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IN
THE SUPREME COURT OF JUDICATURE
No
CHRVF 98/0263/3
IN
THE COURT OF APPEAL (CIVIL DIVISION)
ON
APPEAL FROM ORDER OF MR JUSTICE PARKER
Royal
Courts of Justice
Strand
London
WC2
Friday,
23rd October 1998
B
e f o r e:
LORD
JUSTICE KENNEDY
LORD
JUSTICE ALDOUS
LORD
JUSTICE POTTER
-
- - - - -
HURLEY
-
v -
TAYLOR
(HM INSPECTOR OF TAXES)
-
- - - - -
(Computer
Aided Transcript of the Palantype Notes of
Smith
Bernal Reporting Limited, 180 Fleet Street,
London
EC4A 2HD
Tel:
0171 421 4040
Official
Shorthand Writers to the Court)
-
- - - - -
MR
J MUNBY QC
(Instructed by Solicitor for Inland Revenue) appeared on behalf of the Appellant
MR
R ARGLES
(Instructed by Messrs T G Baynes of Orpington, Kent) appeared on behalf of the
Respondent
-
- - - - -
J
U D G M E N T
(As
Approved by the Court
)
(Crown
Copyright)
-
- - - - -
LORD
JUSTICE KENNEDY: I will ask Lord Justice Aldous to give the first judgment.
LORD
JUSTICE ALDOUS: The Revenue appeals against the judgment and order of Park J
of 20th January 1998 and the taxpayer, Mr Anthony Cornelius Hurley,
cross-appeals.
The
appeal and the cross-appeal concern assessments raised by the Revenue in
respect of income from the taxpayer's businesses for the years 1983/84 to
1992/93 inclusive. The taxpayer appealed to the General Commissioners against
those assessments to income tax under clause I of schedule D and class 4
National Insurance contributions in respect of profits as a general dealer and
in respect of a solarium business, car sales business and against assessments
under clause VI of schedule D on profits from furnished lettings. The
Commissioners allowed the appeal in respect of the assessments as a general
dealer and in certain other aspects, but upheld in part the other assessments.
The taxpayer was dissatisfied and requested the General Commissioners to state
a case for the opinion of the High Court. They did. The matter came before
Park J by way of that case stated. He held that the Commissioners had in part
erred in law and remitted the matter back to be considered in the light of his
judgment.
Pursuant
to Section 34 (1) of the Taxes Management Act 1970, an assessment of tax can
be made at any time, not later than six years after the end of a chargeable
period to which the assessment relates. Such assessments relate to what can be
conveniently called the in-time years. Section 50 (6) of the 1970 Act enables
the Commissioners on appeal if it appears to them "that the appellant is
overcharged by any assessment", to reduce it accordingly, "but otherwise such
assessment shall stand good". It follows that a taxpayer can challenge an
in-time assessment, but
when
doing so has the burden of establishing that he has been
overcharged.
Section
36 (1) of the 1970 Act enables the Revenue to raise assessments outside the six
year period laid down for in-date assessments. Such assessments are
conveniently referred to as extended time assessments. They have to be made
not later than twenty years after the end of the chargeable period to which
the assessment relates and can only be made "for the purpose of making good to
the Crown a loss of tax attributable to his [the taxpayer's] fraudulent or
negligent conduct". It is accepted that when considering an extended time
assessment, the burden of proof is on the Revenue to establish loss of tax due
to fraudulent or negligent conduct.
Pursuant
to Section 56 (6) of the Act an appeal to the High Court by way of case stated
is limited to questions of law. The case for the taxpayer against the
Commissioner's findings on the in-date assessments was that they were perverse
in the sense that the conclusions of fact were such that no reasonable body of
Commissioners could have reached the conclusion that they did. If established
that amounts to an error of law (see
Edwards
(HM Inspector of Taxes v Bairstow and Harrison
(1956) AC 14. That
authority
establishes that to succeed it must be shown that the Commissioners acted in
what is now called a
Wednesbury
unreasonable manner. In this case the judge held that the taxpayer could not
surmount the heavy burden of establishing that the findings of fact were
perverse or as I will refer to it as
Wednesbury
unreasonable.
As
to the Commissioner's conclusion on the extended time assessments, the judge
held that the Revenue had failed to discharge the onus on them or, if they
had, he held that the decision of the Commissioners was
Wednesbury
unreasonable. He therefore allowed the appeal in relation to the extended time
assessments and referred the matter back to the Commissioners for further
consideration in the light of his judgment.
The
facts were fully set out in the case stated [1998] STC at p204-212. Therefore
I need not repeat them. It is sufficient for me
to
adopt this summary from the judge's judgment:
"Mr
Hurley, the taxpayer, is now in his mid-40s. He lives in Bromley. In the
years in question he owned two fairly small businesses: a solarium business in
Sidcup and a motor-dealing business which he conducted from home. He also
received some income from lettings of properties. The customers of the
solarium business usually paid in cash, and a lot of the dealings in the motor
business were likewise transacted in cash. He produced audited accounts for
both businesses, but he had no reliable record-keeping system.
The
Revenue had investigated Mr Hurley's tax affairs in 1987, and a small
settlement resulted. In (I think) 1991 a more substantial investigation
commenced, and developed into a full-scale back duty inquiry. I have the
impression that the Revenue were prompted to investigate Mr Hurley's tax
affairs by information which they had obtained or statements which had been
made to them in another investigation of a former friend of his, a Mr Stringer.
At
all events the Revenue drew up capital statements for Mr Hurley for the years
from August 1982 to August 1992. Taking all the years together the figures as
calculated by the Revenue produced a deficiency of over £160,000. The
three largest contributions to it arose as follows.
(i)
In April 1986 Mr Hurley bought 5 Addison Road, Bromley. He moved there with
his family and I think that he lives there still. The purchase price was
£74,000 of which Mr Hurley borrowed £50,000 from Western Trust and
Savings Ltd. So allowing for costs he must have put up more than £24,000
himself. Where did that money come from?
(ii)
In October 1982 Mr Hurley bought 117 Amblecote Road, London, SE12. This
property has always been let. As far as I know Mr Hurley still owns it. The
price was £110,000, of which Mr Hurley borrowed £70,000 from Skandia
Trust. So he produced over £40,000 from other sources. Where did that
money come from?
(iii)
Two years later Skandia Trust required him to repay the loan for 117 Amblecote
Road because, contrary to the conditions of the loan, he had let the property
instead of living there. The repayment, with costs and accrued interest, cost
£72,055. Where did that money come from?"
The
taxpayer did not accept all the figures in the capital statement which showed a
discrepancy exceeding about £164,000 and I shall have to deal with a
number of matters relating to them later in this judgment. However he accepted
that there was a substantial deficiency. That he said was made up from loans
from a Mr Stringer and his father Mr Cornelius Hurley. The Commissioners held
that Mr Stringer had lent the taxpayer about £72,000 which had not been
repaid, but did not accept the evidence of the taxpayer that his father had
lent him about £118,000 of which about £54,000 had been repaid. The
Commissioners found that in total about £36,000 had been lent to the
taxpayer by his father of which just over £15,000 had been repaid. It was
on that basis that they upheld the extended time assessments.
It
was the Revenue's case that there was a discrepancy shown by the capital
statements and that the explanation given by the taxpayer that he had received
loans was not credible. In particular, the Revenue did not accept that the
taxpayer's father had sufficient funds to provide the loans claimed. To meet
that case the taxpayer gave evidence. His father, Mr Cornelius Hurley, had
died before the hearing before the Commissioners and therefore could not give
evidence. He had made a statement dated 4th December 1992 stating that he had
been in possession of funds. That statement also confirmed certain loans and
repayments. The taxpayer gave evidence of additional loans to those mentioned
in the 4th December statement. To show that his father had sufficient money to
fund the loans, the taxpayer also gave evidence as to sources amounting to over
£123,000 from which the loans were funded. The Commissioners held that
the taxpayer was not a credible witness and did not accept that Mr Cornelius
Hurley had accumulated over £123,000 from which he could provide loans of
£118,000 to the taxpayer.
Before
the judge the taxpayer submitted that the Commissioners had failed to take
into account a statement by Mr Cornelius Hurley dated 13th January 1994 in
which he dealt at length with the loans that he had made and where the money
came from. It followed, the taxpayer submitted, that the case should be
remitted back to the Commissioners for further consideration in the light of
the statement. The Revenue asserted and gave evidence to the effect that the
statement of 13th January 1994 had not been put before the Commissioners and
they submitted that it was now too late to do so. Affidavit evidence was
adduced by Mr Hurley and on behalf of the Revenue as to whether the statement
was before the Commissioners. The judge said at page 224 A:
"In
the event I am now wholly satisfied that Mr Hurley did not read his father's
statement to the commissioners. I do not suggest for a moment that he
attempted to mislead me by his affidavit. He was mistaken. I believe that I
know exactly how the mistake arose: Mr Hurley did read two other documents to
the commissioners. One was a statement by his father on another matter to do
with Mr Stringer, and the other was the part of Mr Argles' written submission
which was directed to where the father got the money from.
I
confess that I have felt tempted to remit the case to the commissioners for the
father's statement to be tendered to them in order that they can, if they think
fit reconsider their decision in the light of it. I believe that if Mr Argles
had been appearing for Mr Hurley at the relevant time the statement would have
been put in, and that it was only because of Mr Hurley's lay inexperience that
it was not.
However,
I have decided that it would be wrong for me to remit the matter in this way.
There is a lot of authority that, if either party before the commissioners does
not adduce some item of evidence, it would be an incorrect exercise of
discretion for the High Court to give him a second chance. The cases include
R
A Bird & Co v IRC
1925 SC 186 at 191, 12 TC 785 at 794-795 per the Lord President (Clyde),
Murphy
(Inspector of Taxes) v Australian Machinery and Investment Co Ltd
(Assessed in the name of De Bernales as agent) (1947) 30 TC 244 at 260 per
Tucker LJ,
Bradshaw
v Blunden (Inspector of Taxes) (No 2
)
(1960) 39 TC 73 at 80 per Pennycuick J,
Yuill
v Wilson (Inspector of Taxes
)
[1980] STC 460 at 470-471, [1980] 1 WLR 910 at 920-921 per Lord Edmund-Davies
in the House of Lords, and
Kingsley
v Billingham (Inspector of Taxes
)
[1992] STC 132 at 138 per Knox J. The present case may be a particularly hard
one, given the exceptional circumstances in which the father's statement was
not put in, but hard cases make bad law and I must resist the temptation to
depart from the general principle laid down by the authorities to which I have
referred."
Mr
Argles who appeared for the taxpayer submitted that upon the evidence before
the judge the statement of 13th January 1994 had been introduced into evidence
before the Commissioners. He relied in particular on a document recording the
notes that Mr Kelly, an inspector of taxes, had made during the proceedings
before the Commissioners. In my judgment that submission of Mr Argles cannot
be accepted. There is no mention in the note of Mr Kelly of a statement of
13th January 1994. Further, his notes are consistent and only consistent with
the evidence that Mr Kelly gave, namely that the statement was not introduced
into evidence. The statement of 13th January 1994 was, in my view, so
important that everybody would have remembered it. In particular, Mr Hurley
would have referred to it during his evidence and in cross-examination if it
had been before the court. He did not. The conclusion is supplied by
paragraph 6 of the case stated which recorded the documents before the
Commissioners made clear that it was not in evidence. There was, in my view,
ample evidence for the judge to conclude as he did.
Mr
Argles accepted that, as a general rule, a party who does not adduce an item of
evidence will not normally be allowed by the High Court a second chance.
However that general rule was, he submitted, subject to exceptions. To support
that submission he referred us to the judgment of the Lord President, Lord
Clyde
in
R
A Bird and Co v Commissioners of Inland Revenue
[1924] 12 TC 785 at 795. There Lord Clyde said:
"No
doubt, if there has been misunderstanding, we would strain a point to put that
right; and if the Commissioners had failed to include or to allude
sufficiently to some topic that was brought before them by way of evidence we
should remit to put that right."
Pennycuick
J in
Bradshaw
v Blunden (HM Inspector of Taxes) (No 2
)
[1960] 39 TC 73 at 80 made a similar observation. He said:
"It
is a well-established and salutary rule that the parties to an appeal to the
Court should not, in the absence of special circumstances, be enabled to go
back to the Commissioners and call fresh evidence on issues which were raised
in the original proceedings and as to which they had full opportunity of
calling such evidence as they might be advised (see per Tucker LJ in the case of
Murphy
v Australian Machinery & Investment Co Ltd
30 TC 244 at page 260)."
To
similar effect was the statement by Knox J in
Kingsley
v Billingham (HM Inspector of Taxes
)
[1992] STC 132 at 138:
"There
is nearly always a possibility that not all the evidence which can be produced
has been produced, but there is a strong presumption in the administration of
the law that the parties must bring forward the whole of their case at time of
trial, and once a case has been decided unless there are compelling reasons to
the contrary it should not be reopened."
Mr
Argles submitted that the statement of Mr Cornelius Hurley of 13th January
1994 should be admitted at this stage as it was the proof of evidence that he
would have given if he had survived. He also submitted we should take into
account the fact that the taxpayer was at the hearing acting in person and was
understandably disturbed at the death of his father. Further, the appeal
before the Commissioners involved a large body of documentation raising a
considerable number of complicated issues. Also when Mr Kelly's notes were
considered it was not surprising that the taxpayer had made a mistake in the
context of what was going on. This was, he submitted, a case where there was a
"misunderstanding" of the type referred to by Lord Clyde.
I
have considerable sympathy with any taxpayer who acts in person in a case such
as this where there were complicated issues to be considered. However I do not
believe that that is enough to excuse the failure to introduce a piece of
evidence like this statement. The taxpayer knew that the loans from his father
were a central issue in the case; perhaps the most important issue. The judge
considered the facts and the law and his exercise of his discretion cannot be
faulted. The submission of Mr Argles that we should admit the statement of
13th January and remit the case back for further consideration by the
Commissioners in the light of that statement must be rejected.
I,
therefore, go on to consider the appeal and cross-appeal.
The
Appeal
The
judge set out in his judgment seven propositions of law. He said at page 219 D:
"I
will first set out certain propositions of law, and then I will relate them to
the facts of the case. My propositions of law are as follows.
1.
By s 36 (1) of the Taxes Management Act 1970 an assessment to income tax can be
made on a person outside the normal six years period (but subject to a maximum
20 years cut-off) ´for the purpose of making good to the Crown a loss of
tax attributable to his fraudulent or negligent conduct´.
2.
This requires the Revenue to show: (1) fraudulent or negligent conduct by the
taxpayer; and (2) a loss of tax attributable to it.
3.
On appeal to the commissioners the burden rests on the Revenue of establishing
para 2 (1) and (2). If they do not discharge the burden the appeal should be
allowed (see eg
Hillenbrand
v IRC
(1966) 42 TC 617 at 623 per the Lord President (Clyde)). I will call this
´the s 36 burden'.
4.
The burden does not rest on the Revenue to any greater extent than the s 36
burden. If they establish some fraudulent and negligent conduct and some loss
of tax attributable to it they have satisfied s 36. From then on s 50 (6)
takes over and applies as it does for in-date assessments: that is to say,
thereafter the burden rests on the taxpayer to establish that the assessment is
wrong (see eg
Johnson
v Scott (Inspector of Taxes
)
[1978] STC 48 at 53).
5.
Reverting to the s 36 burden which rests on the Revenue, it may or may not be
discharged simply by capital statements which show deficiencies. Whether it is
so discharged or not depends on whether the taxpayer tenders any explanation of
the deficiencies, and if he does, on how the commissioners view his
explanation. In this context there is a difference between (i) the
commissioners rejecting the explanation, and (ii) the commissioners not
accepting the explanation.
Normally
it makes no difference whether a tribunal says that it rejects some item of
evidence or that it does not accept it, and the two expressions are often used
indiscriminately. Where, however, the burden of proof is in issue the
distinction between them can be important.
6.
To be precise about a case where the Revenue produce and prove capital
statements which show deficiencies:
6.1
If the taxpayer advances no explanation for the deficiencies the capital
statements by themselves can, and usually do, discharge the s 36 burden (see
Hudson
v Humbles (Inspector of Taxes
)
(1965) 42 TC 380 at 386 per Pennycuick J,
James
v Pope (Inspector of Taxes
)
(1972) 48 TC 142 at 150 per Ungoed-Thomas J).
6.2
If the taxpayer advances an explanation but the commissioners reject it (that
is, they positively disbelieve it) the capital statements by themselves can,
and usually do, discharge the s 36 burden. Commissioners often have cases
where the taxpayer gives evidence seeking to explain the deficiencies by
reference to betting winnings. The commissioners listen to the evidence,
including the cross-examination, and in many cases they reject it: they find
it to be untrue. That, taken with capital statements which show deficiencies,
is enough for the Revenue to discharge the s 36 burden. This judgment should
not be understood as indicating that in my view whenever a taxpayer alleges
that he won money by betting, the Revenue must produce specific evidence that
he did not.
What
I have said in the above paragraph is subject to 7.1 below.
6.3
If the taxpayer advances an explanation but the commissioners, while not
rejecting it, do not accept it either (that is, they are not satisfied on the
balance of probabilities that it is untrue, but they are not satisfied on the
balance of probabilities that it is true either - they are uncertain either
way) the capital statements by themselves are not sufficient for the Revenue to
discharge the s 36 burden. What I have said in this paragraph is subject to
para 7.2 below.
7.1
If the commissioners reject the taxpayer's explanation and therefore conclude
that the capital statements are themselves sufficient for the Revenue to
discharge the s 36 burden, their decision may be challenged by the taxpayer on
appeal to the High Court but only on the
Edwards
v Bairstow
ground that a decision positively rejecting the explanation (as opposed to one
merely not accepting it) was one which no reasonable body of commissioners
could possibly reach.
7.2
If the commissioners, while not accepting the taxpayer's explanation, do not
reject it either and therefore conclude that the capital statements are not
themselves sufficient for the Revenue to discharge the s 36 burden, their
decision may be challenged by the Revenue on appeal to the High Court, but only
on the
Edwards
v Bairstow
ground that a decision positively rejecting the explanation (as opposed to one
merely not accepting it) was the only one which a reasonable body of
commissioners could reach."
For
myself I would accept those propositions in their entirety, in the context of
this case, save for the third sentence in proposition 5, proposition 6.3 and
the emphasis on the word "rejection" in proposition 7.2. At this stage in my
judgment it is sufficient to outline why I do not accept those parts of the
propositions as correctly stating general propositions of law. A conclusion by
the Commissioners that they are unable to decide whether the taxpayer's
explanation is true or false has the result that the explanation carries no
weight. It follows that if the evidence as to the way the capital statements
have been calculated and the statements themselves are convincing, the
Commissioners could conclude that the Revenue had discharged the onus placed
upon them by s 36 of the 1970 Act. In any proceeding the evidential onus can
shift. For the extended time assessments, the statutory onus is placed on the
Revenue. They sought to discharge it using capital statements and surrounding
circumstances. That could, as the judge stated, be sufficient to discharge the
onus in the absence of any acceptable explanation. Whether the explanation was
sufficient and whether the capital statements were sufficient was for the
commissioners to decide.
The
case advanced by the Revenue, as accepted by the Commissioners, was set out in
11.1 of the case stated. It is in this form:
"The
commissioners considered the oral and documentary evidence and the contentions
of the taxpayer and the inspector. Their findings and reasoning are given below.
(1)
They found the accounts submitted to the Revenue by the taxpayer to be
unreliable because of the deficiencies in the primary records. Although the
car sales business was mainly conducted in cash, there was no written record of
sales and some expenses were estimated. There was no separate record of
takings for the Sundays solarium for the year ended 31 August 1989 and the
takings figure was based on the total bankings. The commissioners had no
evidence that the records maintained changed materially in other years although
the taxpayer told them daily record sheets were introduced after value added
tax registration. The exercise book in which the rents received were said to
be recorded was not produced to the commissioners and they were not satisfied
that the photocopy of the schedule of rents said to have been received was
correct. They found that there could be receipts from the Sundays solarium,
car sales and furnished lettings omitted from the accounts submitted to the
Revenue. They preferred to base the assessments on the capital statements
prepared by Miss T Bradshaw. The capital statements contained some estimates
for bank balances in the absence of details not supplied by the taxpayer. The
estimated figures were not challenged by the taxpayer. The personal and
private expenditure of the taxpayer had been agreed between the parties at
£10,819 for the year ended 31 August 1992. For each of the years ended 31
August from 31 August 1983 to 31 August 1991, the taxpayer's personal and
private expenditure in the capital statements was estimated, scaling back by
reference to the retail prices index the figure agreed for the year ended 31
August 1992. The taxpayer did not challenge those estimated figures and was
unable to offer any evidence of any changes in the pattern of his personal and
private expenditure to reflect any changes in his personal circumstances. In
some years the capital statements showed expenditure in excess of income
declared. The commissioners were not satisfied with all the taxpayer's
explanations of how the excess expenditure had been financed. To the extent
that the capital statements showed deficiencies resulting from capital growth
and expenditure in excess of income declared and loans which the commissioners
found to have been made to the taxpayer, the commissioners inferred that the
taxpayer's accounts under declared his income. The commissioners found that
the taxpayer had been guilty of fraudulent or negligent conduct and that the
inspector was justified in making assessments under the provisions of s 36 of
the Taxes Management Act 1970 for the years of assessment 1983-84, 1984-85,
1985-86 and 1986-87."
Paragraphs
11.2 and 11.3 set out the reasons why the Commissioners were not satisfied with
all the taxpayer's explanations of how the excess expenditure was financed. In
paragraph 11.2 the Commissioners set out their reasons for accepting that Mr
Stringer had lent about £72,000 to the taxpayer. Paragraph 11.3 dealt
with the evidence as to the loans said to have been made to the taxpayer by
his father. The conclusion reached was -
"The
Commissioners did not accept that Cornelius Hurley had accumulated, over the
years, £123,000 from which to provide loans to the taxpayer of
£118,496.81."
They
also did not accept all the evidence of the taxpayer as to
where
his father obtained the funds said to have financed the loans. They went on to
find that certain loans had been made between 1982 and 1991 totalling just
under £36,000.
Having
read part of paragraph 11.1 of the case stated, the judge came to his reasons
for allowing the appeal. He said:
"(e)
Working backwards through this passage, the finding of fraudulent or negligent
conduct is based on the inference that Mr Hurley's accounts under declared his
income; the inference that he under-declared his income is drawn because the
capital statements showed deficiencies; the capital statements showed
deficiencies because the commissioners were ´not satisfied' with all Mr
Hurley's explanations of how the excess expenditure had been financed. What
the commissioners mean (though they say it in a later paragraph which I examine
in (g) to (k) below) is that they were not satisfied with his explanation that
he borrowed money from his father. (They were satisfied with his further
explanation that he borrowed money from Mr Stringer.)
(f)
I have no fault to find with this reasoning in so far as it is directed at the
only question which arises for the in-date years: has Mr Hurley discharged the
onus of showing that the assessments are wrong? But in my judgment the
reasoning is not good enough if it is said also to be the route by which the
Revenue satisfied the s 36 onus of showing that there was fraudulent or
negligent conduct by Mr Hurley and that there was a loss of tax attributable to
it. It would only be good enough for those purposes if (i) the commissioners
positively rejected, ie disbelieved, Mr Hurley's explanation that he borrowed
money from his father, and (ii) their decision to reject it was one which a
reasonable body of commissioners could reach."
The
judge concluded that the Revenue had not discharged the s 36 onus on them. Mr
Munby QC, who appeared for the Revenue, submitted that the judge's distinction
between non-acceptance and rejection was wrong in principle and fact. A
finding that an explanation was not accepted meant that there was no proper
explanation and, therefore, there was nothing to weigh against the prima facie
case provided by the capital statements. In any case, the fine distinction
sought to be drawn on the words was not apt when considering a case from the
Commissioners. Further it was clear, reading the case stated as a whole, that
the Commissioners had rejected, in the sense that the judge had used that word,
that part of the taxpayer's explanation. Mr Argles supported the judge's
conclusion.
In
my judgment, the conclusion of the judge was erroneous for three reasons.
First the distinction drawn by him between non-acceptance and rejection is
artificial. A conclusion that a statement given in evidence as to what
happened cannot be accepted means that the tribunal does not accept that what
was said to have happened took place. Thus, the tribunal proceeds upon the
basis that the event said to have happened did not take place. A conclusion
that the evidence must be rejected may show the force of the tribunal's views,
but the effect upon the factual matrix is the same. A finding that the
tribunal did not accept that an event happened is
a
conclusion there was no evidence which established on the balance of
probabilities that it did take place.
Second
the Commissioner accepted the capital statements and therefore without a cogent
explanation the Revenue would discharge the s 36 onus on them. It follows that
the statements raised a prima facie case which was not displaced by an
explanation that was not accepted.
Third,
I believe that the Commissioners at all times had in mind
where
the onus lay. They were addressed on the subject for a
considerable
period of time. The loans from the taxpayer's father and Mr Stringer were an
essential element of the case. The Commissioners went further than deciding
that they were uncertain as to whether the stated loans had been made by the
taxpayer's father. The Commissioners held that the taxpayer had kept no
records. There were no loan agreements and no interest paid. They did not
accept the evidence as to the way Mr Cornelius Hurley came in to funds and
specifically held that they did not accept that he had accumulated over the
years just over £123,000 as was the case put forward by the taxpayer.
They also concluded that they could not believe all the evidence of the
taxpayer. From that they concluded that there were deficiencies shown in the
capital statements which had been derived from undisclosed profits. They
concluded that the failure to disclose was due to fraud or neglect. To my
mind, reading the case stated as a whole, the Commissioners held that the
capital statements established a prima facie case of underpayment due to fraud
or neglect and the explanation given by the taxpayer as to loans had only
displaced that prima facie case in part. Their conclusion was a finding of
fact which could only be challenged if it was
Wednesbury
unreasonable.
The
judge went on in his judgment to consider the submission that the finding of
the Commissioners was
Wednesbury
unreasonable upon the assumption that the Commissioners had found positively
that the father had not made the loans. He said at page 222:
"If,
however, it is said that the commissioners positively found that the father did
not make loans of £118,000-odd - in other words that they positively
rejected Mr Hurley's explanation as untrue - I believe that that is a finding
which, on
Edwards
v Bairstow
grounds, cannot stand. The commissioners did not consider that Mr Hurley was
an inveterate liar: they accepted his evidence on the hotly contested issue of
the Stringer loan. They accepted that the father made some loans to Mr Hurley,
and loans of not insignificant amounts. An analysis of the case stated shows
that most of the accepted loans must have been made in cash. Mr Hurley's case
about how his father might have had enough money was not so implausible that it
could not be true. The money was suggested to be made up of inheritances from
the father's deceased mother and brother, savings from 40 years working in the
London docks, compensation for an accident in the docks, and severance pay when
the father relinquished employment with the National Dock Labour Board. None
of those sources is inherently improbable, and an aggregate of £120,000
from them was perfectly possible. I agree that the commissioners did not have
to accept that it had been proved that the £120,000 existed in the
father's ownership; that is why Mr Hurley's appeal failed for the in-date
years when the entire onus was on him. But I believe that the commissioners
crossed the boundary of what they could legitimately conclude if they purported
positively to find that the father never had the £120,000, and therefore
the Revenue had discharged the s 36 burden of establishing that on the balance
of probability Mr Hurley was guilty of fraudulent conduct."
The
Commissioners are the fact-finding tribunal and the High Court cannot on appeal
substitute its view for those of the Commissioners, even if it would come to a
different conclusion from that which the Commissioners reached. The High Court
can only interfere if there be an error of law and that means that the decision
of the Commissioners must be held to be
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unreasonable.
In
the present case the Commissioners saw and heard the witnesses and concluded
that they did not accept the evidence of the taxpayer as to his sources of
income. They preferred the evidence provided if by the capital statements.
The existence of such evidence and the basis for the Commissioners' finding was
recognised by the judge. However when he came to consider the extended time
years, he appears to have decided that the allocation of the burden of proof
transformed a case which was not appealable into one which was. The passages
from his judgment which I have read are in my view a re-evaluation of the
evidence which resulted in a substitution of the judge's views for those of the
Commissioners. The Commissioners did not have to find that the taxpayer was an
inveterate liar in order to disbelieve part of his evidence as to sources of
income. The fact that the Commissioners believed that the taxpayer borrowed
money from Mr Stringer and some money from his father does not make it perverse
to conclude that he did not borrow from his father all the substantial sums
which he said that he did. There was no need for the Commissioners to
categorise as plausible or inherently improbable the evidence as to the sources
of the father's income before coming to the conclusion that it had not been
established that he had the money. That being so, it was open to them to come
to the conclusion they did. Their decision was not in my view
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unreasonable.
The
Cross-Appeal
Mr
Argles submitted that in this case the Revenue had by its conduct assumed the
entire burden of proof in justifying all the assessments under the appeal.
Alternatively, he submitted, that the Revenue had by their conduct assumed the
burden of proof showing that the capital statements were to be preferred and
that the taxpayer's accounts were wrong. Those submissions were based on the
fact that the Revenue had insisted, wrongly in Mr Argles' view, in opening the
case before the Commissioners. That, he said, was the privilege of the person
upon whom the burden of proof rested. Thus in this case the taxpayer should
have been entitled to open his case on the in-date assessments and having been
prevented from doing so the burden shifted to the Revenue.
To
support his submission he referred us to
Brady
(HM Inspector of Taxes v Group Lotus Car Companies Plc and Lotus Cars Ltd
[1987] 60 TC 359, and in particular a passage from the judgment of Mustill LJ
at p 391. Having read that passage with care, I can find nothing in it which
supports Mr Argles' submission. As stated by Mustill LJ, the statutory burden
remains upon the person who has to bear that burden even though the evidential
burden may shift.
It
may be that the decision to allow the Revenue to open the whole
of
the case was wrong. I will assume that it was although I am not convinced
that the Commissioners did not rightly conclude that the matter was best opened
by the Revenue. In my view they had the right to decide as they did. As
appears from the General Commissioners (Jurisdiction and Procedures)
Regulations 1994 which came into force on 1st September 1994, the Commissioners
have a wide discretion. Regulation 15 (1) is in these terms:
"(1)
At the beginning of any proceedings the Tribunal shall, except where it
considers it unnecessary to do so, explain the order of the proceedings which
it proposes to adopt.
(2)
The Tribunal shall conduct the hearing in such manner as it considers most
suitable to the clarification and determination of the issues before it and
generally to the just handling of the proceedings and, so far as appears to it
appropriate, shall seek to avoid formality in its procedure.
(3)
The parties shall be heard in such order as the Tribunal shall determine and
shall be entitled -
(a)
to give evidence,
(b)
to call witnesses,
(c)
to question any witnesses including other parties who give evidence, and
(d)
to address the Tribunal both on the evidence and generally on the subject
matter of the proceedings."
I
accept that at the relevant time those regulations were not in force. However
I believe they reflect good practice of a body of Commissioners at the time.
In my view the duty of the Commissioners was to ensure that there was a fair
hearing and, in particular, the taxpayer knew what was put against him and that
he had a proper opportunity to present his case. It seems that they gave him
such an opportunity.
Whatever
the decision as to who should open the case, it could not affect the burden of
proof. The Commissioners had to decide the appeal before them according to the
law. That meant that the 1970 Act, which laid down where the burden lies, had
to be applied. If authority be needed for that, see the judgments in
Jonas
v Bamford (Inspector of Taxes
)
(1973) 51 TC 1 and
Amis
v Colls (Inspector of Taxes
)
(1960) 39 TC 148. I therefore do not accept, or should I say I reject, Mr
Argles' submission on this matter.
Mr
Argles also submitted that the decision of the Commissioners "that they
prefer the capital statements" was
Wednesbury
unreasonable. He relied upon five matters. First that the figures for living
expenses in the statement were demonstrably wrong. Second that the amount
referred to as "drawings" could not in any reasonable view have formed part of
the assumed income of the taxpayer. Third the Commissioners should have
inferred that the Addison Road property was acquired out of profits made during
the in-time years. The fourth and fifth matters related to computation. I
shall have to deal with each of those in turn.
The
taxpayer started to live with his common law wife in November 1986 and from
then she and their children became dependent on him. As stated in the case
stated, his family consists of six children born during the period 1982 to 1992.
The
conclusion of the Commissioners upon living expenses was contained in paragraph
11.1 of the case stated which I have already incorporated into this judgment.
However for convenience I will repeat part of it:
"The
personal and private expenditure of the taxpayer had been agreed between the
parties at £10,819 for the year ended 31 August 1992. For each of the
years ended 31 August from 31 August 1983 to 31 August 1991, the taxpayer's
personal and private expenditure in the capital statements was estimated,
scaling back by reference to the retail prices index the figure agreed for the
year ended 31 August 1992. The taxpayer did not challenge those estimated
figures and was unable to offer any evidence of any changes in the pattern of
his personal and private expenditure to reflect any changes in his personal
circumstances."
Mr
Argles rightly submitted that it was not right that the taxpayer had not
challenged the estimated figures. He submitted that it was demonstrably wrong
that there was no evidence of changes in the taxpayer's private and personal
expenditure. The agreed figure for living expenses of just over £10,000
for 1992 could be a guide as to his expenses at the time when his wife was
dependent on him, but his council tax, shopping, expenses and expenditure on
clothes must have been different in the 1980s.
Mr
Argles submitted, when, as in this case, there was demonstrably a change in
personal circumstances a calculation using the
retail
price index to produce yearly figures could not provide reliable figures. He
submitted that once it was established that the personal circumstances of the
taxpayer in 1992 were fundamentally different to his personal circumstances
prior to that date and in particular prior to November 1986, the burden rested
on the Revenue to demonstrate that the estimated figures for the previous years
were likely to be correct. That, he submitted, had not been done in this case.
It was not reasonable or necessary to require the taxpayer to produce evidence
that he had spent more or that he did not enjoy a more luxurious lifestyle in
the years prior to August 1992. The burden was on the Revenue.
The
burden was of course on the Revenue. However they asked for
details
of his expenditure. He supplied it in 1992, but refused to do so for other
years. He led no evidence that his expenses were less in the 1980s than in
1992. The fact that certain items of expenditure would be less in the 1980s
than in 1992 does not mean that the total expenditure in any year was less.
The Revenue therefore estimated the figure using the retail price index. That
appears a reasonable thing to do in the absence of any other evidence.
The
judge dealt with this matter at page 218 J:
"The
Revenue arrived at their figures for expenditure in two stages. First, they
discussed and agreed with Mr Hurley the amount of his personal expenditure for
the year to 31 August 1992. It was £10,819, and Mr Hurley signed the
calculation that he accepted it. Second, for the nine previous years they
scaled that figure back in proportion to the changes in the retail prices
index. Mr Argles submitted that, because Mr Hurley had five children on 31
August 1992 whereas he had only one at the beginning of the years covered by
the capital statements, his living expenses must have gone up by more than the
increase in the retail prices index; therefore the commissioners should have
scaled back from £10,819 by more than the changes in the index. In my
view they might have done that, but they were not bound to. As Mr Carr (who
appeared for the Revenue) pointed out, if a person's family gets bigger he may
increase his expenditure, but equally he may change his style of life so as to
keep his expenditure more or less constant. This was a matter for the
commissioners, and I cannot see an error of law in their acceptance of the
expenditure figures in the capital statements."
I
accept the judge's reasoning that the Commissioners were entitled to conclude
as they did. The Commissioners may have proceeded upon the misunderstanding
that there had been no challenge to the estimated figures. However there was
no evidence that any change of circumstances would have resulted in a material
difference in the estimated figures of the relevant years. That being so the
Commissioners' conclusion was not so fatally flawed as to be
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unreasonable. I agree with the judge.
I
can deal very shortly with Mr Argles' second and third attacks on the
Commissioners' acceptance of the capital statements. Neither point was raised
by the taxpayer at the extensive hearing before the Commissioners. I
therefore cannot see that they can be faulted for not taking them into account.
Certainly their conclusion cannot be said to be
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unreasonable.
I
move on to the fourth attack which was based on computation. Mr Argles drew
our attention to paragraph 12 of the case stated. He went on to consider the
assessment of profits of the car sales business for the year 31st December
1988. He submitted that if it was reasonable for the surplus as of 31st August
1987 to be carried forward to produce the surplus as of August 1988, it was
also reasonable for the surplus of 31st August 1989 which was £6,212 to be
carried back to reduce the deficiency as at 31st August 1988. This, he
submitted, would reduce the 1988 deficiency to nearly £29,000. It is
quite clear from the case stated that the Commissioners decided not to do so.
That was their decision. In my view it cannot be said that a reasonable body
of Commissioners could not reasonably have come to that conclusion. In my view
the way that they approached the matter cannot be said to be
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unreasonable.
The
last and fifth attack also related to the capital statements. The assessments
were determined and the amounts calculated not by reference to the surpluses
recorded in the capital statements each year but by reference to the amounts
returned by the respondent. Mr Argles submitted that if the capital statements
were a reliable guide as had been held by the Commissioners, they should be a
guideline for all the years under appeal and accordingly the assessments for
these three years should be reduced accordingly.
What
actually happened is recorded in paragraph 14 of the case stated:
"The
commissioners' clerk wrote to the parties on 11th May 1996 setting out their
findings and decisions given in paras 11, 12 and 13 [of the case stated].
Their clerk asked the parties to agree figures of assessment for each year
under appeal on the basis of the commissioners' findings and decisions. As,
after six weeks, the parties had not reported agreed figures of assessment to
their clerk, the commissioners held a meeting on 26 July 1996 at which the
taxpayer and the inspector were present. The inspector informed the
commissioners that following their findings and decisions, the resulting
assessments would be .... "
There
is set out the figure. The case stated continued:
"The
taxpayer objected to the figures but only by saying that despite the
inspector's explanation, he did not understand them. The commissioners
determined the assessments in accordance with the figures set out above. Their
clerk notified the parties in writing on 26 July 1996 of their final
determination."
The
question for this court is whether what they did was
Wednesbury
unreasonable. In my view it was not. They sent their decision to the parties.
The Revenue came up with the figures and the taxpayer was given an opportunity
to check them. He did so and did not comment. In those circumstances the
decision they came to cannot be said to be
Wednesbury
unreasonable.
I
come next to Mr Argles' submission that the conclusion reached on the in-date
years was, as a whole,
Wednesbury
unreasonable. He submitted that no reasonable body of Commissioners could have
concluded that the capital statements should be preferred. He submitted that,
as a general proposition, the Commissioners' errors were due to their failure
to pay sufficient regard to certain facts relating to the car sales business
and the difference in the assessable profits of the solarium business for the
years ending 1992 and 1990. He also submitted that their conclusions as to the
facts were not right. There was, in his view, nothing inherently
implausible
or improbable in the taxpayer's father inheriting money from his mother or
brother which might be lent to the appellant.
Also
there was nothing improbable in the taxpayer's father receiving sums in respect
of the accident he had as a dock worker. Further, he submitted that it was
clearly not inherently implausible that he obtained the severance pay that was
stated.
The
judge was in my view right to reject a similar submission made to him. At page
217 of his judgment he said:
"The
Revenue proved their capital statements before the commissioners, leaving it to
the commissioners to decide whether to accept Mr Hurley's explanations of where
the extra money came from. There is ample authority that commissioners can
uphold assessments based on properly prepared capital statements. Certainly
for in-date years, and to some extent for extended time limit years as well (a
matter which I address in the next part of this judgment), the Revenue do not
need to back up capital statements by, for example, producing witnesses who say
that they saw the taxpayer taking cash from a customer and putting it in his
pocket rather than in the till. They can produce evidence like that, and if
they have it available they probably will, but even without it the capital
statements are likely to be enough, (see
Hudson
v Humbles (Inspector of Taxes
)
(1965) 42 TC 380,
Hellier
v O'Hare (Inspector of Taxes
)
[1990] STC 368, and
R
v Special Commissioners of Income Tax, ex p Martin
(1971) 48 TC 1).
In
this case the Revenue's capital statements, coupled with the commissioners'
non-acceptance of Mr Hurley's case that he borrowed large sums from his father,
mean that, to the extent to which the commissioners did not accept his
explanation of the deficiencies, he had not discharged the statutory onus of
displacing the assessments."
The
judge went on to consider whether the decision was
Wednesbury
unreasonable
and held that it was not. I agree with him.
The
Commissioners found that the taxpayer was not a credible witness. That being
so they were entitled to accept parts of his evidence and reject other parts.
The rejection of the taxpayer's evidence as to how his father accumulated funds
and what was left were all findings of fact which a reasonable body of
Commissioners could come to. It therefore cannot be said that it was
Wednesbury
unreasonable to accept the capital statements. In my view the rest followed.
Finally,
I come to matters of practice. Normally appeals by way of case stated are
heard by a judge of the Queen's Bench Division. One of the few exceptions is
appeals in tax cases. The result is that Chancery judges do not deal day in
day out with the law applicable to such appeals. It is therefore incumbent on
counsel to bring to the court's attention any case that has a bearing on any
dispute as to the law. The most up-to-date statements of law may well be found
outside the field of tax law.
For
the reasons I have given, I would allow this appeal and dismiss the cross-appeal.
LORD
JUSTICE POTTER: I agree. I have some sympathy for the position of the
taxpayer in this case in the sense that I have no
doubt
that when, for whatever reason, he ceased to be legally
represented
before the General Commissioners he found himself conducting his own case in
unfamiliar surroundings before a specialist tribunal in relation to matters
governed by laws and procedures with which he was unfamiliar. The position was
not rendered easier by the fact that the manner in which the Revenue sets about
proving its case in hearings of this kind is to an extent the subject of
conventional procedures governed by a burden of proof largely designed to
alleviate the disparity of information available to the Revenue on the one hand
and the taxpayer on the other, in relation to the taxpayer's own financial
affairs.
Nonetheless,
my sympathy is considerably circumscribed for two reasons. The first is
peculiar to the facts of the case, and the second of more general application.
As to the first, the taxpayer was advised and assisted in the presentation of
his case until a point early in the hearing. He must have known that, given
the content of the capital statements relied on by the Revenue, the real
difficulty he was facing was that of convincing the General Commissioners as to
the true source of the substantial funds apparently at his disposal during the
period under review, which were not accounted for in his business accounts
submitted to the Revenue. There was no mystery or difficulty as to the kind of
evidence he needed and, above all, his need for a first-hand account from his
father, in as much detail as possible, in order to corroborate his assertion
that it was his father's savings (kept under the bath) which were the source of
his available funds. In thd final analysis, the matter largely stood or fell
on that.
One
of the grounds of appeal which has concerned us has been that a detailed
statement supplied by the father was put before the Commissioners by the
taxpayer but overlooked by them. The Commissioners' failure to consider and
attach decisive weight to the statement has been advanced as a major complaint
in the taxpayer's assertion that the decision was one no reasonable tribunal
could have reached. Having studied the nature of the case and the record of
proceedings, I have no doubt whatever that that was not so in the sense that it
is plain that the statement was never before the Commissioners.
The
alternative way that it is put is that the taxpayer reasonably believed it to
be the case that the statement was put before the Commissioners and that
therefore the matter should be remitted for reconsideration on the basis of a
misunderstanding of the kind envisaged by Lord Clyde in remarks made by him in
R
A Bird and Co v Inland Revenue Commissioners
[1925] SC 186 at 191. I have no hesitation in rejecting that argument also.
Mr
Argles, in a lengthy and ingenious exercise, has sought to persuade us to remit
on those grounds. But I see no good reason to do so. If the taxpayer was
truly under that impression, then I
think
it was an unreasonable impression, judged by the standards of any litigant,
represented or unrepresented. I find difficulty in avoiding a conclusion that
for one reason or another the taxpayer did not think it necessary or to his
advantage to use the statement.
The
second reason for qualifying the sympathy I might otherwise feel for the
taxpayer rests on my conviction that the he was fairly treated. The record
shows that he was given every opportunity to present his case and was pressed
as to various matters which, if addressed by him fully, might have added to the
weight of his explanations. If he was at a disadvantage as a litigant in
person, and no doubt in a broad sense he was, it was inherent in his position.
In that respect I would quote the words of Knox J in
Kingsley
v Billingham (Inspector of Taxes
)
[1992] STC 132 at 138 in the course of which he stated:
"Whether
a person has professional representation before the Special Commissioners is a
matter for the person to decide, but if he decides to dispense with
professional representation, although a tribunal will other things being equal
be anxious to prevent any unfair advantage being taken of his lack of
experience and expertise, nevertheless the person subjects himself to the
normal legal process and there is no transfer of responsibility from the
litigant however unversed in the technicalities of the law he may be to the
tribunal, in this case the Special Commissioner, of the obligations of each
side to make their case before the tribunal."
I,
too, would dismiss this appeal.
LORD
JUSTICE KENNEDY: For the reasons given in both of the judgments which have
been delivered, I would also dismiss the appeal.
Order:
Appeal allowed with costs here and below. Costs re Legal Aid Act.
Cross-appeal dismissed. Legal aid taxation. Leave to appeal was refused
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