Lord Advocate v McKenna
| Jurisdiction | Scotland |
| Judgment Date | 15 February 1989 |
| Date | 15 February 1989 |
| Court | Court of Session |
Court of Session (Inner House).
Lord President Emslie, Lord Brand and Lord Allanbridge.
Mr. W.A. Nimmo Smith Q.C. and Mr. S.N. Brailsford (instructed by McGrigor Donald) for the reclaimer (taxpayer).
Mr. J.E. Drummond Young Q.C. and Mr. James McNeill (instructed by the Solicitor of Inland Revenue) for the Crown.
The following cases were referred to in the opinion of the court:
Barnes (H.M.I.T.) v. Hely Hutchinson ELR[1940] A.C. 81
Bath and West Counties Property Trust Ltd. v. Thomas (H.M.I.T.)TAX(1977) 52 T.C. 20
Bird & Ors. v. I.R. Commrs. WLRTAX[1988] 2 W.L.R. 1237; [1988] BTC 164
Bye (H.M.I.T.) v. Coren & Anor. TAX[1986] BTC 330
I.R. Commrs. v. Garvin WLR[1981] 1 W.L.R. 793
I.R. Commrs. v. Pearlberg WLR[1953] 1 W.L.R. 331
Liverpool and London and Globe Insurance Co. v. Bennett TAX(1911) 6 T.C. 327
Moshi, Re TAX(1953) 35 T.C. 92
R. v. General Commrs. for Freshwell, ex parte Clarke TAX(1971) 47 T.C. 691
Revell v. Edinburgh Life Insurance Co. TAX(1906) 5 T.C. 221
Rutherford v. Lord Advocate TAX(1931) 16 T.C. 145
Income tax - Alternative assessments - Assessments under Sch. D, Case I, under anti-avoidance provision for artificial transactions in land and to capital gains tax - Sch. D assessment only appealed against - Whether Revenue could recover amount assessed under alternative assessment not appealed against as tax due and payable - Income and Corporation Taxes Act 1970 section 488 section 489 subsec-or-para (13)Income and Corporation Taxes Act 1970, sec. 488, 489(13)(now Income and Corporation Taxes Act 1988 section 776 section 777 subsec-or-para (13)Income and Corporation Taxes Act 1988, sec. 776, 777(13)); Taxes Management Act 1970 section 31 subsec-or-para (1)Taxes Management Act 1970, sec. 31(1).
This was a reclaiming motion by the defender ("the taxpayer") appealing against the decision of the Outer House of the Court of Session (The Lord Ordinary, Lord Coulsfield) ([1988] BTC 340) holding that the Revenue was entitled to recover tax assessed under theIncome and Corporation Taxes Act 1970 section 488Income and Corporation Taxes Act 1970, sec. 488 against which the taxpayer had not appealed.
The Revenue decided that tax might have been payable by the taxpayer in connection with transactions in land in the vicinity of Renfrew Airport in 1978, but they did not have enough information to determine whether any gain by the taxpayer was of an income or a capital nature. Consequently they made three assessments: under Income and Corporation Taxes Act 1988Sch. D, Case I; under theIncome and Corporation Taxes Act 1970 section 488Income and Corporation Taxes Act 1970, sec. 488; and to capital gains tax.
In March 1985 the taxpayer lodged a notice of appeal against the Sch. D assessment but did not appeal against the other two assessments.
In April 1986 an action for the recovery of the tax assessed underIncome and Corporation Taxes Act 1970 section 488sec. 488 was commenced.
On appeal from the decision of the Lord Ordinary confirming theIncome and Corporation Taxes Act 1970 section 488sec. 488 assessment the taxpayer accepted that the assessments were made in the alternative but contended that, to avoid the possibility of double taxation, they should have been included in one assessment. Further, the assessment under Income and Corporation Taxes Act 1988Sch. D, Case I took priority and the other two assessments would only be enforceable if the Sch. D assessment were found on appeal to be invalid. That was demonstrated by Income and Corporation Taxes Act 1970 section 489 subsec-or-para (13)sec. 489(13)which defined a "capital amount" chargeable to income underIncome and Corporation Taxes Act 1970 section 488sec. 488 as an amount which "does not fall to be included in any computation of income for the purposes of the Tax Acts" and it had to be determined first whether the gain, if any, was chargeable underIncome and Corporation Taxes Act 1988Sch. D, Case I.
Held, dismissing the reclaiming motion:
1. The Revenue were entitled to make three separate alternative assessments and to enforce payment under any one of them. (R. v. General Commrs. for Freshwell, ex parte Clarke TAX(1971) 47 T.C. 691 at p. 692 and Bye (H.M.I.T.) v. Coren & Anor. TAX[1986] BTC 330 at p. 332, followed.)
2. The Income and Corporation Taxes Act 1988Sch. D, Case I assessment had no priority over the others. The definition of "capital amount" in Income and Corporation Taxes Act 1970 section 489 subsec-or-para (13)sec. 489(13) was intended to prevent any gain being treated both as capital under Income and Corporation Taxes Act 1970 section 488sec. 488 and as income under other provisions of the Tax Acts so as to result in double taxation. The words could not be read as indicating that where there was a question as to whether a gain was of a capital or income nature, it was necessary first to establish that it was not income.
3. The taxpayer could not challenge the Income and Corporation Taxes Act 1970 section 488sec. 488 assessment or the capital gains tax assessment in proceedings for recovery of tax due. He should have lodged a separate appeal against each assessment under the Taxes Management Act 1970 section 31 subsec-or-para (1)Taxes Management Act 1970, sec. 31(1). In the absence of any appeal against either the Income and Corporation Taxes Act 1970 section 488sec. 488 assessment or the capital gains tax assessment, they became final and the Revenue were entitled to enforce either one of them. (I.R. Commrs. v. Pearlberg WLR[1953] 1 W.L.R. 331, applied.)
Opinion of the court delivered by Lord Allanbridge.
We heard a reclaiming motion in this case on 5 and 6 January 1989. Mr. Nimmo Smith, and Mr. Brailsford appeared for the defender and reclaimer and Mr. Drummond Young, and Mr. McNeill appeared for the pursuer and respondent. There is a second action in similar terms against John Morton Henderson but it was accepted that the decision in this case would determine the corresponding reclaiming motion in Henderson's case.
The history of this case and the relevant statutory provisions governing the making of assessments and their consequences in terms of theTaxes Management Act 1970 and the relevant charging provisions of the Income and Corporation Taxes Act 1970 are set out in the opinion of the Lord Ordinary (Lord Coulsfield) ([1988] BTC 340) to which we refer to for its terms. In brief both McKenna and Henderson were concerned in about 1978 in transactions with land in the vicinity of Renfrew Airport. The Inland Revenue came to the view that tax might be payable as a result of these transactions and inter aliamade three assessments on each of them, namely a Sch. D assessment, aIncome and Corporation Taxes Act 1970 section 488sec. 488 assessment and a capital gains tax assessment. It was a matter of agreement that there was only one sum of income or gain in question and that all the assessments related to that one sum. Each individual lodged a notice of appeal against his respective Sch. D assessment but did not appeal the other two assessments. No further appeals or applications for leave to appeal out of time having been lodged, the present actions for payment of the sums due in terms of theIncome and Corporation Taxes Act 1970 section 488sec. 488 assessments were raised in April 1986. In the Outer House the defenders argued in the first place that these three assessments were cumulative and because they sought to recover more than one payment of taxation from a single element of income or gain, the assessments were void. In the second place the defenders argued that if the assessments were alternative, the alternatives must be looked at in the correct order and that the validity of the Income and Corporation Taxes Act 1970 section 488sec. 488 assessment could only be considered if and when the Sch. D assessment had been rejected as invalid. That being so the defenders maintained they had followed the correct procedure by only appealing the Sch. D assessment and the present actions were premature standing the outstanding Sch. D appeals. The Lord Ordinary rejected both these arguments and granted decreede plano in each case.
In opening the appeal in McKenna's case Mr. Brailsford submitted that the Lord Ordinary had erred in rejecting the two main arguments of the defender in the Outer House. The first argument was to the effect that whilst the defender accepted it was competent to make alternative assessments, and the Lord Ordinary had fairly summarised the three cases on this subject in his opinion (see R. v. General Commrs. for Freshwell, ex parte Clarke TAX(1971) 47 T.C. 691, Bath and West Counties Property Trust Ltd. v. Thomas (H.M.I.T.) TAX(1977) 52 T.C. 20 and Bye (H.M.I.T.) v. Coren & Anor. TAX[1986] BTC 330), the defender maintained that in this particular case there are no valid alternative assessments. By issuing multiple...
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