King v Walden ; Johnson v Walden
| Jurisdiction | England & Wales |
| Judgment Date | 26 November 1993 |
| Date | 26 November 1993 |
| Court | Chancery Division |
Chancery Division.
Evans-Lombe J.
The taxpayers appeared in person.
Michael Furness (instructed by the Solicitor of Inland Revenue) for the Crown.
The following cases were referred to in the judgment:
Edwards (HMIT) v Bairstow & Anor ELR[1956] AC 14
Rose v Humbles (HMIT) TAX(1971) 48 TC 103
Income tax - Undeclared trading profits and bank interest - Procedure before special commissioners - Whether commissioners' decision justified - Whether commissioners should have heard two appeals simultaneously - Whether preliminary hearing and adjournment should have been granted - Whether finding of wilful neglect or default justified - Taxes Management Act 1970 section 36 section 37Taxes Management Act 1970, ss. 36, 37 (Taxes Management Act 1970 section 37s. 37 repealed by the Finance Act 1989, Finance Act 1989 section 149 subsec-or-para (2) part VIII schedule 17s. 149(2) and Sch. 17, Pt. VIII from 27 July 1989 but not affecting the making of assessments for years before 1983-84).
These were appeals against the decision of the special commissioners by two taxpayers substantially upholding assessments to income tax in respect of undeclared income from guest houses and bank interest.
The two taxpayers, Mr King and Miss Johnson, had lived together since 1972. They had five children and their financial arrangements had become inextricably intermingled. Between 1973 and 1981 they acquired five properties, at least three of which were run as guest houses.
Mr King was assessed to income tax for the years 1971-72 to 1986-87 in respect of guest house profits and undeclared bank interest. Miss Johnson was assessed for the years 1973-74 to 1986-87 in respect of guest house profits.
The taxpayers' appeals against assessment were heard together by two special commissioners who for the most part confirmed the assessments after an 18-day hearing. The commissioners made a finding of wilful default against Mr King which justified the assessments for the earlier years pursuant the Taxes Management Act 1970 section 37Taxes Management Act 1970, s. 37. They made a finding of neglect against Miss Johnson pursuant to, Taxes Management Act 1970 section 36s. 36 where it was necessary to do so because the assessments were made more than six years after the tax year in question.
The taxpayers raised objection to the hearing of both appeals together on the ground that there might be a breach of confidentiality by disclosing one taxpayer's affairs to another. They also objected to the commissioners' refusal to hold a preliminary hearing, to summon additional witnesses and to adjourn the proceedings for the taxpayers' convenience.
Held, dismissing the taxpayers' appeals:
1. The appeals were based on an attempt to reopen questions of fact concluded by the special commissioners. The inferences drawn by the commissioners were sufficiently based on findings of primary fact as to be incapable of challenge before the court. Consequently it was not open to the court to set aside any part of the commissioners' conclusions.
2. The hearing of these two appeals together did not give rise to any breach of confidentiality or conflict of interest. In the absence of relevant regulations, the special commissioners had an inherent power to regulate the proceedings before them. This was a classic case where the hearing of two appeals simultaneously was justified.
3. There appeared to be no matters to be discussed to justify a preliminary hearing, nothing to indicate why additional witnesses should have been called and, no reason why the commissioners should have adjourned the hearing to accommodate the taxpayers.
4. The commissioners findings of fact in both cases justified their findings of wilful default or neglect for the purposes of theTaxes Management Act 1970 section 36 section 37Taxes Management Act 1970, s. 36 and s. 37.
1. On some 18 days starting on 13 May 1991 and ending on 24 September 1991 we, two of the special commissioners (Mr B O'Brien and Mr THK Everett), heard the appeals of James Murray King ("Mr King") against assessments to income tax under Sch. D in respect of (1) guest house profits and (2) bank interest as follows.
[Amounts varying between £10,000 and £83,000 in respect of guest for the years 1971-72 to 1986-87 and amounts of £12,000 or £3,000 in respect of interest for the years 1973-74 to 1986-87 were listed].
At the same time we heard other appeals by Mr King against assessments for sundry years in relation to other sources of income or gains, and against assessments to income tax on a partnership between himself and Miss Linda Kay Johnson ("Miss Johnson") as guest house proprietors. We discharged or reduced all such other assessments and this case is accordingly not concerned with them. Also at the same time we heard appeals by Miss Johnson against certain assessments, some of which are the subject of a separate case stated contemporaneously with this case.
[Paragraphs 2 and 3 listed the witnesses who gave evidence and the documents before the commissioners.]
4. At the conclusion of the hearing we reserved our decision (also covering Miss Johnson's appeals), which we issued in writing on 18 November 1991.
[Supplementary contentions by Mr King as to the facts were set out in para. 5-9.]
10. The question of law for the opinion of the court is whether there was evidence upon which we could arrive at our determinations.
(1) On some 18 days starting on 13 May 1991 and ending on 24 September 1991 we, two of the special commissioners (Mr B O'Brien and Mr THK Everett), heard the appeals of Linda Kay Johnson ("Miss Johnson") against assessments to income tax under Sch. D in respect of guest house profits as follows:
[Amounts varying between £10,000 and £83,000 assessed for the years 1973-74 to 1986-87 were listed.]
At the same time we heard other appeals by Miss Johnson against assessments on income from abroad, and against assessments to income tax on a partnership between herself and Mr James Murray King ("Mr King") as guest house proprietors. We discharged all such other assessments and this case is accordingly not concerned with them. Also at the same time we heard appeals by Mr King against certain assessments, some of which are the subject of a separate case stated contemporaneously with this case.
(2) In the present case (unlike that of Mr King) trading as a guest house proprietor by Miss Johnson was admitted: and the dispute between the parties related to the quantum of profits only. During the hearing certain gross receipts (or turnover) figures were put forward on Miss Johnson's behalf: these we accepted (notwithstanding that they bore little relation to the corresponding figures in accounts previously submitted to the inspector). As respects outgoings, we accepted the figures in those accounts (as amended), subject however to the elimination for the purpose of arriving at the taxable profits, or figures relating to:
(a) the cost of food (which had not actually been borne by the trade):
(b) depreciation; and
(c) certain overhead charges borne in fact by the trade but relating to a separate trade not owned by Miss Johnson.
So far as is now relevant, the sole question for our decision in Miss Johnson's case was (by the end of the hearing) whether all or any of the amounts in respect of those three matters were proper deductions in computing the profits of Miss Johnson's trade for income tax purposes.
[Paragraphs 3 and 4 listed the witnesses who gave evidence and the documents before the commissioners.]
5. At the conclusion of the hearing we reserved our decision, which we issued in writing on 18 November 1991.
6. Immediately after the determination of the appeals Miss Johnson declared to us her dissatisfaction therewith as being erroneous in point of law and on 18 December 1991 required us to state a case for the opinion of the High Court pursuant to the Taxes Management Act 1970 section 56Taxes Management Act 1970, s. 56.
7. The question of law for the opinion of the court is whether we erred in computing the taxable profits of Miss Johnson's trade on the basis that the amounts referred to in para. 2 hereof should not be deducted.
After something of a false start, on 13 May 1991 we started the hearing of appeals by Mr J M King and Miss L K Johnson against a number of assessments to tax in respect of different sources of income or gains, and for considerable periods of years. Much the most important source in each case was as guest house proprietor; and one set of assessments was raised on Mr King and Miss Johnson jointly, as partners in a single guest house business. For that reason (among others) we decided that all the appeals should be heard together: indeed, Mr King's and Miss Johnson's financial affairs were so interlocked that no other course could rationally be contemplated.
The hearing extended over 18 effective days, the last of which was 24 September 1991. Bearing in mind that the hearing had started in May, that calls for an explanation.
More than half of the assessments had been made with leave underTaxes Management Act 1970 section 36s. 36 orTaxes Management Act 1970 section 37s. 37, Taxes Management Act 1970. It accordingly fell to the district inspector to open the appeals: the burden being on the Crown to satisfy us that, in respect of the out-of-time years, the taxpayers had been guilty of neglect (or, in the case of the earliest years, wilful default or worse). The Crown's case was put before us principally by Mr Manning, an inspector of taxes in Mrs Walden's office, who had been responsible for the investigation into Mr King's and Miss Johnson's tax affairs since he joined that office in 1986. Mr Manning did so substantially by reference to five folders of documents.
The documents were in the taxpayers hands from 7 November 1990. Mr Manning started his...
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