J.J. Quigley (Inspector of Taxes) (appellant/ respondent) v Maurice Burke (respondent/ appellant).

Case Stated - Tax - Accountant - Tax agent - Accounts - Nominal ledger drawn up by accountant in course of preparing accounts - Whether within "possession or power" of taxpayer - Income Tax Act 1967 (No 6), sections 58, 1 74 (1) (a), 429.

The Supreme Court (the Chief Justice, Mr Justice Hamilton; Mr Justice Egan and Mr Justice Blayney); judgment delivered 7 November 1995.

A NOMINAL ledger, drawn up by a tax agent on behalf of a taxpayer in the course of preparing accounts to establish the taxpayer's income and liability for income tax, is a document within the "power or possession" of the taxpayer, and the taxpayer is therefore obliged to produce same.

The Supreme Court so held in dismissing the appeal.

Ray Fullam SC for the appellant/ respondent; Dan O'Keeffe SC and Patrick Quinn BL for the respondent/ appellant.

THE CHIEF JUSTICE in outlining the facts, said that this was an appeal brought by Mr Burke (the appellant) against an order of the High Court made on 30 April 1991. The matter came before the High Court pursuant to a case stated by the Circuit Court in which questions of law were submitted for the opinion of the High Court.

The Circuit Court judge referred the following questions to the High Court.

Firstly, whether it was correct that an accountant who was engaged by a taxpayer and who submits accounts and computations of taxable income in support of a statutory tax return is not acting as an agent of the taxpayer in the preparation of the accounts.

Secondly, whether it was correct in law to hold that the relationship between an accountant and a taxpayer is that of professional man and client.

Thirdly, whether it was correct to hold that a nominal ledger drawn up by an accountant in the course of preparing accounts from books of primary entry belonging to the taxpayer, is not a book or document which is "within the possession or power" of the taxpayer within the meaning of section 174(1)(a) of the Income Tax Act 1967.

Fourthly, whether it was correct to hold that a nominal ledger prepared by an accountant is part of his working papers and is the property of the accountant.

Finally, whether it was correct to determine the amount of the taxpayer's liability by reference to the adjusted profit figure in the income tax computation submitted by the accountant, this having been computed by adding to the net profit figure in the accounts expenses which were not allowable for income tax purposes, notwithstanding the fact that the detailed workings, which formed the basis of the figures in the accounts submitted, were not given in evidence.

The Chief Justice said that the trial judge answered each of these questions in the negative, and the appellant appealed.

The matter had come before the Circuit Court on an appeal by way of re hearing under the provisions of section 429 of the Income Tax Act 1967, against an assessment to income tax in the appellant's trade as an electrical contractor for the year of assessment 1986/1987.

The Chief Justice said that the issue which arose in the proceedings before the Circuit Court was whether the nominal ledger prepared by the appellant's accountant was in the power or possession of the appellant. In the Circuit Court, it was held that the nominal ledger was the property of the accountant and that the Inspector of Taxes was not entitled to access to it or to insist that it be put in evidence. The High Court held that the nominal ledger as completed by the accountant should have been produced on request.

The Chief Justice said that it was important to emphasise that the accountant was not engaged by the appellant for the purpose of preparing an audit of his business, but rather as a tax agent for the purpose of preparing the necessary accounts and documentation to be used on behalf of the appellant in the appeal against his income tax assessment.

The question for determination was, he said, whether the appellant had the right to obtain from the accountant the nominal ledger, because if he had, the nominal ledger was in his power and possession and he was obliged to produce same.

The Chief Justice referred to Bula Ltd v Tara Mines Ltd [1994] 1 ILRM 111, where it was held by Mr Justice O'Flaherty that "a document is within the power of a party if he has an enforceable legal right to obtain from whomever actually holds the document inspection of it without the need to obtain the consent of anyone else". In that case, reference was made to Leicestershire County Council v Michael Farady and Partners Ltd [1941] 2 KB 205, where it was stated that if an agent brought into existence certain documents while in the employment of his principal, they are the principal's documents and the principal could claim that the agent should hand them over.

The Chief Justice said that, in the present case, the appellant was entitled to obtain the nominal ledger from his agent, as it had been prepared while in his employment for the purpose of preparing and submitting the accounts necessary in order to enable a proper assessment of his income tax liability to be made. Consequently, the nominal ledger was in his possession or power within the meaning of the Income Tax Act 1967.

The Chief Justice said that the answers given by the trial judge to the questions posed in the case stated were correct, and he therefore dismissed the appeal.

MR JUSTICE EGAN and MR JUSTICE BLAYNEY agreed with the judgment of the Chief Justice.

Solicitors: Francis Cooke, Revenue Solicitor, for the appellant/ respondent; Cafferky Solicitors (Dublin) for the respondent/ appellant.