Eagerpath Ltd v Edwards (Hm Inspector of Taxes)
| Jurisdiction | England & Wales |
| Judge | LORD JUSTICE ROBERT WALKER,LORD JUSTICE BROOKE |
| Judgment Date | 14 December 2000 |
| Judgment citation (vLex) | [2000] EWCA Civ J1214-19 |
| Court | Court of Appeal (Civil Division) |
| Docket Number | Case No: CHANF 99/0862/A3 |
| Date | 14 December 2000 |
[2000] EWCA Civ J1214-19
IN THE SUPREME COURT OF JUDICATURE
COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM THE HIGH COURT OF JUSTICE CHANCERY DIVISION,
REVENUE LIST (ARDEN J)
Royal Courts of Justice
Strand, London, WC2A 2LL
Lord Justice Ward
Lord Justice Brooke and
Lord Justice Robert Walker
Case No: CHANF 99/0862/A3
Mr C J F Sokol (instructed by Jerrard Saunders Donn for the appellant)
Mr T Brennan (instructed by the Solicitor of Inland Revenue for the respondent)
This is an appeal with the permission of Aldous LJ from an order of Arden J made on 13 May 1999. Her judgment is reported at [1999] STC 77 Her order dismissed an appeal by a taxpayer company, Eagerpath Ltd ("Eagerpath") from a decision of a single Special Commissioner, the late Mr David Shirley, made on 13 August 1998. The Special Commissioner had dismissed Eagerpath's appeal from the rejection by the Board of Inland Revenue of its claim for relief under s.33 of the Taxes Management Act 1970 ("the Management Act"). The claim related to Eagerpath's liability for corporation tax for its accounting period ending as long ago as 30 April 1987, when the principal statute containing the substantive law as to corporation tax was the Income and Corporation Taxes Act 1970 ("the Taxes Act"). References in this judgment to provisions of the Management Act and the Taxes Act are to the provisions in the form in which they were in force at the relevant time.
This appeal is concerned largely with the procedural provisions of the Management Act, although it will be necessary to refer to a few substantive provisions of the Taxes Act. It is best to begin with some very basic points.
A company resident in the United Kingdom pays corporation tax on its profits as computed for the purposes of that tax: that is, in broad terms, on its taxable income and chargeable gains computed on the same general lines as for an individual resident in the United Kingdom. The management of all those taxes is regulated by the Management Act, and before the introduction of self-assessment the making of a return by the taxpayer and the making of an assessment by an inspector of taxes were important parts of the process by which tax liability was determined.
A taxpayer who objects to an assessment can appeal against it to the General or Special Commissioners. They are the fact-finding tribunal from whom an appeal lies only on a point of law. On an appeal to the Commissioners the burden of proof is on the appellant taxpayer, because the taxpayer can be expected to know all about his own financial affairs, whereas the inspector may have little or no knowledge about them apart from the taxpayer's return.
Apart from the provisions about 'discovery' and 'error or mistake' which will be mentioned shortly, an assessment becomes conclusive either when the taxpayer fails to appeal within the permitted time limit, or when the Commissioners determine the appeal (subject to any further appeal on a point of law which may be open to either side), or when the appeal is abandoned by the taxpayer or is settled by agreement. Section 46(2) of the Management Act provides as follows:
"Save as otherwise provided in the Taxes Acts, the determination of the General Commissioners or the Special Commissioners in any proceedings under the Taxes Acts shall be final and conclusive."
The settling of appeals by agreement is provided for in s.54 of the Management Act, subsection (1) of which is as follows:
"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."
Subsection (2) gives the taxpayer a 30-day period during which he may resile from an agreement, and subsection (3) requires written notice to be given confirming an oral agreement. In practice a very large number of appeals are settled by agreement, and the agreement is often of a very informal character. It may (as in this case) amount to no more than the inspector, after making some inquiries, writing to say that he accepts the taxpayer's computations.
All these procedural provisions are intended to achieve finality in the determination of tax liabilities, but Parliament has since the early days of income tax recognised that in some circumstances fairness may require either the Revenue or the taxpayer to be given the opportunity of reopening an assessment which has in other respects become conclusive. The Revenue's power is to make a 'discovery' assessment under s.29(3) of the Management Act, which provides as follows:
"If an inspector or the Board discover -
(a) that any profits which ought to have been assessed to tax have not been assessed, or
(b) that an assessment to tax is or has become insufficient, or
(c) that any relief which has been given is or has become excessive, the inspector or, as the case may be, the Board may make an assessment in the amount, or the further amount, which ought in his or their opinion to be charged."
The taxpayer's power is to make an 'error or mistake' claim under s.33, which provides 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 (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 inquire 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 an error or mistake as to the basis on which the liability of the claimant ought to have been computed where the return was in fact made on the basis or in accordance with the practice generally prevailing at the time when 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 require a case to be stated under section 56 of this Act otherwise than on a point of law arising in connection with the computation of profits.
(5) In this section "profits" -
(a) in relation to income tax, means income,
(b) in relation to capital gains tax, means chargeable gains,
(c) in relation to corporation tax, means profits as computed for the purposes of that tax."
The fact that there are two separate statutory provisions expressed in different language might possibly have been supposed to reflect the notion that an inspector may come across new factual information about a taxpayer's affairs and should be allowed to make use of it; whereas a taxpayer ought to know about his own affairs but may make some error of law or computation which is more venial on his part than it would be on the part of the inspector. In practice, however, the court has interpreted s.29(3) and its predecessors very widely, so as to cover (in the words of Viscount Simonds in Cenlon Finance Co Ltd v Ellwood [1962] AC 782, 794) "any case in which for any reason it newly appears that the taxpayer has been undercharged". This has narrowed the apparent difference between the scope of a 'discovery' assessment and that of an 'error or mistake' claim.
Neither s.29(3) nor s.33 refers in terms to the question of an undercharge or an overcharge being raised after an appeal against an assessment has been determined by the Commissioners or has been settled by agreement. However the issue arose in relation to a 'discovery' assessment in Cenlon Finance Co Ltd v Ellwood (at first instance [1961] Ch 50 and in the Court of Appeal [1961] Ch 634; the House of Lords was concerned only with the wider question of whether the view of an inspector who had recently taken over the file could amount to a discovery) and at every level up to the House of Lords in Scorer v Olin Energy Systems Ltd (1985) 58 TC 592. The issue turns on whether the point must be taken to have been in the mind of the inspector who later seeks to use it as the basis of a 'discovery' assessment. In the latter case Lord Keith stated the principle as follows (at p.638),
"The situation must be viewed objectively, from the point of view of whether the inspector's agreement...
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