The Commissioners Of Inland Revenue For Judical Review Of A Decision Of The General Commissioners Of Income Tax
| Jurisdiction | Scotland |
| Judge | Lord Drummond Young |
| Judgment Date | 18 October 2005 |
| Neutral Citation | [2005] CSOH 135 |
| Published date | 18 October 2005 |
| Docket Number | P43/05 |
| Court | Court of Session |
| Date | 18 October 2005 |
| OUTER HOUSE, COURT OF SESSION [2005] CSOH 135 | |
| P43/05
| OPINION OF LORD DRUMMOND YOUNG in Petition of THE COMMISSIONERS OF INLAND REVENUE Petitioners; for Judicial review of a decision of the General Commissioners of Income Tax, Aberdeen City Division, dated 19 August 2004 granting applications for late appeals against assessments for 1991/92, 1992/93 and 1993/94 in respect of Mr. Hugh Love in terms of section 49(1) of the Taxes Management Act 1970 ________________ |
Act: Paterson; HM Milne, Solicitor (Scotland), Inland Revenue
Alt: Wolffe; Wright Johnston & Mackenzie LLP
18 October 2005
[1]The present petition for judicial review relates to the income tax liability of the taxpayer, Mr. Hugh Love, for the three years of assessment 1991/92, 1992/93 and 1993/94. During those three years the taxpayer worked offshore on "jack-up" drilling rigs. Such rigs are constructed on a barge hull which is fitted out for offshore drilling with legs that enable the rig to stand on the seabed. They are generally towed to their drilling location, where their legs are located on the seabed and their superstructure is then jacked up to a position well above the waterline.
[2]Section 193 of the Income and Corporation Taxes Act 1988 permits employees whose duties are performed wholly or partly outside the United Kingdom to claim a deduction from income tax in respect of their foreign earnings. Section 193 (1) is in the following terms:
"Where in any year of assessment-
(a)the duties of an office or employment are performed wholly or partly outside the United Kingdom; and
(b)any of those duties are performed in the course of a qualifying period (within the meaning of Schedule 12) which falls wholly or partly in that year and consists of at least 165 days
then, in charging tax under Case I of Schedule E on the amount of the emoluments from that employment attributable to that period, or to so much of it as falls in that year of assessment, there shall be allowed a deduction equal to the whole of that amount".
The expression "qualifying period" is defined by paragraph 3 of Schedule 12. The basic definition, found in paragraph 3(1), is as follows:
"For the purposes of section 193(1) a qualifying period is a period of consecutive days which either-
(a)consists entirely of days of absence from the United Kingdom; for
(b)consists partly of such days and partly of days included by virtue of sub-paragraph (2) below".
Paragraph 3(2) deals with time spent by the taxpayer in the United Kingdom between periods spent abroad. It provides that the intervening period spent in the United Kingdom will count as a qualifying period provided that two conditions are satisfied. First, the period must not exceed 62 days. Secondly, the number of days spent in the United Kingdom must not exceed one sixth of the total number of days in the period comprising both the periods spent outwith the United Kingdom and the intervening days spent in the United Kingdom. In the case of seafarers, sub-paragraph (2) is supplemented by sub-paragraph (2A):
"In relation to emoluments from employment as a seafarer, sub-paragraph (2) above shall have effect-
(a)as if the number of days specified ... were 183 instead of 62, and
(b)as if the fraction specified... were one half instead of one sixth;
...".
Thus the relief accorded to seafarers is greater than that accorded to other employees.
[3]During the early 1990s it was the view of the Inland Revenue that "jack-up" drilling rigs were not ships within the meaning of paragraph 3(2A). The result of that view was that persons who worked offshore on such rigs were denied the benefits accorded to seafarers, with the result that most such employees were unable to claim foreign earnings deduction. The Finance Act 1998 amended section 193 in such a way as to make it clear that in future years of assessment "jack-up" drilling rigs were excluded from the definition of ship. The effect of the amendments was to preclude any claim by those working on such rigs for treatment as a seafarer in years of assessment from 1998/99 onwards. The Revenue's view of the legal position before 1998 was challenged, however, and in Clark v Perks, [2001] STC 1254, it was held by the Court of Appeal in England that the view was mistaken and that those working on "jack-up" drilling rigs were entitled to be treated as seafarers for the purposes of foreign earnings deduction. Following that decision, in February 2002, the Inland Revenue issued Tax Bulletin 57, relating to foreign earnings deduction. In that document the Revenue indicated that they had accepted that before 17 March 1998 (the date when the amendments in the Finance Act 1998 came into operation) "jack-up" rigs would be treated as ships for the purposes of foreign earnings deduction. It was further intimated that, as the Revenue had decided to apply the Court of Appeal's decision more widely, employees who worked on "jack-up" rigs before March 1998 might be entitled to foreign earnings deduction provided that they satisfied all the other conditions for the deduction and were eligible to make a claim. That would enable open appeals to be settled. In relation to closed years, attention was drawn to section 33 of the Taxes Management Act 1970 (quoted below at paragraph [20]), which permits relief where an error or mistake has been made in a tax return. The view expressed in Tax Bulletin 57, however, was that relief under section 33 would be precluded by section 33(2), which restricted relief where the return was made in accordance with generally prevailing practice.
[4]The taxpayer was assessed to income tax for the three years 1991/92, 1992/93 and 1993/94. The assessment for 1991/92 was issued on 18 March 1993 and was appealed against. The assessment was determined under section 54 of the Taxes Management Act 1978 on 29 April 1993. The assessment for 1992/93 was issued on 24 January 1994. It too was appealed against, and the assessment was determined under section 54 on 7 March 1994. The assessment for 1993/94 was issued on 2 February 1995 and was not appealed against. Under section 31 of the Taxes Management Act an appeal might be brought against an assessment by notice of appeal in writing given within 30 days after the date of the notice of assessment. The time for an appeal against the assessment for 1993/94 accordingly expired on 2 March 1995. In the taxpayer's tax returns for each of the three years of assessment no claim for foreign earnings deduction was made. In each of the three assessments certain reliefs and allowances were given, but these obviously did not include foreign earnings deduction.
[5]Following the decision in Clark v Perks, the taxpayer decided to appeal against earlier assessments made on the basis that foreign earnings deduction was not available. By letter dated 8 July 2003 addressed to the Inspector of Taxes his agents advised that they wished to appeal against inter alia the three assessments for 1991/92, 1992/93 and 1993/94. The letter referred to the various assessments that had been made and continued as follows:
"Regarding 1991/92, 1992/93, 1993/94, 1995/96 and 1996/97, we note that no FED [foreign earnings deduction] allowances were given for any year. We therefore wish to make an appeal under Section 49(i) Taxes Management Act 1974 for each year....
If you are unable to agree that a late appeal can be granted then we would request that our client's case be listed before the General Commissioners at the first available opportunity".
The Inspector of Taxes allowed relief in respect of the years 1995/96 and 1996/97 in terms of section 33 of the Taxes Management Act 1970; in those two cases the issue had been raised within the time limit specified in that section, and the appeals were accordingly not out of time. The appeals for the three earlier years were made beyond the time limit in section 33, however, and it was accordingly necessary to consider whether an appeal should be permitted out of time.
[6] The legal provision governing proceedings brought out of time is section 49 of the Taxes Management Act 1970. Section 49(1) is in the following terms:
"An appeal may be brought out of time if on an application for the purpose an inspector or the Board [of Inland Revenue] is satisfied that there was a reasonable excuse for not bringing the appeal within the time limited, and that the application was made thereafter without unreasonable delay, and gives consent in writing; and the inspector or the Board, if not satisfied, shall refer the application for determination by the Commissioners".
The Inspector refused to allow the taxpayer to bring appeals out of time in respect of the three years 1991/92, 1992/93 and 1993/94. Thereafter the question of whether those appeals should be allowed out of time was referred to the General Commissioners of Income Tax, Aberdeen City Division. The case was heard by the General Commissioners on 17 August 2004. Evidence about the steps taken to make an appeal after the decision in Clark v Perks and the issue of Tax Bulletin 57 was given by the taxpayer's wife, and submissions were made by both parties.
[7]The General Commissioners issued their decision on 19 August 2004. It is in the following terms:
"The Commissioners granted the Appellant's applications for late appeals against his Assessments for 1991/92, 1992/93 and 1993/94 in terms of S. 49(1) of the Taxes Management Act 1970. Their reasons for doing so were as follows: -
(i)They considered that the appellant had a reasonable excuse for not bringing these appeals within the time limit in that it was not until the Inland Revenue Press Release of February 2002 that it became clear that the Inland Revenue had departed from its previous position and were prepared to accept claims for Foreign Earnings Deduction in respect of Jack up Rigs in certain circumstances.
(ii)The Commissioners further considered that given the evidence of Mrs. Love, whom they...
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