R v Commissioners of Inland Revenue, ex parte Preston
| Jurisdiction | England & Wales |
| Judgment Date | 24 February 1983 |
| Date | 24 February 1983 |
| Court | Queen's Bench Division |
Queen's Bench Division.
Mr. S. Brodie Q.C. and Mr. S. Nathan (instructed by Messrs. Landau and Scanlon) for the taxpayer.
Mr. R. Carnwath (instructed by the Solicitor of Inland Revenue) for the Crown.
Before: Woolf J.
Income tax - Tax avoidance - Agreement between taxpayer and Revenue - Whether Revenue exercised a discretion or a duty to seek the information it required - Whether unfair of Revenue to seek to exercise powers - Income and Corporation Taxes Act 1970, Income and Corporation Taxes Act 1970 section 460sec. 460; Income and Corporation Taxes Act 1970 section 465465.
This was an application for judicial review against the Inland Revenue Commissioners in respect of action taken by the Revenue under tax avoidance provisions of Pt. XVII of the Income and Corporation Taxes Act 1970.
The taxpayer worked for Rossminster between 1974 and 1977. In May 1978 he received a letter from the Special Investigations Section of the Revenue concerning his tax affairs. After much protracted correspondence and negotiation, the taxpayer and the Revenue entered into an agreement. The basis of this was that the taxpayer agreed to give up certain claims for relief in exchange for the Revenue refraining from making further investigations into his tax affairs for 1975-76 to 1977-78. This arrangement was not intended to apply to the sort of conventional enquiries that the taxpayer's local Inspector might make, but was clearly intended to apply to the type of enquiries in which the Special Investigations section of the Revenue might engage, including tax avoidance schemes. In breach of this agreement, the Revenue, in 1982, issued a notice under Income and Corporation Taxes Act 1970 section 465sec. 465 of the 1970 Act seeking further information regarding certain transactions in securities. This information was necessary before deciding whether a notice requiring a computation or recomputation of profits or gains, or liability to tax under Income and Corporation Taxes Act 1970 section 460 subsec-or-para (3)sec. 460(3) should be issued.
The taxpayer contended that because of the arrangement between himself and the Revenue, it would be unfair, arbitrary and unreasonable for the Revenue to take advantage of the provisions of the Act. It was further contended that a contract was reached which prevented the Revenue from taking this action. However, it was conceded by counsel that the latter point could not be argued before this court.
The taxpayer argued that what the Revenue was seeking to do was to exercise a discretion, and, as a matter of public as opposed to private law, they could not be entitled to exercise that discretion in a manner which would be inconsistent with the agreement that had been made. The second submission was that because of the arrangement made, it would be unfair for the Revenue to seek to exercise those powers and that discretion must be exercised in accordance with well-known principles.
For the Crown it was submitted that Income and Corporation Taxes Act 1970 section 460sec. 460 created not a discretion but a duty to put the machinery into operation as long as, in the Revenue's judgment, the facts were such that it would lead to a recovery of tax and it was not bad management to make use of those provisions.
Held, application allowed.
1. The taxpayer was led to believe that the earlier share transactions would not be investigated further. For him now to be faced with a new claim in respect of those transactions would be wrong and improper unless there were circumstances which would alter the normal implication to be drawn from such a situation. The Revenue was acting in a manner not permitted by the statutory provisions contained in Pt. XVII of the Taxes Act when it made an application to the taxpayer for the information set out in the 1982 notice.
2. Income and Corporation Taxes Act 1970 section 465Section 465 quite clearly gave the Board a discretion as to whether or not to seek to obtain information. The clear implication from the evidence was that the Revenue did not consider what happened in 1978 was relevant to their decision whether to take action in 1982. Nothing indicated that the matter received the sort of consideration it should have before the machinery in Income and Corporation Taxes Act 1970 section 465sec. 465 was initiated.
Woolf J.: This is an application for judicial review against the Commissioners of Inland Revenue in respect of action which has been taken by the Revenue under the provisions of Pt. XVII of the Income and Corporation Taxes Act 1970, which are the provisions of the Act which deal with tax avoidance.
It is contended by the taxpayer, who is Michael David Preston, that because of an arrangement which was reached between himself and the Revenue, it would be unfair and arbitrary and unreasonable for the Revenue to take advantage of those provisions. It is also contended by the taxpayer that, in fact, a contract or agreement was reached between himself and the Revenue which prevents the Revenue from taking that action. However, it is conceded by Mr. Brodie that before this court he cannot argue the latter point, although he reserves the right to do so in a higher court if that should prove necessary.
The facts of the matter are as follows. Mr. Preston is a chartered accountant. He is not a chartered accountant who has, however, specialised in tax affairs. In April 1974 he acquired 50% of the share capital of a company called Gymboon Ltd. Having disposed of part of his share capital to a third party, in January 1977 he sold the remainder of the shares in the company to another company, Broadforth Ltd., and in respect of that sale he received £24,375.
In November 1974, that is after he had acquired his shareholding in Gymboon Ltd., he became employed by what I will call the Rossminster group of companies. As has become very much public knowledge as a result of proceedings in which the Revenue has been engaged, Rossminster did carry on certain activities which were aimed at saving tax for their clients by schemes of tax avoidance. In March 1977, the applicant left the employment of the Rossminster group, having received what is sometimes described as "a golden hand-shake".
While he was employed by the Rossminster group it is his contention that he was solely engaged in the corporate finance activities of the group and that he was not engaged in their activities in the revenue field.
In May 1978, he made his returns to the Revenue for the years ending 1975, 1976 and 1977, those being years during which he had been working for the Rossminster group. On 4 May 1978, he received a letter from a Mr. Thomas of the Special Investigations Section of the Revenue, Mr. Thomas being one of Her Majesty's Inspectors of Taxes.
The letter said:
I have seen your recent tax return and correspondence addressed to [another Inspector] and I note in particular that you are claiming relief for interest paid to Rossminster Acceptances Limited during the two years ended 5th April, 1976. I should welcome the opportunity of discussing with you your", [and then he sets out the tax years] "tax returns and I should therefore be grateful if you would suggest two alternative dates and times when it would be convenient for you to call at my office.
Mr. Preston, on 15 May, replied to that letter saying, among other things, that he would be happy to attend at the Inspector's office but that he would be grateful if he could be told in advance what matters in particular the Inspector wished to discuss and what information, if any, the Inspector would like him to provide.
On 18 May, Mr. Thomas replied to that letter. He pointed out that he had reserved a time for a meeting and then went on:
The particular matters that I should like to discuss with you are:
-
a. your claims to relief for interest paid to Rossminster Acceptances Ltd.,
-
b. the loss which you have claimed in respect of the purchase and sale of shares in Jurby Raven Ltd. and allied operations,
-
c. your transactions in the shares of Gymboon Ltd., Jacksons Bourne End Ltd., The Telbex Group Ltd., Powerstem Ltd., Alanvale Securities Ltd., and First London Securities Ltd.,
-
d. the leaving payment which you received from Rossminster Management Services Ltd.
It would be very helpful if you would bring to the meeting the documents, correspondence and other papers in your possession which are relevant to these matters.
That letter was replied to in the following terms (and I read out those passages in the letter of 24 May which are relevant):
Upon receipt of your first letter in which you referred to my claims for relief in respect of interest paid to Rossminster Acceptances Ltd. …I inferred that the proposed discussion would surround such claims and their circumstances. On that basis, and in a spirit of co-operation which I still preserve, I felt able to attend. It is clear, however, from your second letter, and particularly from your request for detailed documentation, that you wish the discussions to be of a more detailed and technical nature. In such circumstances, I must point out that although a Chartered Accountant, I am by no means well-versed in highly complex taxation matters, and feel that I am not competent to converse with you on equal terms. Subject to my comments below, therefore, if the interview is still considered necessary I feel that I must now seek professional advice.
In the meantime, however, in order to facilitate the finalisation of my affairs I set out...
To continue reading
Request your trial
-
R v HM Inspector of Taxes, ex parte Lansing Bagnall Ltd
......and Mr. Alan Moses (instructed by the Solicitor of Inland Revenue) for the Crown. . Before: Peter Gibson J. . . The following ...214 . R. v. I.R. Commrs., ex parte Preston TAXELR [1985] BTC 208; [1985] A.C. 835 . R. v. Lord Commissioners of the ......
-
R v Chief Constable of the Merseyside Police, ex parte Calveley
...to grant relief by judicial review when an alternative remedy is available." Finally, this approach is, I think, consistent with Reg. v. I.R.C., ex parte Preston [1985] 2 W.L.R. 836, where Lord Templeman said, at page 848, "Judicial review process should not be allowed to supplant the norm......
-
Fayed v Commissioners of Inland Revenue
...Matrix Securities LtdWLR [1994] 1 WLR 334 R v IRC ex p National Federation of Self-EmployedELR[1982] AC 617 R v IRC ex p PrestonUNKELR [1983] 2 All ER 300 at first instance, and [1985] AC 835 on appeal R v IRC ex p Unilever plcUNK [1996] STC 681 R v North and East Devon Health Authority ex ......
-
R v Commissioners of Inland Revenue, ex parte Preston
...465Income and Corporation Taxes Act 1970, sec. 460, 465. This was an appeal by the Crown against a decision of Woolf J. (reported at [1983] BTC 213) whereby the taxpayer's application for judicial review of action taken by the Revenue under tax avoidance provisions of Income and Corporation......