Iqbal Sumbal v. Minister of National Revenue, [1981] CTC 2037, 81 DTC 43

M J Bonner:—The appellant appeals from assessments of income tax for his 1975 and 1976 taxation years. On assessment the Minister disallowed claims made under section 109 of the Income Tax Act in respect of the support of non-resident dependants. The Minister also levied penalties under subsection 163(2) of the Act. During argument counsel for the respondent consented to judgment allowing the appeal for 1976 and referring the assessment back to the respondent for reconsideration and reassessment on the basis that no penalty is exigible.

Particulars of the claims made in the returns of income for deductions in respect of expenditures for the support of dependants are set forth in Schedule A.

The appellant attached to his returns of income receipts from an organization known as Punjab Express Foreign Exchange Services (hereinafter called “Punjab”) as evidence of 1975 expenditures. The 1976 expenditures were evidenced by copies of bank drafts purchased from the Canadian Imperial Bank of Commerce and by receipts from an organization known as Toronto Express Foreign Exchange Reg’d (hereinafter called “Toronto”).

claimed by him for the support and maintenance of his grandmother-in-law, sister-in-law and mother, such people being totally dependent upon ..

him. The respondent pleaded that he assessed on the basis that the appellant did not in fact make the alleged payments to either of Punjab or Toronto, and further that no funds were in fact expended by the appellant during the year for the support of the appellant’s grandmother-in-law, or Sisters-in-law, and finally that, in respect of the amounts claimed, only the sum of $188.86 in 1976 was in fact paid, that being in respect of the support of his mother.

In his return of income for 1975 the appellant reported employment earnings totalling $8,740.80. He reported, as well, that total rental payments made by him in respect of his residence in Ontario were $2,100.

In his return of income for 1976 the appellant reported employment earnings totalling $10,387.77. He reported, as well, that total rental payments made by him in respect of his residence in Ontario were $1,200.

Evidence was given by Mrs Noël Blair, an assessor employed with the Special Investigations Branch of the Department of National Revenue. She testifies that she was a member of a team of investigators who looked into the operations of Punjab. It was, she said, a business which received money in Canada and elsewhere for transmission to persons in India. As well, it received money in India for transmission elsewhere. Apparently foreign exchange laws of that country prohibited transactions of the latter type. Thus, monies received in India were paid to persons within that country in accordance with the directions of off-shore customers and equivalent amounts of monies received off-shore were paid in accordance with the directions of Indian customers. In short, the operation was one of substitution.

The respondent seized the business records of Punjab. The investigation revealed, according to Mrs Blair, that although the business had operated in the manner described, the receipts issued in Canada exceeded the funds actually transferred. Punjab records showed, she said, no indication that transfers of funds were made by it or on behalf of or at the behest of the appellant. The proprietor of Punjab, one Gian Singh Johal, pleaded guilty to twenty-four charges of providing false receipts for tax purposes. In no charge was the appellant alleged to be a recipient of a false receipt. I cannot find that a plea of guilty by a person who is not a party to this appeal establishes that all Punjab receipts were false or that the receipts issued to the appellant were false. Equally, I can place no reliance on the state of the facts as revealed by the books of a person who, had he been called as a witness, would undoubtedly have been subject to a successful attack on credibility based at least on the conviction. I note that no objection was made to the admissibility of this evidence. In any event, I regard it as utterly useless.

As to Toronto, Mrs Blair testified that the proprietor became bankrupt and that when examined in connection with the bankruptcy he said that he ceased to carry on a foreign exchange business in 1975. This evidence was also received without objection. Again, I regard it as useless. The appellant had no opportunity to cross-examine in the bankruptcy proceedings.

The appellant gave evidence. He said that the monies in question were paid to Punjab and to Toronto in cash. As to part, he said that a friend came to Canada at his expense and that the friend then, at his behest, paid $2,000 in cash to Punjab representative in England. He testified that further sums were paid in cash to Punjab in Canada. He said that he had received letters from his Indian relatives advising that they had received the money. However, he did not keep the letters. Finally, he said that in 1976 he did business with Toronto because it offered better rates of exchange.

During 1975 the appellant moved from Surrey, in British Columbia, to Toronto. He was asked to explain how one of the receipts on which he relied could be dated at Toronto on a day before he arrived. He responded with a complex and unconvincing explanation involving a telephone request to a unnamed friend in Toronto to pay money to Punjab on his behalf. As noted previously, he said that all monies were paid to Punjab and to Toronto in cash. In both cases he said cash was demanded and he did not know why. His evidence was that his bank records would not show withdrawals corresponding to payments alleged to have been made to Punjab and Toronto because he usually cashed his pay cheques to obtain the funds paid to those firms.

The appellant’s wife worked during 1975 and 1976, except while pregnant. Her job, a sewing maching operator, was not one which paid a great deal.

I do not believe that a person who earned the income declared by the appellant could find sufficient funds to support relatives to the extent asserted. It seems inconceivable that a person who earned $8,740.80 and who made rental payments of $2,100 could, out of the balance of $6,640.80, support his relatives to the extent of $4,045, particularly in a year in which he moved at a cost of $575. It was not suggested that the appellant had any savings nor that he was supported by funds from any source other than employment. Although the figures in 1976 are less striking, it seems nevertheless unlikely that the appellant could have found the money to make the expenditures alleged. The convoluted explanations given by the appellant as to the involvement of a friend in the payment of the $2,000 to Punjab in 1975 and the reasons for calling on a friend to cause monies to be sent during the course of a trip from Surrey to Toronto are quite unconvincing. The appellant said that in the latter case he did not go to a bank because Punjab offered better exchange rates. He was quite unable to say what rates were offered by the banks.

I do not believe the appellant’s testimony. I do conclude that the appellant did not have the money necessary to make the payments alleged. On the balance of probabilities I find that the funds in question were not expended by the appellant. By reason of the consent referred to at the outset of these reasons the appeal from the assessment for the 1976 taxation year is allowed and the assessment is referred back to the respondent to delete the penalty imposed. Otherwise the appeals are dismissed.

Appeal dismissed.

SCHEDULE A

		Amount	Amount
		Claimed	Claimed
Name	Relationship	1975 1975	1976
Non-Resident
Sham Kaur Sumbal	Mother	$646.00	$720.00
Surjet Kaur Mangat	Mother-in-law	$646.00	—
Parminder Singh Mangat	Brother-in-law	$400.00	$720.00
Rajnant Kaur Mangat	Sister-in-law	$400.00	$720.00
Kaulesh Kaur Mangat	Sister-in-law	$640.00	—
Hamir Singh	Grandfather-in-law	$646.00	$720.00
Rattan Kaur	Grandmother-in-law	$646.00	$720.00
Resident (Married equivalent)
Gurdial Sumbal	Sister	$502.66	—