Sarlingford v Appeal Commissioner Kelly

• Jurisdiction: Ireland
• Judge: the President
• Judgment Date: 21 December 2016
• Neutral Citation: [2016] IECA 396
• Date: 21 December 2016
• Court: Court of Appeal (Ireland)
• Docket Number: Neutral Citation Number: [2016] IECA 396 [2016 No. 68] [2015 No. 152 J.R.]

[2016] IECA 396

THE COURT OF APPEAL

Ryan P.

The President

Hedigan J.

Hanna J.

Neutral Citation Number: [2016] IECA 396

[2016 No. 68]

[2015 No. 152 J.R.]

BETWEEN

SARLINGFORD LIMITED

APPELLANT/APPLICANT

AND

APPEAL COMMISSIONER KELLY

AND

FRANK GALLAGHER (NOMINATED OFFICER)

AND

THE REVENUE COMMISSIONERS

RESPONDENTS

Discovery of documents – Statutory interpretation – Legitimate expectation – Appellant seeking an order for discovery based on legitimate expectation – Whether discovery was necessary or appropriate

Facts: The appellant/applicant, Sarlingford Ltd, appealed to the Court of Appeal against the judgment and order of McGovern J of 28th January 2016 on a motion for discovery of documents in the possession or procurement of the third respondents, the Revenue Commissioners. The issue as to documents arose in judicial review proceedings brought by the company against the first respondent, the Appeal Commissioner, the Revenue official who made the original decision in the matter and the Revenue Commissioners in respect of Sarlingford’s claim that it had a legitimate expectation to be entitled to tax relief under s. 141(5)(d) of the Taxes Consolidation Act 1997 on certain patent income distributions. The High Court refused the application for discovery on the basis of principle and authority, holding that the issue in the case was one of statutory interpretation and discovery was neither necessary nor appropriate.

Held by Ryan P that it was a matter of law not of policy whether the tax relief was properly claimable. Ryan P held that the matters raised by the appellant did not establish an entitlement to an order for discovery based on legitimate expectation but even if they were capable of doing so, the relevant factual basis is available to the company without discovery.

Ryan P held that the appeal should be dismissed.

Appeal dismissed.

JUDGMENT of the President delivered on 21st December 2016

Introduction

1 This is an appeal brought by Sarlingford Ltd. against the judgment and order of McGovern J. of 28th January 2016 on a motion for discovery of documents in the possession or procurement of the Revenue Commissioners. The issue as to documents arose in judicial review proceedings brought by the company against the Appeal Commissioner, the Revenue official who made the original decision in the matter and the Revenue Commissioners in respect of Sarlingford's claim that it had a legitimate expectation to be entitled to tax relief under s. 141(5)(d) of the Taxes Consolidation Act 1997 on certain patent income distributions. The contending parties in this appeal are Sarlingford and the Revenue parties, being the deciding official and the Commissioners as a body; the Appeal Commissioner is not concerned with the issue of discovery. The High Court refused the application for discovery on the basis of principle and authority, holding that the issue in the case was one of statutory interpretation and discovery was neither necessary nor appropriate. I respectfully agree with the trial judge that it is a matter of law not of policy whether the tax relief is properly claimable. Moreover, the matters raised by the appellant do not establish an entitlement to an order for discovery based on legitimate expectation but even if they were capable of doing so, the relevant factual basis is available to the company without discovery. I would dismiss the appeal accordingly.

Background

2 Section 141 of the Taxes Consolidation Act 1997 ( TCA 1997) provides, broadly, for an exemption from income tax or corporation tax in respect of income paid by a company by way of distributions from income earned in connection with a qualifying patent. Section 141(5)(d)(i) provides, inter alia, as follows:-

‘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 avoiding a 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 shall be treated as distributions made out of disregarded income and the recipient shall be notified in writing of the determination…’

3 Sarlingford is part of a group of companies engaged in the manufacture and sale of windows and doors for commercial and residential properties. The company holds a patent in respect of an apparatus designed to achieve the efficient manufacture of windows and doors. On 11th December 1996, the appellant sought a determination pursuant to s. 141(5)(d)(i) that the invention of the apparatus involved radical innovation. By letter dated 10th February 1997, the Revenue requested further information. The appellant did not reply at that time and the matter was left dormant for several years. Notwithstanding the absence of a determination as to radical innovation, the appellant proceeded to make tax free distributions in substantial sums to shareholders. The company reactivated its claim for a determination as to radical innovation, in or about 2009, when Revenue inquired as to the basis upon which tax free distributions were being made.

4 Following rejection of its claim by the Nominated Officer, the second respondent, Sarlingford appealed to the Appeal Commissioner, the first respondent. Prior to the hearing of the appeal, Revenue raised a preliminary issue that the appeal was moot because the relief comprised in s. 141(5)(d) Taxes Consolidation Act 1997 (‘ TCA 1997’) ceased with effect from 24th November 2010, and was no longer available to the appellant. The Appeal Commissioner held in favour of the Revenue on this issue, holding that the wording of s. 151(5)(d)(i) meant that even if the appellant succeeded in overturning the determination of the Nominated Official, it would not avail the appellant in respect of the relevant accounting periods.

The High Court Proceedings

5 In the High Court proceedings, the appellant has challenged, by way of judicial review, the determination of the Appeal Commissioner contending, inter alia, that the preliminary issue raised by Revenue did not form part of the appeal heard by the Appeal Commissioner. Further, and of relevance for the purposes of this appeal, the appellant has claimed the following reliefs:-

‘8. A declaration that the second and third named Respondents' construction of section 141(5)(d) of the Taxes Consolidation Act 1997 is wrong and misconceived insofar as it contends that the Appellant is not entitled to the tax relief thereunder from the date of its first application to the said Respondents for the said relief provided that the second named Respondent makes a positive determination in its favour under the said section 141(5)(d).

9. A declaration that the proper construction of section 141(5)(d) of the Taxes Consolidation Act 1997 is that the Applicant is entitled to the tax relief thereunder from the date of its first application for same provided that a positive determination is made in its favour under the said section 141(5)(d) by the second or third named Respondents…

12. A declaration that the Appellant had a legitimate expectation that it would be entitled to tax relief under section 141(5)(d) of the Taxes Consolidation Act 1997 from the accounting period in which it first applied for same if the second named Respondent made a positive determination under the said section 141(5)(d).’

6 The discovery sought by the appellant was directed towards the claim of legitimate expectation made in the judicial review proceedings. The discovery sought, which forms the subject of this appeal, is as follows:-

‘(i) All documents whether stored in paper or electronic form in the power, possession or procurement of the Respondents in respect of an application made and considered in or about 2004 for determinations pursuant to section 141(5)(d)(i) of the Taxes Consolidation Act, 1997 in respect of Machine & Graphic Consultants Ltd for qualifying expenditure back to 1998 subject (in the case of all documents) to any necessary redaction to protect the identities of the taxpayer or its directors involved.

(ii) All documents created since on or about the 26th day of March, 1996 whether stored in paper or electronic form in the power, possession or procurement of the Respondents or either of them in respect of a policy or practice of the Respondents or either of them concerning the retrospective application of the exemption which flows from determinations made pursuant to section 141(5)(d)(i) of the Act of 1997.

(iii) All documents created since on or about the 1st day of January, 2004 whether stored in paper or electronic form in the power, possession or procurement of the Respondents or either of them in respect of any inspection or audit of the Applicant's tax affairs involving in particular a site visit to the Applicant's premises in 2004 or 2005 carried out by officials of the third named Respondent's large cases division and/or other local officials of the third named Respondent acting either for and on behalf of the said divisions or directly under the authority of the third named...