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You are here: BAILII >> Databases >> Scottish Court of Session Decisions >> Rouf v HM Revenue & Customs [2009] ScotCS CSIH_6 (10 February 2009)
URL: http://www.bailii.org/scot/cases/ScotCS/2009/2009CSIH6.html
Cite as: 79 TC 736, [2009] CSIH 6, [2009] STC 1307, [2009] STI 554, 2009 SCLR 472, 2009 SLT 219, [2009] ScotCS CSIH_6, [2009] BTC 375, 2009 GWD 7-130

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EXTRA DIVISION, INNER HOUSE, COURT OF SESSION

Lord Osborne

Lord Wheatley

Lord Brodie

[2009] 6

XA96/07

OPINION OF THE COURT

delivered by LORD OSBORNE

in Appeal by Stated Case

by

The Commissioners for the General Purposes of Income Tax for the Division of Dundee for the Opinion of the Court of Session as the Court of Exchequer in Scotland under Regulations 20 to 22 of the General Commissioners (Jurisdiction and Procedure) Regulations 1994

for

MOHAMED ABDOUR ROUF

Appellant;

against

THE COMMISSIONERS FOR HER MAJESTY'S REVENUE AND CUSTOMS

Respondents:

______

Act: Tyre, Q.C.; BTO, Edinburgh

Alt: Thomson, Advocate; Acting Solicitor (Scotland), HM Revenue & Customs

10 February 2009

The background circumstances


[1] This is an appeal by way of Stated Case under Regulations 20 to 22 of the General Commissioners (Jurisdiction and Procedure) Regulations 1994 against a decision of the Commissioners for the General Purposes of Income Tax for the Division of Dundee ("the Commissioners"), intimated to the appellant on 20 December 2005. The appellant, having expressed dissatisfaction with their decision, the Commissioners initially refused to state and sign a case. In consequence, the appellant applied to this Court for a judicial review of that refusal. By an interlocutor of the Lord Ordinary, dated
14 December 2006, the Clerk to the Commissioners was ordained to issue a draft Stated Case, which, in due course, was adjusted in response to certain revisals proposed by the appellant and by the respondents, and was signed by the Commissioners on 24 and 29 May and 1 June 2007.


[2] At a meeting of the Commissioners held in Dundee on 12 and 13 December 2005, the appellant, who carried on business as a restaurateur at the New Balaka Restaurant, St Andrews, appealed against assessments on additional profits of £94,000 and £96,000 for the tax years 1995/1996 and 1996/1997 respectively. These assessments had been made pursuant to section 36 of the Taxes Management Act 1970, for the purposes of making good to the Crown a loss of income tax attributable to the negligent conduct of the appellant. The appellant also appealed against amendments in terms of section 28A(1) and (2) of the Taxes Management Act 1970 by an officer of the Board of Inland Revenue to the appellant's self-assessment returns for the six years 1997/1998 to 2002/2003 inclusive. The amounts of additional tax assessed were as follows:

Year

Additional tax charged

Tax self-assessed

Amended tax assessed

1997/1998

£40,000

£32,110.10

£72,110.10

1998/1999

£41,200

£11,073.60

£52,273.60

1999/2000

£40,687.72

£3,894.88

£44,582.60

2000/2001

£42,453.65

£5,648.80

£48,102.45

2001/2002

£44,201.88

£6,190.87

£50,392.75

2002/2003

£46,000

£9,816.35

£55,816.35


[3]
The questions for the determination of the Commissioners appeared to them to be (i) whether there had been fraudulent or negligent conduct on the part of the appellant in regard to the assessments for the years 1995/1996 and 1996/1997, and (ii) the amounts of the appellant's profits arising from the New Balaka restaurant during the eight years of assessment. The appellant attended the hearing before the Commissioners, but did not himself give evidence. He was represented by his accountant, Mr Douglas Martin, who also gave evidence on behalf of the appellant.


[4]
From the evidence adduced, the Commissioners found the following facts admitted or proved:

7.1. The appellant carried on business of a restaurateur under the name of Balaka Bangladeshi Restaurant at 3 Alexandra Place, St Andrews, during the years of assessment.

7.2. The restaurant had received a number of awards between 1985 and 1999 and had been voted the "Best in the UK" in 1999 in the Good Curry Restaurant Guide. It boasted a number of major celebrities amongst its customers. The appellant did not seek to compete on price with his competitors but instead concentrated on the quality of the food.

7.3. The appellant also provided a carry-out service from the premises.

7.4. The appellant submitted all of his records for the year ended 31 October 1997 to the respondents. The respondents carried out a detailed analysis of the daily records for the three months from 1 January 1997 to 31 March 1997 and found discrepancies of £552.70, £174.18 and £273.18 respectively between the total entries in the cash book and the total figures shown on the actual meal slips which were provided. The meal slips which were provided were not numbered consecutively. No till rolls were ever produced to the respondents.

7.5. The respondents conducted an examination of the appellant's debit and credit card transactions for the same three month period. They noted what appeared to be a discrepancy between the number of such transactions recorded in the appellant's meal slips and the number recorded in the appellant's bank statements. The discrepancy which was calculated for these three months was approximately £20,000 and it was concluded that this figure represented undeclared income. This apparent discrepancy was found to be only around £500 on further investigation.

7.6. Information received by the respondents from the appellant's previous advisers, Messrs Walker Dunnet, suggested that in the year ending October 1997 approximately £20,000 of business expenses had been met out of the appellant's personal resources.

7.7. The respondents had carried out a surveillance of the premises on three separate occasions. A survey which had been carried out on 30 September 1999 for VAT purposes had disclosed that 94 customers had purchased meals but only 77 meals had been recorded and 17 meals went unrecorded. Surveillance visits were also carried out for income tax purposes on 23 November 1999 and 14 January 2000, and again it was observed during the course of both visits that meals were not being recorded on the till. All meals purchased by officers were paid for in cash.

7.8. The respondents calculated from the information gleaned from the visits on 23 November 1999 and 14 January 2000 that 26.06% of receipts from meals purchased were not being recorded. This figure was based upon the proportion of receipts from meals purchased by the respondents' staff members on those dates which was not recorded. They further calculated that 8.09% of customers were not being recorded. The respondents chose to base their calculation on the figure for the proportion of receipts from the unrecorded meals of their staff and considered that, on this basis, the turnover returned by the appellant of £417,450 for the accounting period ended 31 October 1997 was under-recorded by £108,537.

7.9. The respondents had carried out a separate exercise by calculating the average number of customers for these visits by reference to the average cost of meals purchased by their officers. The figures showed that the average number of customers indicated by the profits returned was 52 whereas the respondents had observed an average of 76 customers over the three days.

7.10. The appellant had regularly visited Bangladesh during the period of assessment. He had operated two bank accounts with banks in that country during the years of assessment but had failed to provide details of the accounts to the respondents.

7.11. The appellant's records covering the period of assessment under appeal were incomplete and unreliable. In particular, no till rolls were kept and a purchase day book was not maintained, meals were unrecorded and the sales were under-declared in the appellant's accounts.

7.12. The appellant had been the subject of a VAT inquiry for the period from 31 October 1985 until 31 July 1991 and had appealed against VAT assessments covering this period. In its decision dated 21 June 1995, the VAT Tribunal had determined that the appellant had under-declared VAT of £61,400 for the period.

7.13. The report by HM Customs and Excise Officers at Schedule 9 of the papers submitted by the respondents was accepted by the appellant as correct.


[5]
The decision made by the Commissioners was in the following terms:

"11.1 We accepted the contention of the respondents that the accounting records of the appellant were not complete and reliable during the periods in question, and that the failure to maintain complete and reliable records amounted to negligence. We also accepted the contention of the respondents that there had been a continuity over many years of the failure to maintain complete and reliable records. And so we determined the respondents had proved negligence by the appellant throughout the accounting periods for the two tax years in question, namely 1995/1996 and 1996/1997.

11.2. We determined that the appellant had not discharged the onus of proof in proving the assessments made by the respondents to be excessive. At no point during the proceedings were any actual alternative income figures (which took account of the appellant's contentions) proposed to us for us to consider.

11.3. Accordingly, we dismissed the appeals and determined the assessments in the amounts assessed. For the avoidance of doubt we determined the additional tax assessed as £44,201.88 and £46,000 respectively for the years 2001/2002 and 2002/2003, the amounts for these two tax years having been erroneously stated as £50,392.75 and £55,816.35 respectively in the Notice issued in respect of the hearing.

11.4. The decision was intimated to the appellant on 20 December 2005".

The questions of law for the Opinion of the Court posed by the Commissioners are in the following terms:

"(1) Whether on the facts found by us, there was evidence on which we could properly arrive at our decision, and

(2) Whether on the facts so found our determination of the appeals was correct in law".

The submissions of the appellant


[6]
Having drawn our attention to the circumstances just narrated and the questions posed for the Opinion of this Court, senior counsel for the appellant submitted that both of those questions should be answered in the negative, because the Commissioners had erred in law in the following respects: (1) they had misconstrued their statutory duty by deciding the appeal against the appellant because he had not produced alternative income figures for the Commissioners to consider in the event that they determined that there had been undeclared income; and (2) their determination was inconsistent with and contradictory of the evidence before them and consequently was one which no reasonable Commissioners, properly instructed as to the relevant law, could have made.


[7]
Senior counsel explained that the first two assessments involved in the case had been, as it were, out of time; accordingly the respondents had had to prove negligence or fraudulent conduct on the part of the appellant before they could be reopened. Negligent conduct had been shown, it was agreed; accordingly the Court did not require to be concerned about that. In these circumstances the onus had moved to the appellant to show that the assessments made had been excessive. Looking at the table of figures for the assessments set out in the Stated Case, that for the year 1997/1998 had been based on a calculation for that year. The assessments for the later years had been arrived at by means of adjustments to that calculation. Senior counsel went on to consider in detail the findings in fact made by the Commissioners. It had to be accepted that the absence of till rolls referred to in finding 4 raised a suspicion of suppression of income. However, the content of finding 5 was not so significant as it might, at first sight, appear. The figure of £20,000 mentioned there was now agreed to have been flawed.


[8]
Turning to the issue of surveillance, referred to in findings 7 and 8, the percentages which emerged were not comparable. The use of the 26.06% figure was therefore demonstrably wrong. In finding 9 reference was made to a separate exercise undertaken by the respondents involving a calculation of the average numbers of customers on the occasion of the three visits of their officers by reference to the average cost of the meals purchased by those officers. However, the outcome of this calculation set forth in Tab 12 of the documents produced with the Stated Case was flawed because it took no account of carry-out customers or VAT. Finding 12 was irrelevant, since it related to a period between 31 October 1985 and 31 July 1991, earlier than the period under consideration in this case.


[9]
Turning to the Commissioners' decision, no issue was taken with the finding of negligence. Paragraph 11.2 of the Stated Case was the only paragraph in which there was any finding made regarding the assessments. There the Commissioners had fallen into error. It was not necessary for the appellant to prove alternative income figures; it was sufficient for the appellant to succeed to show that the respondents' figures were demonstrably unreliable. The primary position of the appellant was that there had been no under-declaration of income. Most of his contentions had been designed to show that the respondents' contentions were unsound, rather than addressing the question of whether, if there had been an under-declaration, what the amount of such under-declaration was. It was not therefore a matter for criticism that alternative figures for undeclared income were not proffered. The Commissioners' duty, when hearing an appeal, was set forth in section 50(6) of the Taxes Management Act 1970, which provided that, if it appeared to them that the appellant had been overcharged by a self-assessment, the assessment had to be reduced accordingly. It followed that if, on the basis of evidence before them, the Commissioners were so satisfied, it was their duty to reduce the assessment, regardless of whether alternative figures had been suggested by the appellant. In that connection the appellant placed reliance on Bookey v Edwards [1981] 55 T.C.486 at page 491. The Commissioners required to make their own judgement, however difficult that might be. Senior counsel also relied on Khawaja v Etty [2004] S.T.C.669, at page 681, paragraph 26. If this submission were correct, the result should be that the case should be remitted to the Commissioners to make findings of their own concerning income figures. Paragraphs 11.1 to 11.3 of the Stated Case was the only reasoning available from the Commissioners. They had failed to discharge their duty under section 50(6) of the 1970 Act. They had failed to exercise their own judgement when there was material available to them to enable that to be done.


[10] Senior counsel next advanced his second main submission to the effect that, even if the Commissioners had not made the error of law contended for in the first submission, the facts found by them were such that no person acting judicially and properly instructed as to the relevant law could have come to the determination under appeal. Putting the matter in another way, the evidence accepted by them was inconsistent with and contradictory of the determination. In these circumstances their decision should be quashed. In this connection senior counsel relied on Edwards v Bairstow [1956] A.C.14, particularly what was said by Lord Radcliffe at pages 35 and 36. Senior counsel adopted the third test there set forth. The true and only reasonable conclusion on the evidence before the Commissioners contradicted their determination. The respondents might say that even if the information derived from credit and debit card transactions were discarded, there was still in being the information from the surveillance operation conducted by them. However, if one looked at the letter dated
23 August 2002, document Tab 5X, page 290 of the Appendix, it was evident that the figures in the assessments under challenge were in fact based upon the credit and debit card transaction figures. Thus those assessments were based upon unreliable information. In this connection, senior counsel relied upon the contents of the minutes of a meeting on 19 November 2002, at which the basis of the respondents' assessment had been discussed. Reference was also made to the letter from the respondents, dated 5 May 2004, document Tab 5AG page 314. It followed from the foregoing material that, by the time of the hearing before the Commissioners, the foundation upon which the assessments for all of the years in question had been calculated had been removed and that the Commissioners had been well aware of this. Indeed, the state of affairs was acknowledged in paragraph 9.1 of the Stated Case.


[11]
What had occurred was that the Commissioners had affirmed the assessments appealed against, reached upon a false basis, upon the footing that there had been other material which supported them. In that connection reference was made to the document Tab 7O, page 343. On the basis of that state of affairs, senior counsel submitted that no reasonable Commissioners could have failed to find the calculation in question fatally flawed. It made use of the figure of 26% produced by using only the proportion of missing meal slips for meals purchased by the respondents' staff. The same document, however, recorded total meals and missing meal slips which, using the same methodology, produced a suppression rate of only 8%. The only reasonable conclusion was that a much lower assessment had been justified. Senior counsel then referred to paragraph 3 of the respondents' note of argument. It appeared to refer to the calculation made on behalf of the respondents in document 7.9, Table 12. That calculation was itself flawed, since it took no account of Value Added Tax. A revisal of that calculation had been produced taking Value Added Tax into account, but it still did not justify the 26% suppression figure accepted by the Commissioners.


[12]
In all of these circumstances, senior counsel submitted that the appellant had successfully discharged the onus of proving that the assessments under consideration were excessive. The only proper course open to the Commissioners was to reduce the assessments concerned. If, contrary to the appellant's contention that there was no undeclared income, the Commissioners had concluded that there was, but of a lesser amount than that reflected in the assessments, it had been their duty to exercise their judgement on the basis of the material before them in order to determine the reduced amounts. The Commissioners had not been entitled simply to confirm the assessments.


[13] Responding to the respondents' written arguments, it was not true to say that there had been no evidence before the Commissioners which compelled a conclusion that the assessments represented an overcharge. In this connection reliance was placed on Nicholson v Morris [1977] 51 T.C.95, particularly at page 119. However, that part of that case did not support the position adopted by the Commissioners here, because it was predicated upon a total absence of evidence. In the present case there had been evidence available to the Commissioners. Senior counsel also drew our attention to R.A. Bird & Company v Commissioners of Inland Revenue 1925 12 T.C.785. At pages 794 to 795, it was evident that a motion for a remit to the Commissioners had been made and refused. The reason for that was that there had been no evidence put before the Commissioners to justify their making a further finding in fact. That was not the position here; there had been evidence before them that would have justified the making of further findings.


[14]
As regards the disposal of the appeal, senior counsel drew our attention to the terms of section 56(6) of the Taxes Management Act 1970. His motion was that the powers of the Court were broad; there should be a remit to a differently constituted set of Commissioners to deal with the matter, since the existing Commissioners had initially refused to state a case at all.

Submissions of the respondents


[15]
Counsel for the respondents commenced by submitting that the Commissioners had been entitled to conclude that the appellant had failed to show that the assessments appealed against were excessive. There was no dispute that the onus of proving that the assessments were excessive had rested on the appellant. In the circumstances, the Commissioners had been entitled to make the findings in fact that they had made. There was no question of the respondents seeking to justify the assessed figures on the basis of discrepancies in the recording of credit card transactions. It was accepted by the respondents that figures derived from that source had originally been the subject of a misunderstanding, but now those figures simply fell away. The Commissioners had not misunderstood the position relating to them. The respondents' investigations into the appellant's operation originally appeared to reveal perceived credit card under-declaration; business expenses met from personal funds; discrepancies between cash books and meal slips; under-declaration based on surveillance; money being taken to Bangladesh; and non-disclosure of Bangladeshi interests. While the respondents came to accept that the suspected credit card discrepancies could be explained, save for £500, they remained of the view that the other considerations continued to apply. Calculations were thereafter made to ascertain whether the assessment figures were too high or not. That had been done in two ways. Firstly, calculations had been made by computation of suppression. The calculation had been based on the observed under-declaration of meals served to the respondents' staff. This gave a mean under-declaration of revenue from meals of 26.06%. At the same time the mean percentage of missing customers on the two days of observation was calculated and found to be 8.09%. An under-declaration of 26% would have implied a required addition to the declared turnover of £417,450 for the year in question of £108,537. That was £8,537 in excess of the £100,000 at the heart of the assessment. Secondly, a calculation was done, the nature of which was revealed in Tab 12, whereby an average cost per meal was derived from the respondents' test purchases and applied to turnover declared plus the assessed additional turnover of £100,000. The purpose of the calculation was to ascertain whether such figures suggested customer numbers in excess of those actually observed. The results disclosed customer numbers still substantially below those observed. This implied that the £100,000 figure upon which the assessments were based was modest and, indeed, generous to the appellant. As a result of this approach, the respondents considered that the assessed figures were still appropriate. Thus the assessments were not defended before the Commissioners upon the basis of credit card discrepancies, a fact recognised in their narration of their findings in fact, particularly in paragraphs 7.5 and 7.8.


[16]
The appellant's argument that no reasonable Commissioners could have failed to find that suppression of 8% rather than 26% was justified, or at least that 26% was not justified because of the 8% calculation, was fundamentally flawed. The position was that the 26.06% figure had been calculated on a rational basis, namely the suppression of receipts from meals on the available sample, which was the respondents' staff purchases. Such a calculation could not have been done on all customers on the days in question, because the surveillance staff did not know what the customers who were not Inland Revenue personnel had spent. Accordingly it was appropriate to calculate under-declaration under reference to the figure of 26.06%. Plainly the method of calculation was rational and among the reasonable methods that could properly be employed.


[17]
The appellant's argument that the choice of the 26% figure was flawed was based upon misconceptions as to the nature of the calculation involved. The two calculations undertaken by the respondents were not separate calculations made for the same purpose. The purpose of the calculations was to compare suppression of revenue from meals with the number of missing customers. The appellant's criticism of the respondents' approach in this regard was unsound. The comparison of the two figures derived from the calculations demonstrated that there was not a random loss of customers and meals; on the contrary, it showed that the suppression practised was of the larger bills. In any event, even if the respondents had chosen the 26% figure rather than the 8% figure in the manner suggested, that choice would nevertheless have been quite rational and one which the Commissioners were entitled to accept. Further and in any event, the appellant's argument ignored the finding in fact 7.7 made by the Commissioners to the effect that on another particular occasion transactions were unrecorded on 17 meals from 94 dining customers, a missing customer rate of 18%, higher than on the two other occasions of surveillance. Further, no evidence had been put before the Commissioners indicating that there was any material arithmetical error in the calculation of the 26% figure. Accordingly, in the whole circumstances the appellant's submission that the Commissioners' acceptance of the assessments was irrational failed.


[18]
Counsel went on to submit that there had been no evidence before the Commissioners which compelled them to reach a conclusion that the assessments appealed against represented an overcharge. Neither the evidence of the appellant's accountant, nor the arguments advanced on his behalf by that accountant, compelled the Commissioners to reach a conclusion that there had been an overcharge, in the absence of definite figures suggesting that that had been the case. Bookey v Edwards [1982] 55 T.C.486 and Khawaja v Etty [2004] S.T.C.669 ought to be distinguished. Similarly, Edwards v Bairstow & Harrison [1956] A.C.14 was also distinguishable. It would have been impossible in the circumstances of the present case for the Commissioners to make a reduction in the assessments involved. No evidence had been led from the appellant regarding his arrangements, or to the effect that the assessments were excessive. The present case was one that had cried out for detailed explanations from the appellant as to his lack of record keeping, the manner of his operation of his business and his actual trading levels. Although present throughout the hearing and aware of the issues at stake, the appellant had chosen to refrain from giving evidence.


[19]
Some assistance was to be gained from Haythornthwaite & Sons Ltd v Kelly (1927) 11 T.C.657. In this case at pages 667 and 672, the point was made that an assessment should stand unless the appellant by his own evidence or by other lawful evidence demonstrated that there had been an overcharge. That had not happened in the present case. Counsel also relied on Johnson v Scott (1978) 52 T.C.383, at page 393.


[20]
Counsel proceeded next to submit that the appellant's contention that the Commissioners had simply refused the appeal because the appellant had not put forward figures of his own was not a fair or complete summary of the Commissioners' decision. The fact was that the Commissioners had held themselves satisfied on a variety of matters that were not attacked by the appellant, but which were of significance in the context. First, there was a general finding that meals had been unrecorded and sales under-declared (finding in fact 7.11). Second, non-recording of transactions had been witnessed by the respondents' staff (finding in fact 7.7). Further, it had been found that non-recording of transactions had been witnessed by Customs and Excise staff (finding in fact 7.7). It had been proved that there were discrepancies between cash book entries and meal slips (finding in fact 7.4). The Commissioners had found that the appellant's records covering a period of assessment under appeal were incomplete and unreliable (finding in fact 7.11). To the observation of the respondents' staff, meals were not recorded on the till (finding in fact 7.7). Further, it had been proved that there had been a failure to keep till-rolls and make them available (finding in fact 7.4). There had also been established a failure to maintain a purchase day book (finding in fact 7.11). Against a background of regular visits on the part of the appellant to Bangladesh, he had failed to furnish statements concerning bank accounts in that state (finding in fact 7.10). Finally, in October 1997 approximately £20,000 of business expenses had been met out of the appellant's personal resources (finding in fact 7.6).


[21]
It was obvious from the Case that the Commissioners had fully understood and recorded the contentions made to them on the appellant's behalf. The weakness in the appellant's position had been that many of these contentions were bound to fail in the absence of figures which only the appellant could furnish showing the effect of the factors referred to. In all of these circumstances it was quite appropriate for the Commissioners to observe, as they had done, that no alternative figures had been proposed by the appellant. On the basis of the Commissioners' findings, it could not be said that they had reached their determination solely because no alternative figures to those provided by the respondents had been the subject of evidence. Paragraphs 11.2 and 11.3 of the Stated Case did not suggest otherwise. The result of the hearing before the Commissioners was an inevitable consequence of the strategy adopted by the appellant, which was to make his appeal upon the basis that there had been no under-declaration of income and by challenging the credibility of the respondents' contention to the contrary. However, for good reasons, that approach had failed.


[22]
Even if there had been a material flaw in the respondents' calculations, or method of estimating turnover and profit, there was nonetheless no evidence allowing the Commissioners to conclude that the assessments were excessive. The assessments were based upon estimates, as they had to be, which was different from a calculation. The only way in which the Commissioners could have concluded that the assessments made actually were excessive in such circumstances, would have been if the appellant had led evidence to that effect. In other words, in order to discharge the onus upon him, it was incumbent upon him to give evidence as to the true extent of his under-declaration of income. In any event, it was submitted that there was no error in the formulation of the estimates involved. In that connection reliance was placed upon Hamilton v The Commissioners of Inland Revenue (1930) 16 T.C.28. The position was that, while an appellant might criticise an assessment made by the respondents, he nevertheless had to undermine the assessment itself; the onus was on him to do so. It was possible to do that, in practice, only by the appellant saying what the assessment should have been. The law was that the taxpayer had to "come clean". In this connection reference was made to Nicholson v Morris and Haythornthwaite & Sons Ltd v Kelly. An exception to that submission would be where an assessment had been made upon a specific calculation, which might require to be corrected, if it were shown to be erroneous. That was not the nature of the basis of the assessments made here.


[23]
Upon the assumption that the Commissioners had erred in law, which was, of course, rejected, the Court should nevertheless refuse to remit the case back. This submission depended upon the nature of any error established, but it would operate if the Court were to hold that the Commissioners had misdirected themselves as to their statutory duty, the appellant's first contention. It might also apply in relation to the appellant's second contention. As there was no evidence and there were no findings in fact that could allow it to be concluded that the appellant had discharged the onus of establishing that the assessments were excessive, or a conclusion as to what the appropriate assessment figures were, there would be no purpose in a remit back.


[24]
In any event, if the Court were to decide that a remit back was appropriate, any remit should be made to the same Commissioners, with the Opinion of the Court. Any alleged error could be corrected by the same Commissioners, properly directed, applying their mind to the evidence previously available. There could be no question of further evidence being led. The appellant had had his opportunity to lead such evidence as he considered it was in his interests to lead. In this connection reliance was placed on Spedding v Sabine [1954] 35 T.C.239 at pages 243-244. There was no error alleged which called into question the Commissioners bona fides, or their ability to determine the case properly. Any error of law which it was contended there might have been had not been in the fact-finding exercise. It could be corrected by the same Commissioners, properly directed, applying their minds to the evidence previously before them. However, were there to be a remit to a differently constituted set of Commissioners, there would necessarily require to be a fresh hearing of evidence, giving the appellant an opportunity to change the strategy which he had formerly adopted and to prolong the proceedings without justification. If there were to be any remit back to the same Commissioners, the Court should direct that no further evidence should be led. The fact that, at an earlier stage, there had been a refusal by the Commissioners to state a case was not a reason why any remit should not be made to them. Such a posture did not demonstrate any bias on their part; it merely demonstrated that they had not perceived there to be a question of law on which a case could properly be stated. The fact they had taken such a view did not disable them from further involvement. A further reason why there should be no remit to different Commissioners was that general Commissioners were local in nature. A remit to other Commissioners would necessarily involve Commissioners who acted outside the Dundee area. Anderson v The Commissioners of Inland Revenue (1933) 18 T.C.320, at page 327, founded upon by the appellant, was distinguishable on its facts; in any event, the remit there made had been to the same Commissioners. The position adopted by the respondents was justified for the reasons given by Lord President Clyde in Bird & Company v Commissioners of Inland Revenue 1925 S.C.186 at page 191. Further support for the respondents' position could be got from Murphy v Australian Machinery & Investment Company Limited (1948) 30 T.C.244 at pages 260 and 263. Parties ought not to be enabled to go back to the Commissioners and to call fresh evidence on issues which were raised in the original proceedings and as to which they had had a full opportunity of calling such evidence as they might be advised to call. In the whole circumstances, the Court should answer the two questions posed in the affirmative and refuse the appeal.

Reply on behalf of the appellant


[25]
Senior counsel dealt first of all with matters arising from his first submission. The respondents' response to that submission was to be found at section 7 of the Summary of Submissions. It was there said that it was not a fair or complete summary of the Commissioners' decision to say that they had simply refused the appeal because the appellant had not put forward figures of his own. It was submitted that that response was not a real answer to the submissions made on behalf of the appellant. The real point was that the Commissioners had misapprehended the decision; they thought that if the appellant did not put forward figures of his own, that was the end of the matter. They had erred in their comprehension of their duty in relation to the effect of section 50(6) of the 1970 Act.


[26]
Turning to his second main submission concerning the irrationality of the Commissioners' decision, the document Tab 7O was important. The disparity between the figures contained in this document of 26.06% and 8.09% was striking. The 26.06% was plainly excessive. No proper findings in fact had been made concerning these figures. The use of the higher figure was quite unreasonable.


[27]
Turning to the issue of disposal, senior counsel submitted that these Commissioners should not be asked again to adjudicate upon the case. They had erred in law and had refused to state a case when requested to do so. If the case were to be remitted back to them, the appellant would not get "a fair crack of the whip". If, however, the case were to be remitted to the same Commissioners, they should be permitted to hear fresh evidence, if they considered that that was appropriate. No direction prohibiting that should be made.

The decision


[28]
We propose to deal with the appellant's major submissions in the order in which they were made. The first of these was to the effect that the Commissioners had erred in law in misconstruing the nature of their duty. The statutory context of the Commissioners' decision was, of course, section 50(6) of the 1970 Act, which provides:

"If, on an appeal, it appears to the majority of the Commissioners present at the hearing, by examination of the appellant on oath or affirmation, or by other .....evidence -

(a) that .....the appellant is overcharged by a self assessment;.....; or

(c) that the appellant is overcharged by an assessment other than a self assessment, the assessment .....shall be reduced accordingly, but otherwise the assessment ....shall stand good".


[29]
In understanding the effect of those provisions, in our opinion, it is helpful to recall the observations made by Lord Hanworth, M.R., in Haythornthwaite & Sons Ltd v Kelly at page 667. There he said:

"Now it is to be remembered that under the law as it stands the duty of the Commissioners who hear the appeal is this: Parties are entitled to produce any lawful evidence, and if on appeal it appears to the majority of the Commissioners by examination of the appellant on oath or affirmation, or by other lawful evidence, that the appellant is over-charged by any assessment, the Commissioners shall abate or reduce the assessment accordingly; but otherwise every such assessment or surcharge shall stand good. Hence it is quite plain that the Commissioners are to hold the assessment standing good unless the subject - the appellant - establishes before the Commissioners, by evidence satisfactory to them, that the assessment ought to be reduced or set aside".

Thus the general onus to show an overcharge lay upon the appellant. If the appellant had succeeded in showing that he had been over-charged, then, it would have been the responsibility of the Commissioners to make their own judgment, upon the evidence before them, as to the proper level of the assessment, to which the assessments would have required to have been reduced accordingly. As was recognised by Walton J. in Bookey v Edwards at page 491, that might have required Commissioners to make the best estimate that they could in the face of an unsatisfactory evidential position. However, before the Commissioners in this case came under an obligation to make the best judgement that they could of the appellant's liability, on the basis of the evidence, plainly they had to be satisfied that the appellant had been overcharged in the assessments made.


[30] The Commissioners' explanation of the course which they followed in this case is set out, although briefly, in paragraph 11 of the Case, already quoted. In paragraph 11.1 they state:

"We accepted the contention of the respondents that the accounting records of the appellant were not complete and reliable during the periods in question, and that the failure to maintain complete and reliable records amounted to negligence. We also accepted the contention of the respondents that there had been a continuity over many years of the failure to maintain complete and reliable records".

In the light of those conclusions, the Commissioners held that, negligence having been proved, the assessments for the earlier accounting periods were open for examination. In paragraph 11.2 the Commissioners continue:

"We determined that the appellant had not discharged the onus of proof in proving the assessments made by the respondents to be excessive. At no point during the proceedings were any actual alternative income figures (which took account of the appellant's contentions) proposed for us to consider".

It was upon the basis of this latter paragraph particularly that the appellant advanced his first submission. However, we do not think that the juxtaposition of the two sentences quoted in paragraph 11.2 demonstrate that the Commissioners reached the position that they were not satisfied that the appellant had discharged the onus resting on him simply because alternative income figures had not been proposed to them by him. The fact was that, in their findings in fact, the Commissioners held themselves satisfied as regards a variety of matters, which were not challenged by the appellant. They made a general finding of meals being unrecorded and sales being undeclared (Finding 7.11). They were satisfied that non-recording of transactions had been witnessed by the respondents' staff (Finding 7.7). Further they were satisfied that the non-recording of transactions had been witnessed by the staff of HM Customs & Excise, as they then were (Finding 7.7). They found that there had been discrepancies between the cash book and meal slips (Finding 7.4). They found that there had been incomplete and unreliable record keeping (Finding 7.11). They found that there had been a failure to record transactions on the till (Finding 7.7). They found that there had been a failure to keep till-rolls and make them available (Finding 7.4 and 7.11). They found that there had been a failure to maintain the purchase day book (Finding 7.11). The Commissioners also found, against the background of regular visits to Bangladesh, there had been a failure to provide details of two bank accounts there and a failure to provide statements concerning such accounts (Finding 7.10). Finally, in October 1987, the Commissioners found that approximately £20,000 of business expenses had been met out of the appellant's personal resources (Finding 7.6).


[31]
Against the background of that profoundly unsatisfactory state of affairs, the respondents had made the assessments complained of. Yet the appellant and his advisers, at the hearing before the Commissioners, did not think fit to place before them any figures of their own to show that the assessments involved were excessive. In these circumstances, we consider that the Commissioners were quite entitled to conclude that they were not satisfied that the assessments made by the respondents were excessive. In reaching their conclusion they did not, in our opinion, focus exclusively upon the fact that no alternative income figures had been produced by the appellant. Plainly they examined the whole background to which we have referred, as appears from their findings in fact. But, in this connection it is also appropriate to recall the observations of Sargant, L.J. in Haythornthwaite & Sons Ltd v Kelly at page 672. There he stated:

"Silence, or the absence of evidence of that kind, was in my judgment evidence - very cogent evidence too, to show that the assessment made by the Inspector could not be displaced on the part of the company".

The significance of silence on the part of the taxpayer was also emphasised by Walton J. in Nicholson v Morris at page 110. It is worth quoting what he said:

"It is the duty of every individual taxpayer to make his own return and, if challenged, to support the return he has made, or, if that return cannot be supported, to come completely clean, and if he gives no evidence whatsoever he cannot be surprised if he is finally lumbered with more than he has in fact received. It is his own fault that he is so lumbered".


[32]
In our opinion, the observations of the Commissioners in the second sentence of paragraph 11.2 of the case is no more than a quite justified observation along the same lines based upon the fact that the appellant did not give evidence, nor supply the Commissioners with alternative income figures. The tactic adopted on behalf of the appellant before the Commissioners was simply to raise certain criticisms of the basis of the assessments made, but that approach did not satisfy the Commissioners that the assessments were excessive. In short, nothing done by the Commissioners in this case suggests to us that they misunderstood their statutory duty in any way. Accordingly we reject the appellant's first main submission.


[33]
We turn next to the appellant's second submission, to the effect that, on the facts found by them, no Commissioners acting judicially and properly instructed as to the relevant law could have come to the determination under appeal, or putting the matter in another way, the evidence accepted by the Commissioners was inconsistent with and contradictory of their determination.


[34]
In evaluating the submission, it is necessary to recognise the history of the respondents' investigations into the appellant's business affairs, as disclosed in the Commissioners' findings in fact. As appears from finding 7.4, the respondents carried out a detailed analysis of the daily records of the appellant for the 3 months from 1 January 1997 to 31 March 1997, finding discrepancies between entries in the cash book and meal slips. Furthermore, it was noted that the meal slips which were provided were not consecutively numbered and that no till rolls were ever produced to the respondents. In the light of those circumstances, the respondents then proceeded in the manner described in finding 7.5, which involved the conduct of an examination of the appellant's debit and credit card transactions for the same 3 month period. There was noted what appeared to be a discrepancy between the number of such transactions recorded in the appellant's meal slips and the number recorded in the appellant's bank statements. The discrepancy for these 3 months was then calculated to be approximately £20,000, which, it was concluded, represented undeclared income. However, as appears from the last sentence in finding 7.5 further investigation into this aspect of the appellant's affairs revealed that the apparent discrepancy was only around £500. The Commissioners having made findings to that effect, it is quite plain that they were aware that the originally calculated discrepancy for the 3 months in question did not exist. In that respect, that part of the findings simply represents an element in the history of the respondents' concerns over the appellant's affairs. However, matters moved on from there. In this connection it is appropriate to refer to the letter from the respondents to the appellant's advisers dated 5 May 2004, document 5AG, where the Inspector, having agreed to the appellant's figures for credit card transactions, continued to maintain that discrepancies existed, which would require to be further discussed. Calculations were thereafter undertaken upon the basis of a computation of suppression. Exactly what was done is recorded in the Commissioners' finding 7.7. Thus particular significance attaches to the surveillance visits carried out on 23 November 1999 and 14 January 2000. The respondents' calculations based upon the information gleaned on the occasion of these surveillance visits is described in finding 7.8. On the basis of the information concerning missing meals on these two occasions the figure of 26.06% was developed. Such an under-declaration implied a required addition to the £417,450 declared turnover of £108,537. It was upon this figure that the respondents then chose to justify the assessment which they had made of £100,000. A further examination of customers observed and recorded was carried out which revealed a disparity of 8.09% of customers not being recorded. However, it is plain that that percentage is not a figure which can properly be compared with the percentage of 26.06% already referred to. The Commissioners find in finding 7.9 that the respondents carried out a completely separate exercise by calculating the average number of customers for the occasions of the observations by reference to average cost of meals purchased by their officers. The mechanism of that calculation is set forth in document 12 in the Appendix. However, in our opinion, its outcome does not necessarily undermine the standing of the exercise in which the figure of 26.06% was developed.


[35]
As we see it, the appellant's second main submission must be assessed by asking the question of whether the Commissioners could rationally have accepted the figure of 26.06% which the respondents had developed, in the light of the other figures. Having looked at the findings made and in the light of the submissions made to us on behalf of the respondents, we conclude that the Commissioners' approach was a rational one, which they were entitled to take. The figure in question was calculated upon the basis of receipts from meals served to members of the respondents' staff, figures for which were available to them. A similar calculation could not have been done on all of the customers of the business on the days in question because the respondents plainly could not ascertain what the missing customers who were not Inland Revenue staff had actually spent.


[36]
It may be that, had the appellant taken a different approach before the Commissioners, with the production of alternative figures to those founded upon by the respondents, the outcome of the case might have been different. As Walton J. put it in Nicholson v Morris, at page 109, referring to the Revenue figures:

"I do not think that anybody pretends that those figures are anything other than estimates or guesses. They are the best that the Revenue can do on the materials in front of them and they may very well, for ought I know, be a very poor approximation to the truth indeed. But the situation here is that once leave has been given to make the additional assessments and the additional assessments have been made, the onus is on the taxpayer to show that they represent over-assessments".

As was observed at page 110 in the same case, if a taxpayer does not "come completely clean, and if he gives no evidence whatsoever he cannot be surprised if he is finally lumbered with more than he has in fact received". In our view there is nothing irrational about the Commissioners having followed such an approach, as they have done. In all of these circumstances we have come to the conclusion that the second main submission of the appellant is without merit and must be rejected. It follows that the appeal must be refused. In the light of the conclusion which we have reached, it is unnecessary to enter upon a consideration of how the appeal might have been disposed of if we had reached a different conclusion. Accordingly we shall answer both of the questions posed in the case in the affirmative.


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