to raise funds to pay Mr and Mrs Pal some of the initial licence fee. However, towards the end of 2001 it became apparent that University College would still not agree to Mr Alonso and Mr Bouacheri becoming tenants due to their lack of references and confirmation of financial standing. They were also required to undertake a part-time course at Oxford Brookes University which had not been completed. It was therefore agreed between Mr and Mrs Pal and Mr Alonso and Mr Bouacheri that in order to overcome this impasse they would consider being registered for VAT purposes as partners of the restaurant business as solely a means of surmounting the difficulties posed by the Head Lease. However, the terms of the Heads of Agreement would continue to be the true position.
18. Therefore, an application form for registration for VAT was obtained and completed by Mr Alonso and dated 7 January 2002. It stated that the name of the business would be Tapas Bar Cerveceria carrying on the business of catering and requesting registration from 1 January 2002. Paragraph 5 of the form asked "Who owns the business" and the response was "partnership". Another form VAT2 was completed giving details of the partnership names. Mr and Mrs Pal signed on 10 December 2001 and Mr Alonso and Mr Bouacheri on 7 January 2002.
19. Mr Alonso saw his accountants Thurai and Co of 9-11 Arnold Road, Oxford who went through the application form with him and then at his request submitted the application form and the VAT2 to HMCR on or about 8 January 2002 and the business was registered and a VAT number 785 8183 allocated.
20. Mr Alonso and Mr Bouacheri took possession of the ground floor of 10 Little Clarendon Street in or about January 2002 and carried out

renovations to the premises. They opened for business on 14 February 2002. After a short while, it became obvious that their partnership was not working out as originally planned and on 8 April 2002 they entered into an Agreement relating to the restaurant business through a local solicitor. This provided that their partnership would continue for another two years but the profits from the restaurant and bar would belong to Mr Bouacheri absolutely. He would be responsible for all the liabilities of the business including the rent and would pay Mr Alonso the sum of £1,000 per week and allow his family and himself to occupy the flat of the upper floors free of charge except outgoings specific to the flat. Mr Alonso and his family actually moved into the flat in March 2002 having been living temporarily in a caravan.

21. After 8 April, Mr Alonso ceased having anything to do with the actual running of the Tapas Bat as he owned and ran fulltime a sandwich bar in Headington, just outside Oxford, However, Mr Alonso continued to be a partner until he fell out with Mr Bouacheri resulting in an action commenced by Mr Alonso in the Oxford County Court relating to their partnership affairs. This occurred in the summer of 2002. The tribunal was not told at the hearing what happened to this action.

By October 2002 it became obvious that Mr Bouacheri had defaulted in his commitment to Mr Alonso and also not paid the suppliers of the business. He had disappeared abroad several weeks earlier and Mr and Mrs Pal with the acquiescence of Mr Alonso were forced to take possession of the premises which were then closed in order that refurbishment could take place paid for by Mr Alonso. He was still having to pay Mr and Mrs Pal licence fees for the premises but made it quite clear to them that he wanted an assignment of the Head Lease when he had paid all that was due to them.

22. In or about November 2002, a catering company known as Meltan Limited took over the running of the restaurant and bar. The company paid rent to Mr Alonso who in turn continued to pay Mr and Mrs Pal licence fees. Eventually, later in 2003 Mr Alonso took over the restaurant. He had, by then, completed the part-time business course at Brookes University, and University College were prepared to accept him as a tenant. He continued to run the business down to the hearing of the appeal.

Customs Investigations

23. On 24 June 2002 a Mr Saleem Chaudry who was at that time Mr Bouacheri's accountant submitted on behalf of Tapas Bar a VAT Return for the period 1 January 2002 to 30 April 2002. The Return stated that during that period the total value of sales for the business was £75,078 and the total purchases were £131,639 and there was a VAT reclaim of £3,332,67. Mr Alonso did not receive this refund nor did he know anything about it at the time. Because of the change in his employment, Mr Chaudry was unable to continue to act for Mr Bouacheri as his accountant and Brookwood Accountancy, a local firm from Kidlington, took over.
24. Following the failure after June 2002 of the restaurant business to submit VAT returns as required by Regulation 25(1) of the VAT Regulations 1985, Senior Customs Officer Mr Burke contacted Brookwood

Accountancy in February 2003 by telephone followed by a letter dated 19 February 2003 requesting copies of the various Sage reports they had produced to enable him to get missing VAT returns completed. He said that he was "looking for any data you hold between 1 January 2002 and 31 October 2002. I can then amalgamate this with any information the newly appointed accountant, Thurai & Co has secured from his client". [It transpired that the client in question was Mr Alonso.]

He continued in his letter "I would emphasise that I am not looking for you to release all the records you hold, but just the Sage transaction and VAT reports. In the course of my dealings with Thurai & Co. I shall encourage his client to make good any payments due to yourselves if this will help to secure release of the records that would then enable Thurai & Co to complete financial accounts."

25. Mr Burke made a note of 20 February 2003 of a telephone conversation with 'Thurai & Co' which recorded that the company had met with Mr Alonso on 19 February 2003 and obtained a box of records. It was agreed that when 'Sage' reports had been received a meeting should be held to amalgamate the two sets of data. 'Thurai & Co' advised that the Partnership had ceased and that the business had closed before being re-opened by Mr Alonso as a Sole Proprietor. It was stated that attempts were being made to cancel the old registration and to defer Mr Alonso's liability to register until Mr Alonso had exceeded the registration limit. The officer had indicated to 'Thurai & Co' that a short closure would not affect the business being transferred as a going concern, Mr Alonso's liability to register from the date of transfer of his liability would be subject to a 'belated notification penalty' if appropriate. The officer stated that the legal position could not be disregarded but arguments could be put forward for mitigation of any such penalty.
26. On 15 August 2003 Mr Burke wrote to 'Thurai & Co' in relation to the figures rendered on a return for VAT for the 04/02 period and the lack of returns for periods 07/02 and 10/02. Two Schedules were enclosed headed "Known Figures" and "projected Figures". The first was a listing of takings records available and shows totals and averages for the different days of the week. The second schedule incorporated the average daily takings figures into the missing days to complete the record. The figures were taken to October 2002 as that was the day on which a stock valuation was performed which could indicate the date when the business was transferred.
27. After giving details of certain calculations on the figures from the accounting records supplied, Mr Burke concluded :

"The revised figures therefore show a net liability for the two periods

combined at £17,942.37 as shown on the summary schedule. If the client is satisfied with the methodology adopted to arrive at the estimated figures, he should sign the enclosed duplicate return forms and return them to me in the envelope provided.

Credit will automatically be given for the payments already received in the amount of £435.00 and £433.00 to leave a net tax liability of £17,074.37 now due.

I have also contacted our deregistration Section at Wolverhampton to initiate cancellation of the registration and they should forward to you a deregistration application form in the near future. Could you please arrange for its completion and signature by your client and return it to Wolverhampton in due course."

28. On 4 September 2003, Mr Burke wrote two letters , one to Mr Alonso and the other to Mr and Mrs Pal. The letter to Mr Alonso was virtually in the same terms as his letter of 15 August 2003 to Thurai & Co. The letter to Mr and Mrs Pal opened as follows :

"Based on information held by this department, you are partners in the above VAT registration.

Although I understand the trading situation has changed, there are still missing VAT returns for the periods 07/02 and 10/02. I have managed to obtain some of the trading records from two different accountants but the accounts are still incomplete. In the absence of incomplete accounts, I have analysed the available information to estimate the values of the missing data."

The remainder of the letter was again in identical terms to that sent to Mr Alonso.

29. By letter dated 4 September 2003 a Samantha Wellstood of 'Darshanti' acknowledged receipt of the letter of 4 September 2003 addressed to Mr and Mrs Pal. She stated "Arrangements are being made for Mr Alonso to make payment in due course." At the tribunal hearing it was established that Mr and Mrs Pal had changed the name of their firm from T & J Operations to Darshanti of which Ms Wellsttod was an employee.
30. Mr Alonso responded to Mr Burke by letter on 17 September 2003. He expressed concern at the contents of his letter. He said that he was a non-participating partner and that Mr Bouacheri was "the owner of the operation." He mentioned that Mr Bouacheri had his own accountant and submitted the original VAT return. Although Mr Bouacheri was out of the country, Mr Alonso understood that he had solicitors acting for him. He did enquire whether any approach had been made to the other two non-participating partners.
31. On 22 September 20003 Mr Burke replied to Mr Alonso's letter advising him that all partners in the business had been sent the result of the findings. He said that Mr Bouacheri's solicitors had not been contacted as they were not known. The notification of matters to the business was considered to be notification to all the partners under the VAT Act 1994. The working papers included estimates as it appeared that the partnership had failed in its obligations to keep adequate accounting records. If VAT returns were submitted showing the correct trading figures for the periods in question the assessments would be amended to reflect the correct liabilities. The partnership was required to maintain accounting records in such a way as to enable accurate preparation, completion and submission of returns by the due date. In Mr Burke's view, the partnership had sufficient time to submit returns by the due dates. He did add that he appreciated the business encountered difficulties during 2002.
32. The Commissioners then assessed the amount of tax considered to be due from the Appellants in the sum of £17,074 plus interest for the periods from 1 May 2002 to 31 October 2002. They considered this to be to the best of their judgment. They notified "Tapas Bar Cerverceria" of this assessment on 26 September 2003.
33. Mr Alonso wrote to "The Reconsideration Officer" at Oxford H M Customs and Excise on 29 October 2003 advising that the situation from which the assessment arose was as a result of the person owning the business abandoning it and leaving the country. He was caught up in it because he was a non active partner along with "three others". He asked for the assessment to be reviewed and said that Thurai & Co had been asked to assist.

Mr Peter Jennings a Senior Officer of H M Customs and Excise replied on 7 November 2003 stating that until VAT returns for the periods 07/02 and 10/02 had been submitted he regretted that he was not able to carry out a local review of the assessment for £17,074.

34. Mr Mackie informed Mr Jennings on 20 November 2003 that he acted for the parties to the VAT registration 785 8183 75. He said that an appeal had been notified against the assessment which had been delivered to one partner of the business who had been out of the country until 13 November. It was contended that the assessment was incorrect in quantum and had been issued to persons who had nothing at all to do with the trading or making of the relevant supplies. He requested certain documents which were supplied by Mr Jennings.
35. There were further exchanges of correspondence between Mr Mackie and Mr Jennings relating to the proceedings and Mr Mackie eventually supplied copies of the Heads of Agreement dated 11 June 20001 and the Partnership Agreement entered into on 8 April 2002. This occurred on 21 May 2004. The Partnership Agreement is referred to in a letter from a firm of solicitors Edward Pilling & Co dated 19 June 2002. This firm acted for Mr Bouacheri at the time but had been the solicitors for the partnership of Mr Alonso and Mr Bouacheri previously.
36. It would appear that Mr Jennings has never carried out a review because no returns have been furnished. Furthermore, Mr and Mrs Pal and Mr Alonso have not completed deregistration forms relating to VAT registration 785 8183 75 because they continued to assert that they have never traded as a partnership under the name of Tapas Bar Cerveceria.

The arguments of three of the Appellants

37. Mr Mackie for Mr and Mrs Pal and Mr Alonso supplied to the tribunal his statement of their position which he amplified at the hearing.
38. He submitted that no taxable supplies were made by the registered partnership and certainly not in the periods stated in the assessment delivered to the Appellants. They were not in business together at that time or at any other time and none of those persons, alone or in partnership, was involved in the making of any taxable supplies from 10 Little Clarendon Street at any time.
39. It was maintained by him that the Heads of Agreement set out the total position with reference to the leasehold interest in the above premises and the Vat registration by the Appellants of a partnership was only to assist Mr Alonso and Mr Bouacheri in taking possession of the restaurant and bar on the ground floor.
40. He argued that Mr Alonso allowed Mr Bouacheri to occupy and to begin trade from the premises from 14 February 2002. It was intended by them that the trade would be solely in the hands of Mr Bouacheri and their later agreement dated 8 April 2002 gave retrospective effect to that position. He also submitted that any deemed trading partnership of Mr Alonso and Mr Bouacheri was dissolved by their agreement on 8 April 2002. He said that at the very least on 8 April 2002 a transfer of a going concern namely the restaurant business took place and the partnership had no further liabilities. In support he quoted paragraph 26.2. from Customs & Excise Notice 700 (April 202 edition) which states :

"Any of the following changes require your registration to be cancelled :

(a) the business is closed down;

(b) the business is sold;

(c) the proprietor of the business takes one or more persons into partnership;

(d) a partnership ceases to exist, but one of the former partners becomes sole proprietor of the business;

(e) …

You must notify the National Registration Service in writing within 30 days of the change :

Quoting your registration number; and

Giving the date on which the change took place.

You may render yourself liable to a civil penalty if you fail to notify any of the above changes within the prescribed time limit."

41. On behalf of Mr Alonso, Mr Mackie admitted that if he had not notified Customs of the change then he may find himself liable to a penalty for such behaviour. Since deregistration procedures cannot be made effective retrospectively, Mr Alonso might be required to complete VAT returns to deregistration, but those returns would all be 'nil' returns.

Arguments of the Commissioners

42. For the Commissioners. Mr Holl submitted that the onus was on the Appellants to prove that a partnership did not exist. The evidence before the tribunal pointed to four individuals coming together for the purpose of running premises trading as a restaurant and bar under the name Tapas Bar Cerveceria. There was documentation in support of that contention. They had attempted to say that the VAT registration was merely a piece of paper of no real consequence.

42. He maintained that the Heads of Agreement dated 11 June 2001 and the Agreement of 8 April 2002 had no real meaning. However, the VAT Registration Application was a genuine document. If the Appellants as partners had ceased in business together then they had to notify the Commissioners within 30 days under the appropriate VAT Regulations. This had not occurred.
43. Mr Holl expressed doubt that Mr Bouacheri had become a sole trader as alleged by Mr Alonso. He was living in the flat above the premises and although he insisted he was running another catering business, it was probable that he was a non-participating partner. There was no evidence of Mr Alonso's involvement and no diary entries had been produced to support this. As long as there was a partnership at the heart of the matter changes in partners did not effect it.
44. He specifically referred to the letter dated 8 September 2003 from Samantha Wellstood of Darshanti. She must have had instructions from Mr and Mrs Pal to say that arrangements were being made for Mr Alonso to make payment of the VAT in due course. They had not denied at that time the contents of the letter sent to them by Mr Burke on 4 September 2003 which referred to a tax liability of £17,074.37 the amount of the assessment.
45. Mr Holl expressed the view that the story put up by the Appellants was a smokescreen to deny liability.

Reasons for decision

What is a partnership ?

46. In English law, a partnership or firm is not a legal entity but is defined by section 1(1) of the 1890 Act as 'the relation which subsists between persons carrying on business in common with a view to profit'.
47. This definition is summarised in Volume 2 of De Voil's Indirect Tax Service at paragraph 110 (after due consideration of various cases and the 1890 Act) as giving rise to the following three points :

First, the "relation which subsists" may be an oral or written contract, but the existence of a partnership may be inferred from the intention of the parties without being an express agreement, and in each case it is necessary to consider the circumstances and intention of the parties. The existence of a partnership requires a consensus between the partners.

Secondly, there must be a "business" this being defined by section 45 of the 1890 Act as including every trade, occupation or profession.

Thirdly, there must be a "view to profit". The sharing of gross income does not itself create a partnership, but receiving a share in the profit (net income) of a business is prima facie evidence of partnership, although not by itself conclusive (section 2(3) of the 1890 Act).

We adopt these three points when considering the position of the Appellants in their various relationships.

Was there a partnership between the Appellants ?

48. This is the crucial question. The tribunal accepts that the onus is on the Appellants to prove on the balance of probabilities that no such partnership exists. It is accepted by all parties that Registration Forms VAT 1 and 2 were signed to give an indication that a partnership for the purpose of running the restaurant and bar existed or at the least was intended. However, was that conclusive that a partnership existed or not ?
49. The history of the relationships between the Appellants either collectively or individually is tortuous and complex. In finding the facts which are set out earlier in this decision we have taken into account all the documents in the bundle, particularly the Heads of Agreement dated 11 June 2001 (the Heads of Agreement) and the Partnership Agreement of 8 April 2002 (the Partnership Agreement). We find that these documents were genuine and not the smokescreen suggested by Mr Holl. Our reasons for reaching this conclusion are briefly as follows :

Heads of Agreement

1. The evidence of both Mr Pal and Mr Alonso at the tribunal. [This also relates to the Partnership Agreement]

2. The fact that over £100,000 was paid by Mr Alonso and Mr Bouacheri to Mr and Mrs Pal at various times in order for the Head Lease of 10 Little Clarendon Street to be assigned eventually to Mr Alonso.

3. The above sum also included licence fees for the occupation of the premises at a rate of £8,000 per quarter.

4. The statement in the letter from Edwrad Pilling & Co solicitors to Mr Bouacheri dated 19 June 2002 to another firm of solicitors The Owen- Kenny Partnership who acted for Mr Alonso at that time. The relevant paragraph reads as follows :

"With regard to the Licence we can confirm that Licence was granted conditionally upon both partners completing a course at Oxford Brookes …"

The Partnership Agreement

1. Edward Pilling & Co forwarded their above letter of 19 June 2002 a "full copy of the Agreement as signed". They would not have forwarded such an Agreement if it was not genuine. It is apparent that the solicitors had drawn up the Agreement as they were acting for both partners at the time.

2. With the bundle of documents there is at pages 120-126 a statement by Mr Bouacheri dated 5 September 2002 which was apparent filed at the Oxford County Court in his dispute with Mr Alonso. He did not appear at the hearing nor was he represented. Nevertheless, it does provide secondary evidence which the tribunal can and does take into account. He makes various statements including the following :

Paragraph 4 "It is common ground between the parties that we commenced trading in partnership on 14 February 2002 as the "Tapas Cerveceria Bar" from 10 little Clarendon Street, Oxford. We had agreed to purchase the Lease and business from the current holders of the Lease, a Mr and Mrs Pal and Mr and Mrs El-Baghdadi for the sum of £140,000. Neither the assignment of the Lease nor the sale of the business has been completed. However, I continue to run the business from the premises. The Claimant is, in effect, a sleeping partner".

[The Claimant was Mr Alonso]

Paragraph 7 "I vigorously deny that the Agreement of 8 April covers the whole arrangements between the parties and it certainly does not include the terms upon which, inter se, we were to acquire the business and the Lease. Paragraph 1 of the Agreement recites that the parties commenced business on 14 February and paragraph 2 states that the Agreement shall be operative from 8 April for two years from that date. The Agreement does not operate prior to that date nor, in particular, does it set out the terms upon which we were to acquire the business and the Lease".

50. Taking these factors into account, we take the view that as from 14 February 2002, Mr Alonso and Mr Bouacheri were in partnership running the restaurant and bar and this continued until their relationship broke down some time in the later summer of 2002. It cannot be stated when this exactly occurred but it is apparent from Mr Bouacheri's statement in the proceedings in the Oxford County Court that letters before action were passed between Mr Alonso and Mr Bouacheri on 14 and 21 June 2002. Mr Bouacheri became the Defendant shortly afterwards.
51. The Heads of Agreement made it quite clear that Mr and Mrs Pal were granting to Mr Alonso and Mr Bouacheri a licence to carry on the restaurant business in partnership and over a period of time be able to acquire the Head Lease, fixtures and fittings, equipment and goodwill of the business. It was in effect a sale agreement in another guise. This did not mean that Mr and Mrs Pal were in partnership with them. It was effectively an arrangements endeavouring to give as much protection to Mr and Mrs Pal as was possible as the original owners of the business. It might also have tax implications.
52. We also took into account that Clause 4 of the Heads of Agreement provided as follows :

"During the period from 26 June 2001 to 26 December 2002, the partnership will endeavour to make available to T & J a further sum of £76,000 and upon this sum being made available T & J will use its best endeavours to have the partnership names introduced onto the Lease of the premises together with the names of Mr R Pal and Mrs K Pal …"

53. At the hearing, the tribunal was told that because the Head Landlords (University College) were proving difficult over Mr Alonso and Mr Bouacheri taking occupation of the premises to run the business, it was decided to make a VAT Registration Application in the name of the four of them. Although this was a foolish thing to do, in the light of the circumstances of this sale transaction it is probable that was the only intention and was part of the terms. In our judgment, the only partnership that existed by the Partnership Agreement (following on from the Heads of Agreement) was between Mr Alonso and Mr Bouacheri. On the balance of probabilities, there was never a Partnership Agreement involving Mr and Mrs Pal. There could not be two Partnership Agreements for the running of the business in existence at the same time.
54. We reach this conclusion bearing in mind that there was no evidence before the tribunal that Mr and Mrs Pal contributed to the running of the business. Indeed, Mr Pal at the hearing stated quite categorically that neither his wife nor himself had traded from the premises and their relationship had always been that of landlords, sub-letting or licensing the use of the premises. There was also no evidence that they shared in the profits of the business or contributed to the losses within the definition referred to in section 7(1) of the 1890 Act.
55. There is no doubt that Mr Burke as the Customs Officer in charge of the investigation considered that the four Appellants were the partners of the restaurant business for the periods the subject of the assessment since he refers to this in the heading of his letter to Mr Alonso of 4 September 2003 and in the first paragraph of his letter to Mr and Mrs Pal of the same date. In our opinion, if he had delved deeper he could have discovered the true position. For instance, there are two entries on page 60 of the bundle which is in an attachment to schedules sent to Mr Alonso's accountants Thurai & Co with the letter dated 15 August 2003. They read : "£500 EA's cost for p'ship dispute" and "£170 EA's costs for p'ship dispute". Also on page 58 of the bundle an entry in the schedule of purchases expenses "30/09/3002 – County Court £250". These entries should have given him an indication that there was a partnership dispute and he could have enquired to which partnership this referred when it would have become apparent that it was the one between Mr Alonso and Mr Bouacheri.
56. Therefore, the assessment is invalid and the appeal succeeds.

58. Although not material to this decision, we consider that the Commissioners should probably have raised the assessment against Mr Alonso and Mr Bouacheri as the partners at the relevant times and then it would appear that the only issue would have been whether it was made to the best of their judgment.

57. There is no order as to costs.

RODNEY P HUGGINS

Chairman

Release date: 16 January 2006

LON/04/0062