Hudson v Humbles

Stated under Section 64 of the Income Tax Act, 1952, by the Commissioners for the General Purposes of the Income Tax for the Stockport Division of the County of Chester for the opinion of the High Court of Justice.

1. At a meeting of the Commissioners for the General Purposes of the Income Tax for the Stockport Division of the County of Chester held at the Town Hall, Dukinfield, on Wednesday, 8th August, 1962, Fred Hudson (hereinafter called "the Appellant") appealed against the following assessments:

The Appellant, who did not attend the hearing, was represented by Mr. P.V. Delahunty, F.C.A.

1. (i) The assessments for the years 1946-47 to 1949-50 inclusive were additional assessments made on the Appellant under the provisions of Section 47, Income Tax Act, 1952, and at the commencement of the hearing it was agreed that it was incumbent upon the Inspector of Taxes to satisfy the Commissioners that fraud or wilful default had been committed by or on behalf of the Appellant in relation to Income Tax for each of the years in question.

2. (ii) The Inspector gave evidence before us, which we accepted. He tendered in evidence a capital statement prepared by him covering the years 1941 to 1956. This statement consisted of an annual statement of the assets of the Appellant and his wife and an annual reconciliation of these assets with his known income. A copy of the statement is annexed hereto and marked A(1) . The Inspector had prepared this statement on the basis of information in his possession supplied in correspondence by the Appellant and his agents and at interviews with them. Except for the three errors hereinafter mentioned, only one of which, namely, a correction of £100 in 1949-50, affects the years 1946-47 to 1949-50, and for the estimate of living expenses, the statement was accepted on behalf of the Appellant as being accurately so based. The said statement, which is hereinafter more fully explained, showed that in the basis periods for the years of assessment 1946-47 to 1949-50, inclusive, increases in capital plus living expenses of the Appellant and his wife and children considerably exceeded known income, and formed the basis of the assessment under appeal before us. The said statement was the result of prolonged enquiries into the Appellant's taxation affairs, which started in June, 1954. In that year he had first been asked to forward explanations reconciling the growth of his capital with his known income. The Appellant had submitted certain statements in October, 1957, and again in April, 1959, but despite numerous requests he had failed to submit comprehensive statements reconciling the growth of his capital. Only in July, 1959, did it come to light that the Appellant and his wife had owned approximately 100 racehorses between 1941 and 1959 and at no time had information been supplied to show the cost of purchase, breeding, training and keeping these racehorses, except for the cost of one purchase included in exhibit A(1). In another respect the Appellant's statements were incomplete, for they contained details of share transactions in one particular stock only, and a promise by the Appellant in July, 1959, to write to three stockbrokers and obtain statements of all his share transactions from them had failed to bring any further information.

3. (iii) It was contended by H.M. Inspector of Taxes:

   1. (a) that on the evidence submitted the Appellant had been guilty of wilful default within the meaning of Section 47 of the Income Tax Act, 1952, for the years 1946-47 to 1949-50 inclusive; and

   2. (b) that the additional assessments for the said years had accordingly been properly made.

(iv) It was contended on behalf of the Appellant that, although he had admittedly been neglectful, his neglect did not amount to wilful default within the meaning of the proviso to Section 47 (1), Income Tax Act, 1952. The share transactions contained in exhibit A comprised the majority of the Appellant's dealings in shares, whilst the living expenses could be taken as being adequate to cover expenses of racehorse owning and betting. The Appellant was not familiar with Revenue law and practice but had done his utmost to meet the Revenue's demands by employing two firms of chartered accountants and a firm of solicitors to act for him.

(v) The Commissioners, having considered the evidence, decided that the Appellant had been guilty of wilful default and that the additional assessments for the years 1946-47 to 1949-50 inclusive were properly made under the proviso to Section 47(1), Income Tax Act, 1952. The Commissioners were now prepared to hear argument as to quantum.

3. The following further facts were admitted or proved:

1. (a) During the years 1946-47 to 1955-56 the Appellant was a director and controlling shareholder in a limited liability company known as Hudson, Dodsworth & Co., Ltd. (hereinafter called "the company"), which carried on the business of bar fitters at Staybright Works, Knowl Street, Stalybridge. The Appellant's wife was the secretary and the other director and a shareholder in the same company. The business was described by the Inspector as a "one man business".

2. (b) On 14th December, 1960, appeals against similar Schedule E assessments on the Appellant for the years 1950-51 to 1953-54 inclusive had been heard by the Commissioners, who had determined the appeals on the basis of exhibit A hereto, and had decided on the basis of personal evidence given at the hearing by the Appellant that £2,000 for each of those four years was a reasonable estimate of his living expenses.

3. (c) It was agreed between the parties that there were three errors on exhibit A, viz: (i) in the year 1950 Mrs. Maud Hudson's loan account was shown as £2,209 and this should be £2,109; (ii) nothing was shown for the year 1956 in respect of a refund from the Official Receiver of £1,289; and (iii) the Surtax payment shown in the year 1952 of £155 should have been shown in the year 1953. This error does not effect any of the years under appeal.

4. (d) If only the above errors were taken into account, it was accepted that the assessments for 1949-50 and 1955-56 would require to be adjusted as follows- 1949-50 reduced by £100 from £4,073, and 1955-56 reduced by £1,289 from £841 to nil.

4. On behalf of the Appellant it was contended that:

1. (a) the Inspector had put in a figure for living expenses which ought to be reduced considerably, as it related solely to the Appellant and his wife and family's means of existence, and at £2,000 per annum that was much too high; subject to this and to the amendments referred to in paragraph 3 (c) hereof, it was agreed that exhibit A was based on information supplied by the Appellant;

2. (b) in the years 1943 to 1946, where the surpluses shown by exhibit A were over £2,000, the living expenses ought to be restricted to £2,000 as in the other years and the resultant surpluses carried forward and set off against future deficiencies;

3. (c) the Commissioners had confirmed four additional assessments of £500 on the company for the years 1950-51, 1951-52, 1952-53 and 1953-54, and these were reflected in the figures shown in exhibit A and therefore if the Commissioners were going to act on it they ought in fairness to allow these amounts to be brought into account; and

4. (d) full credit had not been given for capital receipts.

5. The Inspector explained exhibit A as follows:

It comprises an annual statement of the assets of the Appellant and his wife for the years 1941 to 1956 inclusive, and an annual reconciliation of these assets with their known income for the said years. In each of the years under consideration, £2,000 had been included for living expenses in accordance with the Commissioners' decision referred to in paragraph 3 (b) hereof. Where for any year the capital worth of the Appellant and his wife shows a decrease, the amount of that...