BOWRON BROS' CAS

Timaru Herald, Volume XIIIC, Issue 14144, 2 March 1910, Page 5

BOWRON BROS' CAS

ALLEGED INCOME-TAX EVASIONS Per Press Association. CHRISTCHURCH, Much 1. The charges against William and George Bowron and George John Smith, trading as Bowron Bros., of knowingly and wilfully making a false return in relation to the income of the firm and so evading payment of the taxation, was called at the Magistrate's Court this morning. Mr Stringer K.C., prosecuted and Mr Skerrett, K.C.. with him Mr Anthony, appeared for the defence. Mr H. W. Bishop S.M., was on the bench. Skerrett raised the question whether the Magistrate had jurisdiction to hear the case. Then the information was laid under section 106 of the Land Income Tax Act, which provided that a case might be brought only within three years after the date of the alleged offence. The date of the offence now alleged was Nov: 6th, 1906, and the informations were sworn on November sth, 1909, and not lodged with the Clerk of the Court in Wellington till November Bth. The three ! years' bar to action therefore operated. Mr Stringer replied, and after argument His Worship said he would not decline jurisdiction, and the decision would no doubt be subsequently tested. Mr Stringer then opened the case. He said that in a return furnished by Bowron Bros, they showed their income for the year ended September 30th, 1905, as £18,836, whereas the firms audited balance-sheet showed £52,418, which was increased after adjustments to £64.972. The return was he believed in the handwriting of G. J. Smith, and it was difficult to believe that the discrepancy was the result of ignorance of the true position. Items in the balance-sheet, and return resoectivelv differed as follows: Stocks, £87,779-HE72,562; bad debts, £2127—£384; wages, £looo—£2o2o. Taken over all there was an underestimate of about £38,000. When Mr Tylers an Inspector of the Income Tax Department who laid the information commenced an .investigation of the firm's affairs two years ago, Mr G. J. Smith told him that th« firm had issued no balance-sheet till 1907, when the company was formed, and had kept no profit and loss account. Mr Tyers had gone into the books, and his figures had been checked by Mr Modlin, who had audited the firm's .accounts. In the course of a discussion as to the accuracy of these figures, Mr Modlin had surprised Mr Tyers by producing a balance-sheet for 1905, although Mr Smith had said there were no balance-sheets prior to 1907. Mr Smith said he had overlooked the fact that a balance-sheet-had been prepared in 1905. Then Mr Tyers found that balance-sheets had been nrenared everv vear from 1898 to 1906. 'Mr Stringer submitted that there had been misrepresentation all j along the line since 1898. Mr Skerrett objected that matters more than three months prior to the date of the alleged offence could not be raised. I Mr Stringer said he would defer disI (Mission on the details. He wouldtake ! the prospectus prepared in anticipa- | tion of the flotation of the English i comoanv, giving certified returns for | the "years 1902-3-4. The return fur- : r.ished to the Department in I her 1904 ,showed "a profit of £io/i9o. i Mr Modlin's hfilnnc<»-sheet showed a I profit of £22,085. For the next yenr the return gave an income of £12.360, the balance-sheet showed £20,533. He contended that in the face of these hal.i nee-sheets the returns could not ibe justified. In July 1907 a company : was formed to take over the business, i when the surplus of assets over liaj hilities wn-s shown to ho £208,500. to- | gether with £108.252 due by Bowron Bros., T ondon, nnd reserves amounting to £30,000. the latter amounts beI ing retained by the partners. Thus

i in 1907 Boivrrm Rro*.. and Smith had j accumulated £208.500, and as much I rnorA as the retained securities would | realise. In 1901 their capital vrns i £87.407, and had returned their ■ i nrofits Tin to 190'7 as £55,303. Mak- ! in ft minor adjustments the cnuital by .! 1007 would amount to £151.710. The ; j partners' own drawings and other payI mants were £60,204. so that the capijtal, according to tliP'r returns would 'have been £91.506. whereas the actual ! fiimres were £203.801. Mr Tyres. the informant, gave I evidence of his discovery of | discrepancies between the firm's , i hooks and the returns. Mr Smith \ blamed trie accountants, and said L he had always ho°n careful to re- [ turn too ranch rather than too little. [ Mr Modlin, the auditor, furnished him. L with notes of stocks that did not agree ; with the returns. He made \:p r»ro- . visional assessments and gave ihe firm i an opportunity to check them because L of th<* enormous discrepancies £21.- . 000—£40,000., and £ll,ooo £68,000 ; in two cases, and in one onse the i Bowron's showed a loss of £."000. witness a profit of £25.000. Ha could r.st ascertain that an alleged had debt , of £IOB,OOO due hv Bowron Bros, in T 'melon, ttis> fig'."--"-, before the Court. This debt was due to tians- , ! actions extending o-r?r a series of years and was said to be surplus "moneys which should have been remitted to New Zealand. I Mr Skerret: Does my friend sugaest that we should pay on £IOB,OOO which j was never received. ! Mr Stringer: Certainlv, if the debt was not claimed to be bad in the return. Witness, continued: The firm, seemed to he absolutely astonished at witnesses's provisional assessment. In ~hn of a conversation, Smith told Modlin that he was to confine his criticism of witness's figures to his search in the books, and not to sdve his reoorts for witness's information. Witness never dreamed that there was an actual balance sheet for 1905. Later on Modlin produced a balance sheet up to September 30th, 1905, without a profit and loss or revenue account, and said he had been instructed by. "George Bowron to produce it. It was I produced for the purpose of controvertinc witness's figures. Saw at once ; from the balance sheet that the state 1 of affairs was quite different from what !had been represented to him. • Suhse- : auently he got balance sheets for 1902, '3, and '4. The income return for 1902 was £7429, and Modlin's balance sheet showed £22,751: for 1903 the retnrn showed £10,395, the balance sheet £22.085: for 1904, return £12.860. balance sheet £20,533; for 1905, return £18,836. balance sheet £52,418 —all cases of difference, against the Department. Witness t>roduced the return for 1906, showing £11,895 19s 6d, but he had no balance sheet for that year. Witness made up his assessment from, the books and stocks. lie could get no absolute assurance ■ that there had been a stock-taking .on : 30th September 1906; and he esti- ! mated that the stock on hand at that date was under-returned in the same tiro-portion as the previous year. Modlin's hplance' sheet of 1905 showed the stock that year, and it was more than t>nt srivPT. on the r"t""» bv about £17.000. ""(£72,562 —£89,779). A statement of discrepancies prepared by • witness, showed that they were on both ' sides, hut were very largely in favour '. of the firm and asainst the DepartTr?nt. Modlin's balance. sheet . for 1905. when compared with, books, he [•fwn.d to he substantially correct. Ad- • •jTTstments necessarv were in favour of ! the taxpayers. On September 23rd : j last, witness suggested to'Modlin, withI out prejudice, that the firm should • " • i

make full 'restitution. Modlin was to consult with, the firm. Nothing earns of .this, but Smith saw the Commissioner of Taxes in Wellington. The time for settlement expired bo far as witness was concerned on September 25th last. Witness stated that on his own initiative, and without binding the Commissioner of Taxes, he suggested without prejudice to Bowron Bros., through Modlin, that they should pay £IO.OOO in respect to back taxation short paid, and so settle the dispute between them and the Commissioner, leaving the taxation on the £IOB,OOO to be determined by the Commissioner, x x ? lj 1 ng to Mr Stringer, witness stated that prior to laving the information on November oth, he made it quite clear that as far as he was concerned all negotiations were off. He had similarly made the same clear to Modlin on Semptember 25th. He admitted however that at that time the Department was still negotiating The Court adjourned till to-morrow.