Hurley v Taylor (Inspector of Taxes)

JurisdictionEngland & Wales
Judgment Date23 October 1998
Date23 October 1998
CourtCourt of Appeal (Civil Division)

Court of Appeal (Civil Division).

Kennedy, Aldous and Potter LJJ.

Hurley
and
Taylor (HM Inspector of Taxes)

James Munby QC (instructed by the Solicitor of Inland Revenue) for the Crown.

Robert Argles (instructed by TG Baynes, Orpington) for the taxpayer.

The following cases were referred to in the judgment:

Amis v Colls (HMIT) TAX(1960) 39 TC 148

Associated Provincial Picture Houses Ltd v Wednesbury CorpELR[1948] 1 KB 223

Bird (RA) & Co v IR Commrs ENRTAX1925 SC 186; 12 TC 785

Bradshaw v Blunden (HMIT) (No. 2) TAX(1960) 39 TC 73

Brady (HMIT) v Group Lotus Car Companies plc TAXTAX[1987] BTC 480; 60 TC 359

Edwards (HMIT) v Bairstow ELR[1956] AC 14

Jonas v Bamford (HMIT) TAX 1973) 51 TC 1

Kingsley v Billingham (HMIT) TAXTAX[1992] BTC 93; 65 TC 133

Income tax - Back duty - Assessments made for ten years - Earlier years out of time - Loss of tax attributable to fraudulent or negligent conduct to be established - Onus of proof on Revenue - Whether Revenue had discharged onus before general commissioners - Whether case should be remitted to general commissioners to take account of evidence not put before them at original hearing - Taxes Management Act 1970 section 36 subsec-or-para (1)Taxes Management Act 1970, s. 36(1).

This was an appeal by the Revenue, allowing that part of a decision of Park J ([1998] BTC 32) whereby he allowed in part an appeal by the taxpayer from a decision of the general commissioners for Bromley that the Revenue had discharged the burden of proof on them of establishing that the taxpayer had been guilty of fraudulent conduct or neglect within the Taxes Management Act 1970 section 36Taxes Management Act 1970, s. 36. The taxpayer cross-appealed.

The taxpayer carried on various businesses whose customers often paid in cash. He produced audited accounts but had no proper record keeping system. He also received income from letting property.

After investigating the taxpayer's affairs the Revenue drew up capital statements for 11 years from 1982 to 1993. Over the whole period, the Revenue calculated a deficiency between income and expenditure of £164,000. Most of the deficiency arose as a result of the purchase by the taxpayer of two properties, partly using his own resources and partly with mortgages which he later repaid.

The Revenue took the view that the taxpayer had not accounted for the source of the money which appeared to have been available to him. They therefore made income tax assessments on him for the years in question. The first four years assessed were outside the limitation period provided by the Taxes Management Act 1970 section 36Taxes Management Act 1970, s. 36. Accordingly, for those years, the Revenue had to show that tax had been lost owing to the taxpayer's fraudulent or negligent conduct.

The taxpayer's evidence was that part of the money had been lent to him by his father who had since died, and part by a former friend. The general commissioners accepted part of his evidence but "did not accept" that all of the money which he had said came from his father had in fact done so. They relied on the capital statements and dismissed the appeal.

On appeal to the High Court, the judge distinguished between "rejecting" and "not accepting" evidence. He allowed the appeal in relation to the out of time years taking the view that, since the general commissioners had not totally rejected the taxpayer's evidence, the Revenue had not discharged the burden of establishing to a high standard of proof that the taxpayer was guilty of fraudulent or negligent conduct. He dismissed the appeal in relation to the in time years holding that the taxpayer had not discharged the burden on him for those years of showing that the capital statements were wrong.

It was disputed whether a witness statement by the taxpayer's father before he died had been read to the general commissioners. The judge read the statement and thought it important. He found that it had not been brought to the commissioners' attention, but refused to admit new evidence at that stage, notwithstanding that the taxpayer had not been represented and had not shown the statement to the commissioners by mistake.

On appeal to the Court of Appeal the taxpayer supported the judge's decision in relation to the out of time years but contended that the appeal should be allowed on the in time years. The taxpayer contended that the commissioners had allowed the Revenue to open the case with the result that the burden was on them throughout, for all the years, including the in time years, to displace the taxpayer's case.

The taxpayer further contended that the taxpayer's father's statement should be admitted by the Court of Appeal and that they should remit the case to the commissioners for further consideration in the light of the statement.

Held, allowing the Revenue's appeal and dismissing the taxpayer's cross-appeal:

1. The taxpayer knew that the loans from his father were the central issue in the case. That he was not represented before the commissioners was not enough to excuse the failure to introduce his father's witness statement, which could not be considered at a later stage. The case would not be remitted to the commissioners for further consideration.

2. The commissioners were entitled to rely on the capital statements produced by the Revenue whether they disbelieved the taxpayer's evidence or whether, by saying that they did not accept it, they meant that they did not know whether it was true or not. Evidence which was not accepted could have no weight and in the absence of any credible explanation of the source of the money, the capital statements were sufficient to discharge the burden of proof on the Revenue to establish fraudulent or negligent conduct within Taxes Management Act 1970 section 36s. 36 of the Taxes Management Act. Therefore, assuming that the capital statements were found to be correct, the burden would shift back to the taxpayer to show that they were wrong.

3. The distinction drawn by the judge between rejection and non-acceptance of evidence was artificial. A conclusion that evidence could not be accepted meant that the commissioners did not accept that the events concerned took place. The commissioners accepted the capital statements and therefore, without a cogent explanation of the deficiency by the taxpayer, the Revenue would have discharged the s. 36 onus on them.

4. Reading the case as a whole, the commissioners held that the capital statements established a prima facie case of underpayment due to fraud or neglect and the explanation given by the taxpayer had only displaced that prima facie case as to part of the money. Their conclusion was a finding of fact which could only be challenged if it was unreasonable in the Wednesbury sense. The commissioners' decision was not unreasonable.

5. On the cross-appeal, the duty of the general commissioners was to ensure that there was a fair hearing. The taxpayer knew what was put against him and was given the opportunity to put his case. The fact that the Revenue opened the case before the commissioners did not alter the burden of proof which was laid down by the Act.

JUDGMENT

Aldous LJ: The Revenue appeals against the judgment and order of Park J of 20 January 1998 ([1998] BTC 32) and the taxpayer, Mr Anthony Cornelius Hurley, cross-appeals.

The appeal and the cross-appeal concern assessments raised by the Revenue in respect of income from the taxpayer's businesses for the years 1983-84 to 1992-93 inclusive. The taxpayer appealed to the general commissioners against those assessments to income tax underIncome and Corporation Taxes Act 1988Case I of Sch. Dand class 4 National Insurance contributions in respect of profits as a general dealer and in respect of a solarium business, car sales business and against assessments under Case VI of Sch. D on profits from furnished lettings. The commissioners allowed the appeal in respect of the assessments as a general dealer and in certain other aspects, but upheld in part the other assessments. The taxpayer was dissatisfied and requested the general commissioners to state a case for the opinion of the High Court. They did. The matter came before Park J by way of that case stated. He held that the commissioners had in part erred in law.

Pursuant to Taxes Management Act 1970 section 34 subsec-or-para (1)s. 34(1) of the Taxes Management Act 1970, an assessment of tax can be made at any time, not later than six years after the end of a chargeable period to which the assessment relates. Such assessments relate to what can be conveniently called the in-time years. Taxes Management Act 1970 section 50 subsec-or-para (6)Section 50(6) of the 1970 Act enables the commissioners on appeal if it appears to them "that the appellant is overcharged by any assessment", to reduce it accordingly, "but otherwise such assessment shall stand good". It follows that a taxpayer can challenge an in-time assessment, but when doing so has the burden of establishing that he has been overcharged.

Taxes Management Act 1970 section 36 subsec-or-para (1)Section 36(1) of the 1970 Act enables the Revenue to raise assessments outside the six year period laid down for in-date assessments. Such assessments are conveniently referred to as extended time assessments. They have to be made not later than 20 years after the end of the chargeable period to which the assessment relates and can only be made "for the purpose of making good to the Crown a loss of tax attributable to his [the taxpayer's] fraudulent or negligent conduct". It is accepted that when considering an extended time assessment, the burden of proof is on the Revenue to establish loss of tax due to fraudulent or negligent conduct.

Pursuant to Taxes Management Act 1970 section 56 subsec-or-para (6)s. 56(6) of the Act an appeal to the High Court by way of case stated is limited to questions of law. The case for the taxpayer against the...

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