Owton Fens Properties Ltd v Redden
| Jurisdiction | England & Wales |
| Judgment Date | 23 October 1984 |
| Date | 23 October 1984 |
| Court | Chancery Division |
Chancery Division.
Mr. W.C. Koenigsberger (instructed by Messrs. Tilly, Bailey & Irvine) for the company.
Mr. R. Carnwath (instructed by the Solicitor of Inland Revenue) for the Crown.
Before: Vinelott J.
Corporation tax - Assessment - Error - Appeal - Assessment under wrong schedule - Chargeable gains left out of account - Whether Commissioners erred in law in holding assessment under appeal could be adjusted to take account of company's total profits - Income and Corporation Taxes Act 1970 section 250Income and Corporation Taxes Act 1970, sec. 250 - Taxes Management Act 1970 section 50Taxes Management Act 1970, sec. 50.
This was an appeal by the taxpayer company against a decision of the Special Commissioners by which they adjusted a corporation tax assessment to bring into charge to tax the agreed profits of the company in place of the amounts specified in the notice of assessment together with the company's chargeable gains for that year.
The company failed to lodge accounts with the inspector of taxes for the period to 31 March 1973. Therefore, in November 1973 an estimated assessment of £8,000 was raised for that period. However, due to a typing error, the estimate on prescribed form CT4 showed a figure opposite the words "Building society interest and dividends" instead of opposite the words " schedule ASchedule A". Further, the form showed no amount in respect of chargeable gains which had accrued to the taxpayer during the relevant period. That amount was unknown to the inspector at the time the estimate was raised because he had received no accounts.
The taxpayer appealed against the assessment on the ground that it was not in accordance with accounts or information which were shortly to be sent to the inspector. Accounts were subsequently lodged and it was agreed that the taxpayer's profit chargeable to corporation tax for the period in question was £31,634.
The appeal eventually came before the Special Commissioners in 1983. The company contended that although corporation tax was charged on a company's total profits, the procedure for assessment was the same as that applicable to income tax. Income and Corporation Taxes Act 1970 section 250Section 250 of the Income and Corporation Taxes Act 1970 incorporated provisions which required income to be identified by reference to schedules and cases. Therefore, when a corporation tax assessment was made on the prescribed form CT4 it could charge to tax only income or gains correctly itemised under the headings on that form.Taxes Management Act 1970 section 50Section 50 of the Taxes Management Act 1970 enabled the Commissioners, on appeal, to increase the amount of income from a source specified in the assessment, but did not enable income from a new source to be added. In these circumstances the assessment was bad and should be discharged. The Commissioners rejected this argument and increased the assessment to £31,634.
The taxpayer company appealed and the court was asked to decide whether the Special Commissioners had erred in law in holding that the assessment under appeal could be adjusted to take into account income and gains not specified in the notice of assessment.
Held, dismissing the taxpayer's appeal:
The amount contained in a corporation tax assessment was the amount of the total profits chargeable to tax for the relevant accounting period. An appeal against that assessment was an appeal against the profit chargeable to tax shown in the assessment. Once the appeal was lodged, the assessment was at large until determined by the Commissioners. Accordingly, the Commissioners had reached the correct decision.
1. On 5 May 1983 the Commissioners for the special purposes of the Income Tax Acts heard an appeal by Owton Fens Properties Ltd. (hereinafter called "the company") against an assessment to corporation tax for the accounting period of twelve months ended on 31 March 1973 in the estimated sum of £8,000 made up of:
Building Society interest and dividends |
£12,000 |
less charges paid |
£4,000 |
Profits chargeable to corporation tax |
£8,000 |
2. Shortly stated the question for our decision was whether that assessment could be adjusted so as to bring into charge to corporation tax (a) income of a different kind from that specified in the notice of assessment in place of that so specified and (b) chargeable gains.
3. We heard oral evidence from Mr. Wilfred McMann, an inspector of taxes, and the following documents were proved or admitted before us:
(2) Notice of Assessment issued on 19 November 1973.
(3) 1(a). Notice of appeal against that assessment, dated 28 November 1973.
(4) Bundle of correspondence (paged 1 to 8 inclusive) - the company's bundle.
(5) Bundle of correspondence (paged 1 to 23 inclusive) - the Inland Revenue's bundle.
(6) Form CT3 - Corporation Tax Working Sheet.
(7) Letter dated 23 December 1974 - Mr. McMann to Messrs. Basil L. Denton and Co.
Documents 1 and 4 are annexed to our written Decision referred to below. Copies of the other documents are available for inspection by the court if required.
4. At the close of the hearing we reserved our decision and gave it in writing on 8 August 1983. A copy of that Decision which sets out the facts, the contentions of the parties and the reasons for our conclusions, is attached to and forms part of this Case. We determined the appeal in favour of the inspector of taxes and increased the assessment to £31,634.
5. The Appellant company immediately after the determination of the appeal declared to us its dissatisfaction therewith as being erroneous in point of law and on 23 August 1983 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, sec. 56which Case we have stated and do sign accordingly.
6. The question of law for the opinion of the court is whether we erred in law in holding that the assessment under appeal could be adjusted to take into account the company's total profits for the period in question.
This is an appeal against an assessment to corporation tax for the accounting period of twelve months ended 31 March 1973 in the sum of £8,000. There is no dispute as to figures. It is agreed that the appellant company's liability to corporation tax for that period, correctly computed, is:-
Schedule A income |
£10,463.00 |
Capital gains |
£27,721.00 |
£38,184.00 |
|
Less management expenses |
£2,462.00 |
£35,722.00 |
|
Less charges on income |
£4,088.00 |
Profits chargeable to tax |
£31,634.00 |
The issue in the appeal is whether, as the inspector contends, the assessment can be increased to the figure of £31,634.00 so as to charge those agreed profits or whether, as the company contends, the assessment is wholly ineffective to charge those profits and should be discharged. It is now too late to raise another assessment for that period.
The issue is a purely technical one, lacking any merit on the company's side since, if it succeeds, it will escape tax which is properly leviable. On the other hand, if that is the result, the Revenue must bear the blame for not bringing the matter to finality while there was still time to make a fresh assessment, if necessary.
At some time in the autumn of 1973 the District Inspector in charge of the Hartlepool Tax District, Mr. McMann, not having received the appellant company's accounts for the accounting period to 31 March 1973, decided to make an estimated assessment for that period. In previous years the company's income had consisted of rental income chargeable to tax under schedule ASch. A, with some chargeable gains. In the two years immediately preceding the period in question the assessments, made on the basis of the accounts, had been:
1971 |
1972 |
|
Schedule A |
9776 |
9840 |
Chargeable gains |
210 |
|
Less: Management |
||
Expenses |
1247 |
2217 |
Charges |
4237 |
4165 |
Mr. McMann considered that, in the circumstances known to him, the appropriate figures for an estimated assessment would be: schedule ASch. A income £12,000, less charges £4,000, leaving profits chargeable to corporation tax £8,000 on which the tax payable, at 40%, would be £3,200. He inserted those figures on a standard Form CT3 (Corporation tax - working sheet) and sent the form to the section of his office which handled the making of corporation tax assessments and the issue of notices of assessments to the taxpayers.
On 19 November 1973 a Notice of Assessment to corporation tax for the accounting period 1 April 1972 to 31 March 1973 was issued to the appellant company on the prescribed Form CT4B. A copy of that Notice, which is agreed to be identical to that issued to the company, is annexed to this Decision marked "Annex A". From this it will be seen, first, that the forms in the CT4 series contain a list of headings designed to cover the various sources from which income chargeable to corporation tax may be derived: and, secondly, that on this particular form the figure of £12,000 was entered against the heading "Building Society interest and dividends" and not against the heading "schedule ASchedule A". The Revenue accept, for the purposes of this appeal, both that the Notice of Assessment appears to relate to Building Society interest and dividends and that Mr. McMann had no reason to suppose that the company was in receipt of income from that source.
To set the scene for the argument we must explain how the Notice of Assessment came to be issued in that form. The inspector's working sheet (CT3) contains a series of headings similar to those on Form CT4, but, whereas on the Forms CT4 the column for figures is entirely blank until an entry is written or typed on it, the figures column on Form CT3 is divided by horizontal dotted lines into a series of "boxes" into which entries are inserted against the appropriate source of income.
We find as a fact that Mr. McMann inserted the figure 12,000 in the box which...
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