INCOME TAX CASE.

Dominion, Volume 3, Issue 757, 4 March 1910, Page 6

INCOME TAX CASE.

ALLEGED. FALSE RETURN; CHARGE AGAINST BOWRON BROS v , ';". the defence;: '■' . (By ,Telesraph.-PrMs 'Association.),' ■■:■: . v •.-..'. . '•• Criristcriurch, March 3. ;,The.; hearing, of the charges .against Bb.ivTonYßros.: of,making;a'false, return in.; regard-; to the amount-of income .tax pjyabla/bj- 'that 'firm'.- was continued today, before Mr. : Bishop, stipendiary magistrate. Mr. Stringer, K.C., appeared, ifor, the ,' and ■ Mr., Skerrett, 1 K.C., with Mr.- Anthony, for the defence.

Further Particulars Asked .For. . : .Before proceeding with the case for the. defence,.Mr. Skerrett submitted that, he was entitled' at this stage :.to : for further'particulars. ■ The evidence had been . :of a, most general character, and defendants were entitled now to have, the {particular charges defined. The defence lad written asking for particulars, ■ and 'had'been., informed that the alleged false return; related to the year ended.March Bl,; 1906; ■ when the income;was returned at £18,836 -when it should have been £52,418,: or after certain adjustments had been made, £62,755. Defendants were clearly entitled-.to. more,definite, informa--fcion,"•.-: and the information should be amended accordingly. . Mr. Stringer, said that he could not.be asked to do this. He had made a charge that a false return had been sent in, and,that was .sufficient.- .'/•■■' .Mr. Skerrett: If there was a charge of. false pretence you would have to set out *he false pretence.'. . Mr. Stringer;-. The false pretence.was-a. '[false return.. , -: ■-- ..:.••■•' - Mr. Skerrett said' that-defendants 'were entitled .to; more 1 definite -information -than'v that' contained in''the general, information. ;': :,] v •.;'■ -- I ,' -.The; magistrate:' I, don't- follow Mr.Skerrett in.this matter.; Here'is-an.in-. formation on which certain evidence- has been called. It is for me to say whether there: is a case to answer at'. this stage. The: case must stand - or fall. by this' in: 'formation; and' it is for the defence: to answer the information as it now stands. ;Mr. Stringer:'l don't object' to".Mr. Skerrett putting in the particulars with which. I supplied.him, but-1 don't feel, fccrand by those particulars if thoevidence ■disclosss something else.- ..' '. > , ' The magistrate:! shall ultimately" have, to-'hold whether ■ evasion.-has been -sub-

etantiated or not'. I cannot see'iny.way • '.' ;to force Mr. Stringer's hand.. -Thereis'a ■»iase''for the-defence : ,to answer.'-.'.- '•:;'!' ;_■■",-. Mr. Skerrett's Address, ... v. : Mr, Skerrett said that he did;';hbt..in-.' ■tend, to call, evidence, .but he -would'sub-.' iinit .that, there Was no.. case made', but | justifying a conviction. , He''pointed;out that this was a charge'on... the . criminal :.". aide of-the Court'. Itiwas certainly a "'. oharge , of fraud, and the rules of law Telatih'g to proof, of fraud were, clearly applicable, to. proof of crime. Nothine , was clearer; than that .proof •' of, fraud must be olear and. conclusive... It must not ... irest on. mere inference,,which might be . . jdrawn either one way or other,', and \ it; jclearly could, not, rest;. bri'Vs.uspicibn';: lit was conceded that "the boots',of-the ~'defendant'firm ..were, honestly kept,"...'that (the entries were honest, en tries, and were, (made for the purpose of recording the .true and actual transactions. . It was true '.-■ jthat they were' not scientifically or artistically,correct, and 'that to ascertain ..'' ithe position of the firm at-any time a Igreat amount of .independent investigaJtion would be necessary. . Tyers, who'was' !not,prblific in admissions, had no reason ; to suppose that they were not honest en--> l-tries. 1 "" ■■ His next 'observation " was- that -there had been, no concealment by 'deferiidants of their ' books or papers; For" months officers of. the Income Tax Departhad ample access to these. It. had been conceded by Tyers that mistakes, of an important kind against defendants had been .made by tbein•£elves.:. They: had failed, t0,,-claim allowances which were allowed- under Statute. Another; observation was that the whole .controversy : as to -short payment of duty depended upon whether allowance should be made in respect to a bad debt due from a~company in London, which was admitted to, have been incurred, and of, which- there was, noevidence, of its having "been paid. ■■•'■' - -v to. Stringer: I do,not admit that. We flay that it does-notaffect.the case. , '"-■ Mr. Skerrett: ,Tyers said, that 'he 'hadlio reason to suppose it was not honestly 'incurred, or that.it had been recovered •or paid. • .-;,'. .- , Mr..- Stringer: His evidence is that it does not enter into-the calculations at all. . Mr, Skerrett: That is not evidence." It : im merely".his,contention. : . What had Informant to Prove? Counsel went on to call his Worship's attention to Statute, and pointed outthat the charge was one of wilfully and knowwgly. by means of a false return, evading payment of.taxation. What had informant to prove? First, that the statement dated November 6,1906, was-know-' &gly- false ..in some. material particular. iihe.:second requirement was that it must Tse-proved that it was-done for the pur.ptoe.of evading payment.of' full taxation. ",lT»e defence would'submit that'the" expression "evade" meant intentional and Icesignedevasion..: It bust be shown that - 'the.true taxation for.that year,was an ; amount m excess of that which was paid. It was an (ingredient of the offence that not; only must the "return be' wilfully false, but- thereby defendant; must' have' evaded payment of taxes.' It. must' be proved, that by these false returns there' was an amount of duty. returned less than the real amount of duty payable. He' (counsel) asked whether'there was a tittle' of legal proof of these statements. The Teturn .was in; writing and sent in in accordance with the : Act.' It set out in writing the-amount of income .-derived . during, the. year ended March 31, 1906 preceding the date of the return. In order to .justify the substitution of another, date for the termination of the year it-was necessary that,-application should be made to the Commissioner of dases fixing that date, an'd that.the date (should be accepted by the Commissioner; ,lhe statement Was sent, in in writing ' and, must be read according to. writing! It said that the return , was . of, income ?n n r ,i ved T? urmg &* year ended March 31, 1908. How were the prosecution- to-go behind that statement? A letter which accompanied the statement was before the Court, and "set out that "We have pleasure in handing in income tax returns for the year ending March 31-last, which we trust you will find correct, etc, I he Court could not. go behind the written statement contained in the' return. Surely it was necessary for the Crown to prove affirmatively that the return which purported in writing to be up to March, 1906, was in reality for the. year'ended September, 1905. There was not a single .document or tittle of evidence to show that March 31, 1906 was not the correct date. The previous Teturn- up to March. 31,. 1902, : showed an actual, return' to that date. THere was no proof or .evidence of any 'alteration of system. Tyers could not produce a solitary document or officer,, of the Department to say that they dealt with these returns as returns up to September 30. If the Tax Department chose to take statements of this kind, which on face represented a. certain thing, and act upon them, without insisting., upon'.correction, surely they were, bound by them. There was no evidence that there had been an alteration of the time for making the return. The return up to 1906 might have been a return for six months. As . Smith was away at that time there was no evidence to justify his Worship in reading something into statements which contradicted the.writing in the state--meats. Counsel for the prosecution might say that according to", tho statement made in June, 1909, by Smith the returns were made up to September 30 in each year. That, however, could not be true, as one return was made up to July 30, 1907, and others up to March 31 in other years. The statement, if made, might be evidence against i Smith, but it was no! ' a j ns t his partners,, I

Stock-taking. Mr. Stringer had called evidence that stocks were taken to September 30 in eackl year, but there was no evidence that stocks were not taken on March-31 of eaih year. ' Mr. Stringer: The witnesses said annually on -September 30. .' The magistrate: I think 'they said annually.. • C^-- Skerrett replied: that the mere' fact that stock was taken '.up to September 30. did not-show-that the statement was drawn up to September 30. It. would bo an unwarrantable inference that because stocks wore': made up ■to that .time the statements, were also made up ,-to that time. The prosecution ■ had to establish tha,. up to ■ the date of the return the duty^was'short paid. .His, Worship had positive,evidence that-returns were made up to March 31. Thero was not evidence ol '. any person to show that. this. return was understood by the Department to be a return up. to September-30; 1906. If, then,- the .return- was up to March 31, wliat proof was there that an. amount more than £18,000 was open for taxation? no.proof of evasion that profits between September 30, 130-1; and 1905 were iiVm sl than between ilarch,. 1905, and 1906. the two 'periods were not comparable at all. Particulars of the returns 01. the,prev lo us'years were, only admitted lor one-purpose, ,viz., to .'prove that the •statement sent in- on November 6, 1906, was wilfully false. . In order to entitle that evidence to. be.'admitted/ the prosecutor must first prove that the return was false. The whole question • depended on whether his Worship was justified . in reading into' that statement, contrary to its express language, .that it was up ' to September 30 instead of March 30. If ' S s . Worship -was-not justified in doing that, there was.no proof of falsity of : statement,.or that duty'had been evaded. : it the accounts referred to March, 1906 ' there..was am'pK:evidence : "to show, that ' the. State had not suffered .by ah evasion ! ot duty, the' Crown claimed that from < the period September, .1904, to 1905 there I was a sum of £111,000 profits, which had - not been accounted for for-purposes of-h assessment-for duty.' ';" ~ - - I

Two Items, . It , inolu *?d two- items, viz., increase qt stock which ought not to be included, £108,000, thebad"debt"due from a .London firm.-. In', regard to this amount n was incurred in a business way by the consignment of Bowron' Bros'.' goods and customers' goods,-In 1905 there was a liability of .£90,000 due from'fthese.people which had not-been recovered, .and the balance-sheet put in-"prepared, by the . auditors of the. London.firm'shows that there.was a deficiency.,of:,assets over liabilities to. the. extent .of .no less a sum than. £103,000. . In- that .balance-sheet Bowron Bros., arid Company was shown as./being, a creditor only to, the"' amount or. £31,000.,..C0un5el submitted that there iras no evidence" at.-all- that the indebtedness of. Bowron,Bros., London, did not nicrease .the'''.previous 'taxation' return. That.^ould■'be i , represented l by sales in ™ e Previous return".'- It' '.was suggested that; .this . item.','should, not be written off forvarious reasons.;.-It was said that it could not be disallowed or deducted because it was notwritteft off in the company's books. ,'Quoting-from'the return: counsel said that in instructions-re-garding deductions';. it' i was provided ..'book and bad - debts proved to be bad and no others." Seqfipn.,,B7 of the Act provided that, in.ascertaining income-de-rived : employment, or emolument, ho. deduction is to be made in respect to -bad 'debts "except bad debts proved to be. such, to" the-satisfaction of the Commissioner." "This . provision, counsel went on, did,not deal with the return, : but with.-.-the-manner in which, the Commissioner, has., to assess-an assessment. Therefore,'- the ■ provision in the regulation that 'bad; debts deductable must be written off .was ultra,,- vires of the Statute; which did not. require "that-bad debts- be- written .off.'-"The"l9os balancesheet showed that the,debt in question, was disregarded, the. effect of such disregarding of it being to write up £37,000 of capital. A-bad debt-represented an asset which in previous years had been brought into account for the purpose of assessing duty. In-subsequent years-that asset, .was found to*, be irrecoverable am* not of its face value; Then the taxpayer, in a subsequent,year,or in subsequent years, was entitled ,tp,write.it off, either to its full value or- the amount likely to be recovered. There was olear evidence that, the. amount referred to. was not sold to the company in 1907, and counsel suggested that his Worship was entitled to draw the inference that it was known to be. irrecoverable and bad. Tyers, suggested that it was retained- as an asset by Bowron Bros, but. counsel pqinted out that it was in the highest degree unlikely that they would-so retain it on the .formation' 0f..-.'the company. Since :that date Tyers himself contemplated writing off £17,000.,0f the liabilities incurred by, the London firm., "A Genuine Debt of £108,000." There was. ample - evidence that there was a genuine debt of £108,000. The transaction was incurred in the-ordin-ary", course of .business, and there was .not the'slightest evidence that it was >left invested in the London firm or that it yielded- any ■ profits. ..Why should Smith make:a gift of.it to Messrs. Bowron.Bros.? .'Mr. Stringer. said that it was impossible to. conceive .that-., a firm would g6 on trading with this liability; but there was the liability; it-was incurred, and the firm' was trading. Mr. Stringer:. My objection was that it would not be-allow«d to .increase,,

His "Worship':'' Yes. It was large accretions that Mr." Stringer referred ; t0... Mr.. Skerrett (continuing)' said that the Commissioner of' Taxes could have no control over,.a trader- as to -whom he should trust [or as to. with 'whom he : should' trade. : _ If trading 'were"a mere' sham or disguise,' for a gut that was quite ' another : , matter,-■ and ■" under the present law Bowron Bros, "would he liable to' pay. s'per, cent. • on the amount involved. The-facts : were-.tliat the-.Lon-don firm was in its early.istages. Mr.' Stringer did not think that counsel should put it in'that way. Mr., Skerrett said he was going to ask the.Bench to".infer, that there, was a long connection, between the'iwo firms. He suggested ; that there was a-relationship, between'the'partners in England.and two of the partners here",' and • the inference, which was not an, unreasonable one, was that Bowron. Bros., in New'. Zealand were desirous-of assisting; the English firm by. keeping. tho.!business\';they,'''had, and by taking advantage of (their services. in' the disposal' of goods. '■■-" His learned friend would say that this debt' was not proved to be bad to the satisfaction of the Commissioner, and, therefore, it could not be deducted;, but that difficulty existed on the part, of the Crown which ,had to show to his '"Worship.that, it- was, a debt such as the Commissioner would-not -allow to be deducted.': It -had- to' be .'proved, under Section 106; that'defendants' had evaded any. of the duty,"and;.hhH i '' | put in false returns, and' that the. amount referred to was taxable.. It might, ha. said that' this debt onghfc to have, been shown in the column of bad debts in the return. It was clear that it was not~so shown,.but the circumstances ,were':exceptional. The debt existed on. goods consigued belonging'.'to"Bowron!,Bros..'aid.".belonging also to their clients.'. -A -great"part of this 'debt •'consisted .of,i moneys',; which .ought never" to '.have'gone into ;.the sales account, or' into the;' profit and loss accounts. .. Clients' / goods that are sold .ought not .to form an item of.'sales-or of profit and loss." The surplus belonged to, the clients.)-All that was due to Bowron Bros, was.'commission payable. -In -, : the,, - .circumstances, _Bowron Bros, were reasonably justified'in Supposing that, they were- entitled 'to'deduct this 'amount, irohiythte' gross'.amount returned .'without'.'showing it amongst bad debts. The books showed that',;the amount was allowed to remain,in the books without any formal writing off,, and it was not transferred 'to bad'.debts. ' :In tho'-cir-cUmstances st_ was: submitted that there was'no evidence of fraud on the part of Bowron Bros., that the debt was established, that it was irrecoverable was established;'; and that this'year being a profitable one the firm were entitled to deduct it from their gross returns. At any'rate, the mere fact that it was not shown in the list of bad debts was no evidence of fraud. .'lt'was a real debt, and no question of technicalities should be brought into the .question. Intricacies of the Law. How few are there of those who make income tax returns who know ■ anything of the intricacies of the law, who appreciate the very complicated form sub- ! nutted-? He thought they were very few I indeed; Thai: Messrs.; Bowron Bros, did not. was. shown by mistakes'made .against 1 themselves in their.returns.

Mr. Stringer: There is deduction of bad . debts.-' ' Mr. Skerrett: .Up to March 31, 1906, . but these were written off at the coin- ; mencement of the company and transferred to the bad debts account. Continuing, counsel said that Tyers produced a statement in his endeavour to account for the fact that the amount of capital taken over by the company indicated that short profits must have been returned to the Department.. Although, it was not of importance in dealing.with the present matter it might be of. importance . hereafter. In that statement there' wero .items, of £16,000 odd, and,of £1684 increases of stocks charged by Tyers. on his. own mere assumption. Ho also charged profits. up to July-31,. 1907, at £19,437, .whereas thev said that their, profits .showed a loss. Upon the assumptions made by Tyers the profits foy IDOfi were given as £62,652. Tyers estimated the writing up of properies at £8000,, whereas they' suggested that, the writing up of properties amounted to.something like £50,000. Tyers suggested that that was due to expenditure on properties, but there was nothing in the evidence to- warrant it. In Tyers's ac--2? mt fe,^" 1 ca P Ual n ° 1«* a sum than £32106, which he explained was reserve.charged to. Bowron. Brothers to meet anticipated'deficiencies in accounts transferred to the company; but it could ?W»ti ,Sp ? t « 1 . that " f as a fact that the whole.of that amount and more had to be foundry Bowron Brothers. Tyers assumed that loss by fire was £14 000 but. gave no-evidence in support. Asa mattef of fact, the loss was considerablv less.. Counsel contended that- he had fw"V W °' ! d i show at the P r °P w time, that, the-capital account properly dealt with showed that the rehires Snf to the Department were accurate and correct returns. Tyers stated that the profifcmade m_ one year totalled £62,000. No such profits were ever made. Thev therefore submitted, that., there: was no evidene* to justify his. Worship, in sayin? lonV «■ -I return to September 30 ion? i J was , a r€tura from Ma ™h, 1905 to March, 1906, there was no proof that the statement wasfalse. There was / no proof that the duty due for that year exceeded the amount of dntv paid, and the evidence of profits, made between September, 1804, and September, 19U5, was no proof of profits- made during, any. other.-period. Mr.'stringer's Reply. '

Mr..Stringer, replying, on- the points of lan- raised,, said that, it was impossible for. the Commissioner to make- any deduction on a bad debt unless it was claimed. How was it possible-for the Commissioner to adjudicate on the claim to allow tor. a bad debt of £108,000 ■ if it were not olaimed? If the amount were profits shown, it would have, not,only absorbed, all the income assessable m this particular year, but made returns, therefore they.. would" have rendered K f ff m Nations f£ the whole, period, of. that.term. As to the contention regarding periods covered bv' tie •£3£?J t thou Mr.. Skerrett was tent that it would not bear for a single moment His.friend, asked the Court to ignore the statement made by Tvers that SHIS'- toUThim that the. Returns were made from September 20 to September 30 l'urther, his friend ignored the fact that m various respects the .return corresponded exactly with the balance-sheets which were made up to September 30, Uransel then enumerated a number of items that were identical on both documents. , Continuing,,he said that his Worship would see that if- ten months of the return ending July -31, 1907, .were back, it ended in a period of September, : and .unless. the periods had nin.pnor to that, from 'September to September where did - the , intervening P e "°V™m March -t" September' come !?• J-ne defence had given no'explanation how it would be possible to make any kind of return unless at, a stocktaking period. The return stated that it was as 'at the end' of stock-taking," stock m hand on- the date of stockt i? g " i.- tbese acco «nts were not made at the time of stock-taking, how was it possible for any kind. of a Teturn to be made except in the way counsel . suggested? It did not nurport to be an estimate; It gave exact -figures. The position was irresistible, that thev were made for the period from September to September. I

, His Worship' asked what was proposed to be done in regard to the other informations. '.•:'"'.»■■■ Mr. Stringer asked that they should be allowed to stand over until judgment was given in the first.His Worship said that could, only'. bo done with the consent of.Mr. Skerrett. Mr. Skerrett. raised no objection, and they were consequently held over." ■ His Worship said that he reserved his decision. " The Court/rose at noon.- ■'■■•