R v HM Inspector of Taxes, ex parte Bass Holdings Ltd;Richart (HM Inspector of Taxes) v Bass Holdings Ltd
| Jurisdiction | England & Wales |
| Judgment Date | 04 December 1992 |
| Date | 04 December 1992 |
| Court | Queen's Bench Division (Administrative Court) |
Queen's Bench Division (Crown Office List).
Popplewell J.
David Goldberg QC and John Walters (instructed by Linklaters & Paines) for the taxpayer.
Alan Moses QC and Launcelot Henderson (instructed by the Solicitor of Inland Revenue) for the Crown.
The following cases were referred to in the judgment:
Associated Japanese Bank (International) Ltd v Credit du Nord SAWLR[1989] 1 WLR 255
Bell & Anor v Lever Bros Ltd & Ors ELR[1932] AC 161
Cenlon Finance Co Ltd v Ellwood (HMIT) TAX(1962) 40 TC 176
Council of Civil Service Unions & Ors v Minister for the Civil Service ELR[1985] AC 374
Delbourgo v Field (HMIT) TAX(1976) 52 TC 225
Grist v Bailey ELR[1967] Ch 532
Hallamshire Industrial Finance Trust Ltd v IR Commrs TAX(1978) 53 TC 631
Magee v Pennine Insurance Co Ltd ELR[1969] 2 QB 507
Joscelyne v Nissen & Anor ELR[1970] 2 QB 86
R v IR Commrs, ex parte MFK Underwriting Agencies Ltd & OrsWLRTAX[1990] 1 WLR 1545; [1989] BTC 561
R v IR Commrs, ex parte Preston ELRTAX[1985] AC 835; [1985] BTC 208
Scorer (HMIT) v Olin Energy Systems Ltd TAXTAX(1985) 58 TC 592; [1985] BTC 181
Solle v Butcher ELR[1950] 1 KB 671
Tod (HMIT) v South Essex Motors (Basildon) Ltd TAX[1988] BTC 78
Corporation tax - Agreement between inspector and taxpayer - Mistake - Revenue allowed group relief twice - Mistake not noticed until too late to make further assessment - Whether agreement was capable of rectification by the court - If so whether agreement should be rectified - Taxes Management Act 1970 section 54Taxes Management Act 1970, sec. 54.
This was an application by the taxpayer for judicial review heard together with a writ action by the Revenue against the taxpayer transferred from the Chancery Division. The judicial review proceedings challenged a decision by the Revenue to institute proceedings and a request by the Revenue to the clerk to the general commissioners for Offlow North to list an appeal against an assessment. It was alleged by the taxpayer that the commissioners had no jurisdiction to hear the appeal because the issues in dispute had been settled by an agreement under the Taxes Management Act 1970 section 54Taxes Management Act 1970, sec. 54. The Revenue's statement of claim in the writ action claimed rectification of a letter of 1 July 1987 setting out the terms of the agreement.
On 11 November 1983 the Revenue served a notice of assessment on the taxpayer in respect of an estimated amount of profits of £70m for the period 1 October 1981 to 30 September 1982. The taxpayer appealed. On 1 July 1987 the Revenue proposed that a computation of £62,480,893 should be agreed and was duly agreed by the taxpayer on 5 November 1987.
On 18 November 1987 the Revenue wrote determining the appeal in the agreed amount of £62,480,893. An amended assessment showing chargeable profits of that amount was issued dated 14 April 1988.
The agreed computation of profits (which constituted an agreement underTaxes Management Act 1970 section 54sec. 54) contained a mistake in that it included the deduction of the same sum of £3,549,923 twice in respect of group relief. The mistake was not noticed either by the taxpayer nor by the Revenue until November 1989. It was agreed that the mistake was innocently made by either party and that the taxpayer was substantially undercharged.
When the mistake came to light the Revenue issued a writ claiming rectification of the letter of 1 July 1987 containing the terms of theTaxes Management Act 1970 section 54sec. 54 agreement. They decided to institute proceedings and requested the clerk to the special commissioners to list the taxpayers' appeal against the original assessment. The taxpayer sought judicial review of the decision and the request on the ground that the case could not be heard by the special commissioners because the disputed assessment had been agreed.
It was common ground that it was not open to the Revenue to make any further assessment because of the six-year time limit.
In both the judicial review application and the writ action the two main issues were: whether a Taxes Management Act 1970 section 54sec. 54 agreement was susceptible of rectification; and, if so, was this particular agreement susceptible of rectification?
On the first question the taxpayer contended that a Taxes Management Act 1970 section 54sec. 54 agreement was final and conclusive as if the matter had been determined by the appeal commissioners, and there was no power in the court to rectify such an agreement. Since there was no slip rule, the only way in which the Revenue could have dealt with the matter if it had been determined by the commissioners would have been by way of appeal. However, there could be no appeal from an agreement so the error could not be put right. The principal reasons for that contention were that the words "final and conclusive" were to be given their proper and natural meaning; public policy required that an agreement once made should not be reopened as there was no specified time-limit for such reopening; and the parties were entitled to know where they stood. The fact that Taxes Management Act 1970 section 54 subsec-or-para (2)sec. 54(2) provided a 30-day period during which the taxpayer could rescind implied that for the Revenue there should be no escape from a Taxes Management Act 1970 section 54sec. 54 agreement. Further, a Taxes Management Act 1970 section 54sec. 54 agreement might be oral and, since an oral agreement was incapable of rectification, it had to follow that Parliament intended that the written agreement should be the same.
On the second question the taxpayer argued that the true analysis of the agreement in this case was that it was an agreement to treat a given figure as the amount chargeable to corporation tax. The reasons for entering into the agreement were irrelevant and only introduced confusion. Accordingly there was no mistake to be rectified. The parties agreed to treat £62,480,493 as the amount chargeable to corporation tax and to charge and pay tax on that figure. The mutual intention that group relief should be given once was wholly outside the scope of theTaxes Management Act 1970 section 54sec. 54 agreement. It could only become re levant to a rectification claim if it could positively be shown that it was a term of the agreement that group relief should be given once and not twice.
Held, dismissing the taxpayer's application and granting rectification of the letter containing the terms of the sec. 54 agreement to reflect the intention of the parties:
1. There was no reason why the ordinary law of contract should not apply to a Taxes Management Act 1970 section 54sec. 54agreement. Its effect was that it should be final and conclusive but that did not mean that the court was not entitled to look and see whether all the ingredients necessary for the formation of a valid contract were complied with. Thus, matters such as capacity, fraud and mistake might be considered by a party seeking to challenge the agreement. In the sense that the agreement was res judicata of the issues which it determined was clearly final and conclusive, but that did not mean that the ordinary rules governing the formation of a contract were deemed to have been complied with.
2. It was the common intention of the parties in entering into theTaxes Management Act 1970 section 54sec. 54 agreement that group relief should be given once. The agreement wrongly recorded that common intention. It was never intended to agree a figure of £62,480,893, by whatever means that figure was calculated, but to deduct group relief of an agreed sum from the gross profits. The agreement would therefore be rectified by deleting the figure of group relief to accord with the intention of the parties.
Popplewell J: In this case Bass Holdings ("the taxpayers") seek judicial review firstly of a decision of the inspector of taxes of 9 November 1990 to institute proceedings before the general commissioners and, secondly, a request dated 12 November 1990 by the inspector of taxes to the clerk to the general commissioners that he should list an application for hearing by the general commissioners.
I also have before me an action transferred from the Chancery Division between two inspectors of taxes as plaintiffs and Bass Holdings. In that action the plaintiffs claim a declaration and rectification of an agreement.
The matters giving rise to these proceedings arise out of the same facts. They are very short and are not in dispute. On 11 November 1983 the Revenue served a notice of assessment on the taxpayer of an estimated amount of profit at £70m. On 23 November 1983 the taxpayers gave notice of appeal. On 1 July 1987 the Revenue proposed for agreement a computation of profits chargeable to corporation tax in respect of the taxpayer's accounting period ending 25 September 1982 in the amount of £62,480,893.
On 5 November 1987 the taxpayer agreed the computation. On 18 November 1987 the Revenue wrote determining the appeal as chargeable profits of £62,480,893. An amended assessment showing chargeable profits at that sum was issued and dated 14 April 1988.
That computation contained a mistake in that it included deduction of £3,549,923 in respect of group relief twice when it is accepted that there should have been only one such deduction. That mistake was not noticed either by the taxpayer or by the Revenue until November 1989. It is agreed that the mistake was one innocently made by the Revenue and not noticed, equally innocently, by the taxpayer.
It is not in dispute therefore that the Revenue have substantially undercharged the taxpayer by reason of giving relief in respect of £3,549,923 twice.
This being accepted as an agreement under Taxes Management Act 1970 section 54sec. 54 of the Taxes Management Act1970, the following issues arise:
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