Browallia CAL Ltd, R (On the Application Of) v General Commissioners of Income Tax

J U D G M E N T

1. MR JUSTICE EVANS-LOMBE: This is an application for judicial review of a decision by the General Commissioners refusing to extend time for lodging an appeal against a loss determination by an inspector disallowing certain losses alleged by the taxpayer company Browallia Cal Ltd, ("the taxpayer"), for the year of account 1st January to 31st December 1995. During that year, the taxpayer conducted a business of fund management, commodity and financial futures broking and foreign exchange dealing. The losses in question are said to have arisen from commissions paid by the taxpayer in that year of account.

2. The facts from which the application to this court arises are as follows: it appears that by early 1999, the taxation affairs of the taxpayer had fallen substantially into arrears. At that point in July 1998, the taxpayer appointed Messrs KPMG, the well known firm of chartered accountants, to get its tax affairs straight. Accordingly, on 13th December 1999, Messrs KPMG submitted tax returns for 3 years: 1995, 1996 and 1997. In respect of the year to 31st December 1995, that return included an amount for trading losses of £1,169,567, a sum sufficient to over-top the profits of rather less than a million pounds that the taxpayer made in that year of account. The submission of those returns was acknowledged by the Inspector of Taxes.

3. On 17th November 2000, the part of Messrs KPMG dealing with the taxpayer's affairs moved its offices from 1-2 Dorset Rise to 1 Canada Square in London. On 10th December of 2001, the relevant Inspector of Taxes made a determination in respect of the claimed tax losses, disallowing them as a deduction from profits. Accordingly, on 11th December, a different inspector issued an assessment to tax against the taxpayer which showed that those losses had been disallowed, but not by reference, it appears, to the fact that there had been an adverse loss determination.

4. On the same day, the Inspector of Taxes that had raised the assessment also issued a penalty determination against the taxpayer of some £64,086. Messrs KPMG's offices at 1-2 Dorset Rise forwarded the loss determination to their offices at 1 Canada Square on 14th December 2001. I should say that that was a somewhat informal document, the determination being simply handwritten.

5. It appears that unfortunately the loss determination never became married up with the other documents relating to the taxpayer's affairs in the offices of Messrs KPMG, 1 Canada Square, because on 28th December a notice of appeal by the taxpayer was lodged by Messrs KPMG against the amended assessment to tax for the year to 31st December 1995, and also against the penalty determination, but no appeal was lodged against the loss determination.

6. On 8th January, the Inspector of Taxes acknowledged the appeal of the taxpayer against the assessment and penalty determination, but no reference was made to the loss determination. In due course, time expired for the lodging of an appeal against the loss determination, and subsequently, when the matter came to light, the Inspector, on application by the taxpayer, declined to permit a lodging of the appeal out of time.

7. The relevant statutory provisions dealing with applications in respect of proceedings brought out of time are contained in section 49(1) of the Taxes Management Act 1970, which provides as follows:

"An appeal may be brought out of time if on an application for the purpose an inspector or the Board is satisfied that there was a reasonable excuse for not bringing the appeal within the time limited, and that the application was made thereafter without unreasonable delay, and gives consent in writing; and the inspector or the Board, if not satisfied, shall refer the application for determination by the Commissioners."

8. In the present case, the Inspector received an application for extension of time for lodging the relevant appeal from Messrs KPMG and determined that there had been no reasonable excuse for failing to lodge the appeal within time. It does not appear that any point was raised that the application itself had been made without unreasonable delay.

9. The matter was then referred to the General Commissioners. Having set out the relevant facts, as I have described them, and section 49(1), the Commissioners concluded in the following way:

"It is common ground between the parties that the failure to appeal the Revenue's Notice of Determination dated 10 December 2001 was an oversight on the part of the Company's advisers. Mr Whitehouse, on behalf of the Company, has argued that the General Commissioners have a wider discretion than that conferred on them by the TMA and that they should have regard to broader principles. The Revenue's position is that our discretion is restricted by section 49(1) of the Act, that is that the only question before us is whether the Company had a reasonable excuse for failing to appeal within the prescribed time. We are not satisfied that, under the Act, there is anything which does confer upon us a wider discretion; we find that the Company does not have a reasonable excuse for having failed to appeal in time and accordingly we refuse the application."

10. Judicial review of that conclusion is now sought. The General Commissioners have not appeared at the hearing.

11. There is no authority on the construction of section 49(1). There is some guidance to be found in the textbook by Mr Potter and Mr Prosser on Tax Appeals. In the footnote to paragraph 1/02, the following footnote appears:

"Taxes Management Act 1970, s49(1). The application for leave to appeal out of time must be made "without unreasonable delay"; see R v Special Commissioners of Income Tax ex parte Magill 53 TC 135. It is considered that the Commissioners, after hearing both parties to the reference, have a wide discretion, not limited to "reasonable excuse", for example, that the appeal raises a point of public importance, or that third parties could suffer injustice if no appeal were made."

12. It is submitted before me by the taxpayer that section 49, when properly construed, confers upon the General Commissioners, on reference to them of an application to an inspector for permission to lodge an appeal out of time, a wider discretion than that which the Inspector himself had. That discretion is not confined, as the Inspector's discretion is confined, to determining whether there was a reasonable excuse for the failure to lodge the appeal within time but would also embrace such considerations as the lack of any prejudice to the Commissioners as a result of failing to lodge an appeal in time, and demonstrable injustice to the taxpayer if such an appeal is not permitted to be lodged out of time.

13. I accept that submission. It seems to me that this is a proper construction of the Act. It is apparent from subsection 1 of section 49 that it contemplates two stages, the first stage being an application to the Inspector who can, if he can discern a reasonable excuse, properly allow an appeal to be lodged out of time thus saving the necessity of reference to General Commissioners for that permission to be granted; but that if he does not find that there was reasonable excuse, the second stage then arises, which is a reference of the application by the Inspector to the General Commissioners for them to determine.

14. The section does not purport to guide the General Commissioners in any way as to how that discretion to permit appeals to be lodged out of time should be exercised. It seems to me, therefore, to follow that the General Commissioner's discretion is at large and they can consider the sort of matters which I have referred to which an Inspector of Taxes had no power to take into account.

15. In the present case, it is submitted to me that this is a paradigm example of a case where the wider discretion of the General Commissioners comes into play. It is pointed out in written submissions made to me that here, the losses in question were quantified in the tax return of 13th December 1999 which was lodged in the manner which I have described. The Inspector innocently contributed to the taxpayer's error in failing to file the appeal against the loss determination within time by sending the loss determination to the wrong office of Messrs KPMG, at 1-2 Dorset Rise, when they already knew that the taxpayer's affairs were being dealt with by Messrs KPMG's office at 1 Canada Square.

16. The assessment to tax was sent to the correct KPMG office, and was duly appealed on 28th December. The appeal against the assessment raised the question of the availability of the losses for payment arising from commissions paid in the year of account, and in consequence, the Inspector knew within time that his decision about the non-availability of those losses was being put in issue by the taxpayer.

17. Those losses and whether or not they are allowable would be in issue in exactly the same way in any appeal from the loss determination. The Revenue can point to no relevant prejudice to the public finances if this appeal is allowed to be lodged out of time.

18. By contrast, the taxpayer's case as to whether or not he has to pay tax for that year of account will be irremediably prejudiced if, simply by having failed for what appears to be explainable reasons to lodge the appeal in time, those losses are disallowed without any enquiry as to whether they were in fact properly allowable.

19. For these reasons it seems to me that this is the paradigm example of circumstances where the General Commissioners should have used what I have found to be their more extensive discretion than that of the Inspector, conferred by section 49 subsection 1 of the Taxes Management Act, to extend time for the taxpayer to lodge an appeal against the loss determination.

20. In my judgment, the General Commissioners, in the passage from their reasons which I have read out, mistook the extent of the powers which they had to exercise, and accordingly, their determination was subject to an error of law and must be quashed. Given that no other disposal of the application other than by extending time is, in my judgment, possible, I direct the Commissioners now to hear and determine the taxpayer's appeal against the loss determination.

21. MR BRENNAN: Well, my Lord, the taxpayer by its advisers indicated that it wished to lodge an appeal against the loss determination as soon as Mr Rafferty, the Inspector, raised the point on 27th May, and got the letter in on 31st May 2002, so if your Lordship were to extend time until 31st May 2002 so as to validate that application, that would do the job. In saying that, I do not immediately have the text of the letter in my head. Can I just check that it actually uses the words: "We want to appeal the loss determination", rather than something less precise. It is tab 10, page 125. Yes. It is as clear as it could be there.

22. MR JUSTICE EVANS-LOMBE: Very well. I will extend time until 31st May 2002.

23. MR BRENNAN: It probably did not get there until the next day. Perhaps if your Lordship says: extend time so as to validate the appeal by the letter of 31st May 2002.

24. MR JUSTICE EVANS-LOMBE: Very well. I will do that. So you will find somebody to --

25. MR BRENNAN: Shall I lodge a minute of order with your Lordship?

26. MR JUSTICE EVANS-LOMBE: Please do that.

27. MR BRENNAN: May I just explore with your Lordship for a moment the way your Lordship phrased the last couple of paragraphs of the judgment, because since I am not opposed, I am anxious that your Lordship should go through the right hoops, as it were. The General Commissioners have mistaken the scope of their powers under section 49. This of course is an application for judicial review, and not a statutory appeal by case stated. I think at more than one point of your judgment, your Lordship slipped into saying "appeal", but of course we know what is meant.

28. I am not sure that your Lordship in those circumstances could say that your Lordship is entitled, as you would be on a case stated appeal, to make any order which the General Commissioners could have made given that that is judicial review. What I invite your Lordship to do is to say: they have mistaken their statutory power, I quash that decision, and given that no other conclusion is possible, because it would be perverse for them not to extend time, I direct them now to continue to hear the appeal against the loss determination.

29. MR JUSTICE EVANS-LOMBE: I will certainly deal with it in that way, because that is what I intended to do. I agree, I have fallen into the error of using terminology relevant to an appeal and not to an application for judicial review. When the transcript of my judgment comes to be submitted to me, as it probably will, for correction, I will ensure that that correction occurs.

30. MR BRENNAN: Thank you very much.

31. MR JUSTICE EVANS-LOMBE: Thank you.