Date: 20020517
Docket: 2001-4324-IT-I,
2001-4341-IT-I
BETWEEN:
ANDRE D.
BENTOLILA,
LISE
BENTOLILA
Appellants,
and
HER MAJESTY THE
QUEEN,
Respondent.
and
Reasonsfor
Judgment
Miller J.
[1]
The appeals of Andre Bentolila and Lise Bentolila, by
way of the informal procedure, from the Minister of National
Revenue's (the Minister) reassessment of their 1996 and
1997 taxation years, Mr. Bentolila's 1993 taxation year
and Mrs. Bentolila's 1998 taxation year were heard on
common evidence. The Bentolilas claimed non-refundable tax
credits for charitable donations to the Or Hamaarav Sephardic
Congregation, and in Mrs. Bentolila's case, also to the
Arabenel S. Learning Centre. The Minister disallowed these
claims and imposed penalties pursuant to subsection 163(2)
of the Income Tax Act (the Act).
[2]
The Bentolilas' case is curious as it unfolded with a number
of unexpected developments. The first was an inquiry by
Respondent's counsel as to the nature of the assessments
under appeal. He had seen a copy of an assessment, just before
trial, which suggested to him that some of the assessments under
appeal may have been nil assessments. As this could have
significantly affected how he proceeded, time was allowed to
check with the Chief of Appeals in Ottawa as to whether,
according to Respondent's counsel, the "appeals were
alive". While this seemed a late stage for the Respondent to
make such a determination, the answer was quickly received that
yes indeed, the appeals were "live". At this point I
was advised by the Appellants's son, who was acting as their
agent, that neither Mr. nor Mrs. Bentolila intended to
testify. After some brief commentary on the relevance of the
Respondent's assumptions and on the fact that the Appellants
could be called to testify by the Respondent, the
Appellants's agent sought a brief adjournment. On
reconvening, the Respondent's Book of Documents was agreed to
be introduced in whole as a Exhibit A-1. The agent for the
Appellant directed me to paragraph 43 of the judgment of
Justice Shamai in the case of R. v. Edery, [2001]
O.J. No. 1437, in which the following was stated:
...
1994:
Abarbanel showed $285,967 in donations, yet receipts for
donations totalled $758,807
1995
Abarbanel showed
$312,229 in donations, yet receipts totalled $995,970
1993
Or Hamaarav showed
$180,857 in donations, yet receipts totalled $558,191.
1994
Or Hamaarav donations totalled $233,685 while receipts totalled
$1,296,208.
1995
Or Hamaraav showed $363,745, while receipts totalled
$1,573,208.
[3]
Secondly, the Appellant directed me to an Information from
Mr. Frank Manetti containing 48 counts against
Rabbi Edery, all based on the issuance of false charitable
receipts. None of the receipts referred to were in connection
with the Appellants.
[4]
The Appellants' agent then proceeded to call two witnesses
subpoenaed by the Respondent; the first was
Mr. Jacob Abecassis, and the second was
Rabbi Edery. The Appellants ultimately determined not to
give evidence on their own behalf, and neither did the
Respondent's counsel call them as witnesses. With that as a
background of how the trial unfolded, I will now review the facts
as provided by Mr. Jacob Abecassis, Rabbi Edery,
Mrs. Edery and the Special Investigations Officer of Canada
Custom and Revenue Agency,
Mr. Frank Manetti.
[5]
Mr. Jacob Abecassis was a broker in Toronto who offered
a tax preparation service during the 1990s. In 1995, he was made
aware of a so-called donation program through
Mr. Meyer Cohen. The gist of Mr. Cohen's
explanation to Mr. Abecassis was that wealthy clients made
donations without disclosing their name, and for an
administration fee of 20% of the face value of the donation,
Mr. Abecassis' clients could have their names put on the
charitable receipts. The charities in question were registered
charities run by Rabbi Edery: the Or Hamaarav Sephardic
Congregation and the Arabenel S. Learning Centre. At some
point late in 1995, Mr. Abecassis was advised by
Rabbi Edery to no longer deal with Mr. Cohen.
Mr. Abecassis would provide Rabbi Edery with the names
and addresses of his clients and the amount of tax receipts
needed. The Rabbi would deliver the requested receipts and
collect the administration fee, which was split with
Mr. Abecassis. Rabbi Edery testified that he understood
the payment collected from Mr. Abecassis' clients was
only a down payment with the balance to be forthcoming. No
balance was ever forthcoming and I do not accept the Rabbi's
explanation. Mr. Abecassis indicated that he never had any
dealings with the Appellants.
[6]
In 1996, Mr. Abecassis became concerned that clients were
going directly to Rabbi Edery, so he started printing and
issuing his own receipts. Apparently, feeling some remorse at
cutting out Rabbi Edery, he stopped this practice and indeed
paid over to Rabbi Edery what he believed to be the
Rabbi's share of the administration fees garnered from his
solo fraudulent scheme.
[7]
Both Rabbi Edery and Jacob Abecassis were convicted of
offences under the Act. The Special Investigator,
Mr. Frank Manetti, confirmed that his investigation
determined the accuracy of the numbers set forth earlier (see
paragraph 2), as found in Justice Shamai's decision
in the Edery criminal trial. Mr. Manetti also testified that
his investigation turned up approximately 4,000 receipts,
and as they needed to lay charges expediently, they went through
the receipts alphabetically and proceeded with those taxpayers
who were prepared to admit the use of grossly inflated charitable
receipts. The Bentolilas' names were not on that
list.
[8]
Rabbi Edery testified that the Bentolilas were long-standing
members of his congregation. He had known them since 1974 and
considered he had a special relationship with them. In
examination by the Appellants' agent, Rabbi Edery could
not identify how often Mr. Bentolila brought donations, nor
did he specifically recall how much was paid in cash and how much
by cheque. He did state that he never issued inflated receipts to
the Bentolilas.
[9]
On questioning by the Respondent's counsel, Rabbi Edery
would not initially acknowledge any guilt in connection with his
conviction on the 48 counts contrary to the Income Tax
Act. On production of the information and
Justice Shamai's judgment, he eventually acknowledged he
had been found guilty and was sentenced to one-year house arrest
and a $32,000 fine.
[10]
In answer to more detailed examination with respect to the
Bentolilas' donations, Rabbi Edery indicated
Mr. Bentolila would give a number of donations throughout
the year, and then would be issued one receipt. Usually, his wife
would keep track of such donations. Mrs. Edery would fill in
the receipts and Rabbi Edery would simply sign them.
Respondent's counsel went through each receipt issued to the
Bentolilas produced in evidence. Rabbi Edery had no clear
memory of any of the donations being made by cheque. Any of the
donations he claimed to recall were cash payments. He further
testified that he would date receipts as requested by the donors.
His testimony was confused and at times contradictory. Although
at times he seemed to remember specifics of a particular visit by
Mr. Bentolila, I find such evidence unreliable. The most
that can be gleaned from Rabbi Edery's testimony is that
Mr. Bentolila visited him on several occasions (dates
unknown) and made donations of varying amounts (amounts unknown),
mainly in cash, and receipts were sometimes, but not always,
provided at the time of the donation. If receipts were not
immediately provided, the Rabbi's wife would make a notation
of the amount in a notebook or on a piece of paper.
Mrs. Edery could not produce any such records, as she
testified they were thrown out once a receipt was issued.
Mrs. Edery had testified in her husband's criminal trial
that she did not keep records.
[11]
Rabbi Edery implored the Respondent's counsel to ask the
Bentolilas when and how much they donated, as he believed they
would have a better grasp on this information.
[12]
With respect to the receipts, Mr. Manetti testified that the
numbering of several of the series of receipts, some of which
series contained the Bentolilas' specific receipts, was
suspicious. For example, a receipt dated December 30, 1994
to Mr. Bentolila was numbered 6271, yet receipt 6273 was
dated a couple of months earlier, in October.
[13]
Part of the scheme described by Mr. Manetti involved
Rabbi Edery accepting the full amount shown on the receipt,
but then returning 90% of it to the donor. There was no evidence
that he engaged in such conduct with the Bentolilas.
[14]
I am satisfied that the Bentolilas made donations to
Rabbi Edery's registered charities during the years in
question. They, unlike many other charitable receipt recipients,
had a long-term special relationship with the Rabbi. I have no
determinative evidence that any of such donations were made other
than by cash. I also have nothing conclusive to confirm if the
receipts were issued at the time; to the contrary, I have an
acknowledgment from the Rabbi that the date in many cases was
suggested by the donor. I conclude that the dates in the
Bentolilas receipts do not reflect the dates on which the cash
donations were actually made. Neither can I find, based on
Rabbi Edery's and his wife's testimony, without the
benefit of any evidence from the Appellants, that the dates even
reflect the date the receipt was issued. The irregular numbering
of the receipts further supports this finding. Having reached
this conclusion, I turn to Regulation 3501 of the
Income Tax Regulations, which reads:
(1)
Every official receipt issued by a registered organization shall
contain a statement that it is an official receipt for income tax
purposes and shall show clearly in such a manner that it cannot
readily be altered,
(a)
the name and address in Canada of the organization as recorded
with the Minister;
(b)
the registration number assigned by the Minister to the
organization;
(c)
the serial number of the receipt;
(d)
the place or locality where the receipt was issued;
(e)
where the donation is a cash donation, the day on which or the
year during which the donation was received;
(e.1)
where the donation is a gift of property other than
cash
(i)
the day on which the donation was received,
(ii)
a brief description of the property, and
(iii)
the name and address of the appraiser of the property if an
appraisal is done;
(f)
the day on which the receipt was issued where that day differs
from the day referred to in paragraph (e) or
(e.1);
(g)
the name and address of the donor including, in the case of an
individual, his first name and initial;
(h)
the amount that is
(i)
the amount of a cash donation, or
(ii)
where the donation is a gift of property other than cash, the
amount that is the fair market value of the property at the time
that the gift was made; and
(i)
the signature, as provided in subsection (2) or (3), of a
responsible individual who has been authorized by the
organization to acknowledge donations.
[15]
The requirements of this Regulation are specific. If a
cash donation is made one day, and the receipt is issued on a
different day, the dates of the receipt must be shown, and either
the year in which or day on which the donation was made must also
be shown. The Bentolilas' receipts are deficient in this
regard. Even if I were to accept that the receipts appropriately
identified the correct year of the donation, I am left without
sufficient proof that the receipt is correctly dated at the time
of issuance. I cannot, under such circumstances, allow the
Bentolilas' reliance on such charitable receipts. I make this
decision without reaching any conclusion as to how much the
Bentolilas donated. They were not prepared to testify and they
must appreciate the difficulty that causes for a finder of fact.
I wish to be clear, however, that the denial of the charitable
donation casts no dispersion on their conduct; rather, it is a
recognition that they were caught up in a fraudulent scheme
propagated by others. This leads to my consideration of two
remaining issues.
[16]
First, in connection with Mr. Bentolila's 1993 taxation
year, the reassessment was dated October 4, 2000, more than
three years later than the date of mailing of the original
assessment on May 27, 1994. It is, therefore, necessary for
the Respondent to rely on paragraph 152(4)(a) of the
Act, which reads:
152(4)
The Minister may at any time make an assessment, reassessment or
additional assessment of tax for a taxation year, interest or
penalties, if any, payable under this Part by a taxpayer or
notify in writing any person by whom a return of income for a
taxation year has been filed that no tax is payable for the year,
except that an assessment, reassessment or additional assessment
may be made after the taxpayer's normal reassessment period
in respect of the year only if
(a)
the taxpayer or person filing the return
(i)
has made any misrepresentation that is attributable to neglect,
carelessness or wilful default or has committed any fraud in
filing the return or in supplying any information under this
Act, or
(ii)
has filed with the Minister a waiver in prescribed form within
the normal reassessment period for the taxpayer in respect of the
year; or
...
[17]
Respondent's counsel directed me to Nesbitt v. The
Queen, 96 DTC 6588, and specifically the following
comments from Justice Strayer:
... a wrong calculation,
based on accurately reported facts, could not itself be a
misrepresentation of fact. The appellant conceded that the error
in his return, however characterized, was a careless one for
which he was responsible even if the miscalculation was the work
of his accountant.
I
agree with the reasoning and the conclusions of the learned trial
judge, on the issues before him, that there was a
misrepresentation by the appellant for which the latter was
responsible.
...
... It appears to me that
one purpose of subsection 152(4) is to promote careful and
accurate completion of income tax returns. Whether or not there
is misrepresentation through neglect or carelessness in the
completion of a return is determinable at the time the return is
filed. A misrepresentation has occurred if there is an incorrect
statement on the return form, at least one that is material to
the purposes of the return and to any future reassessment. It
remains a misrepresentation even if the Minister could or does,
by a careful analysis of the supporting material, perceive the
error on the return form. It would undermine the self-reporting
nature of the tax system if taxpayers could be careless in the
completion of returns while providing accurate basic data in
working papers, on the chance that the Minister would not find
the error but, if he did within four years, the worst consequence
would be a correct reassessment at that time.
[18]
The circumstances of the Nesbitt case are distinguishable
from the facts before me. In Nesbitt, the Appellant
acknowledged the carelessness of the error in his return. This
fits squarely within the contemplation of
paragraph 152(4)(a). Mr. Bentolila has made no
such admission: he has made no admission at all as he did not
testify. The Respondent wants me to draw a negative inference
from this, as well as from the very circumstances of
Rabbi Edery's fraudulent donation program, to conclude
that there was a misrepresentation, and that it was attributable
to the Bentolilas neglect, carelessness or wilful default. I do
find there was a misrepresentation, in that a defective receipt,
as explained earlier in these reasons, was relied upon by the
Bentolilas. But the evidence does not support a finding that this
was a result of the Bentolilas' neglect, carelessness or
wilful default; it was a result of Rabbi Edery's
actions. There is insufficient evidence to support a finding that
the Bentolilas should have been alerted to a problem with
donations to a registered charity, with which they had dealt for
many years. Indeed, hundreds of thousands of dollars were paid to
the charities over the years. To find neglect, carelessness or
wilful default requires a finding of the Bentolilas'
knowledge and intent, which in these circumstances, I am not
prepared to do simply by inference from their lack of testimony.
The Respondent cannot in this case avail himself of
subsection 152(4) to extend the normal reassessment period.
Mr. Bentolila's appeal is allowed for 1993 and the
assessment is quashed.
[19]
Finally, with respect to the penalties imposed pursuant to
subsection 163(2), it is for the Respondent to prove that
the Bentolilas knowingly or under circumstances amounting to
gross negligence, made, participated in or assented to or
acquiesced in the making of a false statement in a return.
Respondent's counsel cited the Federal Court of Appeal
decision of Côté v. The Queen, 2000 DTC
6615 (Fr.), where the taxpayer received receipts for amounts four
times higher than the prices of the works of art they just
acquired. The Federal Court of Appeal agreed with the trial judge
that this amounted to extreme recklessness or at least gross
negligence. This, however, attaches a knowledge to the taxpayer
that has not been proven in this case. The Bentolilas donated
some money to Rabbi Edery. It has not been proven by the
Respondent that the amount of the receipts exceeded that
donation. It therefore follows that this cannot be the false
statement triggering a subsection 163(2) penalty. It has
been shown the receipts were defective due to inappropriate
dating, but having found that such a misrepresentation was not
attributable to the Bentolilas' neglect or carelessness for
purposes of subsection 152(4), I am certainly not about to
find that meets the more stringent standard imposed under
subsection 163(2). The penalties have not been properly
assessed.
[20]
The appeals are allowed and the reassessments referred back to
the Minister for reconsideration on the basis that:
a)
the appeal of Mr. Bentolila' 1993 taxation year is
allowed on the basis that the assessment is quashed;
and
b)
the Bentolilas's appeals against penalties imposed pursuant
to subsection 163(2) are allowed.
Signed at Ottawa, Canada, this 17th day of
May, 2002.
"C.J. Miller"
J.T.C.C.
COURT FILES
NOS.:
2001-4324(IT)I and 2001-4341(IT)I
STYLE OF
CAUSE:
Andre D. Bentolila and The Queen
Lise Bentolila and The Queen
PLACE OF
HEARING:
Ottawa, Ontario
DATE OF
HEARING:
May 9, 2002
REASONS FOR JUDGMENT
BY: The Honourable Campbell J.
Miller
DATE OF
JUDGMENT:
May 17, 2002
APPEARANCES:
Agent for the
Appellants:
William Bentolila
Counsel for the
Respondent:
Gordon Bourgard, Q.C.
COUNSEL OF RECORD:
For the
Appellants:
Name:
N/A
Firm:
For the
Respondent:
Morris Rosenberg
Deputy Attorney General of Canada
Ottawa, Canada
2001-4324(IT)I
BETWEEN:
ANDRE D. BENTOLILA,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent.
Appeals heard on common evidence with the
appeals of Lise Bentolila
(2001-4341(IT)I) at Ottawa, Ontario on May 9,
2002, by
the Honourable Judge Campbell J.
Miller
Appearances
Agent for the
Appellant:
William Bentolila
Counsel for the
Respondent:
Gordon Bourgard, Q.C.
JUDGMENT
The appeal from the assessment of tax made under the Income
Tax Act for the 1993 taxation year is allowed and referred
back to the Minister of National Revenue for reconsideration and
reassessment on the basis that the assessment is
quashed.
The
appeals from assessments of tax made under the Act for the
1996 and 1997 taxation years are allowed and the assessments are
referred back to the Minister for reconsideration and
reassessment on the basis that the Appellant is not liable for
penalties imposed pursuant to subsection 163(2).
Signed at Ottawa, Canada,
this 17th day of May, 2002.
J.T.C.C.
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