Alberto Bentivogli v. Minister of National Revenue, [1992] 1 CTC 2251, 92 DTC 1136

Sobier, T.C.C.J.:—The appellant appeals from the reassessment by the respondent for his 1979 taxation year whereby the respondent added to the appellant’s income for the year the amounts $130,650 and $14,531 as having been appropriated by the appellant from 336162 Ontario Ltd. carrying on business as Consorzio California Grapes (the "corporation"). The appellant was a shareholder of the corporation.

At the commencement of the hearing, the appellant abandoned the appeal with respect to the $14,531 amount.

The issue drawn between the parties is clear. The appellant contends that the amount of $130,650 was never the corporation's property and therefore, not capable of being appropriated by the appellant. The appellant maintains that the amount was the total of amounts brought to Canada from Switzerland by his cousin Achille Cortelli (” Cortelli") between 1977 and 1979.

The respondent's position is that the appellant appropriated funds from cash sales made by the corporation and not deposited to the corporation's bank account. The respondent further maintains that the appellant used Cor- telli's name when purchasing financial instruments from various banks and that Cortelli was a nominee or man of straw.

The appellant's case

The appellant stated that he had invited Cortelli to come to Canada in September 1977 in order to assist in the sale of grapes and grape juice in September, October and November which were the Corporation's busiest months. The appellant's evidence was that Cortelli first brought money from Switzerland to Canada in 1977. He claims that the money came from Cortelli's hotel business in Italy. According to the appellant, in 1977 Cortelli brought Canadian cash of various denominations to Canada. The appellant maintains that Cortelli wanted to leave the money in Canada hidden from Italian authorities.

The appellant went with Cortelli to the Canadian Imperial Bank of Commerce ("CIBC") branch at Caledonia Road and Eglinton Avenue in Toronto and put the funds in a safety deposit box. Having placed the money in the safety deposit box Cortelli returned to Italy in November 1977.

In September 1978, Cortelli returned to Canada with a briefcase containing Canadian cash. According to the appellant, the bills were of $20, $50 and $100 denominations. Again, the appellant claims that he and Cortelli went to the same branch of the CIBC and put the cash in the safety deposit box.

At this time, the appellant states that Cortelli expressed a wish to emigrate from Italy to Canada. According to the appellant, Cortelli was made aware of the possibility of entry into Canada as an investor and that he would accumulate moneys to demonstrate his means in order to qualify as an investor. Cortelli returned to Italy in November 1978.

In September of 1979, Cortelli arrived for the grape selling season and again brought a briefcase containing Canadian funds in $20, $50 and $100 denominations. The appellant again accompanied Cortelli to the same bank and placed the cash in the safety deposit box.

No evidence was adduced by either party showing the ownership of the safety deposit box.

On October 2, 1979, according to the appellant, he and Cortelli went to the safety deposit box, removed some cash and purchased from the same CIBC branch four bank drafts of $10,000 each and one in the amount of $8,650. It was the appellant's evidence that they both went to the bank; that it was Cortelli’s wish to purchase the drafts and that the appellant was merely there to interpret for Cortelli. The drafts were purchased in the name of "A. Cortelli”.

On October 24, 1979, more cash was removed from the safety deposit box and taken in a briefcase to the Provincial Bank of Canada branch at 1295 St. Clair Avenue West, Toronto, where four drafts of $10,000 each were purchased. According to the appellant, Cortelli held the drafts after they were purchased.

The reason given by the appellant for using different banks was in order that the CIBC would not know how much money was in the safety deposit box. The reason given by the appellant for waiting until October 24, 1979 to purchase the second set of drafts was that he was too busy to accompany Cortelli to the Provincial Bank of Canada until October 24.

On November 5, 1979, more cash was removed from the safety deposit box and Messrs. Bentivogli and Cortelli visited the main branch of Continental Bank of Canada at York and Adelaide Streets in Toronto. According to the appellant, the drafts totalling $88,650 were presented to the bank together with additional cash of $42,000. At the suggestion of the bank, a 30-day term deposit for $130,650 bearing interest at 14 per cent was purchased.

According to the appellant, there was also discussion of a power of attorney being given by Cortelli to him in order that he could remove the money and return it to the safety deposit box once the term deposit matured.

An account card was signed by both Messrs. Bentivogli and Cortelli and Cortelli produced his passport as identification. Because the power of attorney was to be given to Mr. Bentivogli and because Cortelli did not have command of the English language, the bank required that a certificate of independent legal advice be obtained demonstrating that Cortelli understood what he was signing and its legal effect. Arrangements were made with a solicitor for Cortelli to receive independent legal advice.

Not long after the term deposit was purchased, a joint police task force began investigating the corporation and its principals resulting in charges being laid against the appellant and others, including Cortelli, for criminal offences involving defrauding California grape suppliers. The term deposit was frozen or was otherwise made unavailable to any party.

About one year after the charges were laid, Cortelli received all but $10,000 of the term deposit. In the end, Cortelli received the remaining $10,000.

However, as this was unfolding in Toronto, through information probably provided by the joint police task force, Cortelli was charged in Italy with currency or exchange violations allegedly stemming from the purchase by him of the term deposit. Cortelli was convicted in 1982 by a tribunal of three magistrates in Forli, Italy. However, the Court of Appeal of Bologna absolved Cortelli since the action taken by him did not, in the Court's opinion, constitute a crime. A copy of the tribunal’s judgment was introduced in evidence.

In summary, the appellant attempts to establish his case by his own evidence, the action of the task force in returning the money to Cortelli and the contents of the judgment of the tribunal whereby it is claimed by the appellant that the Court established that Cortelli was the owner of the funds.

In cross examination, the appellant stated that he wrote the name "A Cortelli” on one of the credit slips used to purchase the CIBC drafts and that Cortelli wrote on the remaining ones. He also denied bringing cash in a brown paper bag to the CIBC. He also denied that he was alone at the bank.

The appellant believed that Cortelli brought the moneys to Canada since, according to what Cortelli told him, Swiss banks were unsafe. That the moneys were kept in a safety deposit box not paying interest was not considered important since, according to Mr. Bentivogli, Swiss banks did not pay interest on deposits of this sort. It was also his evidence that the decisions concerning the number of drafts to be purchased, the denominations of the drafts, the choice of banks and other matters were always Cortelli’s and his alone.

The appellant stated that he might have had a personal account at the CIBC branch in which the safety deposit box was located but he was not sure. However, he stated that he never had previous dealings with the Provincial Bank of Canada or the Continental Bank of Canada.

He denied that he wanted the power of attorney in order to take moneys out for business purposes and also denied saying that he was involved in a “joint venture". He reiterated that he wanted the power of attorney in order to cash the term deposit and put the money back in the safety deposit box after Cortelli returned to Italy after the term deposit matured.

In his evidence concerning the visit to the solicitor to obtain independent legal advice, Mr. Bentivogli states that they both went in together but he could not remember if Cortelli saw the solicitor alone.

It was Mr. Bentivogli's evidence that of total sales of grapes and juice, 30 per cent normally would be by cash and 70 per cent by cheque. In this regard, the appellant was shown the comparison of sales to bank deposits of the corporation for the period commencing August 13, 1979 and ending November 22, 1979.

When asked to explain why as at October 1,1979, there were total daily sales of $944,676 but deposits of only $799,015, his reply was that he did not know. The comparison shows that in total there was approximately $322,000 not deposited.

In connection with the independent legal advice given, Mr. Kenneth Can- cellara, the solicitor providing it gave evidence as to his involvement. He recalled the incident and stated that he was asked by his partner to act since he understood the Italian language. It was Mr. Cancellara's evidence that he met alone with Cortelli, that he translated the power of attorney and explained its contents to him.

The respondent's case

Evidence was adduced by the respondent through cross examination of the appellant, through witnesses, through a forensic accounting report and the comparison of sales to bank deposits referred to above, through the Italian judgment and through a copy of an indictment charging the appellant and others with certain offences. The indictment also contained among other endorsements, an endorsement showing a guilty plea by the appellant to one of the three counts with which he had been charged.

Ms. Aurora Naron, who was employed as an assistant accountant at the Eglinton and Caledonia branch of the CIBC in October of 1979, gave evidence on behalf of the respondent. She signed the bank drafts totalling $48,650 on October 2, 1979. Ms. Naron's evidence was that she dealt with one man alone who carried a brown paper bag containing Canadian cash of various denominations but mostly in $20 bills. The bills were tied by elastic bands and were neatly piled in the paper bag. She recalled the incident because it was the first time she had been involved in the purchase of drafts in such a large amount using cash.

She stated that the man spoke English and during the entire time the transaction took place, there was no one with him. She admitted that someone may have accompanied him to the bank but insisted that in all their dealings, including the one-half hour it took to count the cash, the man was alone. Ms. Naron stated that although she was not 100 per cent sure, she believed Mr. Bentivogli was that person.

Referring to the credit vouchers which were used to initiate the purchase of the drafts, she stated that she asked the man to write his name and he wrote "A Cortelli" on the first voucher after which she wrote the name "A. Cortelli" on the remaining vouchers. It was her evidence that she handed the drafts to the man and he took them away.

Ms. Paula Angela Williams gave evidence that she was employed at the 1295 St. Clair Avenue West branch of the Provincial Bank of Canada on October 24, 1979. She stated she signed the drafts amounting to $40,000. She stated that the man was alone when dealing with her and that he spoke English. A teller counted the bills which were all $20 Canadian bills and Ms. Williams counted the bundles of bills containing 100 bills each. During the count the customer was present and alone. She typed the drafts and was told that the name on the drafts was to be "Alberto Cortelli" and she then wrote that name on the stub to one of the drafts and made the drafts out to "A. Cortelli".

Because of the large amount of cash involved, Ms. Williams was sure that she asked for identification but the customer said he had none. Ms. Williams stated that she handed the drafts to the customer and he took them away. She was unable to identify the customer as anyone in court.

Ms. Williams stated that it was possible that someone accompanied the customer to the bank and that it was a busy time of the day but said that in her dealings concerning the drafts, there was only one customer present and that customer spoke English. She stated that she remembered the incident because the $40,000 was made up entirely in $20 bills.

Alexander Notar who was the administration officer at the main branch of the Continental Bank of Canada in downtown Toronto at the time of the purchase of the term deposit gave evidence that a customer and another gentleman who could not speak English had dealings with him on November 5,1979. He could not identify anyone in court as the people with whom he dealt. Mr. Notar made notes during the meeting and had a typed memorandum prepared afterwards.

The memorandum is reproduced below:

MEMORANDUM

A. GARY NOTAR

ADMINISTRATION OFFICER

CONTINENTAL BANK OF CANADA

130 ADELAIDE ST. W., TORONTO, ONTARIO, MSH 3R1

TELEPHONE 416-868-8270

Both A. Cortelli and Mr. B. presented themselves at this branch on

They discussed the opening of an account with the understanding that Mr. B. will have power of attorney to draw funds from the account upon his demand for"business purposes." He used the word "joint venture” and said "you know what I mean?” “If I need the money for business purposes it is available then,” said Mr. B.

A. Cortelli when questioned, did not understand English therefore Independent legal advise [sic] was sought. (copy attached)

Mr. Cortelli claimed he was a tourist. Mr. B. claimed to be in the grape business. Mr. Cortelli would need a letter from us indicating his deposit balance and asked if we could provide it early in the discussion, however, forgot about it later and left.

The account was opened in A. Cortelli's name only. We did not received [sic] the independent legal advice until the writing of this letter.

According to him, the two persons identified themselves and the person claiming to be Mr. Bentivogii did the vast majority of the talking. Mr. Notar was told that Cortelli wanted to open an account and deposit some instruments. The money and drafts were tendered by both persons.

Because of the size of the account he probably recommended a term deposit. Mr. Notar further stated that he was told by Mr. Bentivogli that Mr. Bentivogii wished to have a power of attorney to withdraw funds from the account.

The drafts from the CIBC and the Provincial Bank of Canada were presented along with an additional $42,000 in cash consisting of Canadian currency of large and small denominations. The cash was brought in two small sports bags.

Mr. Notar had photocopies made of all of the drafts and asked for as much identification as he could get. This included Cortelli's passport and a photocopy of this was also made. This was done because he was not accustomed to take so much cash from strangers. This procedure also fit in with the bank's policy of knowing its customers. The term deposit was issued in the name of “Achille Cortelli” before Cortelli received independent legal advice since this advice was in connection with the power of attorney and not the term deposit. Mr. Notar states that he might have suggested the name of a solicitor or a law firm for the advice.

Almost as soon as the term deposit was purchased, a direction came from the police to hold the funds and thereafter the matter was out of his hands and in the hands of the branch manager.

By agreement, parts of a forensic accounting report prepared by Lindquist Holmes & Co., chartered accountants, were admitted as evidence.

Dealing with the forensic accounting aspects of the case and partially based on the report of Lindquist Holmes & Co., Mr. Murray Altberg, a Revenue Canada investigator, who prepared the Comparison of Sales to Bank Deposits gave evidence. Mr. Altberg pointed out that by October 2, 1979 (the date of the purchase of the $48,650 drafts from the CIBC) there was a shortfall of deposits from sales of $145,660. Total sales were approximately $800,000 and based on a 70 per cent to 30 per cent ratio of cheque sales to cash sales as stated by Mr. Bentivogli, cash sales should have been approximately $240,000. However, only $95,950 of cash was deposited leaving a shortfall of approximately $145,000.

According to Mr. Altberg, on October 24, 1979, the date of the purchase of $40,000 of drafts from the Provincial Bank of Canada, cash deposits based on 30 per cent of sales should have been $130,000 more than reported.

On November 5, 1979 when $42,000 cash was used to purchase the Continental Bank of Canada term deposit, the total shortfall was approximately $322,000, more than ample, after deducting the cash allegedly used to buy the other drafts, to provide $42,000 to purchase the term deposit.

Based on the foregoing, Mr. Altberg concluded that the $130,650 needed to purchase the term deposit was appropriated from the corporation out of undeposited cash.

Both parties referred to and relied on the Italian judgment. The appellant maintained that the finding of guilt on the part of Cortelli is demonstrative of the ownership of the funds, i.e., that Cortelli was the owner. On the other hand, there are excerpts from the judgment which say in effect that in order to find guilt, it did not matter that the funds belong to the person named in the bank account.

In its reasons, the Italian Court set forth the position taken by Cortelli in his defence which was that he was only the "depositor" of the funds. I find the Italian judgment is inconclusive and because of the various interpretations which may be taken, it should be given little weight.

The appellant relies heavily on the fact that the police returned the funds to Cortelli after the criminal trials. There is no evidence as to any reason why the funds should not have been returned to Cortelli, after all the term deposit was in his name. It was not incumbent upon the police to conduct an investigation into the ownership of the funds. I also give this argument little weight.

The onus rests on the appellant to prove the reassessment incorrect. He has chosen to put forth the theory that the moneys were the property of Cortelli. If he fails to establish this, he has little chance of success.

Because of the conflicting evidence, the question becomes simply whether the appellant is to be believed. If not, the only inference which can be drawn is that if the moneys were not Cortelli's, they must be the appellants. If that is so, then without any other explanation as to the source of the funds, one is drawn to the conclusion that it was the corporation and the result of appropriation of undeposited cash receipts.

The key areas of the evidence must be examined and analyzed. The appellant insists that Cortelli purchased the drafts and the term deposit for his own account with his own funds. To establish this, the appellant takes us through the steps of bringing the money into Canada and purchasing the drafts and term deposit. The appellant steadfastly maintained that his only purpose in accompanying Cortelli to the first two banks was to act as an interpreter since Cortelli was unable to communicate in English. The first two bank employees were firm in their evidence that when drafts were purchased, the purchaser was alone and spoke English.

The evidence concerning who wrote the name “A. Cortelli" on the credit vouchers used in connection with the CIBC drafts is conflicting even having regard to the passage of time. On the one hand the appellant says that he wrote the name on the first credit voucher and Cortelli wrote it on the remaining vouchers. If one believes the evidence of Ms. Naron that there was only one person with whom she dealt and that she wrote the name on the other vouchers, the credibility of the appellant is in doubt.

As to who took the bank drafts away from the two banks, the appellant says it was Cortelli and the two witnesses maintain that it was the person with whom they dealt who took them. Whoever was dealing with the banks, there is a strong inference to be drawn that it was not Cortelli since Cortelli did not speak English.

Similarly, the evidence as to the events at the Continental Bank of Canada is in conflict, especially with respect to the reasons for the power of attorney. On the one hand the appellant says it was needed to permit him to receive the proceeds of the term deposit and return the money to the safety deposit box. Whereas the evidence of Mr. Notar corroborated by his memorandum was that the appellant wanted "to draw funds from the account upon his demand for business purposes”. According to Mr. Notar's memorandum, the appellant also stated “If I need the money for business purposes it is available then”.

The reason given for purchasing the term deposit was to demonstrate to Canadian immigration authorities that Cortelli had sufficient funds to qualify as an investor immigrant. Mr. Notar's memorandum indicates that Cortelli needed a letter indicating his deposit balance. However, he left without receiving such a letter. It is strange that he did not leave the bank with the very document which was the reason for coming to the bank in the first place. The term deposit was purchased yet, if the appellant is to be believed, the letter was the real reason for being there since it would be evidence to the authorities that Cortelli was a man of means.

According to Ms. Naron of the CIBC, the customer brought the cash in a brown paper bag. This, the appellant denies.

The evidence of the appellant was put forth in order to establish that Cortelli was the owner of the funds. He has failed to do so since the key events upon which he relies have been contradicted by persons having no interest in the outcome of the litigation. The argument of attempting to hide the funds from Italian authorities by putting the money in a safety deposit box is without merit. As soon as the moneys left the safety deposit box and were used to purchase drafts in his own name, a paper trail was opened which would lead anyone to Cortelli. He opened the way for the authorities to follow. It was necessary that the funds be identified with Cortelli if he wished to satisfy the authorities concerning immigrating as an investor. Hiding the money would not satisfy that requirement.

Taken as a whole, I find the appellant's evidence not capable of belief and therefore he has not discharged the onus.

The appellant not having established that Cortelli was the owner of the funds, the only logical explanation is that the source of funds was the undeposited cash of the corporation and that these funds were appropriated by the appellant the moment they left the company's control and were used to purchase the drafts and term deposits.

For the foregoing reasons, the appeal is dismissed.

Appeal dismissed.