INCOME TAX CASE.

Dominion, Volume 3, Issue 884, 2 August 1910, Page 6

INCOME TAX CASE.

;';■:,-;.-V ' ; -.-' . ... .'. » . ' ■.' , :APPEAL. ; ,{■;;:; EVIDENCE OF'MR. ,W; M. TYERS. :'::.:: "LAUGHING AT THE' DEPART■^^v';;.-:. ■ ■,:■:; < MEM?'•■ '■" ■ ' ' F,■-. ._ nJyTelesrapn—Press Association.! : I'; '■-.::; :. h.C.hr.istchurch,., August 1,. !.":;'-.V';-:'The-':appeal;.of.-.Wijiiam Bowron, Geo. [■' . : ' BowToii,. and George John Smith against ~ th'e of ■the Magistrate in the ; ; 'income tax .case;-, was: taken in tho , Su- /> preme - Court, this: morning .before, the '{/'■: VChief Justice;:'.(Sir Robert;Stout).and Mr.' .:.- .Justice' Sim.' ' . ■'.'■ •. ; ■ ' ;.V ; "-Mr. T. ,G., Russell ..appeared :for. the ; . appellant's and.. ltr.'. Stringer,. ICC.,: with ';■ .;• him.r Mr. T. .Neave,, for,,, the respondent, v<.:. the : of Taxes.:.'- 1 . . . 1 :: : ■ ; /Mr.' Stringer at once; raised the: .point ■ '■:-'':,' that)'.the'. ground ■of appeal was not shown* ■ " ' w : detail!:'. .He/contended 1 that the.Court ; ..'■;■had power -to- orders the: appellants: to set out'K the' grounds of ..appeal in .-a; more. ,/,. definite. :■■;.•' v: i . . .'. "'.i.; '... ■:-.-.■'.■■":■ Mr. Russell- said he understood ,a"-plea . .'of..not..'guilty.-would giyo,* the, appellants ;'■:■■■'_.: the "right to traverse the., whole. of the : -- case; , ' • •''. r- ' *'' .-. "■' '" ." '■■ • ".': 'The 'Chief Justice, said ■Mr...Russell ••.'■.■• •• woul.d. : liave- to'show that- the; evidence; :.- *■ already' given ■ was not ■ sufficient ■ <to. war-., '•*. lant/a .conviction, or..else raise specific '••',■;■ ipoints,- of 1aw............ ~ , . . .. ."..■ ■ " .Mr. RusaVill'argued.'th'at"lhe,"appellants :, ; h'ad : to'show- upon what grounds- 'they .'•• challenged -the'-finding. , of- tho Lower .•-,-■. :C6urt i: ; and- : they. said; they. , were not ■:y :guilty of.an offence.■ -:■•. . .. . : ". . .: :.The. Chief Justice .replied, that a. plea .'.- of .hot guilty .was not a -ground of i<l^ : peal.' He had never heard of such a ;. thing/ :If there were specific grounds ■'" theiother side must-have'notice of them.' ■ :■'■ Mr. RussMl responded thot;he.:beliqved •1.--,":|the evidence iir: the Lower. Court did not ■'; '-'■ ■'-.ijnsHfy' a.-, cohviction. -' Appellants' own , : ievideuca was not given. .In that casb :' :■' "he would show that the facts were dif- •-:." -ferent : from what they appeared to .be. .:.- .Appellants were- charged with bavins' 'l. made, a-false return \vilfully, and ho ■;: - would.' bring evidence to eliow' that the -■ Tatnrn'was ■ correct, or) if not correct; s; -Tvasj.not imade'. with intention to'de--,V .'fraud..:.-- '■ ' ■'•'''■ ■■' : ' ' "■-' ■ .' ■ ■- '■•'■•■.' V Mr.. Russell thereupon amended : tht< : ; ; -ground ~of '/appeal :ty . inserting tho .-■ words:—"That the return:in-writing is :,- -Bot-false, of, if false, is not'false with :i :'. the- knowledge of appellants." .'' ;: . • ''-'MK Stringer, Opens the Case. "■ ■■ ': Mr. .Stringer, in-opening the. case, said .•- .the return.iat issric,hdd. been.'mado by :' IBowron Bros, on-November 6,'1906, and i-.ißhowed the. income of the'firm for 18(15 at ■ : ;i;18,830. At: this, time. tho firm' had' in . iits possession a balance-sheet, prepajed by. ■■'.: ~.}z. competent accountant, ] in ■ connection '-"..'-. '.. .with the flotation of tho .company, 'which .'■"■■' thowed 'the- net income to bo- '452,418^ . .'.'Certain: deductions were there made, which ':■ :.'. iwere' not> permissible .'..for' taxation'■ pur- '■■;.' iposes, , and, the '-real, -taxable income ' was : •'.'■-.i£6i,972.. .If: this was the,-troe position,' !.;"-■ 'the firm -paying taxation on.about a '.'.'.■'■ third of .its income.. ■ ■;.■. ..'.:' : '■.-■" ■. "'.'' ■: :Th<ireturn'...was in',, the-handwriting of' f.'i 'Mi. Smith,' , .and was''-.signed.'.-by George l .-.-•Bowibn; VHp desired: to draw-, attention to' .■■ *. the. diiicrepaiicies:between-: the .balance- ;-.'.' -. sheet'and the, return sales:—The '.balance-' '•'■■ sheet.figures'were-.-6378,714, and.those of' . - ; ;~ the..return '£s&,W; . '■'. '''..:. ■ '::}'■ :'■". ;:- ' ; :• -The: other :discrepancies included'/ the' :'-. : . r > following:—. \ ' ; -,:'";". /:';./.'',.'..--' : ' .' '.'- ''-■' r.'\ '''*i ■■,■;'•.,■'■' : ; 'Balance-sheet. Return.- ■^/• : : s-'-.k;^,':'?;'.:^',;:.;;^ , ': ' ■•■"■ stock ..;...;:......;........... 811,779 ■ fi562 .;.. Office, salaries-................. - 2,029 :./: -Bad debts '.-. A -' 354 ' 2,027 v.,.-'.Stopk'at Septe'm.ber.igoi,79,9s6. ~ 71,900 ,'i-.'-Purchase of materials '•'■ ";'--.'»nd • labour , . .......;....... 334,633' 274,814 r;'--: ,The. discrepancies-were in , favour, of'the .--/ taxpayer and'against the-Ifcpartment to. .;.',- the, extent of .£35,000. 'The Department's ...;■- inspectors, would state -that.'.information upon which. the. : balance-sheet was made V: v was taken from' the, >books of the firm, /' and.:there'.,was: no ''reason why a person ■■' 6ceking.tp make.an.honest return should ■,-.■' . "not-have been able' to. m'ake. ; one 'on- the .';.. lines.of the - balance-sheet. ;: The ques- '■ ':.' tion, therefore, 'was on'what data, had '.'.■ ■'. the return been, made.,/ In the earlier /;.';' part of-Mr/Tyers ? s investigations, Mr. ■■•' .;'Smith had. denied- there- was any balance-' : sheet, and it ivas 6nly iwhen the firm ■--':; wished to'Taisc.the. question, as to the -.'- .'.accuracy of the' provisional assessment .! .-■_' that the,, balance-sheet had been produced. .■..■■Mγ.- Stringer continued along the linos :-: nf the.case presented-in the. Lower, Court. : Bowron.. Bros., had sold; their. English ' ..: liusinpss in:i9o7,'and then'.'shbweil. a'siif- ., , plus of assets over.liabilities,of , . Tyers, with a vie.w of [ chocking his '.! figures', had prepared" a statement which' showed the firm could. ,not have attained ■":.. .this .financial position 'it • jl',bad made ; ; only' the.profits indicated in.return's, (o. .' ..; the Tax Department.^'■ If it had made tho ;,: /.profits -shown' : 'in' the balance-sheets pre- -.■■. .pared by tho accountant in' view of the ". ':. ■ iloating,of , company) : howeve.',..the siir- .-.. : plus'/of assets'-over'-liabilities would have' / : ...been'. about .the sum named. :■ '■'■ ■ ■■. - ' '■. ■. ; : . ..v .. ... . t ■ .' Departmental - Inspectoi-'s. ] .'.,.: William .-M.' Tyers, inspector, -in the .:. -.Xand -and;lncome. rTax Department,'gave / : .evidence. He stated that in June, 1909,' in;Christchurch to make an. in- -■-■', vestigation into- the .account-of Bowron . V Bros, and Bowro'n Bros. I and*' Company, : Limited.' Ho saw. Mr. G. J. Smith'about ;., ,; the; accounts: of the:old firm of. Bowron :■- Bros! and-was : informed that yprior to "•; : ■: July.3l, 19Q7; no balance-sheet'or profit and loss-account., of any kind had over . . ..been prepared. Witness.had various cori- .; versatiohs with Mr. Smith 'tis to the sys- '. ■'•'■ tern of' keeping the firm's books and :'■'•- papers.' Mr. Smith threw doubt on tho ..'•.-■.'accuracy of- the', ledger -kept' by Mr. : Goodsir;. Witness examined, .tho books and'found that as a complete ledgerthey •were, imperfect. They had," however, .'trading accounts and expenses accounts, ■'..and: although they' did not contain the ..-property-accounts and the capital accounts, and the capital accounts of the partners, they did contain accounts show-■....'-'ing additions ' mado \tb •' property' during ■:■'■■ 'the year, and accounts of the partners' drawings.' Witness drew .up some provisional assessments for the years ending ...- September '30, -1905 and' 1906,: and' July : 31; 1907. The discrepancies between the . -firm's returns of ■ assessable, income' arid .: witness's: assessment of what should have ■ ■ been returned over those periods were :— 1905:-Firm's returns '£18,000," witness's . assessment 1906: Firm's-return --. *SH:oof>.- witness's 'assessment , .£68,676. ■:'.'.■ 1907: Firm's return ,£SOOO loss; witness's. ■:'.'. profit: ■ Witness snb'-' sequently put-some questions, to Mr. .. Smith-and was-informed thai; no private ..'ledger had been kept, that there was'no profit and loss account before September 3Q, . 1908, and 'no balance-sheet' before 'July ;. - 31, 1907 -.that, all stock sheets ■ prior -to --.-. Jnly 31, 1907, had : l)een destroyed. .. ; ' " A-Claim to- Deduct £108,000. - Witness heard ' that Mr. Modlin was checking his assessments.' ,, . On Septemlier 7- Mr. , Modlin ; brought forward . a claim, .to: deduce: from Ihe asseisments . which he said was owing by Bowron Bros.. London, toy B.owron Bros Christchurch. The London firm was not * in. partnership, with the local finn. Witness : considered . that, it; was perfccllv ndiculnus to deduct tho amount. Ho hf.<l no proof, that it was u had d.*l. .It nau. m.-en. accumulating since about ,-■. . 1599. and at 1 the commencement of tho period over which ho was a.«e«sine the income it amounted to J!9O,SSn. It had never (boon included as earnings, and was .larger than the profits which had v been-returned over i the whole period. ~'• Hr.ivos informed that no steps had been taken to; collect the amount j which was represented as the surplus on-shipments sent to the London firm which had never been remitted to the local firm. Witness made certain ; deductions amounting to jßl7,opo',frbin his assessments to allow for -." the portion of the bad debt..which had accumulated from October 1,. 1905, to July .31, 1907. Later, on- a balance-sheet, up to September-30,.' 1905, was .prod need '■'-.•by Mr.-Modlin' showing a-net profit, of ■£52,418, or ,011,000 more than witness had named in his.provisional assessment; Wit- . - ness, afterwards secured from Mr. Modlin balance-sheets for ISO 2, 1803, anil, 1301, t which . show«l'.'a considerable difference between, the.'income returned by the : firm and. that ■ disclosed in the balance- . .sheets.- The income returned .by the : firm in 1302 was 47429, and disclosed in the balance-sheet . .£22,751; returned jn

1903" £10,395','< and disclosed by balanceshect •■ JE2a,085;- - poturncd in 191)4 £U,&W, and disclosed by. balance-sheet £20;533. Working on Mr. Modlin's balance-sheet for 1905 lie had arrived at a taxablo income of .£62,755. as. against returned by the firm. Witness referred to the sale of the business by the firm to the company on July 31, . 1907. The capital,. according .to the- JirmV return, should have been .£91,506, but as a matter of fact the capital of the neu' company was. i£205,500. Mr. Modlin's bal-ance-sheets gave a. result which approximate this. After tho luncheon adjournment, the witness continued his evidence. Ho said that he saw the statement handed to the Commissioner by Mr. Smith, and he regarded it ns an- unlruo one,. generally speaking. -When a big profit was shown by the balance-Sheet' or the. books Mr. Smith ignored it, and took the average for smaller, years. . There wns also a statement that.the-firm had sold to-tho company for .£200,000. There were other discrepancies in the statement when compared with the. balance-sheets and the books. . _ .'.-.'-.■ ...- ■ .' Cross ; exatnination. -. Mr.-. Russell. cross-examined .at some length. ... The witness said -that ho had access to the books' from the'end of June till September 28. He-was'given all tho books and papers, with the exception of baliincs-shtets, 'when he asked for them. The partners didnot'ippear-'to' bo perturbed ■by ■ his investigation. .Ho first suspected that there was fraud on September 13. He was considerably shocked by- the facts which ho had discovered, as he believed that -.the' firm had been laughing at the Department. -After that date l he-did'not-see that any good purpose could'be served .by discussing mattors with'tho defendants, .as.'.he could not trust them. He- believed- now; tnat there , was the equivalent" of a private U-dger though ; the firm had assured him that ■there'was not one. , The next'witness was Peroy Howard Goodwin, formerly'in the employ of Bowron Bros; from 19W to 1907, who said he n©vcr\took out , -a" balance-sheet, arid tho books' he ; kept, did- not 'con-tain, sufiicient information .for the computation- of'one. He did not. get stock-sheets or information as , to capital. -.'• ...:.■: .;.- , This'concludtd 'tho case■ for''the De'pailment, und_- the case whs'adjourned till'to-morrow. '.' . "'• '' : "'