Hammond Lane Metal Company Ltd v Culach in

• Jurisdiction: Ireland
• Judge: Miss Justice Carroll
• Judgment Date: 01 January 1990
• Neutral Citation: 1989 WJSC-HC 1611
• Court: High Court
• Docket Number: [1988 No. 1942R],1942R/1988
• Date: 01 January 1990

1989 WJSC-HC 1611

THE HIGH COURT

1942R/1988

HAMMOND LANE METAL CO LTD v. O CULACHAIN

BETWEEN

THE HAMMOND LANE METAL COMPANY LIMITED

APPELLANT

AND

S. O CULACHAIN INSPECTOR OF TAXES

RESPONDENT

Citations:

INCOME TAX ACT 1967 S186

INCOME TAX ACT 1967 S186(2)

INCOME TAX ACT 1967 S186(1)

INCOME TAX ACT 1967 S416

INCOME TAX ACT 1967 S416(2)

INCOME TAX ACT 1967 S416(3)

INCOME TAX ACT 1967 S416(3)(b)

INCOME TAX ACT 1967 S416(6)

INCOME TAX ACT 1967 S416(4)

INCOME TAX ACT 1967 S429

W LTD V INSPECTOR OF TAXES 22.10.74 ITC 110

INCOME TAX ACT 1967 S186(1)(c)

CENLON FINANCE CO LTD V INSPECTOR OF TAXES 40 TC 176

INCOME TAX ACT 1952 (UK) S510(1)

INCOME TAX ACT 1967 S83(6)

INCOME TAX ACT 1967 S91

INCOME TAX ACT 1967 S81(4)

INCOME TAX ACT 1967 S80(2)

INCOME TAX ACT 1967 S83

INCOME TAX ACT 1967 S83(1)

INCOME TAX ACT 1967 S81

INCOME TAX ACT 1967 S80(1)

INCOME TAX ACT 1967 S80(6)

INCOME TAX ACT 1967 S80(8)

INCOME TAX ACT 1967 S83(6)

INCOME TAX ACT 1967 S91(2)(a)

INCOME TAX ACT 1967 S83(8)

FINANCE ACT 1970 S24

INCOME TAX ACT 1967 S91 (1)

INCOME TAX ACT 1967 S61

Synopsis:

REVENUE

Income tax

Assessment - Appeal - Inspector of taxes - Re-assessment - Acceptance by taxpayer - Appeal withdrawn - Subsequent discovery by inspector of unjustified allowance - Additional first assessment made - Valid assessment - ~W. Ltd. v. Inspector of Taxes~ 1974 I.T.C. considered and ~Cenlon Finance Co. v. Ellwood~ [1962] 2 W.L.R. 871, [1962] 1 All E.R. 854, 40 T.C. 176 distinguished - Income Tax Act, 1967 ss. 186, 416 - (1988/1942 R - Carroll J. - 2/10/89) - [1990] 1 I.R. 560 - [1990] ILRM 249

|H. Ltd. v. O'Culachain|

REVENUE

Income tax

Assessment - Profits - Trade - Deduction - Leasehold acquisition - Premium payable - Business premises acquired by company subject to payment of premium and rent - Term of years terminable by lessor - Premium payable by instalments - Entire premium allowable as deduction in calculating profits of company - Tax avoidance - Income Tax Act, 1967, ss. 80, 81, 83, 91 - (1988/1942 R - Carroll J. - 2/10/89) - [1990] 1 I.R. 560 - [1990] ILRM 249

|H. Ltd. v. O'Culachain|

WORDS AND PHRASES

"Discovers"

Assessment to tax - Appeal - Inspector of taxes - Re-assessment - Acceptance by taxpayer - Appeal withdrawn - Subsequent discovery by inspector of unjustified allowance - Additional first assessment made - Valid assessment - (1988/1942 R - Carroll J. - 2/10/89) - [1990] 1 I.R. 560 - [1990] ILRM 249

|H. Ltd. v. O'Culachain|

1 Judgment of Miss Justice Carroll delivered the 2nd day of October 1989.

2 There are two questions arising on this Case Stated. The first is a preliminary one on the binding effect of an agreement made between an inspector and a taxpayer in relation to an assessment under appeal and the second relates to the effectiveness of a tax avoidance scheme entered into by the taxpayer.

3 The facts are fully set out in the Case Stated. The taxpayer, which is the Appellant company in this case, (the "company") was assessed in respect of the year 1974/75 and appealed. The Inspector dealing with the case at the time accepted the submissions made on behalf of the company and issued an amended liability to tax for the year 1974/75 on the 17th of November 1977. In the year 1982 a different Tax Inspector reopened the matter under Section 186 of the Income Tax Act 1967on the basis that he discovered that the company had been allowed or had obtained an allowance not authorised by the Income Tax Act 1967. He made an additional assessment on the 14th of September 1982.

4 It was claimed on behalf of the Inspector of Taxes that there had not been full disclosure by the company. However I refused to deal with the case on that basis as this allegation was not stated as a fact so found in the Case to Advise. I dealt with the case on the basis that the second Inspector formed a different opinion on the same facts as the first Inspector.

5 The relevant statutory provisions are Section 186 (1) and Section 416 of the Income Tax Act 1967(the "Act").

6 Section 186 (as amended) provides

"(1) If the inspector discovers - ...."

(c) that a person chargeable has been allowed, or has obtained from and in the first assessments, any allowance, deduction, exemption, abatement, or relief not authorised by this Act,

7 then where the tax is chargeable under Schedule D, E or F, the inspector shall make an additional first assessment:

8 Provided that any such additional first assessment shall be subject to appeal and other proceedings as in the case of a first assessment."

9 Section 416 deals with appeals against assessment. Subsections (1) and (2) deal with the entitlement to appeal and the machinery for appeal. Subsection (3) applies to assessments which have been appealed but not yet determined by the Special Commissioners or where the Appellant failed to attend the appeal when fixed. This is the subsection which applies to the first assessment made in respect of the year 1974/75.

10 Subsection 3 (b) provides:-

"Where, in relation to an assessment to which this subsection applies, the inspector or other officer and the appellant come to an agreement, whether in writing or otherwise, that the assessment is to stand good, is to be amended in a particular manner or is to be discharged or cancelled, the inspector or other officer shall give effect to the agreement and thereupon, if the agreement is that the assessment is to stand good or is to be amended, the assessment or the amended assessment, as the case may be, shall have the same force and effect as if it were an assessment in respect of which no notice of appeal had been given. "

11 The subsection which deals with this is subsection (6) which provides:-

"In default of notice of appeal by a person to whom notice of assessment has been given .... the assessment made on him shall be final and conclusive. "

12 This must be compared with subsection (4) which deals with cases that have actually gone to a determination and which provides:

"All appeals against assessments to income tax shall be heard and determined by the Special Commissioners, and their determination on any such appeal shall be final and conclusive, unless the person assessed requires that his appeal shall be reheard under Section 429 or unless under this Act a case is required to be stated for the opinion of the High Court."

13 It has already been decided in this jurisdiction in W Limited v. Inspector of Taxes (22nd of October 1974 - ITC (No. 110) that a change of opinion as to the law by an inspector is a "discovery" even where there has been complete disclosure of all relevant facts and no new facts have come to light. In that case Kenny J. was not dealing with a matter where there had been an agreement between the Inspector of Taxes and a taxpayer but rather it was a case where there had been under-assessment of liability to tax for a number of years. Kenny J. held the Circuit Judge was not right in holding that the Inspector of Taxes was not entitled to raise the additional assessment and was not correct in holding that the Inspector had not made a discovery.

14 Here the company submits that an appeal against assessment which has been compromised on a particular point cannot on the grounds of public policy be the subject matter of a "discovery" and reassessment under Section 186. An assessment not appealed is "final and conclusive" under subsection (6) of Section 416. The determination by the Special Commissioners on appeal is also "final and conclusive" under subsection (4) unless a rehearing or a Case Stated is requested. In order to interpret the Act in accordance with the Constitution, which requires fair procedures, "discovery" cannot include a new legal view of a question specifically disposed of in an appeal against assessment, whether by way of compromise, determination by the Special Commissioners or judgment on a Case Stated to the High Court or on appeal to the Supreme Court. Compromise of an appeal is no different to such determination or judgment. It is in the public interest that there should be an end to litigation. Unless "discovery" is interpreted in this way, it falls short of the constitutional requirement of fair procedures. If the legislature intended to allow agreements to be set aside, it should be so stated in specific terms. The view taken in the U.K. is that "discovery" of a new view of the law does not apply to compromises reached on the specific point in issue.

15 It is not contested that an assessment which goes unappealed and which is "final and binding" under Section 416 (6) can be the subject of an additional assessment as a result of a "discovery" under Section 186 (1) (c). Therefore what I am asked to do is to hold that the compromised appeal does not have "the same force and effect" as an unappealed assessment insofar as it concerns reassessment. I do not think that option is open to me. The Act is clear that the unappealed assessment and the compromised appeal are to have the same force and effect. If the former can be the subject matter of a "discovery" under Section 186 (as was held in W Limited .v. Inspector of Taxes) then so also can the compromised appeal.

16 In relation to unfairness it should be noted that liability only arises where the taxpayer has in fact obtained some relief not authorised by the Act. It may be annoying to have to fight the case some years after the relief has been obtained, but the taxpayer is in fact only being asked to pay for what he is liable. There...