Tuesday 2 December 2008

Soomatee Gokool and others v. Permanent Secretary of the Ministry

Privy Council Appeal No 84 of 2007

Soomatee Gokool and others

Appellants

v.

(1) Permanent Secretary of the Ministry

of Health and Quality of Life

(2) The Public Service Commission

Respondents

FROM

THE COURT OF APPEAL OF

MAURITIUS

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JUDGMENT OF THE LORDS OF THE JUDICIAL

COMMITTEE OF THE PRIVY COUNCIL

Delivered the 2nd December 2008

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Present at the hearing:-

Lord Hope of Craighead

Lord Rodger of Earlsferry

Lord Carswell

Lord Mance

Sir Paul Kennedy

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[Delivered by Lord Carswell]

1. Public sector jobs with security of tenure are much sought after in Mauritius, so much so that when the Ministry of Health and Quality of Life (“the Ministry”) published an advertisement in September 2004 inviting applications for appointment to posts as Health Care Assistants (General) (“HCAs”), there were over 14,000 replies. A long process of sifting applications and interviewing followed. Appointments were offered to the leading 388 candidates (the number of posts then available), but withdrawn almost immediately, and then the disappointed candidates were offered one month’s pay in lieu of notice. The appellants sought to challenge the validity of the decision to terminate their appointment by judicial review, but the Supreme Court refused them leave, on the ground that the matter was one of private law and judicial review did not lie.

2. The appellants have appealed against this decision by special leave of the Board. By the time the matter came on for hearing the respondents, correctly in their Lordships’ view, did not seek to uphold the reasoning underlying the decision of the Supreme Court, conceding that there was a sufficient public law element. It is agreed now that the case comes within the class referred to by Woolf LJ in McClaren v Home Office [1990] ICR 824, 836, as having a sufficient public law element. The Board accordingly gave leave to apply and proceeded to hear argument on the merits of the application for judicial review. It will accordingly be necessary in this judgment to consider the factual background and reach a conclusion on the substance of the application.

3. In September 2004 the Ministry decided to fill vacancies then existing by the appointment of a number of HCAs. At that time the appointment of 222 persons was required to bring the numbers up to establishment level. During the appointment process the number of vacancies increased by another 66 and funding for a further 100 posts was made available in April 2005 when the Government’s supply estimates were produced, an increase which it was suggested was not unconnected with the prospect of an early election.

4. The appointment of employees in the public sector is by virtue of section 89(1) of the Constitution to be carried out by the Public Service Commission. On 18 May 1999 the Commission delegated the power of appointment of HCAs (then styled nursing auxiliaries) to the Permanent Secretary of the Ministry.

5. An advertisement was issued on 24 September 2004, inviting applications from persons with specified qualifications, with a view to the appointments being made early in 2005. Replies were received from 14,814 persons, of whom it was adjudged that 8998 fulfilled the specified criteria for appointment. It was decided to invite all 8998 applicants for interview and for that purpose four interview panels, made up of officials of the Ministry, were constituted. Each panel covered a defined geographical area of Mauritius. Each was given the same scheme for the allocation of marks to the interviewees. At the conclusion of the interview process in May 2005 a short list of 450 candidates was drawn up. Police clearance in respect of the shortlisted candidates was sought. In consequence of minor adjustments some 446 candidates remained and a seniority list was prepared, setting them out in order of marks scored, with a second list of the top 388.

6. This was taking place against a background of political uncertainty and change. A member of the National Assembly resigned in September 2004 and speculation developed about the political future. By December 2004 it was widely predicted that a general election would be held. The Government decided that the annual budget would be produced on 4 April 2005, rather than at the customary time in June, which added to the speculation. On 24 April 2005 the National Assembly was dissolved and a few days later a general election was called, the polling day being fixed for 3 July 2005.

7. The Permanent Secretary of the Ministry Mrs Rajamanee Veerapen consulted the Minister on 30 June 2005 about whether she should proceed with the appointment of the 388 candidates with the highest marks, bearing in mind that the election was in three days’ time and there was already some public disquiet about the making of appointments immediately before it. The Minister instructed her to go ahead with the appointments and the process was pressed ahead with remarkable celerity. The Chief Personnel Officer was on 30 June diverted from his other duties as a returning officer to sign the appointment letters. The Minister gave instructions for members of staff to be called in on Saturday 2 July to dispatch the letters, although such calling in on a Saturday was ordinarily reserved for exceptional cases where urgent action was required. The letters, bearing date 30 June 2005, accordingly went out to the 388 successful candidates, offering them posts “on a purely temporary month-to-month basis and terminable by one month’s notice on either side”. After six months’ in-service training they would then be considered for permanent appointments. The candidates were asked to reply in writing within one week and if accepting the offer, to report for duty on Friday 8 July 2005.

8. Another appointment exercise for the recruitment of health workers was under way prior to the election. The process had commenced in February 2005 and by the end of June preparations were complete for the appointment of 250 General Workers (male employees) and 243 Hospital Servants (female). Public controversy had become quite acute by then, it being alleged that the appointments were being used as electoral bribery. The Permanent Secretary to the Ministry had received reports of discrepancies in the candidate lists and had formed the view that some letters purporting to be invitations from the Ministry to interview were palpable forgeries. She cautioned the Minister in May against proceeding with the Health Service appointments so close to the election, but he instructed her to proceed and again unusually speedy arrangements were made to have the process completed. On 1 July 2005 Mrs Veerapen brought the anomalies and discrepancies to the Minister’s attention and strongly advised that the selection process in respect of General Workers and Hospital Servants should be cancelled. This time she obtained his agreement and went ahead and cancelled this process.

9. When the appointment letters for HCAs went out, there was a veritable storm of controversy. It was alleged that some of the successful candidates had been informed by some means before election day and complaints were already being received that there was an unduly large proportion of appointees from Constituency Number 8, the Minister of Health’s constituency.

10. On or about 4 July Mrs Veerapen directed that an analysis be carried out. The result showed that of those originally interviewed 626 or approximately 9 per cent had come from Constituency Number 8, whereas of the 388 successful candidates 101, approximately 26 per cent, lived in that constituency. The total number appointed and percentage of successful candidates were far larger in that constituency than in any other. The discrepancy was such as to give rise to a very strong suspicion that the marking process had been flawed. There was not at that stage any direct evidence of improper solicitation of votes or rewarding of electors, but the Permanent Secretary states that she formed the view that it was not possible to have confidence in the fairness and integrity of the marking system or in the correctness of the outcome of the appointment process. In paragraph 32 of her affidavit of 11 September 2008 Mrs Veerapen set out the concerns which she felt at the time:

“I also considered the effect on public confidence in the integrity of recruitment to the Health Service. Given the intense controversy and the heightened public mood of distrust, in my view at the time, it was impossible to expect to preserve public confidence in the fairness of the HCA selection process once the news of its disproportionate outcome was confirmed by the Ministry and the figures published. Unaddressed, it would be likely to lead to a very serious loss of public trust in the selection procedures for the Health Service in general. In my view, for the reasons I stated at paragraph 7 of my First Affidavit, there was a compelling public interest in ensuring that the recruitments operated by the Ministry were transparently fair.”

11. Mrs Veerapen states that it was these factors which led her to consider terminating the appointments offered by the letters of 30 June 2005. Although aware of the disappointment and possible prejudice which this could cause, she considered that it should be done quickly, before replies were received from all the offerees and before those who accepted started arriving for work, in order to minimise the detriment they might suffer. She also took into account the temporary nature of the employment offered, the fact that the disappointed offerees could re-apply in a renewed appointment process and the problems to which delay could have given rise.

12. On 7 July she informed the Secretary to the Cabinet and Head of the Civil Service of her decision to terminate the appointments. On his advice she consulted the Solicitor-General about the implementation of the decision. He advised her that the power to terminate would have to be obtained from the Public Service Commission. She therefore made an urgent request for such authority and received by a letter dated 7 July 2005 formal delegation to her as Responsible Officer of the Ministry, pursuant to section 89(2) of the Constitution, of

“the power to remove from office any person appointed in pursuance of the power of appointment, confirmation, promotion and transfer previously delegated to you in respect of the grade of Health Care Assistant (General) in your Ministry.”

Letters dated 7 July were then dispatched to all 388 successful candidates, stating that the offer of employment “is being withdrawn”.

13. The election having resulted in a change of government, the new Minister of Health was sworn in on 7 July and arrived at the Ministry’s offices on the morning of 8 July. The Permanent Secretary briefed him on the actions which she had taken. She states in paragraph 38 of her affidavit of 11 September 2008:

“He approved the decision that I had reached. Thereafter, he began to supervise the arrangements to be made for the termination of the appointments and withdrawal of the offers.”

14. After receiving protests from some of the candidates, Mrs Veerapen sought further advice from the Solicitor-General’s Office on 11 July. On receipt of their advice, she decided to send a further letter to each candidate. Those letters, dated 13 July 2005 and signed on behalf of the Permanent Secretary, read as follows:

“Please disregard the previous letter (MH/01/1/2/l) of this Ministry dated 7 July, 2005.

2. I am directed to inform you that by virtue of paragraph 3 of the letter of employment dated 30 June, 2005 and issued to you by post on 2 July, 2005, the employment offered to you was stated to be on a purely temporary month-to-month basis and liable to termination by one month’s notice on either side.

3. You are hereby informed that the employment offered to you has been terminated with effect from 8 July,2005, and that one month salary in lieu of notice of termination will be paid to you.”

Each recipient subsequently was paid one month’s salary.

15. On 19 August 2005 the appellants, together with other successful candidates, sought leave to apply for judicial review of the Permanent Secretary’s decision contained in the letters of 13 July 2005 to terminate their employment. The application was heard by the Supreme Court (Pillay CJ and Caunhye J) on 21 February 2006 and leave was refused in a written judgment given on 23 February 2006. The court held that the applicants had not shown an arguable case, since they were employed on a monthly basis and the respondent was legally justified in terminating it on payment of one month’s salary in lieu of notice. The Board gave the appellants special leave to appeal against this decision, indicating that if it held that leave should have been granted it would proceed to consider the substantive issues in the application for judicial review. The parties therefore argued the substantive issues before the Board.

16. The appellants attacked the decision under review on a number of grounds, but the main thrust was a challenge to the validity of the respondents’ case that the decision to terminate the HCAs’ employment was taken by the Permanent Secretary, as she averred. They suggested that it was not in reality a decision made by her, but a politically driven decision on the part of the incoming government, which distrusted the allegiance of those appointed. It accordingly was not taken by the Permanent Secretary as the public officer to whom the Public Service Commission had delegated the power of termination. The Minister was not a public officer within the meaning of sections 111 and 112 of the Constitution and the power of termination could not validly be delegated to him. In consequence, it was claimed, the exercise of the delegated power, having been carried out in reality by the Minister, was invalid.

17. Their Lordships do not accept this submission. In their opinion the evidence satisfactorily establishes that the decision was taken, as she avers, by Mrs Veerapen. They do not agree that it was unlikely, as Mr Guthrie QC, counsel for the appellants, suggested, that she would take the decision herself in the interregnum between governments. On the contrary, the evidence establishes that she went to the Public Service Commission to obtain a delegation of the power to terminate the appointments, and must have been very clearly conscious that the power and responsibility to make the decision rested upon her. She informed the Secretary to the Cabinet of her intention, but this was an understandable and natural course for her to take in a matter of some importance, which had attracted considerable publicity. It does not mean that she placed the responsibility for deciding upon the Secretary to the Cabinet. Likewise, she obtained the approval of the incoming Minister on the morning of 8 July and he lent his support to the process of implementing the decision. It does not follow that it was in reality his decision, even though he and his party may have been strongly in agreement with it and it may have afforded him material which he could use as political capital. On the contrary, the evidence supports the respondents’ case that the appointments were terminated the day before he took up office. Mr Guthrie placed some emphasis on the fact that before the Supreme Court the respondents did not make this case or mention the factors upon which they relied before the Board. This is understandable, since at that stage they were relying wholly, if mistakenly, on the argument that the matter was one of private law and not subject to judicial review.

18. The second major plank of the appellants’ case was that the decision, if truly made by Mrs Veerapen, was invalid as being irrational and taken in a procedurally unfair manner. Mr Guthrie suggested in argument a number of steps which the Permanent Secretary could have taken when faced with the situation which had arisen by 7 July 2005. Proper reasons could have been given to the disappointed candidates and an explanation to the general public, an inquiry could have been held to ascertain whether the voting pattern was skewed by the recruitment of the candidates in constituency Number 8, or representations from the candidates could have been received and considered. The appointments could have been left undisturbed to meet the obvious need for HCAs in the Health Service, or they could at least have been put on hold until the outcome of further inquiry was known. In hindsight it is not difficult to make such criticisms of the course adopted and even without hindsight it is possible to conclude that the process of terminating the appointments could have been handled differently and perhaps better. But that does not necessarily mean that they were irrational. The burden of establishing that a decision was unreasonable in the Wednesbury sense is notoriously heavy and their Lordships do not consider that the appellants have discharged it. In their view the decision was within the range of responses which a reasonable decision-maker might have made in the circumstances. The situation required speedy action, as Mrs Veerapen has demonstrated in her evidence, and it was obviously impracticable to take some of the steps suggested by the appellants. The individual cases could not be investigated in a short time and it was necessary both to terminate the appointments and to restore public confidence in the integrity of the Ministry and its appointing process. The Ministry did not then have evidence which might have tended to establish culpable behaviour on the part of any individual candidate, so it was not a necessary ingredient of a fair process to give the candidates an opportunity to make representations before the appointments were terminated. Their Lordships accordingly reject this head of argument.

19. The appellants also argued that the termination was unlawful on the ground that it was carried out in breach of the Public Service Commission Regulations, which applied to their appointment and employment. They submitted, first, that the disciplinary process laid down in Part IV of the Regulations was not observed. Their Lordships do not consider that this Part applied to the case. It was not one of disciplining individual candidates – on the contrary, the respondents did not have any evidence of wrongdoing on their part and did not seek to attribute any to them. Secondly, it was submitted in the alternative that if this was not a case of disciplinary action, it was not covered by the Regulations and required instructions to be obtained from the Commission, in accordance with the requirements of Regulation 51. It is common case that Mrs Veerapen did not obtain instructions from the Commission, but instead sought from it delegation of the power of termination of appointments. The delegation made pursuant to section 89(2) of the Constitution was in their Lordships’ view sufficient to entrust the power of termination wholly to the Permanent Secretary. She was in command of the process and so was not subject to the obligation in Regulation 51 to obtain instructions from the Commission. This point must accordingly fail.

20. The final argument put forward on behalf of the appellants was that the decision to terminate their appointments deprived them of a legitimate expectation that they would be permitted to commence work as HCAs and obtain the opportunity of a permanent post with the Ministry. It appears questionable whether they can properly be said to have had any such expectation, in view of the clear statement in paragraph 3 of the appointment letter of 30 June 2005 that the employment was to be liable to termination by one month’s notice. But even if they could be said to have had the expectation which they claim, it would not in their Lordships’ view be possible for them to establish a case.

21. The basis of the jurisdiction is abuse of power and unfairness to the citizen on the part of a public authority: see R v North and East Devon Health Authority, ex parte Coughlan [2001] QB 213, 251, para 82. On this basis it has been held that two factors tend to show that there has not been an abuse of power. One is whether the claimant has relied on the promise or representation, in particular whether he has thereby suffered any detriment, as to which see R v Secretary of State for Education and Employment, ex parte Begbie [1999] EWCA Civ 2100, [2000] 1 WLR 1115, 1130-1 and R (Bibi) v Newham London Borough Council [2001] EWCA Civ 607, [2002] 1 WLR 237, 246, where the court adopted at para 29 the statement in Craig, Administrative Law, 4th ed, p 619 that “detrimental reliance will normally be required”. The second is when the authority changes its policy on sufficient public grounds. If there is an overriding public interest behind its change of policy, it will not be an abuse of power: Coughlan, para 57. If it could be said that the appellants had a legitimate expectation, and even if any of them could show that he suffered sufficient detriment, the latitude permissible to a public authority faced with a change of circumstances would mean that its action was not an abuse of power and that the appellants are not entitled to a remedy.

22. The appellants have accordingly failed to make out a sufficient case for relief in their claim for judicial review. The Board will dismiss their appeal, though on different grounds from those adopted by the Supreme Court, on the basis that they should have been given leave to apply for judicial review, but that the application itself is not well founded.

Monday 1 December 2008

Adhinath Singh Lutchumun and others v.Director General of the Mauritius Revenue Authority


Privy Council Appeals No 94 and 114 of 2006

Adhinath Singh Lutchumun and others

Appellants

v.

Director General of the Mauritius Revenue Authority

Respondent

and

Director General of the Mauritius Revenue Authority

Appellant

v.

Adhinath Singh Lutchumun and others

Respondents

FROM

THE COURT OF APPEAL OF

MAURITIUS

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JUDGMENT OF THE LORDS OF THE JUDICIAL

COMMITTEE OF THE PRIVY COUNCIL

Delivered the 1st December 2008

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Present at the hearing:-

Lord Hope of Craighead

Lord Rodger of Earlsferry

Lord Carswell

Lord Mance

Sir Paul Kennedy

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[Delivered by Lord Hope of Craighead]

1. The parties to this case are Mr and Mrs Adhinath Singh Lutchumun and a number of other persons (to whom it will be convenient to refer collectively as “the taxpayers”) on the one hand and the Director General of the Mauritius Revenue Authority, formerly the Commissioner of Income Tax (referred to hereinafter as “the Revenue”) on the other. The central issue is whether a sum which the taxpayers received as compensation for the compulsory acquisition of land which they had acquired with a view to profit is taxable as part of their gross income or is a tax free capital sum because it was not obtained in the normal course of the taxpayers’ business.

2. In McClure v Petre [1988] 1 WLR 1386, 1389 Sir Nicolas Browne-Wilkinson V-C described the approach that is to be taken to problems of this kind:

“In my judgment it is equally established by authority that to decide whether a particular receipt is in the nature of income or in the nature of capital one has to look at all the circumstances of the particular case and apply judicial common sense in reaching a conclusion as to how the receipt is to be classified.”

In Inland Revenue Commissioners v John Lewis Properties plc [2003] Ch 513, para 16 Arden LJ suggested a classification that might be adopted to discover whether there was a principle by which such cases might be organised. The present case, according to her classification, is a compensation case. In para 45 she set out a series of propositions which she derived from the reported cases as to how a sum received as compensation should be classified. For the purposes of the present case it is necessary to refer to only two of them. First, every case depends on a careful examination of the particular circumstances. Second, the underlying asset from which the sum is derived may have a large influence on whether the payment is capital or income. To these propositions their Lordships would add a third, which has a direct bearing on the way the receipt should be treated in this case. This is that close attention must also be paid to the terms of the taxing statute.

3. The facts of this case are relatively simple. In 1991 the taxpayers obtained a provisional land conversion permit under Part IV of the Sugar Industry Efficiency Act 1988 to convert 50 arpents of agricultural land owned by Medine Sugar Estate at Coromandel to residential. On receipt of the permit they entered into an informal agreement to purchase the land. In 1993 they purchased it by authentic deed jointly and in undivided rights for Rs 50,000,000. At the beginning of October 1993 the parcelling of the land into 419 residential plots was approved by the authorities. But at the end of October 1993 the taxpayers were served with a notice under section 6 of the Land Acquisition Act 1973 (“the 1973 Act”) that it was proposed to acquire two portions of the taxpayers’ land extending in total to 12A52 on behalf of the government. This area was to be excised from the larger portion of 50A. The notice of compulsory acquisition which had been published in the Gazette under section 8 of the 1973 Act was transcribed in January 1994, thus vesting the excised portion of the land in the government.

4. The taxpayers made a claim for compensation under Part III of the 1973 Act. Section 19(3) of that Act provides that the value of any interest in the land shall be the amount which the interest, if sold on the open market by a willing seller, might be expected to realise at the date of the first publication of the notice under section 8. Section 18(6) provides that the Board of Assessment, in awarding compensation, may allow interest at the legal rate, calculated from the date of vesting under section 11 until the date of the award. In August 1995 the Board awarded the taxpayers a sum of Rs 2,805,000 per arpent, to be apportioned among them according to their respective shares, together with interest from the date of vesting. The result of this award was that the taxpayers received Rs 1,805,000 more per arpent than they had paid for it. In February 2000 a morcellement permit under section 7 of the Morcellement Act 1990 for the parcelling of the rest of the land into 280 residential lots was issued by the Minister.

5. The Revenue decided that the sum received as compensation was taxable in the hands of the taxpayers as part of their gross income within the meaning of section 11(1)(g) of the Income Tax Act 1974. Under that provision a person’s gross income includes:

“any sum or benefit, in money or money’s worth, derived from the sale of any property or interest in property, where the property was acquired in the course of a business the main purpose of which is the acquisition and sale of immoveable property.”

The taxpayers were assessed to income tax in respect of their shares of the profit that resulted from the compulsory acquisition of the 12A52 of excised land on behalf of the government. The assessments were made on 30 June 1999 for the year of assessment 1994-95, based on the taxpayers’ income for the preceding year 1993-94. Their shares of the profit were included under the description “trade, business, profession” as part of their total gross income for that year. Their shares of the interest on the principal award were included in the amount of their gross income under the description “dividends and interest”.

6. The taxpayers appealed against the assessments. Their notices of appeal stated that the ground of the appeal was that amounts received for compulsory acquisition were not taxable. On 25 June 2002 the Tax Appeal Tribunal issued its determination. It held that the compensation payment and the interest thereon were not taxable under section 11 of the 1974 Act. It said that it was established clearly by the evidence that the taxpayers had invested money in what could not be described otherwise than as a business venture with profit in mind. The original extent of 50A of land was described as trading stock, having regard to the land conversion permit and the approval that was subsequently obtained for the subdivision of the remainder into 419 plots for residential purposes. But the Tribunal held that the appropriation of the 12A52 by the government could not be called a normal business transaction and that the compulsory acquisition was not a transfer of property on which the vendor was liable for land transfer tax. The compensation could not constitute income within the meaning of section 11. It could not be regarded as anything other than the realisation of capital. The Tribunal also held that the interest on the principal sum was part and parcel of the compensation. It was in the nature of a hedge against inflation for the period between the date of vesting and the date of the award.

7. The Revenue appealed against the determination of the Tax Appeal Tribunal to the Supreme Court. On 9 May 2005 the Supreme Court (Balgobin and Peeroo JJ) allowed the appeal. It took note of the facts that under section 19(3) of the Land Acquisition Act 1973 the compensation represented the amount which the interest in the land would have fetched if sold on the open market by a willing seller at the date of the first publication of the notice as provided in the Act, and that the object of the taxpayers was to parcel out the whole of the 50A as trading stock into lots to be sold to purchasers for a profit. It drew the following conclusion:

“The above factors show that the compensation received was in respect of the amount that they would have received with a profit had they sold part of their trading stock in accordance with their initial project and it cannot therefore be said that the respondents had been compensated for the loss of a capital asset. Hence, the receipt should be credited into the trading account of the respondents as it also includes the amount of profit received and is therefore of an income nature within the ambit of section 11.”

Having found that the compensation had the same effect as a trading receipt, it held that the interest should also be considered as earned income. By the date of its decision, as the result of reforms since the date of its determination, the Tax Appeal Tribunal was no longer in existence. The Supreme Court could not remit the case to the Tribunal for the assessments to be adjusted. So it decided to make no order, trusting that its pronouncement would serve as guidance to the parties.

8. Both parties have appealed against this decision to their Lordships’ Board. The Revenue submits that the Supreme Court should have allowed its appeal and quashed the determination of the Tax Appeal Tribunal, thus maintaining the assessments. The taxpayers do not oppose this method of disposing of the case, assuming that the Revenue’s arguments are otherwise sound. The issues raised by the taxpayers’ grounds of appeal are more complicated. They may be summarised as follows:

A (1) Whether the tax imposed on the compensation and interest was in breach of section 8 of the Constitution.

(2) Whether the compensation is a tax free capital sum because it was not obtained in the course of business, was not a voluntary sum and was not paid for loss of profit but for the compulsory acquisition of an asset.

(3) Whether the compensation is tax free as there was no “sale” within the meaning of section 11(1)(g) of the Income Tax Act 1974.

(4) Whether the interest awarded under the Land Acquisition Act 1973 is chargeable to income tax.

B Whether the assessments were invalid because they could only have been made under section 11 of the Income Tax Act 1974 which was no longer in force when the assessments were made on 30 June 1999.

C Whether the assessments are invalid because they were made for the year of assessment 1994-95 based on income for the income year 1993-94, whereas the compensation was paid in the income year 1995-96 and the correct year of assessment was 1996-97.

9. The Revenue objected to the raising of issues B and C before the Board because they had not been raised before the Tax Appeal Tribunal or the Supreme Court or in the application for leave to appeal to the Privy Council. Mr Pursem for the taxpayers submitted that they should be allowed to raise these issues as they were purely issues of law, there was no unfairness as notice had been given to the Revenue of their intention to raise them and they were of importance in view of their effect on the taxpayers’ tax liability. He said that they had been raised, albeit without success, during the course of the argument in the Tax Appeal Tribunal. But he accepted that no explanation could be given for the fact that they were not raised again when the case came before the Supreme Court and were not mentioned in the application for leave to appeal, other than they had been overlooked.

10. Their Lordships’ normal practice is not to allow issues of law to be raised before the Board which have not been argued before the Supreme Court. This practice may be departed from in exceptional circumstances, but their Lordships were not persuaded that they would be justified in departing from it in this case. The issues which Mr Pursem wished to argue do not depend on anything that was not known when the assessments were appealed against. They raise questions of taxing practice on which their Lordships would have wished in any event to have the views of the Supreme Court. In the absence of a sound reason for their not having been raised in that court, they refused leave for these two issues to be argued before the Board.

11. As for the issues included under issue A, Mr Pursem did not pursue the argument that the imposition of tax on the compensation and interest was unconstitutional. Section 8 of the Constitution provides that property may not be compulsorily acquired without compensation, but he accepted that a law which subjects the compensation to tax lies outside the scope of that protection. He also conceded that he could not maintain that the interest on the award of compensation was anything other than part of the taxpayers’ gross income. In their Lordships’ opinion this concession too could not have been withheld in view of the terms of section 11(1)(d) of the 1974 Act. As Mr Pursem pointed out, it provides that the gross income of a person shall include, among other things, “any interest”. Irrespective of the answer to the question how the principal sum should be treated for tax purposes, therefore, the interest awarded by the Board of Assessment falls to be treated as part of the taxpayers’ gross income simply because it was awarded as interest. The fact that it was, in the Tribunal’s view, at least in part a hedge against inflation is nothing to the point. It is nevertheless taxable as income.

12. This leaves for the Board’s consideration the issue which has always been at the centre of this case. Is the sum that was awarded as compensation for the compulsory acquisition of the land taxable as gross income or is it a tax free capital sum because it was not awarded in the normal course of the taxpayers’ business?

13. Mr Pursem submitted that, as the excised portions of land were taken before any development took place, it could not be said to have been disposed of by the taxpayers in the course of their business. They had been precluded from carrying out any development on that land because it was taken away from them before that stage had been reached. Moreover they had been precluded from selling the land in the open market as part of their trading stock. He said that the effect of the compulsory acquisition was to sterilise the land. The case was therefore on all fours with Glenboig Union Fireclay Co Ltd v Inland Revenue Commissioners, 1922 SC (HL) 112, 12 TC 427, in which the House of Lords affirmed the decision of the Court of Session in Scotland that a payment which the company received from a railway company as compensation for fireclay in an area reserved for use by the railway company for support of its railway line was not profits within the meaning of the taxing statute because it was paid to the company as compensation for a capital asset that had been made unavailable for the purposes of its business.

14. Mr Pursem summed up his case by saying that the Revenue were only entitled to charge compensation to tax under section 11(1)(g) of the 1974 Act to the extent that it was awarded specifically for loss of profits or that it could be shown to have constituted income or profit which had been earned in the course of the taxpayers’ business. As that was not so here, because the land was taken away before the taxpayers could take any steps with a view to its morcellement, they were precluded from going ahead with its development as they had planned, so the sum awarded was not taxable.

15. Mr Pursem’s argument was thoughtful and well presented, but their Lordships are unable to accept it having regard to the facts found by the Tribunal and the terms of section 11(1)(g) of the 1974 Act. The Tribunal found as a fact that by purchasing the land the taxpayers had invested money in a business venture with profit in mind and that the land was their stock in trade. Mr Pursem did not dispute that it had been purchased for the purpose of its development by the taxpayers as a business enterprise. He accepted that if it had been developed and sold in the ordinary course of that business the sums received would have been assessable as income. He also accepted that the same would have been the case if, before it had been developed, the land had been sold off to another developer. So too if it had been developed before the acquisition took place. These concessions serve to reinforce the Tribunal’s finding. The land in question formed part of the taxpayers’ stock in trade as it was acquired with a view to its being sold for a profit. Judicial common sense would suggest that, as this was the nature of the asset, any sums received from any source in return for its disposal at any time would constitute income in the hands of the taxpayers.

16. The matter is put beyond all doubt when regard is had to the terms of the taxing statute. As was pointed out by the Board in De Maroussem and others v Commissioner of Income Tax, [2004] UKPC 43, 22 July 2004, para 1, section 11 of the 1974 Act requires that a number of types of pecuniary receipt, some of which might at least in part be regarded as having a capital receipt character, must be brought into account as gross income for tax purposes. Section 11(1)(g) treats as gross income, among other things, any sum derived from the sale of any property if it was acquired in the course of a business the main purpose of which is the acquisition and sale of immoveable property. The land that was taken compulsorily by the government was, on the findings already referred to, acquired by the taxpayers in the course of a business of the kind that para (g) of the subsection describes. The transaction was not of course voluntary. But it was nevertheless a sale within the meaning of the statute, albeit a compulsory one. The value of the taxpayers’ interest was taken for the purposes of the award of compensation under section 19(3) of the 1973 Act to be the amount that it might have been expected to realise if sold on the open market by a willing seller. The paragraph does not limit its scope to sales that are entered into in the normal course of the taxpayer’s business. It is the purpose for which the land was acquired in the first place, and that purpose alone, that determines whether sums derived from its sale are to be treated as gross income.

17. This case cannot properly be described as one where the asset in question has been sterilised, as happened in Glenboig Union Fireclay Co Ltd v Inland Revenue Commissioners. In Inland Revenue Commissioners v Newcastle Breweries Ltd, (1927)12 TC 927, 936, Rowlatt J acknowledged that if the government were to take away all the raw materials of a man’s trade and prevent him from carrying it on and pay him a sum of money, that would be taken not as profit on the sale of the raw materials, which he would never have sold, but as compensation for interfering with the trade altogether. As he pointed out, in Glenboig what was done stopped the trade without taking anything. Here the land was not even the raw material for the making of something else, like the barley used solely as raw material for the manufacture of stout in Arthur Guinness, Son & Co Ltd v Commissioners of Inland Revenue [1923] 2 IR 186: see Viscount Cave LC’s observations in Inland Revenue Commissioners v Newcastle Breweries Ltd (1927) 12 TC 927, 953. It was the taxpayers’ stock in trade which they purchased with a view to its being sold, and it was taken from them at its market value. This case is like Newcastle Breweries, where as Viscount Dunedin said at p 954, the payment for the rum that was requisitioned was simply a realisation of a portion of the stock in trade at a rather earlier stage in the process than was the case with ordinary sales. As Viscount Cave LC explained in the same case at p 953, the circumstance that the sale was compulsory makes no difference in principle.

18. For these reasons their Lordships agree with the judges in the Supreme Court that both the compensation and the interest thereon are taxable as gross income and that the determination of the Tribunal to the contrary was wrong. But they do not agree that it follows from the fact that the Tribunal is no longer in existence that no effective order can be made. They propose to make an order giving effect to the decision which they have reached. They will allow the appeal by the Revenue, dismiss the appeal by the taxpayers, set aside the determination of the Tribunal and affirm the assessments. It was agreed that costs must follow the event. The taxpayers must pay the costs of the appeal to the Supreme Court and to their Lordships’ Board.