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Citation: 2004TCC495
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Date: 20040713
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Docket:2001-751(IT)I
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BETWEEN:
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SATYA PAL,
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Appellant,
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and
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HER MAJESTY THE QUEEN,
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Respondent.
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REASONS FOR JUDGMENT
Bonner, J.
[1] This is an appeal from an
assessment under the Income Tax Act (the
"Act") for the taxation years 1994, 1995 and
1996. The appeal was heard by this Court and was dismissed by
judgment dated March 22, 2002. Reasons for Judgment were
delivered orally.
[2] The Appellant then brought an
application for judicial review to the Federal Court of Appeal.
The result of that proceeding and the Reasons of that Court are
summarized in the following passage from the Reasons for
Judgment:
The Tax Court Judge and all counsel and parties appear to have
forgotten that exhibit A-6, an affidavit by a Mr. Sehmi outlining
the amount of annual rent that he had paid in those years for the
taxi licence to the Applicant.
We are all satisfied that this constituted an error resulting in
procedural unfairness amounting to a denial of natural
justice.
This application for judicial review will be allowed and the
matter remitted to the Tax Court Judge for redetermination,
taking into account exhibit A-6, which was ignored even though it
had been properly introduced.
[3] Following that decision a further
hearing was held by this Court. At that hearing the parties were
given the opportunity to adduce further evidence. The Appellant
called Pritpal Singh Sehmi, the person whose affidavit was
referred to in the Reasons of the Court of Appeal.
[4] The appeal to this Court was from
net worth assessments. The background to the assessments is
explained in the earlier Reasons of this Court as follows:
The Appellant appeals from assessments of income tax and
section 163(2) penalties for the 1994, 1995 and 1996 taxation
years. During those years the Appellant earned income from the
rental of a taxi cab which he owned. He rented the cab out
because he had sustained injuries in an automobile accident which
prevented him from driving the cab himself...
In the first instance the Appellant's income tax returns
for the years under appeal were filed electronically. Income as
reported by him was: for 1994, $3,997.00; for 1995, $7,403.00 and
for 1996, $20,848.00.
The Revenue authorities investigated the Appellant's
financial affairs after discovering that the Appellant had, for
purposes of inflating GST input tax credits, claimed personal
expenses.
It was clear that the Appellant's income could not be
measured directly. The Appellant apparently did not keep, and
certainly did not produce at the hearing, any reliable financial
records which would permit the direct measurement of income. A
net worth assessment therefore followed.
[5] The following passages from the
Notice of Appeal were admitted by the Respondent:
a) The
Appellant is the owner of a licence to operate a taxi cab at
Toronto International Airport, that being Mississauga Taxicab
plate number 25 and Ministry of Transportation plate number
443.
and
b) In
September 1992, Mr. Pritpal Singh Sehmi entered into a lease
agreement with the Appellant which provided that Mr. Sehmi would
lease the taxi licence from the Appellant for the sum of
$1,200.00 per month and that this amount could be changed by
mutual agreement.
[6] The following allegations in the
Notice of Appeal were put in issue:
The Appellant continued receiving lease payments in the amount
of $1,200.00 per month through 1993, 1994, 1995 and up to and
including August 1996. The Appellant and Mr. Sehmi agreed to the
$1,200.00 per month figure, even though written agreements of
January 1, 1994, August 23, 1994 and January 1, 1995
(sic). The continuation of the $1,200.00 per month was
made as Mr. Sehmi was partially disabled from working on a
full-time basis.
The lease agreement was amended, effective September 1, 1996,
to provide lease payments in the amount of $2,340.00 per month,
but due to a continuing disability of Mr. Sehmi, the lease amount
was agreed to be $1,170.00.
The total lease payments received by Mr. Pal for plate rental
in 1994 was $14,400.00, for 1995 was $14,400.00 and for 1996, was
$14,280.00.
Other than the income from the leasing of the licence plate,
Mr. Pal had no other business income during the taxation
years 1994, 1995 and 1996.
[7] The affidavit of Mr. Sehmi is a
document which on its face raises credibility questions for it
suggests that he and the Appellant entered into a number of
written agreements calling for payments to the Appellant which
were not made. It reads in part:
4. In
September 1992, I attended at Mississauga General Hospital to
visit Mr. Pal. At that time, I presented him with a lease
agreement so that I could lease his City of Mississauga taxicab
plate No. 25 and Ministry of Transport Permit No. 443 ("the
Licence"). Mr. Pal and I agreed that I would pay him
$1,200.00 per month commencing September 1992.
5. I continued
leasing the Licence and continued making payments in the amount
of $1,200.00 per month.
6. On January
1, 1994, I entered into an agreement with Mr. Pal to extend
the lease and to pay $1,500.00. Further agreements were made,
including August 23, 1994, December 20, 1994 and September
13, 1996. However, even though we had signed further agreements,
I continued paying Mr. Pal $1,200.00 per month.
7. The
payments of $1,200.00 per month continued even during the period
of time when I could not drive on a full-time basis, and Mr. Pal
had agreed to reduce the lease payments to $600.00 a month.
8. In
September 1996, we agreed to a new lease with payments of
$2,340.00 per month. However, as I was only working on a
part-time basis, we agreed that payments would be made in the
amount of $1,170.00.
9. I paid Mr.
Pal a total of $14,400.00 in 1994, $14,400.00 in 1995 and
$14,280.00 in 1996.
10. I make this affidavit
in support of an appeal by Mr. Pal of taxation assessments.
There was never any doubt that the document was relevant. The
question was whether it should be given any weight.
[8] Mr. Sehmi was not called as a
witness at the first hearing before this Court. At that time
counsel who then acted for the Appellant stated that Mr. Sehmi
was unable to appear but he did not say why. Thus Mr. Sehmi was
not available for cross-examination on his affidavit. Counsel for
the Appellant did not request an adjournment to permit Mr. Sehmi
to testify in person. In those circumstances, despite the failure
of counsel for the Respondent to object to the affidavit, I
considered it unsafe to rely on the document.
[9] As noted in paragraph 3 of these
Reasons, Mr. Sehmi did give evidence at the second hearing. In
his examination in chief, he confirmed what was said in the
affidavit. Not surprisingly, he was cross-examined on the
differences between the amounts which he had agreed in writing to
pay and the amounts which he said he had in fact paid. He was
unable to offer a lucid explanation. At one stage in the
cross-examination he stated that he was confused. At another
stage, when asked directly how much he had paid to the Appellant,
he responded that he did not know, that he would have to check
his papers and that he did not have his papers. In my opinion Mr.
Sehmi was not a credible witness. In the result he did nothing to
advance the Appellant's case. The Appellant's income
cannot be measured directly.
[10] Thus despite the second hearing the
position as set out in paragraph 11 of my reasons of March 15,
2002 remains unchanged:
The onus is on the Appellant to establish on a balance of
probabilities that the Minister's calculations of income are
wrong. The onus is one which is relatively easy to discharge
where the Minister has relied on a net worth calculation because
of the inherent imprecision of the method. However, there must be
some credible evidence showing error in the result in order to
discharge the onus. Such evidence was not adduced here.
[11] The appeal is dismissed.
Signed at Ottawa, Canada, this 13th day of July 2004.
Bonner, J.
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