FALSE INCOME TAX RETURN.

Dominion, Volume 3, Issue 887, 5 August 1910, Page 5

FALSE INCOME TAX RETURN.

CHARGE AGAINST BOWRON BROS. CONVICTION UPHELD. FULL TEXT OF THE JUDGMENT. (By Teleirraph.—Press Association.! Christchurch, August 4. The Chief Justice (Sir Robert Stout) and. Mr. Justice Sim gave their judgment' this', afternoon on the appeal by Messrs. Bowron Bros, in the income tax cases. Mr. T. G. .Russell appeared for the appellants, and Mr. T. W. Stringer, K:C:; with Mr.\T.- Neaxe, for the De-, partment. The following is the text of the judgment:— .•; This is an appeal under, tho provisions of'.the Justice of Ihe Peace Act allowing general appeals. Tho information in which the appellants were charged states that they "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, evado taxation in respect of incomo tax.'' The section of the Act which they are charged with violating is Section 106 of the Land and Income Assessment Act, 1900. . That section states that every person, whether liable to taxation or not, "who by any act, default, neglect, fraud, or contrivance whatsoever, evades or attempts to .evade the full assessment of taxation or the payment of any tax commits an offence," etc. The magistrate before whom the case was heard found that this. section of the Act had been violated by the appellants. The particular charge referred to the return that was supplied by appellants to the Land and Income Tax' Department, and was dated November 6, 1906. It contains statements as to sales, stock in hand, purchases, labour, material, etc, . The Return AnalysenV It also contains returns in which deductions from gross income are taken, and in thwe deductions there appears an item of bad debts. The words in the return regarding bad debts are-.—"Bad debts to include those proved to be bad 'during the year, and actually written off tho hooks, aiul.no others." . It" has been proved that these returns aro inaccurate, and that they were knowingly-made inaccurate in order to cover a transaction .to which reference must, further be made. The inaccuracy appears not only from the evidence of Tyers, which he collected from the' books of the firm, but also from the balance-sheet, which was prepared by the auditor of , the firm for tho period to -which the return -refers. ■It may be- pointed out that the sales, shown in the return amounted to J305.749 (shillings and pence are omitted), whilst sales shown in the balance-sheet prepared by the auditor of the firm showed .£378,714. Stock in hand, amounted to according to the auditor's account, whilst in the return it was stated to be JE72.562. Then stock in hand at the eommonccment of the twelve months ,was shown in the auditor's account as. .£84,972',. whilst in the statement it appears as .£71,960. Purchases of stock also differed. In the auditor's account they amount to .£297,605, whilst iu tho return they are JJ242,275. Then the labour and material account as shown in the auditor's account is .£27,028, whilst iu the return it is shown as .£32,538. While the returns are therefore wrong it is unnecessary to point out ■ how the conclusion of these two accounts differs, but it may bo stated that, tho profit and loss account prepared by the auditor shows-the profits as '.£52,4i8, whilst according to the return they are only, i18,83G. """ "

,' How the Discrepancy Arose. , How then has this discrepancy arisen? It is admitted by appellants that it arose through their desiring to forgive a debt due by Bowron Bros., of London, to tho iirm in Christchurch, and that they deliberately made up figures so as to show a profit less by deduction of what they have termed :i "bud debt." This, of course, is entirely contrary to the requirements of the law, which requires that bad debts should be -placed in a special and separate list, and ordinary bad debts are so placed.by them in their return. They claim a reduction of J2027 of bad debts. It is liot olear to .the Court that this' debt of .£37,75S which they say was deducted was in effect a bad debt. I'rom the transaction as explained it seems more like a gift from the Christchurch firm to the firm in London. It is unnecessary '• for us to consider that question, because it is olear that ho person has a right under the law* to send in a wrong or falso return. Excluding the question of deduction of a bad debt from the consideration of the Commissioner of Taxes, what ,has been done in this case? If Modlin's statement is coireot he made up a profit and loss account for the period ending September 30, 1905, excluding what may be termed the London accountthat is, a question'of the. liability of the London firm to the Christchurch .firm. In his evidence ho said "we agreed (that is, • with Bowron)-to eliminate the debt alto--gcther and to reduca assets by that amount'. That is to do away with .£74,000 altogether. ■ "Question: 'When was that?' "Answer: 'February, 1905.'" "Forgiven or Abandoned. 1 ' ■There appears in the balance-sheet for the eighteen months 'ending September 30, 1901, an alteration in red ink niadu by ' Modlin, reducing . the debts due, which are entered at .£85,071, less investments included in error A'3G22, making .(.'52.000 to ,£41,291. There appears, then,to havo been taken off .£37,758, which is the amount of debt which appellants say ivas forgiven or abandoned as agninst their London firm. It is doubtful, therelore, to our mind, whether Modlin's balance-sheet of September 30, 1905, did include in the, amount of debts due this amount of .£37,758, and it may bo there'tore that the process that appellants resorted to was to have a second forgiveness of an amount of £17,758. Whether this is so or not seems to us to be immaterial, because it is admitted that the return is entirely, incorrect, and that appnllnnls hnv» violated the filature.,,"ll. lias been admitted by appellants' counsel that if .the statute has been violated appellants are liable. The words of the statute are, "by any act evades taxation," and what is termed in criminal law ."mens rea" has not to bo proved. This being so, it is clear tbat tho appial must be dismissed, and the magistrate's decision upheld. | Further Comments. We think it our duty to state that Smith, when he went to London, eouiLmissioned to raiso money '.on loan for the use of the firm, laid before tho | brokers in London a statement of .tho earnings of the firm, and ho assumed and so submitted to them that their earnings wero not. those staled in the balance-sheet of Modlin, but were those I hat had been returned by them to the Tax Office. Th.is, wo think, shows he was not aware that the earnings, if the debt to. Bowron Brothers was forgiven, exceeded the amount of their return. Of course, this doc 9 not exculpate tho partners from violation of the law. l'hey had no business to forgive a debt duo by the London iirm, or treat it as bad without disclosing the whole transaction in their r6turn. What they have done is to evade taxation enacted by the statute and for their so doing they must be liable, though they may havo acted in good faith. The question as to tho exact iimount for which they have to be assessed has riot to be determined by us. That has to be dealt with as the statute provides, and therefore it would be improper for us to say what we thought was the correct income liable to taxation for the year 1900—that is, for tho financial year ending September 30, 1905-nnd it is clear we havo nothing to do with the, other previous or later years. Section 107 of the statute points out how the assessment is to be made. We think that all that is necessary for us to say is that the appeal must be dismissed, with costs, aid. the conviction affirmed. We ma* add

that we think it is to be regretted, that the evidence given by Smith was not produced in the Court below, and that the defence raised in tho Court below of a debt of .£IOB,OOO by the Homo firm was relied on. Wo fix tho costs at .£2O, with ten guineas for each day beyond the first, that is, making in all ,£6l with witnesses' expenses and other disbursements if there are any, these expenses and disbursements to bo fixed by tho registrar.