Sarlingford Ltd v Appeal Commissioner Kelly
| Jurisdiction | Ireland |
| Judge | Mr. Justice Brian J. McGovern |
| Judgment Date | 23 June 2017 |
| Neutral Citation | [2017] IEHC 416 |
| Docket Number | [2015 No. 152 J.R.] |
| Court | High Court |
| Date | 23 June 2017 |
[2017] IEHC 416
THE HIGH COURT
McGovern J.
[2015 No. 152 J.R.]
AND
Revenue – Taxes Consolidation Act 1997 – Refusal to grant tax exemption – Appeal – Whether correct issues were determined on appeal – Audi alteram partem
Facts: The applicant sought an order of certiorari for quashing the decision of first respondent that the applicant was not entitled to claim tax relief under s. 141 (5)(d) (ii) of the Taxes Consolidation Act 1997. The applicant asserted that the first respondent did not determine the appeal on issue and thus, the first respondent acted irrationally and unreasonably. The applicant claimed that the issue was in relation to exemption from tax liablitiy in relation to an invention involving radical innovation. The applicant argued that the first respondent made a finding in relation to preliminary submissions made by the second and third respondents at the time of hearing of appeal, which was not part of the original issue.
Mr. Justice Brian J. McGovern granted the desired relief to the applicant. The Court held that the first respondent acted in breach of principle of natural and constitutional justice as the applicant was not given any opportunity to present his case. The Court found that the first respondent acted unreasonably by not deciding the ‘radical innovation’ issue and determining the tax appeal on the basis of material which did not form part of applicant's appeal.
This is an application for judicial review arising out of a decision of the first named respondent on 15th January, 2015, in a tax appeal refusing tax relief to the applicant pursuant to s. 141(5)(d)(ii) of the Taxes Consolidation Act 1997 (‘the TCA 1997’). That tax appeal was against a decision of the second named respondent of 30th April, 2012, which determined that, as a matter of substance, the applicant was not entitled to certain tax relief on the basis that the statutory criteria for such relief had not been met. That decision and the conduct of the second and third named respondents in and around the making of that decision are also the subject of the judicial review application.
The applicant is a manufacturing company involved in the manufacture of windows and doors for both commercial and residential premises. The applicant holds an Irish patent number 65365 and UK patent number GB2263127 in respect of an apparatus for the manufacture of such windows and doors. This apparatus involves the automated production of the windows and doors in a manner which is said to produce very significant productivity gains. The apparatus was the subject of a claim for tax relief under s. 141(5)(d)(ii) of the TCA 1997.
Section 141(5)(d)(i) of the TCA 1997, insofar as is relevant to this appeal, provides as follows:-
‘Notwithstanding paragraph (c) but subject to subparagraph (ii), if in an accounting period the beneficial recipient…of the specified income shows in writing to the satisfaction of the Revenue Commissioners that the specified income is income from a qualifying patent in respect of an invention which—
(I) involved radical innovation, and
(II) was patented for bona fide commercial reasons and not primarily for the purpose of avoiding liability to taxation,
the Revenue Commissioners shall, after consideration of any evidence in relation to the matter which the recipient submits to them and after such consultations (if any) as may seem to them to be necessary with such persons as in their opinion may be of assistance to them, determine whether all distributions made out of specified income accruing to the recipient for that accounting period and all subsequent accounting periods shall be treated as distributions made out of disregarded income and the recipient shall be notified in writing of the determination.’
Section 141(11) of the TCA 1997 as inserted by s. 26 of the Finance Act 2011 provides:-
‘This section shall not apply to distributions made out of disregarded income on or after 24 November 2010.’
Section 141(5)(d)(ii) of the TCA 1997 sets out a statutory appeal mechanism against a determination of the second named respondent as follows:-
‘A recipient aggrieved by a determination of the Revenue Commissioners under subparagraph (i) may, by notice in writing given to the Revenue Commissioners within 30 days of the date of notification advising of the determination, appeal to the Appeal Commissioners and the Appeal Commissioners shall hear and determine the appeal made to them as if it were an appeal against an assessment to income tax, and the provisions of the Income Tax Acts relating to the rehearing of an appeal and to the statement of a case for the opinion of the High Court on a point of law shall apply accordingly with any necessary modifications.’
On 11th December, 1996, the applicant applied to the third named respondent for a determination under s. 141(5)(d)(ii) of the TCA 1997, namely that the invention of the apparatus involved radical innovation such that it was entitled to make tax free distributions to shareholders. By letter dated 10th February, 1997, the third named respondent requested the following:-
(a) a copy of the patent application;
(b) a submission demonstrating in what respects the process is contended to involve radical innovation; and,
(c) any technical or trade literature supporting the foregoing contention.
The applicant did not reply to that letter and the application lay dormant for several years. In the meantime, the applicant went on to make tax free distributions in substantial sums to shareholders notwithstanding that no determination had been made.
Correspondence did not resume until 2009. By letter dated 18th March, 2009, the third named respondent questioned the entitlement of Mr. Donal Ring to receive tax free distributions from the appellant. Mr. Ring is a director and the CEO of the applicant and the inventor and patentor of the invention which is the subject of a claim for a determination under s. 141(5)(d)(i) of the TCA 1997. Mr. Ring and twenty other named persons in receipt of tax free distributions from the applicant are in dispute with the third named respondent in relation to this matter.
On 30th April, 2012, the third named respondent gave its decision on the application stating:-
‘On the basis of the submissions and evidence supplied, I regret to say that it has not been demonstrated to my satisfaction that the invention involves radical innovation. As a consequence, I have determined that all distributions out of specified income shall not be treated as distributions out of disregarded income for the purposes of s. 141(5)(d) of the Taxes Consolidation Act…’
As the applicant was dissatisfied with this determination it gave notice of appeal by letter to the second named respondent dated 22nd May, 2012. The appeal was set down for hearing on 15th – 16th January, 2015, and in a Form AH1, signed by the second named respondent and dated 1st July, 2013, the nature of the appeal was stated to be the ‘Third Named Respondent's failure to make a determination under s. 141(5)(d) TCA on the basis that the invention did not involve radical innovation’.
The Form AH1 does not have any statutory basis but is the form which is forwarded to the Appeal Commissioners by the third named respondent (or an inspector of taxes or nominated officer) which sets out the nature of the tax appeal and requests a date for the hearing of same.
Prior to the appeal hearing, the second and third named respondents made written preliminary submissions stating that:-
(a) the invention in the case did not involve radical innovation; and,
(b) the relief had ceased and was no longer available even if the invention did involve radical innovation.
The applicant argues in this judicial review that the tax appeal as particularised in Form AH1 related to the technological reasons as to why a positive determination in respect of radical innovation should be made regarding the invention. The question as to whether or not the relief had ceased and was no longer available was not an issue on the appeal and had never formed part of the decision of the second and third named defendants in their decision to refuse the relief sought. The complaint of the applicant is that the determination of the appeal by the first named respondent was on a basis not properly before the first named respondent. The finding of the first named respondent recorded that:-
‘…determination cannot, by virtue of s. 141(5)(d) apply to accounting periods earlier than 2012 (if that determination of the Rev Com dated 30.04.12 was decided by me in favour of the appellant).
Dissatisfaction was expressed by the appellant.’
Following that determination the applicant sought a rehearing of its appeal before Cork Circuit Court pursuant to s. 942 of the TCA 1997. The notice of appeal was...
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...the decision in Wiley. The respondents also rely on a similar approach taken by McGovern J. in Sarlingford v. Appeal Commissioner Kelly [2017] IEHC 416 where he said, at para. 27: “It is well established that a legitimate expectation cannot arise in respect of a right where none exists. So ......