Her Majesty the Queen v. Aulakh, Narinder Aulakh and Megal International Ltd., [1995] 2 CTC 526

Daniel J.

Charges

The accused Nita Aulakh and Narinder Aulakh in their personal capacities are each charged with four offenses under the Income Tax Act relating to failure to file signed individual income tax returns for the years 1988, 1989, 1990 and 1991 inclusive. The accused corporation and the male accused in his capacity as Director of the accused corporation are charged with failure to file a completed Corporation Income Tax Return for the Tax year 1991, all as formally demanded to be done within 90 days from service of the respective demands by Revenue Canada pursuant to paragraph 231.2(l)(a) of the Income Tax Act.

Facts:

The two accused individuals were served by Revenue Canada with four demands pursuant to subsection 231.2(1) of the Income Tax Act to file, within 90 days from service on April 6, 1993, individual returns for the years 1988 to 1991 inclusive, while a similar demand was served upon the corporate accused and the accused Narinder Aulakh in his capacity as its Director to file a corporate income tax return for the 1991 year. None of the required tax returns were completed and filed within the requisite 90 day time frame given for compliance.

An investigation by Revenue Canada was commenced on October 29, 1992. Further to that investigation, several telephone conversations and visits either at the offices of Revenue Canada, or at the accuseds’ business or residence, took place between the Revenue Canada representative and the accuseds. Revenue Canada asked the accuseds to complete and file corporation and individual income tax returns that had not been completed and filed over a number of years between 1988 and 1991 inclusive. The demand was not made further to any ongoing investigation of the accuseds, but merely because no tax returns had been filed.

The accuseds had been notified that in the event they did not comply with Revenue Canada’s requests to complete and file the requested returns, they would be served with a notice pursuant to paragraph 231.2(l)(a) of the Income Tax Act. They were informed that if they were unable to complete their returns in a timely fashion due to the unavailability of certain information, they could file estimated tax returns and amend them later once the information was available. They did not comply with those requests in a timely manner and on April 6, 1993, they were properly served with the formal paragraph 231.2(l)(a) notices to file such returns marked as Exhibits herein. None of the accuseds complied with the demands within the required time frame.

Subsequent to the expiration of the demand period, the individual accuseds filed their individual income tax returns for the years in question and taxable income was assessed for only one or two of those returns. The corporation has not yet filed an income tax return for the 1991 year.

Issues:

After the Crown closed its case, counsel for the accuseds made an application for a directed verdict of not guilty on the basis that all of the elements of the offence were not proven in the Crown’s case. One issue revolved around whether or not the Crown had to prove as an essential element of its case, that the demand was made as a part of a "genuine and serious inquiry", and, if such an inquiry was requisite, had it been proven beyond a reasonable doubt in this case. At issue as well, was whether the demand should have been made under paragraph 231.2(a) rather than subsection 150(2) of the Income Tax Act. Paragraph 231.2(a) reads as follows:

231.2(1) Requirement to provide documents or information Notwithstanding any other provision of this Act [my emphasis], the Minister may subject to subsection (2) [dealing with unnamed persons, not applicable in this instance], for any purpose related to the administration or enforcement of this Act, by notice, served personally or by registered or certified mail, require that any person provide, within such reasonable time as is stipulated in the notice,

(a) any information or additional information, including a return of income Or a supplementary return; or

(b) any document.

Subsection 150(2) reads as follows:

150(2) Demand for Returns

Whether or not he is liable to pay tax under this Part for a taxation year and whether or not a return has been filed under subsection (1) or (3), every person shall, on demand from the Minister, served personally or by registered letter, file, within such reasonable time as may be stipulated therein, with the Minister in prescribed form and containing prescribed information a return of the income for the taxation year designated therein.

Section 233 provides as follows:

233. Information Return.

Every person shall, on written demand from the Minister served personally or otherwise, whether or not the person has filed an information return as required by this Act or a regulation, file with the Minister, within such reasonable time as may be stipulated in the demand, such information as is designated therein.

Submissions:

(a) Accuseds’ Submissions:

In support of his application, the accuseds’ counsel provided the Court with two decisions: Richardson and Sons Ltd. v. M.N.R. et al., [1984] 1 S.C.R. 614, C.T.C. 345, 84 D.T.C. 6325 and Skalbania Ltd. v. Canada, [1989] 2 C.T.C. 183, 89 D.C.T. 5495 (B.C. Co. Ct.) (referred to herein as Skalbania #1) which, it was argued, stood for the proposition that the Crown has to not only establish that a demand was made pursuant to paragraph 231.2(l)(a) and that the demand was not complied with, but additionally, that the demand was made as a part of a "genuine and serious inquiry".

Accuseds’ counsel also argued the demand was not made under the correct provision (paragraph 221 (l)(d) being the particular and subsection 231(3) being the general provision). He sought to apply the same principle in Pretty v. Solly (1859), 25 Beav. 606, 53 E.R. 1032 that was applied by Wilson J. in Canadian Bank of Commerce v. A.G. (Canada), [1962] S.C.R. 729, [1962] C.T.C. 35, 39, 62 D.T.C. 1014, 1236. As stated in the Pretty case at page 583 (E.R. 1034):

The rule is, that wherever there is a particular enactment and a general enactment in the same statute, and the latter, taken in its most comprehensive sense, would overrule the former, the particular enactment must be operative, and the general enactment must be taken to affect only the other parts of the statute to which it may properly apply.

He argued that the CIBC decision was based upon a determination the two aforesaid sections of the Income Tax Act overlapped and therefore, the demand was not made under the correct provision. As such, he submitted, the Crown’s case failed in the absence of evidence establishing the existence of a "genuine and serious inquiry" required to be proven when demand is made under paragraph 231.2(1)(a).

Counsel also argued this principle has been extended to the particular sections and facts in the present case by the Skalbania #1 decision. He

cited the following quote from that decision at page 185 (D.T.C. 5496):

With respect, I conclude that the learned trial judge was not dealing with the specific issue which was raised before him, which has been raised again on this appeal, of the difference of the two sections. The Richardson case is ample authority for the conclusion that section 231.2 is available to the Minister to facilitate an ongoing and serious inquiry.

Subsection 150(2) is available to the Minister generally to demand a return whether or not a tax return has been filed. Since the demand here was made under an inapplicable section, the conviction cannot be sustained and the conviction is set aside.

(b) Crown’s Submissions:

The Crown argued it was not necessary to prove a genuine and serious inquiry, given the decision in R. v. Dakus (1988) 87 A.R. 374 (Alta. Q.B.), and noted the 1986 addition of the "Notwithstanding any other provision of this Act" clause to section 231.2(1) (effective February 13, 1986, through S.C. 1986, c. 6, section 121 whereby subsection 231(3) was replaced by what is presently subsection 231.2(1)) after the Richardson case had been decided. This amendment was not considered in Skalbania #1 and the Crown submitted that obviated an argument regarding overlap of the two sections dealing with demands for returns. Even if it was necessary to prove a genuine and serious inquiry, the Crown submitted that had been done.

Findings of Law:

Elements of the Offence:

(a) Overlapping Offenses:

The 1986 amendment adding the "Notwithstanding any other provision of this Act" clause requires subsection 231.2(1) to be interpreted on a ’stand alone basis’. The word "notwithstanding" is defined in Webster’s New Twentieth Century Dictionary—Unabridged, 2nd Edition as "in spite of; without hindrance or obstruction from; despite". I accept that definition. It is, therefore, irrelevant that other more specific sections of the Income Tax Act (most particularly subsection 150(2)) overlap with paragraph 231.2(l)(a) of the Income Tax Act. The decisions of Richardson and Skalbania #1 cannot therefore, be relied upon as a legally current statement of the elements required to be proven by the Crown with respect to an offence under paragraph 231.2(l)(a) as far as they relate to the issue of overlapping sections of the Income Tax Act. If Revenue Canada determines it should proceed under paragraph 231.2(l)(a) rather than subsection 150(2), that is their prerogative.

(b) "Genuine and Serious Inquiry":

The Richardson case is quite distinguishable from the instant case and that of Dakus on its facts. In coming to her conclusions with respect to the elements of an offence under subsection 231(3) {now 231.2(1)}, Wilson J. in the Richardson case, relied on the CIBC decision. In both cases, demands were made upon persons whose tax liability was not in issue, for information respecting third parties whom Revenue Canada was investigating. In the instant case, demands were made upon the same persons and corporation whose tax liability was under investigation.

The Dakus case had facts on all fours with the facts of the instant case. The accused therein was charged with four offenses under subsection 231(3) (as it then was) for failing to comply with a Revenue Canada demand to complete and file an Individual Income Tax Return within the specified period. The Crown placed into evidence the Affidavits of a Revenue Canada officer which established service of the demands and non-compliance with the said demands. The Crown closed its case and the accused successfully applied for a directed verdict of not guilty in front of the Provincial Court trial Judge on the basis an essential element of the offence was not proven: that being the request for information and returns must be done further to a genuine and serious inquiry into the accuseds’ tax liability further to the decision in Richardson.

In the Dakus case, Girgulis J. discussed the case of R. v. Schacher, [1987] 1 C.T.C. 75, 86 D.T.C. 6580 (Alta. Prov. Ct.), in finding no necessity for the Crown to prove as an element of the offence the ’genuine and serious inquiry into the tax liability of some person or persons’. At page 379 and 380 he stated:

If by this, the learned trial judge meant to say that the Crown has the onus in proving as an essential element of its case that the inquiry is a serious and genuine one and that is an additional element to be proved in the Crown’s case beyond proof of the element as described in the ratio decidendi, namely, to obtain information relevant to the tax liability of some specific person or persons, then I do not agree with his analysis. But I do not disagree with his application of the law to the case before him, resulting in the dismissal. In Schacher, the learned trial judge was satisfied that the requirement or demand letter was not related to a genuine or serious inquiry by the Minister of National Revenue, but was in fact, a result of requests and inquiries from the Royal Canadian Mounted Police. In short, the evidence established to the satisfaction of Ketchum, P.C.J., that the requirement was not for a purpose related to the administration or enforcement of the Income Tax Act.

If the tax liability of an accused person is not the subject of a genuine and serious inquiry by the Minister, then it cannot be said that the Minister is acting for a purpose relating to the administration and enforcement of the Act. But that does not mean to say that the Crown must establish as an essential element of its case affirmative evidence of genuine and serious inquiry regarding the information requested relating to the tax liability of a specific person [my

emphasis]. If evidence raises an issue as to whether or not the inquiry is a genuine or serious one, then the Crown must satisfy the trier of fact, beyond a reasonable doubt, that the purpose of the requirement or demand is not a subterfuge or a frivolous one, but is a proper demand for information relating to tax liability of the accused, that is, it is a genuine and serious one.

Dakus was cited with approval in the decision of Skalbania v. Canada, [1991] C.T.C. 160 (B.C.Co.Ct.) (herein referred to as Skalbania #2). In that case, Catliff J. noted at page 161:

On the facts, Richardson would appear to have marginal relevance to the case of a demand made against a specific taxpayer in respect of his unfiled tax returns.

In the Skalbania #2 decision, the Crown (relying on Richardson) led evidence establishing the demand made was further to a genuine and serious inquiry into Skalbania’s tax liability. Commenting on the Crown’s argument that although they had led such evidence, it was not a requisite element of the offence, Catliff J. quoted (at page 162) with approval the passage from the Dakus decision at page 378:

Surely, it is obvious that a request for a tax return is a request for information concerning income and deductions and relates directly to the tax liability of the recipient of the demand. While Cartwright J. (in Canadian Bank of Commerce v. A-G (Canada), [1962] S.C.R. 729, 62 D.T.C. 1236) went on to refer to a genuine and serious inquiry, I understand this to mean that the request cannot be used as a subterfuge for some other purpose. That concern may be more readily apparent when the person asked to provide the information is not the person whose tax liability is of concern or where the information requested is not directly related to tax liability; that is, when it is not apparent what the purpose of the requirement or demand is.

Catliff J. went on to say at page 162:

There is no suggestion here that the demand to file tax returns was a subterfuge for some other purpose. The demands which were filed as exhibits to the affidavits of service at trial are introduced by the words:

For purposes related to the administration of the Income Tax Act, pursuant to paragraph 231.2(l)(a) of the said Act, I hereby require ...

The question of whether the Crown is obliged to introduce such evidence to prove an offence related to paragraph 231.2(l)(a) is not therefore one I need decide. If I were required to decide it, I would be inclined to agree with what Girgulis J. in Dakus says is obvious.

I can find no distinguishing features of the instant case which would take it out of the purview of the Dakus case which is binding authority in the Province of Alberta. There is no evidence in the instant case to suggest Revenue Canada’s demands were not made further to serious and genuine inquiries and there was no subterfuge involved in the demands made. The purpose of the demands was clearly stated on the Exhibits filed, just as it was in the Skalbania #2 case.

The Crown does not have to prove, in relation to those demands made on the accuseds to complete and file the appropriate income tax returns, the existence of a "genuine and serious inquiry". The onus to prove the "genuine and serious inquiry" only arises where the evidence suggests an improper motive, a lack of seriousness relating to a particular individual, or, in the proper case, where the Crown is engaged in a "fishing expedition" for information regarding a third party who is being investigated.

I find the Crown has proven service of the demands made pursuant to s. 231.2(1)(a) of the Income Tax Act and proof of non-compliance of those demands. As confirmed by Dukas, those are the only elements of the offence the Crown is required to prove.

Even were the Crown obliged to prove the existence of a "genuine and serious inquiry" in the instant case, I find it has done so. An inquiry into the tax liability of each accused person and corporation was commenced in October of 1992. Several meetings and telephone calls were exchanged between the Revenue Canada officer and the accused persons in their individual capacity and with the male accused, in his representative capacity as Director of the corporate accused, all between October 1992 and April 1993, relating to their respective tax liabilities for the years in question.

Notwithstanding they were informed a paragraph 231.2(l)(a) demand would be made if they did not voluntarily comply with the requests for tax return completions and filings, and notwithstanding they were given the opportunity to file returns which could later be amended as a consequence of subsequently located information, each accused failed to complete and file the requisite returns as requested. As a result of the inquiries and the lack of proper response from all accused, the paragraph 231.2(l)(a) demands were made. The 90 day time limit to file such returns, in light of the prior six months discussions about their filing that had already transpired, was a reasonable time to be stipulated for response.

The Crown’s evidence establishes this inquiry was genuine and particularized against each of these accuseds. It was ongoing over a period of six months. Much dialogue between the parties ensued. Revenue Canada was serious about its inquiry. It did not abandon it due to lack of response. The accuseds’ continued reticence and failure to comply with lawful requests to complete and file the required tax returns, coupled with notice compliance would be required under paragraph 231.2(l)(a) of the Income Tax Act if they failed to act appropriately, gave Revenue Canada reasonable cause to make and serve the formal demands it did under that section.

Following the Dakus decision, in the absence of evidence raising the issue of improper purpose for the request for information, the affidavit evidence exhibited in this trial is prima facie proof of the charges.

Conclusion

The accuseds’ application for a directed verdict of not guilty is denied.

Application denied.