INCOME TAX CASES.

Star (Christchurch), Issue 9917, 4 August 1910, Page 3

INCOME TAX CASES.

■ -<(>— I JUDGMENT BY THE SUPREME i COURT. CON V ICTIOi\"IBFM AGISTR ATS UPHELD. lhe _ -Supreme Court' was crowded at two o'clock this afternoon when his Honor the Chief Justice (Sir Robert Stout) road tho judgment in the case brought by the Commissioner of Taxes against Bowron Bros. ilif.! iioiici' said that it wax an appeal under the yrovision-s of tho Justice;; ot the Peace Act, allowing general appeals.. The information in which the appedanifi wore, charged stated, that they "did by a certain act-, to wit, by knowingly and wilfully making false return in writing in relation to the income the firm of Bowron Bros., affecting that firm's liability to taxation, 'orado'iuil in respect of income tax:" Tho section oi tiic Act which they wore charged with violating was section IOG of the Land and In* come Act, 1909. That sec-tie-n. stated that every person, whether liable' to taxation or not. ''who by any act. detail! t, neglect, fraud or contriv-> anc-.j' whatsoever. evades or. attempts to evade. full assessment of taxation °r. tne payment of any tax, commits an toJroMce," eto. The Magistrate before whom the case was heard found that -that afcetion of the Act had been violated by the appeUauis. The particular charge preferred to a return that was supplied by tho appellants to the Land ami .Income Tax Department, and was dated November. 5. 1906. It containe-4 statements as to sales, stock iu hand, purchases, labour., material, etc. lb also -contained returns in which. deductions from gross incoaao were taken and in those deductions there appeared an item of bad debts. The words in the return re- > garding bad debts were " Bad debts to include those proved to bo bad during the- year and actually written off the books, and no others." It had been proved tha&' these returns wore inacand that they wore knowingly made inaccurate., in order to cover a transaction to which reference .must further be made. Tho inaccuracy appeared not only from the evidence of Mr Tvers, which he collected from thebooks of the firm, but also from the balance-sheet which was prepared by tho auditor of the firm for the period to which the return referred. It might be pointed out that the sales shown in. tho return amounted to £305,749 (shillings and ponco were omitted),, whilst tho sales shown in the balance-sheet prepared by the auditor of tho firm, showed £378,714. Tho stock in hand amounted to £94,847, according to the auditor's account, whilst ill the return it was stated to be £72,502. Then the- stock in hand at the commencement of the twelve months was shown, in tho auditor's account as £84.972, whilst in the statement- it appeared as £71,960. Tho purchase- of stock also differed. In tho auditor's account they amounted to £297.605, whilst iu the return they were £242,275. Then tho labour and material account as shown in the' auditor's acoount was £27,028, whilst in the return it_ was shown a.s £32,538. The whole returns were therefore wrong. It was unnecessary to point out how the conclusion of those two accounts differed, but it might bo stated that the profit and loss account prepared by the auditor showed the profits as £52,418, whilst, according to the return, they were only £18,836. How then had that discrepancy arisen? It was admitted by the appellants that it arose through their desjring to forgive a debt due, by Bowron Bros., of London, to the firm in Christ-church, and that they deliberately mad© up the figures so as to show the profit less by the deduction of what they have termed a. ''bad debt." That, of course, was entirely contrary to the requirements oi the law, which required that bad debts should be placed m a special and separate list, and ordinary bad debts were so placed by them, in their return. They claimed a reduction of £2027 of bad debts. It was not clear to the Court that that debt of £37,758, which they said was deducted, was in effect a bad debt. From the transaction as explained it seemetl more like a gift from the Christchurch firm to the firm in London. His Honor continued: "It is unnecessary for us to consider that question because it ia clear that no person has a 'right under tho law to send in a wrong or false return, excluding tho question of the deduction of a bad debt from the consideration of the Commissioner of Taxes. That has been done in this case. If Mr ModliiVs statement is correct, he made up tho profit and loss account for the period ending September 30, 1905, excluding what may be termed the London account, that is, the question of liability of the London , firm to the Christ-church firm. In his evidence at page 77 of the typewriter's notes ho said., ' "VVo agreed (that ig. with Mr Bowron) to eliminate the debt altogether, and to reduce tho assets by that amount, that is to do away with £74,000 altogether.' Question.-: "When was that?' Answer: 'February, 1905.' There appears in the balance-sheet for the twelve months ending September 30, 1904, an alteration in red ink made by_Mr Modlin reducing the debts due which are entered at'£85,671, less investments included in error £3622, making £82,049, to £44,221.' There appears then to_ have been taken off £37,758, which is the amount of tho debt which the appellants say was forgiven or abandoned as against their London firm. It Is doubtful, therefore, to our mind, whether Mr Modlin's balance-sheet of September 30, 1905, did include in tho amount of the debts duo this amount of £37,758, and it may be, therefore, that the process that tho appellants resorted to was to have a second forgiveness of an amount of £37,758. Whether this is so or not seems to us to be immaterial, because it is admitted that the return is entirely incorrect, and that the appellants have violated the statute. It has been admitted by tho appellants' counsel that if the statute has been violated the appellants are liable. The words of the statute are ' By any act evades taxation,' and what is termed in criminal law ' mons rea-' has not to bo proved. This being so, it is clear that the appeal must be dismissed, and the Magistrate's decision upheld. _ " Wo think it our duty to state thatSir Smith, when he went to London, commissioned to raiso money on loan for the use of the firm, laid before the brokers in London a statement of the earnings of the firm and he assumed, and so submitted to them that their earnings were not those stated in the balance-sheet of Mr Modlin, but were those that had been returned, bj them to the Tax Oflice. This, we think, shows he was not aware that the earnings, if the debt to Bowron Brothers was forgiven, exceeded the amount of their return. Of course tins does not exculpate the partners from violation of the law. They had no business to forgive a- debt due by the London firm or treat it as bad, without disclosing the whole transaction in their return. What they have done is to evade the taxation enacted by the statute, and for their so doing they must be liable, though they may. have acted iu good faith. " The question as to the exact a,mount for which they have to be assessed has not to be determined by us. That ha 3 to be dealt with as the statute provides, and therefore it would be improper for us to say that we thought the correct income liable to taxation for the year 1906—that is for the financial year ending September 30, 1905—and ifc is clear we have nothing to do with, other previous, or later years. Section. 107 of the statute points out how the assessment is to be inado. Wc- think that all that is necessary for us to say is that the appeal must bo dismissed with costs, and the conviction affirmed. Wo may add that we think it is to be regretted that the evidence given by Mr Smith was not produced m tho Court below, and that the defence raised in the Court below of a debt of £IOB,OOO. by tho Home firm, was relied on. " We fix the costs at £2O : -with ten

guineas for <jach day beyond the first, that is, making in all £4-1. with witnesses' expenses and other disbursements. if there are any, those expenses and disbursements to be fixed by tho Registrar.'' THE PENALTY. OVER FIVE THOUSAND POUNDS. lii his judgment the Chief Justice said that Mr Modliivs balance-sheet set out the linn's profits for 1905 as £52,4 IS, and that tho income tax returns. made tbo taxable income only ,£it-,B3*i. There is;, a discrepancy between these sums of £33.582. Tho income tax payable on that sum is £1670. The penalty for a false return is treble vJ\o sum. which, should have been paid, but was not paid. That is £so4'.\ The Act also provides for a penalty of £IOO for neglect, making the total penalty £5137.