McCullough (HMIT) v Ahluwalia

LORD JUSTICE WALLER: I will ask Lord Justice Jonathan Parker to give the first judgment.

LORD JUSTICE JONATHAN PARKER: This is an appeal by Mr Gurcharan Singh Ahluwalia, the defendant in the action, against an order dated 24 November 2003 made by His Honour Judge Cook, in the Reading County Court, dismissing the appellant's appeal for an order dated 13 January 2001 made by District Judge Burgess, whereby the district judge entered judgment in favour of the Revenue, the claimant in the action, in the total sum of what is now agreed to be £125,878.62 in respect of arrears of income tax and national insurance contributions, together with interest.

Permission for a second appeal was refused on paper by Carnwath LJ on 23 January 2004, but was granted by Jacob J at an oral hearing on 19 February 2004.

The background facts are, in summary, as follows.

On 7 February 1997 the Revenue commenced an inquiry into the appellant's tax affairs. The enquiry, which was conducted on behalf of the Revenue by Mr Stuart Mee, an Inspector of Taxes for the Reading District, resulted in amended assessments being raised on the appellant pursuant to sections 34 and 36 of the Taxes Management Act 1970 ("the 1970 Act") in respect of arrears of income tax under Schedule D, and National Insurance Contributions. The amended assessments related to the tax years 1991/1992 through to 1994/1995. The appellant appealed the amended assessments to the General Commissioners. At the same time, he appealed against assessments in relation to the years 1995/1996 and 1996/1997. The appeals were fixed to be heard on 28 July 1999.

The appellant's regular accountant was a Mr Gupta of Messrs Paul & Co, Accountants. However, on 22 July 1999 Mr Neil Macpherson, a tax partner in another firm of accountants, Messrs Williams Allan, telephoned Mr Tyler of the Revenue to inform him that he had been retained by the appellant in relation to the appeals to the General Commissioners.

On 26 July 1999 a meeting took place between Mr Macpherson, Mr Tyler and Mr Mee, at which it was agreed that the forthcoming hearing on 28 July 1999 should be adjourned in order to allow Mr Macpherson sufficient time to acquaint himself fully with the matter.

On 20 September 1999 Mr Mee wrote directly to the appellant expressing concern as to the lack of progress in the matter. He said that he had only agreed to the appeals being adjourned on the basis of an assurance given by "your accountant, Mr Macpherson of Williams Allan", and that from conversations he had had with Mr Macpherson it was clear that the appellant had "engaged him to resolve this matter as expediently [he may have meant 'expeditiously'] as possible". The appellant did not respond to that letter.

The adjourned hearing of the appeals was fixed to take place on 10 October 1999. However, that hearing was also adjourned at Mr MacPherson's request. A third hearing date of 24 November 1999 was also vacated in order to allow the parties further time for negotiations. A fourth hearing date was fixed for 4 May 2000.

On 23 February 2002 Mrs Balchin, the clerk to the General Commissioners, wrote to the appellant inviting him to attend the adjourned hearing on 4 May 2000.

In the event, the appellant did not personally attend that hearing, but Mr Macpherson attended it on his behalf and requested a yet further adjournment upon the footing that he still had not had sufficient time to prepare the appeals. The General Commissioners granted a final adjournment of one week in order to allow negotiations to take place. Following that hearing a meeting was arranged between Mr Mee and Mr Macpherson on 8 May 2000.

The meeting on 8 May 2000 was attended by (among others) Mr Macpherson, Mr Mee and Mr Mee's colleague, Mr Austin Wyley. Mr Mee's attendance note of that meeting records that a final offer was put by Mr Macpherson of £160,000 as the appellant's total tax liability for the years in question, although Mr Macpherson made it clear that the offer was made without instructions and that he would telephone the Revenue the following day to confirm whether or not the appellant was willing to agree that figure. For his part, Mr Mee was willing to agree the that figure, but he informed Mr Macpherson that he would be taking the appeals to the General Commissioners in any event for formal determination, just in case negotiations failed. Mr Mee's attendance note of the meeting on 8 May 2000 is before us. In the penultimate paragraph of his attendance note Mr Mee says this:

According to a witness statement made by Mr Wyley, in opposition to an application by the appellant to set aside a statutory demand served on him by the Revenue (to which I shall refer in due course), on the following day, 9 May 2000, Mr Macpherson telephoned Mr Wyley saying that he had spoken to the appellant and that the appellant was agreeable to the figure of £160,000 as representing his total tax liability for the years in question. Mr Wyley's attendance note of that telephone call is before us. In that attendance note he says this:

On 22 May Mr Mee wrote to Mr Macpherson setting out the detailed figures which he would be asking the General Commissioners to confirm at the forthcoming hearing on 26 May 2000, and stating that the net effect of those figures would be to "bring into charge tax, NIC and interest totalling £159,658.98 assuming a payment dated 1 August 2000". The figures in question related to the appellant's taxable income for the years 1991/1992 through to 1995/1996, and to his tax liability for the year 1996/1997. In the course of his letter Mr Mee said this:

At the hearing on 26 May 2000 Mr Mee invited the General Commissioners to make a determination in accordance with the figures which he had previously supplied to Mr Macpherson; and the General Commissioners duly did so. Neither the appellant nor Mr Macpherson attended that hearing.

Notice of the General Commissioners' determination, together with the detailed figures, was (as the appellant accepts) given to him by Mrs Balchin in a letter dated the same day, 26 May 2000. In a later letter (to which I shall refer in due course) Mrs Balchin has stated that she enclosed with that letter a document setting out the appellant's rights of appeal against the General Commissioners' determination.

Thereafter, notices of amended assessment, coupled with a notice to pay, were duly issued by the Revenue.

On 8 August 2000 the appellant wrote to the Revenue stating that Mr Gupta disagreed with the figures as determined by the General Commissioners. In the concluding paragraph of his letter, the appellant said this:

On the following day, 9 August 2000, Mr Macpherson wrote to the Revenue advising them that the current position was that the appellant did not have sufficient cash deposits to make immediate payment in the full settlement of his outstanding tax liabilities. The letter went on to inform the Revenue that the appellant was reviewing his position with the benefit of advice from his solicitors and from Williams Allan, and that it was expected that within the next 30 days a concrete proposal would be put forward for settlement of the outstanding liabilities. In the meantime, Mr Macpherson enclosed three cheques as what he described as "small payments on account".

On 18 September 2002 the Revenue issued proceedings in the Reading County Court for recovery of the tax liabilities set out in the Particulars of Claim, which included the tax years covered by the General Commissioners' determination and the tax liability for the years 1998/1999 and 1999/2000.

On 19 October 2000 the appellant filed a Defence to the proceedings, contending that the appeals to the General Commissioners were still live (i.e. that they had not as yet been determined), and that the amount claimed in the proceedings differed from "the amount of tax that was proposed by way of settlement to the Inspector of Taxes at a sum of £158,658.98".

On 2 January 2001 a preliminary hearing took place before District Judge Burgess. Before the district judge at that hearing were certificates issued by the Revenue pursuant to section 70 of the 1970 Act certifying the amount of tax which was due in respect of each of the years in question.

Section 70(1) of the 1970 Act provides as follows:

At the hearing on 2 January 2001 the district judge entered judgment in favour of the Revenue for the sums claimed with interest. A note of his judgment which is included in the documentation before us contains the following:

On 15 January 2001 the appellant's then solicitors, Messrs EJ Winter & Son wrote to the General Commissioners applying for a review of their determination of 26 May 2000.

On 21 January 2001 His Honour Judge Catlin refused permission to appeal on paper against the order made by District Judge Burgess on 2 January 2001.

On 26 January 2001 Mrs Balchin, on behalf of the General Commissioners, replied to EJ Winter & Son reciting the history of adjourned hearings and referring to Mr MacPherson's involvement in the hearings on behalf of the appellant. She further stated that she had personally written to the appellant on the date that the appeals were determined advising him of the determination and enclosing a copy of a sheet containing information as to (among other things) the appellant's rights of appeal. In the course of her letter she said this:

On 6 September 2001 the Revenue served a statutory demand on the appellant based upon the judgment entered by District Judge Burgess. On 21 September 2001 the appellant applied to set aside the statutory demand. In his witness statement in support of that application the appellant confirms that he had instructed Mr Macpherson to "deal with this matter", but he denies that Mr Macpherson had any authority from him to conclude a binding agreement in relation to his tax affairs with the Revenue.

On 25 May 2002 the appellant issued an application in the county court requesting an extension of time in which to apply for an oral hearing to reconsider His Honour Judge Catlin's refusal of permission to appeal on paper, and also seeking permission to appeal and permission to adduce further evidence in support of the appeal. That application was heard by His Honour Judge Morgan on 14 November 2002. He granted permission to appeal out of time and he also granted permission for the appellant to adduce new evidence in support of the appeal.

The appellant appealed on two grounds. First, that the district judge was wrong to treat the section 70 certificates as precluding the appellant from challenging the amounts alleged to be due. Second, that he was wrong to hold that he was bound by the General Commissioners' determination, when the appellant was seeking a review of the determination.

The appeal was heard by His Honour Judge Cook on 23 October 2003. The judge handed down judgment on 24 November 2003, dismissing the appeal. It is his order which is the subject of the present appeal.

As noted earlier, permission for a second appeal was granted by Jacob J on 19 February 2004 on an oral application.

I turn now to the judge's judgment. Addressing the appellant's second ground of appeal, the judge referred to sections 46(2) of the 1970 Act, which provides (so far as material) as follows:

Paragraph (2) of regulation 17 lays down a time limit of 14 days from the date of determination for applications under paragraph (1). The judge in the instant case noted that the appellant's application was made some eight months after the date of the determination. He went an to refer to Mrs Balchin's letter dated 26 January 2001, stating that he found it "incredible" that almost three years after the determination it should be suggested that the General Commissioners were still considering whether to review the determination.

The judge cited IRC v Pearlberg [1953] 34 TC 57 and IRC v Soul [1976] 51 TC 86 as authority for the proposition that the statutory machinery for an appeal from the General Commissioners is exclusive machinery; and Shamash v IRC [2002] BPIR 189 as authority for the proposition that, subject to an appeal under the statutory machinery, it was not open to the courts to consider whether the General Commissioners' determination was correct.

The judgment continues as follows:

The appellant appeals to this court on four grounds. First, that the district judge was wrong to regard himself as bound by the section 70 certificates, especially since, even on the district judge's own test, there was a serious procedural irregularity in the appeal process and in the General Commissioners' refusal to review the determination. Second, that there was no "determination" by the General Commissioners, in that there had not been any hearing on the merits, and that accordingly the appeals to the General Commissioners remained "live". Third, that there was no agreement between the appellant and the Revenue, since Mr Macpherson had no authority to agree the figure of £160,000. And fourth, that in any event the appellant was not advised of his rights of appeal, contrary to regulation 16(5) of the 1994 Regulations.

By a Respondent's Notice the Revenue invites us to uphold the judge's order on two additional grounds. First, that the appellant was notified of his right of appeal, as Mrs Balchin asserts; and in any event, even if he was not, the General Commissioners' determination remains binding on him and is not open to challenge in the present proceedings. Second, that before the judge counsel for the Revenue was fully prepared to address detailed submissions on the figures but in the event was not required to do so; and that in any event the section 70 certificates were sufficient evidence of the sums claimed and were consistent with the General Commissioners' determination. In support of that additional ground, the Revenue has provided us with copies of the section 70 certificates together with four copies of Notices of Assessment which were sent to the appellant in advance of the hearing before the judge and which were referred to by the appellant's counsel at that hearing.

I turn now to the arguments addressed to us on this appeal. For the appellant, Mr Charles Douthwaite relies on Mrs Balchin's statement in her letter dated 26 January 2001 that "the Commissioners were not, in the event, asked to deliberate on the case" for the submission that what occurred before the Commissioners was not a "determination", since the Commissioners were told, incorrectly, that the figures have been agreed between the parties. He submits that the General Commissioners were misled in that Mr Mee on behalf of the Revenue told them that the figures has been agreed when they had not, and that it was on that basis that the decision of the General Commissioners was made. In other words he submits that the General Commissioners' decision was procured by mistake. He submits that the judge ought to have made findings on the issue as to whether an agreement had been reached which was binding on the appellant, particularly since the district judge had impliedly concluded that there was no "serious procedural irregularity" in the proceedings before the General Commissioners. Mr Douthwaite goes so far as to submit that, given the appellant's evidence that Mr Macpherson had no authority to conclude a binding agreement with the Revenue on his behalf, the only conclusion which is open is that Mr Macpherson must have been lying when he told Mr Mee in his telephone call of 9 May 2000 that Mr Ahluwalia had agreed the figures. Mr Douthwaite even asserts that Mr Macpherson's alleged lack of authority was - and I quote from his written skeleton argument - "well known to the Inspector of Taxes". He also submits that the Revenue never relied on the purported agreement (since no written agreement was ever signed), but instead "wrongly procured" section 70 certificates to be issued.

In his written skeleton argument Mr Douthwaite relies on the judge's statement that "the appellant was not given the requisite notice of his right of appeal", submitting that this omission constitutes a breach of regulation 16(5). However, Mr Douthwaite did not press this point in his oral submissions. Nor did Mr Douthwaite pursue any argument based on alleged discrepancies in the figures.

For the Revenue, Miss Catherine Addy (in her skeleton argument) refers us to the relevant provisions of the 1970 Act in support of her submission that the statutory process for appeals against determinations by the General Commissioners is an exclusive one. She submits that the jurisdiction conferred on the High Court by section 56 of the 1970 Act to "determine any question or questions of law arising on a case stated and transmitted to the High Court" is the only relevant jurisdiction conferred on the High Court in relation to such determinations. She submits that no jurisdiction whatever is conferred on the County Court which would permit it to challenge or otherwise question such a determination. In support of this determination she referred us to section 30A(4) of the 1970 Act, which provides that an assessment, notice of which has been given to the taxpayer "shall not be altered except in accordance with the provisions of the Taxes Acts"; she also relies on section 46(2) quoted earlier in this judgment.

Finally, so far as the 1970 Act is concerned, she referred us to sections 66(1) and 68(1). Section 66(1) provides as follows so far as material:

She further submits that if the courts were to decline to enforce the General Commissioners' determination, the Revenue would be left with no way of recovering the outstanding tax from the appellant, since there is no basis on which the Revenue could invite the General Commissioners to review the determination.

As to the factual allegations made on behalf of the appellant (should it be necessary for the Revenue to address them), Miss Addy submits that it is plain from the contemporary documentation (including the appellant's own letter dated 8 August 2000) that Mr Macpherson had the appellant's authority to act for him on the appeals to the General Commissioners, and to reach an agreement binding on the appellant with the Revenue as to the amount of the Appellant's tax liability. In any event, she submits, the General Commissioners' confirmation of the figures put forward by the Revenue on 26 May 2000 was nevertheless a "determination" for the purposes of section 46(2) of the 1970 Act.

She also relies on Mrs Balchin's statement in correspondence that the appellant was duly notified of his rights of appeal.

In the first place, I accept Miss Addy's submission that the statutory machinery for appeal against a notice of assessment is exclusive machinery. Bridge LJ (citing Pearlberg) said as much in Soul (at p87 G-H). Hence the district judge and the judge were right to conclude that the county court has no appellate jurisdiction in respect of determinations of the General Commissioners.

In the second place, I also agree with Miss Addy that the district judge was bound by the figures in the section 70 certificates. It is not necessary in the instant case to address the question whether, and if so to what extent, "sufficient evidence" (the expression used in section 70) differs from "conclusive evidence", since there is no basis on which it could be suggested that in the instant case the evidence of the section 70 certificates was less than "sufficient". In particular, Mr Douthwaite's submission that there was a serious procedural irregularity in the proceedings before the General Commissioners, based upon Mr Macpherson's alleged lack of authority, seems to me to be entirely misconceived. As Mr Mee made clear to Mr Macpherson at the meeting on 8 May 2000, he would be inviting the General Commissioners to make a formal determination in any event, just in case the negotiations broke down. Moreover, it is clear that Mr Macpherson was made fully aware by Mr Mee that the adjourned hearing was due to take place on 26 May 2000. It is also to be noted that, notwithstanding that the appellant was notified of the determination by the letter from Mrs Balchin dated the same day, he raised no objection to the determination until 8 August 2000 - and his objection then was that Mr Gupta disagreed with the figures as determined. Moreover, in that same letter he stated in terms that Mr Macpherson was acting on his behalf, and indeed the letter indicates that a copy of it was sent to Mr Macpherson.

I also reject Mr Douthwaite's submission that the fact that the General Commissioners "were not asked to deliberate on the case", to use Mrs Balchin's words, means that their confirmation of the figures put forward by the Revenue was not a "determination". Plainly it was a "determination". In Hallamshire Industrial Finance Trust Ltd v IRC [1979] 2 All ER 433, Browne-Wilkinson J had this to say as to the meaning of "determination" in this context (at p438 C-E):

In the instant case the General Commissioners did not deliberate on the issues raised by the appellant's appeal because neither the Revenue nor Mr Macpherson asked them to do so. Their decision was one which Mr Macpherson (on behalf of the appellant) did not oppose, although he had (in the words of Browne-Wilkinson J) a full opportunity to do so. The fact that the decision was not opposed on behalf of the taxpayer cannot deprive it of its status as a determination for the purposes of the Taxes Act. Moreover, even if Mr Macpherson's non-opposition was contrary to his instructions from the appellant (and on the available evidence it is extremely difficult to see how it could have been) that is not a matter which can affect the Revenue; still less can it alter the nature of the determination. Nor, in my judgment, is the nature of the determination in any way affected by the fact that Mr Mee told the General Commissioners (if he did) that the figures had been agreed with the appellant when, let it be assumed, in fact they had not.

Further, even if (contrary to Miss Balchin's assertion) the appellant was never formally advised of his right of appeal, that might provide a basis for inviting the General Commissioners to exercise their discretionary power to review the determination on the footing that an administrative error had occurred; it could not, in my judgment, form the basis of any challenge to the determination in these proceedings.

Nor, in my judgment, is there any substance in the suggestion made by Mr Douthwaite to the judge that the determination of the General Commissioners is in some way still open to review. I agree with the judge that such a proposition is simply "incredible", given the terms of Mrs Balchin's letter dated 26 January 2001.

For those reasons, therefore, I would dismiss this appeal.

LORD JUSTICE WALLER: I agree.