Ajman Miah, Anwara Miah, Aysha Miah and Rajah Miah

19465

Value Added Tax – VATA Schedule 1 para 1 – Registration by Commissioners of Appellants as a partnership – whether partnership constituted on basis of facts and circumstances – Appeals of each Appellant refused.

EDINBURGH TRIBUNAL CENTRE

AJMAN MIAH, ANWARA MIAH, AYSHA MIAH AND RAJAH MIAH

t/a THE RAJ RESTAURANTAppellants

- and -

THE COMMISSIONERS FOR

HER MAJESTY’S REVENUE & CUSTOMS Respondents

Tribunal: (Chairman): Mr Kenneth Mure, QC

(Members): Mr K W Pritchard, OBE., BL., WS

Mr I R Welch, CA., JP

Sitting in Edinburgh on 8, 9, 10, 14 & 15 March, 4, 5, 7, 8, 12, 13 & 14 July and 13, 14 & 18 October 2005

for the AppellantsMr Taher Nawaz, FCA, MBA

for the RespondentsMrs Joanna Clark, Shepherd & Wedderburn WS

© CROWN COPYRIGHT 2006.

1

DECISION

Introduction

In this Appeal the Appellants are represented by Mr T Nawaz, FCA, MBA and the Respondents by Mrs Joanna Clark, Solicitor, Shepherd & Wedderburn WS.

The Respondents seek to assess the Appellants as a partnership, trading as “The Raj Restaurant” with effect from 18 September 1995 and assess them accordingly to VAT for the period from 18 September 1995 to 31 July 2002 in respect of a restaurant business and other related activities. The Respondents determined also to de-register a company, On the Shore Ltd, which in their view only purported to carry on the restaurant business.

A Hearing to determine the existence of such a partnership took place as a preliminary matter to any question of quantum of the assessment. We accepted that a retrospective registration of the Appellants could competently be made having regard to the terms of VATA 1994, Schedule 1, paragraph 1. Indeed, as we understand, the competence of this was not challenged.

The Law

Section 1 of the Partnership Act 1890 defines partnership as “… the relation which subsists between persons carrying on a business in common with a view of profit”.

Section 2 sets out certain principles indicative of the existence of a partnership. While these are mainly in negative terms Subsection (3) provides – “the receipt by a person of a share of the profits of a business is prima facie evidence that he is a partner in the business …”.

In relation to partnership matters we were referred further to –

Miller: Partnership 2nd Ied

Davis v Davis [1893] I Ch 393

Burrell v C&E [1997] STC 413

Stewart v Buchanan (1903) 6F (see Sheriff’s Note p18/19)

McCosh v Brown’s Trustee (1899) 1F 86

Stair Memorial Encyclopaedia – “Partnership” – paras 1012-1015

In relation to company law matters we were referred to –

Dadourian Group International Inc v Azuri Ltd [2005] EWHR 1768

City of Glasgow DC v Hamlet Textiles Ltd (1986) SLT 415

Gilford Motor Company Ltd v Horne [1933] I Ch 935

Stair Memorial Encyclopaedia – “Companies Acts” p402, 406/408

Further, reference was made to –

Asha Ali v C&E (EDN/03/55)

Wilson t/a Mountain View Hotel v C&E (MAN/98/639)

Anne Brookes v C&E (LON/92/2756A)

John Dee Ltd v C&E [1995] STC 941

Irene Kinnell t/a Berkshire Diet Clinic v C&E (LON/02/222)

Daemon Wade t/a Stump Cross Fisheries v C&E (MAN/00/878)

Manzoor Hussain t/a Central Taxis v C&E (MAN/99/0222)

Catherine Hunter & Others t/a Blues Hairshop v C&E (MAN/99/376)

D J Reed & Others v C&E (MAN/99/687)

Robert Mullis Restoration Services v C&E (LON/02/814)

Tynewydd Labour Club v C&E [1979] STC 570

First Indian Cavalry Club Ltd v C&E [1998] STC 293

C&E v Han and Yau and Others [2001] STC 1188

Licensing (Scotland) Act 1976, Section 11

Age of Legal Capacity (Scotland) Act 1991, Section 1

Evidence of Fact

The preliminary hearing proceeded with the Respondents leading evidence first but under reservation of all questions relating to the onus of proof. Before setting out our Findings-in-Fact we think it appropriate to comment generally on the evidence led and on the impressions which we formed of the various witnesses.

Mrs Clark led principally Mr Ian Small, an officer of the Respondents, who was in charge of the enquiry. Also, evidence was taken by her from Mr Amru Chowdhury, who worked at the Raj Restaurant, Mr Kenneth Davies, an accountant, and Mr John McCrae, a handwriting expert. The evidence of Mr Brian Wurr was agreed.

Mr Small gave evidence of the course of his enquiry. Following on that it was his decision to register the partnership for VAT purposes. He spoke to a course of observations of the business, conducted with the aim of establishing the correct level of turnover. (That aspect was not considered by us given the preliminary purpose of the hearing). In the course of the “change over” from Goa 1510 Ltd to Spice Aroma Ltd in 1997/1998 there were no apparent changes in the manner of conduct of the business. Mr Small spoke to the absence of certain documentation and problems in producing documentation. He referred to matters in the business records tending to show that the “fast food takeaway” business viz Pick ‘n Mix Ltd t/a “Curry in a Hurry” and the Raj Hotel were parts of the same business as the restaurant. He referred to interviews with Ali Hadder and Amru Chowdhury, workers in the restaurant. The latter’s evidence changed dramatically in the course of the enquiry (- with the revised version corresponding with his evidence to us). It appears that Mrs Miah would come regularly on a weekly basis to pay staff wages in cash. Also, the true control was exerted by the Miah family, with Mr Ajman (also known as “Tommy”) Miah being prominent and his skills and culinary expertise being promoted. Mr Small interviewed also Alistair Badenoch, the original book keeper. Aysha, Mr Miah’s daughter, had apparently asked him to set up the company “Goa” with herself as sole director and shareholder. Badruz Aman, who is recorded as being sole director and shareholder of Spice Aroma Ltd, was in reality only a kitchen worker. Mr Small referred to various payments from business accounts made for the personal benefit of the Miah family, including loan repayments on various heritable properties owned by them. There was no apparent explanation justifying these as expenditure of an independent entity. Further, there were several substantial payments between the various companies and members of the Miah family which called for an explanation in Mr Small’s view.

Mr Nawaz made serious criticisms of Mr Small’s evidence striking at his credibility. We formed a more favourable impression. This was a lengthy enquiry and, albeit insofar as relating to the existence of a partnership, seems to have been carried out conscientiously and thoroughly. While in certain respects Mr Small corrected his evidence, we do not consider that this affected his credibility adversely.

Amru Chowdhury’s evidence was much more controversial. (He required an interpreter, Mr M Rahman, although it seemed at various stages he did have some limited understanding of English. There are extended notes of his evidence.) His evidence conflicted with the Appellants’ account of the running of the business. In particular in his second interview with Customs & Excise he acknowledged that he had allowed his name to be used in relation to the company, On the Shore Ltd, and was merely the puppet of the Miah family. He claimed that Tommy Miah, Mrs Miah and Aysha (but not Rajah) had encouraged him to do so, although he was merely an employee, indicating that this would confirm his status in the UK. We preferred Mr Chowdhury’s (revised) account to that of the Miah family on these matters. It is more consistent with all the objective evidence before us.

Mr Chowdhury explained that he had come to Edinburgh and to the Raj Restaurant in 1998 and was interviewed and engaged by Tommy Miah as a Tandoori Chef. He worked there 6 days per week. So far as he was aware, Tommy Miah was in charge of the Restaurant. In his absence his children or son-in-law would take charge. Both children, Aysha and Rajah, worked there. Mr Chowdhury received a weekly wage of £250 per week, increasing to £280 per week when he left. This was paid in cash.

Mr Chowdhury’s initial account to Customs & Excise was that he had acquired the restaurant business from Badruz Aman for £400 and the settlement of certain liabilities. However, on being challenged by Customs & Excise, particularly in relation to the absence of any supporting written documentation, and given the substantial turnover of the restaurant, he withdrew this version of events (PRODUCTIONS – vol I – 5/O and S; vol III – 27/A; Ancillary Bundle I – 15/21). He acknowledged his signature on various items, including cheques in payment of the restaurant’s VAT liabilities, but explained that he had been directed by Tommy Miah or the restaurant’s manager to sign these. (The other writing on the cheques was not his). He explained that he did not understand their purpose and had no command of written English. He explained that having left the Raj Restaurant, he attempted to withdraw the balance from its bank account to close it in order to terminate any liability which he might have in relation to the business. He indicated (and we accepted) that he did not understand what a limited company was.

Given this witness’s volte-face in relation to the affairs of the Raj Restaurant, we assessed his evidence with especial care. Both accounts are, of course, diametrically opposed. The latter account is, however, consistent with the objective evidence which emerges from the documentation and other oral evidence which we heard, all of which tends to show ownership and control of the business being exerted by the Miah family.

A short statement from Brian Wurr, an Inland Revenue officer was agreed as representing his evidence. It refers to his visiting the Raj Restaurant on 22 October 1999 purporting to be a customer. Tommy Miah had introduced himself as “Tommy Miah, the owner of the restaurant”. (At this time, of course, Spice Aroma Ltd was registered for VAT purposes as trading at the restaurant!)

Neither party sought to lead the evidence of Alistair Badenoch. His direct evidence would have been helpful to us given his role as book keeper and business adviser over an extended period. (He is a Chartered Secretary). So far as we understand, neither Party sought to obtain his evidence by way of Witness Summons.

However, we heard from Mr Badenoch’s successor, Kenneth Davies, who acted as book keeper to the Raj during the period from January 2001 to June 2002. He had been engaged by Tommy Miah. After submitting his invoice to “Tommy Miah” he was asked by him to resubmit it to “On the Shore Ltd”. He understood that Ali Hadder was the manager but was unaware of who the real owner of the company was. (We note that according to Tommy Miah as at January 2001 Amru Chowdhury was the owner of the Raj business). Mr Davies explained that he decided to sever his connection with the Raj because of apparent irregularities in its business records. We found Mr Davies a helpful and candid witness.

Finally, the Respondents called the evidence of Mr McCrae. His Report is produced and we refer to its terms and conclusions. We found Mr McCrae a credible and helpful witness.

Mr Nawaz then led evidence from each of the Appellants. It appeared that their replies to many of the questions put to them, particularly about running the business and payments to them, lacked candour, and we considered that their evidence was to an extent strained accordingly, particularly in relation to the possible existence of a partnership. We felt that there was a lack of frankness in response to crucial questions. For instance Mr Miah seemed to discount the consequences of his sequestration during the period between 1997 and early 2000. Curiously his email address appears on correspondence bearing to come from persons other than the Miah family about the restaurant.

We observe particularly the following matters referred to or admitted in evidence by each of the Appellants.

Tommy Miah admitted that Alistair Badenoch had encouraged the establishment of the limited company, Goa 1510 Ltd. Apparently this was because of the unwelcome interest of the tax authorities. The shares in this company belonged to Aysha alone and she was sole director. This was a transaction within the family when “arms length” considerations might not apply. However Mr Miah and the family did not explain to our satisfaction that subsequently genuine transfers for value of the business from Goa to Spice Aroma Ltd and thereafter to On the Shore Ltd had taken place. Mr Badenoch was Secretary successively of each company. The shareholder/directors of Spice and On the Shore Ltd were kitchen staff who, it seems, had not paid a genuine consideration for the acquisition of the business. In particular Aysha’s interests as shareholder of Goa, were not protected by having a valuation of the business instructed. Somewhat curiously Mr Miah replaced Amru Chowdhury as sole shareholder/director in 2002 without payment of any consideration. Mr Miah accepted that he had an increasing involvement in promotional and charity work in relation to the Raj. As a result he was often absent from the UK. In such circumstances it is obvious to us that his family would – and did – control and manage the business in his absence. He spoke in his evidence of the family “helping each other” and “protecting everyone” and of his advice being for the “family unit”. This seems consistent with the Asian family concept. Mr Miah’s stance in his letters to the Respondents of April and May 2002 (vol I-6—b, d & f) contradict the family’s evidence generally about the running of the business. Finally, we observe that Mr Miah was unable to account for or explain away the substantial sums diverted from the business to pay for purely personal expenditure of his family. There is no evidence of directors’ loan accounts. No evidence was presented of the Appellants’ having repaid such withdrawals to the business. According to company records the Miah family had no interest in Spice Aroma Ltd nor initially in On the Shore Ltd.

Mr Miah accepted in cross-examination that his wife and Aysha could act independently of his wishes in relation to the hotel business at 6 West Coates. The title to the heritable property, of course, is in Aysha’s name but substantial loan repayments were made from the restaurant business. He accepted also that Aysha was “the beneficial owner” of Goa 1510 Ltd.

Aysha gave evidence particularly about her involvement with Goa 1510 Ltd and her purchase of 6 West Coates. She has a degree in retail management and appeared to us to be an independently minded young woman. She indicated candidly that she had refused to live with her mother-in-law as would have been expected of her following on her “arranged” marriage. She continues to use her maiden name. We noted also that she had carried out various part-time retail jobs some years ago independently of the family business. She referred to “her parents” taking the decisions in relation to both the restaurant and hotel business. However, her attitude seemed to be one of willing co-operation in developing a family enterprise. While she did limited work in the restaurant, she is now actively involved working in the hotel with her mother. While owner/director of Goa 1510 Ltd she withdrew a significant income from the business (between £150 and £300 per week). She accepted that this was disproportionate in value to her work at the restaurant. Significantly, as the owner of 6 West Coates, she was not aware of it being the subject of a lease nor did she receive any rent for it.

Mrs Miah gave evidence via an interpreter. She acknowledged that she was owner of the restaurant premises and adjoining subjects. These represented a gift from her husband in January 1992. Although she received rental payments, the premises were not subject to any lease in favour of the various companies which purported to own the restaurant business. While she was unable to account for substantial financial transfers into and from her bank account, she disputed that any substantial sums came from the restaurant business. Although she was sole director of Pick ‘n Mix Ltd, which was formed to trade as “Curry in a Hurry”, she denied any involvement with this enterprise in her evidence! She accepted that she was the manager of the hotel, while her daughter assisted her with administrative work.

Rajah, the younger of the Miah children, gave evidence too. In addition to working as a waiter in the restaurant (which he continues to do) he was also licensee and in fact declared himself as its “manager” in the relative application. This would indicate to the Licensing Board a position of responsibility, but in his evidence Rajah suggested that he did not in reality exercise this. He was unable to comment on his directorship of Seven Spices Ltd and he could not account for sums apparently paid to him from that company. He was unable to comment on the purchases by him of properties at Roseburn Terrace and the transfer of a half share to him of 7 Balbirnie Place.

The overall impression which we have of the Miah family is that of a close but independently minded group of individuals, with various property interests, which they were content to apply in a collective effort to provide an income for themselves and additionally a means of capital enrichment. We note particularly the various heritable properties acquired by different members of the family and all funded from the business profits. Tommy Miah acknowledged unhesitatingly his daughter’s beneficial ownership of Goa 1510 Ltd and of the heritable subjects at 6 West Coates. He acknowledged his wife’s beneficial ownership of the matrimonial home. While he might hope that as a family they would form a common objective as to the use of these assets, he acknowledged that his wife and Aysha could act independently of his wishes. We noted also that he referred candidly on more than one occasion to the business as producing a “family kitty”.