Balen v Commissioners of Inland Revenue
| Jurisdiction | England & Wales |
| Judgment Date | 20 April 1978 |
| Date | 20 April 1978 |
| Court | Court of Appeal (Civil Division) |
HIGH COURT OF JUSTICE (CHANCERY DIVISION)-
COURT OF APPEAL-
Income tax, Schedule D, Case VI - Surtax - Transactions in securities - Tax advantage - Counter-action - Procedure - Taxpayer's claim for declaratory relief - Validity of notification issued under s 460(6) specifying relevant transactions - Validity of Commissioners' counter-statement - Whether taxpayer entitled to declaration that such notification void because Commissioners' reasons for specifying transactions not disclosed to him - Whether taxpayer entitled to declaration that Tribunal's determination of prima facie case for proceeding void because Commissioners' counter-statement dealt with matters not raised in taxpayer's statutory declaration - Income and Corporation Taxes Act 1970 (c 10), ss 460(6) and (7), and 462(1).
In April 1974 the Commissioners of Inland Revenue notified the taxpayer under s 460(6), Income and Corporation Taxes Act 1970, that they had reason to believe that s 460 might apply to him in respect of the transactions in securities specified in the notification. Neither the notification nor correspondence with the taxpayer specified the reasons for their belief. The taxpayer made a statutory declaration in accordance with s 460(6) denying that he had obtained any tax advantage from such transactions. Pursuant to s 460(7) the Commissioners, seeing reason to take further action, sent to the Tribunal a certificate to that effect, the said statutory declaration and a counter-statement setting out the background and details of the transactions which formed part of the scheme whose object was to obtain a tax advantage for the taxpayer, but he was not shown the counter-statement. The Tribunal determined that there was a prima facie case for proceeding in the matter and the Commissioners served notice under s 460(3) on the taxpayer of their intention to adjust his tax liability accordingly. Following the listing of the taxpayer's appeal against the said notice (and the consequential assessments to income tax under Case VI of Schedule D and surtax) for hearing before the Special Commissioners, the taxpayer issued a summons in the High Court, claiming declarations that (i) the notification, not having given reasons for the Commissioners' belief, was void, (ii) the Tribunal's determination was void because the counter-statement, which contained details not included in the notification, had erroneously been considered by the Tribunal and (iii) the surtax assessment was void. On behalf of the Crown it was contended (i) that the High Court had no jurisdiction to hear the summons as s 462(1) of the 1970 Act prescribed the exclusive method of appealing against a notice issued under s 460(3) following the Tribunal's determination, but (ii) if the High Court had jurisdiction, it should not grant the declarations claimed.
The Chancery Division, dismissing the taxpayer's summons, held (1) that the High Court had jurisdiction to entertain the claim for declarations, and it was the proper forum for resolving questions relating to the propriety of the Tribunal's determination following allegations that the wrong procedure had been adopted, particularly as no other appeal procedure was appropriate. Section 462(1) was limited to appeals on the grounds therein mentioned and
was therefore inappropriate for an appeal on any other grounds (Howard v. Borneman (No. 2) [1976] AC 301 applied; In re Vandervell's Trusts 46 TC 341; [1971] AC 912 considered); (2) that the taxpayer was not entitled to the declarations claimed because (i) the Commissioners had sufficiently specified the transactions in question in the s 460(6) notification and they were not bound to provide the taxpayer with any additional information and (ii) moreover the Tribunal had properly considered the Commissioners' counter-statement as that document did not go beyond what was contemplated by s 460(7); (3) that the taxpayer would not, in any event, have been entitled to a declaration that the surtax assessment was void because once made, and a notice thereof served, an assessment could "not be altered except in accordance with the express provisions of the Taxes Acts" (s 29(5), Taxes Management Act 1970)The Court of Appeal, unanimously dismissing the taxpayer's appeal, held that (1) the language of s 460(6) did not require the Board to state the reasons for their belief "that this section may apply" to the taxpayer in respect of the transactions specified in the notification; (2) (i) there was nothing in s 460(7) requiring the Board's counter-statement to confine itself to countering the taxpayer's statutory declaration and there was nothing in the Statute to control the contents of either the statutory declaration or the counter-statement; (ii) on the authority of the House of Lords in Wiseman v. Borneman 45 TC 540; [1971] AC 297 the rules of natural justice did not require that the taxpayer should have the opportunity of answering the submissions made in the Board's counter-statement before it was considered by the Tribunal.
Quaere: Whether the claim for relief by originating summons was in the circumstances appropriate at all.
Balen sought against the defendants (the Commissioners of Inland Revenue and the members of the Tribunal established under s 463 of the Income and Corporation Taxes Act 1970) declarations that a notification served on him by the Commissioners of Inland Revenue and the declaration of the Tribunal were each void .
The case came before Oliver J. in the Chancery Division on 3 and 4 November 1976, when judgment was reserved. On 11 November 1976 judgment was given in favour of the Crown, with costs.
Oliver J.-This is an originating summons claiming declarations that (1) a notification by the Commissioners of Inland Revenue under s 460(6) of the Income and Corporation Taxes Act 1970 is void; and (2) that a subsequent determination under subs (7) of the same section is likewise void. The section referred to is one containing provisions (formerly appearing in the same form in s 28 of the Finance Act 1960) enabling the Commissioners in certain specified circumstances, to counteract a tax advantage obtained or obtainable by a person in consequence of a transaction or transactions in securities. That counter-action is effected by various means which have to be specified in a notice served on the taxpayer under subs (3) of the section. Before such a notice can be served, however, the section lays down an essential preliminary procedure, and that is contained in the two subsections to which the summons refers.
Under subs (6) no notice specifying counteracting measures can be given pursuant to subs (3) until-and I quote: "they"-that is the Board of Inland Revenue-"have notified the person in question that they have reason to believe that this section may apply to him in respect of a transaction or transactions specified in the notification." Once that notification has been given, the taxpayer has 30 days in which, if he does not agree with the Board's opinion, he can send to the Board a statutory declaration setting out the facts and circumstances upon which he bases his opinion that the section does not apply to him. If he does that, then the section does not apply to him in respect of the notified transaction or transactions, but-and these are the important words-"subject to subsection (7) below". Subsection (7) enables the Board, if, after receipt of the taxpayer's statutory declaration, they see reason to take further action, to send to what is described as "the tribunal" a certificate to that effect, together with the statutory declaration. They may, if they wish, also send a "counter-statement with reference to the matter". "The tribunal" here referred to is one established under s 463 of the Act. Subsection (7) goes on to provide that the tribunal shall take into consideration the declaration and the certificate and-if there is one-the counter-statement, and shall determine whether there is or is not a prima facie case for proceeding in the matter. If they determine that there is not, then the section does not apply, and that is an end of the matter. The Board has no right of appeal. Curiously enough, the subsection does not say in terms what is to happen if they determine that there is a prima facie case, but it is a necessary implication that, if they do, the Board can then go ahead with a notice under subs (3) and any consequential counteracting steps which follow from that. Under s 462 the taxpayer has a right of appeal to the Special Commissioners against a notice under subs (3), and thereafter either he or the Board may call for the appeal to be reheard by the tribunal.
The Plaintiff here, Mr. Balen, is a person on whom, on 11 April 1974, the Board served a notification under subs (6). He made a statutory declaration and the Board made a counter-statement. The tribunal considered these documents and determined that there was a prima facie case for proceeding, and accordingly notice was served on Mr. Balen under subs (3), and that was followed by an assessment to surtax. Mr. Balen has appealed under s 462 against the notice. The present summons, however, seeks to pre-empt that appeal. It is not based on the merits of any case which the Plaintiff or the Crown seeks to make as to whether there was or was not a relevant tax advantage, or whether there were or were not relevant circumstances enabling the section to be brought into operation.
The Defendants are, first of all, the Commissioners of Inland Revenue, and, secondly, the members of the Tribunal. The summons attacks the matter at an earlier stage for it seeks declarations that the original notification under subs (6), which is required to set in motion the mechanism of the section, was a nullity and that the Tribunal's determination, based on the consideration of a nullity, was itself null and void. On this footing, if the Plaintiff is right...
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