Haythornwaite (T.) & Sons Ltd v Kelly
| Jurisdiction | England & Wales |
| Date | 1926 |
| Year | 1926 |
| Court | Court of Appeal |
No. 618.-COURT OF APPEAL.-
Income Tax - Appeal against assessment - Onus of proof - Commissioners' precept for particulars - Form of Case Stated - Income Tax Act, 1918 (8 & 9 Geo. V, c. 40), Sections 137 and 139.
The Appellant Company, a private company with six shareholders, was assessed for the year 1920-21 in the sum of £4,905 less a deduction of £1,317 for wear and tear, the assessment being in accordance with audited accounts based on the Company's books. At the end of the year the Company shewed that the year's trading had resulted in a loss and the assessment was reduced to nil under Section 34 of the Income Tax Act, 1918.
In 1924, the Inspector of Taxes having discovered (inter alia) that the Company's capital account had been increased by a sum of £22,920, stated to represent money paid in by the individual shareholders, came to the conclusion from this and other information that profits chargeable to tax had been omitted from the first assessment. On the matter being brought before the Additional Commissioners an additional assessment was made on the Company for the year 1920-21 in the sum of £50,000. The Company having appealed, the General Commissioners issued a precept requiring production of all the business books and records of the Company, and of all the private bankbooks of each shareholder. The Company refused to comply with the precept as being ultra vires, and contended inter alia that they could not in any case be assessable as to the sum of £22,920 which was money provided by the shareholders. No evidence was tendered as to the correctness of the Company's books on which the accounts submitted to the Inspector in connection with the making of the first assessment had been based, though evidence was given by the Accountants to the effect that those accounts were in accordance with the books.
The Commissioners not being satisfied on the evidence before them that the assessment was excessive dismissed the appeal, and were thereupon required to state a Case for the opinion of the High Court. The Appellants were not satisfied that the Case as stated by the Commissioners correctly raised the points of law involved and made application by Summons for an order to remit the Case to the Commissioners for specific amendment. No order was made in the King's Bench Division, but leave to appeal was given.
Held, in the Court of Appeal, dismissing with costs the appeal against the refusal to make the order, that the onus lay on the Appellants to satisfy the Commissioners upon sufficient evidence that the assessment was erroneous, that as such evidence was not produced, the Commissioners had proceeded correctly in confirming the assessment, and that the Case adequately set out the questions involved.
Stated under the Income Tax Act, 1918, Section 149, by the Commissioners for the General Purposes of the Income Tax Acts for the Division of Blackburn in the County of Lancaster for the Opinion of the King's Bench Division of the High Court of Justice.
1. At two meetings of the said Commissioners held at Burnley in the said County on the 10th day of June and the 5th day of August, 1925, T. Haythornthwaite and Sons Limited (hereinafter called the Appellant Company) appealed against an Additional First Assessment made on them under Schedule D by the Additional Commissioners of Income Tax for the year 1920-21 in the sum of £50,000.
2. The Appellant Company carry on business as Cotton Manufacturers at Lodge Mill, Burnley. The shareholders therein, together with their respective holdings, are as follows:-
Thomas Haythornthwaite, Junior, |
15,000 |
shares of £1 each. |
Walter Haythornthwaite |
15,000 |
£1 |
Ernest Haythornthwaite |
15,000 |
£1 |
Miss Helena Haythornthwaite |
5000 |
£1 |
Thomas Haythornthwaite, Senior, |
5000 |
£1 |
Mrs. Mary Haythornthwaite |
5000 |
£1 |
3. The original First Assessment upon the Appellant Company for the said year 1920-21 was in the sum of £4,905, less an allowance of £1,317 for wear and tear, but was subsequently reduced to nil under Section 34 of the Income Tax Act, 1918.
4. During the course of the year 1924 the Inspector of Taxes discovered, inter alia, that between the years 1918 and 1922 the capital account of the Appellant Company had been increased by a sum of £22,920 stated to represent money paid in by the individual shareholders, and having come to the conclusion from the foregoing and other information before him that profits chargeable to tax had been omitted from the said original First Assessment, he brought the matter to the notice of the Additional Commissioners at a meeting held on the 2nd day of April, 1925. In accordance with the powers vested in them under Section 125 (1) (ii) of the Income Tax Act, 1918, and Section 29 (1) of the Finance Act, 1923, the said Additional Commissioners thereupon made the said Additional First Assessment of £50,000 upon the Appellant Company, being the sum which, according to their judgment, ought to be charged.
5. The Appellant Company appealed against the said Additional First Assessment of £50,000 and the appeal came before the Commissioners for the General Purposes of the Income Tax Acts on the 10th day of June, 1925, when the Appellant Company was represented by Mr. H. Turner, clerk to Messrs. Ramsbottom and Heap, Ellen Street, Nelson, who act as Accountants to the Appellant Company.
6. It was stated on behalf of the Appellant Company that audited accounts of the Company's business for the three years entering into the average for 1920-21 were supplied at the proper dates to the Inspectors of Taxes concerned, that all queries raised by these Inspectors were fully answered and an assessment was made for the year 1920-21, as stated in paragraph 3 hereof, and it was contended that neither the Inspector nor the Commissioners had any power to reopen an assessment which had already been agreed with the Inspector of Taxes.
No evidence was called on behalf of the Appellant Company.
7. It was contended by the Inspector of Taxes that in the circumstances mentioned in paragraph 4 hereof the said Additional Assessment of £50,000 was properly made, even if the amount of the original assessment had previously been agreed between the Appellant Company and the Inspector of Taxes, and that the said Additional Assessment remained valid unless and until the Appellant Company established by lawful evidence that they were overcharged by such Additional Assessment.
8. The said Commissioners were of opinion that no evidence had been produced to show that the said Additional First Assessment was excessive, and being further of opinion that the most satisfactory evidence in this case would be the production of the books and records of the Appellant Company, they adjourned the hearing of the appeal and under Section 139 (1) of the Income Tax Act, 1918, issued a Precept upon the Appellant Company requiring them to deliver or cause to be delivered within a period of 28 days a Schedule containing the following particulars, viz.:-
(2) All the business books and records of the Appellant Company;
(3) All the private bankbooks of each individual shareholder in the Appellant Company;
(4) Such further books and records as might prove necessary in order to arrive at the full and correct liability of the Appellant Company.
9. At the further hearing of the appeal on the 5th day of August, 1925, Mr. Clement Edwards, Barrister at Law, instructed by Messrs. Roberts Riley and Anderson, Solicitors, of 5 John Dalton Street, Manchester, appeared on behalf of the Appellant Company and having informed the Commissioners that the Appellant Company refused to comply with the said Precept of the 10th day of June, 1925, by producing the books and records therein demanded, made the following submissions, inter alia:-
(2) That the appeal should be allowed in its entirety on the grounds that the said Additional First Assessment had not been made bona-fide upon the Appellant Company but had been made for the ulterior purpose of securing the production of the private books of the individual shareholders and that as to £27,080 of the said £50,000 it was purely an arbitrary figure unsupported by any evidence or reasonable grounds.
(3) That as to the sum of £22,920 hereinbefore mentioned that sum could not possibly involve a liability upon the Appellant Company as it was money that had been added to the capital of the Appellant Company by the individual shareholders.
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(4) That the said Precept of the 10th June, 1925, was bad in law as being ultra vires inasmuch as
(a) the Commissioners had no lawful authority to demand the actual production of the books and records of the Appellant Company as a schedule;
(b) that for the purpose of determining an appeal against an assessment upon a limited liability company the Commissioners had no lawful authority to demand the production of the private books of the individual shareholders or to serve a Precept upon the Company for a Schedule of such particulars at all; and
(c) that the third paragraph was bad for vagueness generally and surplusage.
10. Evidence was given by Mr. Ramsbottom, a partner in the firm of Messrs. Ramsbottom and Heap, and by Mr. Howarth and Mr. Turner, two clerks in the employ of that firm, to the effect that Mr. Howarth had audited the accounts of the Appellant Company for the years ended 1918, 1919 and 1920, that the witnesses were familiar with the books of the Appellant Company, that the books of that Company were those usually kept by Cotton Manufacturers...
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Daisley
...includes statements of principle with which we agree and also relies on two English cases, T Haythornthwaite and Sons Ltd v Kelly (HMIT) (1927) 11 TC 657 and Nicholson v Morris (HMIT) (1977) 51 TC 95 which are binding upon us. Rouf v R & C Commrs [2009] BTC 375 [9] Turning to the Commission......
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...and until the taxpayer satisfies the Commissioners (now the F-tT) that it is wrong, referring to Haythornwaite & Sons Ltd -v- Kelly (1927) 11 TC 657 at c. That the burden of proof lies on the taxpayer is shown again in Hurley v Taylor (HM Inspector of Taxes) (1998) 71 TC 268 at 286, where P......
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