INCOME-TAX.

Press, Volume LXII, Issue 18802, 21 September 1926, Page 11

INCOME-TAX.

ALLEGED EVASION.

£15,452 INVOLVED. TIMBER COMPANY PROSECUTED. (TF.ESS ASSOCIATION TELEGEAH.) ■WELLINGTON", September 20. The ease in which the Odlin Timber Company. Ltd., was prosecuted respecting its income-tax returns was reopened to-day, when an appeal by the company against the previous decision was commenced in the Supreme Court. Mr .histiee Heed was on the Bench. Sir John Findlay. K.C.. with him Mr K. F. O'Le.uy and Mr 35. Kennedy, appeared for the company, and Mr' P. S. K. Macassey. with 'him Mr J. M. Tudhope. represented the Crown.

Opening the case, Mr Macassey said there were four informations, which alleged that the company had made false returns of income-tax'for 3921. 3922, 192."!, and 3924. The Department contended that the managing director (Odlin) and the secretary (llerron) had signed returns and had admitted false balance-sheets. Though . the company had made large profits, it had attempted to hide a substantial portion of them from the Department. The company had bought land, buildings, furniture, and machinery, all items of capital expenditure, and had debited them to income, deducted them from profits, and did not disclose them as assets in the hooks of the company, in the balance-sheet, or to the Department.

Charges Against Revenue. Another allegation was that the <onv pany had made fictitious charges against revenue. Mr Macassey said that reserves had not been charged to revenue, and had been deducted from profits. They had not been shown in the bal-ance-sheet with the ordinary reserve, l'nit were included under the heading of ordinary creditors. His Honour: As a debit? Mr Macassey: Yes, as a liability, and the profits were being reduced by these amounts. Section 80, Sub-section C, of the Act of 392:? dealt with bad debts, Mr Macassey said. It provided that respecting all debts, except those proved to the satisfaction of the Commissioner to have become bad, and to have been actually written off in the income year. No deduction should be made from assessable income. Also, all amounts received from "bad debts" were to be credited, and we're subject to tax. Provision had been made for future bad debts, and that was a thing not allowed bv the Act. "We contend," said Mr Macassey, "that there was fraudulent evasion bv the Odlin Company."

Who Was Responsible? 3lis Honour: Who is charged? Mr Macassey: The company. His Honour: Do you contest the position. Sir John, that the company can be guilty of fraud? Sir John Findlay: Under this Act J admit it can. Mr Macassey: We say Mr Odlin is a. very capable and shrewd business man, and-ihat these entries were made under his direction.

Sir John Findlay: Xo; some were made in his absence.

Mr Macassey said that the accountant, Iletherington. was a fully qualified accountant, and that the Land and Income Tax Act -was one of the Acts set for the rl'ountanfs' examination. Even- qualified accountant must have full knowledge of that Act. The Crown contended that when the balance-sheet was submitted to shareholders, the profits were suppressed, and he suggested that there was a sort of scheme by which these profits were hidden, and when the tim* 1 arrived all this property and plant and other assets, which had been paid for out of revenue, and njrit disclosed as assets in the. books of the company, -would be revalued,, -written up in the books of the company, then transferred to the reserve account, and would be issued to shareholders by fully paid up shares as a bonus. That was what was done in 3020. Sir John Findlay: That is what you say.

The Capital Doubled, According to Mr Macassey, the capital of the company in 3919 was £01,944; in. 3920 'the capital was doubled by the issue of 61,944 fully-paid-up shares. This was arrived at by a plan which, involved the suppression of profits. His Honour:. Roughly, what is the amount claimed to have been underpaid'! Mr Macassey: The total deficiency for five years was £48,281,- and the tax evaded was £35,452. Mr Macassey said it was admitted that the true profits of the company had not 'been disclosed to the shareholders, but 1 even if that had been doi|\ why should they have been hidden from the Tax Department? His Honour remarked that, such hiding from shareholders was not uncommon. '

Mr Macassey said Ihe secretarv of the company had admitted that there had been a discrepancy of a. serious nature, and that the penal tax should be. pa id,, but that the prosecution was too severe. Unless the company was convicted of wilful evasion, the penal tax could not be imposed.

Sir John Findlay: Mr Herron was not confessing fraud, but admitting that there had been negligence.

Mr Maenssey said that as the result of wrongful entries the assets were under-stated in four years by £2.1,52:2. Of that, sum £21.575 was capital expenditure, charged to income, and the balance was a fictitious amount charged to revenue. That meant that thi» company would have been in a position fo write tip the book value of the assets by £25,000. The case is unfinished. '