Delmer
E
Taylor:—This
is
an
appeal
heard
in
the
City
of
London,
Ontario,
on
November
5,
1979,
against
income
tax
reassessments
in
which
the
Minister
of
National
Revenue
disallowed
as
deductions
for
support
of
nonresident
dependents,
certain
amounts
claimed
in
the
years
1973,1974,1975
and
1976,
and
imposed
certain
penalties.
In
assessing
the
appellant,
the
respondent
relied
inter
alia,
on
paragraph
109(1)(f),
subsections
163(2)
and
163(3)
of
the
Income
Tax
Act,
RSC
1952,
c
148
as
amended
by
section
1,
SC
1970-71-72,
c
63.
Background
The
appellant
came
to
Canada
from
India
in
1970,
and
was
employed
during
the
years
in
question
at
the
Ford
Motor
Company
of
Canada
Limited
in
St
Thomas,
Ontario.
Contentions
For
the
appellant:
Whereas
I
did
expend
money
for
the
support
of
my
dependents
in
India..
.
.,
and
did
my
best
to
provide
all
bare
facts
to
.
.
.
London
District
Office
of
National
Revenue,
the
Department
still
insists
to
the
contrary.
For
the
respondent:
—the
alleged
proof
which
the
Appellant
supplied
to
the
Respondent
to
establish
that
the
Appellant
actually
made
the
payments
was
receipts
(‘the
receipts’),
issued
by
Punjab
Express
Foreign
Exchange
Services
(‘Punjab’)
and
by
Toronto
Express
Foreign
Exchange
(‘Toronto
Express’);
—the
records
of
Punjab
were
produced
by
its
proprietor,
Gian
Singh
Johal
which
records
could
not
be
relied
upon
to
establish
that
the
Appellant
had
actually
made
the
payments
and
the
records
of
Toronto
Express
similarly
fail
to
establish
the
payments;
—the
Appellant
has
failed
to
provide
any
evidence
to
establish
that
the
payments
which
the
Appellant
has
claimed
to
have
made
were
actually
made
in
any
manner;
—the
Appellant
has
failed
to
establish
that
the
dependants
in
question
were
infirm
or
were
dependant
upon
the
Appellant
for
support.
—.
.
.
the
Appellant
has
not
established
that
the
payments
being
the
subject
of
the
109(1)(f)
claim
were
actually
made
in
any
bona
fide
manner,
accordingly
no
such
deductions
should
be
allowed.
(Italics
mine)
Evidence
and
Argument
Little
evidence
was
provided
by
the
appellant,
although
a
witness
identified
as
his
brother,
one
of
the
alleged
dependents
who
is
now
living
in
Canada,
gave
testimony
that
funds
had
been
received
while
he
was
still
in
India.
The
appellant
stated
that
he
did
receive
letters
of
acknowledgment
of
the
receipt
of
funds
from
his
relatives
in
India,
but
he
had
not
retained
them
as
proof.
An
officer
of
Revenue
Canada
presented
some
documents
which
has
been
used
in
an
investigation
into
the
affairs
of
Punjab,
and
testified
that
although
the
records
of
this
agency
properly
recorded
amounts
for
funds
actually
received
and
transmitted,
there
was
no
record
of
any
receipts
from
the
appellant.
Punjab
was
now
out
of
business
and
there
had
been
evidence
during
separate
judicial
proceedings
against
Punjab
that
it
was
the
practice
of
that
organization
to
issue
improper
receipts—perhaps
up
to
90%
or
95%
of
all
the
receipts
issued
were
fictitious.
Counsel
for
the
Minister
submitted
certified
copies
of
the
bank
drafts
(referenced
later)
which
were
used
by
the
appellant
as
support
of
his
claim
for
certain
years.
Reference
was
made
by
counsel
to
certain
similar
judicial
cases,
and
it
was
noted
that
the
appellant
had
the
responsibility
to
dislodge
the
Minister’s
assessment.
The
Minister’s
evidence,
questioning,
and
argument,
however,
were
largely
directed
to
showing
that
the
penalty
imposition
was
proper.
Findings
As
I
understand
it,
the
following
are
the
amounts
claimed
and
at
issue:
—
in
1973—$1,800
to
Toronto
Express
(claimed
$1,650)
—
in
1974—$1,950
to
Bank
of
Nova
Scotia
(claimed
$1,758)
—
in
1975—$1,300
to
Punjab
Express
$
727.12—Royal
Bank
draft
(claimed
$2,584)
*$
700.12—CIBC
bank
draft
—in
1976—$2,865—to
Punjab
Express
$3
585
800—Royal
Bank
draft
*No
receipt
form
presented
to
Board.
In
addition,
penalties
were
imposed
with
respect
to
the
1973,1975
and
1976
taxation
years
(not
for
1974),
and
these
apparently
applied
to
deductions
claimed
but
disallowed
for
receipts
from
Toronto
Express
and
Punjab.
It
would
appear
that
penalty
was
not
assessed
with
respect
to
amounts
disallowed
if
the
receipts
were
other
than
from
Toronto
Express
or
Punjab.
The
Board
notes,
just
for
the
record,
that
the
critical
word
in
paragraph
109(1
)(f)
of
the
Act,
as
it
applies
to
this
case
is
“expended”.
That
section
of
the
Act
does
not
use
the
word
“received”,
although
it
is
evident
that
proof
of
“receipt”
might
well
be
the
best
proof
possible
that
the
amounts
claimed
had
been
“expended”.
The
appellant
described
for
the
Board
the
reasons
for
the
various
arrangements
by
which
he
tried
to
get
funds
to
his
dependents
in
India.
These
were,
at
least,
often
unusual
and
unorthodox,
when
compared
to
the
understood
approach
to
such
a
matter
from
a
Canadian
perspective,
which
would
be
to
send
a
bank
draft
and
have
it
negotiated
through
a
bank
in
India,
thereby
providing
at
least
the
fundamentals
of
a
business
transaction.
The
essence
of
the
Minister’s
position
in
this
assessment
is
simply
that
the
payments
were
not
made
in
a
bona
fide
manner,
and
the
crux
of
that
point
is
contained
in
the
assertion
of
the
Minister
in
the
reply
to
notice
of
appeal:
the
records
of
Punjab
were
produced.
.
.
.,
which
records
could
not
be
relied
upon
to
establish
that
the
Appellant
had
actually
made
the
payments
and
the
records
of
Toronto
Express
similarly
fail
to
establish
the
payments;
In
stating
this,
and
bringing
forward
evidence
through
a
Revenue
Canada
investigator
that
an
effort
was
made
by
the
taxing
officials
to
establish
the
bona
tides
of
the
payments
claimed
by
the
taxpayer,
the
Minister
has
fulfilled
any
reasonable
obligation
on
his
part
to
attempt
to
verify
the
deductions
claimed
by
the
appellant.
Further,
the
Minister
has
evidence
through
earlier
judicial
proceedings
against
Punjab
that
at
least
some
(certainly
a
major
part)
of
the
receipts
issued
by
Punjab
were
improper.
No
deduction
or
exemption
from
tax
provided
in
the
Income
Tax
Act
is
automatically
accorded
to
a
taxpayer.
When
claimed,
it
may
be
the
subject
of
the
most
detailed
scrutiny,
and
critical,
even
skeptical,
analysis
by
Revenue
Canada.
Taking
into
account
that
the
basic
efforts
of
the
Minister
to
verify
the
deductions
claimed
by
this
appellant
have
resulted
in
a
very
strong
indication
that
they
might
not
be
valid,
it
is
not
sufficient
for
the
appellant
to
simply
rest
on
his
sworn
testimony
and
on
the
receipts
for
amounts
of
cash
allegedly
paid
by
him
to
Punjab
and
Toronto
Express
in
order
to
claim
that:
(a)
any
amounts
were
expended
at
all,
and
(b)
if
so
expended,
that
the
purpose
was
for
support.
The
Board
expresses
no
opinion
on
how
or
even
whether
he
could
have
factually
established
such
proof
in
order
to
reverse
the
obvious
conclusion
reached
by
the
Minister.
However,
it
IS
my
view
that
the
responsibility
for
querying
or
totally
disproving
the
receipts
does
not
rest
further
with
the
Minister.
With
respect
to
the
question
of
“credibility”
often
raised
at
these
proceedings,
the
comments
made
at
p
4
of
the
decision
in
P
Litvinchuk
v
MNR
(unreported),
are
those
which
I
believe
relevant
in
matters
of
the
application
of
the
Income
Tax
Act
wherein
the
onus
of
proof
rests
with
the
taxpayer:
It
is
my
view
that
the
Tax
Review
Board
Act
provides
little
if
any
latitude
for
the
exercise
of
discretion
by
the
Board
in
deciding
an
appeal,
even
though
there
may
be
flexibility
and
informality
in
the
hearing
procedures.
Acceptance
by
the
Board
on
the
basis
of
credibility
alone
of
simple
statements
offered
by
an
appellant,
without
corroborating
evidence,
comes
exceedingly
close
to
the
exercise
of
discretion
in
my
opinion.
Conversely,
determination
by
the
Board
that
unsubstantiated
testimony
provided
by
or
on
behalf
of
an
appellant
is
insufficient
to
discharge
the
onus
placed
upon
him
under
the
Act
should
not
automatically
be
construed
as
a
reflection
on
the
credibility
of
an
appellant.
The
portion
of
the
appeal
dealing
with
the
Toronto
Express
and
Punjab
receipts
will
be
dismissed.
The
Board
now
turns
to
the
other
payments—first
to
those
in
1974
made
to
the
Bank
of
Nova
Scotia.
These
were
for
a
total
of
nine
“International
Money
Orders’’
in
amounts
of
$150
or
$250
each,
totalling
the
$1,950.
All
were
purchased
at
the
same
bank
on
the
same
day—December
31,
1974.
While
superficially
these
would
appear
more
substantive
than
the
“receipts
for
cash”
from
Toronto
Express
and
Punjab,
they
are
no
more
so.
As
I
understand
such
documents,
they
are
negotiable
at
any
bank
in
Canada
as
well
as
overseas,
and
are
not
evidence
in
themselves
that
funds
ever
left
the
control
of
the
appellant
and
went
beyond
his
possible
recovery
(ie,
that
they
were
expended);
and
they
are
not
evidence
in
themselves,
when
challenged
that
the
purpose
of
any
such
payments
was
for
support.
The
purchase
of
the
nine
drafts
on
one
day—the
last
day
of
the
year—while
not
fatal,
leaves
several
unanswered
questions,
particularly
in
the
circumstances
of
this
appeal.
None
of
the
drafts
were
negotiated
or
renegotiated
through
any
bank
or
financial
institution
in
India,
although
ostensibly
they
were
endorsed
by
the
payees
before
later
negotiation
by
a
third
party
in
Canada.
Six
of
them
were
negotiated
on
January
20,
1975
in
Winnipeg,
Manitoba,
and
the
other
three
in
St
Thomas,
Ontario,
on
March
5,
1975.
The
individuals
negotiating
the
drafts
at
the
banks
in
both
cases
were
known
to
the
appellant.
While
it
is
not
physically
impossible
to
purchase
a
bank
draft
on
December
31,
1974
in
Canada,
mail
it
to
India,
have
it
endorsed
by
the
payee
and
returned
to
same
in
Winnipeg
for
presentation
to
a
bank
by
January
20,
1975,
such
a
show
of
alacrity
does
not
accord
with
the
difficulties
of
communication
and
transportation
for
financial
transactions
allegedly
endured
by
his
relatives
in
India,
and
described
by
the
appellant
at
the
hearing.
Further,
it
is
in
evidence
that
the
appellant’s
brother
who
gave
testimony
for
him
was
in
St
Thomas
by
March
5,
1975,
and
employed
in
the
same
factory
as
the
party
that
negotiated
the
bank
drafts
there.
The
disallowance
by
the
Minister
of
the
amounts
claimed
in
1974
will
be
sustained,
and
the
Board
has
decided
not
to
pursue
any
further
the
balance
of
the
items
in
question.
The
appellant
did
not
present
anything
of
substance
in
support
of
them,
and
the
results
to
this
point
do
not
warrant
any
consideration
being
given
in
his
favour
with
respect
to
the
deductions
claimed
on
the
basis
of
drafts
to
the
Royal
Bank
or
the
Canadian
Imperial
Bank
of
Commerce
during
1975
or
1976.
With
regard
to
the
penalties
imposed,
in
view
of
the
fact
that
the
Board
has
dismissed
the
appeal
with
respect
to
payments
allegedly
made
to
Toronto
Express
or
Punjab,
it
only
remains
to
determine
if
the
claiming
of
these
deductions
by
the
appellant
resulted
from
the
fact
that
he
was
an
innocent
victim
of
unorthodox
money
transmitting
agencies,
or
that
he
knowingly
used
the
receipts
without
fulfilling
the
conditions
inherent
in
paragraph
109(1)(f)
of
the
Act
for
their
deductibility.
In
my
view,
there
was
nothing
“grossly
negligent”
(also
paragraph
109(1
)(f)
about
his
conduct—he
is
a
careful,
cautious,
meticulous
man,
and
a
wise
investor
of
his
funds—a
fact
easily
ascertainable
from
an
examination
of
his
income
tax
returns.
It
is
this
very
fact
which
persuades
me
that
the
Minister
has
substantiated
the
case
for
the
penalties
applied.
Mangat
is
not
a
man
who
would
take
$600
in
cash
(or
any
other
amount)
and
give
it
to
anyone
without
being
absolutely
certain
of
its
security
and
destiny.
This
appellant
is
a
man
of
some
Substance
and
competence,
and
exhibits
traits
one
would
associate
with
leadership
within
the
Indian
community.
It
is
inconceivable
that
he
would
be
unaware
of
the
questionable
business
practices
of
Punjab,
and
there
is
nothing
from
him
to
support
a
conclusion
that
he
was
any
less
familiar
with
the
affairs
of
Toronto
Express.
Decision
The
appeal
is
dismissed
for
all
years
and
the
penalties
upheld.
Appeal
dismissed.
Email this Content