E.T. v Board of Inland Revenue

• Jurisdiction: Trinidad & Tobago
• Judge: Barnes, J.,Burke, J.,Dean-Maharaj, J.
• Judgment Date: 08 October 1990
• Court: Tax Appeal Board (Trinidad and Tobago)
• Docket Number: Nos. I 17 and I 18 of 1986
• Date: 08 October 1990

Tax Appeal Board

Barnes, J.; Burke, J.; Dean-Maharaj, J.

Nos. I 17 and I 18 of 1986

E.T.

and

Board of Inland Revenue

APPEARANCES:

Mr. Trevor Lee and Mr. S. Jairam for appellant.

Miss Shelly Collymore for respondent.

Practice and procedure - Service of notice of assessment — Whether appellant duly served in accordance with s. 86(1) of Chap 75:01.

Revenue law - Income tax — Assessment — Income tax unemployment levy and additional tax — Whether funds in U.S. bank represented part of appellant's income — On balance of probabilities answer was no — Appeal allowed.

1 These are appeals against increases in assessments to income tax and unemployment levy, and additional tax under S:83 (4) of Chap. 75:01 at 100% for the year of income 1978. In his original return for income tax, the appellant had declared a total of $16,760.73 as assessable income from the following:–

Trade and business from operation of business —	$16,332.98
Owner occupied property —	61.25
Interest from source within Trinidad and
Tobago —	336.50

2 The appellant's chargeable income, after deduction of personal reliefs, was $9,124.73. The respondent's Statement of Case (on record) indicated at paragraph 3 that the respondent had accepted the appellant's return of income for the said year 1978 and assessed him accordingly.

3 By letter of 26th April, 1984 (folio 7 of the record) the respondent advised the appellant inter alia that his return of income for 1978 was under examination, and subsequently, during the examination of the appellant's income tax affairs, the respondent requested the appellant to produce the following information (vide paragraph 6 of the Statement of Case):–

• (i) Bank statements of an account held with a Bank in New York, U.S.A.

• (ii) The source of funds utilised to make deposits totalling U.S. $471,000.00 in the savings account at the Bank in New York U.S.A.

• (iii) The nature and purpose of all withdrawals from the said savings account.

4 According to paragraph 4 of the Statement of Case the examination was undertaken for the following reason:–

“The respondent received a photocopy of a statement sworn to by the appellant on September 14, 1982 that in 1978 he had opened a bank account with the Bank in New York and had deposited into the said account sums totalling $471,000,00 (U.S.) The appellant further stated that the said account had remained open up the time of his sworn statement and that the money deposited into this punt was and remained his sole and exclusive property.”

5 By letter dated 7th December, 1984 (folio 21 of the record) the respondent submitted details of a proposed assessment for 1978 on an adjusted chargeable income which included an amount of $1,168.080.00 which represented deposits made into an account in the Bank in New York, (hereinafter referred to as the N.Y. Bank.) By letter of 14th December, 1984 to the respondent, (folios 25–33 of the record) the appellant's tax representative, in reply to the respondent's letter of 7/12/84 provided an analysis of the N.Y. Bank Account which had set out in detail the source of funds utilised to make deposits into, and the nature and purpose of all withdrawals from the said account during the years 1978 to 1982.

6 In this letter the appellant's tax representatives asserted that the actual deposits in 1978 to the N.Y. Bank was U.S. $35,098.02 of which U.S. $35,000 were the proceeds of a loan to the appellant by a third party and were non-taxable deposits, and also expressed agreement with the respondent's proposed assessment of income for the year 1978, subject to revision to take account of certain modifications.

7 It was also stated that interest income had been derived by the appellant on bank accounts at a Trinidad Bank and the New York Bank. In the light of these assertions, the appellant filed an amended return of income on an adjusted chargeable income of $55,897.00 by making the following adjustment, as set out in the letter of 14th December, 1984 to the amount of $1,214,903.24 treated by the respondent as unreported income:–

	$ ¢
“Unreported Income :per your computation	1,214, 903.24

Deduct:	$ ¢
(a) Purported deposits into New York Bank Account	1,163,080.00
(b) Reduction in living expenses	4,800.00
TOTAL	1,172,880.00
	42,023.24
Add:

Interest Income	4,750.00
	46,773.24
Chargeable income reported	9,124.00
Adjusted chargeable income	$ 55,897.00

8 The respondent did not wholly accept the appellant's proposals and proceeded to assess the appellant by using the Bank Deposit method, to arrive at an adjusted chargeable income of $136,084.44 as under — vide paragraph 11 of the Statement of Case:–

		$ ¢
“Unreported Income		1,214,903.24
Deduct:	$. ¢
New York Bank Savings purported deposits	1,168,080.00
Reduction in Living expenses	4,800.00	1,172,880.00
		42,023.24
Add:	$ ¢
New York Bank Savings deposits made in 1978	84, 700.00
Interest credited in 1978	237.20	84,937.20
Unreported income		126,960.44
Add: Chargeable income per return		9,124.00
Adjusted chargeable income		136,084.44”

9 The main issue to be considered relates to the deposits of U.S. $35,000.00 (T.T. equivalent $84,700.00) into the Bank Account in 1978, which the respondent contends belonged to the appellants and which the appellant claims was money lent to him being part of an amount held in the N.Y.Bank Account in the names of N and S and/or C.T. all children of the appellant.

10 Before we proceed to consider the evidence and submissions of counsel, we must observe that on the face of it, this case did not arise from any discerned incorrectness of the appellant's return brought to light in the course of a normal tax audit.

11 The investigation of the appellant and the subsequent additional assessment arose from a letter dated 19th March, 1984 (on record) from the tax authority in Montreal Canada as under:

Revenue Canada

Taxation

Confidential

March 19, 1984 875 Heron Road,

Ottawa, Ont.

K1A OL8

The Chairman,

Board of Inland Revenue,

Ministry of Finance,

Trinidad House,

St. Vincent Street,

Port of Spain

TRINIDAD AND TOBAGO.

Dear Sir:

Re: Exchange of Information under the Canada — Trinidad and Tobago Tax Convention — N.T.

Our Montreal District Taxation Office is presently conducting an investigation into the income tax affairs of the above captioned taxpayer.

The investigation had revealed a net worth discrepancy of $472,000.00 over a four (4) year period — 1979 to 1902. When confronted with the results N.T. said that the money belongs to his father, E.T., who lives in Trinidad. He also mentioned that his father has a business in Port of Spain Trinidad. In this regard, your assistance would be appreciated in obtaining the following information.

• 1. Photocopies of his personal income tax returns including his personal balance sheet or details of his declared income and assets from 1979 to 1982 inclusive.

• 2. It is possible that E.T; could have accumulated that kind of money ($472,000.00) within the concerned period (1979 to 1982)? (Obtain details of money transferred to N.T.).

• 3. A company known as “Hellenic Ship Supply Co.” at Port of Spain, Trinidad issued two (2) cheques to N.T. totalling $43,000,00. The Captain, Mr. A. alleges that these amounts have been paid to N.T. following E.T's recommendation. (See attached affidavit of Mr A and copies of the cancelled cheques). We would appreciate if you could examine the books and records of “Hellenic Ship Supply Co.” for the years 1979 to 1982 in order to answer the following questions:

  • a) Are there any other cheques that were issued to N.T.

  • b) If yes, why? We would like photocopies of the Cancelled cheques (front and back) and any supporting documents.

Furthermore, you will find attached an affidavit of E.T. in which he confirms that he deposited the sum of $471,000.00 in U.S. dollars in an account with the Bank in N.Y. In the said affidavit he talks about his other son C.T.

You will also find attached the summary of the certificates of deposit maintained by N.T. and/or S.T. (another brother) which we obtained from the N.Y. Bank.

If any additional information is required please contact our Special Investigator in Montreal, Mr. Gaetan Ouellette at (514) 445–5224.

This information is requested pursuant to Article XXI of the Canada — Trinidad and Tobago Tax Convention.

Yours faithfully,

Sqd. P. Pinkus

Director Provincial and International

Relations Division

12 From this correspondence, it is clear that the Canadian tax authority was attempting to ascertain whether it was likely that the appellant was capable of accumulating out of earnings money to the order of $472,000.00 U.S. An opinion on this point by the respondent appeared to he vital in regard to the Canadian investigation of the affairs of N.T. In order to provide an opinion an all out investigation by the respondent would undoubtedly have had to be undertaken.

13 There is nothing on the record to indicate what were the findings of the tax auditor in regard to the Canadian enquiry about the appellant's affairs, and nothing emerged from the evidence to enable us to conclude that the investigation required of the respondent had been carried out, so as to reveal whether or not it could be inferred that the appellant had earned taxable or any income to permit bank deposits in the order of U.S. $472,000.00.

14 The revised assessment on the appellant as seen from the record was based solely on the facts sworn to in the affidavit of the appellant that the money in the N.Y. Bank account was his property. In these circumstances, our basic task is to test the credibility of the appellant, rather than to address the customary consideration of his potential earnings in the light of...