INCOME TAX RETURNS

Wairarapa Age, Volume XXXII, Issue 984, 2 March 1910, Page 5

INCOME TAX RETURNS

ALLEGED FALSE INFORMATION. THE CHARGES aGAIN-ST BOWRON BROTHERS. By Telegraph—Press Association. CHKISTCHUKCH, March 1. The cases in which Bowron Bios. j are charged under section 6 of the Land and Income Tax Act, 1908, with allegedly furnishing falst.returns for the purposes of the assessment of taxes, came on for hearitg before Mr H. W. Bishop, S.M., in the Magistrate's Court, at 10.30 tt.day. THE INFOkMATIONS. The charges which were laid by an inspector under the Act were as follows : (1) That on the 6th day of November, 1906, at Christchurch, defendants did by a certain act, to wit, by j 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 respect of income tax. (2) That on the 6th day of November, 1906, ac Christchurch, defendants did knowingly -and wilfully deliver a false return in writing in rer lation to the income of the firm of Bowron Bros., affecting that f.rm'o liability to taxation. (3) That on the 6th day of November, 1906, at Chrislchurch, defendants did knowingly ;-n l wilfully make a false return in writing in relation to the i .come of the co-partnership firm of Bowron Bros., affecting that firm's liability to taxation. Mr T. W. Stringer, K.C., prosecuted on behalf of the Crown, and Mr Skerrett, K.C with him Mr An--1 thony, defended. Mr Stringer outlined the facts of the alleged breach of the Act at con- !; siderablei length. He said the infer,--.' mation was laid against George Bowron. Wm. Bowron and G.J. Smith,/" who up to ISJKJ7 traded as Bowron. Bros. In 1907 the firm was fored iny, to a limited liability company. The firm in 1906 leturned its assessable income at £18,836, whereas, counsel I said, according to the balance sheet of the firm at the time, prepared by i its own accountant, R. E. Modlin, it should have been £52,480; 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 fax Department, and it was found that the balance sheet, compared with the books, correctly diplayed the transaction of the firm. The prosecution, of course, had to prove that the return in the words of the Act, was "knowfhgly and wilfully false." The return concerned in this case was made out and ! signed "Bowron 8r05.," but was in the handwriting of C. J. Smith, who had made out the return for a number of years.

EXAMPLES CiTED. Counsel then gave a long series of examples of how the return had been allegedly "faked." For instance, he said the sales in toe firm's balancesheet were shown at £378,714, but 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. Th9n, salaries and wages in the balance-sheet were shown at £I,OOO, but in the return they were increased to £2,020, a difference of £I,OOO. Bad debts in the balance sheet were shown at £384 only, and in the raturn at £2,027, a difference of £1,600. Purchases were shown in the balancesheet at £324,633, and in the return at £274,914—a difference of £50,000. Mr Tyers, the informant in the case, gave evidence, and showed that last year he had interviewed Mr Smith, who had thrown a doubt on the accuracy of the firm's ledgers, and had said that an "accountant had been brought from Auckland to straighten out the firm's books. Mr Smith said his accountant had prepared a return for ten months upto July, 1909, and prior to that he had himself prepared returns. Ail work sheets and stock sheets had been destroyed prior to July 31st, '1907. Mr Smith added that the firm had been always careful to return too much rather than too little. Mr Tyers had gone into the books because there was no balance sheets available. Changes in the firm's staff had created some difficulty in following the accounts. Mr Modlin, auditor, had furnished note 3 of stocks, which did not agree with the return in August. [He made up provisional assessments,, and left them to be checked. He gave the firm this opportunity fcbecause of the enormous discrepancies. The firm's return for 1905 showed £21,000, and "Mr Tyers' estimate was .siio.vOu. In 1906 the figures were—B.wroj.

£II,OOO, Mr T.>era £6U,UOO. The next ten months Bowron's showed a loss of £5,000, Mr Tyers a profit of £25,000. By another method Mr Tyers had airived at £217,441 as the capital in 1907, approximating closely to the actual capital shown in the balance sheet. He could not ascertain that the alleged bad debt of £IOB,OOO, due by Bowron Bros., of ; London effected the figures before j the Court. This debt was due to transactions extending over a series i of years, and said to be surplus moneys, which should have been remitted to New Zealand. Mr Skerrett: Does my friend suggest he should pay on £IOB,OOO. which was never received. Mr Stringer: Certainly, if the debt is not claimed to be bad in the return. The Crown challenged the bona fides of this debt alleged to be bai. Either 1 it was money invested at Home or money gifted at Home, and not in the nature of a debt at all. In October last Mr Smith had gone to Wellington and seen the Commissioner of Taxes, he knew Tyers was claiming that income had been paid short on something like £200.000, and had handed in a statement showing the short returns at £83,778, subject to a deduction of £33,720. Mr Stringer mentioned the letter sent to the Commissioner by Smith,:explaining the short returns, an 1 concluded 'he could find no rea« Enable explanation of the discrepancies, but the only excuse was. and 11 the interests of commercial morality, he hoped Bowron Brothers would be able to satisfy the Court that the false returns were not wilfully made. Witness stated that the firm's business was transformed into a limited liability company on July 31st, 1907, and all the stock sheets prior to that date had been destroyed. He was informed that no balance sheets were available, so witness had to start on the books. Subsequently witness made an interim report to the Commissioner about the middle of August. Witness made his provisional assessment, for two years ending October 1907. He left these with Smith, end suggested that the figures should be checked. There was such an enormous discrepancy between his figures and the returns that he thougth they should be looked into. The discrepancy was roughly about £41,000. Their return for 1906 showed £II,OOO odd, and his figures showed £68,000 for ten months ending July 3907. The return Showed a loss of £5,000 odd, and his figures showed a profit of £25,000 oid. At that time he put the following queesions to Smith, and obtained replies:—Are the ledgers kept by Goodsir?—Yes. Was there no p/ivate ledger?—No, none. Was there no profit and loss account before September 30th,' 1908? No, none. Was there no balance sheet before J-jly 31st, 1907?—N0, none. Have all the Btocksheets prior to July 31st, 1907, been destroyed?— Yes. How were returns perpared?—Got expenses from accountant and filled in purchases, sales and stocks myself. In connection with the 1905 accounts, Modlin, auditor of the company, explained that £2,000 should be charged as a portion of the bad debts due from Bowron Bros., London, amounting to £108,252. Witness saw Geo. Bowron and asked him: Has George Bowron. William Bowron, or Smith, either separatsly or in any capacity together, any interest in the firm of Bowron Bros., London?—No, Witness subsequently pointed out to Modlin it was ridicuLi..; to claim as a deduction any portion or £IOB,OOO which had not accrued in two years and ten months ending July 31st, 1907, which amounted in round figr ures to £17,000.: Later Modlin gave witness a balance sheet up Co 30th September, 190$, the existence of which lie had never dreamt of. The balance sheets put and showed the income for 1902 as £22,751, while the return given to tb« Department showed £7,429. For 1903 the balance sheet showed £22,085, return £10,395; tor 1904 the balance sheet showed £20,533, and the return £12,860. For 1905, the balance sheet showed £52,418, return £18,836. Later the witness suggested that the firm should pay £IO,OOO in respect of back taxation short paid, and negotiations tcok place between the Commissiom r and Smith, but there was no settlement arrived at. Witness was still under examination when the court adieurned till to-morrow.