Commissioners of Inland Revenue v Hinchy
| Jurisdiction | UK Non-devolved |
| Judge | The Lord Chancellor,Lord Reid,Lord Radcliffe,Lord Cohen,Lord Keith of Avonholm |
| Judgment Date | 18 February 1960 |
| Judgment citation (vLex) | [1960] UKHL J0218-1 |
| Court | House of Lords |
| Date | 18 February 1960 |
[1960] UKHL J0218-1
Lord Chancellor
Lord Reid
Lord Radcliffe
Lord Cohen
Lord Keith of Avonholm
House of Lords
After hearing Counsel, as well on Monday the 11th, as on Tuesday the 12th and Thursday the 14th, days of January last, upon the Petition and Appeal of the Commissioners of Inland Revenue, of Somerset House, Strand, London, W.C.2, praying, That the matter of the Order set forth in the Schedule thereto, namely, an Order of Her Majesty's Court of Appeal of the 11th of May 1959, might be reviewed before Her Majesty the Queen, in Her Court of Parliament, and that the said Order might be reversed, varied or altered, or that the Petitioners might have such other relief in the premises as to Her Majesty the Queen, in Her Court of Parliament, might seem meet (which said Appeal was, in pursuance of an Order of this House of the 17th day of December last, heard ex parte as to the Respondent Albert Edwin Hinchy, he not having lodged a Case in answer to the said Appeal, though ordered so to do); and due consideration being had this day of what was offered for the said Appellants:
It is Ordered and Adjudged, by the Lords Spiritual and Temporal in the Court of Parliament of Her Majesty the Queen assembled, That the said Order of Her Majesty's Court of Appeal, of the 11th day of May 1959, complained of in the said Appeal, be, and the same is hereby, Discharged: And it is hereby Declared, That the words "treble the tax which he ought to be charged under this Act" contained in section 25 (3) ( a) of the Income Tax Act, 1952 denote treble the whole of the income tax to which the defaulter is chargeable by direct assessment for the year of assessment in question: And it is further Ordered, That the Cause be, and the same is hereby, remitted back to the Queen's Bench Division of the High Court of Justice, to do therein as shall be just and consistent with this judgment: And it is also further Ordered, That there be no Costs of the Appeal to this House.
My Lords,
This is an appeal from an Order of the Court of Appeal (Lord Evershed, M.R., Ormerod and Harman, L.JJ.) in England, allowing in part an appeal by the Appellants from a judgment of Diplock, J. on the trial of an action for penalties under the Income Tax Act, 1952. Diplock, J. held that judgment should be entered for the Appellants for the sum of £20 without costs, while the Court of Appeal substituted a judgment in favour of the Appellants for £62 15s. 0d. The Court of Appeal thus added to the sum of £20 treble the tax on the amount which would have escaped taxation had a return made by the Respondent formed the basis of assessment.
The facts are that on the 19th April, 1952, the Respondent filled up the prescribed form containing a return of income and claim for allowances for the income tax year 1952–53. In that return he set out the figures of £18 6s. 0d. as the bank interest. In fact the correct amount of his income from that source in the year ending the 5th April, 1952, was £51 5s. 9d.
In order to appreciate the basis of the judgments of the Courts below it is material to observe that no assessment was ever made on Mr. Hinchy on the basis of his incorrect return, that the only assessment made on him for the relevant year was made after the correct amount had been discovered, and that this assessment in respect of all the tax for which he was liable for that year was made before the issue of the writ on 13th June, 1956.
These facts raise the question of the construction of subsection (3) of section 25 of the Income Tax Act, 1952, which provides:
"(3) A person who neglects or refuses to deliver, within the time limited in any notice served on him, or wilfully makes delay in delivering, a true and correct list, declaration, statement or return which he is required under the preceding provisions of this Chapter to deliver shall—
( a) if proceeded against by action in any court, forfeit the sum of twenty pounds and treble the tax which he ought to be charged under this Act; or
( b) if proceeded against before the General Commissioners, forfeit a sum not exceeding twenty pounds and treble the tax which he ought to be charged under this Act,
and where he is proceeded against before the General Commissioners, the penalty shall be recovered in the same manner as any other penalty under this Act, and the increased tax shall be added to the assessment."
The argument for the Crown which was developed before Mr. Justice Diplock, and later before the Court of Appeal, may be summarised as follows. The penalty imposed by the said section 25 (3), in the case of proceedings by action in a Court, is a fixed penalty which the Court (unlike the General Commissioners, in proceedings brought before those Commissioners) has been given by the Legislature no power to mitigate but which the Commissioners of Inland Revenue or the Treasury may mitigate under section 500 of the Act. The said penalty has been applied by the Legislature to a very wide variety of defaults. It embraces cases in which no return has been delivered at all, cases in which an incorrect return has been delivered, and cases (as under section 27, requiring the delivery by employers of lists of their employees) where a duty is cast upon one person to deliver a document relating to the tax liability of another, and where default in performing such duty can have no bearing on the ascertainment of the defaulter's own liability to tax. It applies irrespective of whether there has been fraud on the part of the defaulter and to cases in which there has been a serious, trivial, or even no direct, loss of tax to the Revenue. But the penalty applied to all these cases is a single penalty, and on the true construction of the relevant words in section 25 (3) (which must, it was submitted, be given the same construction as the corresponding words applied to proceedings before General Commissioners in section 55 of the Income Tax Act, 1842) such penalty is a penalty of £20 and treble the total tax to which the defaulter is chargeable by direct assessment for the year of assessment in question; the words "ought to be charged" limiting the ambit of the penalty to such tax as could be directly assessed on the defaulter, and there being in this respect a material difference in the wording of section 25 (3) and the wording "treble the tax chargeable in respect of all the sources of his income" of paragraph 4 of the Sixth Schedule of the Income Tax Act, 1952. It was further contended that the penalty could not be made to work in all the cases to which it is made applicable if it were construed as limited to treble the tax avoided by the default; and that if the Legislature had intended the subsection to bear this meaning it would have used the phraseology to be found in section 48 of the Act. The Crown's construction of the words had not, so far as was known, ever been challenged in the period of over a century which had elapsed since the enactment of the Income Tax Act, 1842.
Diplock, J. took the view that the consequence of the construction of section 25 (3) contended for by the Crown seemed to him to be absurd and unjust, and if there was some other possible construction, consistent with the words, which led to results less absurd and unjust, he would be inclined to adopt it. In his view there was such an alternative construction, for it seemed to him that a reasonable meaning of the words "the tax to which he ought to be charged under this Act" was the tax to which the taxpayer ought to be duly assessed but to which he had not been duly assessed by reason of the default; that is to say, the increased tax which, when one looked at the latter part of the subsection, was to be added to the assessment. In this respect he thought that section 48 of the Income Tax Act, 1952 (dealing with penalties for fraud) expressed in clearer and lengthier language what was intended to be conveyed by the elliptical expression in section 25 (3).
This construction raised the question of determining at what point of time one must ascertain the amount of tax which the taxpayer ought to be charged, and Diplock, J. gave the answer of the date at which the proceedings, whether before the Court or the General Commissioners, are brought. As, therefore, in the present case the proceedings had been commenced after the Respondent had been charged with all the tax for which he was liable, there was at the date of the commencement of the action no tax with which he ought to be charged under the Act and the only amount recoverable was the fixed penalty of £20.
Like the Court of Appeal, I regret that I am unable to accept this view as to the point of time. Its result would be that if the error were discovered before the assessment was made, the making of the correct assessment would eradicate that portion of the penalty arrived at by multiplying the tax. I cannot accept this. The liability to the penalty must, in my view, arise when the offence is committed, that is, when no return is made, when the time for making a return has expired, or where an incorrect return has been made, when such a return has been received by the Commissioners.
The Court of Appeal did, however, approve of the antecedent reasoning of Diplock, J. and the gist of their view is expressed in the following quotation:
"So as a matter of English it seems to us at least a legitimate interpretation of the phrase 'tax which he ought to be charged' to limit its significance to that amount of tax with which, at the relevant point of time, the taxpayer ought to be charged but with which he has not been charged by reason of his defective return: in other words, the tax appropriate to the undisclosed income."
The difficulty of the view of the Court of Appeal is that this expression appears to predicate that there has been...
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