Ceisteanna—Questions. Oral Answers. - Interest on Income Tax Arrears.

asked the Minister for Finance if he is aware that officials of the Revenue Department have been and are demanding, threatening to demand, compute or assess compound interest or simple interest on arrears of tax or upon income not previously assessed for income tax, and, if so, if he will state by what authority, statutory or otherwise, and with what object this is being done; if he can state approximately what sums have been collected by such methods; if such demands have been wrongfully made whether any such moneys thus obtained will be refunded, and if steps will be taken to prevent the future demand or collection of moneys in such cases by such methods.

Section 222 of the Income Tax Act, 1918, provides that "the Revenue Commissioners may, in their discretion, mitigate any fine or penalty or stay or compound any proceedings for recovery thereof." When a taxpayer has rendered himself liable to proceedings for penalties under the Income Tax Acts it is obvious that the Revenue Commissioners, in considering the question of mitigation, must take account of all the relevant circumstances, including in particular the extent to which the taxpayer has profited by his fraud or neglect in unassessed duty and interest thereon. The following case, which is an actual example, illustrates the manner in which the Revenue Commissioners deal with these cases:

A taxpayer made fraudulent income tax returns from 1922-3 to 1927-8. The maximum penalties recoverable in respect of these years amounted to £6,068, in addition to which the sum of £643 was recoverable by means of additional assessments for the six years. It was found on investigation that the total duty lost from 1914-15 to 1927-28, inclusive, amounted to £1.240 and interest thereon to £456. The Revenue Commissioners accepted the sum of £2,000 in full settlement, including the amount of £643 recoverable by additional assessments; so that the mitigated penalty imposed amounted to £1,357, instead of the full penalties amounting to £6,068.

In this and all similar cases there is, of course, no interest in fact collected, and the payments made may be regarded in strict law as including duty only to the extent to which such duty could be recovered by the ordinary process of assessment. The balance of the payment in excess of the duty recoverable by assessment is a payment of a penalty pure and simple. The duty for earlier years and the interest have simply come in indirectly as factors which the Commissioners have taken into consideration in determining the amount of the penalty.

The practice of the Revenue Commissioners in connection with the question of the mitigation of income tax penalties is one of very long standing and there is nothing new or revolutionary about it. It was specifically discussed in the High Court in England in the case of Attorney-General v. Johnstone, and was emphatically approved by the judge who dealt with the case. I am having a leaflet containing a copy of the judgment placed in the Library for the information of Deputies interested in this matter.

There is one further point to which I desire to refer so as to obviate any misunderstanding. In the course of the question the Deputy refers to the assessing of interest on "arrears of tax or upon income not previously assessed to income tax". Arrears of taxes which have been assessed, i.e., unpaid duties outstanding in respect of assessments which were made at the proper time, are in a totally different category from the matter with which I have been dealing. Such duties must, of course, be paid whatever the year to which they relate. There is no question of computing or demanding interest on such arrears.