Lord Advocate v McKenna
| Jurisdiction | Scotland |
| Judgment Date | 04 December 1987 |
| Date | 04 December 1987 |
| Court | Court of Session (Outer House) |
Court of Session (Outer House).
Mr. G.N.H. Emslie Q.C. and Mr. J.E. Drummond Young (instructed by the Solicitor of Inland Revenue) for the Crown.
Mr. W.A. Nimmo Smith Q.C. and Mr. S.N. Brailsford (instructed by McGrigor Donald, Edinburgh) for the taxpayers.
Before: Lord Coulsfield.
The following cases were referred to in the opinion:
Bath and West Counties Property Trust Ltd. v. Thomas (H.M.I.T.)TAX(1977) 52 T.C. 20
Bye (H.M.I.T.) v. Coren & Anor. TAX[1986] BTC 330
Honig & Ors. v. Sarsfield (H.M.I.T.) TAX[1986] BTC 205
I.R. Commrs. v. Pearlberg WLR[1953] 1 W.L.R. 331
R. v. General Commrs. of Income Tax for Freshwell, ex parte ClarkeTAX(1971) 47 T.C. 691
This was an action by the Inland Revenue for recovery of tax certified by the inspector and the collector of taxes to be due and payable pursuant to the Taxes Management Act 1970 section 70 subsec-or-para (1)Taxes Management Act 1970, sec. 70(1) by virtue of an assessment under the Income and Corporation Taxes Act 1970 section 488Income and Corporation Taxes Act 1970, sec. 488 against which no appeal had been lodged.
The Revenue decided that tax might have been payable by two taxpayers in connection with transactions in land in 1978, and in a letter of 8 February 1985 the special investigation section of the Revenue informed the taxpayers that protective assessments were to be made since the time limit for making assessments was about to expire. The letter stated that the assessments were made on an alternative basis.
On 26 February 1985 assessments were raised, on each of the taxpayers, to income tax under Sch. D, Case I, under the Income and Corporation Taxes Act 1970 section 488Income and Corporation Taxes Act 1970, sec. 488 (artificial transactions in land) and to capital gains tax. The assessments were entered in the assessment book and notified to the taxpayers on the same day but neither in the assessment book nor in the notice was there any indication that the assessments were made in the alternative.
On 28 March notices of appeal were lodged only against the Sch. D, Case I assessments. The Revenue wrote to the taxpayers in May acknowledging the notices of appeal. The letter drew attention to the fact that no appeal was lodged against the Income and Corporation Taxes Act 1970 section 488sec. 488 and capital gains tax assessments. No further appeal and no application for leave to appeal out of time was lodged.
In April 1986 an action for the recovery of the tax assessed underIncome and Corporation Taxes Act 1970 section 488sec. 488 was commenced. The taxpayers' defence was that the assessments were not expressed to be alternative: they were thus cumulative and therefore invalid. Further, if the assessments were alternative, the appeal against the Sch. D, Case I assessments had the effect of suspending any liability under the others. The Income and Corporation Taxes Act 1970 section 488sec. 488 assessment was made under an anti-avoidance provision which only came into play if the income in question did not fall under Sch. D, Case I. The Sch. D, Case I assessment should be regarded as the first assessment and tax was not payable under the Income and Corporation Taxes Act 1970 section 488sec. 488 assessment unless the appeal against the Sch. D, Case I assessment succeeded.
The Revenue contended that the Income and Corporation Taxes Act 1970 section 488sec. 488 assessment had become final, that the sum assessed was therefore due and payable, and that there was no defence to the action.
It was common ground that the assessments under Sch. D, Case I orIncome and Corporation Taxes Act 1970 section 488sec. 488 and assessments to capital gains tax were mutually exclusive: tax was only payable on the same sum once.
Held, giving judgment for the Revenue:
1. Although the assessments were not expressly stated to be alternative, they were properly to be so regarded because tax was exigible under only one of them. The submission that they must be taken to be cumulative and therefore invalid was unfounded.
2. There was no reason why any one alternative assessment should be treated as prior to another. The Sch. D, Case I assessment had no logical priority over the Income and Corporation Taxes Act 1970 section 488sec. 488 assessment which could be enforced as tax due and payable.
Lord Coulsfield: In about 1978 the defenders in these two actions were concerned in transactions with land in the vicinity of Renfrew Airport. Some time later the Inland Revenue authorities came to the view that tax might be payable as a result of these transactions, and in 1985 assessments were made and notice thereof was served on each of the defenders. There were three assessments made on each of the defenders as an individual, and one on the two defenders jointly and severally; in addition an assessment was made on a company by the name of Walkerston Investments. In these actions the pursuer seeks payment of the tax due in terms of two of these assessments. The assessments made on the defenders respectively as individuals correspond to one another, apart from minor differences in the calculation of tax payable, and it was agreed between the parties that the issues arising in these two actions are identical. For simplicity therefore the issues were discussed by reference to the facts in the case of McKenna and I shall follow the same course in this opinion. Parties were agreed that the relevant facts are sufficiently apparent from the pleadings and productions and that a proof is not necessary.
By letter dated 8 February 1985 the special investigation section of the Inland Revenue intimated to McKenna that assessments were to be made. The letter stated that the assessments were being made to protect the Revenue's interests, since the time limit for making assessments was about to expire, and also stated:
I should make it clear to you that the assessments are being made on the alternative basis and are not accumulative.
The assessments to be made were then listed, and the letter continued:
no doubt you will submit appeals to my colleague at Ardrossan District (who is arranging for the issue of the assessments) in due course.
It was further stated that, in the opinion of the writer of the letter, the relevant tax returns had been delivered late and the full circumstances of the transaction in question not disclosed, and that assessments were being made for the purpose of making good any loss of tax which might have arisen as a result of wilful default or neglect.
On 26 February 1985 the inspector of taxes at Ardrossan made the following assessments:
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(2) An assessment on McKenna as an individual in respect of trading profit from the sale of land: the assessment was made under Sch. D, Case I: the sum taken as profit was £250,000 and the tax payable £204,307.90 ("the Sch. D assessment").
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(3) An assessment on McKenna as an individual in respect of gains from transactions in land assessable under Income and Corporation Taxes Act 1970 section 488sec. 488 of the Income and Corporation Taxes Act 1970: the sum taken as gain was £250,000 and the tax payable £204,307.90 ("the Income and Corporation Taxes Act 1970 section 488sec. 488 assessment").
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(4) An assessment on McKenna as an individual in respect of gains chargeable to capital gains tax: the sum taken as gain was £250,000 and the tax payable £75,000 ("the CGT assessment").
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(5) An assessment on McKenna and Henderson jointly in respect of trading profit from the sale of land: the assessment was made under Sch. D, Case I: the sum taken as profit was £500,000 and the tax payable £410,828.88.
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(6) An assessment on Walkerston Investments in respect of trading profits from the sale of land: the sum taken as profit was £500,000 and the tax payable £410,828.88.
It was a matter of agreement between the parties that there was only one sum of income or gain in question and that all the above assessments related to that one sum.
The assessments were entered in the assessment book on 26 February 1985. The assessments were not stated ex facie to be alternative and the assessment book did not contain any statement that they were alternative. Each...
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