Ghana Commercial Bank v Chandiram

February 18. Viscount Kitmurr L.C. My Lords, this is an
appeal from an order of the Court of Appeal (Lord Evershed M.R.,
Ormerod and Harman L.JJ.) in England, allowing in part an
appeal by the appellants from a judgment of Diplock J. on the
trial of an action for penalties under the Income Tax Act, 1952.
Diplock J. held that judgment should be entered for the appel-
lants for the sum of £20 without costs, while the Court of Appeal
substituted a judgment in favour of the appellants for £62 15s.
The Court of Appeal thus added to the sum of £20 treble the tax
on the amount which would have escaped taxation had a return
made by the respondent formed the basis of assessment.

The facts are that on April 19, 1952, the respondent filled up
the prescribed form containing a return of income and claim for
allowances for the income tax year 1952-53. In that return he
set out the figures of £18 6s. as the bank interest. In fact the
correct amount of his income from that source in the year ending
April 5, 1952, was £51 5s. 9d.

In order to appreciate the basis of the judgments of the courts
below it is material to observe that no assessment was ever made
on Mr. Hinchy on the basis of his incorrect return, that the only
assessment made on him for the relevant year was made after
the correct amount had been discovered, and that this assessment
in respect of all the tax for which he was liable for that year was
made before the issue of the writ on June 13, 1956.

These facts raise the question of the construction of sub-
section (8) of section 25 of the Income Tax Act, 1952, which
provides: '' A person who neglects or refuses to deliver, within
'"' the time limited in any notice served on him, or wilfully makes
'"delay in delivering, a true and correct list, declaration, state-
"ment or return which he is required under the preceding
"provisions of this Chapter to deliver shall—(a) if proceeded

A.C. AND PRIVY COUNCIL.

"against by action in any court, forfeit the sum of £20
"and treble the tax which he ought to be charged under this
"Act; or (b) if proceeded against before the General Commis-
""sioners, forfeit a sum not exceeding £20 and treble the
"tax which he ought to be charged under this Act, and where
'""he is proceeded against before the General Commissioners, the
'penalty shall be recovered in the same manner as any other
'penalty under this Act, and the increased tax shall be added
"to the assessment.''

The argument for the Crown which was developed before
Diplock J., and later before the Court of Appeal, may be sum-
marised as follows: The penalty imposed by the said section 25
(8), in the case of proceedings by action in a court, is a fixed
penalty which the court (unlike the General Commissioners, in
proceedings brought before those commissioners) has been given
by the legislature no power to mitigate but which the Commis-
sioners of Inland Revenue or the Treasury may mitigate under
section 500 of the Act. The said penalty has been applied by the
legislature to a very wide variety of defaults. It embraces cases
in which no return has been delivered at all, cases in which an
incorrect return has been delivered, and cases (as under section 27,
requiring the delivery by employers of lists of their employees)
where a duty is cast upon one person to deliver a document
relating to the tax liability of another, and where default in
performing such duty can have no bearing on the ascertainment
of the defaulter's own liability to tax. It applies irrespective of
whether there has been fraud on the part of the defaulter and to
cases in which there has been a serious, trivial, or even no direct,
loss of tax to the Revenue. But the penalty applied to all these
cases is a single penalty, and on the true construction of the
relevant words in section 25 (3) (which must, it was submitted,
be given the same construction as the corresponding words applied
to proceedings before General Commissioners in section 55 of the
Income Tax Act, 1842) such penalty is a penalty of £20 and treble
the total tax to which the defaulter is chargeable by direct assess-
ment for the year of assessment in question; the words "' ought
'"to be charged "' limiting the ambit of the penalty to such tax
as could be directly assessed on the defaulter, and there being in
this respect a material difference in the wording of section 25 (8)
and the wording "' treble the tax chargeable in respect of all the
'"sources of his income'"' of paragraph 4 of Schedule VI of
the Income Tax Act, 1952. It was further contended that the
penalty could not be made to work in all the cases to which it is

759

H. L. (£.)
1960

INLAND
REVENUE
CMRSs.
v.
HIncay.

Viscount
Kilmuir L.C.

'

760

H..L. (B3}
1960

INLAND
REVENUE
Cmrs.
v.
HINcHY.

Viscount
Kilmuir L.C.

HOUSE OF LORDS [1960 |

made applicable if it were construed as limited to treble the tax
avoided by the default; and that if the legislature had intended
the subsection to bear this meaning it would have used the
phraseology to be found in section 48 of the Act. The Crown's
construction of the words had not, so far as was known, ever been
challenged in the period of over a century which had elapsed since
the enactment of the Income Tax Act, 1842.

Diplock J. took the view that the consequence of the con-
struction of section 25 (3) contended for by the Crown seemed to
him to be absurd and unjust, and if there was some other possible
construction, consistent with the words, which led to results less
absurd and unjust, he would be inclined to adopt it. In his view, .
there was such an alternative construction, for it seemed to him
that a reasonable meaning of the words "' the tax which he ought
'' to be charged under this Act '' was the tax to which the taxpayer
ought to be duly assessed, but to which he had not been duly
assessed by reason of the default; that is to say, the increased
tax which, when one looked at the latter part of the subsection,
was to be added to the assessment. In this respect he thought
that section 48 of the Income Tax Act, 1952 (dealing with
penalties for fraud), expressed in clearer and lengthier language
what was intended to be conveyed by the elliptical expression in
section 25 (38).

This construction raised the question of determining at what
point of time one must ascertain the amount of tax which the
taxpayer ought to be charged, and Diplock J. gave the answer
of the date at which the proceedings, whether before the court
or the General Commissioners, are brought. As, therefore, in
the present case the proceedings had been commenced after the
respondent had been charged with all the tax for which he was
liable, there was at the date of the commencement of the action
no tax with which he ought to be charged under the Act, and the
only amount recoverable was the fixed penalty of £20.

Like the Court of Appeal, I regret that I am unable to accept
this view as to the point of time. Its result would be that if the
error were discovered before the assessment was made, the
making of the correct assessment would eradicate that portion of
the penalty arrived at by multiplying the tax. I cannot accept
this. The lability to the penalty must, in my view, arise when
the offence is committed, that is, when no return is made, when
the time for making a return has expired, or, where an incorrect
return has been made, when such a return has been received by
the commissioners.

A.C. AND PRIVY COUNCIL.

761

The Court of Appeal did, however, approve of the antecedent H. L. (E.)

reasoning of Diplock J. and the gist of their view is expressed in
the following quotation: '' So, as a matter of English, it seems
"to us at least a legitimate interpretation of the phrase ' tax
'"" which he ought to be charged ' to limit its significance to that
"amount of tax with which, at the relevant point of time, the
"taxpayer ought to be charged but with which he hag not been
'"' charged by reason of his defective return: in other words, the
'"" tax appropriate to the undisclosed income."'

The difficulty of the view of the Court of Appeal is that this
expression appears to predicate that there has been an assessment
by which the taxpayer has been charged with the lesser amount
by reason of his defective return, and that this forms the basis
of the penalty under section 25. It is unfortunate that the Court
of Appeal do not seem to have appreciated that there had been
no assessment on the respondent on the basis of the incorrect
return which could play its part in the quantification of the penalty.
In this case, as in many others, there is not, to use the language
of the Court of Appeal, "' tax . . . with which he [the taxpayer |
""has not been charged by reason of the defective return.'' He
has not been charged because the time for charging him has not
yet arrived. When that time does come, non constat that the
return will have any causative effect on his assessment. The
latter may be based on other information, and in the case of
income under Schedule E must be based on his income in the
current and not the past year. It is an essential constituent of
this problem that at the time of the commission of an offence
under section 25, assessment may be in the future whereas, under
section 48 (the fraud section), assessment must be in the past.

Nevertheless, although the concluding reasoning of the Court
of Appeal does not, in my opinion, fit the facts of this case or the
general procedure of taxation, it would be wrong to ignore what
the Attorney-General termed the '' underlying thought of that
''judgment.'' They considered that the penalty provisions pro-
duced minimum penalties wholly unrelated to the extent of the
default, so extravagant as to be shocking in a final provision,
and at least one anomaly which might well be thought to run
quite contrary to ordinary justice. They considered that the
penalties were so unfair and unjust and contained variations so
numerous and illogical as to produce, in their view, the result
that no safe view could be got, from other sections of the Act,

1 [1959] 2 Q.B. 357, 878; [1959] 3 W.L.R. 60; [1959] 2 All E.R. 512.

A.C. 1960. 42

1960

INLAND
REVENUE
CRs.
v.
Hincuy.

Viscount
Kilmuir L.C.

762

H. L. (B)
1960

INLAND
REVENUE
CRs.
0.
HIncHyY.

Viscount
Kilmuir L.C.

HOUSE OF LORDS [1960 |

in the attempt to construe section 25. Although they did not use
the words of Lord Loreburn in Attorney-General v. Till,? that the
penalties were '' unreasonable or oppressive,' yet they clearly
considered them to be of that nature. I asked Mr. Pennycuick
what was his submission as to the law which should guide the
court in construing provisions which appeared to be oppressive
and unreasonable. His answer was that if there were any
ambiguity the court would prefer that construction which did not
lead to an oppressive and unreasonable conclusion, but if the
words were clear, then they had to be given full effect whether
or not that effect was unreasonable or oppressive. He submitted
that there was no ambiguity in this case.

Bearing this in mind and also the fact that the respondent was
not represented, I have tried to formulate an argument implicit
in the words of the section. I remind myself that the effect of
the decision of this House in Attorney-General v. Till* was to
rewrite this section in the sense: '' A person who neglects to
'"' deliver any return or who delivers a return which is not correct
'"'is liable to the penalty.'' As the section can look to the future,
can the words creating the penalty be extended distributively and
respectively so that the penalty becomes the sum of £20 and
treble the whole tax which he ought to be charged under this Act
where he neglects to deliver a return, and in the case of an
incorrect return, the sum of £20 and treble the tax on the amount
which would have escaped taxation if the incorrect return made
by the respondent had formed the basis of assessment? I cannot
give this meaning to the words. So to do would entail the
making of an artificial assessment on the basis of the return,
the making of the true assessment and the subtracting of the one
from the other. I do not pause to speculate on the hypothetical
difficulties of policy and procedure which might arise. I am
content to say that to add the necessary words would, in my
opinion, be legislation and not construction.

I also tried to consider whether, on the assumption of an
ambiguity, I could gain assistance from the fact that the element
of treble tax was attached to penalties after proceedings in court,
by section 23 (2) of the Finance Act, 1923, which also changed
the penalty for abettors of fraud in what is now section 48 of the
Income Tax Act, 1952. Again I could find nothing to drive me
to a recondite secondary meaning. I cannot ignore the fact that

2 [1910] A.C. 50, 52; 26 T.L.R. $ [1910] A.C. 50.
134.

A.C. AND PRIVY COUNCIL.

763

a multiplier of the tax with which he ought to be charged was H. L. (E.)

made a constituent of the penalty for the equivalent of this offence
by section 118 of the Act of 1805. I cannot believe that, in the
year of Trafalgar and Austerlitz, Parliament was considering such
a refinement as the present argument entails. The more, how-
ever, I consider the piecemeal additions of the last 150 years, the
more glad I am of the assurance of the Attorney-General that
the penalties are being reconsidered.

Moreover, although the present point was not argued, it was
assumed that '' treble the tax which he ought to be charged under
'this Act'' meant treble the whole tax for the relevant year by
two members of the Court of Appeal* and by Lord Atkinson in
Attorney-General v. Till,> by Rowlatt J. in Attorney-General v.
Johnstone,® inferentially by the Court of Session in Lord Advo-
cate v. M'Laren' and by the High Court and Supreme Court of
what was then the Saorstat Eireann in the unreported case of
Attorney-General v. White.* It is impossible, in my view, to
give the words a different meaning in that part of the subsection
which applies to proceedings before the commissioners from that
which applies to proceedings in court, although in the case of the
commissioners it is a maximum and not a fixed penalty.

I have, therefore, come to the conclusion that the words must
bear their ordinary meaning and that this appeal must be allowed.

At the request of the Revenue there will be no order for costs.

Lorp Rem. My Lords, if the appellants, the Commissioners
of Inland Revenue, are right in their main contention, any tax-
payer who makes a mistake in his annual income tax return and
has not discovered and rectified it must, if he is sued, be subjected
by the court to a penalty of £20 and treble the whole tax which
he ought to be charged for the year; that penalty is in addition
to the tax which he normally has to pay. It does not matter how
innocent the mistake may have been or how large the penalty
may be, the court has no power to modify or reduce the penalty,
although such a penalty, with the modern rates of income tax,
would be ruinous to most taxpayers with moderate or large
incomes. The commissioners maintain that the only remedy lies
with them, and that it is for them in their sole and unfettered
discretion (unless the Treasury choose to interfere) to determine

4 [1909] 1 K.B. 694; 25 T.L.R. 7 (1905) 7 F. 984; 5 T.C. 110.
242. 8 (1930) Oct. 5, Hanna J.; (1931)
5 [1910] A.C. 52. March 8, Supreme Court (unrep.).

6 (1926) 136 L.T. 31, 32.

1960
INLAND
REVENUE
CMRS.

0.
Hincxy.

Viscount
Kilmuir L.C.

764

H. L. (B,)
1960

INLAND
REVENUE
CRs.
v.
HIncny.

Lord Reid.

HOUSE OF LORDS [1960 |

what they think would be a proper penalty in each case and to
reduce the penalty imposed by the court accordingly.

The commissioners have, in fact, exercised this power for a
long time, and it is no doubt a tribute to the way in which they
have exercised their discretion that this appears to be the first
time that the extent of their power has been challenged in court,
and that it has been possible to delay for so long the revision of
the penalty provisions in the Income Tax Acts, although the need
for such revision had long been evident.

The incongruities and anomalies in these penalty provisions
have a very long history. Some had their origins in the Income
Tax Acts of 1799, 1803 and 1806, and even in the Act of 1842
there were already serious anomalies. But in those days the rate
of tax was low and penalties based on the total amount of tax
payable were probably not oppressive. And this is not the only
chapter of the law in which ill-conceived provisions introduced by
temporary Acts with limited application have long survived with-
out any radical revision and have to be applied in circumstances
very different from those which existed at their origin.

This case turns on the proper construction of section 25 (8)
of the Income Tax Act, 1952. [His Lordship read the subsection
and continued: |

In a somewhat similar provision in the Act of 1799 the penalty
was simply £20. Then, after some amendments, the Act of 1842,
section 55, provided: '' And be it enacted, that if any person who
'"ought by this Act to deliver any list, declaration or statement
'"as aforesaid shall refuse or neglect so to do within the time
'* limited in such notice, or shall under any pretence wilfully delay
'"' the delivery thereof, and if information thereof shall be given,
""and the proceedings thereupon shall be had, before the commis-
'""sioners acting in the execution of this Act, every such person
'""shall forfeit any sum not exceeding £20, and treble the
"duty at which such person ought to be charged by virtue
"of this Act, such penalty to be recovered as any penalty con-
'' tained in this Act is by law recoverable, and the increased duty
'""to be added to the assessment, . . . ; and every person who
'shall be prosecuted for any such offence by action or informa-
'""tion in any of Her Majesty's courts, and who shall not have
'"been assessed in treble the duty as aforesaid, shall forfeit the
""sum of £50."'

In the Act, as printed by the Queen's Printer, there is a comma
after £20 in the passage "' shall forfeit any sum not exceeding
"twenty pounds, and treble the duty... .'' An argument was

A.C. AND PRIVY COUNCIL.

765

submitted that this comma showed that '' not exceeding'' only H. L. (B.)

governed ''£20'' and did not apply to ''and treble the
' duty,'' so that the General Commissioners only had power
to reduce the £20 and had no power to reduce that part of
the penalty which consisted of treble duty. But before 1850
there was no punctuation in the manuscript copy of an Act which
received the Royal Assent, and it does not appear that the printers
had any statutory authority to insert punctuation thereafter. So
even if punctuation in more modern Acts can be looked at (which
is very doubtful), I do not think that one can have any regard to
punctuation in older Acts. And omitting the comma I would hold
that the whole of the penalty was subject to modification under
the Act of 1842. There is now no comma in section 25 (8) (b)
and, in my view, if proceedings are now taken before the General
Commissioners they are entitled to reduce the penalty of treble
tax.

In 1842, if the matter was taken before a court there. was a
fixed penalty of £50: with the low rates of tax then in force £50
was presumably thought at least comparable with £20 plus treble
tax. Under the Act of 1918, section 107, the penalty which a
court could impose was still only £50, but the rise in the rates
of income tax made that an inadequate penalty in many cases,
and the provision which now appears in section 25 (8) (a) was
introduced by the Finance Act, 1923, s. 23 (2).

Before dealing with the crucial question in this case, the
proper construction of section 25 (8) (a), there are several matters
which it may be convenient to deal with at this stage. The
appellants submitted that this subsection is governed by section 25
(2), so that it only applies if the return or other statement was
not true and correct to the best of the judgment and belief of the
person making it. We were informed that the commissioners
never take action under this section unless they think that the
declaration required by subsection (2) was not truly made, but I
can find no basis in law for it being a defence to an action to
prove that the return or statement was made to the best of the
judgment and belief of the defendant. The offence is not deliver-
ing a true and correct return, and if, in fact, it is not true and
correct, the penalty follows as a matter of course.

Then it was said that whatever be the true meaning of "' the
'' tax which he ought to be charged under this Act,'' it cannot
include either surtax or tax deducted at source by those who pay
dividends, etc. It is not necessary to decide those matters in this
case, and I will only say, particularly with regard to surtax, that

1960

INLAND
REVENUE
CMRS.
v.
Hincpy.

Lord Reid.

766

H. L. (B,)
1960

INLAND
REVENUE
CMRSs.
0.
HiInczy.

Lord Reid.

HOUSE OF LORDS [1960 |

I am not convinced that these are excluded, and that in any
revision of this and other provisions this ought to be made clear.
In determining the proper construction of section 25 (8) one
must bear in mind that the subsection applies to other things as
well as a return of the taxpayer's own income: it applies to any
list, etc., which he is required to deliver under a number of other
sections. Under section 21 he may be required in certain cases
to make a return of another person's income and to submit to
being charged to tax in respect of it. Under section 22 he must
render a statement of money received by him on behalf of another
person. Under section 23 he must deliver a list of lodgers and
inmates of his dwelling-house. And section 30 applies the pro-
visions of section 25 to lists of employees (section 27), and com-
missions (section 28), and interest paid to others (section 29).

I do not propose to examine the other penalty provisions in the
Act of 1952. It is no doubt true that every Act should be read
as a whole, but that is, I think, because one assumes that in
drafting one clause of a Bill the draftsman had in mind the
language and substance of other clauses, and attributes to
Parliament a comprehension of the whole Act. But where, as
here, quite incongruous provisions are lumped together and it is
impossible to suppose that anyone, draftsman or Parliament, ever
considered one of these sections in light of another, I think that
it would be just as misleading to base conclusions on the different
language of different sections as it is to base conclusions on the
different language of sections in different Acts. As an example
of incongruity I need only refer to the admitted fact that the
penalty in sections dealing expressly with fraud is less than
the penalty under section 25 (if the appellants' construction of
section 25 is right) for errors which may only be due to mistake.

I can now state what I understand to be the rival contentions
as to the meaning of section 25 (3). The appellants contend that
'treble the tax which he ought to be charged under this Act "'
means treble his whole liability to income tax for the year in
question (less surtax and tax deducted at source, as I have already
explained). It is not so easy to state the contrary contention
briefly and accurately. Unfortunately, the respondent was not
represented in this House. That was due to no fault of the
appellants, and the Attorney-General very properly drew your
Lordships' attention to points on which counsel for the respon-
dent might have relied, but that is not altogether an adequate
substitute for an argument for the respondent.

Broadly, the contention is that it cannot have been intended

A.C. AND PRIVY COUNCIL.

767

that that which would have been chargeable in any event on the H. L. (E.)

inaccurate return which was sent in should enter into the com-
putation of the penalty, that the penalty must have been intended
to have some relation to the offence, and that the tax which he
ought to be charged must be the additional tax which he ought
to be charged by reason of the discovery of the true state of
affairs. Otherwise the penalty will often be grossly and extrava-
gantly disproportionate to the offences. A man might be properly
chargeable to £5,000 tax on his actual return and properly charge-
able to £5,100 tax on the correct return. If the appellants are
right the penalty would be £15,320: if the other view is right it
would only be £320. And even more extravagant cases could
arise when the taxpayer's omission was not in respect of his own
income. If he fails to return a correct list of lodgers or
employees or money collected for or interest paid to others the
penalty would have no relation to that failure—it would be treble
his own income tax, although he had made a correct return of his
own income and paid the full tax due on it. And an even more
difficult case might arise under section 21: under that section he
is chargeable both in respect of his own income and in respect of
income belonging to another. If one of the returns which he
makes is inaccurate is the penalty treble the whole tax which he
ought to be charged, that is, the tax on both his own and the
other income, or can something be read in, even if the appellants
are right, so as to base the penalty on something less than the
whole tax which he ought to be charged under the Act?

Difficulties and extravagant results of this kind caused Diplock
J. and the Court of Appeal to search for an interpretation which
would yield a more just result. What we must look for is the
intention of Parliament, and I also find it difficult to believe that
Parliament ever really intended the consequences which flow
from the appellants' contention. But we can only take the
intention of Parliament from the words which they have used in
the Act, and therefore the question is whether these words are
capable of a more limited construction. If not, then we must
apply them as they stand, however unreasonable or unjust the
consequences, and however strongly we may suspect that this
was not the real intention of Parliament.

The Court of Appeal found it possible to adopt a secondary
meaning for the crucial words. Their conclusion appears to be
summed up in a sentence ®: '' So, as a matter of English, it seems

9 [1959] 2 Q.B. 357, 378.

1960

INLAND
REVENUE
CRs.
v.
HIncHy.

Lord Reid.

768

H. L. @)
1960

INLAND
REVENUE
CRS.
0.
HInocHy.

Lord Reid.

HOUSE OF LORDS [1960 |

'to us at least a legitimate interpretation of the phrase ' tax
'«* which he ought to be charged ' to limit its significance to that
'"amount of tax with which, at the relevant point of time, the
'taxpayer ought to be charged, but with which he has not been
'' charged by reason of his defective return: in other words, the
'tax appropriate to the undisclosed income."'

I agree with the Court of Appeal that if it is possible to infer
the meaning which they attach to these words that should be
done. One is entitled and indeed bound to assume that Parlia-
ment intends to act reasonably, and therefore to prefer a
reasonable interpretation of a statutory provision if there is any
choice. But I regret that I am unable to agree that this case
leaves me with any choice. When I look at the way in which the
provisions of section 25 (8) (a) were brought into the Income
Tax Acts, and at the way in which those provisions must be
applied in circumstances other than those contemplated by the
Court of Appeal, I find myself unable to hold that the crucial
words are capable of the interpretation which they have adopted.

The Act of 1952 is a consolidating Act, and one must presume
that such an Act makes no substantial change in the previous law
unless forced by the words of the Act to a contrary conclusion.
Therefore, in interpreting a consolidating Act, it is proper to look
at the earlier provisions which it consolidated. The previous law
was contained in section 107 of the Income Tax Act, 1918, and
section 23 (2) of the Finance Act, 1923, to which I have already
referred. Section 107 gave the court no power to impose a treble
tax penalty, and it did not require the General Commissioners to
impose the maximum penalty; they could modify the penalty to
any extent they might think just. The Attorney-General was
unable to point to any provision in force before 1923 which
required the maximum penalty to be imposed even in cases where
there was no fraud: there were certain provisions imposing the
maximum penalty if fraud was established. Section 23 (2) of
the Act of 1923 is in the same terms as section 25 (8) (a) of the
Act of 1952. If the appellants' construction is right, then Parlia-
ment imposed for the first time in 1923 an obligation to inflict
the full treble tax penalty even on innocent though negligent
offenders, and did this at a time when the rate of tax (then
4s. 6d.) made such a penalty oppressive in most cases.

It is so contrary to the practice of Parliament to commit in
effect unlimited discretion to a branch of the executive as to the
amount of penalties to be imposed on persons guilty of no more
than negligence that I would not easily hold that this was made

A.C. AND PRIVY COUNCIL.

in 1923; but I am forced to the conclusion that this was then
done, and it is idle to speculate whether Parliament, or, indeed.
any member of Parliament, understood the full effect of the
enactment. I refer to the appellants as a branch of the executive
because section 1 of the Inland Revenue Regulations Act, 1890
(which does not appear to have been amended or repealed),
provides that they '' shall in the exercise of their duty be subject
"to the authority, direction, and control of the Treasury, and
"shall obey all orders and instructions which have been or may
'be issued to them in that behalf by the Treasury.'' It is proper
to add that the present practice appears to be to confine such
orders and instructions within narrow limits.

I find it impossible to hold that the words '' not exceeding
'"" £20 and treble the tax which he ought to be charged under
"this Act'' in section 107 (1) (a) of the Act of 1918 meant
anything other than treble the whole tax which he ought to be
charged for the relevant year. The argument for the more limited
meaning adopted by the Court of Appeal is based almost entirely
on the extravagant consequences which flow from giving the
words in the present Act their natural meaning. But that argu-
ment loses almost all its force when applied to the Act of 1918.
Under that Act the General Commissioners, an independent body,
had full discretion to modify the penalty, and all that could then
be said was that, owing to the increase in the rates of tax, the
maximum penalty had become so high as to be extravagant in
the great majority of cases. But there was no obligation under
the Act of 1918 to inflict the maximum penalty in cases where
it was disproportionate to the offence.

In 1923 the same words were inserted in section 107 (1) (b)
but with the omission of the vital words '' not exceeding.'' Why
these words were omitted I do not know, but their omission
creates the present difficulty. Normally, it would be impossible to
hold that, when the same words as those already in one subsection
are later inserted in another subsection of the same section, they
can be given a meaning different from the meaning of the words
which were there already. I do not find it possible in this case
to hold either that the words in the original Act of 1918 had a
limited meaning, or that they were given a limited meaning by
the Act of 1923, or that after 1923 the same words in subsection
(1) (a) and (b) had different meanings: I cannot avoid the
conclusion that these words did not have a limited meaning before
1952 and that, therefore, they do not have a limited meaning now
when they are reproduced in the consolidating Act of 1952.

769

H. L. (B)
1960

INLAND
REVENUE
CRs.
0.
HIncny.

Lord Reid.

770

igh iB - (EK .)
1960

INLAND
REVENUE
CRs.
0.
HINcHY.

HOUSE OF LORDS [1960 |

My Lords, I have had an opportunity of reading the speech
about to be delivered by my noble and learned friend, Lord Rad-
cliffe. I am in general agreement with it, and, in particular, I
agree with his account of the methods of tax administration, and
of the way in which this case has been dealt with, so I need not
add further to my own speech, already perhaps too long.

In my judgment, this appeal must be allowed.

Lorp Rapcurre. My Lords, in my opinion, we are bound to
allow this appeal.

It has not been in dispute that in 1952 Mr. Hinchy committed
a breach of the obligation imposed upon him by section 19 of the
Income Tax Act, 1952. He did not, when required so to do,
deliver to the inspector of taxes a true and correct return of all
the sources of his income, and of the amount derived from each
source for the year preceding the year of assessment, 1952-53.
In fact, the signed return which he did deliver on April 19, 1952,
stated incorrectly that his income for the year 1951-52 from interest
on bank deposits, including Post Office and other savings bank
deposits, had been £18 6s., whereas his true income from that
source had been £51 5s. 9d.

Further, it has not been in dispute that by virtue of section 25
(3) of the same Act he thereby forfeited, if proceeded against in a
court of law, the sum of £20 and treble the "' tax which he ought
'"" to be charged '' under the Act. Such a forfeiture is imposed by
the section upon anyone who " neglects or refuses to deliver, . .
'"'or wilfully makes delay in delivering, a true and correct...
""return.'' It was decided by this House in Attorney-General v.
Till *° that a person who, though not failing to make a return
at all, nevertheless makes an incorrect return is within the
description that I have quoted above. I am bound to say, looking
back, that I think that that decision might well have been other-
wise and, if it had been, the problem that we are now faced with
would not have arisen. But, since it went the way it did, we
must now take it that Mr. Hinchy was a person who neglected to
deliver a true and correct return.

The whole question, therefore, is what penalty is attached to
his default by the words "' the tax which he ought to be charged
'"under this Act."

The Revenue say that the meaning of these words is that the
defaulter incurs, apart from the £20, a penalty of three times his

19 [1910] A.C. 50.

A.C. AND PRIVY COUNCIL.

total income tax bill in respect of all sources of income directly
assessable for the year in which the offence is committed. They
say that this is the way in which the words have been understood
and applied ever since they first appeared in an Income Tax Act
(the first use of them in this context was in section 118 of the
Income Tax Act of 1805); that whenever their import has been
noticed judicially, as in Attorney-General v. Till in the Court
of Appeal, and in Attorney-General v. Johnstone,!? the same
meaning has been attributed to them; and that the Income Tax
Codification Committee itself, which in the years before 1939
laboured with so much intelligence and devotion to no eventual
result, clearly assumed this to be the correct meaning. All this,
I think, is true; and these considerations are persuasive. But,
having regard to the extreme severity which might attend such a
penalty under present scales of taxation, and the fact that in this
very case the Court of Appeal have found it possible to impute
another and less onerous meaning to the words, I think it better
to approach the question of construction without giving any
weight to this consideration that, if the Court of Appeal are right,
they have discovered in the phrase a significance that has long
lain unobserved, and so lain after many persons, it is fair to
. suppose, have had cause to scrutinise them with somewhat
anxious attention.

What, then, are the alternative readings which have been
suggested? Diplock J., before whom this action came in the High
Court, took the view that (1) the point of time at which there
should be ascertained the amount of tax which a defendant
''ought to be charged '' was the date of the initiation of the
proceedings for the penalty, and (2), if at that date there had been
a correct assessment on the full chargeable income, there was
no tax with which it could be said that the defendant ought to
be charged and nothing, therefore, recoverable except £20. In
my opinion this view is wrong in its initial assumption. The date
at which any penalty incurred is to be ascertained must be the
date when the offence is committed: assessment or payment after
that cannot affect the liability. Otherwise, every time, an error
being detected, a correct assessment is made in order to determine
the true tax liability for the year, the penalty by way of multiplied
tax automatically disappears. I agree with the learned Master

11 [1909] 1 K.B. 694. 12 136 L.T. 31.

771

H. L. (E.)
1960

INLAND
REVENUE
CRs.
v.
HIncuHy.

Lord Radcliffe.

772 HOUSE OF LORDS [1960 |

H. L. (E.) of the Rolls when he says in the judgment delivered in the Court
of Appeal ?*: '' We do not think that this can be right."'

1960
ane In the Court of Appeal itself a different interpretation pre-
Revenuz vailed. It was based on the general idea that, when there has
Cmrs. been an incorrect return, the tax which the maker of it '' ought
Hinony. 'to be charged '' in treble is something which can be called the
'"' excess tax.'' This is variously described as 1° '' the tax which

Lord Radcliffe.
— '' the taxpayer ought to be charged and was not charged because of

'' his failure to make a true and correct statement of his income,"'
and as 4 '' that amount of tax with which, at the relevant point
'' of time, the taxpayer ought to be charged but with which he
''has not been charged by reason of his defective return; in other
'words, the tax appropriate to the undisclosed income.''

My Lords, I do not think that the words of section 25 (3) which
are in question give any hint of an intention to measure the tax
penalty by a computed excess of this sort. It can be done if an
appropriate formula is used. Section 48, for instance, does apply
such a formula, where the conditions are such that an assessment,
though an inadequate one, has been made. Again, section 49
allows treble the excess tax where a false return of Schedule D
income has led to under-assessment or would have led to it if
undetected. But no such formula is used or indicated in the
section that we have to consider. Moreover, there is another and
fundamental obstacle to the introduction of this '' excess tax "'
idea which the Court of Appeal judgment imports into the mean-
ing of the section. Their definition depends essentially on the
existence of a first incorrect assessment, such as they believed to
have been made in this case, which assessment can then be com-
pared with the corrected true assessment which emerges when
the full facts are known. We were assured by the Attorney-
General in the course of his argument that in this case there had
been no such assessment for 1952-58, and, as this misunder-
standing contributed to the Court of Appeal's view of the
admissible interpretation of section 25 (8), I think it necessary to
set out exactly what did apparently happen, because, so far as I
can see, the order of events followed here is as likely as not to be
typical of the order that will be observed in any other case of
untrue or inaccurate returns.

'

In April, 1952, Mr. Hinchy made a return purporting to set
out all the sources of his income for the year 1951-52, and of the
amount derived from each source. This return would afford, of

18 [1959] 2 Q.B. 857, 377. 16 "Tid. 878.

A.C. AND PRIVY COUNCIL.

course, valuable information for the purposes of the assessment
to be made on him for the year 1952-53, though, in so far as the
basis of assessment is the current year's income, not that of
the preceding year, such a return can be informative only and
there is no inherent connection between the figures it shows
and the figures that should be used for the true assessment. It
also affords, I suppose, a means of checking by its figures the
assessments which have been made for the previous year on that
year's current income.

No assessment for 1952-53 was ever made on Mr. Hinchy on
the basis of his statement that his income (I include in this the
income of his wife) from savings bank interest for 1951-52 had
been £18 6s. The only assessment that was ever made on him

for 1952-53 was made after the true figures had been established.

There was then an assessment for each schedule, Schedule D and
Schedule E, under which he derived assessable income, and these
assessments have been put in evidence. The Schedule D assess-
ment on '"' untaxed interest'' is not intelligible unless the
Schedule E assessment is first looked at.

The Schedule E assessment relates directly only to Mr.
Hinchy's income from his employment in H.M. Customs and
Excise. But, owing to the practice of '' coding in"' for the
purpose of P.A.Y.E. deductions, two small items of income which
really belonged to Schedule D were taken into account (see
Part III of the assessment form) for the purpose of arriving at
the code number appropriate to the operation of P.A.Y.E. By
this means £21 of the savings bank interest and £19 of "' excess
'"rents '' income were taken to reduce by £40 the £396 of allow-
ances which would otherwise have been taken into account in
allotting the P.A.Y.E. code number and, ultimately, in computing
the Schedule E assessment. The result was that £21 of the
untaxed interest was, in effect, taxed under Schedule EK and
recovered through P.A.Y.E.; and the deduction of £21 from the
full amount of £51 '' untaxed interest '' in the Schedule D assess-
ment is merely a recognition of this arrangement, designed to
prevent the £21 from being taxed twice over. It does not mean
that Mr. Hinchy's assessments, when they came to be made,
were on anything less than the full sum of £51 for untaxed
interest. Considering the way that the matter is dealt with in
more than one letter in the correspondence exhibited, I do not
wonder that the Court of Appeal took the facts to be otherwise.
I still do not know why the figure of £21 was taken for the pur-
pose of adjusting the P.A.Y.E. code number. It is quite possible

773

H. L. (B.)
1960

INLAND
REVENUE
CRS.
v.
HIncny.

Lord Radcliffe,

774

H. L. (B,)
1960

INLAND
REVENUE
CMRS.
0.
HincHy.

Lord Radcliffe.

HOUSE OF LORDS [1960 |

that it was related to the £18 6s. shown in the inaccurate return
of April, 1952: but, even so, P.A.Y.E. is no more than provisional
retention of tax. It is not assessment.

It appears, therefore, that in this case there was never any
failure to charge the taxpayer with the true amount of his tax for
the year or any inadequate lower assessment induced by his wrong
return. There never was any sum, therefore, that could be
computed by comparing the tax charged by such a first assess-
ment with the total tax liability when ascertained, nor was there
any figure attributable to an additional assessment. As I see no
reason to suppose that what happened here represents an unlikely
sequence of events, I am afraid that I regard the successive
failures of Diplock J. and the Court of Appeal to find a maintain-
able interpretation of '' treble the tax which he ought to be
'"'charged under this Act'' that escapes the onus of trebling
the whole tax bill for the year as a very strong indication that
there are really no means of escape open. I do not wish, how-
ever, to accept this conclusion without giving some attention to
another possible interpretation which is indicated by that phrase
of the Court of Appeal, "' the tax appropriate to the undisclosed
'"income.'' Can one fairly regard the words of the section as
enacting in some disguised way that the basis of computation is
to be the difference between what would be the tax on the figures
actually shown by a man in his return, whether or not there has
been any assessment, and the tax on what he ought to have shown
if he had made a full and correct return? This is a device applied
by section 49 to certain cases, but it is noticeable that it there
applies only to Schedule D income.

I find it impossible to penetrate this disguise. With all respect
to those who may think otherwise, the contents of even a com-
pletely full and correct return are no measure of the proper
assessment of a man's income for the year in which he makes it.
The assessing authority is not under so much as a presumptive
duty to make an assessment according to the return: how could
it be when, except for Schedule D, the basis of assessment is the
current year, which is not dealt with by the return, not the past
year, which is? Assessments can be made, even where there is no
return. They can be made, whatever a return shows. The
contents of a return can be queried and further, more reliable,
information extracted. They can be cross-checked and the results
amended in consequence of extraneous information available to
the surveyor. In other words, the relationship of the figures of
the return to the proper assessment of the year is so tenuous that

A.C. AND PRIVY COUNCIL.

I do not find it possible to suppose that the '' tax which he ought
'to be charged under this Act '' can ever have been intended to
mean the amount of tax which a person would escape if his
inaccurate return were accepted as providing final figures for the
purposes of assessment. The basic facts of the administration
and collection of tax do not admit any reality to such a conception.

I come back, therefore, to the only construction which is, I
believe, open to a court of law. When a man does what Mr.
Hinchy did, sends in what is not a true and correct return, he
commits an offence and the measure of his penalty must be ascer-
tained as the situation is at that date. At that date he will
neither have been assessed nor will he have paid any tax for the
year except, it may be, some provisional deduction under
P.A.Y.E. The question, what tax he ought to be charged under
the Act seems to me to be, in these terms, a simple one. It is
the sum of tax for which he will become liable for that year when
assessment properly carried out under the Act has imposed
liability upon him. It could not be anything else when the
offence consists of failing or refusing to make a return at all,
and I do not see how the meaning of the words can change if the
offence takes the form of not making a full return.

I appreciate that the view to which the Court of Appeal felt
entitled to come was largely encouraged by certain general
considerations as to the result of accepting the Revenue's conten-
tion in cases of this kind. Personally, I do not find any of these
considerations compulsive, in the sense that they can alter the
meaning of the words that Parliament has used: but, as I am as
well not altogether in agreement with the cogency of some of the
things that have been said, I ought perhaps to make a brief
allusion to them.

The first point made related to the way the Revenue's claim
was computed, which was said to be inconsistent with its own
construction of the section. It was said, for instance, that if
the measure was the full tax payable by direct assessment in the
year, tax levied by deduction being omitted, it was anomalous to
include Schedule E tax collected under P.A.Y.E. This is not,
I think, a valid criticism. Schedule E income remains liable to
direct assessment at the instance either of the Revenue or of
the taxpayer, though assessment can be dispensed with, and the
P.A.Y.E. deductions are only provisional payments of tax in
advance. In this respect income subject to P.A.Y.E. is quite
different from, for instance, dividend income which is not directly
assessable to income tax. Secondly, it was said that the treble

775

H. L. (B.)
1960

INLAND
REVENUE
CRS.
v.
HIncHy.

Lord Radcliffe.

776

Ist, Abp (¢a))
1960

INLAND
REVENUE
CRs.
Di.
HincHy.

Lord Radcliffe.

HOUSE OF LORDS [1960 |

tax claimed on the savings bank interest had in fact been com-
puted only on the undisclosed portion instead of on the whole.
This criticism arises from a misunderstanding of the two assess-
ments and the way they worked out, and I have already explained
what the actual circumstances were. Lastly, the comment was
made that, to be consistent, surtax ought to be included in the
basic computation as well as income tax. Mr. Hinchy was not
a surtax payer, so the point does not arise here. All that need
be said is that, if it does have to be decided at any time, there
are arguments for treating the assessment and collection of surtax
as carrying their own history and their own penalties, and section
25 (3) as not including surtax in the "' tax ''' to be computed. In
any event the point has no bearing on what we have now to
determine.

Secondly, it is, of course, very true that the penalty provision,
as interpreted by the Revenue, may not only impose fines which
for some taxpayers would require payment of tens of thousands
of pounds but also presents striking anomalies when its effect is
contrasted with the effect of other penalty sections in the same
Act. I do not think it necessary to dwell upon these or to illus-
trate them, because the opportunities of doing so are almost
inexhaustible. What I do not perceive, however, is how these
considerations can alter the interpretation of the words used by
the statute. If it is said that Parliament could not have intended
to impose such onerous fines for breaches which in some cases
may not be blameworthy in any degree, I can only point out that
Parliament has imposed just the same penalty where the default
is neglect to make any return at all, and yet none of the suggested
interpretations of the section achieves any penalty short of treble
the whole direct assessment in those cases where there has been
neither return nor assessment. Personally, I do not see any
marked distinction in degrees of blame between mere carelessness
which results in not making a return and that form of carelessness
which leads to a return being made which misleadingly appears
to be complete when it is not.

Again, whatever we managed to say about the meaning of the
words in this case, there is no doubt that section 18 of the Act
would still impose a penalty of treble the whole tax when a person
without just excuse fails to give a notice of his liability to tax;
that paragraph 4 of the Sixth Schedule would impose what may
be the still more onerous burden of treble the tax on all income
from all sources, if there is fraud in claiming a relief; and that
section 48, section 49 and section 441 would contain provisions

A.C. AND PRIVY COUNCIL.

which in certain cases involve a charge of three times the full
tax.

When it is said, therefore, that we ought to search for a more
rational meaning of the words of section 25 (8) than that which
is offered by the interpretation supported by the Revenue, I think
that much depends upon what you regard as rational in this
setting. Most of these penalty clauses have their origin in the
Tax Acts of 1803-06, if not in the earlier Act of 1799. Income
tax administration in those years was not the huge and efficient
system to which we are now accustomed. If the purpose of
Parliament at that time was, as I suspect, to impose heavy penal-
ties for any kind of evasion, primarily as a deterrent, there is no
reason for surprise that the various penalties are neither adjusted
harmoniously to each other nor in themselves proportionate to
degrees of blame or threatened losses of revenue. It was as
'"'rational'' to hit out blindly and heavily at anyone who was
caught as to maintain savage and indiscriminate punishments
under the criminal code until an effective police force had been
established. What is more surprising is that, apart from the
small changes made in the Finance Act, 1923, nothing has been
done by Parliament ever since to review the whole unsatisfactory
set of penalty sections and remodel them in the light of concep-
tions appropriate to the present day. Such a review has been
called for both in the Report of the Income Tax Codification
Committee (see Cmd. 5131, paras. 173-183) and in the Final
Report of the most recent Royal Commission on Income Tax (see
Cmd. 9474, Part VII, cap. 33), and the recommendation has no
doubt reached the destination usually reserved for advice invited
by governments from such committees.

Lorp CoHen. My Lords, I had commenced writing a full
judgment in this case, but, before I had completed it, I had the
privilege of reading the opinion which has just been expressed by
my noble and learned friend, Lord Radcliffe. I agree so entirely
with his conclusions and with the reasons he gives for thinking
this appeal must be allowed that I shall only detain your Lord-
ships long enough to say that I prefer not to express any opinion
as to whether surtax enters into the calculation of treble tax until
that point arises. I would allow the appeal.

Lorp Kerra or AvonHotm. My Lords, the judgment of the
Court of Appeal would seem to have proceeded on a false premise,
namely, that after the false return was made by the respondent

A.C. 1960. 43

777

H.L. (8)
1960

INLAND
REVENUE
Crs.
v.
HIncHy.

Lord Radcliffe.

778

H. L. (E,)
1960

INLAND
REVENUE
Crs.
v.
HIncHy.

Lord Keith
of Avonholm.

HOUSE OF LORDS [1960 |

he was assessed on the return so made and that there was a
balance of income undisclosed on which he had not been assessed.
But that was not the position. The discovery by the Revenue
of the undisclosed income was made after the return had been
made and before any assessment was made. Mr. Hinchy was
then assessed, after deduction of due allowances, on the full
amount of income subject to assessment, including the Post Office
Savings Bank interest which he had failed to disclose. Thereafter
proceedings were taken for recovery of penalty in respect of the
incorrect return. The Court of Appeal, in my opinion correctly,
say that the offence is committed when the false return is received
by the commissioners. The liability to penalty necessarily arises
at the time of the offence. It is a case of a false return with
which we are here concerned, and it will be convenient to set out
the relevant and material dates. [His Lordship stated the facts
and continued: |

On one view of the Court of Appeal's judgment it might
appear that, if the true facts and sequence of events had been
appreciated, they might have decided this case in favour of the
Revenue. I quote only one passage from the judgment where
they say 15: "' There remains the judge's interpretation of the
""relevant words (the third view above indicated), namely, that
'the tax which he ought to be charged " means what we have
"" called the excess tax—that is, the tax which the taxpayer ought
'"to be charged and was not charged because of his failure to
""make a true and correct statement of his income. Where there
'""has been failure to make any return at all, the " tax which he
"ought to be charged' will, of course, be the total of his tax
'lability for the relevant period. But where, as in the present
"case, the taxpayer's default lay in an understatement of one
'of his sources of income, then the tax which he ought to be
"charged will, on this interpretation, mean the tax which he
'ought to be charged (but was not charged by reason of his
' default) on the undisclosed income.'' It would seem clear from
this passage that the court did not, as I have said, appreciate
the true facts of the case. If the court had dealt with the true
situation, I am not clear what result they would have reached.
There is much in the train of thought in the judgment which
suggests that they might still have held that the proper penalty
was only £20 and treble tax on the amount which the taxpayer
failed to disclose on his return. As the respondent was not

"

15 [1959] 2 Q.B. 357, 877.

A.C. AND PRIVY COUNCIL.

represented on the appeal, and no case was lodged on his behalf,
it is only right that any point that can be advanced on his behalf
should be considered. It is partly, I understand, because of the
difficulties and uncertainty which the Revenue conceive this judg-
ment has created for them in their enforcement of the penalty
provisions of the Act that they have brought this appeal.

The claim here is made under section 25 (8) of the Income

779

Mole IN, (03)
1960

INLAND
REVENUE
CRs.
0.
HIncuy.

Lord Keith

Tax Act, 1952. The point in issue is a short one, namely, what of Avonholm.

is meant by the words in subsection (8), '' treble the tax which
"he ought to be charged under this Act.'' There are a number
of penalty sections under the Act, all of which were referred to
in the course of the argument. They do not provide any coherent
or intelligent code, and in the confines sometimes of even a single
section apparent anomalies can be discovered. It will be con-
venient to consider these sections in three groups according to
the variation of language by which the penalty is imposed.

In the first group I place section 18 and section 25, omitting
for the time being the sections to which section 25 applies; in
the second group section 48 and section 49; and in the third group
paragraph 4 of Schedule VI.

Section 18 and section 25 read as follows:

""18.—(1) It shall be the duty of every person who is charge-
'"" able to income tax for any year of assessment to give notice to
""the surveyor that he is so chargeable at or before the end of
'that year: Provided that no such notice need be given by any
"" person as respects any year for which he has delivered a state-
'"ment of his profits and gains in accordance with the provisions
'"' of this Act. (2) If any person, without reasonable excuse, fails
''to give such a notice as aforesaid, he shall—(a) if proceeded
'' against by action in any court, forfeit the sum of twenty pounds
''and treble the tax which he ought to be charged under this
'' Act; or (b) if proceeded against before the General Commis-
'' sioners, forfeit a sum not exceeding twenty pounds and treble
'' the tax which he ought to be charged under this Act, and where
'"he is proceeded against before the General Commissioners, the
'' penalty shall be recovered in the same manner as any other
'penalty under this Act, and the increased tax shall be added
'to the assessment.''

'* 25.—(1) Any such lists, declarations, statements and returns
'"as are provided for by the preceding provisions of this Chapter
'* shall be in such form as the Commissioners of Inland Revenue
'' shall prescribe, and in prescribing forms under this subsection
'the Commissioners shall have regard to the desirability of

780

H.. LC)
1960

INLAND
REVENUE
CMRS.
v.
HIncHy.

Lord Keith
of Avonholm.

HOUSE OF LORDS [1960 |

<

'securing, so far as may be possible, that no person shall be
'' required to make more than one return annually of the sources
''of his income and the amounts derived therefrom. (2) Any
'' statement of annual value or profits or gains to be charged
''under Schedule A, Schedule B, Schedule D or Schedule E
'' shall include a general declaration declaring the truth thereof
''and that the same is fully stated on every description of pro-
'' perty, or profits or gains, included in the Act relating to the
'' tax, and appertaining to the person returning the statement,
'estimated to the best of his judgment and belief, according to
'' the provisions of this Act. (3) A person who neglects or refuses
'*to deliver, within the time limited in any notice served on him,
'or wilfully makes delay in delivering, a true and correct list,
'' declaration, statement or return which he is required under
''the preceding provisions of this Chapter to deliver shall—(a) if
'' proceeded against by action in any court, forfeit the sum of
'twenty pounds and treble the tax which he ought to be charged
''under this Act; or (b) if proceeded against before the General
'" Commissioners, forfeit a sum not exceeding twenty pounds and
'"' treble the tax which he ought to be charged under this Act,
''and where he is proceeded against before the General Commis-
'"* sioners, the penalty shall be recovered in the same manner as
''any other penalty under this Act, and the increased tax shall
'"'be added to the assessment. (4) The commissioners shall also
"" proceed to assess or cause to be assessed every such person
'"who makes default as aforesaid. (5) If any person who is
'"required to deliver a list, declaration, statement or return on
'" behalf of any other person delivers an imperfect list, declara-
'"¢ion, statement or return and declares himself unable, within
'"the time limited, to deliver a more perfect list, declaration,
'" statement or return and states the reasons for his inability, he
** shall not, if the General Commissioners are satisfied with his
'""explanation and grant further time for delivery, be liable to
''the penalty prescribed by this section if he delivers, within the
'"" further time granted, as perfect a list, declaration, statement
"or return as the nature of the case permits. (6) If a person
'"' delivers to any surveyor a list, declaration or statement on a'
'"" form prepared for the purpose by direction of the Commissioners
'of Inland Revenue, he shall be deemed for the purposes of this
"section to have been required by a notice under the preceding
'provisions of this Chapter to prepare and deliver that list,
'' declaration or statement, and the time limited for the delivery
"* thereof shall be deemed for the purposes of this section to have

A.C. AND PRIVY COUNCIL.

~ expired on the date of its delivery to the said surveyor. (7) Any
'list, declaration, statement or return required by the preceding
'' provisions of this Chapter to be delivered to the surveyor shall
"be made available to the General, Additional or Special Com-
'' missioners and their respective clerks, and, whenever necessary,
'' to the assessors for the preparation and making of assessments."'

The provisions of subsection (2) of section 18 and subsection
(8) of section 25 are in identical terms, apart from the introductory
words indicating the nature of the offence struck at by the penalty
provision. Section 18 deals with concealment of chargeability to
tax for any year of assessment, a reference back to section 1
of the Act. The offence presumably will be committed if the
potential taxpayer allows the year of assessment to run out with-
out disclosing his chargeability. Section 25 relates to persons who
are known to the surveyor of taxes and are required to make one
or other of the returns in sections 19 to 23 of the Act, including
persons required (section 19) to deliver true and correct. returns
of all sources of their income. I can see no ground for placing

any different construction on the words "' treble the tax which -

'"he ought to be charged under this Act'' in subsection (3) of
section 25 from the meaning they have in section 18; or for saying
that they have one meaning where the taxpayer neglects or
refuses to deliver any return within the stipulated time as required
by the Act, and a different meaning when he wilfully makes delay
in delivering a true and correct return of his income as similarly
required. The decision of this House in Attorney-General v.
Till *® is binding authority that delivery of an incorrect return is
breach of this requirement. The question of the construction of
these words may to some extent be resolved, I think, by asking
how is it to be ascertained what tax the defaulter ought to be
charged under the Act. The only way, in my opinion, is through
the machinery of assessment set up by the Act. The court can-
not take upon itself this task. It was so held, I think rightly,
in an unreported Irish case—Attorney-General v. White ''—under
corresponding income tax provisions in Ireland, judgments in
which were made available to your Lordships. Can it be said
that the words have an ambulatory meaning, so that, if the tax-
payer makes an incorrect return, the tax which he ought to be
charged under the Act is limited to tax on the amount of the
undisclosed income? This is the view, I think, taken by the
Court of Appeal. I find it impossible to put such a construction

16 [1910] A.C. 50. 17 (19381) March 8, unrep.

781

EH. ui.) (BS)
1960
INLAND
REVENUE
CMRS.

v.
HIncHy.

Lord Keith
of Avonholm.

782

BL)
1960

INLAND
REVENUE
CRs.
0.
HINcHY.

Lord Keith

of Avonholm.

HOUSE OF LORDS [1960 |

on words which seem to me to be quite unambiguous. So limited
the tax would be only part of the tax which he ought to be charged
under the Act. It was conceded by the learned Attorney-General
that the penalty is to be measured only by tax on income which
is the subject of direct assessment, a concession which I am
disposed to think could not be withheld. Income from which
tax is deducted under Schedule D is not income charged to tax in
the hands of the recipient. Nor is it contended for the Revenue
that the tax to be charged includes surtax, for reasons which I
do not find it necessary to examine. It may be noted also in
passing that the non-fraudulent offender has a method of escape
from the stringency of the penalties, under section 55 of the Act,
which gives opportunity for rectification of returns and other
relief.

Sections 48 and 49 of the Act are as follows:

'""48.—(1) Where a person who ought to be charged with
"tax, as directed by this Act, is not duly assessed and charged
'""by reason that he has—(a) fraudulently changed his place of
"residence or fraudulently converted, or fraudulently released,
"assigned or conveyed any of his property; or (b) made and
'delivered any statement or schedule which is false or fraudu-
"lent; or (c) fraudulently converted any of his property, which
'"was chargeable, by altering any security relating thereto or by
'fraudulently rendering it temporarily unproductive, in order not
"" to be charged for the same or any part thereof; or (d) been guilty
'" of any falsehood, wilful neglect, fraud, covin, art or contrivance
'"" whatsoever, such person shall, on proof thereof to the General
'""Commissioners for the division in which he has been charged,
'or, if he has not been charged, then for any division in which
"he is chargeable, be assessed and charged treble the amount of
"the charge which ought to have been made upon him: Provided
"that, if any charge has been made, but that charge is less than
'""the charge which ought to have been made, such person shall
"be assessed and charged, over and above the former charge,
"treble the amount of the difference between the charge which
'"" was made and the charge which ought to have been made, such
"amount to be added to the assessment. (2) A person who
'knowingly and wilfully aids, abets, assists, incites or induces
"another person to make or deliver a false or fraudulent account,
"' statement, or declaration, of or concerning any profits or gains
'' chargeable, or the yearly rent or value of any lands, tenements,
'hereditaments or heritages, or any matters affecting any such

A.C. AND PRIVY COUNCIL.

'

"five hundred pounds.

'*49.—(1) If the Additional Commissioners or the General
"" Commissioners—(a) have made a charge to tax under Schedule
"D in respect of a sum in excess of the amount contained in
"either the statement or the schedule of a person to be charged;
'or (b) discover, from the information of the surveyor, or other-

'

783

'rent or value, shall for every such offence forfeit the sum of H. L. (E.)

1960
INLAND
REVENUE
CRs.

v.
HIncHy.

Lord Keith

'wise, that a charge to tax in respect of a sum in excess of either of Avonholm.

"such amount ought to be made, and an assessment is made,
at any time within the year of assessment or within three years
after the expiration thereof, they may, unless the person to be
charged proves to their satisfaction that the omission by him
did not proceed from any fraud, covin, art or contrivance or
any gross or wilful neglect, charge that person, in respect of
such excess, in a sum not exceeding treble the amount of the
tax on the amount of the excess. (2) If the person to be
charged has neglected or refused to deliver a statement or
schedule, the said commissioners may charge him in a sum not
'exceeding treble the amount of the tax with which, in their
'judgment, he ought to be charged, and such sum shall be added
""to the assessment and applied in the same manner as other
"increased charges are applied.''

The proviso to subsection (1) of section 48 clearly limits the
penalty to treble the tax on the amount of income undisclosed
where a charge has already been made on the disclosed amount.
There may be observed, however, several new features in the
matter of penalty. There is no £20 penalty. There is no pro-
vision for proceedings for penalty in a court. The penalty is a
fixed penalty of treble tax, not a maximum within which the
commissioners have a discretion to operate. Lastly, if the fraud
is discovered before any tax is imposed the penalty is treble tax.
Only where tax has already been charged does the taxpayer escape
with treble tax measured by what he has fraudulently concealed.
It may be doubted whether this section shows any leniency to the
fraudulent taxpayer as contrasted with the treatment accorded
to a neglectful taxpayer under section 25. The restricted penalty
imposed by the proviso, limited though it be by the amount
fraudulently undisclosed, may be a very heavy penalty, as com-
pared with a discretionary penalty that the commissioners are
entitled to impose under section 25. Only in contrast with the
penalty imposed by a court under section 25 can it be said that
the fraudulent taxpayer who comes under the proviso may escape
relatively lightly. That is undoubtedly an anomaly. But it

4

'

784

H. L. (B.)
1960

INLAND
REVENUE
CMRS.
0.
Hincny.

Lord Keith
of Avonholm.

HOUSE OF LORDS [1960]

would seem to be no greater an anomaly than that accorded to
two fraudulent taxpayers under section 48 itself, according as an
assessment has already been made on one and not on the other, a
difference in treatment which I confess I find it difficult to under-
stand. Whatever anomalies exist between section 25 and section
48 these provide no ground for reading into section 25 (8) (a)
the proviso of section 48 (1), as the Court of Appeal in effect
would seek to do, with the result incidentally of repeating in the
case of neglectful taxpayers the anomaly already observed to
exist as between fraudulent taxpayers. The reference in the
section to '' the charge which ought to have been made "' as con-
trasted with the words '' the tax which he ought to be charged "'
in section 25 (8) raises another question which seems to me to
lead nowhere. It would, I think, make no real difference if the
words of section 25 were substituted for the words in section 48
so far as the meaning of section 48 was concerned.

Section 49 provides another variation of a penalty clause. It
applies only to charges to tax under Schedule D. The words "' not
""exceeding '' reappear in this section. The penalty in the
circumstances to which the provisions of the section apply is a
sum not exceeding treble tax on the amount the taxpayer has
omitted to return. Again there is no question of a £20 penalty.

Lastly, I come to paragraph 4 of Schedule VI. It runs as
follows: '' (1) A person who, in making a claim for or obtaining
""any relief to which this Schedule relates, or in obtaining any
"* certificate as aforesaid—(a) is guilty of any fraud or contrivance;
"or (b) fraudulently conceals or untruly declares any income or
"" any sum which he has charged against or deducted from, or was
'" entitled to charge against or to deduct from, another person; or
""(c) fraudulently makes a second claim for the same cause, shall
"* forfeit the sum of twenty pounds and treble the tax chargeable
"in respect of all the sources of his income as if such claim had
'""not been allowed. (2) A person who knowingly and wilfully aids
"or abets any person in committing an offence under this para-
'"' graph shall forfeit the sum of £500.''

Here your Lordships find a further variation of penalty in
cases of fraudulent claims for relief, reflecting often relatively
small results in the matter of tax liability. The penalty here is
the severest of all. The £20 penalty makes its appearance again;
treble tax is mandatory; and it is imposed "' in respect of all the
"sources of his income as if such claim had not been allowed."'
It is thus not limited as in sections 18, 25 and 48 to income subject
to direct assessment.

A.C. AND PRIVY COUNCIL.

785

I have referred to these sections because they all disclose in H. L. (B.)

the circumstances to which they apply a variety of penalties which
present no intelligible pattern and which, in relation to one
another, seem often highly inequitable. Nor does the general
power of mitigation vested in the Commissioners of Inland
Revenue and the Treasury by section 500, in my opinion, really
affect this result. The survey of these sections has, I think, this

1960
INLAND
REVENUE
Crs.

v.
HIncHy.

Lord Keitb

relevance to the subject-matter of this appeal. It shows that it is of Avonholm.

impossible to argue from one penalty section to another or to infer
because of illogicalities between different sections, or inequitable
results that may follow from a particular construction, that there-
fore the legislature cannot have meant what the words of section
25 (8) plainly say. I would add that these sections have an
ancient lineage dating back more than 150 years and show very
little essential change in that period. Section 25 (3) shows a
greater number of changes evolved during that period, but in spite
of opportunities thus afforded Parliament has not thought fit to
make any substantial change, apart from quantum of penalty, in
the form of language by which the penalty was imposed from at
least 1805.

In conclusion, I would say a word about the effect of section 25
on certain sections of the Act to which it applies. These are
notably sections 21 to 23 and 27 to 29 inclusive. The results in
the view of the Court of Appeal were so startling as to play a
large part in their reaching a construction of section 25 (3) that
would enable them to escape the rigour of a literal construction of
its words. For the reasons I have given I think, on any view
of its effect on the sections in question, that escape would be
impossible. But it is a question whether any talk of escape is
necessary. In any case in which it was necessary to consider the
matter I would wish to hear argument on two points. First,
whether the impact of section 25 on sections like 21 and 22
affects tax on the income of any person other than the constituent
in respect of whose income a return is made by a person
in a representative or quasi-representative capacity. Secondly,
whether when a return is made under such sections as 23, 27
or 29, which are not concerned with returns of income but with
lists of names of persons who may be chargeable to tax in respect,
inter alia, of payments made by the person responsible for the
return, there is any basis for a penalty under section 25 other
than that of the fixed penalty of £20. In other words, whether
there is any income covered by the subject-matter of the return
in respect of which it can be said that the person making the

.

786 HOUSE OF LORDS [1960]

H. L. (E.) return '' ought to be charged to tax under this Act.'' These are
1960 incidental matters which cropped up in the course of the argu-
ment before this House and which, on the view taken by the

cee, Court of Appeal of resulting personal chargeability, seem to have
Cours. weighed heavily with the court. I say no more about these two
Be ae questions which on any view can, in my opinion, have no effect

on this case.
I agree that the appeal should be allowed.

Appeal allowed.