Kelsall (HM Inspector of Taxes) v Investment Chartwork Ltd
| Jurisdiction | England & Wales |
| Judgment Date | 14 May 1993 |
| Date | 14 May 1993 |
| Court | Chancery Division |
Chancery Division.
Arden J.
Timothy Brennan (instructed by the Solicitor of Inland Revenue) for the Crown.
The managing director of the company appeared in person.
The following cases were referred to in the judgment:
C & E Commrs v JH Corbitt (Numismatists) Ltd ELRVAT[1981] AC 22; (1980) 1 BVC 330
Slater (HMIT) v Richardson and Bottoms Ltd TAX(1979) 53 TC 155
Corporation tax - Jurisdiction of general commissioners - Direction by Board of Inland Revenue that deduction of first contribution to directors' self-administered pension scheme be spread over five years - General commissioners allowed deduction of whole contribution in year in which it was made - Whether commissioners had jurisdiction to allow deduction notwithstanding direction by the Board - Finance Act 1970 section 21 subsec-or-para (3)Finance Act 1970, s. 21(3)(b)(see Income and Corporation Taxes Act 1988 section 592 subsec-or-para (6)Income and Corporation Taxes Act 1988, s. 592(6)).
This was an appeal by the Revenue against a decision of the general commissioners for Northwich allowing the deduction from a company's profits of a large initial contribution to a directors' self-administered pension fund in one accounting period, although the Board of Inland Revenue had made a direction under the Finance Act 1970 section 21 subsec-or-para (3)Finance Act 1970, s. 21(3)(b) that the contribution should be spread over five years.
In its accounting period ended 31 January 1980 the company made a contribution of £186,200 to a directors' self-administered pension fund which it deducted from its profits for that year. However, during the next five years the company's profits were reduced and it made no payments to the pension fund.
The inspector provisionally allowed deduction of the contribution of £186,200 but when the accounts for the subsequent years were submitted the matter was referred to the Superannuation Fund Office of the Revenue who considered that the payment was not an "ordinary annual contribution" and should be spread over five years by virtue of theFinance Act 1970 section 21 subsec-or-para (3)Finance Act 1970, s. 21(3)(b). A direction was issued on behalf of the Board to that effect. Consequently the company's profits for corporation tax purposes for the accounting period ended 31 January 1980 were increased from £52,393 to £139,788.
At a hearing before the general commissioners the inspector asked for the assessment to be increased to comply with the Board's direction. The general commissioners, having found that the £186,200 was not paid by the company by way of ordinary annual contribution, went on to determine, without giving reasons, that the whole sum of £186,200 ought to be allowed in full in the year ending in January 1980.
The Revenue appealed to the High Court contending that it was not open to the general commissioners to override a direction made by the Board. In other statutory contexts where the Board had the power to make a direction, express provision was made for appeals but no such provision was made in relation to Finance Act 1970 section 21 subsec-or-para (3)s. 21(3)(b).
Held, allowing the Revenue's appeal:
There was no express appeal machinery from the Board's power to make a direction and accordingly the commissioners had no jurisdiction to interfere. If the general commissioners could override the Board's exercise of discretion then an expense would be deductible in one year or spread over a number of years not "as the Board direct" but "as might be appropriate". That could not be right because there were no criteria laid down to determine what might be appropriate. Without any such criteria the discretion would be wholly at large and capable of being exercised as regards different taxpayers according to different principles.
At a meeting of the general commissioners for the Division of Northwich on 4 October 1989, Mr Alms, a director of Investment Chartwork Ltd ("the company") appealed against an accounting period ended 31 January 1980.
The questions for determination were:
(a) whether the sum of £186,200 paid by the company to the directors' self-administered pension fund in the company's accounting period ended 31 January 1980 was allowable in computing the chargeable profits of the company for that period by virtue of the Finance Act 1970 section 21 subsec-or-para (3)Finance Act 1970, s. 21(3)(b) notwithstanding a direction made by the Board of Inland Revenue under that section that the sum be treated as an expense over five years.
(b) what was the amount of the company's profits chargeable to corporation tax in the accounting period ended 31 January 1980.
The general commissioners decided that the contribution of £186,200 paid by the company to the directors' self-administered pension fund in the year ended 31 January 1980 ought to be allowed in full.
The Revenue expressed dissatisfaction and required the commissioners to state a case for the opinion of the High Court pursuant to theTaxes Management Act 1970 section 56Taxes Management Act 1970, s. 56. The question of law for the opinion of the court was whether, notwithstanding the direction made by the Board under the Finance Act 1970, the commissioners were entitled to allow the deduction of the whole sum of £186,200 as an expense in the computation of the profits of the company for the accounting period ended 31 January 1980.
Arden J: I have before me a case stated by the general...
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