Biflex (carib) Ltd v Board of Inland Revenue
| Jurisdiction | Trinidad & Tobago |
| Judge | Koylass, C. |
| Judgment Date | 14 March 1985 |
| Court | Tax Appeal Board (Trinidad and Tobago) |
| Docket Number | I 12 of 1979; I 10 of 1980; I 111 and 112 of 1980; I 29 and 30 of 1982 |
| Date | 14 March 1985 |
Tax Appeal Board
Koylass, C.; Burke, M.; Julumsingh, M.
I 12 of 1979; I 10 of 1980; I 111 and 112 of 1980; I 29 and 30 of 1982
Bruce Procope, S.C., and S. Shivarattan for appellant
Mrs. M. Robinson-Walters for respondent
Revenue Law - Appeal v. assessment to corporation, unemployment levy and additional tax — Whether assessment excessive, arbitrary and unrealistic appellant did not present its records and documents and therefore failed to show that the assessments were wrong — No evidence that appellant guilty of fraud, gross or willful neglect.
These are appeals against assessments to corporation tax, unemployment levy and additional tax for the years of income 1971 to 1974. The appeals were consolidated by order of the Court on the 29th day of July, 1982.
The disputed assessments resulted from an audit examination carried out by the respondent, as a consequence of which the chargeable incomes for the years 1971 to 1974 were increased by $61,489, $72,084, $74,298 and $61,978 respectively. Additional tax under section 39(4) of the Income Tax Ordinance (hereinafter referred to as “the Ordinance”) was raised in amounts of $24,070.00, $32,437.80, $32,914.80 and $26,633.25 for the years 1971, 1972, 1973 and 1974 respectively.
The Table below shows how the additional chargeable incomes were arrived at.
1971
Gross profit understated — $59,466
Rents understated — $8,000
Mortgage interest disallowed –
Travel expenses disallowed –
Total – $67,466
Less loss returned – $5,977
Increase – $61,489
1972
Gross profit understated — $ 52,571
Rents understated –
Mortgage interest disallowed — $20,595
Travel expenses disallowed — $1,504
Total — $74,670
Less loss returned — $2,586
Increase — $72,084
1973
Gross profit understated — $53,488
Rents understated –
Mortgage interest disallowed — $19,130
Travel expenses disallowed — $1,680
Total — $74,298
Less loss returned — $1,154
Increase — $73,144
1974
Gross profit understated — $44,464
Rents understated –
Mortgage interest disallowed — $17,514
Travel expenses disallowed –
Total — $61,978
Less loss returned — $2,793
Increase — $59,185
The grounds of appeal for all the years are in similar terms. For the year 1971, they have been stated as under –
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i) The assessment is excessive, arbitrary and unrealistic and bears no relationship to the true income of the appellant.
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ii) The rent returned represents the amount actually received.
There is no basis for the said assessment which is presumptive and hypothetical.”
The respondent's contentions for all the years are the same. These are stated as under for 1971 –
“1) That the appellant failed to produce for audit proper records and books of accounts in accordance with Section 68 and 68B of the Income Tax Ordinance.
2) That the corporation tax return submitted by the appellant for the year of income 1971 did not reflect the true income of the appellant for that year.
3) That in accordance with the provisions of Section 39 of the Income Tax Ordinance it has refused to accept the said return and has, to the best of its judgment determined the amount of the chargeable profits of the appellant and assessed the appellant accordingly.
4) That the profit and loss account of the appellant for the year of income 1971 was made up on the accrual basis and therefore the full amount of the rental income accruing to the appellant during the said year must be included in the profit and loss account.
5) That the appellant has failed to produce any evidence to show that the tax assessed by the Respondent is excessive.
6) That the Respondent properly imposed additional tax on the appellant under Section 39(4) of the Income Tax Ordinance.
7) That the assessment on the appellant is justified in law and fact.”
The principal issue which we have to consider relates to the gross profits from sales by the appellant in his business as a manufacturer and seller of ladies' foundation garments. The figures returned had been rejected by the tax auditor as he had disagreed with the gross profit margins claimed to have been achieved by the appellant, and replaced them with figures computed by him which, he stated, were average figures arrived at after a survey conducted on the income tax returns of several other companies engaged in the business of manufacture of garments. The Table below reflects the basis of his adjustment.
Table
Gross profit on sales as returned by appellant :
1971 13.48%
1972 16.628%
1973 15.998%
1974 15.26%
Tax Auditor's estimate
1971 26%
1972 27%
1973 28%
1974 26%
Other issues relate to rental income not returned and expenses of mortgage interest and travelling disallowed.
Alim Khan Juman, who had been the Managing Director of the appellant from 1959 when the company had been incorporated, testified for the appellant. His evidence as it relates to the sales transactions is as under.
When the company had started business, it had attempted to do its own selling. Having experienced difficulties in disposing of its goods, an agreement was entered into with Da Costa & Musson with effect from 1st November, 1967 — exhibit A.K.J.1 is a photocopy thereof.
As Da Costa & Musson Ltd. (hereinafter referred to as “D & M”) was not geared to undertake sales in the country districts in Trinidad, the appellant had entered into an oral agreement with one Ozzie Khan to handle such sales.
Paul Roopsingh, since deceased, who had been the appellant's financial director, had prepared a statement of sales for 1971 — exhibit A.K.J.2 is a copy thereof.
We here observe that the figures revealed by exhibit A.K.J.2 are as under –
Seller — Da Costa & Musson
Gross Sales — $319,258.80
Commission — $39,907.22
Price reductions/Discounts — $41,157.73
Deductions Loan A/c — $258,050.62
Cash Received — $210,142.64
Seller — Ozzie Khan
Gross Sales — $187,838.80
Commission — $12,118.34
Price reductions/Discounts — $27,230.82
Deductions Loan A/c — -–
Cash Received — $148,489.64
He had engaged one Peter Hernandez to prepare similar statements for the other years.
A statement dated 5th July, 1983, of amounts deducted from payments in the sum of $41,157.73 due to the appellant representing reductions in prices for the year 1971 was obtained from Da Costa's Ltd. — exhibit A.K.J.3.
Roopsingh had also obtained copies of delivery notes for 1971 from D & M — exhibit A.K, J.4 (1 — 12). Attached to these delivery notes were monthly lists of total sales, commissions, price reductions, deductions on loan account and cash received. We here observe that these figures correspond with the figures in A.K.J.2.
In cross-examination, Juman stated that it had not been the policy to fix prices annually, but he tried to fix prices based on costing and after discussion with D & M. He had attempted to provide a realistic mark-up as the appellant had been faced with competition from imported goods. Despite the mark-up fixed, it was often expedient to sell even below cost to dispose of odd sizes and styles and slow moving stock, so that there could be no uniform selling prices — the policy being to take that the market would bear. Ozzie Khan bought goods for resale from time o time. He was given various discounts as he bought seconds. He was under no obligation to take specific quantities of stock and would bargain s to price and quantity from time to time.
Regarding mortgage interest of $20,595, $19,130, and $17,514 claimed or the years 1972, 1973 and 1974 respectively, he stated that the Bank f Nova Scotia Trust Co. of the West Indies Ltd. (hereinafter referred to s “the Trust Co.”) had loaned a sum of $220,000 to the appellant to enable it to purchase from him the building it used as business premises.
The appellant had bought a building from him and paid him for it under an agreement, which had been drawn up. He did not recall when the building had been conveyed to the appellant, but stated that it had obtained a mortgage to purchase the building it occupied for $220,000 in September 971.
At a later stage of the proceedings after Juman had testified, the ollowing exhibits were put in by consent:
Exhibit A — a deed of mortgage No. 10071 of 1971 dated 17th September, 1971, in regard to a loan of $220,000 on the security of land, building, plant and machinery at Caledonia Road, Morvant.
Exhibit B — a letter dated 14th November, 1984, from the Trust Co. to the appellant.
Richard Ian Gill testified that he was the Manager of S & R Agencies Ltd. In 1983, he was employed with D & M, which later changed its name to Da Costas Ltd. When Da Costas Ltd. ceased to do business in Trinidad on 30th September, 1983, its stocks had been taken over by the firm of Hull Jones. Hull Jones was subsequently absorbed by S & R Agencies. Following a request by the appellant he had obtained photocopies of Bi — Flex's delivery notes regarding sales to D & M for the years 1971 to 1974 from D & M's files.
Photocopies of delivery notes for the years 1972, 1973 and 1974 were put in through him as exhibits R.I.G.1, R.I.G.2 and R.I.G.3, respectively.
The witness stated that he had spot checked the delivery notes and prepared summaries. In regard to exhibit A.K.J.3, he testified that those figures had been extracted from the documents of D & M and that the letter had been signed by him. It related to deductions from payments by D & M to the appellant for the year 1971. He had not prepared similar statements for the other years, but stated that from memory there had been similar deductions for those years.
Another witness for the appellant was Gary Cedeno. He was a director...
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