INCOME TAX CASES.

Star (Christchurch), Issue 9916, 3 August 1910, Page 2

INCOME TAX CASES.

BOWRON BROS' DEFENCE.

JUDGMENT DELIVERED TOMORROW.

MR G. BOWRON'S EVIDENCE. 'Z The re-hearing of the charge brought by the Commissioner of Taxes against Bowron Bros, of making a wrong income tax return, was continued nr the Supreme Court to-day before the Chief Justice (Sir Robert Stout) and Mr Justice Sim. Mr T. W., Stringer, K.C., and Mr T. Ncave appeared for the Commissioner, and Mr T. G. Russell for the firm. . George Bowron. cross-examined by Mr Stringer, said that'he had believed that his system of making up returns for taxation was the correct one. He would not see anything wrong in taking his goods at sale prices after allowing a sufficient sum for the probable cost of realisation. During his visit to England in October, 1904, he came to the conclusion that the London firm was unfinancidl, and that its debt to the Christchurch firm was a bad one. Mr Stringer said that the. prospectus issued in regard to the new company estimated the profits of the London business at £SOOO in 1902, £24,000 m 1903, and £16,000 for the nine months ending September, 1904. Witness stated that if an inquiry were made by a competent accountant, it would be shown that those, profits were estimated on the assumption of what would have ; been made if there were no interest and other charges. He did not instruct his officers to write off the bad debt by the London office; his instructions had been given to Mr Modlin, the auditor from London. He was not responsible for what his counsel stated in the lower Court. In making uo . hiss return for 1906, he arrived at profits of £50,000 or £60,000, and then deducted the bad debt of the London office of £37,000. As long as he returned figures, showing the amount of profit upon which the firm paid income tax, he was not doing any moral wrong. He considered that if the firm paid the full sum due by the firm to the Department thero was no wrong. _lt never entered into his mind to discuss the matter with the inspector. Particulars had been asked in regarcUto othei bad debts, but none had been challenged by the Department. He understood that the firm's books were not a full account of the affairs; he never looked into the books. The firm had never taken notice,of account sales received from London for goods shipped on the firm's own account. The officers who attended to the books did not have those documents. Mr Tyers never gave him the slightest opportunity to explain the discrepancy between Mr Tyers's assessments and the firm's statements in 1905., He did not refer Mr Tyers to Mr Modlin, and inwardly resented Mr Tyers's action in continuallv going to Mr Modlin. U I mm," the witness stopped to say, " You would ask Mr Tyers not to continually stare at me. He is deliberately setting himself to stare at me."

"I'm afraid that you are hypersensitive/' Mr Stringer said. 'Mr Tyers, kindly look in another direction."

" He knows very well that he is doing it deliberately," the witness added. Continuing his evidence, he said that in getting his brothers in London to take up the Christchurch firm's business he thought that they would manage the affairs better than other firm 3 would have done.

13VTD.ENCE BY MR SMITH. George John Smith, examined by Mr Russell, said that he was a member of the firm, a, member of the Legislative Council, "and a Volunteer officer of many years' Before joining the firm in 1901, he was a olerlt in the office, and before that he was a clerk in a lawyer's office. He had never kept books. At first he did office work and outside work. When he joined the firm, no balance-sheet was prepared. He understood that Mr Bowron, in j making returns for taxation, took out the assets and liabilities, as stated, and ,the system was continued. Later on the business increased. Fresh departments gave more work, and he had very little to do with the books. Besides that, he was often in Wellington., attending sittings of the House of Representatives. When Mr Modlin came out in 1904, ho said that tho boolcs were not properly Kept, but witness did not know until recently that they were so bad. He had never prepared a return without Mr Bowron's assistance. Mr Modlin was engaged investigating for several months; In 1902 and 1903 Mr Modlin showed him some statements: He understood that they-were drawn up to show what would have been earned by amalgamation with the London firm. Mr Modlin was engaged by the London firm, not by the Clmstchurch firm, and witness did not think that it was necessary to check Mr Modlin's figures. He did not realise that they purported to be accurate' statements of the income earned by tho Christchurch firm. Ho did not think that they were correct even now. In 1005 Mr Modlin prepared a balance-sheet of the Christchurch firm. . Mr Bowron then discussed the London debt with Mr Modlin.. and Mr Bowron told Mr Modlin to write off the debt. Mr Bowron at that time had recently returned from London. Witness was quite satisfied from what Mr Bowron said that the debt could not be recovered. About that time witness .made up the return for 1904, but lie did not know that the debt was a bad debt until after the return was made up, and that was why the debt was'not taken off for the 1904 returns. In preparing the returns, there was no intention of evading taxation. It was thought that if taxation was paid on the full sum, tho spirit of the law, if not the letter, .would be complied with. In regard to Mr Tyera's figures, he was so upset with being charged with fraud, that he assumed that the figures used were correct, and ho said that tho firm was prepared to pay. Mr Russell: lotl knew that the figures were subjected to an error of £50,000? Witness: I was so absolutely upset with the whole .thing that I would hava been willing to pay whether there was an orror or not, rather than suffer the agony I have.'experienced during tho past few months. In i«ply to other questions, witness stated that he Ikkl no intention of deceiving Mr Tyers. That Was proved ' by the fact that he voluntarily produced a balance-sheet. He went Home j in order to raise money on deferred ! stock, and he placed before financiers in London drafts of tho income tax 1 statements, to show the profits the I firm hsd nuide. Ho consulted the financial people, and told them that balance-sheets had not been taken out, but; that tho income tax returns woro 1 available. He represented that those were the profits, and nothing more. He .had in bis possession the actual papers He used in London. He- returned to New Zealand in 1909. Goods sent- to London by tho Christchurch firm, he believed, sold for £50,000 less than set out in. the firm's profit and loss account. The market at Homo at I that time. 1906, was collapsing, To Mr Neavc: Modlin en me out from London to conduct an independent investigation of the firm's affairs. Thero were negotiations between Bowron Bros., Christchurch, and the London firm before Modlin was sent out. Modlin was. paid by both firms. Modlin's investigations woro not made on bebalf of tho Christchurch company, but on behalf of a firm of London financial brokers. Mr Neave: If I wanted a man to make an independent investigation for me 1 would not allow other people to pay him. Witness: ''That may be m hi law, but it's different in commerce." Continuing, he said that iu making up the income tax returns he endeavoured to ascertain the amount of sales and the amount of disbursements for the period. Modlin's 1905 balai.co-sheet was ya-en to IVers as soon as witness rcmcmlnuxd iu existence. He had

l 1?*? 0 ? 6 into the differences betweeA Modlin's balance-sheets for 1903 and x 904 and the income tax returns foil those years. ff o know all the-thni that the goods the firm sent to LonJ don .on its own account were consign-' merits; and not sales. Mr Neaye: Pid KO t your solicitor, Mr bkerrett, in the lower Court, apP fI I S^ mk - that , thorQ a'defifc of £IOB,OOO owing by the London firm to theChristchurch firm? J Witness said that a misapprehensioW might have arisen. In computing th* ralue of stocKs witness deducted rcali* sation charges and roduced from sell*' mg to cost price. That was the differ-! once between his and Modlin's stoob! valuation. The reason ho made liia ownl calculations for income tax purposes! instead of taking Modlin's' figures, waff because he was following the custom of ;iast years. ~ j To Mr Russell: He had never told' lyers that he always made up-the faJ ?ome tax returns, and he had not told lyers, on seeing M'Cutcheon's retiiroy • that the firm had been making moirel profits than it ought to. When witJ ness returned from England in 1909' he was told that the strong-room wa» ; full up.with books and papers'. All the old book were saved, but a numb** of old papers had to be destroyed. Tln S concluded the case for the'' at*' pellants. ~

Mr Stringer said that Mr Tyeri would like to criticise the " reconciliation statements " of Messrs Bigs and\ Ollmer, if the Court would allow him to do so. / Tha Chief Justico said the only effect/ of that evidence was to eay ttyit be-' tweea 1902 and 1907 income"' tax • wa* paid on a sum identical, or almost iden-' tical, with the. amount of the firm's profits. It did not affect the question of-tho correctness of the 1905 TOtttrn. ' Mr Russell said he would submit that though the return submitted'- hf the Appellants was incorrect, there ufat no criminal intent and no intention, to evade taxation. ■• ' i Tho Chief Justice said that th© re-' turn had been altered. The figures tlfe Statute required were not put in, anS the ieason, so Mr Bowron admitted* was., to cloak, up tho forgiveness of 4 debt to his brothers in London. That was done knowingly in order to conn ceal something from the Commissione*. of Taxes. The evidence of Mr Smith was Ihe strongest that had been'i brought forward for the defence, ,an4j seemed to prove the bona fides of th»j firm, in regard lo its income tax itH 1 turns generally, but the alteration ini the 1905 return remained. , '■} ■Mr Russell said that although the appellants had an ado a mistake, he would contend that it could not twi held that they wore guilty of wilful and deliberate fraud.

The Chief Justice said that he coubj only say that the evidence of ■ M* Smith had impressed him deeply as to the bona fides of the appellants. I Mr Russell said that in that case -he would feel inclined to leave bis oase at that point.

Mr Stringer said that he would hav« been pleased if he could hare been able to modify the charge in some w»y, but ho could not do so. A false return had been made id order to cloak a debt surreptitiously made. He was pleased that Mr Smith had established his good faith in regard to these income tax returns.

Tho Chief Justice stated that judgment would be delivered at 2 p.m. th* following day.