A Hopeless Appeal

The Court considers out-of-time assessments and assessments made in error in Last Viceroy Restaurant (a firm) v Jackson.

An Indian restaurant had failed to submit accounts. Subsequently, estimated assessments were made on an individual who was not the owner. Partnership accounts were submitted and finally the Inland Revenue was notified of the correct identity of the partners. Estimated extended time limit assessments were eventually raised as well as assessments for in-time years, the out-of-time assessments being on the basis of fraudulent or negligent conduct by the partners. The High Court confirmed the decision of the General Commissioners who held that the firm had been negligent and the assessment should stand.

A partnership business of an Indian restaurant had commenced in 1986 and throughout the period of appeal up to 1996-97 the partners of the business were Mr Abdul Matin and Mr Abdul Hannan.

The Inland Revenue had incorrectly raised estimated assessments for 1986-87 and 1987-88 on a Mr Rahim. Subsequently submitted accounts showed that the profits were substantially in excess of the estimated assessments, and out-of-time assessments were eventually raised on the correct partners for 1986-87 and 1987-88 and subsequent years up to 1996-97.

An Inland Revenue investigation commenced, which was not helped by the fact that the business had changed accountants. The total assessments for eleven years issued to recover tax on under-declaration of profits totalled almost £2 million.

The Commissioners determined that the first occasion when the Revenue was aware of the true proprietors of the appellant's business was in 1995 and that this delay amounted to negligent conduct. Accordingly, the out-of-time assessments under section 36, Taxes Management Act 1970 had been properly raised.

In addition, the understatement of profits for the out-of-time years and later years also amounted to negligent conduct. Substantial adjustments were made to the estimated assessments but the revised assessments for 1986-87 to 1995-96 still amounted to over £1 million.

The appellant's new accountants expressed dissatisfaction with the decision of the Commissioners and required them to state a case for the opinion of the High Court. The question of law was whether, in respect of 1986-87 and 1987-88, the Inspector had discharged the burden of proof as required by section 36, Taxes Management Act 1970.

(Satya Dhama (solicitor advocate) for the taxpayer firm; Kate Selway for the Revenue.)

The matter came before Mr Justice Evans-Lombe, who dealt briefly with the facts and referred to sections 34(1) and 36(1), Taxes Management Act 1970.

The judge dealt with the inception of the Indian restaurant, the late submission of accounts, the incorrect assessments raised on Mr Rahim and the fact that the disclosed accounts showed profits in excess of the estimated assessments raised on Mr Rahim. Mr Justice Evans-Lombe also referred to the estimated assessments raised on the true partners under section 36 and the failure of the firm to advise the Inland Revenue of the true names of the proprietors until nine years after the business had commenced.

The judge observed that the question was whether the findings of fact made by the General Commissioners could be challenged before him. It was clear that on the relevant statutes and authorities, unless it could be shown that the Commissioners did not have before them any evidence to justify those findings of fact, they could not be challenged.

An additional difficulty for the appellant firm was that the solicitor advocate representing the firm applied for the matter to be adjourned at the commencement of the appeal. It became apparent that he had been instructed very shortly before the hearing and had not seen a copy of the Inspector's skeleton argument or taken instructions upon it from his clients.

It emerged that the taxpayer firm had previously been represented by a firm of solicitors which had dealt with the General Commissioners' appeal. Those solicitors' instructions had been withdrawn three months before the High Court hearing and fresh solicitors had not been immediately appointed. Accordingly, Mr Dhama was unable to obtain full instructions, which was the fault of the taxpayer firm. This was compounded by the fact that the partners of the firm had not seen fit to attend the hearing and so had been unable to give their solicitor advocate instructions on the day of the appeal.

The judge rejected the application to adjourn but gave Mr Dhama a period in which to familiarise himself with the skeleton argument of the Inspector, and the appeal then resumed. The solicitor advocate did not attempt to challenge the findings of fact made by the Commissioners on the basis that he was unable to obtain sufficient instructions with which to mount an assault.

The judge took the view that the findings of fact of the Commissioners must stand and that there was ample evidence on which they made the findings of fact which they did. It was also entirely plain that the taxpayer firm was negligent within the meaning of section 36.

It was apparent that if the Revenue had not been able to raise the estimated assessment which they did in July 1997, the Crown would have been deprived of a tax otherwise due. It follows that the Commissioners were amply justified in arriving at the conclusion which they did. The appeal was dismissed.

(Reported at [2000] STC 1093.)

Commentary by John T Newth FCA, FTII, FIIT, ATT

Some appeals which reach the High Court are brought by what one would term 'vexatious litigants'. This case did not come into this category, but was clearly hopeless.

Although a large amount of tax was at stake, the facts themselves were adverse as regards the appellant firm, and it was difficult to see on what grounds the findings of the General Commissioners could possibly be appealed to the High Court. Findings of fact were clearly within the ambit of Edwards v Bairstow 36 TC 207 and the question of law set out in the appeal was itself flimsy.

Admittedly, a substantial amount of tax was at stake but all that ensued was that the partners of the firm incurred additional professional costs by taking the matter to the High Court.

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