ALLEGED FALSE INCOME TAX RETURNS

Grey River Argus, 5 June 1948, Page 3

ALLEGED FALSE INCOME TAX RETURNS

Department Inspector Closely Cross-examined

P.A. WELLINGTON, June 4. A denial that press publicity regarding the purchase of an expensive launch by one of the defendants had prompted his investigation of the affairs of George and George Ltd., and its directors, Arthur Leonard Roediger George and Clifford Delpay Andrews George, was made by an Income Tax Department witness at the hearing of the case against the flrm. The witness was the former Chief Inspector of the Land and Income Tax Department, H. H. A. Young, who was under cross-examination by Mi- W. E. Leicester, who appeared for the defendant company and the directors.

This case involves a total of sixteen charges, alleging false returns of income frqm 1943 to 1947. It is being heard by Mr H. J. Thompson, S.M. in the Magistrate’s Court. Mr W. R. Birks is representing the Commissioner of Taxes. The witness, Young, said that he had seen press reports of the purchase of the launch, but the investigation was begun by him. on his own initiative as a routine matter. He had no special instructions from departmental superiors. Some days after he began the investigation, he had asked A. L. R. George about his purchase of the launch, and a subsequent investigation in Auckland had confirmed George’s statements. Witness told Mr Leicester that. he began his investigation some time last August, and ceased about the ■middle of November. He had received the co-operation of the directors and the books were readily made available, including the cash inward and cash outward books. There were cash outward books for each year, but only one cash inward book for all of the years that he was investigating. He had found that invoices for the firm’s operations were available only back to July, and he had suggested to the directors, in writing, .that they.should be kept for five years as that would assist his department. BOOKS DESTROYED

Witness said that when he returned from his holidays on February 6 he had found that the cash inwards books, except for the current year, had been destroyed. It was said that they had been disposed of to make room for future records. Witness would not agree with a suggestion by Mr Leicester that the directors • could have taken it that the investigations were finished in November. Witness agreed he had written to the firm at the time, asking for a written reply to certain questions. A letter dated December 1, which conveyed the firm’s reply, had reached his office in the department a few days before Christmas. Mr Leicester: That is not unusual in the department?—Witness: No, but I may have been away in the meantime.

When he returned on February 6, witness said he had been surprised to find that vouchers which he wished to check had also been destroyed. Mr Leicester: When you referred to this in your earlier evidence, did you wish to convey to the Court that there was something being concealed? —That is a matter for the Court, I think. In reply to a further question by Mr Leicester, witness said that in law the onus was on the taxpayer to prove the correctness of his returns, but there was nothing in the Land and Income Tax Act making it incumbent on companies to keep their vouchers. He had found, however, that it was usual for companies to keep them four or five years. Mr Leicester: Does the department investigate the accounts of all firms, or just pick' some out?—-Witness: In the present shortage of staff it is not possible to get round them all. Most commercial firms realise that they are liable to inspection at any time.

Witness told Mr Leicester that, in November, in a letter to ifhe firm he had suggested that some of the cash sales were short stated. No particulars of these were given, and the department was under no obligation to give them. After seeing the records he would say some of the cash payments could not be traced. He- could not point to any particular instance, but cash for the payments had come from somewhere, and the department could not accept the Georges’ explanation of personal savings.

After detailing year by year the profit returned by the company from 1940 to 1946, and obtaining the witness’s agreement with differences of a few pounds in some cases, Mr Leicester said they totalled £78,832, on which £55,597, equal to 70.6 per cent., or 14s lid in the pound tax was paid. Witness: Probably in line with other companies of the same size? Witness said that, with investigations of private companies, the shareholders’ personal affairs were always investigated. It was strange if the directors had loose cash at their homes, as they stated they had not applied it -to reducing the firm’s overdraft, and so save bank charges.

Mr Leicester: I put it to you that there are thousands of people who keep large sums of money, and keep it under the bed, rather than in the bank, and that your department would like to get down on it for tax purposes?—Yes, and I think we all know the reason.

Witness agreed that since the import licensing was introduced, there had been shortages of certain commodities. Where such goods were available for cash, firms were entitled to purchase them. He had seen three of the travellers from whom George and George had made purchases for cash. They would not agree that the purchases were to the extent that George and George had stated, however. They did not agree, by a long way, with the George and George records. There was no legal obligation on the directors to keep complete records of their private affairs, and such were rarely met. said witness. Individual directors might have made savings in depression years, when they continued to draw good salaries, bonus salaries and directors’ fees.

Witness agreed that there was nothing sinister in payments made by Miss Winifred George to C. D. A. George on his return from the war of the balance of salary dro\vn by her while replacing him as a director in his absence. It seemed feasible now, hut, in the light of complete knowledge, witness had thought the explanation a sham. He was not aware if gift duty had been paid. Mr Leicester: I suggest that you entered upon this investigation with a feeling that the directors had been misusing the firms money?—No. But when I had seen the books and found vouchers missing.

Mr Leicester: I put it to you that, from the first, you have taken the attitude that the directors were guilty until they were proved not guilty?—No. But in this case there is proof needed. They >eould not

convince anybody without vouchers. Mr Leicester: If the directors’ personal funds were, in fact, used to pay for goods purchased, they were entitled to reimbursement?—Yes. But they should produce vouchers Jm PAt the request of Mr Birks, the witness summarised the grounds for the department’s actions as follows: (1) The combination of circumstances including the missing vouchers and alleged pubchases for which money went into private accounts of the directors: (2) When he interviewed the firm, he did not get the satisfaction he should have got. (3) The fact that Jioth the Georges contended that they saved loose money over a period of year. (4) The opening by one of the Georges of a bank account in another bank than that used by the firm. (5) The fact that the firm carried a bank overdraft, if the directors had the savings they st sited. At the conclusion of witness’s evidence, the Court adjourned to a date to be fixed by the Magistrate and counsel.