Commissioners of Inland Revenue v Hinchy
| Jurisdiction | Northern Ireland |
| Judgment Date | 18 February 1960 |
| Date | 18 February 1960 |
| Court | Queen's Bench Division (Northern Ireland) |
HIGH COURT OF JUSTICE (QUEEN'S BENCH DIVISION)-
COURT OF APPEAL-
HOUSE OF LORDS-
Income Tax - Incorrect return - Amount of penalty - Income Tax Act, 1952 (15 & Geo. VI & 1 Eliz. II, c. 10), Section 25 (3).
In his return of income for the year 1952-53, the Defendant showed the amount of bank interest received by him as £18 6s. whereas the true amount was £51 5s. 9d. The Commissioners of Inland Revenue instituted proceedings under Section 25 (3) of the Income Tax Act, 1952, for a penalty amounting to £438 14s. 6d., being £20 plus treble the total amount of tax chargeable on the Defendant for the year in question. At the time when the proceedings were commenced, the Defendant had been correctly charged with all the tax for which he was liable for that year.
Held, 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 tax with which the taxpayer is chargeable for the year of assessment in question.
The case came before Diplock, J., in the Queen's Bench Division on 1st and 2nd December, 1958, when judgment was given for £20.
Diplock, J.-This is an action commenced by writ dated 13th June, 1956, brought by the Commissioners of Inland Revenue against the Defendant, Mr. Hinchy, for penalties under Section 25 (3) of the Income Tax Act, 1952. The circumstances are simple, but the consequences of those circumstances, since they depend upon the construction of a particularly difficult Act, are less simple than the circumstances themselves.
On 19th April, 1952, Mr. Hinchy, like many other people, filled up a form prepared for the purpose by the direction of the Commissioners of Inland Revenue containing a return of income of the year ending 5th April,
1952, and a claim for allowances for the Income Tax year 1952-53. In that return he set out the figure of £18 6s. as the interest on accounts and deposits in banks, including Post Office and other savings banks. In truth and in fact the amount of his income from that source with the Post Office Savings Bank during the year of return, the year to be taken into account for the purposes of assessment, namely that ending 5th April, 1952, was £51 5s. 9d.; so that he had understated the amount of his interest by the difference between those two sums.The explanation that he has given for doing so does not very much matter, except to say that he must have known that the figure which he gave was wrong if he had given any thought to the matter. His explanation was that he had intended to put the money into savings certificates or other tax-free investments. However he was wrong, and as a result, when this matter was discovered-as discovered it was because of the requirement in the Income Tax Act that banks, including the Post Office Savings Bank, must make returns to the Commissioners of Inland Revenue of the amount of interest which they have allotted to customers-an additional first assessment was made upon Mr. Hinchy on 30th November, 1955, for the amount understated, the total tax on which was £14 5s. I may add, although I do not think the date is in fact relevant, that on 9th March, 1956, an assessment was made on him under Schedule E, Schedule E being dealt with as Pay As You Earn, and assessment under Schedule E is not made unless the taxpayer himself requires it.
However, the position at the date of the issue of the writ on 13th June, 1956, was that assessments had been made upon Mr. Hinchy in respect of all the tax to which he was liable for the tax year 1952-53. Those being the relevant facts, the Inland Revenue in this case claimed a penalty in the amount of £438 14s. 6d., that amount being three times the total amount of tax payable by Mr. Hinchy in respect of the tax year 1952-53, plus £20- not, it is to be noted, three times the tax on the amount which he had understated.
The basis of that claim by the Inland Revenue is Section 25 (3) of the Income Tax Act, 1952. That is the Sub-section which I have to construe. I find it a very difficult Sub-section, and I gather that I am not the only one to have done so, because in two of what I understand are the standard textbooks on Income Tax, Simon's Income Tax and Konstam's Income Tax, in the current editions, diametrically opposed views are expressed as to the meaning of this Sub-section so far as quantum of penalties is concerned. Since I am faced with a difficult Sub-section to construe, it would have been of great assistance to me if I had had the point argued by Counsel on each side. Mr. Hinchy has appeared in person, and consequently I have had to rely on Mr. Orr, who appears for the Crown, to give me such assistance as he can on the construction of this difficult Act.
I now turn to the Act. Section 19, with which I must start, provides:
Every individual, when required so to do by a notice given to him by the surveyor, shall, within the time limited by the notice, prepare and deliver to the surveyor a true and correct return in the prescribed form of all the sources of his income and of the amount derived from each source for the year preceding the year of assessment, computed in accordance with the provisions of this Act except that the computation of income shall be made by reference to the year preceding the year of assessment and not by reference to any other year or period.
Then there is a proviso relating to Surtax, a liability from which Mr. Hinchy was fortunately absolved. What is required therefore is a true and correct return of all the sources of income and of the amount derived from each source for the year preceding the year of assessment. In point of fact and as a matter of practice, Section 25 (6) applies in Mr. Hinchy's case, as in most cases. Section 19 deals with a notice given by the Surveyor of a requirement to make the return. Section 25 (6) provides:
If a person delivers to any surveyor a list, declaration or statement on a form prepared for the purpose by direction of the Commissioners of Inland Revenue, he shall be deemed for the purposes of this section to have been required by a notice under the preceding provisions of this Chapter
-that is Section 19-
to prepare and deliver that list, declaration or statement, and the time limited for the delivery thereof shall be deemed for the purposes of this section to have expired on the date of its delivery to the said surveyor.
The form which Mr. Hinchy filled in was the form prepared for the purpose by direction of the Commissioners of Inland Revenue. Section 25 (3), on which the point in this case turns, is in the following terms:
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.
I pause there to note that is a fixed penalty. The Court, if action is brought in Court, can award only that penalty, not less. Then it goes on:
(b)
-which in contrast deals with a maximum penalty-
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.
Mr. Orr contends that those words
the tax which he ought to be charged under this Act
mean the total amount payable by the person chargeable for the year of assessment, and the claim in this case is made on this basis. If Mr. Orr is right it means that if a person with an income of a profession or trade or otherwise which renders him liable to Income Tax and Surtax of £20,000 in the year by mistake understates by £1 or less the amount of his income from one source, or if he gives the amount correctly but misdescribes the source, or indeed if he overstates his income by any amount however large or small, he is liable to a penalty of £60,020. I suppose also-Mr. Orr indeed concedes this-having regard to Section 30 of the Act, that he is liable to the like penalty if he makes a mistake in the list of his employees which he is required to make under Section 27 of the Act.
It is right that, in considering that consequence of the construction for which Mr. Orr argues, one should bear in mind the provisions of Section 55 of the Act which excuse a person from penalties if he remedies timeously his default. It provides by Sub-section (1) that:
A person who has delivered a statement or schedule and discovers any omission or wrong statement therein may deliver an additional statement or schedule rectifying the same, and shall not thereafter be liable to any proceeding by reason of his omission or wrong statement.
Sub-section (2) provides similarly in respect of non-delivery of a statement; Sub-section (3) provides that if proceedings have already been started before the General Commissioners, and it is proved to their satisfaction that no fraud or evasion is intended, they may, but not must, stay the proceedings, and so in the case of a certificate from the Commissioners the Court may also stay the proceedings. Apart from that relief, which may be available in appropriate cases, the consequences which I have indicated follow- follow I think inescapably-from the construction for which Mr. Orr has contended. If that is what Parliament meant by Section 25 (3) I must of course apply it, but the consequences seem to me to be absurd and unjust, and if there is some other possible construction consistent with the words which leads to results less absurd and unjust, I should be inclined, and I think...
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