18482
Value Added Tax; Registration; partnership; jurisidiction; appeal by individual asserting that she was not a partner; Value Added Tax Act 1994 section 83(a)

EDINBURGH TRIBUNAL CENTRE

                                       ASHA ALI                            Appellant

                                                      - and -

THE COMMISSIONERS OF HM CUSTOMS AND EXCISE  

                                						 Respondents

	Tribunal Chairman:  J Gordon Reid, QC., FCIArb
	Tribunal Members:   Mrs Heidi Poon
                                            Ian M P Condie, CA

	Sitting in Edinburgh on 24 and 25 November 2003

For the Appellants         Fiona Glen of Flynn & Co

For the Respondents     Bernard Haley

CROWN COPYRIGHT 2004.
DECISION

Introduction
This is an appeal to determine whether the Appellant was a partner in the business trading as the Benazir Restaurant, Carnoustie, from 14/12/94, being the effective date of registration of that business, until 1/7/00 being the effective date of the cancellation of that registration.  Miss Fiona Glen of Flynn & Co., solicitors, Dundee, appeared on behalf of the Appellant and led the evidence of the Appellant and her mother, Mrs Irene Ali.  Bernard Haley, a Customs official, appeared on behalf of the Respondents (“Customs”) and led the evidence of Gail Samson and Deborah Wilson, both Band 6 Customs Officers.  Parties lodged a joint bundle of productions.  By agreement, Customs led at the Hearing on 24/11/03 which concluded on 25/11/03.

At the outset, we expressed doubts about our jurisdiction to determine this appeal.  It was explained to us that an assessment in a sum exceeding £200,000, which includes substantial statutory penalties, has been issued against the partnership which traded as the Benazir Restaurant.  That assessment has not been appealed and an action has been raised in the Sheriff Court against the Appellant and her mother, as partners in that business, for the amount of the assessment.  Mrs Irene Ali has not defended that action and decree has apparently passed against her.  In her defences, the Appellant has denied that she was a partner.  It seems that, at the suggestion of the learned Sheriff, the action has been sisted to enable the partnership issue to be determined by this Tribunal.  Both parties invited us to accept jurisdiction.  Neither made any significant submission to support the invitation other than to refer us to section 45(2) [which deals with notification of change in the constitution of a partnership] and section 83(a) of the Value Added Tax Act 1994, [which confers a right of appeal in respect of the registration or cancellation of registration of any person under the Act].  We have serious doubts whether we have jurisdiction to deal with this matter even although, at an earlier stage in proceedings, a differently constituted Tribunal appeared expressly to accept jurisdiction, but without giving reasons.  It seems to us that the logical and appropriate way of dealing with this issue is by proceedings for declarator in the Sheriff Court, whether by separate action or by counterclaim in Customs’ action.  We doubt whether the issue falls within the scope of section 83(a).  Nevertheless, in spite of these misgivings, we decided to hear the appeal and give our decision thereon, for what that may ultimately be worth.

Facts
1.	In about September 1995, an application for registration for VAT purposes was submitted to Customs in respect of the Benazir Restaurant which had been trading as an Indian Restaurant and Take-away since about 14/12/94 at 98 High Street, Carnoustie.  The application, on form VAT 1 bore to be in the name of the Appellant and her mother, Mrs Irene Ali.  The application was signed by Mrs Ali and bears to have been signed by her on 21/9/95.  Form VAT2, which relates to partnerships, was also completed and submitted.  It contains the Appellant’s name and address and those of Mrs Ali.  It bears to have been signed by both but was in fact only signed by Mrs Ali.  The Appellant’s signature was penned by someone else.  The form VAT 2 is dated 20/9/95 and bears Customs’ stamp dated 26/9/95.

2.	Prior to December 1994, a similar business had been carried on at 98 High Street by one Tariq Mahmood.  Mrs Ali had worked in that business as a cleaner.  Her husband had worked there for some years as a dishwasher.  Their son Zaheer may also have worked there.  The premises were owned by a Mr Malook and Mr Ali.  Mr Mahmood ceased trading.  The restaurant opened up again after a short period but Mr Mahmood was no longer involved.  The Ali family were running the business.  There was an issue whether the business was a new business or a transfer of a going concern.  By letter dated 27/12/95 Mrs Margaret Langlands, trading as Cameron Greig Accounting Services, informed Customs, inter alia, that following the demise of the previous business Mr Ali decided to open the business in his wife and daughter’s name (which you will note on the VAT application).  They now trade as a family concern.  Mr Ali’s English was poor and he could not write in English.  This may explain Mr Ali’s decision.  Mrs Langlands was the bookkeeper for the business until about April 1996.

3.	The Appellant was born on 26/7/77.  In December 1994, she was seventeen.  She had left school and home when she was sixteen and lived with her grandmother in a flat in Dundee. When her grandmother died in about 1994, the Appellant continued to reside in that flat.  After leaving school in 1993 the Appellant worked for the DHSS and then for a company known as Powershift.  She was the office junior.  She met a Mr Douglas Martin there.  He is a chartered accountant, and carries on business under the name Douglas J Martin & Co. from Dundee.  In 1995, Powershift went into liquidation and the Appellant then worked full time at the restaurant.  She continued to work more or less full time there until some point in 1997.
4.	During the period from about 1995 to 1997 the Appellant was fully involved in the running of the restaurant business at Carnoustie.  However, she also worked part time from time to time as a telephonist for Discovery Taxis, Dundee between May 1995 and April 1997.  
5.	She handled money and cashed up at the end the day’s trading at the restaurant.  During this period (1995-1997) Mrs Ali was also involved in the business.  She had full access to the cash coming into the business; she also delivered takeway meals to customers in one of the three cars run through the business.  Mr Ali, during this period, appeared to have promoted himself from dishwasher to chef.  Zaheer also worked in the business from time to time.  He was a waiter.  He was said, by his mother, to be an alcoholic, and totally unreliable.
6.	On 28/3/96, Gail Sampson visited the premises to carry out a routine check to establish the effective date of registration and whether there had been a transfer of a going concern.  She met the Appellant and Mrs Ali.  The Appellant and Mrs Ali acknowledged, in each other’s presence, to Gail Sampson that they were the partners of the business.  Gail Sampson’s enquiries about the nature and constitution of the business at that stage were routine and uncontroversial.  In the course of the interview it was established that the Appellant and Mrs Ali both worked full-time in the restaurant; the Appellant cashed up at the end of each evening; her mother did so when she was not available; the Appellant knew more about how the business was run than her mother; for example, she knew who their suppliers were; there were four part-time employees and the restaurant was open seven days a week; wages were paid in cash on Saturdays, and the Appellant took drawings on a Monday.  It was also noted that Mrs Ali did not take drawings from the business (this was not, in fact correct; see below).  It was also recorded that the business’s bank account (Royal Bank of Scotland Account No. 00176488) was in the name of Zaheer Ali, trading as the Benazir Restaurant.  Why that should be, or what Zaheer’s status was in the business, was not explored in the course of the interview.  Gail Sampson noted these and other facts in a Summary of Trading Activities and Records form [B/11-17].  Mrs Langlands was also present during the interview with the Appellant and her mother.  No VAT return had been submitted as there was still a doubt about the effective date of registration.  No trading accounts were available either.  Record keeping was basic and cash control was primitive; there was no till as such, but an unlocked drawer where takings were placed and kept.
7.	In early April 1996, Mrs Langlands and the Ali family fell out.  There were difficulties in recovering books and papers from her.  The services of another accountant were briefly engaged and he made contact with Gail Sampson later that month.  Eventually Gail Sampson was able to examine the books and records of the business.  She found some irregularities and concluded that the records had not been properly maintained; she gave appropriate advice.  The Appellant and Mrs Ali called at Customs’ Dundee premises on or about 18/4/96 to collect the books and records.  Gail Sampson informed them that there was a net tax liability of some £19,000.  She stressed the importance of lodging returns and making full payment on the due date.  She prepared a VAT return addressed to “Irene Ali, Asha Ali, Benazir Restaurant, 98 High Street, Carnoustie”, showing a net liability of £19,231.40 for the period 01/96.  This appeared to cover the period between 14/12/94 to 31/1/96 [B/65]  The Appellant signed it on 23/4/96 and it was received by Customs on the same day.
8.	By June 1996 Mr Martin, referred  to above, had been appointed.  The precise details and circumstances in which he came to be appointed are not clear.  By letter dated 20/6/96 [B/18] to Customs, Mr Martin challenged the assessment contained in the return prepared by Gail Sampson.  The heading of his letter referred to Irene & Asha Ali.  The basis of the challenge related to the assumption made in the assessment that the partnership should have been registered for VAT from day one as it was transferred from a VAT registered person.  He pointed out that the previous business had ceased to trade and should have been de-registered.  He did not comment on the constitution of the partnership.  His letter proceeded on the basis that the Appellant and Mrs Ali were the partners.  Further letters in 2000, 2001 and 2002 proceeded on the same basis [B/68-70].
9.	In 1997, the Appellant began a three-year nursing course at Ninewells Teaching Hospital, Dundee.  Between 1997 and 1999, she was a student nurse.  She continued to work on an occasional basis with the taxi firm.  She also worked at the Benazir Restaurant from time to time.

10.	The Appellant’s father died in 1999, whereupon she gave up her nursing course and returned to work full-time at the restaurant.  The Appellant has been employed part-time at Pure Shores Tanning Studio in Carnoustie since about September 2001.  It is not established when she ceased working at the restaurant.

11.	On 4/11/99, Customs visited the premises again.  Customs’ Report [B/21-22] discloses that the reasons for the visit were inter alia the unusual return history, low turnover for a busy restaurant, and that it was a cash business.  Observations and test purchases led Customs to conclude that there were serious irregularities.  At this stage the Appellant was making use of one of the business’s cars.  Customs’ report referred to an account with the Royal Bank of Scotland account No 00695396 as having a nil balance.

12.	On 23/6/00, Deborah Wilson interviewed the Appellant and Mrs Ali separately at Customs’ offices at Caledonian House, Dundee.  Ms Wilson was a member of Customs’ Scottish Fraud Unit; the papers had been passed to that Unit by Customs’ Cash Team.  Mr Martin was present throughout each interview, which was tape-recorded.  [B/23-64] is a true transcript of these interviews.  The focus of each interview was the takings of the business and the extent to which these had been declared for the purposes of VAT collection.  
13.	The Appellant was interviewed first.  At an early stage in the interview, the Appellant stated that she and her mother were partners in the business and that she had become a partner in about December 1995; she signed the accounts as a partner [B/41;59;63].  She denied that she had signed form VAT2 [B/5].  She gave details of employees and their wages, and stated that she and her mother paid the wages [B/42].  When asked about her drawings, she said they varied; Mr Martin interjected to say that drawings were high, in excess of £30,000 between the Appellant and Mrs Ali, and that accounts had been lodged [B/43].  Her drawings were all in cash. [B45].  She discussed the day-to-day running of the business in terms which made it plain that she considered that it was her business or hers and her mother’s [B/46].  She signed VAT returns sometimes [B/49].  She said that prior to his death, her father did the cashing up [B/59].  When various irregularities were put to her she made some robust replies [e.g. B/51;54].  The interview lasted about forty-three minutes.
14.	At an early stage in her interview, which lasted about thirty-eight minutes, Mrs Ali stated that she had become a partner in the Benazir Restaurant business about six years earlier [B/24] and agreed that she and the Appellant were partners in the business [B/25; 36].  She and the Appellant were responsible for the day-to-day running of the business [B/26]. She disputed, on being shown form VAT2 [B/5], that the Appellant had signed the form [B/25].  She said her drawings from the business depended upon how busy it was [B/26-27].  She was asked about and gave details of staff, their duties and wages, as well as the procedure for recording orders and collecting cash.  Cashing up was normally carried out by Mrs Ali or the Appellant [B/30].  She or the Appellant signed the VAT returns [B/32].  The interview then turned to Customs’ investigations and the irregularities they had discovered.  Broadly, Mrs Ali offered little or no explanation for these.  Mr Martin interjected on a few occasions to clarify various matters but at no stage did he interject to say that the constitution of the business was other than as stated by Mrs Ali.

15.	The business was deregistered with effect from 1/7/00.  Thereafter, Zaheer carried on business from the same premises on his own account until about the Autumn of 2001, when the business was sold and the premises let out to a third party.  What ultimately happened to the business (to put it neutrally for the moment) between the Appellant and her mother is unknown.

16.	By letter dated 23/10/03 [B/71] to Customs, an Inland Revenue official sent partnership Self Assessment returns relating to the Benazir Restaurant.  The Appellant is shown as a partner [B/104] as is her mother [B/103].

17.	A number of documents were produced which tend or might tend to suggest that the Appellant was not a partner.  In summary these are:- a Royal Bank Merchant Agreement relating to credit card payments by customers, dated 25/3/99 and signed by Mrs Ali as owner; she is described as trading as Benazir Restaurant [B/113]; a rates demand payment book issued 1/5/98 in the name of Mrs Ali trading as Benazir Manzil Restaurant [B/119]; a rates demand payment book issued by Angus Council on 18/7/97 to Irene Ali with the address of the business premises but not the name of the business thereon [B/121]; a letter dated 1/7/98 from an insurance broker addressed to the Benazir Restaurant beginning Dear Mr Ali, which bears to relate to storm damage [B/122]; an account from Scottish Gas relating to a period in 1996, addressed to Benazir Restaurant (Mr Z Ali) [B/123]; an undated letter from Mrs Langlands to the Airdire Savings Bank which refers Mr and Mrs Ali in the context of the Benazir Restaurant [B/124]; an Employers’ Liability Insurance Certificate for the year 13/8/99-12/8/00 in the name of S&I Ali trading as Benazir Restaurant [B/143]; a letter to Mrs Ali from Rollo Steven & Bond, solicitors, dated 6/12/99 enclosing a Restaurant Licence [B/144]; a letter dated 3/10/00 to Mr & Mrs Ali trading as Benazir Restaurant from Bournemouth solicitors in a relation to a debt which appeared to have been paid [B/145]; a letter to Benazir Restaurant, Mrs Irene Ali from the Royal Bank of Scotland relating to customer credit cards [B/146]; an offer dated 3/10/01 by Blackadders, solicitors, Dundee to purchase from Mrs Ali and Mr Malook, the Benazir Restaurant business and to take a lease of the premises at 98 High Street, Carnoustie for a period of 21 years [B/148]; and an undated cash account between Zaheer and Irene Ali, and a firm of solicitors relating to the settlement of a transaction (the lease of premises and sale of business at 98 High Street Carnoustie) [B/140].

18.	Finally, on the facts, it is perhaps appropriate to record negatively, that no accounts were produced in relation to the business; there was no evidence of what the partnership assets were, apart from three motor cars; and there was no evidence of what the capital was of any person financially interested in the business.  Nor was there any evidence about any dissolution of the partnership.  Although it cannot be determined on the evidence what proportion of profits were allocated to whom, it is plain that the Appellant regularly received drawings, and Mrs Ali simply helped herself to the takings from the cash drawer whenever she chose to.

Submissions
Mr Haley referred us to some of the documents in general terms and emphasised the terms of the interviews in 2000.  He drew our attention to Regulation 5 of the Value Added Tax Regulations 1995 which deals with registration and notification and the relative forms.  However, these regulations came into force on 20/10/95 and were accordingly not applicable to the Benazir application for registration.  He also drew our attention to section 45 of the 1994 Act, which provides that where a partner ceases to be a partner he continues to be liable for VAT until the change in the partnership is notified to Customs.  He did not address us on the law of partnership.

Miss Glen referred us to sections 1, 2, and 14 of the Partnership Act of 1890.  She submitted that there was no single test to determine the existence of a partnership.  She submitted that “holding out” can never create a partnership under reference to Miller on Partnership 2nd edition page 121.  The search was for the real intention of the parties.  Here, the running of the business was a shambles and therefore the true intent of the Appellant and Mrs Ali had not been established.  The Alis had no real idea of what a partnership meant.  Some of the documents produced showed that there were many aspects of the business in which the Appellant had no involvement, but others, such as Zaheer, did.  The Appellant had no business training and would have been very young to be a partner in 1994.

Discussion
We are asked to determine whether a partnership existed between the Appellant and her mother.  A partnership is a contract.  Whether a contract has come into existence depends upon whether there is consensus.  One must therefore ascertain from all the available evidence the true intention of the parties and the legal effect of their conduct.  We agree with Miss Glen that there is no single test to determine the existence of a partnership.  Statutory guidance is given in relation to particular aspects of conduct such as the receipt by a person of a share of the profits of a business.  The evidence of the parties themselves is not conclusive.  Thus a denial by a person that he was a partner may be rejected by a court where other evidence of sufficient weight points to him being a partner.  Likewise, an assertion by a person that he was or is a partner in a business is not conclusive.  However, where two individuals both state that they are the partners in a business on separate occasions several years apart, little further evidence, if any, will be required to conclude that a partnership existed and that they are or were the partners.

The evidence in this appeal was unsatisfactory in many respects.  Mrs Ali’s evidence was contradictory in a number of areas.  Our impression was that she was willing to agree to anything if she thought it would assist her daughter’s appeal.

The thrust of the Appellant’s evidence was that she was never a partner; her parents had been in partnership and ran the business from 1994.  In the interview in 2000 she had said what she thought was best for her mother.  She signed documents without realising what they were, and claimed that she never received any profit from the business.  She claimed not to have signed accounts or self assessment tax returns.  According to the Appellant, Zaheer played an active role in the business; he paid the bills and was in charge of the staff.  She thought her mother and her brother were partners.  According to Mrs Ali, Zaheer was an alcoholic and was very unreliable, although she also said he was experienced in the restaurant business and was the guiding hand.  According to the Appellant, she had no real knowledge of the business affairs of the restaurant.  She never opened any mail relating to the business.  She did not recall the 1996 visit.  She accepted that she or her mother cashed up; she did not qualify this statement as she did in her 2000 interview.  She did not discuss accounts or business with Mr Martin.  She had no real explanation for her statements in her interview in June 2000 to the effect that she was a partner and that her mother was the other partner.  Apart from stating several times in the course of that interview that she and her mother were the partners, she put forward a robust resistance to the serious allegations of under-declaration of sales.  She spoke as if it was her business.  She gave a detailed account of its operation.  All this is entirely consistent with what was said in 1996 in the presence of Gail Sampson, who said that the Appellant seemed to know more about the business than her mother.  The Appellant gave no satisfactory explanation of why she said she was a partner in 1996.  We have no hesitation in accepting Gail Sampson’s evidence in its entirety to the effect that the Appellant and Mrs Ali stated to her that they were the partners.

Mr Martin did not give evidence.  However, we consider that in the absence of any evidence to the contrary we are entitled to assume that in his dealings with the business he was acting professionally and properly, and that before submitting partnership accounts and income tax returns and engaging in correspondence on behalf of the Appellant and her mother he would have satisfied himself that they were in partnership.  It is within the knowledge of the Tribunal that both the Appellant and Mrs Ali must have signed the partnership self assessment returns produced; it is also good practice for an accountant to ensure that the partners of a business, such as the one under consideration, sign the accounts he has prepared on their behalf signifying acceptance of their accuracy.  We cannot assume that Mr Martin did not act in accordance with such practice in his dealings with the Benazir Restaurant and the Inland Revenue.

Mrs Ali began her evidence by stating that she was the owner of the Benazir Restaurant.  She swiftly departed from that line by stating that she, her husband, Mr Malook and Zaheer were in partnership; subsequently she said she did not think of them as partners.  She gave the impression that the business was chaotic, documents were signed by whoever happened to be around when a signature was needed; that her son was unreliable and that she herself had no idea how to run a business.  According to Mrs Ali she received no profits, yet the reality was she helped herself to cash from the takings whenever she wanted money.  She had no satisfactory explanation for her statements in the interviews in 1996 and 2000.  Her statements in the interview in 2000 that she and the Appellant were the partners are the clearest parts of her evidence.

The business seemed to run principally on a cash basis.  How or why Zaheer came to have an account with the Royal Bank trading as Benazir Restaurant was a mystery on the evidence.  We note that the account referred to in the 1999 investigation is a different account from that mentioned in the record of the 1996 interview.  Again this was not explored in the evidence.  Zaheer did not give evidence.

Our findings-in-fact set out above contain our assessment of the evidence.  What conclusions do we draw from those primary findings?  The Appellant denies ever having been a partner.  Her motive for doing so is to avoid liability for a large tax assessment.  We do not believe her.  There was no such motive in 1996 and the extent of the business’s liability in 2000 was not, at the time of the interviews, fully ascertained.  

We consider that the statements by both the Appellant and her mother that they were the partners, coupled with their substantial involvement in the running of the business over a number of years is amply sufficient to conclude that they were indeed the partners in the business between December 1994 and at least July 2000.  However, before finally determining the issue against the Appellant, we have considered whether there is evidence pointing away from that conclusion, either pointing to others rather than the Appellant being partners, or pointing to the absence of any partnership at all.  The denials by the Appellant and her mother carry little weight when balanced against the living they have made out of the business over the years and the income tax documents.  We do not overlook the Appellant’s tender years in 1994.  However, she had left home and school at the age of 16 and had a number of jobs by 1994/1995.  She also had a very good command of the business by 1996 when interviewed by Gail Sampson.  We also do not overlook that between 1997 and 1999 she was a full-time student nurse.  This of itself does not mean that she could not still be a partner.  No argument was presented that even if she were a partner in 1994, she resigned when she took up full-time nursing.  That she was a partner then is consistent with Mrs Langlands' letter dated 27/12/95.

As for the series of documents running in the name of one or more members of the Ali family, we consider that viewed collectively they are equivocal.  Each of the documents was not considered in any detail and such explanation as there was, was vague.  Most of the documents can be regarded as, at best for the Appellant, neutral.  We consider that they simply indicate the general disregard the Ali family had for record keeping and the signing of documents.  

If the facts were to be considered from a different angle i.e. on the basis that it was in the Appellant’s interests to assert that she was in partnership with her mother, we consider that she would have a very strong case.

We have noted a number of gaps in the evidence and matters left in the air.  While the Tribunal considers that it is entitled to take a more active role at a Hearing than a judge might at a proof, it is not for this Tribunal to conduct the Hearing on behalf of the parties and seek to fill all gaps in the evidence.  Our task is to determine matters on the evidence on a balance of probabilities, and this, we have attempted to do.  It is unnecessary to consider the applicability of section 14 of the Partnership Act 1890 to the present circumstances.  However, it seems to us that facts supporting holding out may, in appropriate circumstances, be deployed to determine that a person is not only holding himself out as a partner but in fact is or was a partner.

Conclusion
Insofar as we have jurisdiction to do so, we determine that the Appellant was a partner in the business trading as the Benazir Restaurant, Carnoustie, from 14/12/94 being the effective date of registration of that business for the purposes of VAT, and 1/7/00 being the effective date of the cancellation of that registration.

Result
The appeal is dismissed.  Unless any representations in writing are made to us within twenty-eight days of the date of release of this Decision, no expenses will be deemed to have been found due to or by either party.

J. GORDON REID Q.C. F.C.I.Arb.
CHAIRMAN
Release Date:  12 February 2004.

EDN/03/55