INCOME TAX CASES.

Otago Witness, Issue 2949, 21 September 1910, Page 33

INCOME TAX CASES.

FURTHER PROSECUTIONS.

ANOTHER CONVICTION

CHRISTCHURCH, September 13,

Further informations in connection with the charges of evading the payment of income tax were proceeded with at the sitting of the Magistrate's Court today. The information heard set out that the defendants—GeoTge Bowron, William Bowron, and George John Smith—trading as Bowron Bros., did on December 16, 1907, by knowingly and wilfully making a fake return in writing, evade full taxation for the year enaed September 30, 1906. Mr T. W. Stringer, K.C., appeared for the department, and Mr T. G. Russell for the defendants. Mr Stringer said that the information TeLated to the year ended September, 1906, and was similar to that recently disposed of by the Supreme Court. In the previous case he had gone very lully into the circumstances of the case, as it was known that an explanation would be made of the very gross discrepancies which existed. The proceedings, however, had disclosed the method which the defendants had adopted in preparing their returns. This' method was, it must be admitted, radically wrong. The firm's practice was to ascertain the profits for the year. The --figures were then falsified, or modified (as Mr Bowron put it), in order to bring the profits down to the assumed amount. That resulted inthe figures in the returns being absolutely erroneous. In the year ended September, 1906, the ascertained profits were arrived at by deducting a supposed debt of £37,000, and, having arrived at that, the firm manipulated the figures so as to bring about a profit less by £37,000 than that which it had made. The return showed a net income of £11,895, whereas the books of the firm showed a net income of £71,000. Both these totals were subject to certain deductions, the firm showing a taxable balance of £10,850, while according to the books of the firm it was £68,868 —a difference of about £58,000. That very large discrepancy was supposed to be accounted for by reclamations made by the London firm in respect of deficiencies on shipments of various goods made by the Christchurch firm to the London firm. The Christ-. chuTch firm would get the profits or pay the deficiencies on a shipment. On behalf of the prosecution he could not accept -as a fact that the business was a consignment one. The retiirns and books showed a sale business. There was nothing to show that any such loss ol £50,000 had been made in reclamations. The books did not show them, and there was no record of them except in George Bowron's unaided memory. The alleged reclamation loss was made in July, 1907, and therefore could not be attributed to the year with which the return was concerned. The return, though not actually made till December, i 907, should only include transactions up to September, 1906. The defendants had stated that only £33,000 had been sent to London to cover reclamations, but even supposing that £50.000 was really lost, it did not account for the full discrepancy, which was £58.000. It was stated to Mr Tyers that no stock had been taken up to September, 1906, and that no balance sheet had Been prepared for that year. Mr Tyers had been compelled to estimate the stock, and hi assumed that the stock was understated to the same extent as in 1905, when there was evidence as to the stocks in hand. The stock ascertained in 1907 was £107,000. Counsel referred to the discrepancies between the return and the books as follow : In the In the firm's return. books. Sales £311,831 £433,633 Stock in hand 84,739 104,845 Stock at beginning of ~, year ... - 72,562 89,779 Purchases of stock ... 264,837 ) , n 7 „„, Labour and material 35,197/ SS/,876 Gross income 24,576 81.210 The deductions made by the defendants in the return amounted to £12,680 5s 3d, leaving a net income of £11.895 19s 6d. The deductions made by Mr Tyers amounted to £10,164 16s sd, leaving a net income of £71,045 7s 6d. The taxable balance arrived at by the defendants was £10,850, and by the department £68,868. Mr Russell said that, rightly or wrongly, the defendants had made up their returns in the tame way for the past 14 years. They considered that some figures were non-essential so long gs the correct amount of the profits was stated. In this vear thev estimated their profits at £II,OOO or £12,000, and then arrived at the other figures in the return. The firm had been sending large consignments. The sales had amounted to £443,000. but of these £192.000 worth was sent Home for sale on account ol the firm, and by some mistake that amount was entered in the books as the liroceeds of sale, but there were realiv osses of £50,000. The firm could not say whether its books were right or wrong. Mr Bowron had not given the book-keepers information regarding these losses, and therefore trouble had arisen. George Bowron, one of the .defendants, said that for many years he had ascertained hie profits by comparison with the firm's position for the previous year. He did not consult the books at all except for the purpose of getting the disbursements. The return for 1906 was compiled in much the same way. except that there was more information in making it up. They had a balance sheet up to July, 1907, which showed that they had capital of £208.500. The £BSOO was his brother's share in a land transaction. It had paid income tax as a separate syndicate. Since August or September. 19CT7. they knew that very laTge losses muat result from shipments in 1906 and 1907, and provision was made to protect against a deficiency of £33,000 on those shipment*. Some large shipments on consignment were made to the London firm.

In 1906 poods were sent Home on consignment, and were not sold in New Zealand. Consignments to the value of £192,000 had been entered" in the books as salts in Lyttelton, bnt. as a matter of tact, a. large portion of the goods had not been sold when the American crisis came on. The loss on shipments m 1906 and 1907 would be £49,000., Complete stock was not taken up till September, 1906 but there was a rough estimate of the value, and the amount filled in would be within £IOOO of the correct figure. The firm had .no assets except those in the balance sheet. The net return was absolutely correct. G. J. Smith, another defendant, also gave evidence. He said that when the return for 1906 was made up there were two balance sheets —one by Mr Modlin, showing a capital of £197,460 in 1905. and the other of July, 1907, showing a capital of £2oo.ooo,—an increase of £2500 There was nothing to show that £60,000 had been made during 1906. That was impossible. No balance sheet was made for 1906, as a company was being formed and the stock lists for the year were not completed. The practice of the firm was to send consignments to England. The value of the consignments in 1906 was £192.805, the sales made here were £110,534. and foreign sales £133.263. The practice had been to credit goods to a department as if they had been sold, and the whole of the ±i192,000 had been credited in that way. The real pTice could not be ascertained until the goods had been 6old. In making up the return the firm considered that it had paid "on every pound made. He could not discover any assets for the £60,000 profits found by Mr Tyers. Since 1905 the assets had not grown in London. He produced his income tax returns to financiers as showing the profits made by the firm. To Mr Stringer : Witness believed that Mr Bowron's estimate of the reclamations was correct. There was a balance sheet partially made up for 1906, but it was not completed. He had not realised in making the return that it was a solemn declaration and that not one in 100 regarded it as that. He believed that 80 per cent, of the returns sent in were wrong. Witness presented the reconciliation of the capital between September 30. 1905, and July 31, 1907, which he claimed showed that income tax had been overpaid on £SOOO. The Magistrate then gave his decision in. the case just heard. He said that the recent proceedings in the Supreme Court had cleared the way considerably for him. The result of the appeal enabled him to say without the slightest hesitation that the defence was absolutely no answer to the charge before the court. The defendants must be convictec for a breach of the act. He would re irain from inflicting a penalty till the other case was disposed of, but he intimated that the triple amount of the tax would be the heaviest part.

ANOTHER CONVICTION

PENALTIES IMPOSED

CHRISTCHURCH, September 14

A further information against the firm of Bowron Bros, in connection with the income tax cases was heard to-day before Mr H. W. Bishop, S.M. The defendants —George Bowron, Wffi.iam Bowron, ami George John Smith—were charged witii knowingly and wilfully making a false return in writing on November 6, 1908, with regard to their income for the 10 months ending July 31, 1907, thereby evading full payment of the income tax. Mr T. W. Stringer, K.C., appeared for the department, and Mr T. G. Russell for the detendants.

Mr Stringer said that in the return made by the defendants they showed a loss of £5114, and they claimed that that should be deducted from the profits of the Clifton syndicate, in which they were concerned. It was deducted and allowed. Investigations, however, showed that instead of a loss for the year there had been a net income of £8757 5s 9d, and that the return was wrong to the extent of £14.000. The return was more accurate than the others which had been before the court, as many of the items agreed with the books. Sales, however, were shown as £321.824 2s sd, whereas the books showed £346,446 18s 2d—a difference of £25.000 odd. Taking into account the return of other income the gross income showed was £28.125 13« lid, whereas the defendants returned £20,033. The deductions made by the defendants amounted to £25,198'is 6d. but the department allowed only £19,368 8s 2d. The return was reallv short bv £l4 000 or £15,000.

Mr Russell said that a different method of compiling the returns had been adopted by the defendants for the year under review. They had .-i. competent accountant in charge of the books.' and the making up of the returns was left to him. The return of the company agreed with the book entries. He had considered that the goods in England sent in 1907. amounting to £142.000 should not be treated as sales, and he reduced the amount by £20.000. which trns a proper thing to do. That was practically the whole difference in the accounts.

George Bowron pave evidence that in 1907 a competent accountant (Mr M'Cutcheon) was employed, and lie prepared the returns. He was in charge ol the books, and in due course he nresenteo a return to witness, and he signed it. M'Cutcheon was now in England. Hi'-; working papers had been looked up. and as far as witness could see they agreed with the books. In 1907 a large amount of goods (£142.000) wae sent Home on their own consignment to Bowron Bros.. London. They were drawn on at the full price, and were entered in the books ot the full prices. The return wae mode up in 1908, and M'Cutcheon deducted £20.000 as the goods had not been sold. The deduction \ra.s a reasonable one, and the defendants still lost monev after it had

been made. With that exception the figures in the return were taken direct from the books. The firm was in the Clifton syndicate, and thought that as income tax was paid by th>» syndicate the firm should not pay it. As to £620 received from the Electrical Construction Company income tax had already been paid by that company. The firm made | only £2OO on th? oroperty sold in Gloucester street.

To Mr Stringer: The £20.000 was deducted because they thought that as they were closing up the affairs of Bowron Bros, they had a right to deduct it.. As a matter of fact they should have de ducted more.

George John Smith said that the sales for the year were £340,000. The prices at which the goods were entered in the books were wrong, and it was open to them to have readjusted books. Witness was in England when the return was mad<:. The deduction of £20,000 by M'Cutcheon really reduced the prices at which the goods were entered. The return made by M'Cutcheon agreed with the books. They did not make £2152 on the Gloucester street property. He was still of opinion that it was unfair and inequitable that they should pay twice on the Clifton Syndicate, and on the bonus received from the Electrical Construction Company. Before the cases commenced he had expressed his opinion to Mr Tyers that the firm had rather overpaid than underpaid. As far as he was concerned he was still of that opinion. He would agree to j.o back to 1901 when he joined the firm. That was before the proceedings were started at all.

To Mr Stringer : Witness admitted that the books were very incomplete, but the returns were made up from a knowledge of the position and the facts of the business. He did not use Modlin's balance sheet in making up the returns. The Magistrate said that he was concerned only with the legal aspect of the case. There could be no shadow of doubt that the return which was the subject of the information was a false return within the meaning of the act. There had been no attempt to prove otherwise. The defendants were convicted.

His Worship then proceeded to impose the penalty in the case heard the previous day. The fine he fixed at £2O and the costs, and treble the amount of the tax. In the case just heard he fixed the fine at £lO and costs and treble the amount of the tax.

CHARGE AGAINST BOWRON BROS

THE ASSESSMENT.

On Friday afternoon, Mr H. W. Bishop, S.M., beard the appeal of Bowron Bros. against the assessment of their taxable income by the Commissioner of Taxes for the year 1905. Mr T. W. Stringer appeared for the commissioner and Mr T. G. Russell for the firm. The return sent in by the firm set down the taxable income for that year at £18.8%. and the department's calculation claimed that it was £62,755, a difference of about £44,000. The proceedings, in accordance with the procedure laid down in the act, were in private, but ; t is understood (says the Lyttelton Times) that the firm objected to only one item, representing about £IO,OOO, in ' the sum of £62,755. The magistrate heard argument, and reserved his decision on the point. The firm has a right to appeal on law, but not orr fact.

If the assessment is upheld, t.li? firm will have to pay about £2200, tax that ought to have be on paid ; £6600 treble that sum ; a fine of £100: a penalty of about £2OO for not having paid the tax at the proper time : and costs amounting to about £200; making a total of about £9300 on account of income for 1905.

When the magistrate has rome to a decision he will inform the commissioner in Wellington. That officer will then calculate the exact amount of the tax due- on the magistrate's decision 1 , and the conviction and the amount of the penalty will be filed in the Magistrate's Court. A similar course will be followed in regard to the charges that false returns were made for 1906 and 1907. The commissioner will make his assessment of the income on which tax should have been paid, and the firm will have the right to appeal to the magistrate as irr the present case.

A Christ-church message states that fhe magistrate sat in camera on Fridav afternoon for the assessment of the amount of the penalty to be paid by Bowroti Bros. Tbis is in accordance with the provision of the act that no proceedings for the assessment of income tax shall bo taken in open court.