A partial victory
A partial victory
The appellant, Mr L K Billows, had some previous negative history with the Inland Revenue and General Commissioners, the previous matter having gone to the High Court (see Billows v Robinson and related appeal [1991] STC 127). The appellant had been particularly unhappy with the allegation by the Inspector before the General Commissioners that the accounts of his company, Billows Limited, were unreliable, as were his own personal tax returns.
By the time that the current appeal reached the Special Commissioner, Mr T H K Everett, the appellant was an elderly gentleman who suffered from deafness. However, he appeared in person, whereas the Inland Revenue was represented by Mr Christopher Tidmarsh of counsel.
There were two issues before the tribunal. The first was a capital gains tax assessment of £205,000 for 1986-87, and the second was that as the assessment had been made more than six years after the relevant tax year, had it been made validly in accordance with section 36, Taxes Management Act 1970?
The facts of the case were that Mr Billows had made gifts of shares in the company to each of his two children in December 1986 and Mr Everett had to decide two issues:
- Following the gift of the shares to his children, was Mr Billows guilty of negligent conduct resulting in the loss of tax to the Crown?
- If the answer to the first question was in the affirmative, what was the value of the shares transferred to Mr Billows to his son and daughter at the date of the transfer?
Billows Limited had been incorporated in September 1972 and the subject matter of the appeal concerned gifts of 339 £1 ordinary shares each to both his son and his daughter on 16 December 1986, out of a total issued share capital of £1,000.
The tax return for 1987-88 showed an entry of 'none' in the section relating to chargeable assets disposed of. Later in 1991 the Revenue wrote to Mr Billows pointing out that the company's accounts for the accounting period ended 30 April 1987 revealed a transfer of 698 shares in total to his children, and an explanation was required.
Protracted correspondence then ensued and the Inland Revenue Shares Valuation Division became involved. Its representative commenced with a value of £450 per share for each of the ordinary shares transferred in December 1986. Accordingly the disputed assessment was issued, in accordance with which the Inland Revenue alleged negligent conduct.
This assessment was made in 1994 and subsequent negotiations between the parties had not resolved the issue of the valuation of the shares. Reading the text of the Special Commissioner's decision, one has to say that at the very least there were misunderstandings between the parties. Mr Billows' feelings were considerably deeper than that.
Later negotiations involving another representative of the Inland Revenue Capital Taxes Office eventually produced a final valuation of £310.25 per share for the holding of 698 shares transferred.
The Inland Revenue had not alleged fraudulent conduct in the case, but in the view of the Special Commissioner the Crown had discharged the burden of proof laid upon it by section 36, Taxes Management Act 1970.
With regard to the value of shares transferred, Mr Everett referred to Caton's Administrators v Couch (SpC 6 and later [1997] STC 970). The Special Commissioner had some sympathy with the appellant's contention that at the very least the representative from the Shares Valuation Division should have visited the offices and factory of the company, when adjudging the shares to be worth £310.25 each. It was also difficult to find a company comparable to Billows Limited.
Mr Everett had the difficult task of dealing with the share values. A suggested steep rise in the value between April and December 1986 seems unlikely. At the end of that year film montage was a dying art, but with the benefit of hindsight it has become apparent that the company has successfully adapted to the new electronic age. However, a hypothetical purchaser would not have been able to be certain of such success at December 1986.
On the basis of the almost unique position in which the company found itself at the relevant date, Mr Everett came to the conclusion that a fair open market value for the shares transferred in December 1986 was £195 per share. The hearing was therefore adjourned for the parties to agree figures, after which the assessment will be determined formally.
(Leonard K Billows (SpC 252).)