Valentine v Jackson
| Jurisdiction | England & Wales |
| Judge | THE MASTER of THE ROLLS,LORD JUSTICE SACHS,LORD JUSTICE BUCKLEY |
| Judgment Date | 12 February 1971 |
| Judgment citation (vLex) | [1971] EWCA Civ J0212-3 |
| Date | 12 February 1971 |
| Court | Court of Appeal (Civil Division) |
[1971] EWCA Civ J0212-3
In The Supreme Court of Judicature
Court of Appeal
Appeal by plaintiff from order of Mr. Justice Pennycuick on 10th February, 1970.
The Master of the Rolls (Lord Denning)
Lord Justice Sachs and
Lord Justice Buckley.
Mr. MICHAEL MILLER (instructed by Messrs. Geo. & Wm. Webb) appeared on behalf of the Appellant Plaintiff.
Mr. RAYMOND PHILLIPS, Q.C., and Mr. J.P. WARNER (instructed by the Solicitor of Inland Revenue) appeared on behalf of the Respondent Defendant.
This case raises a point of procedure in tax matters. It concerns "out-of-time" assessments, that is, assessments made more than six years after the end of the year to which the assessment relates. The statutory provisions are very hard to understand, hut they are best shown by taking three periods of six years each.
1. THE FIRST SIX YEARS
Suppose that in March 1957 the Revenue authorities believe that the Crown has lost tax for many years past, and that the loss is attributable to the neglect of the taxpayer to make proper returns of his income. The Revenue Authorities determine to take steps to make good the loss. They can assess him for the six years before 1957, which I will call the "first six years". They can make the assessment for those first six years, of their own motion, without the leave of anyone: see section 47(1) of the Income Tax Act, 1952. They can, for instance make an assessment on him for the year 1951-52 so as to make good the loss of tax in that year due to his neglect. If they make such an assessment, it becomes what is called "the normal year", see section 51(1) of the Finance Act, 1960.
2. THE SECOND SIX YEARS
Now suppose the taxpayer accepts that assessment for the "normal year", as correct, so that it is finally determined in 1957: or suppose that the taxpayer appeals against that assessment for the "normal year". It may be many years before his appeal is finally determined. Let us assume that it is not finally determined for the ten years from 1957 until 1967. During the whole of the time, until it is finally determined, the Revenue authorities can go back for the six earlier years before the endof the "normal year" 1951-52. I will call those earlier six years the "second six years" back, see section 51(1)(2) and (3) of the Finance Act, 1960. The Revenue can, for instance, make assessments on him for the earlier years 1945-6 onwards down to 1950-51) provided that they do it for the purpose of making good a loss of tax due to his neglect. But, in the case of those "second six years" the assessment may only be made "with the leave of a General or Special Commissioner": see Section 6(1)(c) of the Income Tax Management Act, 1964. One Commissioner is enough, but they must get his leave. If there is an appeal against the assessment, the Commissioner who gave the leave must not be present at the appeal: see section 6(2) of the Income Tax Management Act, 1964.
3. THE THIRD SIX YEARS
Now suppose that the Revenue Authorities in 1957 made such an assessment for the year 1945-46. That year 1945-46 then becomes what is called the "earlier year": see section 51(5) of the Finance Act, 1960. The taxpayer appeals and it is many years before that appeal is finally determined. Let us suppose it is not finally determined for the ten years from 1957 to 1967. During the whole of that time, until the assessment is finally determined, the Revenue Authorities can go back for six years before the end of the year 1945-46, which I will call the "third six years" back. But in the case of the "third six years" they have to get leave from two of the Commissioners, and it is expressly provided that "the person to be assessed shall be entitled to appear and be heard": see section 51(4)(5)(6) and (7) of the Finance Act, 1960. If the Commissioners give such leave,The Revenue Authorities can make assessments on the taxpayer for the years 1939-40 onwards down to 1944-45. And so on for the "fourth six years". The process can be repeated against but not further back than 1936.
THE FACTS of THIS CASE
In this particular case the Revenue Authorities claim to go back for the "second six years" but not for the "third six years". The facts are as follows:
In March 1957, the Revenue authorities made an assessment on Mr. Pearlberg for the year 1951/52 for untaxed interest. It was within the "first six years" back. So 1951/52 was the "normal year". He appealed against that assessment. The appeal was not determined for many years. The Revenue told us that it has not been finally determined even now.
In December 1967, the Revenue authorities decided to charge Mr. Pearlberg, if they could, for "the second six years" back. To do this they had to obtain leave from one Commissioner. This requirement of leave is contained in Section 6(1) of the Income Tax Management Act, 1964, which says that an assessment for the second six years back:
".….may only be made with the leave of a General or Special Commissioner given on being satisfied by an inspector or other officer of the Board that there are reasonable grounds for believing that tax has or may have been lost to the Crown owing to the fraud or willful default or neglect of any person".
In pursuance of that request, the Inspector of Taxes on 19th December, 1967, made an application for leave to make assessments on Mr. Pearlberg, on a printed form No. 64D-2. The form, so far as material, was as follows:
Person assessible and Address
H. H. Pearlberg, 18 Wilton Crescent, S. W. I.
Description of Income
Profits on sale of property and chief rents
Income Tax Schedule D
Section 51, Finance Act, 1960 .
Normal year (Section 51(1), Finance Act, 1960) 1951-52
Years and Accounts
| Assessment | 1946-7 | 1947-8 | 1948-9 | 1949-50 | 1950-51 |
| Proposed: | £ | £ | £ | £ | £ |
| 7,743 | 11,825 | 314,634 | 1,224 | 313 |
Inspector's signature: L. A. Varty Date: 19th December,1967.
LEAVE TO ASSESS GIVEN
Commission's signature Date: 25th January, 1968".
The Inspector on 19th December, 1967, sent with the form a letter to the clerk to the Commissioners, saying:
"……… I attach the forms for consideration by one of the General Commissioners and for his signature if he approves these assessments.
The application is made under Section 51 (1)(3), Finance Act, 1960, on the grounds of neglect or wilful default…… The facts are as follows:
(a) No Income Tax Returns were made by Mr. Pearlberg for the years 1936/37 to 1950/51.
(b) Statutory notices to Mr. Pearlberg to render returns of income were given as follows:
| 1945/46 | 26th April, 1945 |
| 1946/47 | 12th April, 1946 |
| 1947/48 | 6th May, 1947 |
| 1948/49-1950/51 incl. | 6th December, 1950 |
(c) No returns of income were completed by Mr. Pearlberg for the years.1945/46 to 1949/50 inclusive. For 1950/51 a further return was issued by this District on the 3rd July, 1956, and completed by Mr. Pearlberg on 17th November, 1957".
In addition, the Inspector sent to Mr. Pearlberg's solicitors on 12th December, 1967, a letter setting out the facts on which he relied in precisely the same words.
On 2nd January, 1968, Mr. Pearlberg's solicitors wrote to the Inspector denying that there was any neglect, let alone fraud or wilful default. They added two significant sentences:
"………… It appears to us to follow that your proposed assessments are out of time, and that your intended application to the Commissioners is wholly misconceived".
If, notwithstanding the above, you propose to continue with your application for leave, we shall be obliged if you will please arrange for us to be notified of the Hearing because our clients wish to appear and be heard".
On 5th January, 1968, the Inspector of Taxes replied saying that Mr. and Mrs. Pearlberg had consistently neglected all requests to make income-tax returns. He impliedly turned down the request to be heard, because he said that if the Commissioner agreed to the making of the assessments, the taxpayer would receive notice in the usual way and have the right to appeal against them.
The result was that on 24th January, 1968, the Form of Application for Leave, together with the covering letter setting out the facts, were put before one of the Commissioners, Sir William Carr. He granted leave without hearing the taxpayer and signed the form accordingly.
On 19th February 1968, the Inspector of Taxes gave to Mr. Pearlberg five notices of assessment to income tax for the years ended: 5th April, 1947, 1948, 1949, 1950 and 1951.
On 30th April, 1968, Mr. Pearlberg issued the writ in this action against the Inspector of Taxes. He claimed that each ofthe five assessments were ultra vires and of no effect. The reason given in his statement of claim was that he was given no notice of the hearing, nor any opportunity of commenting on or controverting the facts and matters relied upon in the application for leave.
THE CONSTRUCTION of THE STATUTES
It is quite plain that Parliament intended that there should he a difference between leave given for the "second six years": and leave given for the "third six years". In the third six years the Legislature expressly said that "the person to be assessed shall be entitled to appear and be heard". (See Section 51(7) of the Finance Act, 1960): whereas, in the second six years the Legislature significantly omitted that provision (see section 6 of the 1964 Act). That omission speaks volumes. It shows that the Legislature, in the case of the "second six years", did not intend that the taxpayer should have any right to appear or to be heard. This is in keeping with the practice before 1964. Mr. Phillips, for the Revenue, took us through the legislative history. I need not...
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