INCOME TAX CASE.

Dominion, Volume 3, Issue 801, 26 April 1910, Page 6

INCOME TAX CASE.

CHARGE AGAINST BOWRON BROS. MAGISTRATE'S DECISIONUTMOST PENALTY THE LAW ALLOWS. SEVERE COMMENTS. (By Toleffranh-Preas Association.) Christchurch, April 25. Mr. H. W. Bishop, S.M., tliis morning delivered a written judgment in the case in which George Bowron, William Bowran, and George John Smith were charged with making a false return under the Land and Income Tax Assessment Act, and evading full taxation'in respect of income tax. . Mr. Bishop said the evidence for the prosecution consisted mainly of the testimony of Wm. Tyors, the informant, supported in all essentials by the'production of'balance-sheets,, statements, and other documents. No evidence had been tendered on behalf of defendants, and the case for the prosecution stood wholly uncontradicted. The only point he had to decide was whether, in his opinion, the evidence was sufficiently complete and conclusive to call for a .conviction. He had no doubt on the subject. The evidence proved beyond, question that the defendants had made an absolutely false return, and had done so knowingly and wilfully-with the object of evading payment of a just share of taxation. When he considered the_ business standing of the firm, the position, commercial and otherwise, of the defendants, the. enormous, amount of .-their turnover, and the apparent wealth'C." the.parties, the conduct throughout of defendants seemed to be so utterly inexcusable, and the breach of the law'so exceedingly serious as to call for the infliction of'the most sut> stantial penalty, which must be' the utmost the law allowed. Defendants were convicted and fined .£IOO, and ordered to pay costs of. the proceedings. As required by the' Act an additional fine would be-" inflicted oftreble the amount of the ta'x of which' payment had'been evaded. The assessment of this amount was a matter for the Commissioner of' Taxes. After' judgment had been delivered, Mr. ,T. G. Russell, for the defendants, asked the magistrate to fix the amount of recognisances necessary to allow of appeal being made. . Mr.; Bishop said Mr. Russell would have to give notice of appeal.. Mr. Stringer asked the magistrate to fix the costs. . He said ordinary costs would not cover the expense of typewriting in ■• tho' case.

Mr. Bishop said he would fix the costs to-morrow morning.

THE CHARGES. The charges m the above case were as follows —■ ; i(l) Thai on the 6th day of November, 1906, at Christchurcb, defendants did by a certain act, to wit, by knowingly and wilfully making a false return in writing in relation to the, income of the firm of Bowron • Bros., affecting that, firm's liability to.taxation, evade full taxation in re- . spect of income tot. (2) That on the 6th day of November, 1906, at Christctturen, defendantsdid knowingly and wilfully 'deliver a false return in writing m relation 'to the-income of the firm of Bowjon ' Bros, affecting that firm's liability to . taxation. j .■'■■.".! (3) That on the 6th dayof Novem- ; her, 1906, at Christchuren, defendants ■ ' f K did knowingly and wilfully make a false return in writing in'Telation ' to the income of the. co-partnership firm of Bowron Bros., affecting that firm's liability:to taxation.: ■ Mr. Stringer in outlining the case on March'l,. said the information was laid against George Bowron, "Wm: Bowron,and G. J. Smith, who up to 1907 traded as Bowron Bros. In .1907 the firm was formed into a limited liability company. The. firm in 1906 returned*-, its assessable income at' £18,836, whereas,'- counsel said; according to the balance-sheet of the firm' ab the time, prepared by its. own- accountant, E. H. Modlin, it' should have been.'£s2,4Bo; 'and if certain adjustments had been made he claimed the amount should have been £64,972. On the basis of-the amount shown in. the firm's'balance, defendants had paid less than a third of the tax which they should have, and: calculating for adjustments, less than one-fourth the correct amount. Modlin was a'chartered- accountant, and" had been in the employ of the defendants since 1904. Investigations had been made by.officers of the. Land and Income Tax Department, and it was found that the balance-sheet, compared with the books, correctly displayed the transactions of the hrjn. The prosecution, of course, had to ■ P u oTe . t ? at th( ? return, in the words of /i » ' m ras "inoivingly and wilfully false. The return concerned in this case was made out and signed"Bowron aros.i but was in the handwriting of (J. J. bmith, who had. made out the return tor .'a number, of years. Counsel then gave a long series of examples of how the return had been allegedly - "faked." For / instance, he said the sales in the firm's balance-sheet were shown at £378,714, bnt.in the return for taxation purposes they were put down at £305,749 only, a difference .in favour of the taxpayer and against the Department of £73,000. odd. The stock was shown in the ; balance-sheet at £89,779, while in the return to the Department, it was given at £72,562, a difference, of £17,000. Then, salaries. and wages in the bal-ance-sheet were shown at £1000, but in the- return'.they were increased to £2020, a difference of £1800. Bad debte in the' balance-sheet were shown at £384 only, and in, the return at £2027, a difference of £1600. Purchases in the balance-sheet at. £324,633, and in the return at £274,914—a difference of £50,000. After giving these and other examples counsel said .the net difference was £35,000 in the amount assessable for tax. Counsel gave details of the interviews .with : Tyers (informant and inspector, under the Act) had had with members of the defendant firm. On one occasion, counsel said, Smith had stated 1o Tyers that the'books -had been badly kept. The prospectus of the Limited Liability Company of Bowron Bros., published in 1907, incorporated - the balance-sheets of the firm/of Bowron Bros., which Modlin, the firings accountant, had drawn up "with a due sense of responsibility. If this prospectus; contained misleading information- the' promoters were liable to severe penalties, and so was any, accountant responsible for furnishing. incorrect -bal-ance-sheets. The balance-sheet for 1004, according, to the prospectus' referred to, showed a profit of £22,085,'. whereas the' return to the Income Tax Department for that year was given at £10,395. 'In another year the profit, according to prospectus, was £20,533, but in the return to the Department it was given at £12,360: .When . the new, company was formed the' price paid to the old company was £208,500. This was exclusive of certain'other amounts to which lie would refer presently.

Mr. Stringer compared the profits shown in the firm's balance-sheets and returned for taxation for other years, and said one item which might be said to account for the discrepancy in the balance-sheets and the returns was an item of iC105,252, which was said to be a bad debt due to Bowron Bros., in London. Counsel gave, details of how this item had been increased -year by year since 1901. - ■■ ■ Mr. Skerrett: Does my friend suggest we should pay tax on a bad debt which has never been recovered, and which no one has ever suggested as recoverable? Mr. Skerrett claimed that this letter was w.rittoa "without prejudice,",and was inadmissible. Mr. Stringer said no such words appeared on the letter. ' . Mr. Skerrett: Look at tho. body of the letter. • Mr. Stringer' said the letter offered to pay a certain amount. He did not intend to put it in for any other reason than to show that the excuses for the alleged incorrect returns were not good in fact. ■ Continuing, counsel said Mr. Smith went to Wellington in October last and drew out a return varying the figures previously given to the Department, and furnished apparently on the assumption that the actual return'in the first instance was erroneous. After investhja-

tion, Mr. Smith .wrote a letter to th» Commissioner of Taxes. . The magistrate ruled that the letter was admissible. After hastily glancing at it Mr. Stringer said he would not read it through, but' he submitted it was disingenuous. B stated, for instance, that' "The boots were badly kept," and thai "Returns had been' made on rough estimates .of the position from time to time," but "They gave the. position as. nearly as possible.". He submitted that the facta showed this was not the case.