H.S. v The Board of Inland Revenue

• Jurisdiction: Trinidad & Tobago
• Judge: Barnes, S.C.
• Judgment Date: 01 January 1995
• Docket Number: Nos. I 123 and I 124 of 1989
• Court: Tax Appeal Board (Trinidad and Tobago)
• Date: 01 January 1995

Tax Appeal Board

Barnes, S.C.; Burke, Mem.; Dean-Maharaj, Mem.

Nos. I 123 and I 124 of 1989

H.S.

and

The Board of Inland Revenue

Appellant in person.

Ms. Allyson West for respondent.

Revenue law - Income tax — Unemployment levy — By an audit report the respondent increased the appellant's income tax and unemployment levy from $816.28 to $30,670 from nil to $28,937 respectively — Appellant contended that the respondent had wrongly sought to tax both interest and capital received by the appellant in the year of income contrary to law and in fact — Finding that the appellant had not satisfied the onus of proof regarding the sum of $142,336 found to be purchases overstated and the decision of the respondent to disallow was upheld — Sum of $70,113.00 found by the respondent to be unreported income had not been shown to be incorrect — Sum of $150,000 was found to be capital repayments of loans and the amount to be treated as unreported income was reduced to $243,266.00 — Appeals allowed.

Barnes, S.C.

1 These are appeals against assessments to income tax and employment levy for year of income 1982, during which the appellant had carried on the business of the supply and delivery of boulders, sand, gravel and other aggregates. The appellant had filed a return dated 20th April, 1983 in which he declared a net income of $10,725.11, being $9,700.14 from “trade or business” and $1,024.97 from dividends.

2 The respondent had originally accepted the return as above, but following a tax audit, adjustments had been made on the basis of an audit report dated 29th October, 1986 whereby his liability for income tax and unemployment levy was increased from $816.28 to $306,870 and from nil to $28,937 respectively. The increase of chargeable income brought about report at folio 33 of the record as under:–

• (a) Total Purchase and Deliveries from Mr. M. Roy as declared in your return is $507,262. Total purchase and deliveries as confirmed by Mr. M. Roy is $253,126, a difference of $142,336 which should be charged to tax.

• (b) Unreported Income as per additional information supplied by you is $515,416.19. After allowing cost for each different item and a flat delivery of $27.00/cu.yd. total cost and delivery equal $445,303, a difference of $70,113.19 which should be charged to tax.

• (c) Unreported Income — other Reconciliation of total deposits as per the bank statements with gross income from (a) and (b) above gives a difference of $393,266. The amount from the contracting business and also as interest income from the granting of loans. It is to be noted that your representative stated that you were engaged in the above activities.”

3 Paragraphs 14 and 15 of the statement of case filed by the respondent set out the grounds of appeal and the contentions of the respondent as under –

• “14. By Notices of Appeal dated April 7, 1989 the appellant appealed to the Tax Appeal Board against the decision of the respondent on the grounds that:

  • (1) The alleged assessment is arbitrary, excessive, capricious and vindictive.

  • (2) The alleged assessment is wrong both in fact in that the respondent made a downward adjustment of the amount paid by the appellant to Mr. Roy without making the necessary and proper upward adjustment of amounts paid to other quarry owners.

  • (3) The respondent failed to take account or any proper account of the implications arising in fact and in law from the fact that the appellant had one customer to which boulders were delivered and the cost thereof remained fixed and certain.

  • (4) The respondent failed to take account or any proper account of costs and expenses relative to the trade in question as supplied by the appellant and based its assessment on cost and expense figures wholly unrelated to the trade and consequently unreal and unacceptable in the circumstances.

  • (5) The respondent has wrongly sought to tax both interest and capital received by the appellant in the year of income contrary to law and in fact.

• “15. The respondent will contend as follows:–

  • (a) that the income tax return submitted by the appellant in respect of income year 1982 was not a true and correct reflection of his income tax and unemployment levy liabilities for that year;

  • (b) that as a result of an audit conducted into the tax affairs of the appellant and certain discoveries made as a result thereof, the respondent acted properly and within the powers granted to it by Section 89(1) of the Income Tax Act, Chapter 75:01 in assessing the appellant as it did;

  • (c) that the appellant failed to establish that the said assessment is excessive or wrong.”

4 Oral and affidavit evidence was given by:–

For the appellant
M.S.	Civil Servant (son of the appellant)
S.M.	Proprietress (daughter of the appellant)
P.L.	Housewife (daughter of the appellant)
B.B.	Housewife
For the respondent
Gerald Ramlogan	Field Auditor 1 Board of Inland Revenue

5 AFFIDAVIT EVIDENCE

6 Affidavit evidence was given by the appellant, whose affidavit dated 24th November, 1992, was supported by affidavits given by the following persons, and identified as shown hereunder:–

BY	DATED	Exhibit No.
M.S.	24th November, 1992	H.S.I
P.L.	18th May, 1988	H.S.2
S.S.	12th May, 1988	H.S.3
S.M.	16th May, 1988	H.S.4
B.B.	13th May, 1988	H.S.5

7 Before we turn to consideration of the evidence relating to the three findings of the tax auditor leading to the making of adjustments as a basis of assessment of the appellant's income, we must refer to certain occurrences that reveal the difficulties experienced by the tax auditor in investigating the appellant's affairs and to the difficulties he had to overcome on account of efforts on behalf of the appellant to conceal information and to' mislead the tax auditor.

8 In his evidence, Ramlogan pointed out that

• (1) The appellant had not maintained proper books and records.

• (2) The only documents produced related to one aspect of the appellant's business — namely deliveries to government sites.

• (3) Several enquiries for information had been met by a reply that records were not available.

• (4) He had been informed that the appellant had not maintained a business bank account and had done all business in cash. Two letters on record at folios 16 and 19 are typical of the behaviour of the appellant during the tax audit. Both letters had been addressed to the tax auditor. The first was dated 22 ^nd November, 1985 by H.S. and the second dated 16th January, 1986 by M.S. In his letter H.S. stated inter alia that:–

  • (i) all his business payments transactions were made strictly by cash;

  • (ii) all business cheques which he received were encashed and the cash retained in his personal custody; and

  • (iii) he had never kept records of such i cash transactions;

  • (iv) his son M.S.

• S was never involved in the monetary aspects of the business

• S did not know of his personal retention of business cash; and

• S did not know that his account at Bank of Nova Scotia, was a personal savings account, which was hardly used.

9 In his letter at folio 19, M.S. stated inter alia that:

• (a) he did not know of his father's letter of 22nd November, 1985 — folio 16,

• (b) he had obtained copies of bank statements from Royal Bank, and

• (c) he had found out that the Bank of Nova Scotia account was opened in January, 1984.

10 In addition he apologised to the Revenue for the inaccurate statements of his father, the appellant.

11 Regarding the evidence for the appellant we note as follows–

• (1) In paragraph 4 of H.S.'s affidavit of 24th November, 1992, on record he admitted that he had initially filed a wrongful return for 1982; and in M.S.'s evidence before the court he admitted that this had been deliberately done in anticipation of a tax audit.

• (2) In paragraph 6 of his affidavit he deposed:–

  (My son, M.S., acted as my representative at all meetings with the respondent since he handled all my book-keeping transactions and is more familiar with my business operations in 1982. Details of these operations are outlined in his affidavit dated November 24, 1992 and which is hereto annexed and marked H.S.1.)”

12 In view of the foregoing, the evidence of H.S. cannot assist us.

13 The evidence of H.S. reflected certain statements he had made in his affidavit of 24th November, 1992 (Exhibit H.S.1) and to certain other exhibits — M.S.1 to M.S.7.

14 Relevant to these exhibits, the following extracts of H.S.1 are quoted hereunder:–

“5. In the course of his business activities in 1982 the appellant received total revenue in the sum of $1,480,242.84 and that it was derived from three sources as follows:– Government Contracts, Construction Projects and Repayment of Loans. Exhibit M.S.1' refers.”

15 M.S.1 is a “Summary of Revenue as per Bank Statements” which reflect a total revenue of $1,480,242.84 broken down as follows –

Government Contracts,	–	$ 578,574.87
Construction projects	–	555,416.19
Repayment of Loans	–	346,200.00
Unaccounted Balance	–	51.78
Total		$1,480,242.84

16 We have noted that this witness was not denying the tax auditor's findings to the effect that there had been a difference of $142,336 regarding the amount paid to Mr. Roy. Instead he was making a case that whatever had been the position regarding the supply by Mr. Roy the total quantity of boulders supplied had been 18,116.5 cubic yards, — as set out in Exhibit M.S.2 headed “Summary of Transactions with the Ministry of Works” which purported to give particulars of quantities purchased and supplied, and revenue received.

17 None of the figures in M.S.2 have been corroborated, and by his own admission M.S. had to estimate certain costs in the absence of complete records. At a later stage, we shall comment on these figures vis-a-vis the findings of...