William Greenspoon, Mid-North Iron & Metals Limited v. Minister of National Revenue, [1982] CTC 2163, 82 DTC 1181

Guy Tremblay:—These cases were heard in Sudbury, Ontario on June 17, 1981. At the beginning of the trial it was agreed between the parties that the cases be heard on common evidence because the various reassessments involved in the cases relate to the same transactions. These cases were taken under advisement on June 30, 1981, On reception of the last documents sent by the counsel.

1. The Point at Issue

The point at issue is whether the appellants are correct

(a) in contesting the penalties for evasion assessed by the respondent concerning the years 1970 to 1975. The appellants contend they were convicted in 1979 for the same evasion; and

(b) in contesting the inclusion of different amounts in the income of the individual appellant concerning the years 1971 to 1975 inclusive.

The respondent contends that these amounts were appropriated by the individual appellant from the appellant company. They were not reported as income for the purpose of computing income tax for the said years.

2. The Burden of Proof

2.01 The burden is on the appellants to show that the respondent’s assessments are incorrect, ie that the amounts were not appropriated from the appellant company. This burden of proof results particularly from several judicial decisions, including the judgment delivered by the Supreme Court of Canada in Johnston v MN Ft, [1948] CTC 195; 3 DTC 1182.

2.02 Concerning the penalties assessed under subsection 163(2) (25% of the amount of tax the taxpayer tried to evade) which is the case here, subsection 163(3) says that “the burden of establishing the facts justifying the assessment of the penalty is on the Minister”.

2.03 In the Johnston case referred to above (which does not apply in the present case to the penalties, but applies to the amounts included in the individual appellant’s income) the Supreme Court states that the assumptions of fact on which the respondent has based the assessments are also deemed to be correct unless the appellant shows they are not correct. If they are correct, the appellant must show there is no relation between the said facts and the reassessments.

The assumptions of fact in the case of William Greenspoon (80-124) are described in paragraph 3, subparagraphs (a) to (o) of the Reply to Notice of Appeal. They read as follows:

3. In reassessing the Appellant for his 1971, 1972, 1973, 1974 and 1975 taxation years, the Minister of National Revenue made, inter alia, the following assumptions of fact:

(a) The Appellant was a shareholder of NIM Disposals Ltd. and NIM Leasing Ltd.

(b) On 25 November 1977, the following criminal charge was laid against the Appellant:

“that William Greenspoon of the City of Sudbury in the Province of Ontario, between the 31st day of December, 1969 and the 7th day of August, 1976 in the said City of Sudbury wilfully evaded payment of taxes imposed by the Income Tax Act, R.S.C. 1952 c. 148 as amended, by failing to declare income in the amount of $87,849.70 for the taxation years 1970, 1971, 1972, 1973, 1974 and 1975, thereby committing an offence under section 239(1)(d) of the said Act.”

(c) The charge referred to in subparagraph (b) above was withdrawn on 3 April 1978.

(d) A new criminal charge was laid against the Appellant on 3 April 1978. The new charge read:

“that William Greenspoon of the City of Sudbury in the Province of Ontario, between the 31st day of December 1969 and the 7th day of August, 1976 at the said City of Sudbury wilfully evaded payment of taxes imposed by the Income Tax Act, R.S.C. 1952 c. 148 as amended, by failing to declare income in the amount of $54,166.20 for the taxation years 1970, 1971, 1972, 1973, 1974 and 1975, thereby committing an offence under section 239(1 )(d) of the said Act.”

(e) The Appellant pleaded guilty and was convicted of the charge referred to in subparagraph (d) above.

(f) Mid-North Iron & Metals Limited was also charged on 25 November 1977 with the wilful evasion of the payment of taxes imposed by the Income Tax Act by failing to declare certain income in the taxation years 1970, 1971, 1972, 1973, 1974 and 1975, thereby committing an offence contrary to section 239(1 )(d) of the Act.

(g) The charge against Mid-North referred to in subparagraph (f) above was withdrawn.

(h) On 3 April 1978 a new charge was laid against Mid-North alleging the wilful evasion of the payment of taxes imposed by the Income Tax Act by failing to declare certain income in the taxation years 1970, 1971, 1972, 1973, 1974 and 1975, thereby committing an offence contrary to section 239(1 )(d) of the Act.

(i) Mid-North Iron & Metals Limited pleaded guilty to and was convicted of the charge referred to in subparagraph (h) above.

(j) After 23 November 1977, the Minister of National Revenue made the following reassessments of the Appellant. In those reassessments, the Minister levied the following federal penalties:

Taxation	Date of
Year	(Re)Assessment	Penalties
1971	24 November 1977	$	80.75
	3 March 1978	$1,481.96
	24 May 1979	$ 100.83
1972	24 November 1977	$ 631.23
	3 March 1978	$ 822.83
	24 May 1979	$ 643.85

1973	24 November 1977	$2,789.09
	3 March 1978	$4,451.77
	24 May 1979	$2,948.87
1974	24 November 1977	$2,570.56
	3 March 1978	$3,460.75
	24 May 1979	$2,681.11
1975	24 November 1977	$ 543.08
	3 March 1978	$ 970.01
	24 May 1979	$ 580.19

(k) The Appellant appropriated to his own benefit unreported revenue of MidNorth in the amounts of $2,807.41, $11,573.36, $18,402.72 and $900 respectively in his 1972, 1973, 1974 and 1975 taxation years.

(l) The amounts referred to in subparagraph (k) above represented unreported sales by Mid-North.

(m) Of the amounts referred to in subparagraph (k) above, 120,262.83 and $14,360.25 in 1973 and 1974, respectively, were credited to Mid-North’s account with shareholders in respect of the Appellant.

(n) Of the amounts referred to in subparagraph (k) above,

— the $2,807.41 in 1972 was deposited in a personal chequing account of the Appellant;

— $782.90 in 1973 was credited to NIM Disposals Ltd.’s account with shareholders in respect of the Appellant;

— $527.62 in 1973 was credited to NIM Leasing Ltd.’s account with shareholders in respect of the Appellant;

— $4,042.47 in 1974 was credited to NIM Disposals Ltd.’s account with shareholders in respect of the Appeallant;

— $900 In 1975 was credited with NIM Disposals Ltd.’s account with shareholders in respect of the Appellant.

(o) The amounts referred to in subparagraph (k) above do not form part of the amounts in respect of which the Appellant was prosecuted under the charge referred to in subparagraph (d) above.

3. Withdrawals: Mid-North Iron & Metals Limited (79-1086) and William Greenspoon (79-1087)

At the beginning of the trial, counsel for the respondent informed the Board that there was no penalty against the appellant company concerning the 1975 taxation year. The appellant company withdrew its appeal for that year. Moreover, counsel for Mr Greenspoon informed the Board that he withdrew the appeal concerning the 1970 taxation year (79-1087) and that the penalty had to be maintained.

4. Mid-North Iron & Metals Limited (79-1599 — 1974 taxation year)

4.01 Mid North Iron & Metals Limited (hereinafter called “Mid-North”) is a corporation carrying on business in the City of Sudbury, Ontario.

4.02 On February 22, 1979, Mid-North was convicted of wilfully evading or attempting to evade payment of taxes imposed by Part I of the Income Tax Act contrary to paragraph 239(1)(d) thereof in respect of its 1974 taxation year.

4.03 The Minister of National Revenue made the following original assessment and subsequent reassessments of the appellant’s 1974 taxation year. In those assessments the Minister levied the following penalties based on subsection 163(2):

4.04 The information giving rise to the conviction referred to in paragraph 4.02 above was laid or made on or after November 25, 1977.

5. William Greenspoon (80-124 — 1971 to 1975 taxation years inclusive)

5.01 Facts Admitted

The facts alleged in subparagraphs (a) to (j) of the assumptions of fact are not disputed by the appellant. The following facts are admitted by the respondent.

He admits that:

(a) the Appellant, William Greenspoon, is the President and principal shareholder of Mid-North Iron & Metals Limited (“Mid-North”).

(b) On 22 February 1979 the Appellant was convicted of wilfully evading or attempting to evade payment of taxes imposed under Part I of the Income Tax Act contrary to paragraph 239(1 )(d) thereof in respect of the taxation years 1970, 1971, 1972, 1973, 1974 and 1975.

(c) the Minister of National Revenue, by Notices of Reassessment whose dates of mailing were 24 May 1979, assessed the Appellant, under subsection 163(2) of the Act, for penalties in the amounts of $100.83, $643.85, $2,948.87, $2,681.11 and $580.19 and, under Section 17 of the Income Tax Act (Ontario), for penalties in the amounts of $38.51, $202.41, $899.41, $829.64 and $181.86 in respect of the taxation years 1971, 1972, 1973, 1974 and 1975, respectively.

(d) in reassessing the Appellant for his 1972, 1973, 1974 and 1975 taxation years, the Minister of National Revenue, in computing the Appellant’s income, included, inter alia, amounts of $2,807.41, $11,573.36, $18,402.72 and $900, respectively, on account of appropriations of unreported revenue from MidNorth.

(e) the said amounts of $2,807.41, $11,573.36, $18,402.72 and $900 reflected sales by Mid-North in 1972, 1973, 1974 and 1975, respectively.

(f) of the said amounts in subparagraph (e) above, $10,262.83 and $14,360.25 in 1973 and 1974, respectively, were credited to Mid-North’s account with shareholders in respect of the Appellant.

5.02 The appellant, Mr Greenspoon testified in direct examination that:

(a) Mid-North, which is in the scrap iron business, sold scrap metals during the years 1972 to 1975 to Cherrymill Iron & Metal Co Ltd (hereinafter called “Cherrymill”) located in Toronto on the corner of Cherry and Mill Streets;

(b) during that time Cherrymill did not know the name of Mid-North because it had done business with the witness personally over the years and the cheques were payable to him and made to his order;

(c) he gave the cheques to the bookkeeper of the appellant company, Mrs Ainsworth;

(d) Mrs Ainsworth had to make the deposits in the appropriate bank accounts: in the “Mid-North” account, in the NIM Leasing account, or in the NIM Disposals account;

(e) NIM Leasing was in the half-ton truck leasing business and NIM Disposals was in the garbage disposal business;

(f) Chris Solomon (50%) was a shareholder with the witness (50%) and NIM Leasing. The same two persons ( / and plus Alan Hill ( were partners in NIM Disposals. The witness (51%), Chris Solomon (40%) and Sam Greenspoon (9%) were partners in Mid-North;

(g) Sam Greenspoon is his father, Chris Solomon and Alan Hill are not related to him;

(h) he did not give instructions to Mrs Ainsworth as to where to deposit the cheques because he “never knew which accounts needed money at that time” (SN p 26, Line 18);

(i) he did not know what Mrs Ainsworth “did for entries”, but he knew she deposited them in the bank account of the company which required money at that particular time;

(j) he endorsed the cheques he received from Cherrymill and remitted them to Mrs Ainsworth;

(k) he cannot recall receiving any funds in cash from Mrs Ainsworth or from the appellant company “that related to the amount so deposited” (SN p 27);

(l) the funds represented by the cheques received from Cherrymill belonged to the appellant company;

(m) he did not know anything about the bookkeeping end of the business. “Possibly it would be back and forth between the companies, because the companies were always interchanging money. Whoever required money had to get it from one of the other companies.” He meant through intercompany loans (SN p 28).

5.03 In cross-examination, Mr Greenspoon testified that:

(a) the amount of $33,000 in cheques (received from Cherrymill during the 1972 to 1975 taxation years) which is in dispute in the present case, was different from the amount of $54,166.20 for which he pleaded guilty in February 1979 (SN pp 29 and 30);

(b) the material sold to Cherrymill was mainly bought from Inco;

(c) Cherrymill weighed the material and gave a weight ticket to the truck driver, an employee of the appellant company. The latter on presentation of the weight ticket to Cherrymill, received a cheque. The truck driver then gave the cheque to Mrs Ainsworth;

(d) he never asked Cherrymill to make the cheques out to Mid-North;

(e) he never gave any instructions to Mrs Ainsworth in regard to the cheques;

(f) he had been in the scrap business for about 15 years;

(g) during those years his accountant used to audit the books for a statement, but it was an unaudited statement.

5.04 In direct examination, Mr Riou, chartered accountant of the firm Porte- lance and Riou in Sudbury and witness for the appellants, testified that:

(a) he prepared, around March, 1978 (SN p 47), the financial statements of the appellant company, NIM Disposals and NIM Leasing for the first time for the year ending July 31, 1977;

(b) previously he had not known the owners of the said companies (SN p 47);

(c) Subsequently, when we took the engagement for the year 1977 we of course

realized that the sales were made by Mid-North Iron & Metals and had never been reflected in the financial statement distorted the income of these previous years and the retained earnings. What we did is we transferred the credit from the loan shareholder to retained earnings to reflect what the transaction really occurred in the previous years so that. . . (SN p 48)

In essence what was done was a rectification of the amount credited to shareholders or an elimination of the amount credited to shareholders. The basis was that those funds did not belong to Mr Greenspoon;

(d) he had a “substantial remedial job” when he became accountant of the companies (reconciliation of balances by using suppliers’ statements, confirmation from banks, reconciliation from purchases and reconciliation of the intercompany loan account).

In cross-examination, Mr Riou only confirmed what he said in direct examination.

5.05 In direct examination, Mrs Signe Ainsworth, witness for the respondent testified that:

(a) she started in accounting in 1942 with Cochrane & Dunlop Hardware in Geraldton. She stayed with them until November 1950;

(b) even after she got married and had two babies, she had to continue to work. She had had a great number of bookkeeping jobs over the years;

(c) she even worked for a GM dealer and obtained a GM Dealer’s accountant certificate. She had also worked for the accounting firm Rogers and Rhodes in Sudbury from October 1968 to April 1970;

(d) she had started to work in August 1970 for the appellant company. In short her function, the bookkeeping was “from original entries to the trial balance right through”, journal entries, sales journal, purchase journal, general ledger, and payable and receivable accounts. Moreover, she prepared a monthly operating statement;

(e) in respect to sales to Cherrymill, she had never seen any invoices, weight tickets or bills of lading;

(f) when she first saw a Cherrymill cheque, she asked Bill (Mr Greenspoon) “what I should do with it” (SN p 65) and “he said well how is it made out”, “so it was made out to him so I credited shareholders” (SN pp 65 and 66);

(g) later (when the changeover came) ie after the investigation by the respondent she received instructions to transfer the Cherrymill cheques from the shareholders account to the sales account;

(h) the Cherrymill cheques were made out to Bill Greenspoon;

(i) she always received the Cherrymill cheques by hand “I don’t recall ever receiving one in the mail”;

(j) the company had some cash problem. She personally lent to the company, $2,700 of which $700 was for a Bell Telephone bill:

(k) she does not recall having made any of the Cherrymill deposits to NIM Leasing and NIM Disposals;

(l) sometimes other people made the deposits in the bank;

(m) she didn’t recall exactly having received a phone call from a Mr Shul- mistra on February 27, 1978.

5.06 During the cross-examination by counsel for the appellants, Mrs Ainsworth testified that:

(a) she did not know the Cherrymill cheques represented sales because “I had no bills of lading and I had no sales invoices”, and she did not ask Mr Greenspoon what the sources of these receipts were;

(b) she confirmed that all the Cherrymill cheques were deposited in the Mid-North bank account regardless of where they were credited (SN p 77);

(c) it is possible that Mr Shulmistra could have called her in February, 1978;

(d) she recognized a letter dated March 2, 1978 (Exhibit A-3) addressed to her by Mr Nathanson, counsel for the appellant, concerning a telephone conversation on February 27, 1978 with Mr Shulmistra;

(e) she confirmed her testimony given in para 5.05 (f) and (g).

5.07 The letter (Exhibit A-3) reads as follows:

Mrs. Signe Ainsworth

755 Robinson Drive,

Sudbury, Ontario.

Dear Mrs. Ainsworth:

Mid-North Iron & Metals Limited and William Greenspoon

We are counsel for the above in connection with charges that have been laid against them under the Income Tax Act on which it is anticipated that our client will be tried during the week of 3 April, 1978.

I understand from Mr Shulmistra that, by telephone conversation with him on 27 February 1978, you advised that you were never involved in billing Cherry Mill, that you did not care where any money paid to Mid-North by cheque made payable to Bill Greenspoon came from, that you deposited the cheques in the bank, that you did not care where the money was allocated or how it was recorded and that you took it upon yourself to credit the amounts in question to the shareholders’ loan accounts.

I am also advised that you would prefer not to discuss the matter with me or to give me a statement. If you change your mind on this aspect of the matter, would you please get in touch with me by telephone and reverse the charges.

If I do not hear from you, I shall assume that the substance of your statement to Mr. Shulmistra made on 27 February 1978 is as I have outlined it in this letter.

Yours very truly,

David C Nathanson

5.08 In cross-examination, Mrs Ainsworth said she did not answer the letter (Exhibit A-3): “I disregarded it because I was getting rather fed up having to turn up so often for my former employer” (Mid-North).

5.09 In re-direct examination, Mrs Ainsworth testified tnat:

(a) she did not agree with the statement A-3 that she took upon herself to credit the amounts of Cherrymill cheques (SN p 84);

(b) “this or how it was recorded you did not care where the money was allocated or how it was recorded. When I loaned the company money myself I credited accounts payable” (SN p 84).

5.10 In direct examination, Mr Vincent Panella, special investigator for the respondent, explained that:

(a) the basis of the amounts prosecuted and the amounts under appeal were amounts paid to Mr B Greenspoon as well as invoices related to the payments by third party, especially Cherrymill;

(b) during the years 1972, 1973, 1974 and 1975, among sales made by Mid-North to Cherrymill, cheques in the amount of $33,683.49 were made to B Greenspoon personally;

(c) a list of 27 cheques (Exhibit R-7) shows the date, the amounts and in which bank account they were cashed: 2 were deposited in his personal bank account, 19 were deposited in Mid-North’s bank account and credited to the shareholder’s account, Mr Greenspoon, 6 were deposited in the bank accounts of NIM Disposals Ltd and NIM Leasing Ltd and credited to the appellant’s shareholder account, Mr Greenspoon;

(d) most of the time, as told by Mr Mannie Gold (50% shareholder of Cherrymill) the cheques and the invoices were given to Sam Greenspoon, Bill’s father.

5.11 The said Exhibit R-7 reads as follows:

Table of Cherrymill Iron and Metal

cheques made payable to William Greenspoon that are in issue (in respect of Mid-North sales referred to in paragraph 2(e) of the Reply to Notice of Appeal)

	Date of	Amount of
	Cheque	Cheque	Disposition
	(Unless otherwise noted, Appellant’s share is 50% of amount)
1972
1.	14/Oct./72	$3,209.65	$1,709.65 deposited in Personal Chequing
			Account #6374 of Appellant.
			(Rest taken as cash)
2.	27/Nov./72	$1,097.76	Deposited in Personal Chequing Account
		$4 307.41	#6374 of Appellant (his share 100%).
		$4,307.41
1973
1.	21/July/73	$4,000.00	Deposited in Mid-North’s bank account and
			credited to shareholder’s account.
2.	12/NOV./73	$3,500.00	Deposited in Mid-North’s bank account and
			credited to shareholder’s account.
3.	5/Nov./73	1,000.00	Deposited in Mid-North’s bank account and
			credited to shareholder’s account.
4.	5/Nov./73	$1,975.00	Deposited in Mid-North’s bank account and
			credited to shareholder’s account.
5.	12/Oct./73	$2,685.80	Deposited in Mid-North’s bank account and
			credited to shareholder’s account.
6.	4/Oct./73	$1,565.80	Deposited to NIM Disposals’ bank account
			and credited to shareholder’s account.
7.	20/Sept./73	$1,336.75	Deposited in Mid-North’s bank account and
			credited to shareholder’s account.
8.	13/Sept./73	$1,018.37	Deposited in Mid-North’s bank account and
			credited to shareholder’s account.
9.	13/Sept./73	$3,000.00	Deposited in Mid-North’s bank account and
			credited to shareholder’s account.
10.	8/Sept./73	$1,055.25	Deposited in NIM Leasing’s bank account
			and credited to shareholder’s account.
11.	7/Aug./73	$2,009.75	Deposited in Mid-North’s bank account and
		146.72	credited to shareholder’s account.
		$23,146.72
1974
1.	22/July/74	$1,126.96	Deposited in Mid-North’s bank account and
			credited to shareholder’s account.
2.	24/May/74	2,904.16	Deposited in Mid-North’s bank account and
			credited to shareholder’s account.
3.	16/May/74	$2,800.60	Deposited in Mid-North’s bank account and
			credited to shareholder’s account.
4.	11/May/74	$3,656.00	Deposited in Mid-North’s bank account and
			credited to shareholder’s account.
5.	2/May/74	2,800.30	Deposited in NIM Disposal’s bank account
			and credited to shareholder’s account.
6.	27/Apr./74	$2,847.14	Deposited in NIM Disposal’s bank account
			and credited to shareholder’s account.
7.	20/Apr./74	$2,437.50	Deposited in NIM Disposal’s bank account
			and credited to shareholder’s account.
8.	24/Jan./74	4,605.00	Deposited in Mid-North’s bank account and
			credited to shareholder.
9.	24/Jan./74	$2,853.80	Deposited in Mid-North’s bank account and
			credited to shareholder.

10.	19/Jan./74	$1,439.43	Deposited in Mid-North’s bank account and
			credited to shareholder.
11.	14/Jan./74	$1,122.95	Deposited in Mid-North’s bank account and
			credited to shareholder.
12.	7/Jan./74	$4,192.60	Deposited in Mid-North’s bank account and
			credited to shareholder.
13.	3/Jan./74	$4,019.00	Deposited in Mid-North’s bank account and
			credited to shareholder.
		$36,805.44
1975
1.	3/Jan./75	$2,139.20	$900 deposited to bank account of
			NIM Disposals and all $900 credited to
			Appellant’s shareholder account.
			Balance of cheque taken as cash.
			Summary
		1972 — $ 4,307.41
		1973	—	$23,146.72
		1974	—	$36,805.44
		1975 — §$ 2,139.20
				$66,398.77

The Board states that the figures shown in paragraph 2(e) of the Reply to Notice of Appeal, which is referred to at the beginning of the Exhibit R-7, totalled $33,683.49.

5.12 Mr Panella explained how he obtained the information, which is contained in the third column of the Exhibit R-7 detailed in para. 5.11 above:

Once we obtained the cancelled cheques from Cherrymill we examined the cheques and of course we tried to determine what happened to these cheques. in examining these cheques of course there is the stamp in the back and we visited . . . and the stamps relating to various banks that these cheques were negotiated at. We visited these banks and obtained the ledger cards for information relating to Bill Greenspoon or Mid-North Iron & Metal and in obtaining the information from the bank we were able to trace some of these funds in those bank accounts for example that are listed or described to the right over there beside each cheque. (SN pp 89 and 90)

Mr Panella explained the difference between the $66,398.77 (total of Exhibit R-7) and $33,683.49, the civil amount in litigation by the fact that:

in most cases half of the amount of the cheque was credited to Mr. Greenspoon and the other half to other shareholders. (SN p 90)

5.13 Mr Panella filed copies of ten cheques (Exhibit R-8) issued by Cherrymill during the years 1973 and 1974. They were made out to B Greenspoon and endorsed by him (BG) and/or a B Lundy (BL) or Mr C Solomon (CS). They are detailed as follows:

On the backs of all those cheques there is the initial RL with the date of August 18, 1976.

Concerning B Lundy, the person who endorsed 9 of the 10 cheques with Mr Greenspoon, Mr Panella said she was the sister of Chris Solomon. Mrs Lundy was the manager of the Lido Hotel where the cheques were cashed. Mr Chris Solomon (partner of Mr Greenspoon) was the owner of the said Lido Hotel. According to Mr Panella: “She stated that either Bill or Chris would bring these cheques over to the hotel and in doing, in depositing the funds for the Lido Hotel she would go to his bank and cash these cheques for them and then return the cash to either one of them.” (SN p 98)

5.14 According to Mr Panella, these cheques are part of the $54,166.20 which made up the prosecution against Mr Greenspoon (para 3(d) of the Reply to Notice of Appeal quoted in para 2.03 above). However, it is admitted (SN p 93) they are not part of the $33,683.49 which is the civil litigation in issue before the Board (see para 3(k) and (o) of the Reply to Notice of Appeal quoted in para 2.03 above).

5.15 The Board states that the cheques totalling $24,943.22 filed as Exhibit R-8 and detailed in para 5.13 above are not part of those totalling $66,398.77 detailed in Exhibit R-7 and quoted in para 5.11 above.

The Board states however that the amount of $33,683.49 is part of the Exhibit R-7.

5.16 Counsel for the appellants objected to the filing of the 10 cheques (Exhibit R-8) on the basis that they are part of the $54,166.20 and as the $33,683.49, which is the civil litigation, is not part of the $54,166.20. Therefore, they are not relevant to the present case.

Counsel for the respondent contended that the total amount of the undeclared income which was the object of the investigation was over $80,000 (SN p 93) probably $87,849.70, an amount which appears in the first criminal charge against Mr Greenspoon (see para 3(b) of the Reply to Notice of Appeal (RNA) quoted in para 2.03 above): $87,849.70 (3(b) of RNA) - $54,166.20 (3(d) of RNA) = $33,683.50 (3(k) of RNA).

Counsel for the respondent said (SN p 94): “I no longer have copies of the $33,000 to tender, Mr Chairman, but I think the things are so closely connected ..“they are in the same years” and “they are part of one whole series of transactions”.

The Board then took the objection under reserve. The Board now accepts them as relevant. Concerning their weight in the evidence however the Board refers the reader to the analysis below.

5.17 Concerning the $33,683.49, Mr Panella explained that he and other members of the investigation section of the respondent seized the records of Mid-North:

In the examination of the records that we seized we never came across any invoice from Cherrymill with the rest of the records. There was no evidence of any Cherrymill invoice in the records (SN p 98)

There were not any other documents showing Cherrymill sales. In the sales journal, however, “they reported some of these Cherrymill funds in the 1975 fiscal year”.

5.18 Mr Panella said that during the taxation years 1972 to 1975 penalties of Mr Greenspoon were assessed on the amount of $33,683.49 taxed as appropriation under section 15(1) and also on the amounts on which the appellant had been convicted $54,166.20.

5.19 In cross-examination, Mr Panella:

(a) recognized an invoice issued by Cherrymill dated August 20, 1973 showing a sale to Mr Greenspoon in the amount of $2,465.36 (Exhibit A-4, no. 6454). However, he said that he could not find that kind of invoice on the premises of Mid-North;

(b) said also that Sam Greenspoon, according to the information received from Cherrymill, “was the person that sold the scrap to Cherrymill most of the time and they issued the cheque to him (to the order of B Greenspoon). Now what he did with the cheques I don’t know”. (SN p 105);

(c) said “we couldn't follow the funds where they ended up”.

6. Law — Cases at Law — Analysis

6.01 Law

The main provisions of the Income Tax Act involved in the present cases are subsections 15(1), 163(2), paragraph 239(1)(d) and subsection 239(3).

They read as follows:

15.(1) Where in a taxation year

(a) a payment has been made by a corporation to a shareholder otherwise than pursuant to a bona fide business transaction,

(b) funds or property of a corporation have been appropriated in any manner whatever to, or for the benefit of, a shareholder, or

(c) a benefit or advantage has been conferred on a shareholder by a corporation,

otherwise than

(d) on the reduction of capital, the redemption of shares or the winding-up, discontinuance or reorganization of its business, or otherwise by way of a transaction to which section 84, 88 or Part Il applies,

(e) by the payment of a dividend, or

(f) by conferring on all holders of common shares of the capital stock of the corporation a right to buy additional common shares thereof,

the amount or value thereof shall be included in computing the income of the shareholder for the year.

163. (2) Every person who, knowingly, or under circumstances amounting to gross negligence in the carrying out of any duty or obligation imposed by or under this Act, has made, or has participated in, assented to or acquiesced in the making of, a statement or omission in a return, certificate, statement or answer filed or made as required by or under this Act or a regulation, as a result of which the tax that would have been payable by him for a taxation year if the tax had been assessed on the basis of the information provided in the return, certificate, statement or answer is less than the tax payable by him for the year, is liable to a penalty of 25% of the amount by which the tax that would so have been payable is less than the tax payable by him for the year.

239. (1) Every person who has

(d) wilfully, in any manner, evaded or attempted to evade, compliance with this Act or payment of taxes imposed by this Act, or

is guilty of an offence and, in addition to any penalty otherwise provided, is liable on summary conviction .. .

(3) Where a person has been convicted under this section of wilfully, in any manner, evading or attempting to evade payment of taxes imposed by Part I, he is not liable to pay a penalty imposed under section 163 for the same evasion or attempt unless he was assessed for that penalty beofre the information or complaint giving rise to the conviction was laid or made.

6.02 Cases at Law

The cases at law to which the counsel for both parties referred the Board are:

1. Isadore Waxstein v MNR, [1980] CTC 2398; 80 DTC 1348;

2. Wellington Taylor v MNR, [1980] CTC 3003; 81 DTC 3;

3. Monarch Metal Co Ltd et al v MNR, 81 DTC 260;

4. Mahmoud Ghadban v MNR, cases 79-1055, -1056, -1057 and -1058;

5. Arumugam Pillai v Director General of Inland Revenue, [1981] STC 146;

6. Coleman C Abrahams v MNR, [1966] CTC 694; 66 DTC 5451;

7. Gordon H Fitzgerald v MNR, [1980] CTC 2949; 80 DTC 1822;

8. MNR v Frank Albert Richie [1971] CTC 860; 71 DTC 5503;

9. Mary E Walkem v MNR, [1971] CTC 513; 71 DTC 5288.

6.03 Analysis

A. The Civil Debt: $33,683.49

6.03.1 Concerning the civil debt in the amount of $33,683.49, the quantum comes from about 50% of the sum of $66,398.77, the total of the 27 cheques (paras 5.10(b) and (c) and 5.11) in Exhibit 4-7. They are also detailed as follows in subparagraph (k) of paragraph 3 of the Reply to Notice of Appeal quoted in para 2.03 of the facts:

6.03.2 This amount of $33,683.49, however, does not include the amount of $24,943.22 (10 cheques remitted in 1973 and 1974 to Mrs Lundy, manager of Lido Hotel, who cashed them and then gave the cash to Mr Greenspoon and her brother, Mr Chris Solomon, Mr Greenspoon’s partner) as detailed in paragraph 5.13. The $33,683.49 is not part of the amount of $54,166.20 (amount subject of the criminal charge laid on April 3, 1978, and for which he pleaded guilty and was convicted, — subparagraphs (d) and (e) of paragraph 3 of the Reply to Notice of Appeal quoted in paragraph 2.03 of the facts). In fact, the disputed amount of $33,683.49 comes from the difference between $87,849.70 (provided in the criminal charge laid on November 25, 1977) and the amount of $54,166.20 (see paragraph 5.16 of The Facts).

6.03.3 The Board does not doubt that the said amount of $33,683.49 originates from cheques issued by Cherrymill (Exhibit R-7) to the order of the appellant William Greenspoon. They were deposited in different bank accounts: personal bank account, Mid-North’s bank account, NIM Disposals Ltd’s bank account and NIM Leasing Ltd’s bank account and credited to the shareholder’s account (see paragraphs 5.10(c) and 5.11 of The Facts).

6.03.4 In substance this is confirmed by the testimonies of Mrs Ainsworth (paragraphs 5.05 and 5.06 of The Facts) of Mr Vincent Panella (paragraph 5.10) and even of Mr Riou, the appellant’s account, (paragraph 5.04) who had a “substantial remedial job” to do when he became the company’s accountant in 1978, after the respondent’s investigation and the issuance of the first reassessments.

6.03.5 The Board must set aside the affirmation of the experienced businessman, Mr William Greenspoon, when he testified he did not know what Mrs Ainsworth “did for entries” (paragraphs 5.02(h) and (i)). The Board prefers to believe Mrs Signe Ainsworth when Mr Greenspoon, referring to the cheque made out to him by Cherrymill, told her: “how is it made out’, after she had asked him “what to do with the cheque” (paragraphs 5.05(f) and 5.06(e)).

He is the same Mr Greenspoon who gave or permitted Mr Solomon to give to Mrs B Lundy the 10 Cherrymill cheques totalling $24,943.22 also made to his order and who received his share of the cake (paragraph 5.13 in fine). He knew in 1973 and 1974 “how the cheques were made out” and in which pocket he wanted them to go.

The Board cannot accept his testimony that in substance he thought the cheques given to Mrs Ainsworth had been registered in the sales account of Mid-North. It was not a clerical error. The $33,683.49 was funds or property of Mid-North which were appropriated for the benefit of the appellant and were properly included in the appellant’s income by the respondent in accordance with the provisions of subsection 15(1) of the Act. Not only is the burden of proof not reversed by the appellant, but the preponderance of the evidence is in favour of the respondent’s thesis.

B. The Penalties

6.03.6 For Mid-North four reassessments were issued and for Mr Greenspoon three reassessments were issued. In the case of Mid-North, the penalty was decreased from $10,451.76 to $3,245.07 (para 4.03) for 1974. In the case of Mr Greenspoon the penalties were increased from $80.75 to $100.83 for 1971; $631.23 to $643.85 for 1972; $2,789.09 to $2,948.87 for 1973; $2,570.56 to $2,681.11 for 1974: and $543.08 to $580.19 for 1975 (subpara 3(j) of the respondent’s assumptions of fact quoted in para 2.03).

6.03.7 In both cases, the appellants were convicted on February 22, 1979 (para 4.02 and subparagraph 2(b) of the admission quoted in para 5.01). In the case of Mid-North, the last reassessment was issued on May 16, 1979 (para 4.03). In the case of Mr Greenspoon the last reassessments were issued on May 24, 1979 (subpara 3(j) of the respondent’s assumptions of fact quoted in para 2.03).

6.03.8 In the case of the penalties concerning Mr Greenspoon, the counsel for the respondent, Mr Jorré, in his arguments (SN p 130) informed the Board that he was abandoning the difference of increases between the first reassessments and the last reassessments. He contended that the penalties of the last reassessments had to be maintained only to the extent of the amounts shown in the first reassessments: $631.23 for 1972, $2,789.09 for 1973, $2,570.56 for 1974 and $1543.08 for 1975.

Concerning the penalty against Mid-North, Mr Jorré said he had nothing to concede because in the last reassessment the penalty was lower than the preceding reassessment.

6.03.9 The reassessments in dispute before the Board are the last ones, those issued in May 1979. It is the Board’s opinion that in issuing the last reassessments automatically the former reassessments were annulled. “Assuming that the second reassessment is valid, it follows, in my view, that the first reassessment is displaced and becomes a nullity.” (Mr Justice Jackett in C C Abrahams v MNR, [1966] CTC 690; 66 DTC 5451 at 692 [5452]) . . the previous assessment must automatically become null.”.

The Board is always bound by the last reassessment. The penalties that the Board must consider, in the application of the provision 239(3) quoted above, are the penalties of the last reassessment.

6.03.10 In regard to provision 239(3), the problem is:

(a) whether these penalties imposed under subsection 163(2) are for the same evasion or attempt for which the appellants had already been convicted; and

(b) whether the appellants were assessed for these penalties “before the information or complaint giving rise to the conviction was laid or made”.

6.03.11 Concerning the appellant company, it is admitted that the penalty of $3,245.07 is for the same evasion for which the appellant had been convicted.

Concerning Mr Greenspoon the evidence was ambiguous. According to Mr Panella (para 5.18) a part of the penalties originates from the $33,683.49 (which is not part of the $54,166.20 for which the appellant had been convicted) and another part of the penalties originates from the amount of $54,166.20. On the one hand, no explanation and figures however were given to establish “which is which”. On the second hand, there is the admission made by counsel for the respondent (para 6.03.8) that he was abandoning the difference of increase between the first reassessments and the last reassessments. This means according to me that the penalties he has not abandoned are part of the same evasion for which the appellant pleaded guilty.

6.03.12 Let us now consider the second point: whether the appellants were assessed for the said penalties provided in the last reassessments “before the information or complaint giving rise to the conviction was laid or made” (subsection 239(3)).

At first glance, it seems the answer is “no” because the last reassessments were issued in May 1979 and the appellants were convicted in February 1979.

However, pursuant to the definition section 248 of the Act “assessment” includes “reassessment”, the respondent therefore contends that the former reassessment had provided the penalty and therefore the appellants were assessed a penalty “before the information giving rise to the conviction was laid” (subsection 239(3)).

6.03.13 On the other hand, the appellants contend, after quoting C C Abrahams v MNR, (para 6.03.9) and M E Walkem v MNR, cases referred to above (para 6.02), that in the present case each succeeding reassessment of penalty nullifies the prior one. The reassessment of penalty on March 3, 1978 nullifies the reassessment issued on November 24, 1977 and the reassessment of May 24, 1979 nullifies the one of March 3, 1978. “One nullified the other, a fortiori it cannot be said that the penalty imposed on May 24, 1979, after the conviction was that penalty assessed prior to the laying of the information and a fortiori the registering of the conviction.” (SN pp 118 and 119)

6.03.14 The respondent answered by two points:

(a) “Supposing my friend is correct and 239(3) would preclude any subsequent assessment containing a penalty. Then there are two problems that I think would arise. The first is well what if the Minister does find that there is some matter that needs to be corrected, particularly if it happens to be favourable to the taxpayer? Is he supposed to freeze in place and refuse to change his assessment? Must we all go to appeal to change these things? It is loaded with practical difficulties.

(b) Another one that comes to my mind is even if one goes to appeal if the Board . . . If my friend’s interpretation is correct and if the Board refers the matter back again for reassessment and reconsideration on an issue that has nothing to do with the penalty as such which would somehow change the amount, then if he is right by what jurisdiction could on that reassessment the penalty still exist? I think it is fraught with great difficulties and I think it is not the best way to view the section. (SN pp 131 and 132)

6.03.15 Concerning the first point (para 6.03.14(a)) the appellants had alleged before the following one:

Otherwise, the Minister would be in a position to levy whatever penalty he chose. It could be a gargantuan penalty and simply have the comfort of saying later “I can always reduce it later after the trial, after the conviction and I can get away with it”. In my respectful subission the Minister cannot get away with it. He must assess penalty reasonably in the first place and he must stick by it and 239(3) in my respectful submission does exactly that. (SN pp 119 and 120)

Moreover, the appellants stress that subsection 239(3) says: “unless he was assessed for that penalty before .. .”. The penalties involved in the present case are the ones provided in the reassessments on appeal, the ones issued on May 24, 1979. These penalties are legally severed from the ones provided in the former assessments or reassessments even if the appellants were convicted in February 1979 substantially for the same evasion.

The Board shares the opinion of the appellants and adds that when the legislator says that “assessment includes reassessment”, this is to prevent a taxpayer from alleging he was not assessed and therefore did not submit to the Act when in fact he was reassessed.

6.03.16 Moreover, concerning the second argument given by the respondent in paragraph 6.03.14(b) the Board thinks that if a reassessment is issued following a decision of the Board or Court, the penalty is then provided even if it is not changed in the said decision.

6.03.17 The penalty must be abolished concerning Mid-North and also those concerning Mr Greenspoon.

7. Conclusion

Concerning the withdrawals of Mid-North Iron & Metals Ltd (79-1086) and William Greenspoon (79-1087), the appeal of Mid-North Iron & Metals Ltd is quashed and the appeal of William Greenspoon is dismissed.

The appeal of Wiliam Greenspoon (80-124) is allowed in part and the appeal of Mid-North Iron & Metals Ltd (79-1599) is allowed and the matter is referred back to the respondent for reassessment in accordance with the above Reasons for Judgment.

Appeals allowed in part.