INCOME TAX CASE.

Dominion, Volume 3, Issue 885, 3 August 1910, Page 5

INCOME TAX CASE.

CHARGE AGAINST BOWRON BROS,

THE CASE FOR THE APPELLANTS

A NEW DEVELOPMENT.

STATEMENT BY GEORGE BOWRON,

(By Telegraph.—Press Association.) ■ Christchurch, August 2. Mr. Russell, in opening .the case for the appellants in the income tax case today, said tho charge was a criminal one, and the Crown had to show by convincing evidence that fraud had been committed. The members of the firm of Bowron Bros, occupied high positions in the city, and the consequences to them would be very serious if the'charge was upheld. As to the penalty in addition to paying the tax in dispute, it would be a monetary penally of about He intended to show that the profits, as stated by Mr. Tyers, were illusory. The appellants might have been guilty of muddling," bad bookkeeping, and negligence, but there was not a tittle of evidenoe. of dishonesty on their part. _ lhe business of the firm had begun in- a small way, and been built up gradually, by Mr. George Bowrori, who had had no commercial training, ami knew nothing of the science of bookkeeping. • Mr. Smith: had never kept a set of books.in his life. In the early days of the business the practice had bean to make the income tax returns according to the surpluses made during the period covered, and the practice had never been altered. Mr. Russell added that he did not contend that Bowron Bros., under the practice adopted, oould make returns in the proper way, and as a matter of fact the firm Was liable to. a fine of i>so. for not making tho return in the prescribed form. The prinoipal part of the firm s business had consisted for years in saiding -goods to London for sale. It nlso skipped t<, London on bebalf_ of clients. During six years ending 1007, tho farm had shipped'on its own account goods valued at i! 975,00«. The practice was to credit goods shipped to sales and to draw for the largest sum tho goods were estimated to produce In London. There had been consistent losses on goods so sold, but there was no entry on tho books showing the returns.

' "A Misconception All Through." The Chief Justice: now do you know? If there lias been no account it is quite wrong to soy English people owe tlio nrm .£IOB,OOO. ■ ■•■ ■ ■■'....'■■ Mr. Enssell: Of courso it is wrong. .There'is no .such debt owing.' I bat ana been a misconception all through.. Mr. Justice Sim asked if there was an Mr Russell replied there was a debt of ,£37,000 -which had been written off. In regard to the goods shipped tor clients, Bowron Bros, made advances to clients, and drew against the London firm 1 for the amount of the advances, ths, London'firm keeping the balance of tin. money realised. If tho advances on goods were .£6OO and the sales realissd .£IOOO, tho London , firm kept £100, which was equivalent to a loan to the London house. The only entries mado in the local books were for clients' surplus. The London house kept its own accounts. That was really the explanation of what had occurred. There was no dishonesty in the case, and ho was endeavouring to show the Court the.nail facts. . ■ Tho Chief Justice said Sir. Eusscll was making a completely new suggestion. There was no suggestion in the Lower Court that no London debt existed. Sir.- Stringer: On the contrary, the defendants put in a balance-sheet of Bowron Bros., London, showing thoy owed the Christchurch firm ,£J00,000.. .. The Chief Justice repeated that no sug gestion of tho Fort mado by Mr. Russell now had been made in the Lower Court. Sir. Kussell: The question is whether the statement is true or not. 'The Chief Justice said !tho;Court had to look at more than that. The defendants had gone into one Court to make a defence on certain lines, and came now to another Court and raised a new defence. ' ■ ' ' . ' : ' ".' Sir. Russell continued with tho object of showing that the position of the firm in regard to the London transactions had not been revealed. •' The Chief Justice said Sir. Russell would have to show what was the correct statement for the year for which the return was made. . It was not enough to show the possibility of an error in the balance-sheets. Ho must show actual errors. '

Mr. Eussell then indicated the outlines of the case to be submitted in cvidenci:, A. S. Biss, accountant,. of Wellington, was the first witness called. ; [The. Press, Association has omitted to send a'report of Mr. Hiss's evidence.] Average Adjuster's Statement. /Thornhill Cooper, accountant and aveiage adjuster, stated that he'adjusted the fire loss at the tannery. He made tho .total loss .£4310, not .£14,000 as stated by Mr. Tyers. More than half the building ana a very large part of the machinery and plant were valued. The insurance paid was on i:2SOO tor buildings and ,£3598 for the plant. The salvage amounted to ,£1>735, and the loss over insurance amounted to JJIB3O. It was explained s that Mr. Tyers had not allowed for salvage in his statesient. Witness said that he had examined the books and found that the accounts were mixed up in a most extraordinary fashion. Goods shipped were treated as sold, instead of being put to consignment account. V The Chief Justice again suggested to llr. Eussell that he should turn his attention to the specific charge which concerned tho year 1905. Mr. Eussell said that he could not direct evidence to tho accounts of 1905. Ho wanted io show that defendants were honest and had paid every, shilling of duty on their profits. Tlie Chief Jusitce: You can't show that unless you can show that you have paid the. duty chargeable in 1905. You want to show that you have paid more in 1900 or other years than you need have paid, but that will not help you. ' Mr. Russell: I want to show that there was uo intent to defraud. The Chief Justice; You may show me afterwards' that that is an excuse under the statute. , . . . Mr. Coopei continued his evidence, which was generally in support of that given'by .the "previous witness. Ho said that the bad debt of. .£37,000 was not written off in the books, but it was written oif in the balance-sheet. ■ - The Chief Justice pointed out that in 1903 Bowron Bros., London, were certified to have made a profit of -£28,000, and 'in 190 i a profit of ,£16,000. Was it, he asked, likely that 1 a firm of that standing would owo a bad debt of .£37,000 the following year?

Mr. Cooper: A firm may lose ,£IOO,OOO in a year in tho wool trade. It may become bankrupt in three months. The Chief Justice: The moon might fall. Mr.. Cooper: So it might in tho wool trade. (Laughter.) He proceeded to consult the balance-sheet tc show that the .£37,000 had been written off in 1904, but failed to find the figures. The Balance-sheets, Robert Modlin, accountnnt, said that he made tho debt of Bowron Bros., London, to the Christchurch firm in 1904 £37,000, not .£74,000 as shown in the books. The firm reduced the amount by half. He was preparing a balance-sheet to send to London in February, 1905. He showed tho balance-sheet to Mr. George Bowron, and they agreed to eliminate the debt altogether and reduce the assets. Tho Chief Justice: This really did away with Wo bavo not had that before. Witness said that debt was surpluses received by Bowron Bros, London/ on behalf of clients and not remitted to Christchureh. Witness showed the balance-sheets for 1002, 1003, and 1901 to Mr. Bowron, who seemed to think that * tho profits were larger than he expected. Accounts of shipments, other than clients' accounts, had never gone through the local office. It was only three weeks ago that ho learned that goods sent by the firm on its own account wero consignments aud not sales. To his knowledge close on ■£33,000 hnd been sent Homo to meet deficiencies on shipments that would, affect 1906 and 1907. The Chief Justice: Don't you think it strange to send .£33,000 to people who were owing .£74,000?

Witness: It does seem strange if that amount were owing. Continuing, witness said that he could not have made up a proper income tax return from the- books without stock sheets. In reply to Mr. Stringer, witness 6aid that he made up his balance-sheet for 1905 from the books of the firm and the stock sheets supplied. It was handed to the firm at the end of 1905 or the beginning of 1906. When taking out bal-ance-sheets he did not bother about whether the firm was,paying too little income tax, and lie never saw the returns. He learned three weeks ago from Mr. Russell that the firm's goods were sent Home on consignment. He believed that this had been confirmed by the partners. He believed that the .£37,000 bad debt was still on the books. Ho did not consider it was his duty to tell Mr. Tyers there was a balance-sheet, but as soon as Mr. Tyors asked if there was one ho had told him there was one, and went with him to Mr. Bowron to get permission to show it to him. To Mr. ltussell: He was never instructed to withhold the balance-sheel from Mr. Tyers as the firm desired to give him every possible information.

An Accountant's Statement. C. M. Ollivier, accountant, stated that he had' investigated .the books to ascertain what the partners were worth in 1901 and 1907. The business was converted into a company on July 31, 1907, with a capital of ,£208,500, and on Octo-' ber 1, 1901, the capital was .687,407. There was therefore an accretion to capital or profit of Witness was cross-examined at length as to various details of his calculations. Geo. Bowron's Evidence. . Geo. Bowron, one of the defendants, stated that ho had been a merchaat in Christchurch for many ■ years. The .£37,000 bad debt had been absolutely written off. The firm di<! not set off the 4133,000 reclamation which they sent Homo as the Londo'n firm was so badly affected by the commercial en's that it might have gone down without the money. In making up the income tax return the firm used to take a rough statement of assets and liabilities, compare it with the surplus of the previous year and so arrive at the profits for the year. The return would bo approximately correct. He himself had no experience in bookkeeping and Mr. Mocllin's investigations 'were made, entirely independent of the firm. Witness only examined the final figures of tho balance-sheets for 1902 and 1903, and said that the firm had not made such large profits. Hβ could not have,agreed to the balance-sheets being sent Home as a record of the profits of tho Christchurch firm. In July 1901 witness went Home and from conversations with the accountants and auditors of th« London firm, and with his brothers, he came to the conclusion that the debt was absolutely bad. The goods sent Home by the firm were not on clients' account, but were on consignment. Towards the end of 1307, owing to the American financial crisis, thero was a big drop in prices and the firm lost about .£50,000 on their consignments. They sent Home ,£33,000 to meet the reclamations and Bowron Bros., London, would have to find the rest. The firm always believed they rather overpaid than underpaid income tax. In making up tho reiurn for 1905 they found profits were between £50,000 and ,£OO,OOO. They deducted the bad debt of .637,500 making a total profit of about ,£IB,OOO. One reason for doing it in this way was that he did not wish anyone.to know his brother was in a bad way; He had no desire to-put. any st-atutoTy difficulty in the way.of the Department getting all it was entitled to, and the firm gave llr. _ Tyers every assistance to get all possible information.. . . The case was adjourned till to-morrow.