Parto v HM Inspector of Taxes [2004] UKSC SPC00414 (10 May 2004)

SPC00414

19/04/2004 03 3121 MR ORANG PARTO Mr J D Demack  Manchester 17 March   
INCOME TAX — return — self-assessment — whether various documents required of taxpayer (including balance sheet) reasonably required to determine whether return incorrect or incomplete — appeal dismissed by consent

SPECIAL COMMISSIONERS

 
 	
	MR ORANG PARTO	Appellant

	- and -

	CYRIL BRATHERTON (INSPECTOR OF TAXES)	Respondent

				Tribunal:	 Mr J D Demack (Chairman)

Sitting in public in  Manchester on 17 March 2004
Mr G Grover accountant for the Appellant
Mr J Cannan of counsel instructed by the Respondent

	© CROWN COPYRIGHT 2004

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DECISION

1.	The appellant, Mr Orang Parto, appeals against the requirements of a notice of 17  September 2003 given under s. 19A of the Taxes Management Act 1970 (the 1970 Act).  It required him to produce documents relating to the purchase and sale of two properties, a loan he obtained from his mother, a statement of all his assets and liabilities, the nature of his business interests at 5 April 2001, and various other documents and statements.  The requirement was made for the purposes of enquiring into Mr Parto’s tax return for the year 2000/01.
2.	In his appeal, Mr Parto was represented by his accountant, Mr G Grover.  The Inspector of Taxes appeared by Mr Jonathan Cannan of counsel.  Each party produced a bundle of copy documents, amongst the Inspector’s being an agreed statement of facts.
3.	I need not rehearse the contents of the statement.  Suffice it to say that if dealt with the fact Mr Parto purchased a dwellinghouse in 2000 for a sum substantially more than his declared income indicated he was able to service by way of loan, and some months before sold his existing house.
4.	Mr Grover agreed that the various documents required under the s. 19A Notice were reasonably required by the Inspector for the purpose of determining the extent to which Mr Parto’s tax return for 2000/01 might be incorrect or incomplete.  Consequently, he agreed that the appeal should be dismissed.
5.	But he did invite me to deal with two questions he had raised in correspondence with the Inspector, namely:
1)	Whether it was a statutory requirement under the self-assessment legislation to provide a balance sheet and, if not, whether that matter could be enquired into under s. 19A of the 1970 Act?
2)	Whether the ‘discovery’ of certain information by the Inland Revenue which led to the investigation into Mr Parto’s tax return should be dealt with under s. 29 of the 1970 Act?
Notwithstanding that it is unnecessary for present purposes, I agreed to provide answers to those questions.
6.	In relation to the first question, Mr Cannan drew to my attention the decision of Special Commissioner Dr Brice in Accountant v HMIT (2000) SpC Decision 258 in which she dealt with the very question raised by Mr Grover.  As I agree entirely with her reply, I am able to deal with his question quite shortly, but will put Dr answer into context.
7.	Where the Inland Revenue have commenced an enquiry into a return under s. 9A(1) of the 1970 Act, they have the power to call for documents and other information pursuant to s. 19A of the 1970 Act as follows:
“(2)  For the purpose of the enquiry, the officer may at the same or any subsequent time by notice in writing require the taxpayer, within such time (which shall not be less than 30 days) as may be specified in the notice –
(a)	to produce to the officer such documents as are in the taxpayer’s possession or power and as the officer may reasonably require for the purpose of determining whether and, if so, the extent to which –
(i)	the return is incorrect or incomplete, or 
(ii)	…….., and 
(b)	to furnish the officer with such accounts or particulars as he may reasonably require for that purpose.”
8.	I need not rehearse the contents of he statement.  Suffice it to say that Mr Parto purchased a dwellinghouse I 2000 for a sum substantially more than his declared income indicted he was able to service by way of loan, and some months before he had sold his existing houseDr Brice dealt with that subsection in this way:
“20.	Section 19A(2) has two parts.  Subsection (2)(a) refers to “such documents as are in the taxpayer’s possession or power”.  Certainly documents which are in the taxpayer’s possession will be existing documents.  But it may be that a taxpayer does not have, say, a bank statement although he is entitled to ask his bank for one.  That would be in his “power”.  Thus, section 19A(2) (a) relates only to producing documents which the taxpayer has, or can obtain, and does not require him to create new documents.  However, the words “in the taxpayer’s possession or power” do not appear in section 19A(2)(b) which is a pointer to the conclusion that, under that subsection, a taxpayer could be asked to create new documents.  Another pointer is that the word “furnish” is found in section 19A(2)(b) whereas the word “produce” is found in section 19A(2)(a); the use of the different verb indicates that a different activity is in mind.  In addition, section 19A(2)(b) is limited to “accounts and particulars”.  Finally, if an inspector is to enquire into a return it would seem reasonable for his enquiries not to be limited to existing documents….
21.	There appeared to be some confusion at the hearing of the appeal about the word “accounts” in section 19A(2)(b).  In my view in the context of section 19A(2)(b) the word “accounts” does not include bank statements because bank statements cannot be created by the taxpayer, but does include accounts such as an income and expenditure account or a balance sheet.  Thus, although bank statements can be requested under section 19A(2)(a), a taxpayer can be required to prepare accounts such as expenditure accounts or balance sheets under section 19A(2) (b).
22.	My conclusion is that section 19A(2)(a) is limited to existing documents in the possession of the taxpayer but documents in the power of the taxpayer can also be requested under section 19A(2)(a).  Under section 19A(2)(b) the taxpayer can be requested to prepare accounts such as income and expenditure accounts or balance sheets and also to furnish particulars which may not necessarily be contained in existing documents.”
9.	I am able to deal with Mr Grover’s second question much more quickly.  Section 19A relates to the “Power to call for documents for purposes of certain enquires”; section 29 of the 1970 Act deals with “Assessment where loss of tax discovered”.
10.	In Mr Parto’s case, the Inspector was seeking to ascertain whether his tax return was incorrect or incomplete.  He was doing so under section 19A. Had he “discovered” that the return was incorrect or incomplete, he would then, but only then, have been in a position to go on to  raise an assessment under section 29.
11.	I dismiss the appeal

DAVID DEMACK
CHAIRMAN
RELEASE 10/05/04

MAN/03/3121