INCOME TAX CASE.

Dominion, Volume 3, Issue 886, 4 August 1910, Page 5

INCOME TAX CASE.

CONCLUSION OF EVIDENCE; G. J. SMITH MAKES A STATEMENT. COMMENTS BY. THE CHIEF JUSTICE.IBy Tcleeraph.—Press .Association.! ' Christchurch, August 3. ■ ■ . The appeal of William Bowron, Geot Bowron, and George John Smith against, the decision o£ the magistrate in the ~.; income tax case was further investi- . . gated in tho Supreme Court this morning ' '■■ before tho Chief Justice (Sir Eobert. ~,;.., Stout) atfj Mr. Justice Sim. . ;■.,'••!■>■'-. Mr. T. G. Russell, appeared for the ~.:f. appellants, and Mr. Stringer, K.C., with, him Mr. T. Neave, for,;-tho. respondent,' m ;■■!.• the Commissioner of Taxes. Geo. Bowron, cross-examined by "Mr. . ■ Stringer, said he had believed his ' tern of making up the income returns to . "v,, bo correct. It was during a visit to ■' ..• England in 1901 .that ho concluded that. , .'■;■■ Bowron Bros., London, were unfinancial, and their debt to the Christchurch house ;!■'■ ... was a bad ono. '.; i About Profits. ...^α-;,.,;; Mr. Stringer said the" prospectus" of" •'•■'■■ the proposed company ■ estimated ; the',- . ,-;t ' profits of the London firm at JESOOO in . 1902, £24,000 in 1903, £10,000 in ■■ nine-, months of 1904. ■-. - 1...-,...-;-,--. Witness suggested that these profits •:'•>> ■were what would have been made if;.- J- .' there had been no . interest and other-'•'.'■■ charges. In making the return for 1900 ,rx] he estimated the profits at £50,000 "or..■.'.■•' JC60.000, and deducted . £37,000, the ; bad . ■ debt of tho London firm. Ho understood ■".■■ >'.', the firm's books were not-a-full'account " ;! ■o! its affairs, but ho had never looked" into them. . . . ' .

Towards the conclusion of the cross-' examination, witness interrupted a ques-' , ''■: tion with 'a request that Mr. Tyers (In. come Tax Department's Inspector and chief witness for the prosecution), ..who \ was in Court, should notstaro at" himso persistently. . ■ . ■'-...

Statement by G. ■;;;.!-; George' John Smith, the next witness,'- , ■'■'.'"•. said he had never kept books. He had been employed by Bowron Bros, as clerk ■~..'■ before joining the firm,.-and had done ■''•,.'.''- work in theoffice and outside. No balance^-i. ~'■-.'' sheet had. been prepared when he joined:;/ :l the firm.' Bowron's practice *in makingV, V returns for taxation had been continued" as the business grew. He, had little to :.>-. f:?: do with the firms books,, and had spent V'' a good deal of time in Wellington;as a': member of the" House- 'The accountant Modlin had como out in 1904 and" had''.". said the books were not properly kept,".- . but he (Smith) did not know until re- ' cently how bad they were. Ho had V"-*l f ~ never prepared a return without George '.■ .■'.-. Bowron-'s assistance.. Modlin, was ienrjgaged by the London' firm, not by the . Christchurch firm, and witness did ■'•not.'•/'"' think it necessary to check his; figures^""•'■''," He did not realise they purported to: be V accurate statements of the.firm's income, '■"■,'!' and oven now did not believe them ..to .be'. , ...-.,, correct. He was quite satisfied from what c ->V ! .Bowron- said that the' London debt'was - , •'••■; bad, but. ho had not .;this information' : '.'j when, the 1901 return was made'up...' He- : . ;: . : :i had ho intention to evade taxation;> Hβ..'.;*4,5 thought that if taxation was paid on"the,' 'V . full sum the spirit of the law,-if'not,tho .;,;,'■. letter, would fie complied with. 1n,,r0-'..,.■ gard to Tyers's figures he had been' ,, so ■-~', upset by the charge of fraud that he.as--; r.V; sumed the figures to bs correct, and .•■•:.. ■would,have been prepared.to pay whether. ." there was an-, error or .not ': suffer the agony, heihad experienced ilur-_l ;, ing,'the past few months." He had never■'.,'":" desired to deceive Tyera.— -Ho had-gone :• Home to raiso money on preferred stock,/'.!'- , ; and had then presented to financiers '-f] drafts of tax returns to show the firm's , ..'■ i •■■

income.- ' . v ,'■■ -• , :...j; ■In. -cross-examination by Mr; Neave, ;'!. ; Smith said he endeavoured to ascertaia . -i the amount of salos and the • amount. of '. disbursements for the period; ; Modlin's '?: 1905 balance-sheet, had been handed to/ '•;;■; Tyers as soon as witness remenibcrcd its ■.'■•■' existence. He made his own caloula- ':& tions for taxation purposes, instead-of '; taking Modlin's figures, because he was': " following the custom of previous years. -"■ " • To Mr. Russell: He had never told-' , , 'Dyers, ho always made up the .-.tax, returns. ;, ;

Evidence of A, S. Biss. ■ ' ■ '. Augustus Samuel Biss, accountant), of. ;■; Wellington (whoso evidence,was omitted '.'". by the Press Association from yesterday's L'f report), stated that during the past ■ '.'■ six or seven weeks ho had : made an '..'. i. exhaustive examination of Bowrqn Bros.' •',..' books from September, ,1901. He fou'nd .;■ p; that thore were several items iii' Itodlin's ii ■ balance-sheets for 1902, 1903, and 1801.... }■• which should not be there. Ho noticed , ? the absence of any notice; of surpluses'or ', .-' , deficiencies on shipments of the firm's '. : own goods to London. ■ The-- firm's . ■ . practice had been to debit goods shipped'■ vj;'.' to London to the London house at the ;,ii/, highest price they were'likely to realise. V,'

Goods shipped to London- by. the--firm. , . .'|'j; on its own account were-'entered.at the;•■;■'■•' highest price it was possible they niighfc-l:;; ; : bring.: If they made' less, a' debit -.j entry should have been made in-vtheV'."..'; goods account, but ho had been able to;.-'!;''.'. , .find no such ; entries' in tho bookss',Ho'?,>-;;.-r had, however, seen a report from'". the ■' 'ifcj London accountant which., enabled . hiiu;.. ?'-.' to reconcile tho amount" stated bjf"theV? Infirm •to be oiring ■■to ■' London and :, tho .' '■,";' statement according to "the books.' ;l Witr ness produced a balance-sheet for 1905, in which a liability of owing '.bT : '.'rjv. the London firm to the" firm .was shown. ... ■■ "_'.;. "■>' ■■';'; The Chief Justice asked' : if. ; .thcreVwa'e.r' ■■:".;.' anything-in Modlin's balance-sheet'"for-'.,•'..i; J.'/ 1905 indicating this. . '•'■;■' '.''.. i--.. r ,;-'''-^ Witness said' that after .September,'if:':';. 1901,: Modliu had dropped-'-.'the, balance- ;' due by Ijoudon. in his . balance-sheets,';,.'-;.,,■'-■ and showed , only the-current year's •lia-'.i'-fji bility. Jlodlin had apparently written ./ 'off the London debt in two. ■ successive '.yi'i;<i balance-sheets, writing ..off 11)3. in 'the fjE 'tL"«!:i in-each. Witness. fou'nd that ; .£37,000- ■ : ,."^ v "would have to be written' off .for" J»"°'■■*■'{. clamations in 1902, 1903, .and; ,1904. .:.yii There was no entry in the.books indicatr.!!V-'.;|-; ing'these operations. An entry should '-"i-CJi .havobeen made in the ledger crediting :, BoivTon Bros.,' London, [ with- a .torres-: vi; 4 ; ponding .debit- entry in- the- profit-' and-Vi'rJj loss account. .. : ' ' . ": : ■■'-,.'^i'^o

I'ho Chief Justice 'asked if witness::;', could show him any entry [on. tho 1905;'■;•'.".■■■' balance-sheet in which - sales in London ':'■''-' '''i', were set down in excess. • ■.. >~■■■ Witness said that he , could not par- 1 ' ~: j ticularise, but the excess, amount undoubtodly there. There was no proof ; : of reclfiination in 1905, but a large pro. ' ■.'" portion of the total amount of reclama. , ' > tions should be charged in tho years : ; ~p--1902, 1003, and 1904, which would' make . ' the profits shown by 'Moillin .illusory. , ; ■}■ Ho had reason to doubt the bona fides of . : £. the LondoK transactiona., . The partners :■: of tho London firm assured him that the '• account of them was correct. . J This concluded the case for, tho appel- "i lants. . '- '■' ■■' .■■•••■- . v Mr. Stringer stated that Tyers would ,' i' like to criticise statements put in by ,'• the accountants. ' .';. ~ ..?: The Chief Justice said that the evi- U dence did not affect the. 1905 return. , ,' Mr.- Russell submitted that though '. .i' the. return made by the appellants was : v incorrect, there was no criminal intent,, , r and no intention to evade taxation. V' ■•■);

Remarks by the Chief Justice. ,;,.,,>'; Tho Chief Justice said the return, had w;. , been nltcred. TJie figures required by;-.; : i statute vreni not put lii,. and.tho : reason, according to Bowron, was'.' ia '•'* i| cover up forgiveness of tho debt, owed 1 -'- ' by the brothers in London. That was'-; •? knowingly, done -to conceal something.;,;. .-.- fiom the Commissioner of Taxes: Tlio evidence .of Smith was the strongest that ' > had been brought forward for the- de—.—.: fence, and seemed to prove the bona fides of the firm in regard to the tax ' ' ' returns generally, but the alteration of tin, 190!> return -remained.. .... ■ '

I Mr. EussoU submitted . that, though -,;. tlio mistake was made, the appellants. ■.-- could not be held guilty of deliberate -; fraud. ' ... . ' ' ■" : The Chief Justice said he oon!d only •:.■■ «iv the evidence of Smith jmprose-d him; .v-:.-deeply as to the bona iides of the appelAfr.' Russell said in (lint caso.liC; wtu-• ■ ;> inclined to leave the- cafec'as it. stood: '■ '•;.-., Mr. Stringer said he would liavoboeu ■>'■.- pleased if ho had bech'hbje to modify.-:.^';,; -he charge in some way, but a false,k>-.:;.;:■* turn had been made. Sinith had cstab- ..""' lished liis good faitli in regard to the"'?;';.■: returns. . . \ >• : - . '.:■., '.': ; Judgment will -be.given, at.2-p.m. to-~ . morrow. ■ . ■ ' . .'