Executor of the Estate of C.D v The Board of Inland Revenue
| Jurisdiction | Trinidad & Tobago |
| Judge | Koylass, C.,Burke, M.,Julumsingh, M. |
| Judgment Date | 16 April 1981 |
| Court | Tax Appeal Board (Trinidad and Tobago) |
| Docket Number | I 92/1979 |
| Date | 16 April 1981 |
Tax Appeal Board
Koylass, C.; Burke, M.; Julumsingh, M.
I 92/1979
J. Davis for the appellant.
A. Jack for the respondent.
Cases referred to:
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(1) Johnson v. Scott (11M Inspector of Taxes,) No. 2645. Annoted Tax Cases, Ch. D.
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(2) Allevne v. Board of Inland Revenue (1967–77) 1 T.T.T.C. 584.
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(3) T. P. v. The Board of Inland Revenue (1967–77) 1 T.T.T.C. 598.
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(4) Atkinson v. The Board of Inland Revenue, (1967–77) 1 T.T.T.C. 664. Appeal to the Appeal Board against additional assessment of income tax.
Revenue Law - Assessment of taxation — Whether the additional assessment of taxation was acceptable where the tax auditor's calculations had overstated the taxpayers' income — Bank deposits method — Credibility of witnesses — Consideration of James Edward Atkinson v. The Board of Inland Revenue No. I 16 of 1974 — Finding that the original assessment was incorrect and the sales were understated by a considerable sum — Appeal allowed and the assessment for income tax was referred for re assessment on the basis of a reduction of the amount of unreported income.
On May 28, 1975. the Executor of the estate of John Rodrigues (the taxpayer”) submitted an income tax return for the year of income 1974 declaring his total assessable income as $12.637.45 and the tax payable as $2,022.42. By an additional assessment made on December 9, 1976 after a tax audit the chargeable income was increased from $9,957.45 to $192,291.00 and the tax payable was consequently increased to $96.145.50.
The taxpayer appealed against the additional assessment on the grounds that the increase in the chargeable income was unjustified having regard to the nature of the taxpayer's business and the assessment was arbitrary and excessive. The respondent contended that the return did not reflect the true income, the appellant had not kept proper accounts but on examination of his banking records revealed that the deposits in the accounts and the expenses met by cash exceeded the business receipts stated in the return and the appellant had failed to discharge the onus of proof of establishing that the assessment was incorrect.
(i) the onus of proof fell on the appellant who sought to question the additional assessment and even if his denial on oath of the additional income alleged. threw an evidential burden on the respondent this had been discharged as the evidence clearly established that the original assessment is incorrect and that sales had been understated by a considerable sum while the taxpayer had failed to establish that purchases had been understated by him; (ii) with respect to the amounts in two bank accounts in respect of which there was no evidence of any kind as to the source of the deposits and that these can be attributed to income from a taxable source these amounts should be deducted from the chargeable income;
Appeal allowed and assessment re/erred back to the respondent for reassessment on the basis of a reduction of the amount of unreported income of $181,098.49 by the sum of $8.386.49.
On 28th May, 1975, the taxpayer submitted an income tax return for the year of income 1974. His income and the tax payable were declared as under –
Total Assessable Income — $12,637.45
Total Personal Reliefs — $2,680.00
Chargeable Income — $9,957.45
Tax on Chargeable Income — $2,245.12
Less: Dividend Income Allowance — $222.70
Tax payable — $2,022.42
The respondent accepted the return and assessed him accordingly.
By an additional assessment made on 9th December, 1976, the chargeable income was increased from $9,957.45 to $192,291.00, as a result of adjustments made following a tax audit. The increase in tax liability was computed as under–
Chargeable Income per return — $9,957.00
Add:
(i) Income understated — $181,098.00
(ii) Wife's Earned Income Allowance — $340.00
(iii) Annual Rateable Value of owner-occupied property — $1,133.00
$192,428.00
Less: Bank interest and charges — $137.00
Adjusted Chargeable Income — $192,291.00
Tax on Adjusted Chargeable Income — $96,145.50
Less: Tax previously assessed — $2,245.12
Increase in tax liability — $93,900.38
A.B., executor of the estate of C.D., referred to hereinafter as “the taxpayer”, filed a notice of appeal on the 25th October, 1979 against the additional assessment. The grounds of appeal are stated as follows:–
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(a) Statement of allegations of fact,
The purported increase in the chargeable income of the appellant by the respondent was and is unjustified having regard to the nature of the business carried on by the appellant. The appellant's income was not understated to the extent of $181,098.00 as alleged by the respondent.
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(b) Statement of the reasons to be advanced in support of appeal.
The assessment was arbitrary and excessive in that the Board erroneously concluded that the alleged understatement of income is liable to tax in its entirety.
In paragraph 10 of the statement of case filed on 16th November, 1979, the respondent's contentions are stated as follows:–
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(i) that the Income Tax Return submitted by the appellant for the year of Income 1974 did not reflect the true income of the appellant;
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(ii) that the appellant failed to keep proper records and books of account in accordance with the provisions of Section 68 of the Income Tax Ordinance, Chapter 33 No. 1;
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(iii) that an examination by the respondent of the Bank Statements of the appellant's various bank accounts, revealed:–
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(a) that the appellant deposited with his bankers, the sum of S467,980.63 during the year of Income 1974.
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(b) an examination of the appellant's records showed that the appellant defrayed business expenses of $302,854.96, in cash.
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(c) the aggregate of the sums deposited in his various bank accounts, and the sum by which business expenses were met by cash, that is the total sum of $7,70,835.59, exceed the gross business receipts as stated by the appellant in his Return of income for the said year by $181,098.49. In the absence of any evidence to the contrary, the respondent treated the difference of $181,098.49 as income of the appellant for the year of income 1974.
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(iv) that the appellant was not entitled to Wife's earned income allowance for the year of income 1974;
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(v) that the Board is of the opinion that the appellant had been assessed at a lesser amount than that which he ought to have been charged for the year of Income 1974. Accordingly the respondent has to the best of its judgment, raised an additional assessment in respect of the said year of Income under the provisions of the Income Tax Ordinance, Chapter 33 No. 1.
The item of adjustment disputed is the sum of $181,098.00 which was found by the tax auditor to be income understated. In his return, the taxpayer had stated his business as that of a grocer and his business address as the Mucurapo Supermarket, 23, Mucurapo Road, St. James, Port-of-Spain.
For the respondent, Mrs. Michal Christian, a qualified accountant on the staff of the Board of Inland Revenue, testified. She had carried out the tax audit in the course of which she had held discussions with the taxpayer, his son, A.B., and with L. Rigsby, a practising accountant, who had prepared the taxpayer's accounts, which formed the basis of the tax computation for the relevant year of income.
She testified as follows:–
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(1) The following information had been supplied to her by the taxpayer:–
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(a) The taxpayer was the proprietor of the Mucurapo Supermarket, which was managed by his son, A.B., who was remunerated in the form of one half of the profits of that business.
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(b) The taxpayer paid a monthly visit to the supermarket and obtained grocery supplies therefrom for his own use. These were not paid for in cash, but were accounted for as sales on cash machine tapes. The value of groceries thus accounted for in 1974 was $4,077.
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(c) The taxpayer was employed as Manager of the St. Peter's Bar and the Monte Carlo Restaurant, both owned by a non-resident and operated from the same address in San Fernando. His earnings for the year of income 1974 was $2,804, being one half of the profits of those enterprises.
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(d) The takings from the Bar and Restaurant were generally kept in an iron safe on the premises and expenses were usually met in cash. A bank account in the taxpayer's name at Barclays Bank, High Street, San Fernando, was rarely used.
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(2) The following bank statements, cancelled cheques, books and records were produced to her by the taxpayer:–
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(a) Bank statements from Barclays Bank, High Street, San Fernando, in the name of C.D., for the year 1974.
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(b) Bank statements from Royal Bank, High Street, San Fernando, in the name of CD., for the period 10th January, 1974 to 31st December, 1974.
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(c) Bank statements from Royal Bank, St. James, Port-of-Spain, in the name of A.B., for the period December 1973 to 21st December, 1974.
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(d) Cancelled cheques relating to the supermarket for the period 24th January to 31st December, 1974.
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(e) Books of the supermarket for the year 1974, including –
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(i) Purchases Book,
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(ii) Sales Book
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(iii) Expense Book
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(iv) Stock Book
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(f) Supporting details and records in respect of the above books with the exception of those in respect of the Sales Book.
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(3) Having examined the accounts in the light of documents produced, she found as under –
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(a) The Stock Book figures were in accordance with the taxpayer's return — these figures were not queried.
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(b) The total of $625,231.07, representing the value of purchases as per the Purchases Book, was reflected in the taxpayer's return. A discrepancy was, however, noted in that a number of credit notes, involving a total sum of $12,569.45, had not been brought to account. This, she concluded, was evidence that purchases had been overstated in that amount.
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(c) The Expense Book was generally in...
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