Monarch Metal Co Ltd, Samuel T Bereskin v. Minister of National Revenue, [1982] CTC 2417, 82 DTC 1398

D E Taylor:—The appeals of Monarch Metal Co Ltd (“Monarch” or “the Company”) for the taxation years 1974, 1975 and 1976, and of Samuel T Bereskin (“Bereskin”) for the taxation years 1973, 1974 and 1975, came before me on October 24, 1980, November 20, 1981, and March 16, 1982, in the City of Winnipeg, Manitoba, and were heard on common evidence. The basic amounts in question from the assessment notices were:

The appellants, in their respective Notices of Appeal, represented the problem in this way:

1. Monarch Metal Co Ltd, (hereinafter referred to as “Monarch”), was incorporated on the 18th day of January, 1966 under the laws of the Province of Manitoba, and operates as a general mercantile business.

2. The President and controlling shareholder of Monarch is Mr Samuel Beres- kin, (hereinafter referred to as “Bereskin”) who acquired ownership of the said corporation in 1973.

3. Bereskin engaged in certain business practices which resulted in adjustments to the taxable income of the above referenced taxpayer (as hereinafter set forth). For example, individuals interested in selling scrap to Monarch were escorted to an iron works, ie Chisick Metal Ltd, which issued a cheque to such individuals without the proper identification of the payee endorsed thereon. The cheque was then negotiated at the personal trust company of Bereskin who supplied his trust company with the necessary description of the individual. This procedure was adopted for the convenience of those individuals who lived outside the City of Winnipeg. In return for the services provided, Bereskin received a commission of 5% of the issued amount of the cheque payable to the Vendor.

On other occasions involving cash transactions, a voucher was signed by the Vendor at Monarch and the amount paid was later indicated on a scale ticket at Anthes Western Limited where the scrap was graded and weighed. This procedure was discontinued at a later date when Bereskin was competent to make such an assessment on his own. In many instances the amount paid to the Vendor was not transferred onto the signed voucher and the only record of the transaction was the scale ticket retained by Bereskin. Small out of pocket purchases were also made for which no vouchers were obtained owing to the amount of the expense.

4. Monarch was assessed for income tax in respect to the taxation years ended January 31, 1974, 1975 and 1976.

The respondent contended that Monarch had failed to report the additional income assessed, and that Bereskin had appropriated the amounts for which he was assessed in his capacity qua shareholder. The resultant penalties were imposed since these actions were done “knowingly or under circumstances amounting to gross negligence”. The respondent relied, inter alia, upon sections 3, 9, 15 and subsection 163(2) of the Income Tax Act, SC 1970-71-72, c 63, as amended.

The appellants contended the adjustments were the result of inept business practices on the part of Bereskin who did not maintain adequate records for income tax purposes owing to a lack of experience in the trade.

I make reference to an Order of the Board dated April 13, 1981 (81 DTC 260) in connection with these two cases. Certain minor evidence and testimony were presented by the appellants. However, Mr Bereskin himself was unavailable to take the witness stand, and the business records of Monarch were not presented for examination. There was no basis presented by the appellants upon which the Minister’s assessment of tax should be disturbed

— see P Rawsthorne v MNR, [1981] CTC 2187; 81 DTC 116. In addition, the evidence and testimony presented by the respondent in support of the penalty issue only reflected favourably on the Minister’s assessment of tax also. The assessment of income tax for both appellants will be upheld.

With regard to the imposition of penalty, it would serve little purpose to review in detail the evidence and testimony presented by the respondent. Invoices, vouchers, material delivery slips, cancelled cheques, etc were provided. The function of certain documents in Monarch, and the role of Bereskin in that operation were outlined by employees, customers and banking staff, with direct knowledge of the business affairs. Under the difficult circumstances confronting him, counsel for the appellants conducted his part of the hearing with dedication and skill in highlighting areas in which the testimony of the respondent’s witnesses was not completely convincing. Nevertheless, the main thrust of the Minister’s assertions remained unchallenged. Mr Bereskin is seen to be a competent, resourceful and experienced businessman in his field. His business practices may have left some flexibility and discretion to his staff, and the peculiarities of the scrap dealing business may have contributed to some informality with suppliers and customers, as well as in financial arrangements. However, the amounts involved in the assessments are consistent and continuous during the years under review. The conduct of and responsibility for these affairs remain either in the hands of Bereskin personally or under his direct control in his capacity as president of Monarch. The parameters of these appeals, as demonstrated by the Minister, are such that the improper reporting of business income, and the ultimate destination of the funds involved as assessed, arose knowingly or under circumstances amounting to gross negligence on the part of Samuel Bereskin and/or the corporation Monarch Metal Co Ltd. The imposition of the penalties is sustained.

Decision

The appeals are dismissed.

Appeals dismissed.