United Kingdom VAT & Duties Tribunals Decisions

19465

Value Added Tax – VATA Schedule 1 para 1 – Registration by Commissioners of Appellants as a partnership – whether partnership constituted on basis of facts and circumstances – Appeals of each Appellant refused.

EDINBURGH TRIBUNAL CENTRE

AJMAN MIAH, ANWARA MIAH, AYSHA MIAH AND RAJAH MIAH

t/a THE RAJ RESTAURANT Appellants

- and -

THE COMMISSIONERS FOR

HER MAJESTY'S REVENUE & CUSTOMS Respondents

Tribunal: (Chairman): Mr Kenneth Mure, QC

(Members): Mr K W Pritchard, OBE., BL., WS

Mr I R Welch, CA., JP

Sitting in Edinburgh on 8, 9, 10, 14 & 15 March, 4, 5, 7, 8, 12, 13 & 14 July and 13, 14 & 18 October 2005

for the Appellants Mr Taher Nawaz, FCA, MBA

for the Respondents Mrs Joanna Clark, Shepherd & Wedderburn WS

© CROWN COPYRIGHT 2006.


 

DECISION

Introduction

In this Appeal the Appellants are represented by Mr T Nawaz, FCA, MBA and the Respondents by Mrs Joanna Clark, Solicitor, Shepherd & Wedderburn WS.

The Respondents seek to assess the Appellants as a partnership, trading as "The Raj Restaurant" with effect from 18 September 1995 and assess them accordingly to VAT for the period from 18 September 1995 to 31 July 2002 in respect of a restaurant business and other related activities. The Respondents determined also to de-register a company, On the Shore Ltd, which in their view only purported to carry on the restaurant business.

A Hearing to determine the existence of such a partnership took place as a preliminary matter to any question of quantum of the assessment. We accepted that a retrospective registration of the Appellants could competently be made having regard to the terms of VATA 1994, Schedule 1, paragraph 1. Indeed, as we understand, the competence of this was not challenged.

The Law

Section 1 of the Partnership Act 1890 defines partnership as "… the relation which subsists between persons carrying on a business in common with a view of profit".

Section 2 sets out certain principles indicative of the existence of a partnership. While these are mainly in negative terms Subsection (3) provides – "the receipt by a person of a share of the profits of a business is prima facie evidence that he is a partner in the business …".

In relation to partnership matters we were referred further to –

Miller: Partnership 2^nd Ied

Davis v Davis [1893] I Ch 393

Burrell v C&E [1997] STC 413

Stewart v Buchanan (1903) 6F (see Sheriff's Note p18/19)

McCosh v Brown's Trustee (1899) 1F 86

Stair Memorial Encyclopaedia – "Partnership" – paras 1012-1015

In relation to company law matters we were referred to –

Dadourian Group International Inc v Azuri Ltd [2005] EWHR 1768

City of Glasgow DC v Hamlet Textiles Ltd (1986) SLT 415

Gilford Motor Company Ltd v Horne [1933] I Ch 935

Stair Memorial Encyclopaedia – "Companies Acts" p402, 406/408

Further, reference was made to –

Asha Ali v C&E (EDN/03/55)

Wilson t/a Mountain View Hotel v C&E (MAN/98/639)

Anne Brookes v C&E (LON/92/2756A)

John Dee Ltd v C&E [1995] STC 941

Irene Kinnell t/a Berkshire Diet Clinic v C&E (LON/02/222)

Daemon Wade t/a Stump Cross Fisheries v C&E (MAN/00/878)

Manzoor Hussain t/a Central Taxis v C&E (MAN/99/0222)

Catherine Hunter & Others t/a Blues Hairshop v C&E (MAN/99/376)

D J Reed & Others v C&E (MAN/99/687)

Robert Mullis Restoration Services v C&E (LON/02/814)

Tynewydd Labour Club v C&E [1979] STC 570

First Indian Cavalry Club Ltd v C&E [1998] STC 293

C&E v Han and Yau and Others [2001] STC 1188

Licensing (Scotland) Act 1976, Section 11

Age of Legal Capacity (Scotland) Act 1991, Section 1

Evidence of Fact

The preliminary hearing proceeded with the Respondents leading evidence first but under reservation of all questions relating to the onus of proof. Before setting out our Findings-in-Fact we think it appropriate to comment generally on the evidence led and on the impressions which we formed of the various witnesses.

Mrs Clark led principally Mr Ian Small, an officer of the Respondents, who was in charge of the enquiry. Also, evidence was taken by her from Mr Amru Chowdhury, who worked at the Raj Restaurant, Mr Kenneth Davies, an accountant, and Mr John McCrae, a handwriting expert. The evidence of Mr Brian Wurr was agreed.

Mr Small gave evidence of the course of his enquiry. Following on that it was his decision to register the partnership for VAT purposes. He spoke to a course of observations of the business, conducted with the aim of establishing the correct level of turnover. (That aspect was not considered by us given the preliminary purpose of the hearing). In the course of the "change over" from Goa 1510 Ltd to Spice Aroma Ltd in 1997/1998 there were no apparent changes in the manner of conduct of the business. Mr Small spoke to the absence of certain documentation and problems in producing documentation. He referred to matters in the business records tending to show that the "fast food takeaway" business viz Pick 'n Mix Ltd t/a "Curry in a Hurry" and the Raj Hotel were parts of the same business as the restaurant. He referred to interviews with Ali Hadder and Amru Chowdhury, workers in the restaurant. The latter's evidence changed dramatically in the course of the enquiry (- with the revised version corresponding with his evidence to us). It appears that Mrs Miah would come regularly on a weekly basis to pay staff wages in cash. Also, the true control was exerted by the Miah family, with Mr Ajman (also known as "Tommy") Miah being prominent and his skills and culinary expertise being promoted. Mr Small interviewed also Alistair Badenoch, the original book keeper. Aysha, Mr Miah's daughter, had apparently asked him to set up the company "Goa" with herself as sole director and shareholder. Badruz Aman, who is recorded as being sole director and shareholder of Spice Aroma Ltd, was in reality only a kitchen worker. Mr Small referred to various payments from business accounts made for the personal benefit of the Miah family, including loan repayments on various heritable properties owned by them. There was no apparent explanation justifying these as expenditure of an independent entity. Further, there were several substantial payments between the various companies and members of the Miah family which called for an explanation in Mr Small's view.

Mr Nawaz made serious criticisms of Mr Small's evidence striking at his credibility. We formed a more favourable impression. This was a lengthy enquiry and, albeit insofar as relating to the existence of a partnership, seems to have been carried out conscientiously and thoroughly. While in certain respects Mr Small corrected his evidence, we do not consider that this affected his credibility adversely.

Amru Chowdhury's evidence was much more controversial. (He required an interpreter, Mr M Rahman, although it seemed at various stages he did have some limited understanding of English. There are extended notes of his evidence.) His evidence conflicted with the Appellants' account of the running of the business. In particular in his second interview with Customs & Excise he acknowledged that he had allowed his name to be used in relation to the company, On the Shore Ltd, and was merely the puppet of the Miah family. He claimed that Tommy Miah, Mrs Miah and Aysha (but not Rajah) had encouraged him to do so, although he was merely an employee, indicating that this would confirm his status in the UK. We preferred Mr Chowdhury's (revised) account to that of the Miah family on these matters. It is more consistent with all the objective evidence before us.

Mr Chowdhury explained that he had come to Edinburgh and to the Raj Restaurant in 1998 and was interviewed and engaged by Tommy Miah as a Tandoori Chef. He worked there 6 days per week. So far as he was aware, Tommy Miah was in charge of the Restaurant. In his absence his children or son-in-law would take charge. Both children, Aysha and Rajah, worked there. Mr Chowdhury received a weekly wage of £250 per week, increasing to £280 per week when he left. This was paid in cash.

Mr Chowdhury's initial account to Customs & Excise was that he had acquired the restaurant business from Badruz Aman for £400 and the settlement of certain liabilities. However, on being challenged by Customs & Excise, particularly in relation to the absence of any supporting written documentation, and given the substantial turnover of the restaurant, he withdrew this version of events (PRODUCTIONS – vol I – 5/O and S; vol III – 27/A; Ancillary Bundle I – 15/21). He acknowledged his signature on various items, including cheques in payment of the restaurant's VAT liabilities, but explained that he had been directed by Tommy Miah or the restaurant's manager to sign these. (The other writing on the cheques was not his). He explained that he did not understand their purpose and had no command of written English. He explained that having left the Raj Restaurant, he attempted to withdraw the balance from its bank account to close it in order to terminate any liability which he might have in relation to the business. He indicated (and we accepted) that he did not understand what a limited company was.

Given this witness's volte-face in relation to the affairs of the Raj Restaurant, we assessed his evidence with especial care. Both accounts are, of course, diametrically opposed. The latter account is, however, consistent with the objective evidence which emerges from the documentation and other oral evidence which we heard, all of which tends to show ownership and control of the business being exerted by the Miah family.

A short statement from Brian Wurr, an Inland Revenue officer was agreed as representing his evidence. It refers to his visiting the Raj Restaurant on 22 October 1999 purporting to be a customer. Tommy Miah had introduced himself as "Tommy Miah, the owner of the restaurant". (At this time, of course, Spice Aroma Ltd was registered for VAT purposes as trading at the restaurant!)

Neither party sought to lead the evidence of Alistair Badenoch. His direct evidence would have been helpful to us given his role as book keeper and business adviser over an extended period. (He is a Chartered Secretary). So far as we understand, neither Party sought to obtain his evidence by way of Witness Summons.

However, we heard from Mr Badenoch's successor, Kenneth Davies, who acted as book keeper to the Raj during the period from January 2001 to June 2002. He had been engaged by Tommy Miah. After submitting his invoice to "Tommy Miah" he was asked by him to resubmit it to "On the Shore Ltd". He understood that Ali Hadder was the manager but was unaware of who the real owner of the company was. (We note that according to Tommy Miah as at January 2001 Amru Chowdhury was the owner of the Raj business). Mr Davies explained that he decided to sever his connection with the Raj because of apparent irregularities in its business records. We found Mr Davies a helpful and candid witness.

Finally, the Respondents called the evidence of Mr McCrae. His Report is produced and we refer to its terms and conclusions. We found Mr McCrae a credible and helpful witness.

Mr Nawaz then led evidence from each of the Appellants. It appeared that their replies to many of the questions put to them, particularly about running the business and payments to them, lacked candour, and we considered that their evidence was to an extent strained accordingly, particularly in relation to the possible existence of a partnership. We felt that there was a lack of frankness in response to crucial questions. For instance Mr Miah seemed to discount the consequences of his sequestration during the period between 1997 and early 2000. Curiously his email address appears on correspondence bearing to come from persons other than the Miah family about the restaurant.

We observe particularly the following matters referred to or admitted in evidence by each of the Appellants.

Tommy Miah admitted that Alistair Badenoch had encouraged the establishment of the limited company, Goa 1510 Ltd. Apparently this was because of the unwelcome interest of the tax authorities. The shares in this company belonged to Aysha alone and she was sole director. This was a transaction within the family when "arms length" considerations might not apply. However Mr Miah and the family did not explain to our satisfaction that subsequently genuine transfers for value of the business from Goa to Spice Aroma Ltd and thereafter to On the Shore Ltd had taken place. Mr Badenoch was Secretary successively of each company. The shareholder/directors of Spice and On the Shore Ltd were kitchen staff who, it seems, had not paid a genuine consideration for the acquisition of the business. In particular Aysha's interests as shareholder of Goa, were not protected by having a valuation of the business instructed. Somewhat curiously Mr Miah replaced Amru Chowdhury as sole shareholder/director in 2002 without payment of any consideration. Mr Miah accepted that he had an increasing involvement in promotional and charity work in relation to the Raj. As a result he was often absent from the UK. In such circumstances it is obvious to us that his family would – and did – control and manage the business in his absence. He spoke in his evidence of the family "helping each other" and "protecting everyone" and of his advice being for the "family unit". This seems consistent with the Asian family concept. Mr Miah's stance in his letters to the Respondents of April and May 2002 (vol I-6—b, d & f) contradict the family's evidence generally about the running of the business. Finally, we observe that Mr Miah was unable to account for or explain away the substantial sums diverted from the business to pay for purely personal expenditure of his family. There is no evidence of directors' loan accounts. No evidence was presented of the Appellants' having repaid such withdrawals to the business. According to company records the Miah family had no interest in Spice Aroma Ltd nor initially in On the Shore Ltd.

Mr Miah accepted in cross-examination that his wife and Aysha could act independently of his wishes in relation to the hotel business at 6 West Coates. The title to the heritable property, of course, is in Aysha's name but substantial loan repayments were made from the restaurant business. He accepted also that Aysha was "the beneficial owner" of Goa 1510 Ltd.

Aysha gave evidence particularly about her involvement with Goa 1510 Ltd and her purchase of 6 West Coates. She has a degree in retail management and appeared to us to be an independently minded young woman. She indicated candidly that she had refused to live with her mother-in-law as would have been expected of her following on her "arranged" marriage. She continues to use her maiden name. We noted also that she had carried out various part-time retail jobs some years ago independently of the family business. She referred to "her parents" taking the decisions in relation to both the restaurant and hotel business. However, her attitude seemed to be one of willing co-operation in developing a family enterprise. While she did limited work in the restaurant, she is now actively involved working in the hotel with her mother. While owner/director of Goa 1510 Ltd she withdrew a significant income from the business (between £150 and £300 per week). She accepted that this was disproportionate in value to her work at the restaurant. Significantly, as the owner of 6 West Coates, she was not aware of it being the subject of a lease nor did she receive any rent for it.

Mrs Miah gave evidence via an interpreter. She acknowledged that she was owner of the restaurant premises and adjoining subjects. These represented a gift from her husband in January 1992. Although she received rental payments, the premises were not subject to any lease in favour of the various companies which purported to own the restaurant business. While she was unable to account for substantial financial transfers into and from her bank account, she disputed that any substantial sums came from the restaurant business. Although she was sole director of Pick 'n Mix Ltd, which was formed to trade as "Curry in a Hurry", she denied any involvement with this enterprise in her evidence! She accepted that she was the manager of the hotel, while her daughter assisted her with administrative work.

Rajah, the younger of the Miah children, gave evidence too. In addition to working as a waiter in the restaurant (which he continues to do) he was also licensee and in fact declared himself as its "manager" in the relative application. This would indicate to the Licensing Board a position of responsibility, but in his evidence Rajah suggested that he did not in reality exercise this. He was unable to comment on his directorship of Seven Spices Ltd and he could not account for sums apparently paid to him from that company. He was unable to comment on the purchases by him of properties at Roseburn Terrace and the transfer of a half share to him of 7 Balbirnie Place.

The overall impression which we have of the Miah family is that of a close but independently minded group of individuals, with various property interests, which they were content to apply in a collective effort to provide an income for themselves and additionally a means of capital enrichment. We note particularly the various heritable properties acquired by different members of the family and all funded from the business profits. Tommy Miah acknowledged unhesitatingly his daughter's beneficial ownership of Goa 1510 Ltd and of the heritable subjects at 6 West Coates. He acknowledged his wife's beneficial ownership of the matrimonial home. While he might hope that as a family they would form a common objective as to the use of these assets, he acknowledged that his wife and Aysha could act independently of his wishes. We noted also that he referred candidly on more than one occasion to the business as producing a "family kitty".

Finally, Mr Nawaz gave evidence as to his understanding of property rights within an Asian family. While interesting and helpful, we cannot view such traditions and practice as overriding the operation of Scottish principles of partnership law. The particular circumstances of the Miahs' family arrangements fall for present purposes to be considered in the context of the Partnership Act 1890 and relevant case-law.

Findings-in-Fact

On the basis of the evidence led we find as follows:

1. The first named Appellant, Ajman (also known as "Tommy") Miah, and the second named Appellant, Mrs Anwara Miah, are spouses. The third named Appellant, Aysha Miah, is their daughter. The fourth named Appellant, Rajah Miah, is their son.

2. In the period preceding 18 September 1995 the Raj Restaurant was the trading name of Bengal Tiger Ltd. Its sole director was Tommy Miah and its secretary was Alistair Badenoch.

3. From 18 September 1995 to 30 March 1998 Goa 1510 Ltd was registered for VAT purposes trading as the Raj Restaurant at 91 Henderson Street, Leith. Its sole director was Aysha Miah and its secretary was Alistair Badenoch. Aysha Miah was also its sole shareholder. She received £300 per week in cash from the company, which was later reduced to £150 per week. This was disproportionate in relation to the limited work which she carried out at the restaurant.

4. From 1 April 1998 to 7 January 2001 The Spice Aroma Ltd was registered for VAT purposes trading as the Raj Restaurant at 91 Henderson Street. In terms of its records its sole director was Badruz Aman and its secretary was Alistair Badenoch. Badruz Aman was also its sole shareholder. It was struck off the Register of Companies for failure to lodge annual accounts.

5. From 8 January 2001 On the Shore Ltd was registered for VAT purposes trading as the Raj Restaurant at 91 Henderson Street. Initially neither the names of its directors nor secretary were listed although the Appellants claim that Amru Chowdhury was sole director. Later Tommy Miah was registered as its sole director.

6. In July 2002 the Respondents de-registered for VAT On the Shore Ltd and registered compulsorily the Appellants as a partnership trading as "The Raj Restaurant" with effect from 18 September 1995.

7. On 10 September 2002 the Respondents issued a Notice of Assessment to Tax on the Appellants for £400,217.16 in respect of the period from 18 September 1995 to 31 July 2002 (hereinafter referred to as "the relevant period").

8. During the relevant period the business of the Raj Restaurant was conducted at 91 Henderson Street under the general management and control of the four Appellants and under the direction principally of Tommy Miah. While the said Badruz Aman worked there, he did so under the supervision of Tommy Miah. The said Amru Chowdhury worked there from 1998 to April 2002. He did so under the supervision of Tommy Miah.

9. Tommy Miah was sequestrated in about January 1997 and was not discharged until about January 2000.

10. The liquor licence relating to the Raj Restaurant was held in name of Tommy Miah until he was sequestrated. Thereafter it was transferred to Rajah Miah. (See Productions – vol II/24).

11. A related business activity, a home delivery service trading as "Curry in a Hurry", was conducted from the Raj Restaurant. Another company Pick 'n Mix Ltd was registered with this trading name for VAT from 25 October 1999 to 10 June 2000. In terms of its records its sole director was Anwara Miah and its secretary was Alistair Badenoch. This home delivery service was part of the overall business conducted by the Appellants. It did not operate at "arm's length" vis-à-vis the restaurant business, which catered for it. Its cheques record payments for catering supplies to outside concerns, including suppliers of foodstuffs to the restaurant.

12. The transfers of the business and assets and goodwill of the Raj Restaurant to The Spice Aroma Ltd and subsequently to On the Shore Ltd were not the subject of a formal agreement. No consideration was ever paid in respect of either transfer. The business had a substantial turnover.

13. While Aysha Miah was sole shareholder and director of Goa 1510 Ltd she cooperated with her parents in the running of the Raj Restaurant business. Neither Badruz Aman nor Amru Chowdhury, although purportedly sole directors of respectively The Spice Aroma Ltd and On the Shore Ltd, controlled the Raj Restaurant. They were members of the kitchen and waiting staff of the restaurant, acting under the direction of Tommy Miah, whom failing his family, and in receipt of a fixed wage. They were mere employees and "directors" only in name. They did not exercise de facto control.

14. There was no apparent change in the conduct or nature or personnel of the Raj Restaurant business in the periods immediately preceding and following the dates of incorporation of The Spice Aroma Ltd and On the Shore Ltd.

15. There is no evidence of company meetings or customary administrative records having been maintained by Goa 1510 Ltd, The Spice Aroma Ltd, On the Shore Ltd, and Pick 'n Mix Ltd. Each of these companies was a sham in as much as they did not control the business of the Raj Restaurant and the related activities. Management and control throughout the relevant period were retained by the Appellants. While there were bank accounts in name of these companies these were operated by the Appellants for their businesses and most relevantly their own personal purposes.

16. Although Mrs Anwara Miah received "rent" of £200 per week out of the profits of the Raj Restaurant for the use of the premises owned by her at 91 Henderson Street, there was no written lease or any written evidence confirming the terms of lease appropriate in the context of an "arm's length" relationship between occupier/tenant and landlord.

17. The premises at 6 West Coates, which were acquired in November 1997 in name of Aysha, have been used by the Appellants and they have traded there as The Original Raj Hotel. It has been and continues to be under the day-to-day management and control of Mrs Anwara Miah and Aysha Miah. Mrs Miah over-sees the maintenance of the accommodation. Aysha assists her in relation to the hotel administration. It has been promoted on the basis of its association with the Raj Restaurant. (Vol – IV/28). Substantial expenditure relating to the hotel was funded by the restaurant out of the bank account designated "Spice Aroma Ltd". (Vol III-27/M).

18. Mrs Anwara Miah was sole director and Alistair Badenoch was secretary of three other companies viz Original Raj Group Ltd, Original Raj (Edinburgh) Ltd, and Bengal Tiger International Company Ltd. Although the object of Bengal Tiger International Company Ltd was to furnish and provide for the Original Raj Hotel, substantial outlays for the hotel were paid out of the bank account in name of Spice Aroma Ltd. (See Vol III–27/M).

19. The Bank of Scotland account number 409715 was in name of Goa 1510 Ltd. The Clydesdale Bank account number 512862 was in name of Spice Aroma Ltd. Cheques were drawn on both accounts by Aysha Miah. Having regard to these and the cash book records maintained, substantial payments were made out of business profits for the apparent personal benefit of the Appellants e.g. Tommy Miah's credit card accounts, heritable loan and interest repayments, council tax bills (the companies did not own any heritable property), school fees, Sky TV subscriptions and other apparent domestic bills. Additionally each Appellant received regular cash sums out of the restaurant business. (See Vol II-22; vol III-27/F, G, JK and L; and Ancillary I-26). The manner of accounting for such payments in the annual accounts of the companies was not explained in evidence.

Certain substantial payments into the personal bank accounts of Mrs Anwara Miah and Aysha were not explained satisfactorily. In particular there is a series of substantial credits in favour of Aysha's account in August-September 1997 (see Vol III-27/S) and also into Mrs Miah's account in April, June and July 1998 (see Vol IV-27/ZA).

20. None of the companies Goa 1510 Ltd, Spice Aroma Ltd, and On the Shore Ltd owned any heritable property. The premises occupied by the Raj Restaurant are owned by Mrs Anwara Miah. (See Finding-in-Fact 16).

The premises at 6 West Coates, the Original Raj Hotel, were acquired by Aysha Miah and have not been the subject of any lease.

The Miah family own other heritable properties in Edinburgh, viz

(i) the family home at 7 Balbirnie Place, owned (in varying shares during the relevant period) by Tommy Miah, Mrs Anwara Miah and Rajah Miah, which is subject to a standard security in favour of the Leamington Spa Building Society;

(ii) dwelling houses at 27 Roseburn Drive and at 17 Roseburn Terrace acquired by Rajah Miah;

(iii) subjects at 5 Kew Terrace acquired by Mrs Anwara Miah; and

(iv) subjects at 3 Rutland Square owned by Aysha Miah.

(See vol II-25).

During the relevant period regular payments were made out of the profits of the restaurant to the Leamington Spa Building Society in respect of the family home, and to the Bradford and Bingley Building Society, which held standard securities over 5 Kew Terrace, 17 Roseburn Terrace and 3 Rutland Square. Also, repayments were made from the same source in respect of the loan secured over 6 West Coates.

(See vol III-27/F, G, JK and L).

21. Tommy Miah and Rajah Miah were the only directors of Seven Spices Ltd. It received from Goa 1510 Ltd £300 per week over an extended period for no apparent service. It represented a "kitty" (money box) for the Appellants.

22. The signature "Amru Chowdhury" where it appears on the cheque of On the Shore Ltd dated 4 April 2002 in favour of the Respondents and its VAT Return for the period to February 2002 are both forgeries. They are not in the handwriting of Amru Chowdhury. The handwriting is similar to that of Mrs Anwara Miah. It "verges on the probable" that she wrote these signatures.

23. Certain promotional material recovered relating to the Raj Restaurant, Curry in a Hurry and the Original Raj Hotel refer to the involvement of Tommy Miah and the other Appellants.

(See vol II-23/A, C and D; and vol IV-28).

24. Throughout the relevant period each of the Appellants was involved in the general management and control of the Raj Restaurant and related businesses. In particular Tommy Miah was ultimately responsible for the direction and promotion of the business. Mrs Anwara Miah, Aysha and Rajah were each involved in the running of the businesses, contributing by way of their labour and application of their personal property.

25. Crucially each of the Appellants shared in the net profits of the business to the exclusion of all other persons including in particular Badruz Aman and Amru Chowdhury, the "puppet" directors.

Parties' Submissions

Mrs Clark and Mr Nawaz provided us helpfully with detailed written submissions and addressed us on these. (After the conclusion of the Hearing Mr Nawaz sent to the Tribunal a further written document. While Mrs Clark could not obviously address us on its contents, these reflect his final arguments and we are prepared to view it in that context).

Essentially Mrs Clark's submission was that the whole evidence suggested a partnership of all the Appellants throughout the relevant period. While the onus of proof rests on the Appellants individually, the evidence in the present case was in any event overwhelmingly in support of that conclusion. This inference required the Tribunal to "look behind" the company structure. That, Mrs Clark argued, was a sham.

In reply Mr Nawaz submitted crucially that the taxpayers here were the companies viz Goa 1510 Ltd, Spice Aroma Ltd and On the Shore Ltd in succession. They did not represent a "sham". The company structure should not be disregarded. In any event there was not a partnership involving the Miah family. In particular Mrs Anwara Miah, Aysha and Rajah should not be viewed as having the necessary degree of independence of Tommy Miah to have the status of fellow-partners.

We refer for their further details to the terms of Mrs Clark's and Mr Nawaz's written submissions.

There is one particular point raised by Mr Nawaz on which we should comment further. He raised with Mr Small the matter of the availability of the "Case Control Sheet". This, apparently, could not be traced by the Respondents. Indeed there is doubt as to its existence. For present purposes we doubt that it contains any significant extra material liable to affect our decision. However, we would observe as a general proposition that all information helpful to the Appellants should be disclosed timeously and when requested, particularly having regard to the burden of proof in such Appeals. Having been instructed by the Appellants Mr Nawaz sought without delay further and better particulars from the Respondents of their case. Their responses were not made promptly and were arguably incomplete. Certain productions were lodged very late by the Respondents and some after the start of the Hearing. We had sympathy with Mr Nawaz and we granted adjournments at appropriate stages to give him an opportunity to consider the extra documents and take his Clients' instructions.

Mr Nawaz raised certain procedural objections to the "fairness" of the Hearing at an early stage of the proceedings by reference to the decision of the Court of Appeal in C&E v Han and Yau and Others. We indicated our views on this matter in July 2005. We did not consider that the nature of this Hearing was likely to breach Article 6 of the European Convention on Human Rights. In Han and Yau the issue related to the "fairness" of founding on statements made by the taxpayers in the course of interviews conducted by C&E officers where there were inter alia language difficulties. (We note particularly the observations of LJJ Potter and Mance at paragraphs 84 and 88 respectively). In the present case no such interviews took place although the Respondents had issued invitations for that purpose. Mrs Clark confirmed that she would not lead any such evidence.

Generally, the burden of proof in tax appeals rests on the taxpayer as the party challenging the assessment. Crucially in the present case the nature of any business relationship subsisting between the various Appellants and the relevant evidential aspects should be within their own knowledge. In such circumstances we remain of the view that these proceedings to determine the existence of a partnership do not infringe Article 6.

Decision

In our view all four Appellants were in business as a partnership throughout the period from 18 September 1995 to 31 July 2002 ("the relevant period"). While there is no written partnership agreement or written evidence of such a relationship, we consider that the existence of such a partnership may be inferred readily from the proven facts and circumstances. This is a mixed question of fact and law and an inference to be drawn from the facts found: see Keith Spicer Ltd v Mansell [1970] I AER 462 at 463 per Harman LJ.

The Burden of Proof

We agree with Mrs Clark's submission that the burden of proof rests on each of the Appellants. The onus of satisfying the Tribunal that the decision to assess the Appellants (or each of them) as members of a partnership was wrong, rests on them: see Tynewydd Labour Club v C&E [1979] STC 570 and Grunwick Processing Laboratories Ltd v C&E [1986] STC 441. Helpful reference may be made to the decision of the Tribunal in Leonidas v C&E [LON/97/1594]. There, a husband and wife were assessed as a partnership. They disputed this, arguing that they each conducted two separate catering businesses. The burden of proof (on the balance of probabilities) of showing that there were two separate businesses was held to rest on the taxpayers.

In any event evidence was led by the Respondents in this case. Irrespective of the burden of proof we consider that that evidence indicated the existence of a partnership involving each of the Appellants and throughout the whole of the relevant period.

The True Ownership of the Business

Essentially the issue is establishing the identity of the legal personality owning and operating the business and its assets. We approach this in 3 stages. Firstly, whether the company structure prevails or falls to be disregarded as a sham or façade. Secondly, whether it is Tommy Miah alone who should be viewed as the taxpayer. And, finally, what roles, if any, did Mrs Miah and Aysha and Rajah play? Were they (or any of them) partners of Tommy Miah or were they merely his agents or even his employees? Certainly, they were all during the relevant period "involved" in the business. Individual and family expenses were paid out of its receipts. Also, during the period from 1997 to 2000 Tommy Miah was an un-discharged bankrupt. While he would not be deprived entirely of contractual capacity, the interest of his trustee in his estate arises.

The Companies

During the relevant period a series of companies was registered as trading at the restaurant, viz firstly, Goa 1510 Ltd, then Spice Aroma Ltd and finally On the Shore Ltd. While there were bank accounts in name of each company and each company had registered for VAT, the pattern of transactions shows that, apart from meeting trading expenses, the sums remaining were held for the benefit of the Miah family and no-one else. In the case of Spice Aroma Ltd and initially with On the Shore Ltd the Miah family had no apparent interest in the companies. Aysha was sole director of Goa. While, as her father acknowledged, she could have directed the company independently of her parents' wishes, it seems that she was content to concur in an overall family control for its members' benefit. (In the event, it seems, she was not interested in furthering the business of the restaurant as a career). While Badruz Aman was shareholder/director of Spice Aroma Ltd and Amru Chowdhury was "owner" of On the Shore Ltd, they did not exert de facto management and control of the business. They were kitchen staff, chefs, receiving only a cash wage. Chowdhury did not understand or appreciate the role of a Company Director, and his command of English was very limited. Both worked under the overall direction of Tommy Miah, failing whom Mrs Miah and Aysha. No record was produced confirming board or company meetings or the payment of dividends, nor was there any documentation tending to prove a contract for transferring the business and goodwill and other assets of the Raj Restaurant from one company to another. Given its substantial turnover and, also, Aysha's interest when Spice Aroma Ltd allegedly took over the restaurant, we find it astonishing that there was no such documentation to protect Aysha's and the family's interests! It is significant also that Tommy Miah was able to "acquire" the shares in On the Shore Ltd after his sequestration without payment of any consideration! The circumstances of this were not explained satisfactorily.

During the relevant period there were eight companies which related to the activities of the business. In addition to Goa, Spice Aroma, and On the Shore, there were Pick 'n Mix Ltd, Seven Spices Ltd, Original Raj Group Ltd, Bengal Tiger International Ltd, and Original Raj (Edinburgh) Ltd. In each case there appears to be a lack of adequate capitalisation. Typically there is one shareholder only, holding two shares. There is no evidence of satisfactory provision for loan capital. There was no evidence presented in relation to Goa and Spice Aroma of the arrangements made on their being wound up, in particular affecting settlement with business creditors and the disposal of business assets.

In our view the companies were a mere sham and not the source of control of the business. We consider that the "veil of incorporation" should be lifted here. That reveals control by the Miah family, principally Tommy Miah, but also to a significant extent his wife and both children. The authorities considered (City of Glasgow DC v Hamlet Ltd, Gilford Motor Company Ltd v Horne and Dadourian Group v Azuri Ltd) stress that special circumstances are required to justify looking behind the company structure. This can be done as we understand where a limited company has been used as a ploy to disguise the true facts. Here, we consider that the companies were a device to disguise the true ownership of the business by the Miah family.

Existence of a Partnership

In terms of Section 1 of the Partnership Act 1890 – "Partnership is the relation which subsists between persons carrying on a business in common with a view of profit". Section 2 provides further guidance (of a somewhat negative nature) as to the inference of partnership. However sub-section (3) provides that – "The receipt by a person of a share of the profits of a business is prima facie evidence that he is a partner in the business …" These principles fall to be considered against the evidence available in the particular case. Here only limited evidence of accounts is available. Accounts for 2 years for Goa 1510 Ltd were referred to in evidence. Adjusting for the amortisation provision in the second year a net profit is produced for both years. There was no explanation in evidence as to how payments to and on behalf of the Miah family were treated in the annual accounts insofar as these were prepared. (It seems that Spice Aroma Ltd was struck off the Register of Companies for failing to lodge accounts). While there is no evidence of the business operating at a net loss, and it is tempting to view the monies taken by the Miah family as being out of net profit, there is an abundance of other factual evidence to consider. There is no evidence of anyone other than the Appellants sharing in what Mr Miah described on several occasions as "the family kitty". We note the view expressed by Lord Lindley's commentary on the 1890 Act viz "… in determining the existence of a partnership … regard must be paid to the true contract and intention of the parties as appearing from the whole facts of the case". (Our emphasis). Partners need not take equal shares of profit and they need not all take an active role in the partnership business (see Burrell v C&E at p1415). The possibility of there being a "dominant partner" is acknowledged in the Sheriff Principal's Note and Lord Moncrieff's opinion in Stewart v Buchanan at p18/19 and 22.

If, as we consider, the succession of companies during the relevant period falls to be disregarded as a sham, then the real trader requires to be identified. Tommy Miah plays a significant role although he was for a substantial part of the relevant period sequestrated. Also at times he was abroad. What roles did his wife and children play? While Tommy Miah might be regarded as "senior" partner, it is clear to us that his wife and children each exercised and participated in the management and control of the partnership business as set out in our Findings-in-Fact. Each of them was to a varying extent actively involved in the work and running of the family business and they each benefited directly and indirectly as a result. They withdrew money from it. Several substantial movements of cash between "company" and personal accounts remain unexplained. The purchase of the various heritable properties which they owned, was financed by the business. Certain of these were used for business purposes. Each parent was regarded by the rest of the family as having a significant influence over the "decision-making" affecting the business. The staff looked to Tommy Miah, whom failing the family, as being in charge. Clearly it was Tommy Miah who recruited Kenneth Davies as a new book keeper for On the Shore Ltd although at that stage he had no apparent interest in that company.

While rent was paid to Mrs Miah as owner of the premises used by the Raj, it was not considered necessary to have a formal lease, which would have been appropriate had there been 2 independent interests to protect. Similarly, Pick 'n Mix Ltd, (t/a Curry in a Hurry) of which Mrs Miah was sole director, did not operate at "arms length" in relation to the Raj Restaurant, again indicative of there being one overall business enterprise. While Mrs Miah was not present frequently at the restaurant, she did come weekly to pay staff wages. She encouraged Amru Chowdhury to represent himself to the authorities as true owner of On the Shore Ltd. There appears to be a "strong possibility" that she forged the signature of Mr Chowdhury on cheques and other business documents. Mr Miah acknowledged that his wife could have acted independently of his and the family's wishes in relation to assets owned by her. It may be inferred that her choosing not to do so is another factor indicative of her participating in a partnership business.

While Aysha was not present regularly at the Raj Restaurant, she did assist there and in a "trusted" capacity. Significantly her father regarded her as beneficial owner of Goa 1510 Ltd and of the restaurant business purportedly owned by it. He accepted that she could have exercised control independently of the family, but she chose not to do so. Again in our view this is indicative of a family business partnership. Aysha is owner of the heritable property at 6 West Coates. Again, it seems, she is content that it be used for purposes of the family's business interests. We view Aysha as independently minded although we accept that she would have respect for her parents' views. She accepted that the monies which she received in cash from the restaurant business were disproportionate to the actual work she carried out there. This seems indicative of her receiving a share of net profits.

Finally, we consider Rajah's circumstances. He worked in the restaurant more or less throughout the relevant period. In addition to receiving "wages" he was enabled to purchase heritable properties at nos 17 and 27 Roseburn Drive. (We note that his mother transferred a half share of no 7 Balbirnie Place to him also). He became licensee of the restaurant while his father was sequestrated. It seems reasonable to infer that he was entrusted with the responsibilities of that role by the family. We note that none of the other staff, not even the puppet "directors", were chosen for this role. Significantly Rajah signed the relative application as "manager". He did so to promote his status with the Licensing Board. He was a director with his father of Seven Spices Ltd, part of the "family kitty". Rajah's position is somewhat distinct perhaps given that he was only 16 at the start of the relevant period. However we consider that all these factors support his being a member of the family partnership throughout the relevant period. Ultimately the "approach" which we must adopt is to consider whether on the balance of probabilities Rajah (and indeed the other Appellants) has discharged the burden of proof upon him. We are not so satisfied.

For these reasons we consider that each of the Appellants was a member of a partnership running the Raj Restaurant and related business interests during the relevant period i.e. from 18 September 1995 to 31 July 2002. We consider that the evidence led is overwhelmingly in support of such a conclusion. Further, our understanding of the concept of the Asian family as explained by Mr Nawaz tends to approximate in many respects to the legal definition of partnership. The burden of proof rests, of course, on each of the Appellants and that on the balance of probabilities. We consider that none of the Appellants has discharged this. Therefore, we uphold the Respondent's decision to register them for VAT purposes accordingly.

Costs

As requested by both Parties we reserve the matter of costs.

MR KENNETH MURE, QC CHAIRMAN
RELEASE: 21 FEBRUARY 2006

EDN/03/03