Neil Pattullo For Judicial Review
| Jurisdiction | Scotland |
| Judge | Lord Bannatyne |
| Judgment Date | 07 October 2009 |
| Neutral Citation | [2009] CSOH 137 |
| Published date | 07 October 2009 |
| Docket Number | P15/09 |
| Court | Court of Session |
| Date | 07 October 2009 |
| OUTER HOUSE, COURT OF SESSION [2009] CSOH 137 | |
| P15/09 | OPINION OF LORD BANNATYNE in the petition of NEIL PATTULLO Petitioner; for JUDICIAL REVIEW ________________ |
Petitioner: Johnston, Q.C.; Brodies, LLP
Respondent: Artis; Acting Solicitor (Scotland), HM Revenue & Customs
7th October 2009
Background
Overview
[1] This application for judicial review concerns a challenge to a decision to issue a notice (hereinafter referred to as "the discovery notice") to the petitioner made on 28 August 2008 by Dr Nicholas Branigan, one of HM inspector of taxes, the second respondent (hereinafter referred to as "Dr Branigan") in terms of Section 20(1) of the Taxes Management Act 1970 (hereinafter referred to as "TMA 1970"). The notice was consented to of even date by the commissioners.
The factual background
[2] The salient points in the history of events prior to the issue of the notice are as follows:
31 January 2005 The petitioner filed his tax return for the year ended 5 April 2004. Part of the tax return known as the white space contained the following:
"Capital Redemption Contract
1. On 24 February 2004 I settled an interest in possession trust with £6,000.
2. The trust is called 'The Pattullo 2004 Life Interest Settlement'.
3. I had borrowed on commercial terms a sum of £2,665,000 from Investec Bank UK Limited and settled this amount into the trust.
4. The trustees 'Nexus Trustee Company Limited' used the funds to acquire a number of capital redemption contracts to me on 4 March 2004.
5. I surrendered the Capital redemption contracts on 8 March 2004 and received redemption proceeds of £2,600,000.
6. This has given rise to a capital loss as a consequence of Section 37(1) TCGA 1992 amounting to £2,665,000."
[3] On 23 October 2006, Dr Branigan on behalf of the first respondents, Her Majesty's Revenue and Customs (hereinafter referred to as "HMRC") wrote to the petitioner advising him of his intention to seek the consent of a commissioner to issue a discovery notice. That letter, known as a precursor letter, was intended to comply with the provisions of Section 20B(1) TMA 1970 which requires the taxpayer to provide the information sought on a voluntary basis before a formal request is made under Section 20. In September 2007, Dr Branigan issued a discovery notice. However Dr Branigan subsequently acknowledged that the notice was invalid. Consequently, a fresh precursor letter in materially different terms was sent to the petitioner on 15 July 2008.
[4] The petitioner did not comply with the request set out in the precursor letter on the basis that he believed that HMRC having regard to the whole circumstances did not have power to recover the documentation sought. The discovery notice was served and the petitioner did not comply therewith on the basis that he believed HRMC had not competently served the discovery notice seeking the information contained therein.
The grounds of challenge
[5] In submission these narrowed from those that had been advanced in the petition. In short, the petitioner challenged the decision on the basis that it was (1) wrong in law and (2) unreasonable.
[6] Senior counsel said that the question in issue was this: whether HMRC were legally entitled, having regard to the information provided in the petitioners' said tax return (the white space), to make a discovery assessment in terms of Section 29 of TMA 1970 and, in order to do so, were entitled to serve a discovery notice. It was a matter of agreement between the parties that the sole disclosure made by the petitioner regarding said capital loss was contained in the white space.
The general tax law applicable
[7] Section 8 of the TMA 1970 sets out the basis for taxpayers submitting returns and introduces what is known as the self assessment regime.
[8] Section 9A of the TMA 1970 sets out the powers of an officer of the Board to enquire into a tax return following issuing notice of his intention to do so. The said Section allows the officer of the Board (hereinafter referred to as "the officer") an unrestricted right to enquire into anything contained in the return within a period of one year (hereinafter referred to as "the enquiry window").
[9] Section 19A of the TMA 1970 provides a power to request documents for purposes of certain enquires including an enquiry under Section 9A:
"(1) This section applies where an officer of the Board gives notice of enquiry under Section 9A(1) or 12AC(1) of this Act to a person ("the taxpayer").
(2) For the purpose of the enquiry, the officer may at the same or any subsequent time by notice in writing require the taxpayer, within such time (which will not be less than 30 days) as may be specified in the notice -
(a) To produce to the officer such documents as are in the taxpayer's possession or power and as the officer may reasonably require for the purpose of determining whether and, if so, the extent to which -
(i) The return is incorrect or incomplete, or
(ii) In the case of an enquiry which is limited under Section 9A(5) or 12 AC(5) of this Act, the amendment to which the enquiry relates is incorrect, and
(b) To furnish the officer with such accounts or particulars as he may reasonably require for that purpose."
The foregoing provisions relate to the self-assessment regime. The provisions hereinafter referred to fall outwith the self-assessment regime.
[10] Section 20 TMA 1970 is a further section giving an officer of HMRC the power to request documents and information from a taxpayer or a third party in connection with any tax liability or the amount of such liability. The relevant parts of the said section for the purposes of this case are:
"20 Power to call for documents of taxpayer and others
20(1) Subject to this section, an inspector may by notice in writing require a person -
(a) to deliver to him such documents as are in the person's possession or power and as (in the inspector's reasonable opinion) contain, or may contain, information relevant to -
(i) any tax liability to which the person is or may be subject, or
(ii) the amount of any such liability, or
(b) to furnish to him such particulars as the inspector may reasonably require as being relevant to, or to the amount of, any such liability.
20(2) Subject to this section, the Board may by notice in writing require a person -
(a) to deliver to a named officer of the Board such documents as are in the person's possession or power and as (in the Board's reasonable opinion) contain, or may contain information relevant to -
(i) any tax liability to which the person is or may be subject, or
(ii) the amount of any such liability, or
(b) to furnish to a named officer of the Board such particulars as the Board may reasonably require as being relevant to, or to the amount of, any such liability.
[11] Section 29 TMA 1970 gives an officer of HMRC power to make a further assessment (hereinafter referred to as a "discovery assessment") outwith the enquiry window.
[12] The relevant parts of the said section for the purposes of this case are as follows:
"29. - Assessment where loss of tax discovered.
(1) If an officer of the Board or the Board discover, as regards any person (the taxpayer) and a [year of assessment] -
(a) that any ..... [income], unauthorised payments under section 208 of the Finance Act 2004 or surchargeable unauthorised payments under section 209 of that Act or relevant lump sum death benefit under section 217(2) of that Act] which ought to have been assessed to income tax, or chargeable gains which ought to have been assessed as capital gains tax...have not been assessed, or
(b) that an assessment to tax is or has become insufficient, or
(c) that any relief which has been given is or has become
excessive, the officer or, as the case may be, the Board may, subject to subsections (2) and (3) below, make an assessment in the amount, or the further amount, which ought in his or their opinion to be charged in order to make good to the Crown the loss of tax.
...
(3) Where the taxpayer has made and delivered a return under [section 8 or 8A] of this Act in respect of the relevant [year of assessment], he shall not be assessed under subsection (1) above -
(a) in respect of the [year of assessment] mentioned in that subsection; and
(b) [...] in the same capacity as that in which he made and delivered the return,
unless one of the two conditions mentioned below is fulfilled.
...
(5) The second condition is that at the time when an officer of the Board -
(a) ceased to be entitled to give notice of his intention to enquire into the taxpayer's return under [section 8 or 8A] of this Act in respect of the relevant [year of assessment]; or
(b) informed the taxpayer that he had completed his enquiries into that return, the officer could not have been reasonably expected, on the basis of the information made available to him before that time, to be aware of the situation mentioned in subsection (1) above.
(6) For the purposes of subsection (5) above, information is made available to an officer of the Board if -
(a) it is contained in the taxpayer's return under [section 8 or 8A] of this Act in respect of the relevant [year of assessment] (the return), or in any accounts, statements or documents accompanying the return;
(b) it is contained in any claim made as regards the relevant [year of assessment] by the taxpayer acting in the same capacity as that in which he made the return, or in any accounts, statements or documents accompanying any such claim;
(c) it is contained in any documents, accounts or particulars which, for the purposes of any enquires into the return of any such claim by an officer of the Board, are produced or furnished by the taxpayer to the officer [...]; or
(d) it is information the existence of which, and the relevance of which as regards the situation mentioned in subsection (1) above -
(i) could reasonably be expected to be inferred by an officer of the Board from...
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