Alongi v Commissioners of Inland Revenue
| Jurisdiction | Scotland |
| Judgment Date | 12 June 1991 |
| Date | 12 June 1991 |
| Court | Court of Session |
Court of Session (Inner House).
Lord President Hope, Lord Mayfield and Lord McCluskey.
Mr AC Hamilton QC (instructed by A & WM Urquhart) for the taxpayer.
Mr DRA Emslie QC and Mr RA Smith (instructed by the Solicitor of Inland Revenue) for the Crown.
The following cases were referred to in the opinion of the court:
Nasim & Anor v C & E Commrs TAX[1987] BTC 5062
Ransom (HMIT) v Higgs TAX(1974) 50 TC 1
Spedding v Sabine (HMIT) TAX(1954) 35 TC 239
This was an appeal against a decision of the general commissioners for Midlothian confirming assessments to tax under Sch. D in respect of profits of the Caprice Restaurant in Edinburgh for the years 1981-82 to 1985-86 on the taxpayer as proprietor of the business.
The taxpayer bought the restaurant known as the Caprice in Edinburgh from his brother Tony, who had been sequestrated, for £195,000 in July 1982. The taxpayer borrowed £161,733 from a bank to finance the transaction.
There were various bank accounts for the business including a "loan account" representing the money borrowed to finance the purchase. Initially the sum of £1,000 was paid out of the profits each week by standing order authorised by the taxpayer but ceased after about a year. Those payments were regarded as rent by the parties but it was understood that when the loan account (including interest charges) was reduced to nil, the taxpayer would reconvey the Caprice to Tony for a nominal sum. In the meantime Tony and his wife and son were employed by the taxpayer to be responsible for the day to day running of the restaurant. The taxpayer signed certificates approving the accounts.
The taxpayer appealed against assessments to income tax under Sch. D for the years 1981-82 to 1985-86 in respect of the profits of the restaurant contending that although he was the proprietor of the business, he was not liable to tax in respect of the profits because either his brother Tony, or Tony with his wife and son, were throughout entitled to the profits.
The general commissioners concluded that the taxpayer as the proprietor of the restaurant was liable to Sch. D tax on the profits.
The taxpayer appealed to the Court of Session contending that the evidence before the commissioners did not support their conclusion. The taxpayer, who took no part in the business, could not be said to be carrying on the trade or be entitled to the profits.
Held, dismissing the taxpayer's appeal:
If the taxpayer wished to show that he was not the person who carried on the trade and was not entitled to the profits, he would have to show who the person was to whom the profits accrued. The commissioners were entitled on the evidence to conclude that Tony and his wife and son were employees of the business so that they could not have been carrying on the trade. The commissioners were further entitled to conclude that, by signing certificates approving the accounts, the taxpayer accepted responsibility for their accuracy and the business was under his control. The conclusion reached by the commissioners that the taxpayer was assessable to tax on the footing that he was the proprietor of the business was the only reasonable conclusion open to them.
1. At meetings of the commissioners for the general purposes of income tax for the division of Midlothian held on 6 May, 20 May and 28 May 1987 and 25 May 1988, Cavaliere Victor AD Alongi ("the taxpayer") appealed against assessments to income tax under Case I of Sch. D for the years 1981-82, 1982-83, 1983-84, 1984-85 and 1985-86 in the sum of £20,000 for each year in respect of profits arising from the business known as the Caprice restaurant, situated at 325-331 Leith Walk, Edinburgh, hereinafter referred to as "the Caprice".
2. The taxpayer was represented by Mr R Crawford of Messrs Jeffrey Crawford & Co CA, Edinburgh. The Revenue were represented by Mr SM Duffus, HM Inspector of Taxes, Edinburgh 8 District.
3. Shortly stated, the question for our decision was whether the taxpayer was the proprietor of the business at the Caprice Restaurant, Leith Walk, Edinburgh, and as a result whether assessable profits arising therefrom were assessable on him for the five years 1981-82 to 1985-86 inclusive.
4. There was lodged with us a "statement of agreed facts" which had been agreed between the parties. [The statement was reproduced as Appendix A to the case and the commissioners listed the documents proved or admitted before them.]
5. Evidence was given under oath by the taxpayer on his own behalf. In addition we heard evidence under oath on the facts in dispute from Antonio Gaetano Alongi, the brother of the taxpayer, and Mrs Anna Alongi, the wife of Antonio Gaetano Alongi. Further evidence was given by Mr D Paton, a bookkeeper who had dealt with the preparation of records and books, PAYE income tax matters and VAT returns for the Caprice, Leith Walk, as well as for other business establishments of the taxpayer.
6. Evidence was given under oath on behalf of the Revenue by Mr J Bald, inspector of taxes, Edinburgh 4 District (previously of Edinburgh 8 District), and Mr J Barbour, collector of taxes, Edinburgh audit.
7. As a result of the evidence adduced before us we found the following facts were admitted or proved:
(2) The business known as the Caprice restaurant, 325-331 Leith Walk, Edinburgh, was, prior to 1982, owned by Mr Antonio G Alongi, hereinafter referred to as "Tony". Tony was sequestrated in 1982 and the business was advertised for sale. An offer by the taxpayer to buy the business, including the business premises, was accepted and the premises were disponed to the taxpayer on 2 July 1982 for the sum of £195,000, with entry given from 1 April 1982. The taxpayer borrowed the sum of £161,733 from the Royal Bank of Scotland in order to finance the purchase. A standard security was granted by the taxpayer in favour of the bank as security for the loan.
(3) Three bank accounts for the business were opened with the Royal Bank of Scotland in Musselburgh in the names of the taxpayer and his wife, Lady Alongi. One account was a business account, the second was a loan account, and the third was for VAT. Tony, the taxpayer and Lady Alongi were authorised signatories to the business account and the taxpayer alone was the signatory to the loan account. Only one signature was required to operate the business account and in practice cheques on this account were signed only by Tony. The loan account represented the moneys borrowed from the Royal Bank to finance the transaction. The sum of £1000 was paid into that account each week. The sum was paid out of an account into which the business receipts of the restaurant were paid and was paid by a standing order which had been authorised by Victor. That sum was regarded by the parties as rent but was payable at that rate upon the understanding that when the loan account (including interest charges) was reduced to nil the taxpayer would reconvey the Caprice to Tony for a nominal sum. Tony subsequently fell behind in these payments. After about a year the payments fell to £700 per week, then £500 a week and later ceased altogether.
(4) The taxpayer owned several other businesses and maintained a number of accounts with the same branch of the Royal Bank of Scotland in Musselburgh. Money was regularly transferred by standing order from the Caprice restaurant business account to one of these other accounts.
(5) From 1 April 1982 the books of the business were maintained by Mr D Paton who was also employed by the taxpayer to maintain the books of the taxpayer's other businesses.
(6) The business books and records for the Caprice...
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Peter John Rafferty v HMRC
...it was not the same trade as that carried on by the Appellant. 81. Finally we were referred to Alongi v Commissioners of Inland Revenue(1991) 64 TC 304 which established the principle that that the proprietor of a trade was the person who owned and controlled the trade and was entitled to t......