R (on the application of De Silva and Another) v Revenue and Customs Commissioners
| Jurisdiction | England & Wales |
| Judge | Lady Justice Gloster,Lord Justice Simon,Lady Justice Arden |
| Judgment Date | 02 February 2016 |
| Neutral Citation | [2016] EWCA Civ 40 |
| Docket Number | Case No: A3/2014/1761 |
| Court | Court of Appeal (Civil Division) |
| Date | 02 February 2016 |
[2016] EWCA Civ 40
IN THE COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM THE UPPER TRIBUNAL
(TAX AND CHANCERY CHAMBER)
TCC-JR/10/2012
Royal Courts of Justice
Strand, London, WC2A 2LL
Lady Justice Arden
Lady Justice Gloster
and
Lord Justice Simon
Case No: A3/2014/1761
David Southern QC (instructed by Reynolds Porter Chamberlain LLP) for the Appellants
Alison Foster QC and Aparna Nathan (instructed by HM Revenue & Customs Solicitor's Office) for the Respondents
Hearing dates: Tuesday 13 October 2015
Wednesday 14 October 2015
Introduction
This is an appeal brought by the appellants, Mr De Silva and Mr Dokelman (together "the Appellants"), against the decision of the Upper Tribunal (Tax and Chancery Chamber) (Sales J ("the judge")) dated 15 April 2014 (neutral citation number [2014] UKUT 0170 (TCC)). By its decision the Upper Tribunal dismissed the Appellants' claim for judicial review of the respondents' ("the Revenue") amendments to the Appellants' tax returns by which the Revenue declined to accept claims by the Appellants for loss relief in relation to their investments in certain film partnerships.
The Appellants' case in essence is that the Revenue had one lawful and early opportunity to challenge the Appellants' assertion of entitlement to relief by means of usable losses of the relevant film partnerships, against their income tax bill. The Appellants contend that the Revenue did not take that one chance within the relevant time limit and were barred from any other challenge to the claims made; accordingly, it follows, so the Appellants submit, that the Appellants' claims for loss relief became final and binding and must be allowed by the Revenue. That is said to be so, even though the partnership returns containing the losses were statutorily amended by the Revenue to deny the effect of the totality of the sums claimed by way of relief, as a result of settlement agreements concluded between the Revenue and the relevant partnerships pursuant to section 54 of the Taxes Management Act 1970 ("the TMA").
The Appellants submit that the issue of law in the case, which arises on the application of complex provisions of the tax code, has been resolved in their favour by the judgment of the Supreme Court in Revenue and Customs Commissioners v Cotter [2013] UKSC 69; [2013] STC 2480 (" Cotter"). The Revenue disputes this.
The judge did not accept the Appellants' submissions regarding the effect of Cotter. He found that the Revenue had acted correctly and according to law. However, he rejected the Revenue's alternative argument that the settlement agreements concluded between the partnerships and the Revenue precluded the Appellants in any event from contending that they were entitled to the full amount of the loss relief. That issue is the subject of the Revenue's respondent's notice.
On the appeal, as below, Mr David Southern QC appeared on behalf of the Appellants. Miss Alison Foster QC and Miss Aparna Nathan appeared on behalf of the Revenue.
Factual Background
The following summary of the factual background is adapted from the judge's summary as set out in his judgment. However, because I do not agree with the judge's statement at the end of paragraph 8 of the judgment that "the individual members of the partnerships were not parties to the partnership settlement agreement", nor with his conclusion, in relation to the Revenue's separate argument based on the effect of the partnership settlement agreement, as set out at paragraph 64 of his judgment, I have thought it more appropriate to set out the judge's factual summary to the extent which I accept it, and with certain amendments of my own based on the underlying evidence which was not in contention.
The Appellants were at the material times limited partners in a number of limited film partnerships of which Investing in Enterprise Limited ("IEL") was the general partner. The limited partnerships were established under the Limited Partnerships Act 1907 ("the 1907 Act"). The Appellants became limited partners in such partnerships as a result of their participation in marketed tax avoidance schemes which involved their becoming partners with the aim of accruing trading losses which, it was intended, would be set against amounts they were obliged to remit to the Revenue as income tax.
Many of these types of film partnerships owed their existence to special tax incentives granted by Parliament for investment in the production and acquisition of qualifying films. The tax incentives in the years in question in this appeal were contained in section 42 of the Finance (No. 2) Act 1992 ("the 1992 Act"), and in section 48 of the Finance (No. 2) Act 1997 ("the 1997 Act"). The limited partnerships in question in the present case were financed by contributions from individual investors, including the Appellants. Each partner would make a capital contribution to the partnership, funding approximately 29% from his own resources and the remaining 71% with a loan from a 3 rd party lender on limited recourse terms.
Under the relevant statutory provisions, in the early years of trading, a limited partner in a film partnership was entitled to set off his allocated share of the losses of a film partnership in a particular year against his general income for that year or any of three previous years, by way of "carrying back" the losses to any of those previous years. The opportunity to carry back partnership losses in this way was potentially of considerable value to the partner, in that it allowed him to choose to use the losses to offset taxable income across a range of years, depending on when it was most advantageous to him to use the losses in that way.
The relevant film partnerships lodged partnership tax returns, completed by the general partner, IEL, pursuant to section 12AA of the TMA in which the partnerships claimed that they had suffered substantial trading losses for the tax years 1998/1999, 1999/2000, 2000/2001 and 2001/2002, in respect of expenditure they had purportedly incurred on the production or acquisition of qualifying films. Those returns reflected the partnerships' claims to deduct certain expenditure under the film tax relief provisions of section 42 of the 1992 Act, as amended by section 48 of the 1997 Act.
The 1 st Appellant, Mr De Silva, made contributions to 4 of the partnerships in which he was a partner by way of cash and loan. Loss relief claims were made respectively in his 1998/99 self-assessment tax return on or after 25 January 2000, and in his 1999/2000 self-assessment tax return submitted on 11 January 2001. Thus, in his self-assessment tax return for 1998/1999, Mr De Silva included a claim to set off against his general income trading losses in respect of certain partnerships in other years, including 1999/2000, so as to reduce his payment in respect of tax due for 1998/1999 by £16,800, by including that figure in box 18.9 against the entry on the return form: "1999–2000 tax you are reclaiming now". He also included additional information in his return to explain the detail of the carry back claims he was making to give rise to that figure to off-set against his tax liability. The figure represented Mr De Silva's share of relevant partnership losses, including those for 1999/2000, which it was already estimated the relevant partnerships in which he was invested would suffer for that year, as claimed by those partnerships (i.e. at the high rate of losses and reliefs asserted by the partnerships, which came to be challenged by the Revenue).
In his self-assessment tax return for 1999/2000, submitted on or after 11 January 2001, Mr De Silva made similar carry-back claims to set off partnership losses in specified years against his general income in earlier years (and so claim a repayment of tax for those years), again at the high rate of losses and reliefs asserted by the partnerships, as challenged by the Revenue.
Initially, the Revenue credited Mr De Silva with £22,400 and £42,000 in respect of such claims for relief.
The 2 nd Appellant, Mr Dokelman, likewise made contributions to 4 of the partnerships in which he was a partner by way of cash and loan. In his self-assessment tax return for 2000/2001, he included a claim to carry back partnership losses in the sums of £133,000, £35,000, £52,500 and £35,000 in relation to four film partnerships, to years prior to the tax years in which the partnership losses were, or were expected, to be incurred. Again, these sums were stated at the high levels of losses and reliefs asserted by the partnerships, which were then challenged by the Revenue. The Revenue did not make any payment to Mr Dokelman in respect of his claims to relief.
The Revenue, not accepting that the expenditure gave rise to the losses claimed by the partnerships, proceeded to challenge those claims by way of initiating an enquiry into the returns of the partnerships under section 12AC(1) of the Taxes Management Act 1970 ("the TMA") within the relevant 12 month period after the filing date. By reason of the provisions of section 12AC(6) of the TMA, the fact that an enquiry had been opened in respect of the partnership returns under section 12AC(1), was deemed to include the giving of notice of enquiry under section 9A(1) of the TMA to each partner in such partnership who at that time had made a return under section 8 of the TMA, or who at any subsequent time made such a return.
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