Eagerpath Ltd v D J Edwards (HM Inspector of Taxes)
| Jurisdiction | England & Wales |
| Judge | MRS JUSTICE ARDEN |
| Judgment Date | 13 May 1999 |
| Judgment citation (vLex) | [1999] EWHC J0513-6 |
| Docket Number | T.865 |
| Court | Queen's Bench Division (Administrative Court) |
| Date | 13 May 1999 |
[1999] EWHC J0513-6
IN THE HIGH COURT OF JUSTICE
CHANCERY DIVISION
(REVENUE LIST)
Royal Courts of Justice
The Hon Mrs Justice Arden
T.865
MISS APARNA NATHAN (instructed by Jerrard Saunders Donn, 2nd Floor, 22 Grosvenor Square, Mayfair, London, W1X 9LF) appeared on behalf of the Appellant.
MR TIMOTHY BRENNAN (instructed by the Solicitor of Inland Revenue, Somerset House, Strand, London, WC2R 1LB) appeared on behalf of the Respondent.
(AS APPROVED BY THE JUDGE)
This is an appeal under s.56A of the Taxes Management Act, 1970, subject to s.33(4) of that Act. The background is as follows:
(1) on 14th December 1987 the Inland Revenue raised an assessment against the Appellant. The Appellant entered an appeal. Discussions took place between the Inland Revenue and the Appellant's accountants. The discussions concluded with a letter dated 22nd February 1989 from the Revenue agreeing with the computations of the Appellant's profits for the period to 30th April 1987 and to the settlement of the Appellant's appeal accordingly.
(2) in 1992 the Appellant's accountants sought to persuade the Revenue to adjust the assessment for the Appellant for the same period. The Revenue declined to do so on the basis that the computations had been agreed.
(3) the Appellant's accountants then made a claim under s.33 of the Taxes Management Act, 1970. They sought to treat interest as a deduction from total income rather than as a deduction from trading income. This would enable the Appellant to carry back substantial trading losses made after 1989 and reduce his tax liability accordingly.
(4) on 11th June 1997 the Board of Inland Revenue refused the Appellant's s.33 claim. The letter gave the following reason as the first reason for refusing the claim: "the question of allowing all of the interest payable as trading expenditure was raised before the appeal against the 1987 assessment was determined and under the assessment was final and conclusive. There is no error or mistake in the claim, rather a failure to pursue your right to appeal to the Commissioners."
(5) on 16th June 1997 the Appellant entered a notice of appeal against this decision.
(6) the Presiding Special Commissioner determined that all matters relating to s.33 and s.54 of the Taxes Management Act, 1970 should be dealt with at a preliminary hearing.
(7) on 16th July 1998 the Special Commissioner, Mr David Shirley, upheld the Revenue's rejection of the Appellant's claim to relief under s.33. In material part he held as follows:
"1(1) I have for determination the question whether Eagerpath Ltd is or is not precluded by an agreement made between it and the Inspector of Taxes on 22 February 1989 under s.54 of the Taxes Management Act 1970, (`the Act') in relation to its corporation tax liability for its accounting period ending on 30 April 1987 (assessment number 637 CD 17048 8801) from making an effective claim to relief for error or mistake under s.33 of the Act. The claim was made on 4 February 1992 by a firm of Chartered Accountants named Fox Associates."
I need not read further at that point. At paragraph 9 the Special Commissioner said:
"The argument before me has centred on the question whether the appellant's claim to relief under s.33 was rightly rejected by the Board by reason of the s.54 agreement. It has not been contended on behalf of the Board that the assessment under which the appellant paid tax for the period to 30 April 1987 was not excessive at all or that it was not excessive by reason of some error or mistake in a return. If as the appellant's representative further submitted in paragraph 8(4) above that the treatment of interest has no impact on the computation and is not fundamental to the charge to tax, one might question whether the opening conditional sentence in s.33(1) s fulfilled.
"10. On the evidence before me the question whether interest was deductible under Case I of Schedule D or whether it constituted a charge on income was at least aired albeit incidentally to the main issue whether the exchange gain was a revenue receipt or a capital receipt. The question was not pursued to an express conclusion, but it arose. The appellant had treated the interest payable as a deduction under Case I. The Inspector obviously appreciated that fact and indeed one can infer that he considered that as correct treatment since he saw the appellant trading as property developers. BDO Binder Hamlyn stated they did not understand this (1 December 1988). The Inspector in my opinion adhered to his view in the letter of 8 December 1988. Following an explanatory letter of 1 February 1989 from BDO Binder Hamlyn establishing that IYCA was a capital asset, the Inspector agreed their computations. I find that the question with regard to interest was raised by the Inspector. The Inspector's agreement of 22 February 1989 disposed of it.
"11. I uphold the Board's rejection of the appellant's claim to relief under s.33."
I now turn to s.33 of the Taxes Management Act, 1970. As it applies to this appeal s.33 provides in material part as follows:
"(1) If any person who has paid tax charged under an assessment alleges that the assessment was excessive by reason of some error or mistake in a return, he may by notice in writing at any time not later than six years after the end of the year of assessment (a) (or, if the assessment is to corporation tax, the end of the accounting period) in which the assessment was made, make a claim to the Board for relief.
"(2) On receiving the claim the Board shall enquire into the matter and shall, subject to the provisions of this section, give by way of repayment such relief in respect of the error or mistake as is reasonable and just provided that no relief shall be given under this section in respect of error or mistake as the basis on which the liability of the claimant ought to have been computed where the return was in fact made on the basis of or in accordance with the practice generally prevailing at the time the return was made.
"(3) In determining the claim the Board shall have regard to all the relevant circumstances of the case, and in particular shall consider whether the granting of relief would result in the exclusion from charge to tax of any part of the profits of the claimant, and for this purpose the Board may take into consideration the liability of the claimant and assessments made on him in respect of chargeable periods other than that to which the claim relates.
"(4) If any appeal is brought from the decision of the Board on the claim the Special Commissioners shall hear and determine the appeal in accordance with the principles to be followed by the Board in determining claims under this section; and neither the appellant nor the Board shall be entitled to appeal under section 56A of this Act against the determination of the Special Commissioners except on a point of law arising in connection with the computation of profits."
In sub-section (5) there is a definition of profits which I need not read.
Section 33(1) and (2) were amended after the date of the error or mistake claim in this case.
In summary therefore: ( 1) S.33 gives the taxpayer the right to apply to the Revenue for relief if "the assessment was excessive by reason of some error or mistake in a return".
(2) The Board must give such relief as is reasonable and just.
(3) There are a number of restrictions imposed by the sub-section. The proviso to s.33(2) prevents relief from being granted where the Board is satisfied that the return was made in accordance with the practice as to the computation of liability which was generally prevailing at the time of the return. In addition, the Board is bound to have regard to all the relevant circumstances, which extend beyond the year in question. Moreover, appeal is permitted only on a point of law arising in connection with the computation of profit. It is that restriction which gives rise to the issue with which this ruling is concerned.
I now turn to s.54 of the Taxes Management Act, 1970. This provides as follows:
"(1) Subject to the provisions of this section, where a person gives notice of appeal and, before the appeal is determined by the Commissioners, the inspector or other proper officer of the Crown and the appellant come to an agreement, whether in writing or otherwise, that the assessment or decision under appeal should be treated as upheld without variation, or as varied in a particular manner or as discharged or cancelled, the like consequences shall ensue for all purposes as would have ensued if, at the time when the agreement was come to, the Commissioners had determined the appeal and had upheld the assessment or decision without variation, had varied it in that manner or had discharged or cancelled it, as the case may be."
I do not think I need read further from that section.
Mr Brennan for the Inland Revenue takes a preliminary jurisdictional point. He contends that the present appeal is outside s.33(4). He contends in short this appeal, to the extent it raises a point of law at all, concerns the correctness or otherwise of the Special Commissioner's decision that the treatment of interest charges was in part the subject of the s.54 agreement. He submits the appeal against such a finding is not "in connection with the computation of profits".
Miss Nathan's first submission is that the Special Commissioner did not "hear and determine the appeal in accordance with the principles to be followed by the Board in determining the claim under this section". He dealt only with the preliminary point and he did not deal...
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