Lord Advocate v McKenna
| Jurisdiction | Scotland |
| Judgment Date | 15 February 1989 |
| Date | 15 February 1989 |
| Docket Number | No. 20. |
| Court | Court of Session (Inner House - First Division) |
FIRST DIVISION.
Lord Coulsfield.
RevenueAssessments to pay taxProfit or gain from sale of landAssessments made on three bases: (a) trading profit; (b) gain under sec. 488, Income and Corporation Taxes Act 1970; (c) capital gainWhether assessments alternative or cumulativeWhether appeal against one assessment suspended liability to pay tax in respect of the othersWhether assessment (b) required it to be established that the gain was not incomeTaxes Management Act 1970 (cap. 9), sec. 291Income and Corporation Taxes Act 1970 (cap. 10), secs. 488 and 489 (13).2
The defenders and reclaimers were involved in transactions for the sale of land in 1978. The Inland Revenue came to the view that tax might be payable as a result, and inter alia made three assessments on each of them, namely a Sched. D assessment, an assessment under sec. 488 of the Income and Corporation Taxes Act 1970 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 of the reclaimers lodged a notice of appeal against his respective Sched. D assessment but neither of them appealed the other two assessments. The Inland Revenue brought actions of payment in respect of the sums due under the sec. 488 assessments in April 1986. In the Outer House the defenders and reclaimers argued, firstly, that the three assessments were cumulative and that, because they sought to recover more than one tax payment from a single element of income or gain, the assessments were void; secondly, that if the assessments were alternative, the alternatives must be looked at in the correct order and the validity of the sec. 488 assessment could be considered only if and when the Sched. D assessment had been rejected as invalid; they had accordingly followed the correct procedure by appealing only the Sched. D assessment and the present actions were premature. The Lord Ordinary (Coulsfield) rejected both these arguments and granted decree de plano in each case. The defenders reclaimed.
Held (aff. judgment of Lord Coulsfield) (1) that the Revenue had been fully entitled to make three separate assessments to tax and that they were clearly made on an alternative basis and could not result in double taxation; (2) that the Revenue did not require to prove that the amount in question was not income before it could establish that it could be treated as a capital gain and that, accordingly, none of the three assessments was required to be treated as prior to the others; and (3) that it was incompetent to challenge the validity of the assessments against which no appeal had been taken; and reclaiming motion refused.
I.R.C. v. PearlbergWLR [1953] 1 W.L.R. 331followed.
The Lord Advocate, for the Commissioners of Inland Revenue, brought actions of payment against Bernard Edward McKenna and John Morton Henderson. The causes came before the Lord Ordinary (Coulsfield) on procedure roll on 27th and 28th October 1987, when the pursuer moved in each case for decree de plano. On 4th December 1987 the Lord Ordinary pronounced decree de plano against each defender. [See:Lord Advocate v. McKennaUNK 1988 S.L.T. 523.] The defenders reclaimed.
The reclaiming motions came before the First Division, comprising the Lord President (Lord Emslie), Lord Brand and Lord Allanbridge, on 5th and 6th January 1989.
At advising, on 15th February 1989, the opinion of the court in the McKenna action was delivered by Lord Allanbridge.
Opinion of the Court.We heard a reclaiming motion in this case on 5th and 6th January 1989. 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 the Taxes Management Act 1970 and the relevant charging provisions of the Income and Corporation Taxes Act 1970 are set out in the Lord Ordinary's opinion in Lord Advocate v. McKennaUNK 1988 S.L.T. 523 at pp. 524H526H, to which we refer 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 andinter alia made three assessments on each of them, namely, a Sched. D assessment, a sec. 488 assessment and a C.G.T. 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 Sched. D assessments 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 the sec. 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 sec. 488 assessment could only be considered if and when the Sched. D assessment had been rejected as invalid. That being so the defenders maintained they had followed the correct procedure by only appealing the Sched. D assessment and the present actions were premature standing the outstanding Sched. D appeals. The Lord Ordinary rejected both these arguments and granted decree de plano in each case.
In opening the appeal in McKenna's case junior counsel for the defender 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) (see R. v. General Commissioners for Freshwell, ex p. Clarke (1971) 47 T.C. 691;Bath and West Counties Property Trust Ltd. v. ThomasUNK[1978] S.T.C. 30 and Bye v. CorenUNK [1986] S.T.C. 393), the defender maintained that in this particular case there are no valid alternative assessments. By issuing multiple assessments not said to be alternative these assessments were invalid because they amounted to double assessment and thus double taxation. A proper alternative assessment was one contained in a single assessment for profit or gain. In this case such an appropriate single assessment would have been for a Sched. D assessment, which failing a sec. 488 assessment, which failing a C.G.T. assessment. (See Bath and West Counties...
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