Recent Judgment SUCCESSFUL APPEAL AGAINST TAX CONVICTION

Press, Volume CI, Issue 29714, 6 January 1962, Page 5

Recent Judgment SUCCESSFUL APPEAL AGAINST TAX CONVICTION

Vuleta v Commissioner Of Inland Revenue Before Mr Justice Henry, at Timaru. ißg • Legal Corresponaenl) A former bookmaker was convicted of wilfully making false returns of income in respect of years for which his income had been assessed on the assets method of computation. The Magistrate, however, was not satisfied the tax-payer was carrying on the business of a bookmaker during the tax years. The taxpayer claimed the income he had not returned was a result of private betting and so not assessable for income tax. His appeal succeeded, as the Commissioner had not proved beyond reasonable doubt that the tax-payer’s private betting activities had become a “business” or were for incomeproducing purposes, as distinct from mere indulgence in punting.

The appellant was charged in respect of nine informations of wilfully making false returns of income. He was convicted and fined £5O and costs on each charge. He appealed against eight of those convictions. By applying the assets method of assessment in those cases, the commissioner found large sums in each year which he considered were not satisfactorily explained by the appellant as originating from a source which was not taxable, so he assessed appellant for tax accordingly. In 1952, 1953 and 1959, this method disclosed a loss and not a gain in assets. For the years 1951-1959 inclusive, the returned income totalled £21,674 16s 7d: but, as assessed on the assets method, it amounted to £35,178 4s. Onus of Proof Mr Justice Henry, who heard the appeal, said the commissioner was entitled to make that assessment. Section 32 of the Land and Income Tax Act, 1954, placed on the appellant qn onus to show that it was wrong if he wished to dispute the assessment. However, 5.32 does not apply to a prosecution under the penal provisions of the act. The ordinary onus of proof beyond reasonable doubt falls upon the commissioner to establish that the amounts claimed as being “assessable” income are in fact and in law assessable income. In effect, then, what the commissioner set out first to prove in the present prosecutions was that appellant earned or lost (as the case might be) the respective yearly sums as a result of some activity on the part of the appellant which produced income of a nature assessable under the statute. The case for the commissioner was clearly a claim that the appellant was carrying on the business of a boookmaker throughout each of those years and that the profit or loss resulted from that activity or from allied and associated betting activities which would carry with them the implications that they were part and parcel of the appellant’s business as a bookmaker. The appellant made no returns from ally such activity during the relevant years. For many years previously he had made returns on the basis that he was assessable for income tax because he was carrying on the business of a bookmaker. His explanation was that he had. after the year 1951, ceased all activity as a bookmaker, and that substantially, if not almost entirely, the discrepancies shown by the assets method resulted from private betting activities, or, as he put it, his betting as a punter. No suggestion was made that, if the appellant were not carrying on the business of bookmaking, the profits from punting or other betting activities were assessable Income or that his losses were deductible from his other returned income. Magistrate's Finding The Magistrate found that, although he considered the matter was open to suspicion, he was not satisfied beyond reasonable doubt that the appellant was carrying on the business of a bookmaker during the years with which these appeals are concerned. He also held that the appellant’s explanation that “the undisclosed income (sic) in these years was derived from betting alone is at least possible." His Honour said that was the equivalent of a finding of “not guilty” on the case which was presented for the prosecution. The convictions were based on a finding that the appellant had derived profits or gains from the carrying on or carrying out of an undertaking or scheme entered into or devised for the purpose of making a profit. This is deemed to be assessable income under the third limb of s.BB (c) of the Land and Income Tax Act, 1954. His Honour held that the appeals had to proceed on the basis that the amounts which the commissioner claimed were profits, gains or losses from the business of bookmaking were not proved to be such; and that the taxpayer's explanation that personal betting was the chief reason for his increased assets was not disproved. The appellant could not therefore be said to have made false returns. Two Grounds His Honour said that the present case was one where the taxpayer had put forward an explanation for the amounts which the commissioner had sought to prove were assessable income. The explanation had not been rejected, so, unless it were that, in itself, it dis-

closed an assessable source of income, the appellant was entitled to an acquittal. This for the reason that the explanation left a reasonable doubt whether or not the activities disclosed did produce assessable income. Only two grounds could be advanced: (1) that the appellant came within the provisions of s.BB (c) as held by the Magistrate, and (2) that the appellant was, on his own admission, betting to such an extent that it was proved that he derived profit and/or gains from a business or scheme entered into or devised for the purpose of making a profit. His Honour said that, according to the Shorter Oxford English Dictionary, a “scheme" in the sense in which it is used in s.BB (c) is “a plan, design or programme of action, hence a plan of action devised in order to attain some end; a project, an enterprise.” To “devise” likewise is “to order the plan or design of; to plan to contrive, to think out, to frame or to invent.” The evidence, His Honour added, showed nothing in the nature of a scheme devised by the appellant, even if the words were appropriate to betting activities. He seemed to have “devised” no “scheme” of betting at all in any sense of the words. He simply said that he was a successful and heavy gambler. He claimed to have some superior knowledge of the winning, habits of race horses or of those persons who have that knowledge; but, so far as the evidence went, he had not devised any scheme for the purpose of making profits from uncertain results of horse-racing. Merely because he was successful in, according to

the figures, six years out of nine years, his Honour said, that was not sufficient to hold that his gams or profits in the successful years were the result of carrying out a “scheme devised for the purpose of making a profit.” Betting Not “Bnsiness” His Honour said that left the . prosecution in the position that it must show beyond reasonable doubt that the appellant's private betting or punting was an activity which produced assessable income. If there was a reasonable doubt, the proof must fail. His Honour was not satisfied that the prosecution had sufficiently discharged the onus which lay on it to show that <he appellant's private betting activities had become a "business” or were for the purpose of producing an income as distinct from the mere indulgence in betting. It was for the Magistrate to say whether or not the appellant was proved to have been carrying on the business of bookmaking, and he was not satisfied; so, the matter being properly within his competence, that finding was a proper one.

In the result, the appeals were allowed and the convictions and penalties quashed. Counsel: For the appellant, Stevens; for the Commissioner, Gresson. Solicitors: For the appellant, Compbell, Kelly and Stevens (Timaru); for the Commissioner, Crown Solicitor (Timaru).