Paolo Violi v. Minister of National Revenue, [1980] CTC 2228, 80 DTC 1191

The Chairman [TRANSLATION]:—This is an appeal by Mr Paolo Violi against tax assessments for the 1971, 1972, 1973 and 1974 taxation years.

The appellant died on January 22, 1978 in Montreal and an application for continuance of suit was made on behalf of Dame Graziella Luppino, the universal legatee and testamentary executrix under the deceased’s will, a certified copy of which was filed as Exhibit A-1. The application was granted. The law firm of Adessky, Kingstone, Zerbisias, Poulin, Gervais and Bier was instructed by Dame Graziella Luppino in her capacity as universal legatee and testamentary executrix to continue the appeal of the late Paolo Violi, and Mr Bier represented the taxpayer.

In the notice of appeal counsel for the appellant maintained that the Minister of National Revenue was barred under subsection 62(1) of the Income Tax Application Rules, 1971 (ITAR) from issuing a reassessment for the 1971 taxation year. At the hearing, however, the appellant admitted that since the assessment for that taxation year had been issued on May 10, 1972 and the notice of reassessment for that year had been issued on February 24, 1976, the four-year time limit had not expired, and there could be no question of the 1971 taxation year being time-barred.

The notice of appeal stated in general terms that the Minister had not established that there had been any misrepresentation or fraud in the appellant’s tax returns for the relevant years and that the amounts added by the Minister of National Revenue to the appellant’s income for 1971, 1972, 1973 and 1974 were added arbitrarily and without justification.

The first reply to the notice of appeal was also drafted in somewhat general terms. In an amended reply dated February 7, 1979, however, the respondent indicated his reasons for including certain amounts in the appellant’s income.

Although the appellant raised the point that the reply had been served on him only two days before an earlier hearing, I am satisfied that he was not prejudiced as a result since an adjournment of the hearing was granted and the appellant had had sufficient time to amend his notice of appeal before the case was heard if he had wished to do so.

The respondent’s amended reply reads in part as follows:

5. In assessing the appellant for his 1971, 1972, 1973 and 1974 taxation years, the respondent relied, inter alia, on the following assumptions of facts:

(a) During the 1971, 1972,1973 and 1974 taxation years, the appellant was carrying on various businesses;

(b) During the 1971, 1972, 1973 and 1974 taxation years, the appellant derived and received income as outlined in Schedule A attached hereto from the carrying on of these various businesses;

(c) When the appellant filed his income tax returns for the 1971, 1972, 1973 and 1974 taxation years, he failed to report the said income outlined in Schedule A;

(d) On December 21,1971, the appellant admitted having earned income in 1971 for an amount of $1,000 from Lino Simaglia for protection services;

(e) During the 1972, 1973 and 1974 taxation years, the appellant also received in

each year an amount of $1,000 from Lino Simaglia for protection services;

(f) On May 2, 1972, the appellant admitted having earned income in 1972 for an amount of $21,500 for a participation in an Easter Eggs operation;

(g) On September 9, 1972, the appellant admitted having earned income in 1972 for an amount of $10,000 from a narcotic operation;

(h) During his 1972 taxation year, the appellant undertook to commit an assault on behalf of Michel Cutone, and on July 11,1972, the appellant admitted having earned income in 1972 for an amount of $375 for such services;

(i) On December 19,1973, the appellant admitted having earned income in 1973

for an amount of $500 from litigation settlement for Luigi Salavatore;

(j) The appellant also earned an additional amount of income in 1973 of $3,700 from the litigation Settlement mentioned in subparagraph (i);

(k) On July 23,1974, the appellant admitted having earned income in 1974 for an amount of $1,200 representing his share in a junket operation as a partner with Vincent Cotroni, Michel Pozza, Nicholas Di Iorio and Irving Goldstein;

(l) On August 10, 1973, the appellant earned income for an amount of $2,000 from Vincent Cotroni as a profit from junket operations;

(m) During his 1973 taxation year, the appellant settled a dispute for Giovanni Proetti and earned income for an amount of $500 in consideration of his services in that matter;

(n) On December 13,1973, the appellant admitted having earned income in 1973

for an amount of $100,000 in the St-Martin shopping center operation;

(o) During his 1973 taxation year, the appellant received an amount of $500 from Nick Maturo in consideration of his undertaking to commit an assault on a person living in Italy;

(p) During the 1974 taxation year, the appellant earned income for an amount of $2,800 in the course of an Easter Eggs operation with Lino Simaglia;

(q) During the 1974 taxation year, the appellant received an amount of $2,500 for

having scared a person in order to settle a litigation on behalf of Abe Isaif:

(r) All the above-mentioned admissions were made by the appellant in his business premises.

Issue

The issue centres essentially on whether the presumptions on which the assessment was based were well founded. The appellant maintained generally that the presumptions were based only on hearsay and that they were erroneous, and more specifically, that the allegations that the appellant admitted having received certain amounts as described in paragraphs 5(d), 5(f), 5(g), 5(h), 5(i), 5(l), and 5(n) of the respondent’s amended reply did not constitute extrajudicial admissions under Article 1244 of the Civil Code of the Province of Quebec and that the respondent’s presumptions were unfounded in law.

The appellant’s evidence consisted in examining the assessor, Mr Crevier, on whom the appellant had served a subpoena “duces tecum”. The examination dealt chiefly with the allegations contained in paragraph 5 of the reply.

It was established that the appellant had operated three businesses under the names Reggio Food Inc, Reggio Bar and Gelateria Violi.

The appellant also carried on other activities or businesses in his own name.

Referring to the various subdivisions of paragraph 5 of the reply, counsel for the appellant asked Mr Crevier a series of questions: “To whom did the appellant allegedly admit having received certain amounts?”; “Did the assessor verify the allegations with those who allegedly made payments to the appellant?”; “Are there any documents that would confirm that the appellant received the alleged payments?”; “Was the appellant asked whether he had received these payments?”. Other questions were asked regarding the nature of the “Easter Eggs” operation, the narcotics operation, what was meant by the “Shopping Center Operation”, and so on.

In reply to these questions the witness, Mr Crevier, could not say to whom the admissions as alleged in the reply had been made and he had only a general idea of what the various operations mentioned in the reply consisted of.

During the examination of his witness and during cross-examination by counsel for the respondent the appellant objected to all references made by the witness, Mr Crevier, to the wiretaps that were one of the sources of information the witness had used to establish the appellant’s assessment on the ground they were hearsay. There was a great deal of discussion between counsel on the admissibility of Mr Crevier’s testimony and on the probative value of his statements as a legal foundation for the respondent’s presumptions in his reply to the notice of appeal. The Board reserved judgment on the appellant’s repeated objections, to which I shall come back later.

It was established in cross-examination that Mr Crevier was a special investigator who had worked in assessment for the Department of National Revenue for 22 years. In the Violi case Mr Crevier had apparently spent five months preparing the appellant’s assessment. Mr Crevier’s sources of information included the wiretaps made by the RCMP and by the Montreal Urban Community Police (up to June 30, 1974); relevant information was also obtained by Mr Crevier from the Quebec Information Office on Organized Crime. However, Mr Crevier’s most important source of information was the transcripts of both in camera and public hearings held by the Commission of Inquiry into Organized Crime (CIOC), during which all the testimony was given under oath.

From these various sources of information Mr Crevier made notes on the income Mr Violi allegedly received during 1971, 1972, 1973 and 1974 and which was not included in the taxpayer’s tax returns for the relevant taxation years. This information was used by Mr Crevier in preparing the appellant’s reassessment, and it is also the basis for the respondent’s presumptions in paragraph 5 of the reply; the amounts allegedly received by the appellant and not reported are summarized in Appendix A (attached to the reply to the notice of appeal). The respondent also filed as Exhibit R-1 the appellant’s tax returns for 1971,1972,1973 and 1974, in which there was no mention of any of the amounts the appellant is alleged to have received during the said years and which totalled $160,875.

Despite the fact the burden of proof did not fall on him, in order to corroborate the authenticity of the information obtained from the wiretaps which Mr Crevier used in preparing the appellant’s assessment, counsel for the respondent issued a subpoena “duces tecum” to Detective Sergeant Robert Farmer, who was employed by the Montreal Urban Community and whose duties involved electronic surveillance.

Mr Farmer stated that the Montreal Urban Community Police had conducted a wiretapping operation at the appellant’s two places of business, Reggio Bar and Gelateria Violi, in Montreal from February 9,1971 until June 28, 1974. A few other wiretaps were made after that date, but with authorization.

The conversations that took place were listened to live in the police office and listened to again by three policemen, Messrs Ezio Turrin, Lica Gian- persa and Michel Tatta, who were present at the hearing. In his testimony Mr Turrin corroborated the statements of Detective Sergeant Farmer to the effect that the conversations held on the intercom in the appellant’s office were summarized accurately, wiretaps having been reproduced on master tapes, about 50 of which had been kept. The large number of tapes and the cost of keeping them were the reason why a number of original master tapes had been erased. All the notes made from these masters were kept in the police station. Through Detective Sergeant Farmer, notes made from wiretaps of the appellant’s conversations in his office dealing particularly with the allegations contained in paragraph 5 of the reply to the notice of appeal were filed as Exhibits R-2 to R-10.

During cross-examination, using notes made from the various sources of information, Mr Crevier explained in greater detail the allegations made in paragraph 5 of the reply and cited the various sources of information on each of the presumptions that were the basis for his assessment.

1. The presumptions in subparagraphs (d) and (e) of paragraph 5 of the reply were based on CIOC’s report of an in camera hearing, in Vol 119, p 75 et seq, on a report of a public hearing, Vol 160, pp 27 to 83, and on notes made of the appellant’s conversations in his office on December 21, 1971 intercepted by the Montreal Urban Community Police and identified as wiretaps, 71-14, pp 18 to 88 and pp 23 to 94 (Exhibit R-2).

2. The presumptions in subparagraph (f) of paragraph 5 are based on conversations that took place on May 2, 1972 which were intercepted, 71-14, p 3257 (Exhibit R-3).

3. The presumptions in subparagraph (g) of paragraph 5 are based on a conversation that took place on September 21, 1972 which was intercepted, 71-14, pp 4025 to 4028 (Exhibit R-4).

4. The presumptions in subparagraph (h) of paragraph 5 are based on conversations that took place on June 30 and July 11, 1972 which were intercepted, 71-14, pp 3611 to 3666, and on the following CIOC proceedings:

In camera Vol 119, p 22

Public hearings Vol 162, pp 3 and 5

Vol 161, pp 86 and 5

(Exhibits R-5 and R-6).

5. The presumptions in subparagraphs (i) and (j) of paragraph 5 are based on the following CIOC proceedings:

Public hearings Vol 159, pp 99 to 126

pp 30 to 50 pp 51 to 97.

6. The presumptions in subparagraph (k) of paragraph 5 are based on summary No 210475 on p 582 (summary of different reports) of conversations intercepted by the Montreal Urban Community Police, and on the CIOC report, Vol 160 at pp 3 and 4 and pp 27 to 36. Other notes on this Subject were based on summaries of intercepted conversations, 71-11-14 (Exhibit R-9).

7. The presumptions in subparagraph (I) of paragraph 5 are based on intercepted conversations, 71-14, p 5490 (Exhibit R-7).

8. The presumptions in subparagraph (m) of paragraph 5 are based on a CIOC operation, called Benoit, p 516 (Exhibit R-10).

9. The presumptions in subparagraph (n) of paragraph 5 are based on conversations that took place on December 13,1973 which were intercepted, 71-14, p 6227-I (Exhibit R-8).

10. The presumptions contained in subparagraph (o) of paragraph 5 are based on CIOC’s report of in camera hearings, Vol 139, pp 3 to 29.

Public hearings Vol 171, p 53.

11. The presumptions in subparagraph (p) of paragraph 5 are based on the same CIOC proceedings as subparagraphs (d) and (e).

12. The presumptions in subparagraph (q) of paragraph 5 are based on CIOC’s report.

In camera hearing C-1-C-2, p 301.

13. Included in the reply is the allegation that the appellant received certain income from various businesses which was not reported for the 1974 taxation year and which appears in Appendix A (attached to the reply), in the amount of $7,000 and $600 respectively. The amount of $7,000 which the appellant allegedly received is mentioned in a supplementary CIOC report dated August 14, 1975. The income of $600 which the appellant is alleged to have received in 1974 is referred to in the testimony given at an in camera hearing C-1-C-2, at pp 330 and 6 of the CIOC report, and at a CIOC public hearing, Vol 166 of the report, p 60 et seq, as well as on conversations that took place on September 27,1974 which were intercepted through wiretaps (Exhibit R-10).

Counsel for the respondent also filed a report of the inquiry conducted by the CIOC dated September 30, 1976 (Exhibit R-11).

Counsel for the appellant did not cross-examine any of the respondent’s witnesses. His objections, interventions and arguments were aimed at establishing that the Minister’s presumptions contained in paragraph 5 of the reply had no foundation in law and insisting that the respondent prove them.

I do not think it is necessary for me to cite a long series of cases here to say that the general principle of the Income Tax Act that the burden of proof falls on the appellant applies to this case. It is up to the appellant to prove to the Board’s satisfaction that the presumptions contained in paragraph 5 of the respondent’s reply are erroneous. It is not up to the respondent, under the Act and in the present circumstances, to establish that the presumptions are correct. This is the only point at issue in my view.

Counsel for the appellant objected to Mr Crevier’s testimony, alleging it was merely hearsay. Mr Crevier was the special investigator who had been given the appellant’s file by the Minister of National Revenue for reassessment. In carrying out his duties he attended certain CIOC hearings, read the transcripts of the public and in camera hearings in the reports of the inquiry into organized crime and heard the wiretaps and read the transcripts of the appellant’s conversations on which the presumptions in paragraph 5 were based. At the hearing Mr Crevier stated what he had himself heard, seen and read concerning the appellant’s possible income. In my view the testimony of Mr Crevier in his capacity as an assessor cannot be characterized as hearsay.

Counsel for the respondent maintained that the several instances in which the word “Admitted” was used in paragraph 5 of the reply to the effect that the appellant allegedly admitted having received the alleged amounts are not extrajudicial admissions under Article 1244 CC and are of no probative value. The issuer of whether of not these are extrajudicial admissions becomes academic since the Income Tax Act does not require the Minister to prove the allegations or presumptions contained in his reply. The context in which the word “Admitted” was used in the reply is of no legal significance.

With regard to the admissibility of the transcripts of the wiretaps, which contain deletions, changes in names, and so on (which were adequately explained), they are the best evidence in the circumstances and would normally be admissible. However, the respondent had no legal obligation to file Exhibits R-1 to R-10 since he was not required to prove the facts alleged in his reply. The fact that the respondent chose to file them enabled the Board to understand better how and why Mr Crevier arrived at the appellant’s assessment, but there is no question of proving these facts.

Mr Crevier’s testimony, the explanation of his sources of information and the manner in which his information was completed (which was confirmed by Detective Sergeant Farmer), the numerous excerpts from CIOC’s report in which the appellant was implicated and the wiretaps in which the appellant’s voice was recognized were not considered by the Board from the same perspective or for the same reasons as they were received by the Chairman of the Inquiry into Organized Crime. The issue to be determined here is whether the appellant received income during the relevant years which he did not include in his tax returns. Mr Crevier’s testimony merely enabled the Board to ascertain that the basis for the presumptions on which he founded his assessment was reasonable. The respondent is not required to do more in the circumstances.

Since the respondent’s presumptions have been found to be reasonable it is up to the appellant to prove to the Board’s satisfaction that they are erroneous. Counsel for the appellant maintained, wrongly in my view, that the respondent’s allegations are unfounded in law, but he did not offer any evidence to establish that the presumptions were in fact erroneous. The steps which counsel for the appellant suggested should have been taken by Mr Crevier in establishing the basis for his assessment, namely verifying the allegations with those who allegedly paid the sums to the appellant, were not necessary to establish his presumptions. However, the testimony of these persons denying they had paid the appellant the alleged amounts would have had to have been considered by the Board if counsel for the appellant had seen fit to call them as witnesses to rebut the respondent’s presumptions and discharge the onus of proof on him.

In the absence of any evidence to contradict the facts alleged in the respondent’s presumptions, the appellant has not succeeded in establishing that his assessments for the 1971, 1972, 1973 and 1974 taxation years were erroneous.

The appeal is therefore dismissed.

Appeal dismissed.